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As filed with the Securities and Exchange Commission on June 18, 1999
Registration No. 333-72305
333-72305-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
ADVANCED GLASSFIBER YARNS LLC
(Exact name of Registrant as specified in its charter)
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Delaware 3229 58-2407014
(State of formation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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AGY CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
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Delaware 3229 57-1072917
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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2556 Wagener Road
Aiken, South Carolina 29801
(803) 643-1377
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
With a copy to:
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Robert B. Fisher, President Mark F. McElreath, Esq.
Advanced Glassfiber Yarns LLC Alston & Bird LLP
AGY Capital Corp. One Atlantic Center
2556 Wagener Road 1201 West Peachtree Street
Aiken, South Carolina 29801 Atlanta, Georgia 30309-3424
(803) 643-1377 (404) 881-7378
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(Name, address, including zip code, and telephone number, including area code,
of Registrants' agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the SEC +
+is effective. This prospectus is not an offer to sell these securities and we +
+are not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 18, 1999
PROSPECTUS
ADVANCED GLASSFIBER YARNS LLC
AGY CAPITAL CORP.
Exchange Offer for $150,000,000
of 9 7/8% Senior Subordinated Notes due 2009
The Exchange Notes:
. Advanced Glassfiber Yarns LLC and AGY Capital Corp. are joint and several
obligors of the exchange notes. The terms of the exchange notes we issue will
be substantially identical to the outstanding notes that we issued on January
21, 1999, except for the elimination of transfer restrictions, registration
rights and liquidated damages provisions relating to the old notes.
. We will pay interest on the exchange notes twice a year, beginning July 15,
1999.
. We cannot redeem the exchange notes before January 15, 2004. After that date,
we may redeem them at specified prices. However, before January 15, 2002, we
can redeem up to 35% of the exchange notes at 110.125% of their face amount,
plus interest, with money we raise in public equity offerings.
. If we experience a change of control, we may be required to offer to purchase
the exchange notes at 101% of their face amount, plus interest.
Guarantees:
. Neither of us is, or will be in the future, a guarantor of the exchange
notes.
. Our future subsidiaries, other than foreign subsidiaries, will fully and
unconditionally guarantee our senior credit facility and the exchange notes
on a joint and several basis. See "Description of Exchange Notes--Note
Guarantees." Their guarantee of the senior credit facility will be senior to
the guarantee of the exchange notes.
The Exchange Offer:
. The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless extended.
. Upon our completion of the exchange offer, all old notes that are validly
tendered and not withdrawn will be exchanged for an equal principal amount of
exchange notes that are registered under the Securities Act.
. Tenders of old notes may be withdrawn at any time prior to the expiration of
the exchange offer.
. The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
. We do not intend to list the exchange notes on any national securities
exchange or Nasdaq.
. We will not receive any cash proceeds from the exchange offer.
Notice to Investors:
. You should consider carefully the risk factors beginning on page 7 of this
prospectus before tendering your old notes in the exchange offer.
. Neither the SEC nor any state securities commission has approved or
disapproved of the exchange notes or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is , 1999.
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TABLE OF CONTENTS
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Prospectus Summary......................................................... 1
Risk Factors............................................................... 7
Old notes outstanding after the exchange offer will not have registration
rights and we expect the market for the old notes to be illiquid........ 7
As a result of our significant debt, we may not be able to meet our
obligations or obtain additional financing for capital expenditures or
other beneficial activities on favorable terms.......................... 7
Your exchange notes will be subordinate to our senior debt and if we must
repay our senior debt in the event of a default, we may not have enough
assets left to pay you or the other noteholders......................... 8
Our other indebtedness may limit or restrict our ability to incur
additional debt, pay dividends and make distributions, transfer or sell
assets, or merge or consolidate......................................... 9
Our other indebtedness may prevent us from satisfying our obligations
under the notes......................................................... 9
We may not have sufficient funds to repay the exchange notes upon a
change of control....................................................... 9
If one of our owners exercises its put right, we would be required to
borrow additional funds to purchase its membership interest; this would
significantly increase our debt service obligations..................... 10
We have only operated independently of Owens Corning since September 30,
1998 and remain dependent upon Owens Corning to provide materials and
services. Even though alternative sources exist for these materials and
services, they may be more costly and could require us to change our
manufacturing processes, which could be time-consuming and expensive.... 10
We may have conflicts of interest with our equityholders that could
significantly increase our debt service obligations or result in reduced
income from operations.................................................. 11
A downturn in the electronics industry and the movement of electronics
industry production outside of North America has reduced demand for our
products................................................................ 11
Our operating performance is dependent upon a limited number of
customers. A decrease of business from major customers could result in
reduced income from operations.......................................... 12
We depend on a stable supply of borates, which are one of the primary raw
materials used in the production of glass yarns......................... 12
If our customers switch to other suppliers of glass yarns, such as
Vetrotex which intends to build a plant in Mexico, our income from
operations would be reduced............................................. 13
A disruption at one of our facilities would significantly decrease
production, which could increase our cost of sales and reduce our income
from operations......................................................... 13
Since we sell a significant amount of our products outside the United
States, exchange losses as a result of currency fluctuations could
reduce our net income................................................... 14
An easing of import restrictions and duties with respect to glass fabrics
could reduce demand for our products, which would reduce our income from
operations.............................................................. 14
The issuance of the old notes and any note guarantee may be subject to
fraudulent conveyance laws.............................................. 14
We may suffer significant costs to make our systems year 2000 compliant
which would result in reduced income from operations.................... 15
If we do not maintain good relations with our employees, we could face
labor strikes or stoppages that would increase our cost of sales and
decrease our income from operations..................................... 16
If we become responsible for environmental and safety and health costs,
we could suffer a decrease in net income................................ 16
Since an active trading market may not develop for the exchange notes,
your ability to sell the exchange notes or the price at which you would
be able to sell the exchange notes could be adversely affected.......... 16
Cautionary Statement Regarding Forward Looking Statements.................. 16
Market and Industry Data................................................... 17
The Formation Transactions................................................. 18
Use of Proceeds............................................................ 19
Capitalization............................................................. 19
Unaudited Condensed Pro Forma Financial Information........................ 20
Selected Financial Information............................................. 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 26
Business................................................................... 37
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Management.................................................................. 45
Operating Agreement......................................................... 47
Related Party Transactions.................................................. 50
Security Ownership.......................................................... 56
Description of Other Indebtedness........................................... 57
Description of Exchange Notes............................................... 59
United States Federal Tax Considerations.................................... 88
The Exchange Offer.......................................................... 91
Plan of Distribution........................................................ 101
Legal Matters............................................................... 103
Experts..................................................................... 103
Where You Can Find More Information......................................... 103
Index to Financial Statements............................................... F-1
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We have not authorized any person to make a statement that differs from what
is in this prospectus. If any person makes a statement that differs from what
is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, the exchange notes in any
state where such offer or sale is not permitted. The information in this
prospectus is complete and accurate as of its date, but the information may
change after that date.
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which this exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that is important to you. To understand the
exchange offer fully, you should read this entire prospectus carefully,
including the risk factors and the financial statements.
Advanced Glassfiber Yarns LLC
We are the second largest global supplier of glass yarns. Prior to and
including September 30, 1998, we were the glass yarns and specialty materials
business of Owens Corning. Since September 30, 1998, we have been a joint
venture between Porcher Industries and Owens Corning. Our principal executive
offices are located at 2556 Wagener Road, Aiken, South Carolina 29801, and our
telephone number is (803) 643-1377.
The Exchange Offer
In this prospectus:
. ""old notes" refer to the 9 7/8% Senior Subordinated Notes due 2009 that
we issued on January 21, 1999;
. ""exchange notes" refer to the 9 7/8% Series B Senior Subordinated Notes
due 2009 that have been registered under the Securities Act of 1933 and
that we are offering in exchange for the old notes; and
. ""notes'' collectively refer to the old notes and the exchange notes.
The Exchange Offer...... We are offering to exchange $1,000 principal amount
of our exchange notes for each $1,000 principal
amount of old notes. As of the date of this
prospectus, $150,000,000 in aggregate principal
amount of old notes are outstanding.
We have registered the exchange notes under the
Securities Act and they are substantially identical
to the old notes, except for transfer restrictions,
registration rights and liquidated damages provisions
relating to the old notes.
Resale of the
Exchange Notes.......... Under existing SEC interpretations set forth in no-
action letters, we believe that the exchange notes
may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions of
the Securities Act so long as:
. you are acquiring the exchange notes in the
ordinary course of business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not an affiliate of ours.
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If our belief is inaccurate and you transfer any
exchange note without delivering a prospectus meeting
the requirements of the Securities Act or without an
exemption from registration of your exchange notes,
you may incur liability under the Securities Act. We
do not assume or indemnify you against this
liability.
Each participating broker-dealer that is issued
exchange notes for its own account in exchange for
old notes which were acquired as a result of market-
making or other trading activities, must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act if it resells any
exchange notes. The accompanying letter of
transmittal states that by so acknowledging and by
delivering a prospectus, a participating broker-
dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities
Act. A participating broker-dealer may use this
prospectus for an offer to resell, resale or other
retransfer of the exchange notes. We will make this
prospectus and any amendment or supplement to this
prospectus available for a period of 180 days after
the date of this prospectus to any participating
broker-dealer reselling any exchange notes. We
believe that no registered holder of the old notes is
an affiliate of ours as defined in Rule 405 of the
Securities Act.
All other broker-dealers may not rely on existing SEC
interpretations set forth in no-action letters and,
absent an exemption, must comply with the
registration and prospectus delivery requirements of
the Securities Act in order to resell the old notes
or the exchange notes. These requirements include
being named as a selling security holder in a
registration statement relating to resales. These
broker-dealers may not use the exchange offer
prospectus for any resales.
The exchange offer is not being made to, nor will we
accept surrenders for exchange from, holders of old
notes in any jurisdiction in which this exchange
offer or our acceptance would not be in compliance
with the securities or blue sky laws of that
jurisdiction.
Accrued Interest on the
Exchange Notes and the
Old Notes..............
Interest on the exchange notes will accrue from the
last interest payment date on which interest was paid
on the old notes, or, if no interest was paid on the
old notes, from January 21, 1999, the date of
issuance of the old notes. Holders whose old notes
are accepted for exchange will have waived the right
to receive any interest accrued on the old notes.
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We are not conditioning the exchange offer on the
tender of any minimum aggregate principal amount of
No Minimum Condition.... old notes.
Expiration Date......... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to extend
the exchange offer.
Withdrawal Rights....... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the expiration
date.
Conditions to the
Exchange Offer......... We are not required to accept for exchange any old
notes, and we may terminate or amend the exchange
offer, if:
. we are faced with any legal action or proceeding
that might materially impair our ability to
proceed with the exchange offer or if any
material adverse development occurs in an
existing action or proceeding we are involved in;
. the exchange offer violates applicable law or any
applicable SEC interpretations; or
. we do not obtain any governmental or quasi-
governmental approvals that we deem necessary to
consummate the exchange offer.
We may waive these conditions, but we currently
anticipate that each of the conditions will be
satisfied. We reserve the right to terminate or amend
the exchange offer at any time before the expiration
date if any of these conditions occur.
Procedures for
Tendering Old Notes.... If you are a holder of old notes who wishes to accept
the exchange offer, you must:
. complete, sign and date the accompanying letter
of transmittal, or a facsimile of the letter of
transmittal, and mail or otherwise deliver the
letter of transmittal, together with your old
notes to the exchange agent at the address set
forth under "The Exchange Offer--Exchange Agent;"
or
. arrange for The Depository Trust Company to
transmit all required information, including an
agent's message forming part of a book-entry
transfer in which you agree to be bound by the
terms of the letter of transmittal, to the
exchange agent in connection with a book-entry
transfer.
By tendering your old notes in either manner, you
will be representing that:
. you are acquiring the exchange notes in the
ordinary course of business;
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. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not an affiliate of ours.
Special Procedures for
Beneficial Owners...... If you beneficially own old notes registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender your
old notes in the exchange offer, you should contact
the registered holder promptly and instruct it to
tender on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and
executing the letter of transmittal and delivering
your old notes, either arrange to have your old notes
registered in your name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time.
Guaranteed Delivery
Procedures............. If you wish to tender your old notes and time will
not permit your required documents to reach the
exchange agent by the expiration date, or the
procedures for book-entry transfer cannot be
completed on time, you may tender your old notes
according to the guaranteed delivery procedures
described in "The Exchange Offer--Guaranteed Delivery
Procedures."
Use of Proceeds......... We will not receive any proceeds from the exchange of
notes in the exchange offer. We will pay all our
expenses incurred in connection with the exchange
offer.
U.S. Federal Tax The exchange of notes in the exchange offer will not
Consequences........... result in any gain or loss to you for U.S. federal
income tax purposes. See "United States Federal Tax
Considerations."
Effect on Holders of
Old Notes.............. As a result of this exchange offer, we will have
fulfilled an obligation under the registration rights
agreement with the initial purchasers of the old
notes and, as a result, there will be no increase in
the interest rate on the old notes. If you do not
tender your old notes in the exchange offer:
. you will continue to hold the old notes and will
be entitled to all the rights and limitations
applicable to the old notes under the indenture
governing the notes, except for any rights under
the registration rights agreement that terminate
as a result of the completion of the exchange
offer; and
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. you will not have any further registration or
exchange rights and your old notes will be
subject to restrictions on transfer. As a result,
the trading market for untendered old notes could
be adversely affected.
Shelf Registration
Statement.............. In some situations, holders of old notes may require
us to file, and cause to become effective, a shelf
registration statement under the Securities Act,
which would cover resales of old notes by these
holders.
Exchange Agent.......... The Bank of New York is serving as the exchange agent
for the exchange offer.
The Exchange Notes
Issuers................. The exchange notes will be the obligations of
Advanced Glassfiber Yarns and AGY Capital Corp. AGY
Capital is a wholly owned subsidiary of Advanced
Glassfiber Yarns.
Securities Offered...... Up to $150,000,000 in principal amount of 9 7/8%
Series B Senior Subordinated Notes due 2009.
Maturity Date........... January 15, 2009.
Interest Payment
Dates.................. January 15 and July 15, beginning on July 15, 1999.
Optional Redemption..... We may redeem:
. all or part of the exchange notes beginning on
January 15, 2004, at the redemption prices
described in "Description of Exchange Notes--
Redemption;" and
. up to 35% of the exchange notes originally issued
at any time prior to January 15, 2002 at the
price of 110.125% of their face amount, plus
accrued and unpaid interest, with money we raise
in public equity offerings.
Ranking................. The exchange notes are, and any note guarantees will
be, senior subordinated debt. They rank behind all of
our current and future indebtedness, other than trade
payables, except indebtedness that expressly provides
that it is not senior to the exchange notes. The
exchange notes will effectively rank behind any of
our future indebtedness that is secured by any of our
assets to the extent of the value of those assets,
even if the indebtedness expressly provides that it
is not senior to the exchange notes.
Note Guarantees......... If we form or acquire any additional U.S.
subsidiaries, they will guarantee the exchange notes
on an unsecured basis. The note
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guarantees will be senior subordinated debts. They
will rank behind:
. all of the indebtedness of the note guarantors,
other than trade payables, except indebtedness
that expressly provides that it is not senior to
the note guarantees; and
. any indebtedness of the note guarantors that is
secured by any assets to the extent of the value
of such assets.
Mandatory Offer to
Purchase............... If we sell assets not in the ordinary course of
business or experience a change of control, we may be
required to offer to purchase the exchange notes at a
purchase price equal to 101% of their face amount,
plus interest, within 30 to 60 days after these
events. If we are required to offer to purchase the
exchange notes, we cannot assure you that we will
have adequate funds to do so at that time or that we
will be able to obtain funds from third party sources
on reasonable terms, if at all.
Basic Covenants
of Indenture........... We will issue the exchange notes under an indenture
that contains covenants for your benefit. These
covenants limit or restrict our ability and the
ability of our subsidiaries to:
. incur additional debt;
. pay dividends and make distributions;
. repurchase securities;
. make investments;
. create liens;
. transfer or sell assets;
. enter into transactions with affiliates;
. issue or sell stock of subsidiaries; or
. merge or consolidate.
However, these restrictions are subject to a number
of important qualifications and exceptions. For more
details, see "Description of Exchange Notes--Material
Covenants."
Risk Factors
You should read the "Risk Factors" section, beginning on page 7, as well as
the other cautionary statements throughout this prospectus, to ensure you
understand the risks associated with tendering your old notes in the exchange
offer.
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RISK FACTORS
Before you tender your old notes, you should be aware that there are various
risks involved in this type of investment, including those we describe below.
You should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to tender your old
notes in the exchange offer.
Old notes outstanding after the exchange offer will not have registration
rights and we expect the market for the old notes to be illiquid.
If you do not exchange your old notes for exchange notes pursuant to the
exchange offer, your old notes will continue to be subject to the restrictions
on transfer of the old notes. In general, you may not offer or sell old notes
unless they are registered under the Securities Act, except pursuant to an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. We do not currently intend to register the
old notes under the Securities Act.
Under existing SEC interpretations, we believe that you may offer for resale,
resell or otherwise transfer the exchange notes without compliance with the
registration and prospectus delivery requirements of the Securities Act, so
long as:
.you are acquiring the exchange notes in the ordinary course of business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with anyone to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
and
.you are not an affiliate of ours.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
exchange notes. See "Plan of Distribution." To the extent that old notes are
tendered and accepted in the exchange offer, the trading market for untendered
and tendered but unaccepted old notes will be adversely affected.
As a result of our significant debt, we may not be able to meet our obligations
or obtain additional financing for capital expenditures or other beneficial
activities on favorable terms.
We incurred significant debt in connection with the financings described
under "The Formation Transactions" and, as a result, we have significant debt
service obligations. As of March 31, 1999, we had approximately $389.0 million
of indebtedness. We also had the ability to incur $66.6 million of additional
debt under our senior credit facility. See "Capitalization." As of March 31,
1999, the old notes were subordinated to $241.6 million of senior debt. In
addition, the indenture governing the notes does not fully prohibit us from
incurring substantial additional indebtedness. We can incur additional
indebtedness if our consolidated fixed charge coverage ratio is greater than
2.0 to 1.0. We may also incur up to $10.0 million of capitalized lease
obligations and purchase money indebtedness and up to $10.0 million of other
indebtedness regardless of our consolidated fixed charge ratio. If we add new
debt to our current debt levels, the related risks that we now face could
intensify. See "Capitalization," "Selected Historical Financial Information,"
"Description of Other Indebtedness" and "Description of Exchange Notes--
Material Covenants--Limitation on Incurrence of Additional Indebtedness."
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Our substantial indebtedness poses important consequences to you, including
the risk that:
. we will use a substantial portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the funds available,
or limiting our ability to obtain additional financing on satisfactory
terms, for working capital, capital expenditures, acquisitions, research
and development and other general corporate purposes;
. our level of indebtedness may make us more vulnerable to economic
downturns and may limit our ability to withstand competitive pressures;
. our debt may bear interest at variable rates which could create higher
debt service requirements if market interest rates increase; and
. our failure to comply with the financial and other covenants applicable
to our debt could result in an event of default, which, if not cured or
waived, could have a material adverse effect on us.
If we successfully implement our business and operating strategies, we
believe we will have enough capital to carry on our business and service our
debt requirements for the foreseeable future. However, if we cannot generate
sufficient cash flow from operations to meet our obligations, we may be forced
to reduce or delay capital expenditures, sell assets, restructure or refinance
our debt, or seek additional equity capital. We cannot assure you that any of
these remedies would be satisfactory or could be effected on satisfactory
terms, if at all. Our ability to pay principal and interest on the exchange
notes and to satisfy our other debt obligations will depend on our future
operating performance. Our operating performance will be affected by prevailing
economic conditions and financial, business and other factors which may be
beyond our control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Other Indebtedness" and "Description of Exchange Notes."
Your exchange notes will be subordinate to our senior debt and if we must repay
our senior debt in the event of a default, we may not have enough assets left
to pay you or the other noteholders.
Before paying principal and interest on the exchange notes, we must first
make payments on any of our existing and future senior debt that is in default,
including all outstanding amounts under our senior credit facility. As of March
31, 1999, we had approximately $241.6 million of senior indebtedness. In
addition, we had approximately $66.6 million of additional borrowing
availability under our senior credit facility.
Substantially all of our real and personal property that we use in our
business operations secures our obligations under our senior credit facility.
If we default on any payments required under any of our secured debt, the
secured lenders could declare all amounts outstanding, together with accrued
and unpaid interest, immediately due and payable. If we are unable to repay
amounts due, the lenders could proceed against the collateral securing the
debt. If the lenders proceed against any of the collateral, we may not have
enough assets left to pay you or other noteholders. Moreover, if we become
bankrupt or similarly reorganize, we may not be able to use our assets to pay
you or other noteholders until after we pay all of our senior debt, including
all indebtedness under the existing senior credit facility or any replacement
senior credit facility. In addition, the existing senior credit facility and
any replacement senior credit facility may prohibit us from paying amounts due
on the
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exchange notes, or from purchasing, redeeming or otherwise acquiring the
exchange notes if a default exists under our senior debt. None of our non-
United States subsidiaries will guarantee the exchange notes and the exchange
notes will be effectively subordinated in right of payment to all debt and
other liabilities, including trade payables, of these subsidiaries. See
"Description of Exchange Notes--Subordination of the Exchange Notes and the
Note Guarantees."
Our indebtedness may limit or restrict our ability to incur additional debt,
pay dividends and make distributions, transfer or sell assets, or merge or
consolidate.
Our senior credit facility and the indenture governing the notes each contain
a number of significant covenants. These covenants limit or restrict our
ability to:
. incur additional debt;
. pay dividends and make distributions;
. repurchase securities;
. make investments;
. create liens;
. transfer or sell assets;
. enter into transactions with affiliates;
. issue or sell stock of subsidiaries; or
. merge or consolidate.
These limitations are set forth in their entirety in article VI of the senior
credit facility credit agreement, beginning on page 76, and in section 5.9, on
page 73, and in article III of the indenture, beginning on page 39. Both of
these documents have been filed as exhibits to the registration statement of
which this prospectus is a part. These limitations and restrictions may
adversely affect our ability to finance our future operations or capital needs
or engage in other business activities that may be in our best interests.
Our other indebtedness may prevent us from satisfying our obligations under the
notes.
Our senior credit facility also requires us to comply with financial ratios.
Our ability to comply with these ratios may be affected by events beyond our
control. If we breach any of the covenants in the senior credit facility or the
indenture, or if we are unable to comply with the required financial ratios, we
may be in default under the senior credit facility and the indenture. If we
default under the senior credit facility, the lenders can declare all
borrowings outstanding, including accrued interest and other fees, due and
payable. If we use all of our available cash to repay borrowings under the
senior credit facility, we may not be able to make payments on the exchange
notes. See "Description of Other Indebtedness" and "Description of Exchange
Notes."
We may not have sufficient funds to repay the exchange notes upon a change of
control.
If we experience a change of control, you may have the right to require us to
purchase your exchange notes at a purchase price equal to 101% of the principal
amount of your exchange notes plus accrued and unpaid interest. In these
circumstances, we may also be required to:
9
<PAGE>
. repay our outstanding senior debt; or
. obtain our lenders' consent to our purchase of the exchange notes.
If we cannot repay our debt or cannot obtain the needed consents, we may be
unable to purchase the exchange notes. This would be an event of default under
the indenture. Upon a change of control, we cannot guarantee that we will have
sufficient funds to make any debt payment as described above. To avoid default,
we would try to refinance our debt. We cannot guarantee, however, that any
refinancing, if available, would be on favorable terms. See "Description of
Exchange Notes--Change of Control."
The events that qualify as a change of control under the indenture may also
be events of default under the senior credit facility or other indebtedness. An
event of default under the senior credit facility would permit our lenders to
accelerate our indebtedness. If we cannot repay these borrowings when due, the
lenders could proceed against the collateral securing the debt.
If one of our owners exercises its put right, we would be required to borrow
additional funds to purchase its membership interest; this would significantly
increase our debt service obligations.
Our affairs and the relationship between Owens Corning and Porcher
Industries, our owners, are governed by an operating agreement. Under this
operating agreement, Owens Corning and Porcher Industries each have the right
to "put" their respective ownership interests to us at any time beginning on
September 30, 2003. Funding the put rights would require us to borrow funds.
The operating agreement and the indenture impose financial tests and
restrictions on our ability to borrow to fund the put rights. If we satisfy
those financial tests, we would be obligated to purchase the ownership interest
that has been tendered. Even if we satisfy the financial tests, funding a put
right could significantly increase our debt service obligations. As of March
31, 1999, we could not finance the purchase of all or any portion of either
member's ownership interest and maintain a credit rating of at least B on our
existing unsecured debt. See "Operating Agreement."
We have only operated independently of Owens Corning since September 30, 1998
and remain dependent upon Owens Corning to provide materials and services. Even
though alternative sources exist for these materials and services, they may be
more costly and could require us to change our manufacturing processes, which
could be time-consuming and expensive.
Prior to September 30, 1998, we operated as a business unit of Owens Corning
and, therefore, we have a limited independent financial or operating history.
We have historically been dependent upon Owens Corning to provide us with raw
materials and capital equipment, in addition to various services, including
research and development, legal, accounting, financial, data processing,
auditing, treasury, cash management, human resource and administrative
services. In connection with the formation transactions, we entered into supply
agreements with Owens Corning under which Owens Corning continues to provide
raw materials, capital equipment and various services to us for limited periods
of time. During the terms of these agreements, our operating success and
viability are dependent in part upon the performance by Owens Corning of its
obligations under the agreements. We do not expect to extend these agreements.
Prior to their expiration, we will need to arrange for sources of raw materials
and other equipment and establish independent operational, management,
financial and information systems and controls. We cannot assure you that we
will be able to
10
<PAGE>
successfully transition these services or operate our business independently of
Owens Corning. See "Related Party Transactions."
In addition, some of the capital equipment used in the production process of
glass yarns are not widely manufactured, particularly bushings. Bushings are
heat-resistant platinum and rhodium trays through which molten glass is passed
to form glass filaments. Our bushings are currently manufactured and
periodically reconditioned by Owens Corning. Owens Corning has agreed to
continue to provide bushings and reconditioning services to us for seven years.
See "Related Party Transactions." Only a limited number of companies are
qualified to manufacture and recondition bushings. We would incur significant
costs and a transition period of several months if we switched to another
supplier of bushings. In addition, platinum and rhodium, which are the primary
elements used in the manufacturing and reconditioning of bushings, are subject
to shortages in supply. Any failure of Owens Corning to provide us bushings or
reconditioning services for the bushings or a supply shortage of platinum or
rhodium could increase our cost of sales and reduce our income from operations.
Alternative sources exist for the raw materials, services and equipment that
Owens Corning provides to us. However, we believe these sources are more costly
and could require us to change our manufacturing processes. Since this could be
time-consuming and expensive, our income from operations could be reduced if
Owens Corning stops providing us with these materials and services.
We may have conflicts of interest with our equityholders that could
significantly increase our debt service obligations or result in reduced income
from operations.
Porcher Industries, through wholly owned subsidiaries, owns a 51% ownership
interest in Advanced Glassfiber Yarns. A wholly owned subsidiary of Owens
Corning owns the remaining 49% ownership interest. As a result of its
controlling interest, Porcher Industries elects a majority of our directors and
appoints new management. Consequently, Porcher Industries has the ability to
control our policies and operations. Circumstances may occur in which the
interests of Porcher Industries and Owens Corning, as our principal
equityholders, could conflict with your interests as debtholders. See "--If one
of our owners exercises its put right, we would be required to borrow
additional funds to purchase its membership interest; this would significantly
increase our debt service obligations," "Management--Executive Officers,
Directors and Other Key Employees," "Security Ownership" and "Related Party
Transactions."
Porcher Industries, including its affiliates, such as BGF Industries, is also
our largest customer. Although we believe that Porcher Industries intends to
operate us independently from its other operations, this relationship may give
rise to potential conflicts of interest. The potential conflicts could include
the perception by our other customers that we may provide favorable pricing
terms or disclose confidential customer information to Porcher Industries,
which could adversely affect our relationships with our other customers. If
these potential conflicts of interest adversely affect these relationships, any
resulting loss of business could result in reduced income from operations.
A downturn in the electronics industry and the movement of electronics industry
production outside of North America has reduced demand for our products.
We sell our products for use in a wide range of applications in the
electronic, industrial and construction markets. The electronics industry
represents the glass yarn industry's largest market.
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<PAGE>
Any downturn in the electronics industry, which is susceptible to cyclical and
general economic downturns, would reduce demand for glass yarns industry-wide.
A reduction in overall demand would likely result in increased competition
between us and other producers of glass yarns for customers in other end-use
markets and may cause us to reduce the price of our products which would
adversely affect our profitability.
Primarily as a result of economic turmoil in Asia, demand for electronic
products began to decrease in late 1997 and early 1998. We began to experience
decreased demand for fine yarns in the second quarter of 1998 as both weavers
and laminators reduced their inventory to match reduced demand for electronic
products. This trend continued through the end of 1998. If the demand for fine
yarns does not stabilize or improve, our sales and profitability could be
adversely affected.
In addition, due to the recent economic turmoil in Asia and the resulting
fall in currency exchange rates, imports of goods such as rigid laminates and
printed circuit boards from Asia have increased. This has negatively affected
demand for heavyweight glass fiber fabrics used in the manufacture of
electronic products and produced domestically by many of our customers. The
result was a decrease in demand for our heavy yarns in North America. To the
extent the increased competition from Asian laminators and printed circuit
board manufacturers continues to negatively affect demand for glass fiber
fabrics in North America, our sales and profitability could be adversely
affected.
Our operating performance is dependent upon a limited number of customers. A
decrease of business from major customers could result in reduced income from
operations.
We depend upon a limited number of large customers for a majority of our
sales. Sales to our top ten customers accounted for approximately 67% of our
net sales in 1998 and approximately 67% of our net sales in the first quarter
of 1999. Sales to our largest customer, Porcher Industries, including its
affiliates, such as BGF Industries, accounted for approximately 20% of our net
sales in 1998 and approximately 24% of our net sales in the first quarter of
1999. A decrease in business from, or the loss of, any of our major customers
could result in reduced income from operations.
In addition, our operating performance will depend to a significant extent
upon the commercial success of our major customers and their continued
willingness to purchase our products. Any significant downturn in the business
of our major customers could cause them to reduce or discontinue their
purchases from us. This could result in reduced income from operations. See "--
A downturn in the electronics industry and the movement of electronics industry
production outside of North America has reduced demand for our products," "--We
may have conflicts of interest with our equityholders that could significantly
increase our debt service obligations or result in reduced income from
operations." and "Business--Marketing and Sales."
We depend on a stable supply of borates, which are one of the primary raw
materials used in the production of glass yarns.
We use specific borates in the production processes at our Aiken facility,
which are sourced from a supplier in Turkey that is owned by the Turkish
government. This supply of borates could be interrupted for a number of
reasons, including political instability in Turkey. Our supply of borates from
Turkey is sourced through Owens Corning under a supply agreement which provides
that, if there is a limited or reduced supply of borates, Owens Corning will
allocate a portion of such supply
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to us. The proprietary nature of the identity of the specific borates used in
our manufacturing processes is a key factor in differentiating our products
from the products of our competitors. Any failure of Owens Corning to perform
under the supply agreement or any dispute relating to the allocation of a
limited borates supply could interrupt our supply of these borates and
adversely affect our ability to manufacture glass yarns. Boric acid is
considered by some to be a cost-effective substitute for borates. While we
believe that we could switch to boric acid, which is more readily available
than borates, the process for switching would be time-consuming and expensive.
This would initially result in significant quality issues and could in the
longer term cause us to lose business because of a decline in product quality,
one of our most important competitive advantages.
If our customers switch to other suppliers of glass yarns, such as Vetrotex
which intends to build a plant in Mexico, our income from operations would be
reduced.
Our industry is highly competitive. We believe that the principal competitive
factors affecting the glass yarns industry include:
. quality, performance, pricing and consistency of products;
. responsiveness to customer requirements; and
. ability to maintain stable customer relationships.
Our primary competitors are PPG Industries Inc., with operations in the
United States, Vetrotex, a division of Compagnie de Saint Gobain, with
operations in France, Nitto Boseki Co., with operations in Japan, and Nippon
Electric Glass Co., Ltd., with operations in Japan. Some of our competitors may
have greater financial and other resources than we do. We cannot assure you
that we will be able to continue to compete effectively in the future or that
other competitors will not enter the glass yarns industry.
We and PPG are the only major producers of glass yarns with production
facilities in North America. The establishment by one of our competitors of
production facilities in North America or the increase in production capacity
in North America by PPG could materially adversely affect our North American
market share. In this regard, Vetrotex has announced that it intends to build a
plant in Mexico for the production of glass yarns, primarily for use in the
electronics market. Vetrotex has publicly stated that it expects this new plant
to begin operations in the second half of 1999.
A disruption at one of our facilities would significantly decrease production,
which could increase our cost of sales and reduce our income from operations.
A significant portion of our net sales are currently derived from our
production facilities located in Aiken, South Carolina and Huntingdon,
Pennsylvania. The Aiken plant accounted for 60% of our total net sales in 1998
and 60% of our total net sales in the first quarter of 1999. The Huntingdon
plant accounted for 29% of our total net sales in 1998 and 31% of our total net
sales in the first quarter of 1999. Approximately 11% of our total net sales in
1998 and 9% of our total net sales in the first quarter of 1999 were sourced
from Owens Corning's Battice, Belgium and Guelph, Canada facilities. We opened
a co-location facility with BGF Industries in South Hill, Virginia in June
1998, which became fully operational in the first quarter of 1999. The South
Hill plant accounted for .04% of our total net sales in 1998 and .2% of our
total net sales in the first quarter of 1999.
Our facilities are designed to produce specific products. Consequently, some
products produced at one facility may not be produced at another facility. A
temporary or extended interruption in operations at any one of our facilities,
for any reason, including from labor strikes or a natural disaster, whether or
not covered by insurance, could increase our cost of sales and reduce our
income
13
<PAGE>
from operations. See "Business--Manufacturing Facilities," "Business--
Employees" and "Related Party Transactions."
Since we sell a significant amount of our products outside the United States,
exchange losses as a result of currency fluctuations could reduce our net
income.
In 1998, we derived approximately 32.3% of our net sales from products sold
outside the United States. We derived approximately 32.1% of our net sales in
the first quarter of 1999 from products sold outside the United States. The
United States dollar value of these sales sometimes varies with currency
exchange rate fluctuations. We may therefore be exposed to exchange losses as a
result of such fluctuations that could reduce our net income. Although we do
not currently have a formal policy regarding hedging our currency risks, we
continually evaluate the necessity for entering into currency hedging
agreements to protect us from such risks. However, any such hedging agreements
may not be sufficient to eliminate risks relating to currency fluctuation.
In addition, on January 1, 1999, eleven of the fifteen member countries of
the European Union adopted the Euro as their common legal currency and
established fixed conversion rates between their existing sovereign currencies
and the Euro. We cannot assure you that this conversion will not result in
decreased net income. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
An easing of import restrictions and duties with respect to glass fabrics could
reduce demand for our products, which would reduce our income from operations.
Currently, the importation of glass yarns into the United States is not
subject to import regulations. However, the importation of glass fabrics
containing glass yarn is subject to import quotas, restrictions, duties and
tariffs. To the extent that these import regulations protect domestic producers
of glass fabrics, who are our primary customers, reductions in the level of
restrictions could adversely affect these customers and, consequently, result
in reduced income from operations.
The issuance of the old notes and any note guarantee may be subject to
fraudulent conveyance laws.
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if we, at the time
we issued the old notes:
(1) incurred such indebtedness with the intent to hinder, delay or
defraud creditors; or
(2) received less than reasonably equivalent value or fair consideration
for incurring the indebtedness, and
. were insolvent at the time of incurrence;
. were rendered insolvent by reason of the incurrence, and the
application of the proceeds thereof;
. were engaged or were about to engage in a business or transaction for
which our remaining assets constituted unreasonably small capital to
carry on our businesses; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay as they matured,
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<PAGE>
then a court of competent jurisdiction could:
. void, in whole or in part, the notes, and direct the repayment of any
amounts paid thereunder to our creditors;
. subordinate the notes to our obligations to our existing and future
creditors; or
. take other actions detrimental to the holders of the notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied. Generally, however, we would be considered insolvent if
the sum of our debts, including contingent liabilities, was greater than all of
our assets at fair valuation or if the present fair saleable value of our
assets was less than the amount that would be required to pay the probable
liability on our existing debts, including contingent liabilities, as they
become absolute and matured. A note guarantee, at the time it is issued by one
of our subsidiaries, would be subject to the same fraudulent transfer or
conveyance laws as the notes.
We may suffer significant costs to make our systems year 2000 compliant which
would result in reduced income from operations.
The term year 2000 issue is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and process control equipment as the year
2000 is approached and reached. These problems generally arise from the fact
that most of the world's computer hardware and software have historically used
only two digits to identify the year in a date, often meaning that the computer
will fail to distinguish dates in the "2000s" from dates in the "1900s." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field.
We have identified several key information technology and non-information
technology systems that need to be replaced in order to become year 2000
compliant. The information technology systems to be replaced include all
financial and order entry/planning systems and non-information technology
systems to be replaced include some process control systems. In addition to
internal systems, we are dependent on external suppliers for the delivery of
raw materials, energy and supplies. Two-thirds of our top external suppliers,
who represent approximately 90% of our total purchases, have informed us that
they are or expect to be year 2000 compliant. We believe that we have
identified all material year 2000 issues and implemented a plan to address
these issues prior to any impact on business operations. However, failure to
complete remediation and replacement programs as scheduled could impact our
ability to properly manufacture goods and conduct normal business operations,
which may result in potential liability for failure to deliver product or other
harm. If this were to occur, we could incur higher cost of sales which would
result in reduced income from operations. Likewise, failure of key suppliers or
customers to achieve compliance could adversely impact our ability to
manufacture, distribute and sell products.
The estimated cost of our year 2000 compliance program is $2.8 million and we
are not aware of any other material operational issues or other costs
associated with preparing our systems for the year 2000. We cannot assure you
that there will not be a delay in, or increased costs associated with, the
implementation, remediation and replacement of the necessary systems to address
the year 2000 issue. If we are unable to adequately address the year 2000 in a
timely manner, our ability to properly manufacture our products and conduct
normal business operations would be impacted resulting in increased costs and
decreased revenue.
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If we do not maintain good relations with our employees, we could face labor
strikes or stoppages that would increase our cost of sales and decrease our
income from operations.
Labor unions represent employees at both the Aiken facility and the
Huntingdon facility. The collective bargaining agreement covering workers at
the Aiken facility expires on June 30, 1999 and the agreement covering workers
at the Huntingdon facility expires on October 31, 1999. We cannot assure you
that we will be able to maintain good relationships with these labor unions or
that we will be able to successfully negotiate new collective bargaining
agreements on satisfactory terms in the future. If we fail to maintain good
relationships with the labor unions or fail to negotiate satisfactory
collective bargaining agreements, we could face labor strikes or stoppages that
would result in increased cost of sales and decreased income from operations.
See "Business--Employees."
If we become responsible for environmental and safety and health costs, we
could suffer a decrease in net income.
Various federal, state and local environmental laws and requirements govern
the use of our facilities. These laws and requirements govern:
. discharges to air and water;
. the handling and disposal of solid and hazardous substances and wastes;
and
. the clean-up of contamination from releases of hazardous substances at
our facilities and off-site disposal locations.
Laws and requirements relating to workplace safety and worker health also
govern our operations. These laws and requirements establish formaldehyde,
asbestos and noise standards and regulate the use of hazardous chemicals in the
workplace. We have taken, and will continue to take, steps to comply with these
laws and requirements. We believe, based upon currently available information,
that complying with environmental and health and safety laws and requirements
will not require material capital expenditures in the foreseeable future.
However, we cannot assure you that complying with the foregoing environmental
or health and safety laws and requirements will not result in a decrease in net
income. Moreover, we cannot assure you that future laws, ordinances or
regulations will not give rise to additional compliance or remediation costs
which could result in a decrease in net income.
Since an active trading market may not develop for the exchange notes, your
ability to sell the exchange notes or the price at which you would be able to
sell the exchange notes could be adversely affected.
The old notes were offered to a small number of institutional buyers and are
eligible for trading in the PORTAL Market. The exchange notes will be a new
issue of securities for which there is no existing trading market. We cannot
assure you as to the liquidity of markets that may develop for the exchange
notes, your ability to sell the exchange notes or the price at which you would
be able to sell the exchange notes. If these markets were to exist, the
exchange notes could trade at prices that may be lower than their principal
amount or purchase price depending on many factors, including prevailing
interest rates and the markets for similar securities. First Union Capital
Markets and Warburg Dillon Read LLC have advised us that they currently intend
to make a market with respect to the exchange notes. However, they are not
obligated to do so, and any market making with respect to the exchange notes
may be discontinued at any time without notice. In addition, this market
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making activity may be limited during the pendency of the exchange offer or the
effectiveness of a shelf registration statement. We do not intend to apply for
listing of the exchange notes on any national securities exchange or on Nasdaq.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by changes in the market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that an
active trading market will develop for the exchange notes.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this prospectus may contain forward looking
statements. These statements include, in particular, statements about our
plans, strategies and prospects under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." You
can identify forward looking statements by our use of forward looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by these forward looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Important factors that could cause our actual
results to differ materially from the forward looking statements we make in
this prospectus are set forth in the "Risk Factors" section and elsewhere in
this prospectus. All forward looking statements attributable to us or persons
acting for us are expressly qualified in their entirety by our cautionary
statements.
MARKET AND INDUSTRY DATA
Unless we indicate otherwise, we derived the glass yarns industry data, our
market share and the percentage of our sales attributable to various end-use
markets in this prospectus from our internal surveys and estimates. We believe
that there are no industry-wide publications or trade associations that report
industry, market and end-use data. No independent sources have verified our
internal surveys or estimates. While this data is shown with numerical
specificity, these estimates are based on sources that are not complete and on
collection methodologies that are not systematic, including:
. routine discussions with customers to estimate existing and projected
global glass yarn sales;
. negotiations with customers in which pricing information was discussed;
. development of a business model with independent consultants to estimate
glass yarns consumption in the electronics industry;
. our understanding, based on ordinary course discussions with our
customers, of the end-use markets served directly and indirectly by our
customers, which we have used to estimate the percentage of our glass
yarn sales to the electronics, industrial, construction and specialty
markets;
. review of fabric production quantities with major weavers; and
. public statements by competitors, independent financial analysts and a
regional trade association.
These estimates represent our management's good faith assessments and are
believed to be based on methodologies similar to those used by our major
competitors, but nevertheless are inherently subject to inaccuracy.
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In this prospectus, we express our capacity utilization as a percentage of
installed bushings in use. Bushings are heat-resistant platinum and rhodium
trays through which molten glass is passed to form glass filaments. The fact
that a bushing is in use does not necessarily indicate that we are obtaining
the highest volumes or margins possible with that bushing. Volume and margin
depend on numerous factors including the production process in use and the
product mix.
THE FORMATION TRANSACTIONS
Porcher Industries and Owens Corning beneficially own 51% and 49% interests
in Advanced Glassfiber Yarns, respectively. On July 1, 1998, Owens Corning
formed Advanced Glassfiber Yarns to own and operate Owens Corning's glass fiber
yarns and specialty materials business. On September 30, 1998, Owens Corning
sold a 51% interest in Advanced Glassfiber Yarns to our largest customer,
Porcher Industries. The total consideration paid by Porcher Industries was
approximately $338.9 million, excluding $3.2 million of transaction fees.
Porcher Industries is a leading global manufacturer of industrial fabrics and
operates in North America primarily through its wholly owned subsidiary, BGF
Industries. In connection with Porcher Industries' majority purchase, Owens
Corning entered into a number of agreements to provide various raw materials,
capital equipment and services to us.
Concurrently with Porcher Industries' majority purchase, we recapitalized
Advanced Glassfiber Yarns by borrowing a total of $404.0 million through a
combination of $254.0 million under a senior credit facility and $150.0 million
under a senior subordinated credit facility. We used the proceeds of these
borrowings plus a $2.2 million contribution from Owens Corning to pay:
. an aggregate cash distribution of $399.2 million, including cash
distributions of $203.6 million to Porcher Industries and $195.6 million
to Owens Corning; and
. approximately $7.0 million in transaction fees and expenses.
In connection with the above-described "formation transactions," Porcher
Industries' net cash outlay was $138.5 million, represented by the $338.9
million paid for the 51% interest in Advanced Glassfiber Yarns, plus $3.2
million in fees paid in connection with the majority purchase, less the $203.6
million cash distribution Porcher Industries received from us. Owens Corning
received $532.3 million in total consideration, comprised of the $338.9 million
paid to it by Porcher Industries and the $195.6 million cash distribution Owens
Corning received from us less a $2.2 million contribution.
The net proceeds from the offering of the old notes, together with additional
borrowings under our senior credit facility, were used to repay all amounts
outstanding under our senior subordinated credit facility incurred in
connection with the formation transactions.
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USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of old notes pursuant
to the exchange offer. Our net proceeds from the sale of the old notes were
approximately $141.9 million, after deducting the initial purchasers' discount
and expenses of the offering. We used the net proceeds from the offering,
together with additional borrowings under our $315.0 million senior credit
facility, to repay all debt outstanding under our $150.0 million senior
subordinated credit facility, which was incurred in connection with the
formation transactions. For a description of the senior credit facility, see
"Description of Other Indebtedness--Senior Credit Facility."
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 and as
adjusted to give effect to the exchange of old notes for exchange notes as if
the exchange offer had occurred on March 31, 1999. As of March 31, 1999, we had
approximately $66.6 million of borrowing availability under our senior credit
facility.
The following table should be read in conjunction with our historical
financial statements, the unaudited pro forma condensed financial information,
the related notes and the other information contained elsewhere in this
prospectus. See "Where You Can Find More Information," "Unaudited Condensed Pro
Forma Financial Information," "Selected Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
March 31, 1999
-------------------------
Actual As Adjusted
----------- -------------
(unaudited)
(dollars in thousands)
<S> <C> <C>
Long-term debt (including current portion):
Senior credit facility.............................. $ 241,626 $ 241,626
Capital lease obligation............................ 356 356
Old notes, net of original issue discount........... 147,043 --
Exchange notes, net of original issue discount...... -- 147,043
----------- -----------
Total long-term debt.............................. 389,025 389,025
Members' interest................................... 17,319 17,319
----------- -----------
Total capitalization.............................. $ 406,344 $ 406,344
=========== ===========
</TABLE>
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UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed pro forma statement of operations is based
upon our historical financial statements. The unaudited pro forma adjustments
are based upon available information and assumptions that we believe are
reasonable. The unaudited pro forma condensed statement of operations for the
year ended December 31, 1998 gives effect to the formation transactions and the
offering of the old notes as if they had occurred on January 1, 1998.
The unaudited pro forma condensed statement of operations does not purport to
be indicative of what our results of operations would actually have been had
the formation transactions and the offering of the old notes been completed on
such dates, or to project our results of operations for any future period. The
pro forma financial information and the notes thereto should be read in
conjunction with our historical financial statements and the other financial
information included elsewhere in this prospectus.
The accompanying pro forma condensed statement of operations does not include
a provision for income taxes because Advanced Glassfiber Yarns is a limited
liability company and is therefore not subject to income tax.
The acquisition of the 51% interest in Advanced Glassfiber Yarns by Porcher
Industries was accounted for as a partial purchase business combination in
accordance with the provisions of APB No. 16 "Business Combinations" and EITF
Issue No. 88-16, "Basis in Leveraged Buyout Transactions" and is reflected as
such in the historical December 31, 1998 financial statements.
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ADVANCED GLASSFIBER YARNS LLC
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------- -----------------------------------------------
Advanced Predecessor Formation Advanced
Glassfiber Yarns Business Transactions The Offering Glassfiber Yarns
------------------ ------------------ ------------ ------------ ----------------
Three Months Ended Nine Months Ended
December 31, 1998 September 30, 1998
------------------ ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales............... $63,403 $205,248 $268,651
Cost of sales........... 42,952 134,820 $4,631 (/1/) 184,919
792 (/2/)
1,724 (/5/)
------- -------- --------
Gross margin............ 20,451 70,428 83,732
Selling, general and
administrative......... 4,665 11,487 16,152
Amortization............ 2,848 -- 8,544 (/4/) 11,392
Restructuring costs..... -- 2,034 2,034
------- -------- --------
Income from
operations........... 12,938 56,907 54,154
Interest expense........ 9,113 -- 27,597 (/3/) $1,977(/3/) 38,687
Other income............ (450) (2,328) (748)(/1/) (3,526)
------- -------- --------
Net income............ $ 4,275 $ 59,235 $ 18,993
======= ======== ========
</TABLE>
21
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(1) Reflects the effects of a number of agreements with Owens Corning to
provide us raw materials, capital equipment and services as described in
"Related Party Transactions":
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
Effect Effect Adjustment
---------- --------- ----------
<S> <C> <C> <C>
Glass marbles supply agreement(a)............ $ 2,157 $ 4,038 $1,881
Borates supply agreement(b).................. 2,550 2,663 113
Alloy and bushing fabrication(c)............. 2,499 4,033 1,534
Battice facility supply agreement(d)......... 18,622 19,725 1,103
------- ------- ------
Pro forma effect on cost of sales.......... $25,828 $30,459 $4,631
======= ======= ======
Sliver supply agreement(e)................... $ (818) $ (957) $ (139)
------- ------- ------
Low Tex Type 30 agreement(f)................. $ -- $ (609) $ (609)
======= ======= ======
Pro forma effect on other income........... $ (818) $(1,566) $ (748)
======= ======= ======
</TABLE>
--------
(a) Owens Corning has historically provided glass marbles to us at cost.
Pursuant to an agreement with Owens Corning, prices are set to earn a
pre-determined margin for Owens Corning.
(b) Owens Corning buys borates from a third party and has historically
supplied borates to us at cost. Pursuant to an agreement with Owens
Corning, prices are set at cost plus transport, process and terminal
fees plus an annual administrative charge of $150,000.
(c) Owens Corning has historically provided alloy and bushing fabrication
services to us at cost. Pursuant to an agreement with Owens Corning,
these services are provided to us at contractually agreed upon prices.
(d) Owens Corning's Battice, Belgium manufacturing facility produces glass
yarn products for our customers. We have entered into an agreement with
Owens Corning to purchase glass yarns from the Battice facility at
prices equal to our net sales prices less a fixed margin.
(e) We have historically charged Owens Corning the actual manufacturing
cost of sliver. Pursuant to an agreement with Owens Corning, we supply
byproducts of our manufacturing processes known as "sliver" to Owens
Corning at market prices.
(f) Owens Corning produces Low Tex Type 30 for our customers. We have
entered into an agreement with Owens Corning to receive a fee of 10% of
the sales price from Owens Corning for sales of these products to our
customers.
(g) Owens Corning has historically provided sewage, wastewater treatment,
stormwater and landfill services to the Aiken facility. No financial
impact has been included in the pro forma statement of operations
because Owens Corning has agreed to provide these services to us on
substantially the same economic terms as provided historically.
(2) Reflects the excess of the net pension expense and net post retirement
expense over the amounts recorded historically.
(3) Reflects the interest expense and amortization of the deferred financing
costs associated with the borrowings under the senior credit facility and the
senior subordinated credit facility and the application of the net proceeds
therefrom (the "Financings") and the old notes, as if the Financings and the
offering of the old notes had been consummated as of January 1, 1998.
(4) Reflects amortization of the intangible assets arising from the
acquisition by Porcher Industries of a 51% interest in Advanced Glassfiber
Yarns, based upon a useful life of 5-25 years.
(5) Reflects additional depreciation arising from the partial step-up in
basis of plant and equipment to its estimated fair value.
22
<PAGE>
SELECTED FINANCIAL INFORMATION
We present below our selected historical and pro forma information. Selected
historical financial information related to Owens Corning's glass yarns and
specialty materials business is presented for each of the four years in the
period ended December 31, 1997 and the nine months ended September 30, 1998.
Selected historical financial information subsequent to consummation of the
formation transactions on September 30, 1998 is presented for the three months
ended December 31, 1998 and the three months ended March 31, 1999.
We derived the historical information for each of the years in the two year
period ended December 31, 1997, the nine months ended September 30, 1998 and
the three months ended December 31, 1998 from our audited financial statements
which appear elsewhere in this prospectus. We derived the historical
information for the year ended December 31, 1995 from our audited financial
statements which are not included in this prospectus. We derived the historical
information for the year ended December 31, 1994 from unaudited financial
statements that we prepared.
The following selected financial data at the end of and for the three month
periods ended March 31, 1998 and 1999 have been derived from unaudited
consolidated financial statements and, in our opinion, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation, in all material respects, of our results of operations and
financial position at the end of and for each of the interim periods presented.
Interim period results are not necessarily indicative of results to be expected
for a complete fiscal year. The following selected historical financial
information for the three month periods ended March 31, 1998 and 1999 is
contained elsewhere in the prospectus.
The historical financial statements of the business were derived from the
historical financial statements of Owens Corning. We have not adjusted our
historical statements of operations to reflect the effect of supply agreements
that we entered into with Owens Corning in connection with the formation
transactions.
Our selected unaudited pro forma financial information is based upon the
historical financial statements of the business for the nine months ended
September 30, 1998 and the results of our operations for the period from
October 1, 1998 to December 31, 1998. The selected unaudited pro forma
information gives effect to the formation transactions and the offering and
exchange of the old notes as if they had occurred on January 1, 1998. The
selected unaudited pro forma financial information does not include a provision
for income taxes because Advanced Glassfiber Yarns is a limited liability
company and is therefore not subject to income tax. The selected unaudited pro
forma financial information does not purport to be indicative of what our
results of operations would actually have been had the formation transactions
and the offering of the old notes been completed on January 1, 1998, or to
project our results of operations for any future period.
The unaudited as adjusted financial information for the three months ended
March 31, 1999 gives effect to the issuance of the old notes and the exchange
of the old notes for exchange notes as if these events occurred on January 1,
1999.
We have presented adjusted EBITDA in our selected historical and pro forma
other data because it is a widely accepted financial indicator of a company's
ability to service indebtedness. You should not consider adjusted EBITDA as an
alternative to net income or loss, as a measure of operating
23
<PAGE>
results, or to cash flows as a measure of liquidity in accordance with
generally accepted accounting principles. Adjusted EBITDA presented below may
not necessarily be comparable to similarly titled measures reported by other
companies as they are not calculated identically by all companies. We define
adjusted EBITDA as income or loss before income taxes and extraordinary item,
interest expense, depreciation and amortization expense, non-recurring charges
of $2.3 million in 1998 and $.3 million for the three months ended March 31,
1999, restructuring charges of $2.0 million in 1998 and the cumulative effect
of an accounting change.
We have also presented the ratio of earnings to fixed charges. In calculating
the ratio of earnings to fixed charges, earnings consists of income or loss
before income taxes plus fixed charges. Fixed charges consist of interest
expense, whether expensed or capitalized, and the portion of rental expense
estimated to attributable to interest.
You should read the unaudited historical and unaudited pro forma information
and the accompanying notes in conjunction with our historical financial
statements and financial information included elsewhere in this prospectus.
24
<PAGE>
<TABLE>
<CAPTION>
Advanced Predecessor
The Predecessor Business Glassfiber Yarns Business
----------------------------------------------------------- --------------------- -----------
Three
Nine Months Ended Months Pro Forma Three
Year Ended December 31, September 30, Ended Year Ended Months
---------------------------------------- ----------------- December December Ended March
1994 1995 1996 1997 1998 31, 1998 31, 1998 31, 1998
----------- -------- -------- -------- ----------------- -------- ----------- -----------
(unaudited) (unaudited) (unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Net sales....... $251,922 $272,395 $274,979 $277,357 $205,248 $ 63,403 $268,651 $ 72,889
Cost of goods
sold........... 175,047 187,153 180,343 182,366 134,820 42,952 184,919 48,110
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.... 76,875 85,242 94,636 94,991 70,428 20,451 83,732 24,779
Selling, general
and
administrative expense.. 13,157 13,748 14,345 14,813 11,487 4,665 16,152 3,829
Amortization.... -- -- -- -- -- 2,848 11,392 --
Restructuring
costs(1)....... -- -- -- -- 2,034 -- 2,034 2,034
-------- -------- -------- -------- -------- -------- -------- --------
Operating
income......... 63,718 71,494 80,291 80,178 56,907 12,938 54,154 18,916
Interest
Expense........ -- -- -- -- -- 9,113 38,687 --
Other income,
net............ (1,354) (3,041) (3,003) (2,688) (2,328) (450) (3,526) (776)
-------- -------- -------- -------- -------- -------- -------- --------
Income before
taxes.......... 65,072 74,535 83,294 82,866 59,235 4,275 18,993 19,692
Provision for
income taxes... 25,834 29,594 33,051 32,540 16,226 -- -- (7,877)
-------- -------- -------- -------- -------- -------- -------- --------
Income before
cumulative
effect of
accounting
change and
extraordinary
loss........... 39,238 44,941 50,243 50,326 43,009 4,275 18,993 11,815
Cumulative
effect of
change in
accounting for
post-employment
benefits(2).... 5,600 -- -- -- -- -- -- --
Extraordinary
item, loss on
early
extinguishment
of debt(4)..... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ 33,638 $ 44,941 $ 50,243 $ 50,326 $ 43,009 $ 4,275 $ 18,993 $ 11,815
======== ======== ======== ======== ======== ======== ======== ========
Other Data:
Depreciation and
amortization... $ 8,167 $ 8,604 $ 8,233 $ 8,305 $ 6,394 $ 5,975 $ 23,759 $ 2,131
Capital
expenditures... 13,963 8,458 15,314 8,324 13,509 3,327 20,452 277
Adjusted
EBITDA......... 73,239 83,139 91,527 91,171 67,663 21,334 84,322 23,857
Cash flows from
operating
activities..... 54,313 62,113 65,274 28,438 18,819 N/A 12,773
Cash flow from
investing
activities..... (8,458) (15,314) (8,324) (13,509) (3,327) N/A (277)
Cash flows from
financing
activities..... (45,855) (46,783) (56,922) (14,940) (2,712) N/A (12,490)
Ratio of
earnings to
fixed charges.. 155x 164x 136x 78x 67x 1.5x 1.5x 70x
Balance Sheet
Data(3) (at
period end):
Working capital
(deficit)...... $ (1,137) $ (1,493) $ (4,944) $(11,872) N/A $ 32,061 $ 32,061 $ 20,071
Total assets.... 157,185 159,414 163,839 153,961 N/A 465,469 466,844 160,775
Total debt...... -- -- -- -- N/A 402,198 407,323 --
Net
Assets/Members'
Interest....... 25,439 31,899 36,850 30,940 N/A 21,285 17,535 62,434
<CAPTION>
Advanced
Glassfiber Yarns
-----------------------
Three Three
Months Months
Ended March Ended March
31, 1999 31, 1999
----------- -----------
Actual As adjusted
(unaudited) (unaudited)
<S> <C> <C>
Statement of
Operations
Data:
Net sales....... $ 61,970 $61,970
Cost of goods
sold........... 41,994 41,994
----------- -----------
Gross profit.... 19,976 19,976
Selling, general
and
administrative expense.. 5,024 5,024
Amortization.... 2,844 2,844
Restructuring
costs(1)....... -- --
----------- -----------
Operating
income......... 12,108 12,108
Interest
Expense........ 9,380 9,480
Other income,
net............ (110) (110)
----------- -----------
Income before
taxes.......... 2,838 2,738
Provision for
income taxes... -- --
----------- -----------
Income before
cumulative
effect of
accounting
change and
extraordinary
loss........... 2,838 2,738
Cumulative
effect of
change in
accounting for
post-employment
benefits(2).... -- --
Extraordinary
item, loss on
early
extinguishment
of debt(4)..... 3,616 3,616
----------- -----------
Net income
(loss)......... $ (778) (878)
=========== ===========
Other Data:
Depreciation and
amortization... $ 6,410 $ 6,410
Capital
expenditures... 3,246 3,246
Adjusted
EBITDA......... 18,457 18,457
Cash flows from
operating
activities..... 28,745 N/A
Cash flow from
investing
activities..... (3,246) N/A
Cash flows from
financing
activities..... (17,828) N/A
Ratio of
earnings to
fixed charges.. 1.3x 1.3x
Balance Sheet
Data(3) (at
period end):
Working capital
(deficit)...... $ 19,968 $ 19,968
Total assets.... 476,443 476,443
Total debt...... 389,025 389,025
Net
Assets/Members'
Interest....... 17,319 17,319
</TABLE>
- -------
(1) During the first quarter of 1998, we recorded a $2.0 million restructuring
charge related to personnel reductions at the Aiken and Huntingdon
facilities.
(2) Effective January 1, 1994, we adopted Statement of Accounting Standards No.
112, "Employers Accounting for Postemployment Benefits." The cumulative
effect of this change in accounting policy was an undiscounted charge of
$5.6 million net of related income taxes of $3.6 million.
(3) The historical balance sheet data for the periods 1994 through December 31,
1997 have not been adjusted to reflect the fact that Owens Corning did not
contribute deferred tax assets to Advanced Glassfiber Yarns and that Owens
Corning retained the following liabilities: income taxes payable, trade
accounts payable and post-retirement health care benefits for those of our
employees that were previously employees of Owens Corning. The December 31,
1998 balance sheet data reflects the following: the elimination of assets
not contributed and liabilities not assumed by Advanced Glassfiber Yarns,
the accounting for the purchase by Porcher Industries of the 51% interest
in Advanced Glassfiber Yarns and the Financings.
(4) During the first quarter of 1999, we recorded a $3.6 million charge related
to the write-off of debt issuance costs.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Advanced Glassfiber Yarns is a Delaware limited liability company formed by
Owens Corning to own and operate its glass yarns and specialty materials
business. On July 1, 1998, Owens Corning contributed substantially all of the
assets and liabilities of this business to us. On September 30, 1998, Owens
Corning sold a 51% interest in Advanced Glassfiber Yarns to a wholly owned
subsidiary of Porcher Industries. Owens Corning retained the remaining 49%
interest.
Before September 30, 1998, we were the glass yarns and specialty materials
business of Owens Corning. Accordingly, the historical financial information
for the year ended December 31, 1998 is based upon the historical financial
information of the business as it was operated by Owens Corning from January 1,
1998 through September 30, 1998 and the historical financial information of
Advanced Glassfiber Yarns from October 1, 1998 through December 31, 1998. The
historical financial statements contained in this prospectus for all periods
ending on or before September 30, 1998 have not been adjusted to reflect that
Owens Corning did not contribute all of the assets and liabilities of the
business to us. In addition, these historical financial statements have not
been adjusted to reflect the effect of the supply agreements entered into with
Owens Corning in connection with the formation transactions. See "Related Party
Transactions." The supply agreements generally require Owens Corning to provide
raw materials, capital equipment and services to us at Owens Corning's cost
plus pre-determined margins. For a presentation of the adjustments to our
historical financial statements to reflect the foregoing transactions, see
"Unaudited Condensed Pro Forma Financial Information" and the accompanying
notes.
Net Sales. We recognize sales upon the shipment of products. Net sales
consist of sales to customers, including discounts and negotiated rebates.
Prices for our products depend upon the terms of our customer agreements and
the category of product being sold. During the first quarter of 1999, prices
for heavy yarns, excluding specialty materials, ranged from approximately $2.00
to $4.00 per kilogram and prices for fine yarns ranged from $4.00 to $12.00 per
kilogram. During the first quarter of 1999, prices for specialty materials
ranged from $12.00 to $29.00 per kilogram. Our net sales decreased from $275.0
million for 1996 to $268.6 million for 1998. Our net sales decreased from $72.9
million for the first quarter of 1998 to $62.0 million for the first quarter of
1999. These decreases in net sales were primarily due to a decreased demand for
heavy yarns used in rigid printed circuit boards which began in the fourth
quarter of 1997 and the effects of a strong U.S. dollar on sales in Europe.
In late 1997 and early 1998, the demand for electronic products began to
decrease primarily as a result of economic turmoil in Asia. However, we only
began to experience a decline in demand for both fine yarns and heavy yarns in
the second quarter of 1998. Generally, the effect of a change in demand for
electronic products on our net sales lags behind the change by several months.
The demand for fine yarns for electronic applications also declined as both
weavers and laminators corrected their inventory to better match the reduced
demand for electronic products. This correction continued through 1998. The
volume of fine yarn sales has recently stabilized and is improving modestly in
1999. The demand for heavy yarns in North America for electronic applications
declined due to decreased demand for electronic products which caused a global
decline in demand for rigid laminates and printed circuit boards. Demand for
heavy yarns in North America has also decreased due, in part, to an increase in
imports of rigid laminates and printed circuit boards into North America. To
offset the lower demand for heavy yarns, we shifted some of our capacity to
supply industrial and construction markets that have not been affected by the
turmoil in Asia. Management believes the volume of heavy yarn sales for
electronic applications is stabilizing thus far in 1999, though pricing
pressures are expected to continue.
26
<PAGE>
Cost of Sales. Cost of sales consists of raw materials, energy, labor and
manufacturing overhead. These components of cost of sales as a percentage of
total cost of sales averaged 26.6% for raw materials, 8.2% for energy, 23.0%
for direct labor, 17.9% for period labor and 24.3% for manufacturing overhead,
from 1996 to 1998. On a pro forma basis, cost of sales would have increased by
$7.1 million for 1998 primarily as a result of increases in the costs of raw
materials, pension expense and depreciation related to the formation
transactions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of the cost of our employees, including
technology personnel, and the estimated costs of corporate services provided by
Owens Corning.
Other Income, net. Other income consists of royalties and technical service
fees earned from a non-exclusive license granted by us to Taiwan Glass
Industrial Corporation. The historical financial statements only include the
portion of the royalties and fees attributable to the manufacture and sale of
glass yarn products by Taiwan Glass. Other income also includes the net profit
arising our sales of byproducts generated in the manufacturing process and
interest income.
Adjusted EBITDA. Adjusted EBITDA is defined as net income or loss before
income taxes and extraordinary item, interest expense, depreciation and
amortization expense, non-recurring charges of $2.3 million in 1998 and $.3
million for the three months ended March 31, 1999 and restructuring charges of
$2.0 million in 1998. Adjusted EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service indebtedness;
however, adjusted EBITDA should not be considered as an alternative to net
income or loss, as a measure of operating results or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
Adjusted EBITDA as presented in this prospectus may not be comparable to
similarly titled measures reported by other companies as they are not
calculated identically by all companies.
Results of Operations
The following table summarizes our historical results of operations and
historical results of operations as a percentage of sales:
<TABLE>
<CAPTION>
Nine Months
Ended Three Months
September Ended Three Months Ended
Years Ended December 31, 30, December 31, March 31,
-------------------------- ------------ ------------ ------------------------
1996 1997 1998 1998 1998 1999
------------ ------------ ------------ ------------ ----------- -----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $275.0 100.0% $277.4 100.0% $205.2 100.0% $63.4 100.0% $72.9 100.0% $62.0 100.0%
Cost of sales........... 180.4 65.6 182.4 65.8 134.8 65.7 42.9 67.7 48.1 66.0 42.0 67.7
------ ----- ------ ----- ------ ----- ----- ------ ----- ----- ----- -----
Gross profit............ 94.6 34.4 95.0 34.2 70.4 34.3 20.5 32.3 24.8 34.0 20.0 32.3
Selling, general and
administrative
expenses............... 14.3 5.2 14.8 5.3 11.5 5.6 4.7 7.4 3.9 5.3 5.0 8.1
Amortization............ -- -- -- -- -- -- 2.8 4.4 -- -- 2.9 4.7
Restructuring costs..... -- -- -- -- 2.0 1.0 -- -- 2.0 2.7 -- --
------ ----- ------ ----- ------ ----- ----- ------ ----- ----- ----- -----
Income from operations.. $ 80.3 29.2% $ 80.2 28.9% $ 56.9 27.7 $13.0 20.5 $18.9 26.0% $12.1 19.5%
====== ====== ====== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Sales. Net sales decreased $10.9 million, or 15.0%, to $62.0 million in
the three months ended March 31, 1999 from $72.9 million in the three months
ended March 31, 1998. This decrease was due primarily to reduced sales in the
electronic and construction industries as well as decreased
27
<PAGE>
demand for heavy yarns used in rigid printed circuit boards. The decrease was
partially offset by increased sales for industrial and specialty applications.
Gross Profit. Gross profit margins decreased from 34.0% for the three months
ended March 31, 1998 to 32.3% for the three months ended March 31, 1999. This
decrease is attributable to price pressure on the electrical market, primarily
heavy yarns. Additionally, fabrication costs increased due to the supply
agreement with Owens Corning in effect for the first quarter of 1999. These
changes have been partially offset by a more favorable higher margin product
mix as well as a decrease in labor costs resulting from a personnel reduction
at our Huntingdon and Aiken facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 8.1%, from 5.3%, of net sales for the
three months ended March 31, 1999 and 1998, respectively. This was primarily
due to the establishment of independent operational, management and information
system controls in connection with the formation transactions and a decrease in
sales.
Income from Operations. As a result of the aforementioned factors, income
from operations decreased $6.8 million to $12.1 million, or 19.5% of net sales,
for the three months ended March 31, 1999, from $18.9 million, or 26.0% of net
sales, in the three months ended March 31, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales decreased by $8.8 million, or 3.2%, from $277.4 million
for 1997 to $268.6 million for 1998. This decrease was due primarily to
decreased demand for heavy yarns used in rigid printed circuit boards which
began in the fourth quarter of 1997 and the effects of a stronger U.S. dollar
on sales in Europe. This decrease was partially offset by slight increases in
overall pricing and increased sales for construction and specialty
applications.
Gross Profit. Gross profit decreased by $4.1 million, or 4.3%, from $95.0
million for 1997 to $90.9 million for 1998. Gross profit decreased as a
percentage of net sales from 34.2% for 1997 to 33.8% for 1998. Excluding the
non-recurring and non-cash charges of $1.9 million, gross profit increased from
34.2% for 1997 to 34.5% for 1998. This increase was primarily due to a more
favorable, higher margin product mix and decreased labor costs resulting from
personnel reductions at our Huntingdon and Aiken facilities, which were part of
a restructuring plan that was implemented in the first quarter of 1998. This
increase was partially offset by a decrease in sales combined with price
pressure on heavy yarns used in electronic rigid printed circuit boards, as
well as an increase in prices paid to Owens Corning for raw materials after
consummation of the formation transactions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.4 million, or 9.4%, from $14.8 million
for 1997 to $16.2 million for 1998. Selling, general and administrative
expenses increased as a percentage of net sales from 5.3% for 1997 to 6.0% for
1998. The increase was due to the establishment of independent operational,
management and information system costs, and relocation costs in connection
with the formation transactions.
Restructuring Costs. In the first quarter of 1998, we decided to reduce
personnel at our Aiken and Huntingdon facilities by approximately 100 employees
during 1998. In connection with the
28
<PAGE>
planned personnel reduction, we recorded a $2.0 million charge representing
severance costs associated with the positions to be eliminated. We realized
cost savings as a result of our restructuring plan during 1998 and expect to
realize further cost savings for the foreseeable future.
Income from Operations. Income from operations decreased by $10.3 million, or
12.8%, from $80.2 million for 1997 to $69.9 million for 1998. Excluding the
impact of the restructuring costs, non-recurring charge and amortization of
intangibles described above, income from operations decreased by $3.2 million
or 3.9% from $80.2 million for 1997 to $77.0 million for 1998. This decrease
was primarily related to the factors discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales increased by $2.4 million, or 0.9%, from $275.0 million
for 1996 to $277.4 million for 1997. This increase was due primarily to
increased sales volumes of fine yarn products partially offset by lower overall
pricing.
Gross Profit. Gross profit increased by $0.4 million, or 0.4%, from $94.6
million for 1996 to $95.0 million for 1997. Gross profit decreased as a
percentage of net sales from 34.4% for 1996 to 34.2% for 1997. The increase in
gross profit was primarily due to increased sales volumes of higher margin fine
glass yarns. The decrease in gross profit as a percentage of net sales was
primarily due to lower overall pricing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.5 million, or 3.5%, from $14.3 million
for 1996 to $14.8 million for 1997. Selling, general and administrative
expenses increased as a percentage of net sales from 5.2% for 1996 to 5.3% for
1997. The increase was due to normal increases in compensation expenses.
Income from Operations. Income from operations decreased by $0.1 million, or
0.1%, from $80.3 million for 1996 to $80.2 million for 1997. The decrease was
primarily related to overall pricing decreases.
Liquidity and Capital Resources
Historically, our primary sources of liquidity were cash flows from
operations. Since the consummation of the formation transactions on September
30, 1998, our primary sources of liquidity have been cash flows from operations
and borrowings under the senior credit facility. Our principal uses of
liquidity are to fund operations, service debt, including interest payments,
and finance our planned capital expenditures, including the purchase of new
management information systems for our headquarters at the Aiken facility.
For the three months ended March 31, 1999, net cash provided by operating
activities increased $15.9 million from $12.8 million for 1998 to $28.7 million
for 1999. The increase was primarily attributable to an increase in the amount
of $14.8 million payable to Owens Corning under the transitional services
agreement and an increase of accounts payable of $2.1 million and accrued
liabilities of $8.6 million, offset by a reduction of net income, before
extraordinary item and depreciation and amortization of $4.7 million and an
increase in accounts receivable of $4.8 million.
Net cash provided by operating activities decreased from $65.3 million for
1997 to $47.2 million for 1998. This decrease was primarily attributable to
lower net income before depreciation, amortization and nonrecurring charge to
inventory in 1998 as compared to 1997 and an increase in accounts receivables
of $14.3 million and inventory of $6.0 million in 1998. The increase in
accounts receivable was due to our offering of incentives in 1997 for early
payment and an increase in days sales outstanding. Incentives were not offered
in 1998. Inventory increased due to lower shipments in
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the last quarter of 1998 compared to 1997. This was partially offset by higher
depreciation and amortization in 1998 than in 1997 due to the step-up in basis
and intangible assets recorded in conjunction with the formation transactions
in 1998. Net cash used in investing activities increased from $8.3 million for
the year ended December 31, 1997 to $16.8 million for the year ended December
31, 1998. The increase in cash used in investing activities was due to capital
expenditures which were primarily for the construction of a glass yarns
manufacturing facility in South Hill, Virginia and rebuilding of glass melting
furnaces.
Net cash provided by operating activities increased from $62.1 million for
1996 to $65.3 million for 1997. This increase was primarily the result of a
decrease in inventory levels of $1.7 million, a reduction in accounts
receivable of $3.5 million and an increase in accounts payable of $3.4 million
in 1998 all of which were attributable to more aggressive management of working
capital. These increases in cash flows from operations, were partially offset
by a decrease in accrued liabilities and income taxes payable of $6.8 million
relating primarily to incentive compensation accruals. Net cash used in
investing activities decreased from $15.3 million for 1996 to $8.3 million for
1997. This decrease was due to the reduction in expenditures for refurbishing
capital equipment, particularly rebuilding glass melting furnaces.
In connection with the formation transactions, we entered into a senior
credit facility, which provides for:
. a six-year revolver in an aggregate principal amount of up to $75.0
million, which includes a $10.0 million swing line sub-facility and a
$30.0 million letter of credit sub-facility;
.a seven-year term loan in an aggregate principal amount of $125.0 million;
and
.a six-year term loan in an aggregate principal amount of $115.0 million.
First Union National Bank serves as agent under the senior credit facility. The
senior credit facility is secured by a first priority lien on substantially all
of our properties and assets and by a pledge of Porcher Industries' interest in
Advanced Glassfiber Yarns. As of March 31, 1999, $241.6 million was outstanding
under the senior credit facility and we had availability thereunder equal to
approximately $66.6 million. See "Description of Other Indebtedness--Senior
Credit Facility."
We also entered into a senior subordinated credit facility with various
lenders. First Union Investors, Inc. and Warburg Dillon Read LLC served as co-
agents under the senior subordinated credit facility. The senior subordinated
credit facility provided for aggregate borrowings of up to $150.0 million and
was fully drawn at the closing of the formation transactions. The senior
subordinated credit facility was an unsecured senior subordinated obligation.
On January 21, 1999, we sold the old notes. The net proceeds of the offering
of the old notes, together with additional borrowings under the senior credit
facility, were used to repay all amounts outstanding under the senior
subordinated credit facility. See "Use of Proceeds." As part of the offering of
the old notes, we agreed to exchange the old notes for exchange notes as
discussed in this prospectus. Interest expense on an as adjusted pro forma
basis, after giving effect to the formation transaction, the sale of the old
notes and the exchange of the old notes for exchange notes, was $38.7 million
for 1998 and $9.5 million for the three months ended March 31, 1999. We expect
to fund the interest payments on the notes with operating cash flows.
We have historically financed our capital expenditures through cash flow from
operations. Capital expenditures, including capital leases, were $15.3 million,
$8.3 million, $16.8 million and $3.2 million for 1996, 1997 and 1998, and the
three months ended March 31, 1999, respectively. We expect to make
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annual capital expenditures aggregating approximately $18.0 million in 1999.
The increase in capital expenditures in 1998 was primarily as a result of
approximately $9.0 million of expense incurred in connection with the start-up
of the South Hill facility and increased expenses incurred to finance furnace
rebuilds. We anticipate that capital expenditures incurred in 1999 will be made
for routine maintenance and rebuilds of glass melting furnaces and other
equipment used in its operations. We also intend to spend approximately $2.8
million for new management information systems in 1999. In addition, we intend
to build a new melter at our Aiken facility in 2000. We estimate that the cost
to construct this melter will be approximately $49.0 million; however, in
connection with the construction of the melter, we plan to reduce expenses
associated with the rebuild of furnaces by approximately $12.0 million. The
cost of the management information system and the construction costs for the
melter are expected to be funded by cash flows from our operations. In
addition, we have minimum future rental commitments associated with operating
leases of $6.8 million through 2002. See Note 9 to the Financial Statements.
In connection with Porcher Industries' purchase of a 51% interest in Advanced
Glassfiber Yarns, we have made a partnership election to step up the basis of
some of our intangible assets. The resulting increase in amortization expense
will allow the consolidated U.S. tax group of Porcher Industries (which
includes BGF Industries, hereinafter "Porcher U.S.") to significantly reduce
its tax liability, and as a result, Porcher U.S. has agreed to defer the
receipt of annual distributions which we were otherwise required to make in
order to fund those taxes, to the extent that such taxes relate to income
earned by us (the "Deferred Distributions"). The amortization deductions may be
challenged by the IRS; however, we believe the amortization deductions are
valid and that we are likely ultimately to prevail in any challenge. If,
however, the amortization deductions are disallowed, we will be required to
distribute all accumulated annual Deferred Distributions to the extent that
both before and after such distribution there is not a default under the senior
credit facility or the notes. Moreover, all Deferred Distributions would cease,
and we would have to pay in full all future distributions for taxes to Porcher
U.S. Based on the purchase price paid by Porcher U.S. for the 51% interest in
Advanced Glassfiber Yarns, and a 15 year amortization period, the maximum
annual Deferred Distribution will be $6.8 million. The actual amounts of
Deferred Distributions may be less if Porcher U.S.'s share of taxes due with
respect to income earned by us is less than $6.8 million. We believe adequate
funds will be available from net cash flows and borrowings under the senior
credit facility to fund the Deferred Distributions.
The collective bargaining agreement with employees at our Aiken plant expires
on June 30, 1999 and the collective bargaining agreement with employees at our
Huntingdon plant expires on October 31, 1999. Although we cannot provide any
assurances, we believe that we will be able to successfully negotiate new
collective bargaining agreements with these labor unions on satisfactory terms
in the future. However, if we cannot successfully negotiate these new
collective bargaining agreements, our liquidity and results of operations could
be adversely affected.
Our ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, our indebtedness,
or to fund planned capital expenditures will depend on our future performance,
which is generally subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based
upon the current level of operations, we believe that cash flows from
operations and available cash, together with availability under the senior
credit facility, will be adequate to meet our future liquidity needs for at
least the next two years. However, we cannot assure you that our business will
generate sufficient cash flows from operations or that future borrowings will
be available under the senior
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credit facility in an amount sufficient to enable us to service our
indebtedness, including the notes, or to fund our other liquidity needs,
including the construction of a new melter at our Aiken facility. In addition,
we may need to refinance all or a portion of the principal of the notes on or
prior to maturity. We cannot assure you that we will be able to effect any such
refinancing on commercially reasonable terms or at all.
Market Risk
The effects of potential changes in interest rates are discussed below. Our
market risk discussion includes "forward-looking statements" and represents an
estimate of possible changes in fair value that would occur assuming
hypothetical future movements in interest rates. These disclosures are not
precise indicators of expected future losses, but only indicators of reasonably
possible losses. As a result, actual future results may differ materially from
those presented. See the notes to our consolidated financial statements for a
description of our accounting policies and other information related to these
financial instruments.
Our senior credit facility is subject to market risks, including interest
rate risk. Our financial instruments are not currently subject to foreign
currency risk or commodity price risk. We have no financial instruments held
for trading or speculative purposes.
We are exposed to market risk related to changes in interest rates on
borrowings under our senior credit facility. The senior credit facility bears
interest based on LIBOR. Our interest rate risk management objective is to
limit the impact of interest rate changes on earnings and cash flows and to
lower our overall borrowing costs. To achieve these objectives, from time to
time we enter into interest rate swap agreements in order to mitigate our
interest rate risk with respect to indebtedness outstanding under the senior
credit facility.
We entered into an interest rate swap agreement to manage our exposure to
interest rate changes under the senior credit facility. The swap involves the
exchange of fixed and variable interest rate payments based on a contractual
principal amount and time period. Payments or receipts on the agreement are
recorded as adjustments to interest expense. At March 31, 1999, we had two
interest rate swap agreements effective through September 30, 2003 and 2005 on
an initial notional amount of $240 million, equal to the original borrowings
under Term Loans A and B under our senior credit facility. Under this
agreement, we have secured a fixed LIBOR rate of interest of 4.92% on the Term
Loan A and 5.04% on the Term Loan B with an aggregate on the notional amount
which is reduced in a manner consistent with the amortization of the principal
on our term loans. This swap effectively changes our payment of interest on
$240 million of variable rate debt for the contract period.
The fair value of the interest rate swap agreement represents the estimated
receipts or payments that would be made to terminate the agreement. At March
31, 1999, we would have received approximately $6.6 million to terminate the
agreements. A 1% decrease in LIBOR would decrease the amount received by
approximately $8.8 million. The fair value is based on dealer quotes,
considering current interest rates.
In addition, we are exposed to losses in the event of nonperformance by the
counterparties under the interest rate swap agreements. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparties were to default on their
obligations under the interest rate swap agreements, we could be required to
pay the full rate on our senior credit facility, even if the rate was in excess
of the rates in the interest rate swap agreements.
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Inflation and Seasonality
We believe that neither inflation nor seasonality had a material impact on
our results of operations for 1996, 1997 or 1998. We do, however, experience a
comparative reduction in net sales during the months of August and December due
to vacation and holiday schedules.
Year 2000
Introduction. The term "year 2000 issue" is a general term used to describe
the various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and process control equipment as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000s" from dates in the
"1900s." These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field. The year 2000 issue could effect both information technology ("IT") and
non-information technology ("non-IT") systems.
State of Readiness. At the beginning of 1998, the management of our
information systems and research and development groups began to assess the
year 2000 issue. These persons have developed and are currently implementing a
comprehensive year 2000 compliance program to make our IT and non-IT assets
year 2000 compliant. Our IT assets are primarily used in the delivery of our
products and services, and are also used in our internal operations, such as
billing and accounting. Our non-IT assets are primarily micro-processor based
process control systems used in the manufacture of our products.
Our year 2000 compliance program consists of the following phases:
.Phase One--Assessment
Establish year 2000 program team. Identify core business areas,
processes and systems and determine their ability to operate properly
when post-1999 dates are introduced.
.Phase Two--Develop Remediation Plan
Identify appropriate remedial action or system replacement for each
identified system that is not year 2000 compliant.
.Phase Three--Develop Implementation Plans and Contingency Plans; Testing
Develop implementation plans for remedial actions or systems
replacements and develop contingency plans to handle data exchange and
bad data. Identify and secure necessary resources. Test and verify
upgraded, converted or replacement systems.
.Phase Four--Implementation
Perform remedial actions and systems replacements.
The following table summarizes our progress to date under our year 2000
compliance program:
<TABLE>
<CAPTION>
IT Non-IT
----------------------------------- ------------------------------------------------
<S> <C> <C>
Phase One Completed November 30, 1998. Completed November 30, 1998.
Phase Two Completed November 30, 1998. Completed November 30, 1998.
Identified systems to be replaced: Identified 2 of 17 process control systems to be
financial and order entry/planning replaced with the rest to be upgraded.
systems. We also need to replace
some of these systems to complete
our separation from Owens Corning's
computer systems.
</TABLE>
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<TABLE>
<S> <C> <C>
Phase Three Substantially completed. Estimated Substantially completed. Estimated
completion is September 30, 1999. completion is October 31, 1999.
Phase Four In progress and approximately 50% In progress and approximately 30%
complete. Estimated completion is complete. Estimated completion is
September 30, 1999. October 31, 1999.
Financial system replacement was Preliminary work is being performed
completed March 1, 1999. on replacement of first process
control system. Owens Corning has
Order entry/planning systems are being developed a replacement system for
implemented with work targeted to be the second process control system and
completed by September 1, 1999. replacement is projected to start in
the second quarter of 1999.
</TABLE>
During the second phase of the year 2000 compliance program, we identified
several key IT and non-IT systems that need to be replaced in order to become
year 2000 compliant. The IT systems to be replaced include all financial and
order entry/planning systems and the non-IT systems to be replaced include
various process control systems. Replacement of our financial and order
entry/planning systems is also necessary to complete the separation from Owens
Corning's computer systems. Of the 17 process control systems that were
evaluated, two were identified as having compliance issues sufficient to
warrant total system replacement. We have begun implementation and internal
testing of these replacement systems and are targeting completion by October
31, 1999. The systems that will not be replaced will be upgraded to become year
2000 compliant on the same schedule as the system replacements. Upgrading these
systems generally requires less resources than total system replacement. As
replacement of some of our systems was contemplated with our separation from
Owens Corning, we have deferred no material IT projects due to our year 2000
efforts.
In addition to internal systems, we are dependent on external suppliers,
including Owens Corning, for the delivery of raw materials, energy and
supplies. We have contacted approximately 200 of our top external suppliers,
who represent approximately 90% of our total purchases, to evaluate their year
2000 compliance plans and state of readiness and determine whether a year
2000-related event will impede the ability of our suppliers to continue to
provide us goods and services. Two-thirds of these suppliers have responded
that they are or expect to be year 2000 compliant. Although we have not
received responses from the final one-third of our suppliers and will follow-up
with them by the third quarter of 1999, we believe that even if non-responsive
suppliers experience business disruption due to year 2000 it will not have a
material effect on our business operations. We believe that our key suppliers
are sufficiently aware of year 2000 issues and are taking actions to remediate
any problems. However, we cannot assure you that our key suppliers will not
suffer a year 2000 business disruption and we have used no independent
verification or validation process to evaluate such risks. We could suffer
business disruptions and loss of revenue if our material suppliers fail to
supply goods and services necessary for our operations.
Of our top ten customers, who represent approximately 67% of our sales as of
March 31, 1999, our two largest customers and two others have inquired of our
year 2000 state of readiness and we have responded to these inquiries. Other
than in connection with our relationship with Owens Corning, we have taken no
steps to determine the year 2000 readiness status of our customers. If a
sufficient number of our material customers were unable to receive or take
delivery of our products due to year 2000 problems, we would suffer business
disruptions and loss of revenue.
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Costs to Address the Year 2000 Issue. As of March 31, 1999, we had spent
approximately $.8 million in software and external consulting costs to address
the year 2000 issue. We estimate that our year 2000 compliance program,
including the cost of new hardware and software for new systems, will cost
approximately $2.8 million, including the cost to establish and test the
independent replacement computer systems discussed above, excluding the cost of
internal personnel. We expect to spend an estimated $1.5 million in the second
quarter of 1999 and approximately $0.5 million in the third quarter of 1999.
Approximately 10% of the total projected costs are projected to be spent on
systems repair and modification and 90% on the referenced systems replacements.
We expect to capitalize approximately $1.5 million of these costs and we intend
to fund these costs from cash flow from operations.
Risks Presented by the Year 2000 Issue. We believe that we have identified
all material year 2000 issues and implemented a plan to address these issues
prior to any impact on business operations. However, failure to complete
remediation and replacement programs as scheduled could impact our ability to
properly manufacture goods and conduct normal business operations, which may
result in potential liability for failure to deliver product or other harm. If
this were to occur, we could experience a material adverse impact on our
financial condition and results of operations. Likewise, failure of key
suppliers or customers to achieve compliance could adversely impact our ability
to manufacture, distribute and sell products.
Contingency Plans. In the event that all of our systems are not made
compliant prior to the need to handle year 2000 dates, we have considered
alternatives to continue normal business operations. We anticipate that process
control systems that do not handle year 2000 dates properly can continue to
operate with some limitation in functions. These systems will be tested to
demonstrate this capability. With regard to information technology systems that
are critical to business operations, we believe that our remediation and
replacement program will sufficiently address year 2000 issues. However, we
will continue to evaluate our progress and create additional contingency plans
as necessary.
The estimates and conclusions related to our year 2000 compliance program
contain forward-looking statements and are based on management's best estimates
of future events. Risks to completing the year 2000 compliance program include
the availability of resources, our ability to discover and correct the
potential year 2000 specific problems that could have a serious impact on
specific systems, equipment or facilities and the ability of suppliers and
vendors and other third parties to make their systems year 2000 compliant.
Various of our disclosures and announcements concerning year 2000 programs are
intended to constitute "Year 2000 Readiness Disclosures" as defined in the
recently enacted Year 2000 Information and Readiness Disclosure Act.
Introduction of the Single European Currency
On January 1, 1999, eleven member states of the European Union--Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain--introduced the Euro as a common legal currency among those
states for "paperless" transactions, pending the substitution of Euro banknotes
and coins for the national currencies of the participating member states. As of
that date, fixed exchange rates were introduced. It is anticipated that by July
1, 2002, the Euro will be the official legal tender for the participating
member states and that the national currencies of those member states will be
withdrawn from circulation.
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The introduction of the Euro has necessitated only minor changes in our
information technology and other systems in order to accommodate the use of the
Euro in corporate transactions and in financial reporting. Costs incurred in
connection with the conversion have been immaterial.
Our management is informally reviewing the various ways in which the
introduction of the Euro will affect our business and competitive position. We
expect that the introduction of the Euro will result in greater market
efficiency and will foster a more competitive economic environment within and
among the participating member states. This is largely a function of the fact
that the pricing of products and services will be more transparent through the
use of a single common currency within the participating member states. While
we do not believe the Euro conversion will materially affect our operations,
particularly with respect to our sales in the participating member states,
there can be no assurance whether and to what extent the introduction of the
Euro will affect our business, financial condition and results of operations,
or whether we will be able to realize any strategic or operational benefits
from the introduction of the Euro.
We intend to continue exploring various strategic and operational measures
with respect to the introduction of the Euro with a view to enhancing our
overall financial position, operating results and market position. These
strategic and operational options will be shaped to some extent by both
European and national rules and regulations regarding the particular measures
required to complete the transition to the Euro as the legal currency of the
participating member states.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" became effective in 1998. We
have provided comparative disclosures in accordance with the provisions of this
statement.
SFAS No. 132, "Employers' Disclosure About Pensions and Other Postretirement
Benefits," became effective in 1998. We have provided comparative disclosures,
which include prior period information, in accordance with the provisions of
this statement.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. We anticipate that, due to our limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on our results of operations or financial position.
In April 1998, the Accounting Standards Executive Committee released
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities." SOP
98-5 requires that start-up costs, including pre-opening and organizational
costs be expensed as incurred and is effective for financial statements issued
for periods beginning after December 31, 1998. The Company anticipates that the
adoption of SOP 98-5 will not have a significant effect on the Company's
results of operations or its financial position.
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BUSINESS
Advanced Glassfiber Yarns
We are the second largest global supplier of glass yarns. In 1997, our net
sales accounted for approximately 49% of the North American market and
approximately 24% of the global market. We are one of only two major glass
yarns producers with manufacturing facilities in North America and one of only
five major glass yarns producers that supply glass yarns globally. Our glass
yarns are produced by converting molten glass into thin glass filaments which
are then twisted into yarn. Our products fall into two categories based on
filament diameter:
. heavy yarns, which accounted for 74% of our 1998 net sales and 74% of our
first quarter 1999 net sales; and
. fine yarns, which accounted for 26% of our 1998 net sales and 26% of our
first quarter 1999 net sales.
We are the world's largest producer of fine yarns, and the world's second
largest producer of heavy yarns.
Glass yarns, because of their unique physical properties, are a critical
material used in a variety of electronic, industrial, construction and
specialty applications. Heavy yarns are used in a wide range of applications,
such as printed circuit boards, roofing materials, filtration equipment,
building reinforcements, window screening, aerospace materials and reinforced
tapes. Fine yarns are used primarily to construct laminates for multi-layer
printed circuit boards, which are integral to virtually all advanced electronic
products, including computers, telecommunications equipment, television
equipment, automotive equipment and home appliances. We also produce a
subcategory of heavy yarns known as specialty materials, such as S-2 Glass(R),
a proprietary high-strength glass yarn. Specialty materials, which accounted
for 10% of our 1998 net sales and 12.0% of our first quarter 1999 net sales,
are used for aircraft laminates, oxygen tanks, sporting goods and vehicle
armor. Fine yarns and specialty materials generally command higher prices and
profit margins than non-specialty heavy yarns, primarily due to their value-
added characteristics.
Attractive Industry Fundamentals. The glass yarns industry has historically
been characterized by a limited number of suppliers, high barriers to entry, a
limited number of cost-effective substitutes and high capacity utilization.
There are only five major glass yarns producers that supply glass yarns
globally, with combined sales comprising approximately 80% of total industry
sales. Historically, new entry into the market has been limited due to high
barriers of entry, which include technological know-how and significant capital
expenditure requirements. In addition, we believe that the industry's capacity
utilization generally has been high, which has allowed manufacturers to more
efficiently operate their facilities. Our capacity utilization, as measured by
use of installed bushings, averaged approximately 92% between 1996 and 1998.
Stable Customer Base. We sell our products to over 300 customers worldwide,
including every major North American and European weaver and a diverse group of
other domestic and international commercial and industrial users of yarns. We
maintain long-standing relationships with our major customers by collaborating
with them to meet their specific manufacturing requirements and by providing
high quality products and strong customer service. In addition, our customer
relationships generally are stable due to the limited number of global
suppliers of glass yarns and the
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costs to customers associated with "qualifying" new suppliers. In order to
qualify a new supplier, a customer may need to modify its own loom set-ups and
fabric specifications and also qualify the new glass yarn supplier with
downstream manufacturers and weavers. Furthermore, although glass yarns
generally represent a small fraction of an end product's overall manufacturing
cost, product defects can be costly for customers. Consequently, customers
demand high-quality, reliable yarns from their suppliers and we have
established a reputation with our customers for meeting these demands. As a
result of these factors, we have maintained relationships with each of our top
five customers for over 25 years.
Unique Properties of Glass Yarns. The characteristics of glass yarns include:
. high strength-to-weight ratio;
. dimensional stability;
. heat resistance;
. moisture resistance;
. chemical resistance;
. electrical resistance; and
. thermal insulation.
Although carbon and aramid fibers are stronger than glass yarns, they are
significantly more expensive. Other materials, such as steel and wood, are less
expensive but lack the physical characteristics of glass yarns. Given the
unique combination of physical attributes and relative low cost of glass yarns,
we believe few cost-effective substitute products exist.
Diversified End-Use Markets. The characteristics of glass yarn make it the
material of choice for a variety of products manufactured in the electronics,
industrial, construction and specialty markets. Our net sales to these markets
represented 32.3%, 28.4%, 29.9% and 9.4% of our 1998 net sales, respectively,
and 28.1%, 35.0%, 25.0% and 11.9% of our first quarter 1999 sales,
respectively. We believe that this diversity in end-use applications reduces
volatility in overall demand for our products.
Superior Production Technology and Product Innovation. We believe that we are
the technological leader in the production of glass yarns due to our strong
process engineering and product development capabilities. We pioneered the
glass yarns industry with the introduction of "glass cotton" in the 1930s and
the introduction of fine yarns in the 1940s, and have continued our innovation
with the development of S-2 Glass(R), Zentron(R) and zero twist yarn. We employ
41 technical professionals dedicated to the development of new products,
process improvements and product innovations.
Business Strategy
Our business strategy includes the following key elements:
Emphasize Fine Yarns and Specialty Materials. We will continue our focus on
increasing the proportion of our net sales attributable to fine yarns and
specialty materials. Sales of fine yarns and specialty materials increased as a
proportion of net sales from 26% in 1994 to 36% in 1998 and 38% in the first
quarter of 1999. We believe our global leadership in producing fine yarns and
specialty materials is a competitive advantage when targeting manufacturers of
sophisticated electronics and specialty composites.
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Develop New Products and Product Innovations. To maintain our technological
leadership position in the glass yarns industry, we conduct an active internal
research and development program aimed at developing new and improved products.
In addition, we have formed several joint product development programs with our
customers such as BGF Industries, a wholly-owned subsidiary of Porcher
Industries, and downstream manufacturers. We also have a continuing
relationship with Owens Corning pursuant to which we and Owens Corning conduct
joint development programs and share in Owens Corning's technology and research
and development. We will continue our focus on research and development and our
commitment to collaborate with our customers to improve and develop products.
Focus on Operating Efficiency. We continually seek to improve the quality of
our production facilities and our operating systems by utilizing modern
production technology. These new technologies have enabled us to increase
throughout, product quality and operational flexibility.
Selective Geographic Expansion. We believe that we have opportunities to
expand our business outside of North America. Approximately 25.7% of our 1998
net sales were outside of North America, with approximately 21.3% in Europe and
approximately 4.4% in Asia. Approximately 26.9% of our first quarter 1999 net
sales were outside of North America, with approximately 24.9% in Europe and
approximately 2% in Asia. We believe that Asia represents an attractive long-
term opportunity for sales of our fine yarns, despite the region's current
economic turmoil. Some of our customers are expanding their production
capabilities in Asia to meet the region's demand for glass fabrics used to
manufacture electronic laminates. We anticipate that glass yarns needed for
such increased production will be sourced locally. According to the U.S.
Department of Commerce, the Asian and Australian regions represented
approximately 50% of the global supply of printed circuit boards in 1997. Our
strategy is to continue to expand outside North America by co-locating or
sharing production facilities with our customers. This would reduce the risks
and capital expenditures associated with geographic expansion while
strengthening our relationships with these customers.
Advanced Glassfiber Yarns is a Delaware limited liability company with
headquarters located at 2556 Wagener Road, Aiken, South Carolina 29801. Our
telephone number is (803) 643-1377.
Products
Our products are produced based on weight and strength specifications
developed in close cooperation with customers. Our products fall into two
categories based on filament diameter:
.heavy yarns, with a filament diameter between 7 and 14 microns, which
accounted for 74% of our 1998 net sales and 74% of our first quarter 1999
sales; and
. fine yarns, with a filament diameter generally up to 7 microns, which
accounted for 26% of our 1998 net sales and 26% of our first quarter
1999 sales. Products with finer diameters generally command higher
prices.
Heavy Yarns. Heavy yarns are used for a wide range of applications, such as
printed circuit boards, roofing materials, filtration equipment, building
reinforcements, window screening, aerospace materials and reinforced tapes.
Currently, prices for heavy yarns, excluding specialty materials, range from
approximately $2.00 to $4.00 per kilogram. We also produce a subcategory of
heavy yarns known as specialty materials, such as S-2 Glass(R), a proprietary
high strength glass yarn. Specialty materials, which accounted for 10% of our
1998 net sales and 12% of our first quarter 1999 sales, are used for aircraft
laminates, oxygen tanks, sporting goods and vehicle armor. Currently, prices
for specialty materials range from approximately $12.00 to $29.00 per kilogram.
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<PAGE>
Fine Yarns. Fine yarns, which require a significant level of technical
engineering expertise, generally command higher prices than non-specialty heavy
yarns, and are primarily used to construct laminates in multi-layer printed
circuit boards. Printed circuit board customers require a material that yields
a highly uniform, flat surface. We are the world's largest producer of fine
yarns and believe that our technological leadership differentiates us from our
competitors. Currently, prices for fine yarns range from approximately $4.00 to
$10.00 per kilogram.
The following table sets forth the percentage of our net sales attributable
to its major product categories for the years 1994 to 1998 and for the first
quarter of 1998 and 1999:
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
--------------------------------- -----------------------------
1994 1995 1996 1997 1998 March 31, 1998 March 31, 1999
----- ----- ----- ----- ----- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Heavy yarns............. 83.6% 80.9% 80.5% 76.0% 74.0% 74% 74%
Fine yarns.............. 16.4 19.1 19.5 24.0 26.0 26.0 26.0
----- ----- ----- ----- ----- ----- -----
Total net sales....... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The following table sets forth an overview of the different markets into
which our glass yarns are sold, the percentage of our 1998 net sales and our
first quarter 1999 net sales attributable to each market and some of the end-
use applications in each market:
<TABLE>
<CAPTION>
Percentage Percentage of
of 1998 First Quarter
Markets Net Sales 1999 Net Sales Product Applications
------- ---------- --------------- --------------------
<S> <C> <C> <C>
Electronics............. 32.3% 28.1% printed circuit boards for personal computers, cellular
phones, pagers, portable computing devices, home
appliances, automobiles, medical equipment, electronic
games, robotics and military and aircraft systems
Industrial.............. 28.4% 35.0% filtration bags, thermal insulation, welding curtains,
filament tape, wire insulation, gaskets, conveyor
belts, movie screens, electrical insulation products,
aircraft interior panels, aircraft cargo liners,
battery retainers and separators, reinforced tapes,
skis and grinding wheels
Construction............ 29.9% 25.0% reinforced concrete, roofing materials, stucco
reinforcement, insect screening, wall covering,
vertical window blinds, wallboard tape, tile backing
board and draperies
Specialty............... 9.4% 11.9% aircraft laminates, vehicle armor, oxygen bottles,
helicopter blades, aircraft flooring, ignition cables,
skis and snowboards
</TABLE>
Marketing and Sales
We primarily sell to glass yarn weavers who weave glass yarn into fabric
ultimately used in a wide variety of end-use applications. Our customers
include, among others, every major glass weaver in North America and Europe. We
have a customer base of approximately 300 customers. Our top five and top ten
customers accounting for 57% and 67% of our 1998 sales, respectively and 55%
and 67% of our first quarter 1999 sales, respectively. Our top five customers
are Porcher Industries, including its affiliates such as BGF Industries, Clark-
Schwebel, Inc., Bay Mills Limited, Hexcel Corporation and JPS Converter and
Industrial Corp. Among the different markets in the glass yarns industry, the
electronic market is characterized by a few major customers, each with a strong
relationship with us but that generally qualify more than one supplier; the
industrial and construction markets are characterized by many customers that
generally qualify only one supplier; and the specialty market is characterized
by customers that require highly specialized yarns produced in a cooperative
effort with the supplier and, consequently, generally qualify only one
supplier.
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<PAGE>
We market our products primarily through a direct sales force with offices
located in the United States, Europe and Asia. Our North American customers are
serviced by four sales personnel and one sales manager; Europe is serviced by
three sales personnel and Asian customers by one sales representative. The
marketing and business planning organization consists of four persons,
including two marketing managers, industrial and construction and electronic,
and two product segment leaders, Europe and Asia and North America.
The following table sets forth the percentage of our net sales by geographic
region from 1996 to 1998 and for the first quarter of 1999:
<TABLE>
<CAPTION>
Years Ended December 31, Three Months
---------------------------- Ended
1996 1997 1998 March 31, 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
North America...................... 70.8% 71.8% 74.3% 73.1%
Europe............................. 27.5 24.7 21.3 24.9
Asia............................... 1.7 3.5 4.4 2.0
-------- -------- -------- -----
Total net sales.................. 100.0% 100.0% 100.0% 100.0%
======== ======== ======== =====
</TABLE>
Manufacturing Facilities
We operate three manufacturing facilities in the United States. The following
table sets forth a description of our manufacturing facilities:
<TABLE>
<CAPTION>
1998
Approximate Production Owned
Facility Products Square Feet (in metric tons) or Leased
- -------- -------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Aiken, South Carolina... Heavy and Fine 1,540,000 52,704 Owned
Huntingdon,
Pennsylvania........... Fine and Specialty 405,000 7,236 Owned
South Hill,
Virginia(/1/).......... Heavy and Fine 27,200 204 Leased(/2/)
</TABLE>
- --------
(1) The South Hill facility is a co-location facility shared with BGF
Industries, at which we and BGF Industries work together closely to
coordinate the production of glass yarns for use solely by BGF Industries'
operations at that facility. We opened the facility in June 1998 and it
became fully operational in the first quarter of 1999. See "Related Party
Transactions."
(2) We own all of the equipment located in the South Hill facility, but lease
the building from BGF Industries.
In addition to the facilities that we own or lease, subsidiaries of Owens
Corning that operate facilities in Battice, Belgium and Guelph, Ontario have
historically provided us with specific products, primarily heavy yarns, to
serve segments of the European and North American markets. Although these
facilities have been retained by Owens Corning, we entered into contracts to
purchase specific glass yarns manufactured at these facilities. See "Related
Party Transactions."
Manufacturing Process
Glass yarns are manufactured by mixing raw material at high temperatures to
create molten glass which flows through a bushing to create continuous glass
strands. These strands are spooled, and then twisted to create glass fiber
yarns. We employ two types of manufacturing processes for glass yarns, "direct
melt" and "indirect melt."
The "direct melt" glass fiber manufacturing process, which is employed at the
Aiken facility, begins when finely ground raw materials, including sand,
limestone, clay, borates and specialty chemicals, are blended together in a
bulk quantity called the "batch." The batch is then fed into a furnace where it
is melted at 2,600 degrees Fahrenheit in refractory-lined furnaces. The molten
glass
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<PAGE>
flows to numerous heat-resistant platinum and rhodium trays called bushings.
These bushings have thousands of small, precisely drilled tubular openings
through which glass flows and becomes filaments. The hair-like filaments are
coated with an aqueous chemical mixture called "sizing," which protects the
filaments during processing and handling, including weaving or braiding, and
ensures good adhesion of the glass fiber to the resin when manufacturing
polymer reinforcements.
After sizing is applied, filaments are gathered together into strands that go
through further processing steps depending on the market into which the fiber
will be sold. The filaments are wound onto intermediate packages by high speed
winders. In most cases, the strands are unwound from the intermediate packages
and are twisted together to form glass fiber yarns that are rewound onto
bobbins for sale to customers.
The Huntingdon facility and the South Hill facility employ a marble melt
process, known as "indirect melt," to manufacture fine glass fiber yarns using
glass marbles as the principal raw material. The glass marbles are melted in
individual furnaces and pulled through bushings to form filaments. The
filaments are sized, wound onto intermediate packages, and twisted in the same
manner as in the direct melt process. The advantage of the indirect method is
that each bushing has its own melting device. This process, which we pioneered,
allows us to add incremental production capacity with more reasonable capital
expense and construction time and results in a more consistent product.
Competition
We believe that the principal competitive factors affecting the glass yarns
industry include the quality, performance, product pricing and consistency of
products, response to customer requirements and stability of business
relationships with customers.
We are one of only five major producers of glass yarns that supply their
products globally. The other global suppliers are PPG, Vetrotex, Nitto and
Nippon Electric. Sales by the five global suppliers accounted for approximately
80% of total 1997 industry sales. In addition to the five global suppliers of
glass yarns, there are two significant regional manufacturers, Taiwan Glass, a
licensee of our technology, and Nan Ya Plastics Corp., a licensee of PPG's
technology, each of which operates and has significant sales in Asia. We and
PPG are the only major producers of glass yarns with production facilities in
North America. However, Vetrotex has announced that it intends to build a plant
for the production of glass yarns, primarily for the electronics market, in
Mexico. Vetrotex has publicly stated that it expects this new plant to begin
operations in the second half of 1999.
Research and Development
To maintain our leadership position in the glass yarns industry, we conduct
an active research and development program aimed at improving our manufacturing
processes and developing new and improved products. The research and
development program is managed by our science and technology group. We spent
$5.7 million, $5.9 million, $5.9 million and $1.6 million to fund the science
and technology group in 1996, 1997, 1998 and the first quarter of 1999,
respectively. A portion of the science and technology group dedicate their
efforts to the technical services organization ("TSO"). The Aiken and
Huntingdon facilities each have a TSO which is organized into technical teams
around each major customer category. The TSO teams in Aiken and Huntingdon are
staffed by 19 and 12 people, respectively. The TSO carries out ongoing process
and product improvements and each technical team is led by a product engineer,
who is supported by one or more
42
<PAGE>
process experts responsible for troubleshooting manufacturing problems. TSO
teams also have a project engineering group which is responsible for capital
projects. The remaining persons in our science and technology group are experts
in chemistry, chemical applications and process development. A total of seven
employees perform the science and technology function at the Aiken facility.
We have numerous United States patents, patent applications and trademarks.
While we consider our patents to be valuable assets, we do not believe that our
competitive position is dependent on patent protection or that our operations
are dependent on any individual patent or group of related patents. However, in
some instances, patents and patent protection may deter entry by new
competitors with respect to some of our product lines. Our policy is to obtain
patents on our new products and enforce our patent rights. In connection with
the formation transactions, Owens Corning assigned and licensed to us patents,
know-how, marks and business information relating to or used in our business.
In addition, we entered into a support services agreement with Owens Corning
pursuant to which they will cooperate with respect to research and development.
See "Related Party Transactions."
Raw Materials and Other Supplies and Sources
The major raw materials used by us in the production of glass yarns are glass
marbles at the Huntingdon facility, and silica and borates at the Aiken
facility. We purchase glass marbles from Owens Corning pursuant to an exclusive
seven year supply agreement. Silica is readily available and is currently
provided to us by a number of local suppliers. We primarily use borates in our
production processes at our Aiken facility, which are sourced from a supplier
in Turkey that is owned by the Turkish government. Our supply of borates from
Turkey is sourced through Owens Corning under a supply agreement which provides
that, if there is a limited or reduced supply of borates, Owens Corning will
allocate a portion of such supply to us.
In addition to the raw materials involved in the production of glass yarns,
we use specialized capital equipment, such as bushings. Bushings are heat-
resistant platinum and rhodium trays through which molten glass is filtered to
produce glass filaments. Our bushings are currently manufactured and
periodically reconditioned by Owens Corning. Owens Corning has agreed to
continue to provide bushings to us and reconditioning service for the bushings
for a period of seven years. See "Risk Factors--We have only operated
independently of Owens Corning since September 30, 1998 and remain dependent
upon Owens Corning to provide materials and services" and "Related Party
Transactions."
Employees
As of March 31, 1999, we had approximately 1,495 full-time employees. As of
that date, approximately 1,350 of the employees were engaged in manufacturing
and related services. Production, maintenance, warehouse and shipping employees
at our Aiken facility are represented by Teamsters Local Union Number 86, an
affiliate of the International Brotherhood of Teamsters. The collective
bargaining agreement with this union covering our employees at Aiken expires on
June 30, 1999. Production, maintenance, warehouse and shipping employees at our
Huntingdon facility are represented by the Union of Needletrades, Industrial
and Textile Employees and its local 1034T. The collective bargaining agreement
with this union covering our employees at Huntingdon expires on October 31,
1999. Management considers our labor relations to be generally good.
43
<PAGE>
Environmental Matters
Our past and present operations, including our ownership and operation of
real properties, are subject to extensive and changing federal, state, local
and foreign environmental laws and requirements, including, among others, those
governing discharges to air and water, the handling and disposal of soils and
hazardous substances and wastes, and the remediation of contamination
associated with releases of hazardous substances at our facilities and off-site
disposal locations. Our operations are also governed by laws and requirements
relating to workplace safety and health. Management believes that we are
generally in material compliance with these laws and requirements.
We cannot assure you that we will not in the future incur costs or
liabilities relating to environmental or health and safety matters, including
those relating to compliance with laws and requirements, remediation of
contamination, or claims by third parties.
We, like all manufacturers of glass yarns, are subject, in various
jurisdictions, to laws and regulations designed to reduce solid wastes by
requiring, among other things, use of materials producing waste to be
degradable in landfills, minimum levels of recycled content, various recycling
requirements, disposal fees and limits on the use of harmful products. In
addition, various consumer and special interest groups have lobbied from time
to time for the implementation of additional environmental protection measures.
We do not believe that either the legislation promulgated to date or currently
pending initiatives will have a material adverse effect on our business. There
can be no assurance that any future legislation or regulatory efforts will not
have a material adverse effect on our business, financial condition or results
of operations.
In connection with the formation transactions, Owens Corning retained all
liabilities resulting from the presence of hazardous substances at or migrating
from the sites contributed by Owens Corning to us, as well as all liabilities
resulting from the transportation or arrangements made by Owens Corning for the
treatment, storage or disposal of hazardous substances to any off-site location
prior to September 30, 1998. We have not assumed any of these liabilities. In
addition, Owens Corning has agreed to indemnify us against any losses and
damages arising out of the environmental liabilities retained by Owens Corning.
However, with respect to environmental remedial action, Owens Corning's
indemnification obligations are limited to compliance with the standards set
under applicable environmental laws and these obligations will be satisfied
upon and to the extent of final approval of the remedial action by the
governing environmental authority.
44
<PAGE>
MANAGEMENT
Executive Officers, Directors and Other Key Employees
The following table sets forth information with respect to our executive
officers, directors and other key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert Porcher........................ 71 Chairman of the Board and Director
Robert B. Fisher...................... 44 President
Catherine Cuisson..................... 33 Chief Financial Officer
Scott R. Northrup..................... 39 Chief Technical Officer
Heinz J. Otto......................... 49 Director
Serge Piolat.......................... 48 Director
Philippe Porcher...................... 45 Director
J. Thurston Roach..................... 57 Director
Jerry G. Hawkins...................... 54 Plant Manager--Aiken
Joseph A. Masciangelo................. 53 Plant Manager--Huntingdon
</TABLE>
Robert Porcher is our Chairman of the Board and a Director. Mr. Robert
Porcher has been Chairman of the Board of Directors and Chief Executive Officer
of Porcher Industries since 1952. Porcher Industries owns 51% of Advanced
Glassfiber Yarns. Mr. Robert Porcher beneficially owns 54% of the outstanding
capital stock of Porcher Industries. Since December 9, 1998, Mr. Porcher has
served as the Chairman of the Supervisory Board of Porcher Industries.
Robert B. Fisher is our President. Prior to the formation transactions, Mr.
Fisher had been General Manager of Owens Corning's glass yarns and specialty
materials business since March 1997. Prior to joining Owens Corning, Mr. Fisher
served as Business Manager of DuPont's industrial and electrical films division
from 1994 to 1997. Mr. Fisher served in DuPont's corporate planning department
from 1992 to 1994 and as Marketing and Sales Manager for the European
operations of Philips DuPont Optical from 1989 to 1992.
Catherine Cuisson is our Chief Financial Officer. Prior to the formation
transactions, Ms. Cuisson served as Controller of Porcher Industries since
November 1994. Prior to joining Porcher Industries, Ms. Cuisson had served as
an accountant with Coopers & Lybrand L.L.P. since 1987. Ms. Cuisson obtained
the equivalent of a certified public accountancy degree upon graduating from
the Institut Commercial de Nancy in Nancy, France.
Scott R. Northrup is our Chief Technical Officer. Prior to the formation
transactions, Mr. Northrup served as Technical Services Organization Manager of
our facility in Huntingdon since May 1995. Mr. Northrup joined Owens Corning in
September 1984 as research and development engineer at the Granville Science &
Technology Center.
Heinz J. Otto is a Director. Mr. Otto has been President of Owens Corning's
Composites Division since 1996. Mr. Otto previously managed the European
operations of Landis & Gyr Corp., a Swiss corporation, and served on its
Executive Board since 1992. Prior to joining Landis & Gyr, Mr. Otto held
various management positions with General Electric Company.
Serge Piolat is a Director. Mr. Piolat has served as a Director of Porcher
Industries' textile division since 1989. Mr. Piolat previously served as
General Manager of Chavanoz Industries, a wholly owned subsidiary of Porcher
Industries. Since December 9, 1998, Mr. Piolat has served as a member of the
Executive Board and Vice President of Porcher Industries.
45
<PAGE>
Philippe Porcher is a Director. Mr. Philippe Porcher has been Vice President
of Porcher Industries since March 1993. Before becoming Vice President, Mr.
Philippe Porcher served as Director of Porcher Industries' industrial division.
Mr. Philippe Porcher is the son of Robert Porcher, our Chairman of the Board
and a Director. Since December 9, 1998, Mr. Porcher has served as Chairman of
the Executive Board of Porcher Industries.
J. Thurston Roach is a Director. Mr. Roach has been Senior Vice President and
Chief Financial Officer of Owens Corning since January 1, 1999. Mr. Roach had
previously served as President of Owens Corning's North American Building
Materials Systems Business since February 1998. Before joining Owens Corning,
Mr. Roach had been Vice Chairman of Simpson Investment Company since July 1997.
Before July 1997, Mr. Roach had served in various capacities with Simpson
Timber Company since 1984. Mr. Roach has been a director of The Liberty
Corporation since 1994.
Jerry G. Hawkins is our Plant Manager--Aiken. Mr. Hawkins has been serving as
Plant Manager of our Aiken facility since 1994. Mr. Hawkins previously served
in various management positions with Owens Corning since 1969.
Joseph A. Masciangelo is our Plant Manager--Huntingdon. Mr. Masciangelo has
been serving as Plant Manager of our Huntingdon facility since 1987.
Mr. Masciangelo previously served in various management positions with Owens
Corning since 1969.
Executive Compensation
The following table sets forth the salary and other compensation paid to our
President during the period commencing September 30, 1998 through December 31,
1998:
<TABLE>
<CAPTION>
Name Principal Position Salary Bonus Other(1)
---- ------------------ ------- ------- --------
<S> <C> <C> <C> <C>
Robert B. Fisher.................... President $42,500 $15,750 $7,214
</TABLE>
- --------
(1) We reimbursed Mr. Fisher for relocation expenses.
Director Compensation
We do not pay any compensation to members of our Board of Directors.
46
<PAGE>
OPERATING AGREEMENT
The following is a summary of material terms of the Amended and Restated
Limited Liability Company Operating Agreement of Advanced Glassfiber Yarns
dated September 30, 1998. The summary does not restate the operating agreement
in its entirety. We have filed a copy of the operating agreement as an exhibit
to the registration statement which includes this prospectus.
Organization
Advanced Glassfiber Yarns is a limited liability company formed under the
Delaware Limited Liability Company Act and is governed by the operating
agreement. As a result of the formation transactions, a wholly owned subsidiary
of Porcher Industries owns a 51% membership interest in Advanced Glassfiber
Yarns and a wholly owned subsidiary of Owens Corning owns the remaining 49%
membership interest. Our purpose is to manufacture and sell glass fiber yarns
and related specialty materials.
Duration
Under the operating agreement, we will be dissolved upon the first to occur
of the following:
.September 30, 2097;
. upon agreement of the members;
. at the election of one member, upon a material breach of the operating
agreement by the other member which is not cured within 90 days following
notice thereof; and
. automatically upon the bankruptcy or liquidation of a member, unless the
other member elects to continue us.
Governance
The operating agreement provides that the Board of Directors manages our
business and affairs, subject to the terms and provisions of the operating
agreement. The Board of Directors is comprised of two directors designated by
Owens Corning and three directors designated by Porcher Industries. Owens
Corning's right to designate two directors would terminate at such time as it
no longer holds at least a 10% ownership interest. Actions of the Board of
Directors require a quorum of at least a majority of the Board, including at
least one director representing each member.
Robert Fisher, formerly Owens Corning's manager of the business prior to the
formation of Advanced Glassfiber Yarns, has been designated in the operating
agreement as our initial general manager. Porcher Industries has the exclusive
right under the operating agreement to appoint the chief executive officer and
the chairman of our Board of Directors. All of our other executive officers are
to be designated by the Board of Directors.
The following actions require the approval of 75% of a specified quorum of
the Board of Directors:
. the termination of Mr. Fisher during the first year of his employment as
our initial general manager;
. the issuance of additional ownership interests;
47
<PAGE>
. materially changing our business plan or type of business or engaging in
a new business;
. effecting any merger, consolidation, plan of exchange or similar
transaction to which we are a party;
. selling all or a substantial portion of our assets other than in the
ordinary course of business;
. mortgaging or otherwise encumbering our assets other than in connection
with our financing facilities;
. except for specified distributions and in connection with the exercise of
the Put Right (as defined herein), effecting a distribution of any of our
assets, including cash, to any member;
. effecting our liquidation or dissolution;
. the redemption of any ownership interest other than in connection with
the Put Right;
. entering into any contract with any of our affiliates or with any member
except as described in "Related Party Transactions" other than in
connection with the Put Right;
. making any tax election which is materially detrimental to us or any
member;
. the sale, license or other disposition to a third party, including, but
not limited to any affiliate of a member, of Owens Corning technology
that Owens Corning assigned or licensed to us;
. incurring indebtedness other than:
(1) indebtedness necessary in connection with the Put Right;
(2) as required to effect specified distributions; and
(3) borrowings under the Revolver (as defined herein) which do not exceed
$75 million in the aggregate; or
. materially amending any of our business, health, safety and environmental
policies.
All actions of the members require the presence and the affirmative vote of
members holding at least 75% of the outstanding ownership interests. Owens
Corning's right to require supermajority board approval of any of the actions
listed above, except for:
. the issuance of additional ownership interests; and
. the sale, license or other disposition to a third party, including, but
not limited to, any affiliate of a member, of Owens Corning technology
that Owens Corning assigned or licensed to us, would terminate whenever
it no longer holds at least a 10% ownership interest.
Transfers of Ownership Interests; Registration Rights
Under the operating agreement, no member may transfer its ownership interest
prior to September 30, 2003 without the prior written consent of the other
member. In the event a member thereafter decides to sell its ownership
interest, the non-selling member has a 30-day right to make an offer for such
ownership interest. If, within the 30-day period, the non-selling member fails
to make an offer, or the selling member rejects the non-selling member's offer,
the selling member is free to sell its ownership interest to any third party.
At any time beginning on September 30, 2003, each member has a "Put Right"
which is the right to sell all of its ownership interest to us in the event the
conditions described below are satisfied. If a member exercises its Put Right,
the value of such ownership interest will be determined by a third party or
parties according to the procedures and criteria set forth in the operating
agreement. Our obligation to purchase a member's ownership interest is
conditioned on our ability to
48
<PAGE>
finance the purchase of the ownership interest from a third party lender while
maintaining or obtaining not less than a B rating by either Standard & Poor's
or Moody's on our then-outstanding unsecured debt after giving effect to the
purchase. Any member that exercises its Put Right must reimburse us for 25% of
expenses incurred by us in connection with purchasing such member's ownership
interest. In addition, our ability to fund the Put Right will be subject to the
covenants under the senior credit facility and the indenture for the notes.
In the event we are unable to purchase all of a member's ownership interest
upon the exercise of its Put Right, the member may request in writing that we
file and use our reasonable best efforts to cause to become effective a
registration statement under the Securities Act, covering the registration of
its ownership interest, or the portion thereof designated by the member.
Tax Distribution
Pursuant to the terms of the operating agreement, we will make an annual "Tax
Distribution" which is a distribution from our net cash flow and permitted
borrowings under the senior credit facility to each of Owens Corning and
Porcher U.S. in order to fund the taxes payable by each owner on their
proportionate share of our net ordinary income and net capital gain. In
connection with Porcher Industries' purchase of a 51% interest in us, we intend
to make a partnership election to step up the basis of some of our intangible
assets. The resulting increase in amortization expense will allow Porcher U.S.
to significantly reduce its tax liability. As a result, the Tax Distributions
will not be made on a pro rata basis and Porcher U.S. will have an unrecovered
distribution amount (the "Deferred Distribution"). The Deferred Distribution
will earn interest at the same rate of interest as the senior credit facility.
If the amortization deductions are disallowed, we will be required to
distribute all accumulated annual Deferred Distributions to the extent that:
. both before and after the distribution there is not a default under the
senior credit facility and the notes; and
. there are funds to make the distribution from available cash or
borrowings under the senior credit facility.
Thereafter, all Deferred Distributions will cease and we will pay in full all
future Tax Distributions to Porcher U.S.
Indemnification
Pursuant to the operating agreement, we will indemnify and hold each member
and its affiliates and their respective officers, directors, members,
stockholders, managers, agents and representatives, and members of our Board of
Directors and each officer, harmless from any and all losses, claims, damages,
costs, liabilities and expenses suffered or incurred by any of such persons
arising out of, resulting from, based upon or in connection with the management
or conduct of our business or affairs.
The Board of Directors has been advised that, in the opinion of the SEC,
indemnification for liabilities arising under the Securities Act or the
Exchange Act is contrary to public policy and is therefore unenforceable,
absent a decision to the contrary by a court of appropriate jurisdiction.
Other Provisions
The operating agreement generally prohibits members from disclosing
confidential information provided by another member in connection with our
business. The operating agreement also requires the members to enter a non-
competition agreement with us and each other with respect to our business. See
"Related Party Transactions--Non-Competition."
49
<PAGE>
RELATED PARTY TRANSACTIONS
Prior to the formation of Advanced Glassfiber Yarns, many of the components
of the glass yarns and specialty materials business were owned, leased or
otherwise controlled by Owens Corning. These components include, among others,
manufacturing facilities and equipment, employees trained in the use and repair
of the equipment, access to raw materials, intellectual property rights and
know-how and agreements with sales representatives worldwide.
In connection with the formation transactions, we entered into agreements
with Owens Corning and Porcher Industries and their respective affiliates to
facilitate our continuing operation. These agreements are intended to benefit
us and the other parties. However, they may result in conflicts of interest
between us and these related parties.
The following are summaries of these agreements and, as such, are qualified
in their entirety by reference to the full text of the related agreements.
Unless otherwise indicated, all agreements referred to in this section were
dated September 30, 1998.
LLC Purchase Agreement
Pursuant to an LLC purchase agreement, Porcher Industries purchased a 51%
interest in Advanced Glassfiber Yarns. See "The Formation Transactions." The
LLC purchase agreement required us to enter into the supply agreements
described below relating to the conduct of our business with Owens Corning,
Porcher Industries and their respective affiliates. The LLC purchase agreement
also requires each of Owens Corning and Porcher Industries to indemnify the
other from any and all losses which arise out of the breach by the other party
of any of its representations and warranties or any of its covenants contained
in the LLC purchase agreement.
Non-Competition
Pursuant to a non-compete agreement, Owens Corning and Porcher Industries and
their respective affiliates agreed not to compete with us in the manufacture
and sale of particular glass yarns and specialty materials that we currently
produce. Owens Corning and Porcher Industries and their respective affiliates
generally may not manufacture or sell, among other things, such business
products, for the later of a five-year period beginning on September 30, 1998
or any date on which either Owens Corning or Porcher Industries owns less than
a 5% ownership interest in us. Owens Corning and its affiliates have retained
the right to manufacture limited types of glass yarns.
Employee Benefits
Owens Corning permits our employees who were employed by Owens Corning before
September 30, 1998 ("Transferred Employees") to remain as participants in, be
covered by, or accrue benefits under, Owens Corning employee benefit plans. We
reimburse Owens Corning for the cost of this coverage. These arrangements will
terminate as of December 31, 1999, or earlier if we request. Although we do not
currently sponsor a defined benefit pension plan, we have agreed to pay amounts
associated with early retirement benefits under the Owens Corning Merged
Retirement Plan (the "OC Plan"). Specifically, Transferred Employees who, as of
September 30, 1998, did not qualify for an early retirement benefit under the
OC Plan will continue to receive credit toward eligibility for the early
retirement benefit for service with us. If a Transferred Employee remains
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employed by us until he qualifies for early retirement, the OC Plan will treat
the Transferred Employee as having elected early retirement upon retirement
from us. We are obligated to pay Owens Corning the difference between the lump
sum benefit payable to the Transferred Employee as an early retiree and the
lump sum benefit payable to the Transferred Employee as a deferred vested
benefit on the date of retirement from us under the applicable provisions of
the OC Plan. These liabilities were estimated to be $5.1 million on the date of
the formation transactions. It has not yet been determined what pension
arrangements will be made after December 31, 1999 and whether or not we will
assume assets and liabilities attributed to benefits accrued as of September
30, 1998 relating to Transferred Employees under the OC Plan.
In connection with the formation transactions, we assumed liabilities for
postretirement medical and life insurance benefits with respect to Transferred
Employees, which were estimated to be $12.0 million on the date of the
formation transactions.
Facilities Arrangements at Aiken
Prior to the formation transactions, Owens Corning's glass yarn and glass mat
factories, located in adjacent plants in Aiken, South Carolina, shared a number
of facilities and services. As part of the formation transactions, Owens
Corning transferred to us its glass yarn plant in Aiken, while retaining
ownership of the glass mat plant. In order to preserve the efficiencies and
cost savings created by the sharing arrangements in existence before the
formation transactions, we and Owens Corning have entered into the agreements
described below.
Aiken Sewer Agreement. We entered into a sanitary sewer agreement pursuant to
which we permit Owens Corning to use our sanitary system in Aiken for sanitary
wastewater discharges in exchange for the payment by Owens Corning of 50% of
the actual costs of maintaining our sanitary system. The sanitary sewer
agreement will terminate after a period of ten years, unless extended or
otherwise terminated as set forth therein.
Aiken Wastewater Treatment Agreement. We entered into a wastewater treatment
agreement pursuant to which we treat at our wastewater treatment facility in
Aiken aqueous industrial and laboratory waste discharged by Owens Corning. In
exchange for such services, Owens Corning pays 22% of our actual costs of
operating the wastewater treatment facility. The wastewater treatment agreement
will terminate after a period of ten years, unless extended or otherwise
terminated as set forth therein.
Aiken Stormwater Agreements. We entered into various stormwater agreements
pursuant to which:
. we permit Owens Corning to discharge stormwater into our two stormwater
ponds; and
. Owens Corning permits us to discharge stormwater into Owens Corning's
landfill sedimentation basin in Aiken.
Each party is individually responsible for any sampling and for complying with
their respective stormwater permits. The stormwater agreements will terminate
after a period of ten years, unless extended or otherwise terminated as set
forth therein.
Aiken Landfill Agreement. We entered into a landfill agreement pursuant to
which Owens Corning permits us to use Owens Corning's landfill in Aiken for the
disposal of waste in exchange
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for our payment of 50% of the actual costs of operating the landfill. The
landfill agreement is effective for the operating life of the landfill, unless
earlier terminated as set forth therein.
Facilities Arrangements at Huntingdon
Huntingdon Lease. Owens Corning leases from us approximately 9,000 square
feet of our facility in Huntingdon, Pennsylvania for use as a glass mat
manufacturing and distribution facility. The lease will expire on September 30,
2003, unless extended or terminated as provided in the lease agreement. Owens
Corning pays a nominal fixed fee for the term of the lease plus its allocated
share of all building operating expenses, as calculated in the lease agreement.
Huntingdon Air Modeling Agreement. Prior to the formation transactions, Owens
Corning treated its glass yarn and glass mat manufacturing operations in
Huntingdon as a single facility for environmental compliance purposes. As part
of the formation transactions, Owens Corning transferred to us the entire
facility in Huntingdon, a portion of which it leases back from us. In order to
maintain continuity in complying with air emission modeling requirements under
applicable environmental laws, we entered into an air modeling agreement
pursuant to which the parties will treat their respective facilities in
Huntingdon, including the portion leased to Owens Corning, as a single facility
for modeling current and/or projected air emissions. Although we have agreed to
share the costs of the modeling, each party remains solely responsible for its
own environmental liabilities, if any. The air modeling agreement will
terminate after a period of five years, unless extended or otherwise terminated
as set forth therein.
Subleases Relating to Equipment at Aiken and Huntingdon
Prior to the formation transactions, Owens Corning leased equipment used in
the manufacturing of glass yarns at its Aiken and Huntingdon facilities. Owens
Corning agreed to sublease this equipment to us on substantially the same
economic terms as provided to Owens Corning in the original leases.
At our Aiken facility, we sublease from Owens Corning, pursuant to Owens
Corning's master leases, some manufacturing equipment owned by Carly 1995
Leasing Trust and a vacuum treatment oven owned by Pitney Bowes Credit
Corporation. We sublease other manufacturing equipment from Owens Corning at
its Aiken and Huntingdon facilities pursuant to Owens Corning's master lease
with John Hancock Mutual Life Insurance Company. Specific terms of these
subleases are described below. If any of the master leases are terminated, all
of our rights under the related subleases will also terminate.
Our sublease with Owens Corning relating to the Carly lease expires on
December 28, 2000. The sublease generally provides that we may purchase the
equipment at the termination of the sublease. We paid Owens Corning
approximately $100,000 pursuant to this sublease during the first quarter of
1999.
The initial term of our sublease with Owens Corning relating to the Pitney
Bowes lease ends on March 31, 2001, but may be extended for up to two
additional years unless Owens Corning exercises its right to terminate the
sublease. The sublease generally provides that we may purchase the vacuum
treatment oven at the termination of the sublease. We incurred $400,000 of
expense pursuant to this sublease during the first quarter of 1999.
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<PAGE>
The initial term of our sublease with Owens Corning relating to the John
Hancock lease ends on March 31, 2000, but may be extended for up to two
additional years unless Owens Corning exercises its right to terminate the
sublease. The sublease generally provides that we may purchase the equipment at
the termination of the sublease. We incurred $20,000 of expense pursuant to
this sublease during the first quarter of 1999.
Services Agreements
We have entered into several agreements pursuant to which Owens Corning
performs services for us that are important to the success of our operations.
Some of these services agreements will only continue for a short time until we
hire and train our own personnel, while others are intended to continue for a
longer duration. These service agreements, which are described more fully
below, provide for the fabrication and repair of equipment, engineering and
technical services, sales agency agreements in Europe and administrative and
information systems services. In addition to the services provided by Owens
Corning, we perform manufacturing and distribution services for Owens Corning
at the Huntingdon facility, where Owens Corning continues to have operations.
Alloy Services Agreement. We entered into an alloy services agreement
pursuant to which Owens Corning provides, at prices to be determined annually,
services relating to the alloying, fabrication and repair of bushings,
thermocouples and glass melter parts constructed from metal alloys. We have
generally agreed to use Owens Corning exclusively for these services. Owens
Corning has also agreed to manage our inventory of industrial precious metals
and metal alloys and to lease to us metal alloys for use in bushings,
thermocouples and glass melter parts at prices determined according to the
formula set forth in the alloy services agreement. This agreement will
terminate on December 31, 2005, unless extended or otherwise terminated. We
paid Owens Corning $1.1 million for the refurbishing of bushings during the
first quarter of 1999.
Support Services Agreement. We entered into a support services agreement
pursuant to which Owens Corning provides engineering, design and technical
services to us at previously agreed upon prices for a five-year period. The
support services agreement will be automatically extended each year for an
additional one-year term until terminated.
Transitional Services Agreement. We entered into a transitional services
agreement pursuant to which Owens Corning provides corporate, administrative
and information systems services to us and we provide services to Owens Corning
at mutually agreed upon prices. The provision of benefits administration and
information system services will expire on December 31, 1999. The provision of
all other services provided for in the transitional services agreement expired
on March 31, 1999.
Manufacturing Services Agreement. We entered into a manufacturing services
agreement pursuant to which we provide manufacturing services to Owens Corning
to support their glass mat manufacturing and distribution business in
Huntingdon. Owens Corning pays an annual fee (to be mutually agreed upon and
periodically reviewed) for our provision of manufacturing, management and
ancillary services and pays additional fees in exchange for our provision of
other services that may be requested by Owens Corning. The manufacturing
services agreement will expire whenever Owens Corning or any of its affiliates
no longer owns a 49% ownership interest in us, unless earlier terminated.
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Supply Agreements
Prior to the formation transactions, Owens Corning obtained raw materials
from its affiliates or through third party suppliers. We have entered into
supply agreements, more fully described below, which provide us with access to
the necessary raw materials through Owens Corning's affiliated and non-
affiliated suppliers. In addition, pursuant to the agreements described below,
we purchased assets of the glass yarns business of several of Owens Corning's
non-U.S. affiliates. We also agreed to sell byproducts of one of its
manufacturing processes to Owens Corning.
Byproducts Supply Agreement. We entered into a supply agreement pursuant to
which Owens Corning will purchase the first 10 million pounds of byproducts of
our manufacturing processes called dry chopped yarn and slit hanks, also known
as "sliver," that we produce each year. Each year, Owens Corning will pay a
fixed price per pound for the first 10 million pounds of byproducts and a
higher fixed price for any additional amounts shipped by us. We are under no
obligation to manufacture any specified quantity of the byproducts to supply to
Owens Corning. The byproducts supply agreement will expire on December 31,
2003, after which it may be renewed for additional five-year terms, unless
canceled by either party.
Borates Supply Agreement. Prior to the formation transactions, Owens Corning
entered into an agreement with Etibank, a supplier of borates in Turkey that is
owned by the Turkish government, pursuant to which Etibank mines, processes,
sells and delivers borates to Owens Corning for use in manufacturing glass
yarns. We entered into a borates supply agreement pursuant to which we purchase
borates from Owens Corning at a price equal to Owens Corning's cost to
purchase, transport and process borates plus a $150,000 annual administrative
charge. The borates supply agreement will terminate on December 31, 2005, after
which it will automatically renew for a period equal to any renewal period in
Owens Corning's supply agreement with Etibank, unless canceled by either party
upon 90 days' advance notice.
OC Belgium Agreements. We and N.V. Owens Corning S.A., a wholly owned
subsidiary of Owens Corning ("OC Belgium"), entered into a supply agreement
pursuant to which we purchase at previously determined prices fiberglass yarns
to be manufactured by OC Belgium at its facility in Battice, Belgium. We also
have the option to acquire the Battice plant's fiberglass yarns manufacturing
equipment upon the termination of the agreement or at the time Owens Corning no
longer uses this equipment to produce fiberglass yarns. The supply agreement
with OC Belgium will terminate on December 31, 2003, after which it may be
renewed for additional one-year terms, unless canceled by either party. In
addition, we have an exclusive right to terminate this agreement effective
December 31, 2001 upon one year's prior notice.
We and OC Belgium also entered into a purchase agreement pursuant to which we
purchased OC Belgium's list of customers that purchase heavy glass yarns from
OC Belgium, transferable contracts between OC Belgium and its customers, the
finished products inventory of heavy glass yarns owned by OC Belgium that were
located in its public warehouse in Antwerp, Belgium, and all of OC Belgium's
accounts receivable arising exclusively out of the sale of heavy glass yarns by
OC Belgium.
OC Canada Agreements. Our Canadian subsidiary and Owens-Corning Canada, Inc.,
a wholly owned subsidiary of Owens Corning ("OC Canada"), entered into a supply
agreement pursuant to which we purchase at previously determined prices minimum
and maximum quantities of fiberglass
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<PAGE>
yarns to be manufactured by OC Canada at its facility in Guelph, Canada. We
intend to append to this agreement an arrangement pursuant to which we will
purchase for distribution Low Tex Type 30 yarns manufactured by Owens Corning
at agreed upon prices. We have the option to acquire the Guelph plant
fiberglass yarns manufacturing equipment upon the termination of the agreement
or at the time Owens Corning no longer uses this equipment to produce
fiberglass yarns. The supply agreement with OC Canada will terminate on
December 31, 2001, after which it may be renewed for additional one-year terms,
unless canceled by either party. In addition, we have the exclusive right to
terminate this agreement at any time upon 90 days' prior notice.
Our Canadian subsidiary and OC Canada also entered into a purchase agreement
pursuant to which we purchased OC Canada's list of customers which purchase
heavy glass yarns from OC Canada, transferable contracts between OC Canada and
its customers, and all of OC Canada's accounts receivable arising exclusively
out of the sale of heavy glass yarns by OC Canada.
OC Japan Agreement. We and Owens Corning (Japan) Ltd., a wholly owned
subsidiary of Owens Corning ("OC Japan"), entered into a purchase agreement
pursuant to which we purchased OC Japan's list of customers which purchase
glass yarns from OC Japan, various transferable contracts between OC Japan, its
customers, all of OC Japan's accounts receivable arising exclusively out of the
sale of glass yarns by OC Japan, and the finished products inventory of glass
yarns owned by OC Japan that were located in its warehouses in Tokyo and Osaka,
Japan.
Rio Claro Low Tex Type 30 Agreements. We and Owens Corning do Brazil Ltda
("OC Brazil"), a wholly owned subsidiary of Owens Corning, intend to enter into
supply agreements pursuant to which we will purchase for distribution minimum
and maximum quantities of fiberglass yarns with a bare glass linear density of
300 at agreed upon prices. These yarns are to be manufactured by OC Brazil at
its plant in Rio Claro, Brazil.
Glass Marbles Supply Agreement. We entered into a glass marbles supply
agreement pursuant to which we purchase exclusively from Owens Corning at
mutually determined prices all of our requirements for glass marbles for use in
our glass yarns business. Owens Corning has agreed not to supply glass marbles
to any third party for use in the manufacturing of glass yarns. We have the
option to acquire Owens Corning's glass marbles manufacturing equipment upon
the termination of the agreement or at the time Owens Corning no longer uses
this equipment to produce glass marbles. The glass marbles supply agreement
will expire on December 31, 2005, after which it may be renewed for additional
five-year terms by either party, unless terminated by us upon two years' prior
notice. We purchased $1.2 million of glass marbles during the first quarter of
1999 from Owens Corning.
Co-location Arrangement with BGF Industries in South Hill, Virginia
Prior to the formation transactions, Owens Corning entered into a co-location
arrangement with BGF Industries in South Hill, Virginia. As a result of the
formation transactions, we have succeeded to Owens Corning's rights and
obligations under the co-location arrangement. As part of the arrangement, we
lease approximately 27,200 square feet of segregated space within BGF
Industries' recently built multi-layer plant for the purpose of manufacturing
fiberglass yarn for sale to BGF Industries pursuant to a 10-year renewable
supply contract. We paid BGF Industries approximately $165,000 pursuant to this
co-location arrangement during the first quarter of 1999. Also as part of the
co-location arrangement, we lease from BGF Industries manpower at an hourly job
rate per employee
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and BGF Industries provides technical, quality control and improvement and
other non-managerial services at previously determined rates. The employee
leasing and services contracts end upon the termination of either the premises
lease or the supply contract. The parties also have agreed to confidentiality
and disclosure obligations in connection with the co-location arrangement.
Intellectual Property
In connection with the formation transactions, Owens-Corning Fiberglas
Technology, Inc., a wholly owned subsidiary of Owens Corning, assigned to us
patents, know-how, trademarks and business information, relating to or used in
our business. Owens Corning has also licensed to us additional intellectual
property assets and rights, mainly patents and know-how, pursuant to a patent
and know-how license agreement and related agreements (collectively, the
"Master License"). The Master License grants to us a worldwide, paid-up and
royalty-free license to make, have made, use, sell, import and offer to sell
glass fiber specialty products. The license is exclusive for the duration of
the non-compete agreement between Owens Corning and us with respect to various
products and non-exclusive with respect to others, and we have limited
sublicensing rights. The patent license included in the Master License is for
the life of the patent, while the know-how license is perpetual. The patent and
know-how licenses are terminable only upon the occurrence of specified events.
The Master License also includes a grant-back license pursuant to which Owens
Corning may manufacture, import and sell various yarn products under our
patents. This grant-back license does not include those products which Owens
Corning is prohibited from selling for the duration of the non-compete
agreement. The Master License further provides that Owens Corning has agreed to
render to us, upon request and on terms to be agreed upon, various services
relating to our manufacture of glass yarn products.
SECURITY OWNERSHIP
The following table sets forth information regarding each person or entity
that beneficially owns more than a 5% ownership interest in Advanced Glassfiber
Yarns. Each indicated entity has sole voting and investment power with respect
to its respective ownership interest.
<TABLE>
<CAPTION>
Name of Beneficial Owner Ownership Interest
- ------------------------ ------------------
<S> <C>
AGY Holdings, Inc.(/1/)...................................... 51%
Jefferson Holdings, Inc.(/2/)................................ 49
</TABLE>
- --------
(1) Address is c/o BGF Industries, Inc., 3802 Robert Porcher Way, Greensboro,
North Carolina 27510. Porcher Industries owns 100% of the outstanding
capital stock of Glass Holdings Corp., which owns 100% of the outstanding
capital stock of AGY Holdings, Inc., which is the record holder of a 51%
ownership interest in Advanced Glassfiber Yarns. Mr. Robert Porcher owns
54% of the outstanding capital stock of Porcher Industries.
(2) Address is One Owens Corning Parkway, Toledo, Ohio 43659-0001. Owens
Corning owns 100% of the outstanding capital stock of Jefferson Holdings,
Inc., which is the record holder of a 49% ownership interest in Advanced
Glassfiber Yarns.
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DESCRIPTION OF OTHER INDEBTEDNESS
Senior Credit Facility
In connection with the formation transactions, we entered into a senior
credit facility pursuant to which the lenders committed to lend to Advanced
Glassfiber Yarns up to $315.0 million, with that amount allocated among:
. a six-year revolving credit facility in an aggregate principal amount of
up to $75.0 million (the "Revolver");
. a six-year term loan in an aggregate principal amount of $115.0 million
("Term Loan A"); and
. a seven-year term loan in an aggregate principal amount of $125.0 million
("Term Loan B," and together with Term Loan A, the "Term Loans").
First Union National Bank serves as agent under the senior credit facility.
Repayment. Commitments under the Revolver will be reduced prior to maturity
on September 30, 2004, if:
.non-ordinary course asset dispositions occur;
.Advanced Glassfiber Yarns or any credit facility guarantor issues debt or
equity securities; or
. Advanced Glassfiber Yarns or any credit facility guarantor receives
specific insurance proceeds.
The Term Loans amortize on a quarterly basis based on the following schedule:
<TABLE>
<CAPTION>
Twelve Months
Ending
December 31, Term Loan A Term Loan B
------------- ------------ ------------
<S> <C> <C>
1999........................................... $ 12,938,000 $ 1,250,000
2000........................................... 17,250,000 1,250,000
2001........................................... 18,687,000 1,250,000
2002........................................... 23,000,000 1,250,000
2003........................................... 23,000,000 1,250,000
2004........................................... 17,250,000 1,250,000
2005........................................... 0 117,188,000
------------ ------------
$112,125,000 $124,688,000
============ ============
</TABLE>
Advanced Glassfiber Yarns is generally required to prepay the Term Loans with
excess cash flow.
Security; Guaranty. The senior credit facility is secured by a first priority
lien on substantially all of our properties and assets and the properties and
assets of our respective domestic subsidiaries, now owned or acquired
thereafter, and a pledge of Porcher Industries' membership interest in us. The
senior credit facility is guaranteed by AGY Capital and will be guaranteed by
all of Advanced Glassfiber Yarns' future domestic subsidiaries.
Interest. At our option, the interest rates per annum applicable to the
Revolver, Term Loan A and Term Loan B are fluctuating rates of interest
measured by reference either to:
. LIBOR plus a borrowing margin; or
. First Union National Bank's base rate, which is the greater of the
published prime rate of First Union National Bank or the overnight
federal funds rate plus 0.5% (the "ABR") plus a borrowing margin.
The applicable borrowing margin for the Revolver and Term Loan A ranges from
1.75% to 3.0% for LIBOR-based borrowings and 0.5% to 1.75% for ABR-based
borrowings. The applicable borrowing margin for Term Loan B ranges from 3.50%
to 3.75% for LIBOR-based borrowings and 2.25% to
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2.5% for ABR-based borrowings. We have entered into interest rate hedging
agreements which effectively fix the rates of interest on Term Loan A and Term
Loan B at 4.92% and 5.04% per annum, respectively, plus the applicable
borrowing margin.
Covenants. The senior credit facility contains covenants restricting us with
respect to the following:
. the incurrence of debt, including guarantees;
. the creation of liens;
. substantially changing the nature of our businesses;
. the consummation of transactions such as dispositions of substantial
assets, mergers, acquisitions, reorganizations and recapitalizations;
. the making of investments and loans, non-ordinary course asset sales and
capital expenditures;
. the making of dividends and other distributions;
. transactions with affiliates; and
. our ability to prepay debt.
The senior credit facility also requires that we comply with the following
financial tests and maintain the following financial ratios:
. maintaining a maximum leverage ratio as of the last day of each quarter
of the years set forth below in the corresponding amounts set forth
below:
<TABLE>
<CAPTION>
Year Leverage Ratio
---- --------------
<S> <C>
1999....................................................... 5.25 to 1.00
2000....................................................... 5.00 to 1.00
2001....................................................... 4.75 to 1.00
2002....................................................... 4.50 to 1.00
2003....................................................... 4.00 to 1.00
2004....................................................... 3.75 to 1.00
2005 and each year thereafter.............................. 3.50 to 1.00;
</TABLE>
. maintaining a minimum consolidated net worth as of the end of each
quarter in an amount equal to
.Advanced Glassfiber Yarns consolidated net worth as of September 30,
1998 minus
.$10.0 million plus
.50% of quarterly consolidated net income, less tax payments, plus
.75% of the net cash proceeds of any equity issuance;
. maintaining a minimum interest coverage ratio as of the last day of each
quarter of the years set forth below in the corresponding amounts set
forth below:
<TABLE>
<CAPTION>
Year Interest Coverage Ratio
---- -----------------------
<S> <C>
1999.............................................. 2.00 to 1.00
2000.............................................. 2.15 to 1.00
2001.............................................. 2.25 to 1.00
2002 and each year thereafter..................... 2.50 to 1.00; and
</TABLE>
.maintaining a minimum fixed charge coverage ratio as of the last day of
each quarter of 1.05 to 1.0.
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The senior credit facility also contains customary events of default. An
event of default under the senior credit facility will allow the lenders
thereunder to accelerate or, in some cases, automatically cause the
acceleration of, the maturity of the debt under the senior credit facility and
will restrict our ability and the ability of the note guarantors to meet
obligations to the holders of the notes. See "Description of Exchange Notes."
Keep-Well Agreement
In connection with the formation transactions. Owens Corning agreed to enter
into a keep-well agreement with us. Until January 14, 2002, if we do not have
the liquidity necessary to pay interest on the notes or on the senior credit
facility when due, Owens Corning will loan us an amount equal to the aggregate
deficiency. The proceeds of any loan would first be applied to interest due on
the notes and then, subject to limitations, to interest due on the senior
credit facility. As of December 31, 1998, the obligation of Owens Corning to
make loans to us under the keep-well agreement was limited to a maximum
aggregate amount of $65.0 million, and a maximum annual amount of
$20.0 million; except that the annual amount will be reduced by $10.0 million
after each interest payment date with respect to the notes. Any loans made to
us pursuant to the keep-well agreement will be subordinate to the notes and any
amounts outstanding under the senior credit facility. If we were to file for
bankruptcy protection, the keep-well agreement would probably cease to be
enforceable.
DESCRIPTION OF EXCHANGE NOTES
We will issue the exchange notes under our indenture with The Bank of New
York, as trustee. The terms of the exchange notes include those stated in the
indenture and those incorporated by reference to the Trust Indenture Act of
1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this summary, defines your rights as
holders of the exchange notes. We have filed a copy of the indenture as an
exhibit to the registration statement which includes this prospectus.
We will issue the exchange notes in exchange for an equal principal amount of
old notes. The exchange notes are identical in all material respects to the old
notes except that:
(1) the exchange notes have been registered under the Securities Act; and
(2) the registration rights and liquidated damages provisions applicable
to the old notes are not applicable to the exchange notes.
The exchange notes are unsecured senior subordinated obligations of ours. The
exchange notes will be unconditionally guaranteed, jointly and severally, on an
unsecured senior subordinated basis by all future direct and indirect
"Restricted Subsidiaries" other than AGY Capital and foreign subsidiaries of
Advanced Glassfiber Yarns. All of our subsidiaries are "Restricted
Subsidiaries" unless otherwise designated.
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As of the date of this prospectus:
.there are no Restricted Subsidiaries providing note guarantees;
.Advanced Glassfiber Yarns has one foreign subsidiary which is a Restricted
Subsidiary; and
.AGY Capital is also a Restricted Subsidiary.
Principal, Maturity and Interest
The exchange notes will mature on January 15, 2009. Interest on the exchange
notes will accrue at the rate of 9 7/8% per annum. We will pay interest semi-
annually in arrears on each January 15 and July 15, commencing on July 15,
1999. We will make each interest payment to holders of record at the close of
business on the immediately preceding January 1 and July 1. Interest on the
exchange notes will accrue from the most recent date on which interest has been
paid or, if no interest has been paid, from and including January 21, 1999, the
date of issuance of the old notes. The exchange notes will not be entitled to
the benefit of any mandatory sinking fund.
Ranking
The exchange notes rank:
(1) junior in right of payment to all existing and future Senior
Indebtedness;
(2) equal in right of payment with all subordinated Senior Indebtedness;
and
(3) senior in right of payment to all subordinated Indebtedness.
At March 31, 1999, we had approximately $241.6 million of Senior Indebtedness
outstanding, exclusive of unused commitments. All debt that we incur under our
senior credit facility is Senior Indebtedness of Advanced Glassfiber Yarns, is
guaranteed by all note guarantors on a senior basis and is secured by
substantially all of the assets of Advanced Glassfiber Yarns.
Note Guarantees
If any person becomes a Restricted Subsidiary, other than foreign
subsidiaries, we will cause the Restricted Subsidiary to become a party to the
indenture and unconditionally guarantee all of our obligations under the
exchange notes. Thereafter, the Restricted Subsidiary would be a note
guarantor.
Each note guarantor will irrevocably and unconditionally guarantee, jointly
and severally, on an unsecured senior subordinated basis, the punctual payment
of all of our obligations under the exchange notes. Each note guarantor will
agree to pay, on a senior subordinated basis and in addition to the punctual
payment of all our obligations under the exchange notes, any and all expenses,
including reasonable counsel fees and expenses, incurred by the trustee or the
holders in enforcing any rights under the note guarantee.
The guaranteed obligations will rank:
(1) junior in right of payment to all existing and future Senior
Indebtedness of the note guarantors;
(2) equal in right of payment with all subordinated Senior Indebtedness
of the note guarantors; and
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(3) senior in right of payment to all subordinated Indebtedness of the
note guarantors.
All of our debt under the senior credit facility, which we discuss more fully
under "Description of Other Indebtedness" and includes any related refinancing,
will be guaranteed by each note guarantor on a senior basis and will be secured
by substantially all of the assets of each note guarantor.
The guaranteed obligations of each note guarantor will be limited to the
maximum amount as will,
.after giving effect to all other contingent and fixed liabilities of the
note guarantor; and
. after giving effect to any collections from or payments made by or on
behalf of any other note guarantor in respect of the guaranteed
obligations of the other note guarantor,
result in the guaranteed obligations of the note guarantor not constituting a
fraudulent conveyance or fraudulent transfer under federal, state or other
applicable law.
Each note guarantor that makes a payment or distribution under a note
guarantee will be entitled to a contribution from the other note guarantors in
a pro rata amount, based on the net assets of each note guarantor determined in
accordance with GAAP. For further information, you should review the section
"Risk Factors" under the heading "Issuance of the old notes and any note
guarantee may be subject to fraudulent conveyance laws."
A note guarantor will be released from its obligations under its note
guarantee in the event:
(1) there is a defeasance of the exchange notes as described under "--
Legal Defeasance and Covenant Defeasance";
(2) there is a sale or other disposition of all or substantially all of
the assets of the note guarantor in compliance with the indenture;
(3) there is a sale or other disposition of all of the capital stock or
other equity interests of the note guarantor in compliance with the
indenture; or
(4) the note guarantor is designated as an unrestricted subsidiary as
described under "--Material Covenants--Designation of Unrestricted
Subsidiaries."
Subordination of the Exchange Notes and the Note Guarantees
The payment of the principal of, premium, if any, and interest on the
exchange notes is subordinated to the prior payment of all Senior Indebtedness.
In addition, the payment of the guaranteed obligations by a note guarantor
would be subordinated to the prior payment of all Senior Indebtedness of that
note guarantor to substantially the same extent as the exchange notes are
subordinated to our Senior Indebtedness. As a result, the exchange notes will
be effectively subordinated to all Senior Indebtedness of any note guarantor
and to all debt of any other subsidiaries that we may have in the future.
However, any payment made by Owens Corning under the keep-well agreement will
not be subject to these subordination provisions.
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Upon a total or partial liquidation or dissolution of us or a note guarantor,
the holders of our Senior Indebtedness or the Senior Indebtedness of a note
guarantor would be entitled to receive payment of all obligations due under
that Senior Indebtedness before the holders of exchange notes are entitled to
receive any payment. If any distribution is made to holders that, due to the
subordination provisions, should not have been made, the holders would be
required to hold it in trust for the holders of our Senior Indebtedness or the
Senior Indebtedness of the note guarantor and pay it over to them.
In addition, neither we nor any Note Guarantor may make any payment on the
exchange notes or make any deposit as described under "--Legal Defeasance and
Covenant Defeasance" below or repurchase, redeem or otherwise retire any
exchange notes if:
(1) any of the following designated Senior Indebtedness is not paid when
due:
. the senior credit facility;
. up to $25.0 million of other Senior Indebtedness that is
specifically designated as "designated Senior Indebtedness"; and
. any guarantee by a note guarantor that is specifically
designated as "designated Senior Indebtedness"; or
(2) any other default on designated Senior Indebtedness occurs, the
maturity of that designated Senior Indebtedness is accelerated and the
trustee receives a payment blockage notice from us or the holders of the
designated Senior Indebtedness.
Nonetheless, we and any note guarantor may pay the exchange notes if we obtain
written notice approving the payment from the representative of the designated
Senior Indebtedness with respect to which either of these events has occurred
and is continuing.
Payments on the exchange notes would be resumed:
(1) in the case of a payment default, upon the date on which the default
is cured or waived; and
(2) in the case of a nonpayment default, the earlier of the date on which
the nonpayment default is cured or waived or 179 days after the date on
which the applicable payment blockage notice is received, unless the
maturity of any designated Senior Indebtedness has been accelerated.
No new payment blockage notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior payment blockage period; and
(2) all scheduled payments of principal, premium and interest on the
exchange notes that have come due have been paid in full.
We must promptly notify holders of our Senior Indebtedness if payment of the
exchange notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization, you may recover less ratably than
our creditors who hold Senior
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Indebtedness. For more information, you should review the section "Risk
Factors" under the heading "Your exchange notes will be subordinate to our
senior debt."
Redemption
Optional Redemption. We may redeem all or part of the exchange notes on and
after January 15, 2004. If we redeem the exchange notes, we must give not less
than 30 nor more than 60 days' notice. We may redeem the exchange notes at the
following redemption prices plus accrued interest, subject to the right of
holders of record on a record date to receive interest due on the related
interest payment date that is on or prior to the date of redemption. The
redemption prices are expressed as percentages of the principal amount of the
exchange notes if redeemed during the twelve-month period commencing on January
15 of the following years:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................................... 105.063%
2005........................................................... 103.375
2006........................................................... 101.688
2007 and thereafter............................................ 100.000
</TABLE>
Optional Redemption upon Public Equity Offerings. In addition, at any time on
or prior to January 15, 2002, we may use the net cash proceeds within 60 days
of a public equity offering of our qualified capital stock to redeem up to 35%
of the exchange notes. The redemption price will be equal to 110.125% of the
principal amount of the exchange notes plus accrued and unpaid interest,
subject to the right of holders of record on a record date to receive interest
due on the related interest payment date that is on or prior to the date of
redemption. At least 65% of the aggregate principal amount of the exchange
notes originally issued must remain outstanding after giving effect to this
redemption.
If less than all of the exchange notes are to be redeemed, the trustee will
select exchange notes for redemption on a pro rata basis, by lot or by any
method that the trustee deems fair and appropriate. However, we will only
redeem exchange notes in multiples of $1,000. If we redeem exchange notes, we
must give at least 30 but not more than 60 days' notice before the redemption
date to each holder of exchange notes to be redeemed. If any exchange note is
to be redeemed in part only, the notice of redemption that relates to that
exchange note must state the portion of the principal amount of that exchange
note to be redeemed. A new exchange note in a principal amount equal to the
unredeemed portion of that exchange note will be issued in the name of the
holder upon cancellation of the original exchange note. On and after the
redemption date, interest will cease to accrue on exchange notes or portions of
exchange notes called for redemption as long as we have deposited with the
paying agent sufficient funds to pay the redemption price.
Change of Control
Upon the occurrence of a change of control, as defined in "Material
Definitions," you would have the right to require that we purchase all or a
portion, in integral multiples of $1,000, of your notes. The purchase price
would equal 101% of the principal amount of the notes plus accrued and unpaid
interest, subject to the right of holders of record on a record date to receive
interest due on the related interest payment date that is on or prior to the
date of purchase. Within 30 days following any change of control, we will mail
a notice to each holder offering to repurchase the exchange notes.
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We will, to the extent lawful:
(1) accept for payment all exchange notes or portions of exchange notes
properly tendered in the change of control offer; and
(2) deposit with the paying agent sufficient funds to pay holders of the
tendered exchange notes.
The senior credit facility currently contains prohibitions on the occurrence
of events that would constitute a change of control and requires that we repay
amounts outstanding under the senior credit facility upon a change of control.
Our future Senior Indebtedness could contain similar provisions. Moreover, the
exercise by the holders of their right to require us to repurchase the notes
would currently cause a default under the senior credit facility due to the
financial effect of a repurchase on us.
If we offer to repurchase your exchange notes upon a change of control, we
cannot assure you that we will have available funds sufficient to pay the
change of control purchase price for all the tendered notes. As of March 31,
1999, we had approximately $241.6 million of Senior Indebtedness outstanding.
All of our Senior Indebtedness is outstanding under the senior credit facility.
We expect that we would seek third-party financing to the extent we do not have
available funds to meet our purchase obligations and any other obligations in
respect of Senior Indebtedness. However, we cannot assure you that we would be
able to obtain this financing.
In addition, we would not be able to purchase any notes if we cannot obtain
the necessary consents of senior lenders and we cannot obtain the necessary
third-party financing. In this case, our failure to purchase tendered notes
would constitute an Event of Default under the indenture which may only be
waived by the holders of a majority of the notes. The Event of Default may not
be waived merely by us or the trustee.
Material Covenants
Limitation on Incurrence of Additional Indebtedness. Neither Advanced
Glassfiber Yarns nor any of its Restricted Subsidiaries will incur any
Indebtedness other than Permitted Indebtedness, including Acquired
Indebtedness. However, Advanced Glassfiber Yarns and any note guarantor may
incur Indebtedness if our Consolidated Fixed Charge Coverage Ratio is greater
than 2.0 to 1.0 immediately before and after incurring the Indebtedness.
Limitation on Restricted Payments. Neither Advanced Glassfiber Yarns nor any
of its Restricted Subsidiaries will:
(1) declare or pay any dividend or make any distribution on capital stock
or other equity interests of Advanced Glassfiber Yarns or that Restricted
Subsidiary other than:
(a) dividends or distributions payable in our capital stock other
than Disqualified Capital Stock, warrants, rights or options to
purchase or acquire shares of qualified capital stock or dividends or
distributions to Advanced Glassfiber Yarns or a Restricted Subsidiary;
and
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(b) pro rata dividends or distributions to Advanced Glassfiber Yarns
and/or its Restricted Subsidiaries and to minority holders of capital
stock or other equity interests of Restricted Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value:
(a) any capital stock or other equity interests of Advanced
Glassfiber Yarns or any Restricted Subsidiary; or
(b) any warrants, rights or options to purchase or acquire shares of
any class of that capital stock or other equity interests other than
Permitted Investments;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value any subordinated
Indebtedness prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment; or
(4) make any Investment other than Permitted Investments,
if at the time of any of these "Restricted Payments":
(1) a default or an Event of Default has occurred;
(2) Advanced Glassfiber Yarns is not able to incur at least $1.00 of
additional Indebtedness, other than Permitted Indebtedness, in compliance
with the covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; or
(3) the total amount of cash or fair market value of any other property
comprising the Restricted Payments, including the proposed Restricted
Payment, made subsequent to January 21, 1999 exceeds the sum of:
(a) 50% of cumulative Consolidated Net Income, or if cumulative
Consolidated Net Income is a loss, minus 100% of the loss, accrued
during the period beginning on January 1, 1999 to the end of the most
recent quarter for which consolidated financial information is
available; plus
(b) 100% of the total net cash proceeds received by Advanced
Glassfiber Yarns from any person other than a Restricted Subsidiary
from any of the following:
. a capital contribution to Advanced Glassfiber Yarns;
. the issuance and sale of qualified capital stock of Advanced
Glassfiber Yarns subsequent to January 21, 1999;
. the issuance of warrants, rights or options to purchase or
acquire shares of capital stock or other equity interests of
Advanced Glassfiber Yarns; or
. the issuance subsequent to January 21, 1999 of any Indebtedness
of Advanced Glassfiber Yarns or any Restricted Subsidiary that
has been converted into or exchanged for qualified capital stock
of Advanced Glassfiber Yarns; plus
(c) in the case of the disposition or repayment of, or the receipt by
Advanced Glassfiber Yarns or any Restricted Subsidiary of any dividends
or distributions from, any Investment constituting a Restricted Payment
made after January 21, 1999, an amount equal to the lesser of the
amount of the Investment and the amount received by Advanced
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Glassfiber Yarns or any Restricted Subsidiary upon that disposition,
repayment, dividend or distribution; plus
(d) in the event Advanced Glassfiber Yarns or any Restricted
Subsidiary makes any Investment in a person that, as a result of or in
connection with that Investment, becomes a Restricted Subsidiary, an
amount equal to Advanced Glassfiber Yarns' or any Restricted
Subsidiary's existing Investment in that person that was previously
treated as a Restricted Payment; plus
(e) so long as the designation of any subsidiary as an unrestricted
subsidiary was treated as a Restricted Payment made after January 21,
1999, with respect to any unrestricted subsidiary that has been
redesignated as a Restricted Subsidiary after January 21, 1999, an
amount equal to Advanced Glassfiber Yarns' Investment in that
unrestricted subsidiary, but the amount will not in any case exceed the
designation amount with respect to that Restricted Subsidiary upon its
designation; plus
(f) $5.0 million, which amount will not be reduced by any negative
amount that occurs under clause (a) or clause (h); minus
(g) the designation amount with respect to any subsidiary of Advanced
Glassfiber Yarns which has been designated as an unrestricted
subsidiary; and minus
(h) 50% of any distributions made to Jefferson Holdings or AGY
Holdings.
Nonetheless, we are not prohibited from:
(1) paying any dividend within 60 days after the date of declaration if
the dividend would have been permitted on the date of declaration;
(2) if no default or Event of Default has occurred, acquiring any shares
of capital stock or other equity interests of Advanced Glassfiber Yarns or
any warrants, rights or options to purchase or acquire shares of capital
stock or other equity interests of Advanced Glassfiber Yarns:
(a) in exchange for shares of qualified capital stock of Advanced
Glassfiber Yarns or any warrants, rights or options to purchase or
acquire shares of qualified capital stock of Advanced Glassfiber Yarns;
or
(b) through the application of the net proceeds of a substantially
concurrent sale for cash, other than to a Restricted Subsidiary, of:
. shares of qualified capital stock of Advanced Glassfiber Yarns;
or
. any warrants, rights or options to purchase or acquire shares of
qualified capital stock of Advanced Glassfiber Yarns;
(3) if no default or Event of Default has occurred, voluntarily
prepaying, purchasing, defeasing, redeeming or otherwise retiring any
subordinated Indebtedness:
(a) solely in exchange for shares of capital stock or other equity
interests of Advanced Glassfiber Yarns or any warrants, rights or
options to purchase or acquire shares of capital stock or other equity
interests of Advanced Glassfiber Yarns. However, if these securities
are convertible into or exchangeable at the option of the holder for
Disqualified Capital Stock then the Disqualified Capital Stock must
not:
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. mature or be mandatorily redeemable under a sinking fund
obligation or be redeemable at the option of the holder of the
Disqualified Capital Stock on or prior to the final maturity of
the Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired; and
. have a weighted average life to maturity less than the
Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired; or
(b) in exchange for refinanced Indebtedness or through the
application of net proceeds of a substantially concurrent sale for
cash, other than to a Restricted Subsidiary of Advanced Glassfiber
Yarns, of:
. shares of qualified capital stock of Advanced Glassfiber Yarns or
any warrants, rights or options to purchase or acquire shares of
qualified capital stock of Advanced Glassfiber Yarns; or
. refinanced Indebtedness;
(4) making loans or advances to officers and directors of ours or any
Restricted Subsidiary in the ordinary course of business in an amount not
to exceed $1.0 million at any one time outstanding;
(5)(a) making cash distributions to Jefferson Holdings and AGY Holdings
within 75 days after the end of each taxable year in an amount equal to the
greater of:
(i) the product of the sum of:
(A) the maximum federal corporate income tax rate in
effect during that taxable year; and
(B) six percent; and
(ii) the sum of ordinary income and expense and net capital gain
allocated to Jefferson Holdings or AGY Holdings for that taxable
year; and
(iii) actual income taxes then being assessed against Jefferson
Holdings or AGY Holdings on items of ordinary income and expense
and net capital gain allocated to Jefferson Holdings or AGY
Holdings;
(b) making distributions to Jefferson Holdings with respect to its
sale of a 51% interest in Advanced Glassfiber Yarns for net asset value
not to exceed $2.5 million; and
(6) repurchasing, redeeming or otherwise retiring up to an annual amount
of $750,000 of:
(a) any capital stock or other equity interests of Advanced
Glassfiber Yarns held by any member of our management; or
(b) capital stock or other equity interests of Advanced Glassfiber
Yarns held by employees, former employees, directors or former
directors.
Limitation on Asset Sales. Advanced Glassfiber Yarns will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Advanced Glassfiber Yarns or the Restricted Subsidiary receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets; and
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(2) at least 75% of the consideration received by Advanced Glassfiber
Yarns or the Restricted Subsidiary is in the form of:
(a) cash or cash equivalents; or
(b) "replacement assets" such as the following:
. long-term assets, including intellectual property associated with
the use of those long-term assets, to be used by Advanced
Glassfiber Yarns or any Restricted Subsidiary in a Permitted
Business; or
. capital stock or other equity interests of a Restricted
Subsidiary or a person engaged primarily in a Permitted Business
that will become a Restricted Subsidiary.
Advanced Glassfiber Yarns or the Restricted Subsidiary may apply the net cash
proceeds of any Asset Sale generally within 270 days to any combination of the
following:
(1) repay any Senior Indebtedness and permanently reduce those
commitments; or
(2) purchase replacement assets from a person other than Advanced
Glassfiber Yarns and its Restricted Subsidiaries.
To the extent that we do not use the net cash proceeds of any Asset Sale
within 270 days to repay Senior Indebtedness or purchase placement assets, we
will offer to repay our subordinated Senior Indebtedness, including the notes,
at a price, in the case of the notes, equal to 100% of the principal amount of
the notes to be purchased, plus accrued and unpaid interest. The interest
payment will be subject to the right of holders of record on a record date to
receive interest due on an interest payment date that is on or prior to the
date of purchase. We would make this offer within 60 days of the Asset Sale,
and repurchase any tendered notes within 20 business days of making the offer.
We may delay an offer until there is at least $5.0 million of unapplied net
cash proceeds resulting from one or more Asset Sales.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Advanced Glassfiber Yarns will not, and will not permit any of
its Restricted Subsidiaries to create or permit to exist any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on capital stock or
other equity interests to Advanced Glassfiber Yarns or any other Restricted
Subsidiary or pay any Indebtedness owed to Advanced Glassfiber Yarns or any
other Restricted Subsidiary;
(2) make loans or advances to, or guarantee any Indebtedness or other
obligations of, or make any Investment in, Advanced Glassfiber Yarns or any
other Restricted Subsidiary; or
(3) transfer any property or assets to Advanced Glassfiber Yarns or any
other Restricted Subsidiary, except for encumbrances or restrictions
existing as a result of the following:
(a) applicable law;
(b) the indenture;
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(c) the senior credit facility or any replacement senior credit
facility;
(d) customary non-assignment provisions of any contract and customary
provisions restricting assignment or subletting in any lease governing
a leasehold interest of any Restricted Subsidiary, or any customary
restriction on the ability of a Restricted Subsidiary to dividend,
distribute or otherwise transfer any asset which secures Purchase Money
Indebtedness of that Restricted Subsidiary;
(e) any instrument governing Acquired Indebtedness, which is not
applicable to any person, or the properties or assets of any person,
other than the person or the properties or assets of the person so
acquired;
(f) restrictions with respect to a Restricted Subsidiary of Advanced
Glassfiber Yarns imposed by a binding agreement which has been entered
into for the sale or disposition of capital stock or other equity
interests or assets of that Restricted Subsidiary;
(g) customary restrictions imposed on the transfer of copyrighted or
patented materials;
(h) secured Indebtedness otherwise permitted to be incurred under the
covenants described under "--Limitation on Incurrence of Additional
Indebtedness" and""--Limitation on Liens," which is not applicable to
any property or assets other than the property or assets subject to the
Lien securing that Indebtedness; or
(i) restrictions with respect to a Restricted Subsidiary that is a
foreign subsidiary contained in any instrument governing Permitted
Indebtedness in the form of local lines of credit not to exceed $25.0
million in the aggregate at any one time outstanding so long as that
Indebtedness is secured by a letter of credit issued under the senior
credit facility.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Advanced Glassfiber Yarns will not sell or otherwise dispose of
any shares of capital stock or other equity interests of a Restricted
Subsidiary, and will not cause or permit any Restricted Subsidiary to issue or
sell or otherwise dispose of any shares of its capital stock or other equity
interests, except:
(1) to Advanced Glassfiber Yarns or a wholly owned Restricted Subsidiary;
(2) the sale of 100% of the shares of capital stock or other equity
interests of any Restricted Subsidiary owned by Advanced Glassfiber Yarns
or any Restricted Subsidiary effected in accordance with the covenants
described under "--Limitation on Asset Sales" and "--Merger, Consolidation
and Sale of Assets";
(3) in the case of Restricted Subsidiaries other than wholly owned
Restricted Subsidiaries, issuance of capital stock or other equity
interests on a pro rata basis to Advanced Glassfiber Yarns and its
Restricted Subsidiaries and minority shareholders of that Restricted
Subsidiary;
(4) the sale of capital stock or other equity interests of a Restricted
Subsidiary or issuance by a Restricted Subsidiary of capital stock or other
equity interests if following the sale or issuance:
(a) the Restricted Subsidiary is no longer a subsidiary;
(b) Advanced Glassfiber Yarns' continuing Investment in that former
Restricted Subsidiary is in compliance with "--Limitation on Restricted
Payments"; and
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(c) any sale of capital stock or other equity interests by Advanced
Glassfiber Yarns or that Restricted Subsidiary complies with the
covenant described under "--Limitation on Asset Sales."
Designation of Unrestricted Subsidiaries. Advanced Glassfiber Yarns may
designate any subsidiary, other than AGY Capital, as an "unrestricted
subsidiary" only if:
(1) no default or Event of Default has occurred;
(2) we could incur $1.00 of additional Indebtedness, other than Permitted
Indebtedness, under the covenant described under "--Limitation on
Incurrence of Additional Indebtedness"; and
(3) we would be permitted to make an Investment at the time of
designation equal to the amount of Advanced Glassfiber Yarns' Investment in
that subsidiary on that date.
Neither Advanced Glassfiber Yarns nor any Restricted Subsidiary may:
(1) provide credit support for, subject any property or assets other than
the capital stock or other equity interests of any unrestricted subsidiary
to the satisfaction of, or guarantee, any Indebtedness of any unrestricted
subsidiary unless the credit support or guarantee constitutes an Investment
permitted under the covenant described under "--Limitation on Restricted
Payments";
(2) be liable for any Indebtedness of any unrestricted subsidiary; or
(3) be liable for any Indebtedness which provides that the holder may
declare a default or cause the payment to be accelerated or payable prior
to its final scheduled maturity, except for any non-recourse guarantee
given solely to support the pledge by Advanced Glassfiber Yarns or any
Restricted Subsidiary of the capital stock or other equity interests of any
unrestricted subsidiary.
Advanced Glassfiber Yarns may revoke any designation of a subsidiary as an
unrestricted subsidiary only if:
(1) no default or Event of Default has occurred; and
(2) all Liens and Indebtedness of the unrestricted subsidiary outstanding
immediately following the revocation would have been permitted under the
indenture.
Limitation on Layered Indebtedness. Advanced Glassfiber Yarns will not, and
will not permit any Restricted Subsidiary to, incur any Indebtedness that is
subordinate in right of payment to any other Indebtedness, unless that
Indebtedness is subordinate in right of payment to, or ranks equally with, the
notes or, in the case of note guarantors, that Indebtedness is subordinate in
right of payment to, or ranks equally with, the note guarantees.
No note guarantor will guarantee any of our Indebtedness that is subordinate
in right of payment to any of our other Indebtedness unless the guarantee is
subordinate in right of payment to, or ranks equally with, the note guarantee.
Limitation on Liens. Except for Liens securing Senior Indebtedness and
Permitted Liens, Advanced Glassfiber Yarns will not, and will not cause or
permit any of its Restricted Subsidiaries to, incur any Liens of any kind
against any properties or assets to secure any Indebtedness unless:
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(1) in our case, we secure the notes and all other amounts due under the
indenture; and
(2) in the case of a note guarantor, the note guarantor secures its note
guarantee and all other amounts due under the indenture.
Merger, Consolidation and Sale of Assets. We will not consolidate or merge
with or into any person, whether or not we are the surviving person, or sell,
lease or otherwise dispose of, or cause or permit any Restricted Subsidiary to
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our and our Restricted Subsidiaries' properties and assets
unless we satisfy the following conditions:
(1) either:
(a) Advanced Glassfiber Yarns is the surviving or continuing entity;
or
(b) the surviving person, if other than us:
.is a corporation organized and validly existing in the United
States; and
.expressly assumes the due and punctual payment of the principal
of, and premium, if any, and interest on all of the notes and the
performance and observance of every covenant of the notes and the
indenture and the registration rights agreement;
(2) immediately after giving effect to the transaction:
(a) Advanced Glassfiber Yarns or the surviving person is able to
incur at least $1.00 of additional Indebtedness, other than Permitted
Indebtedness, under the covenant described under "--Limitation on
Incurrence of Additional Indebtedness"; or
(b) the Consolidated Fixed Charge Coverage Ratio for Advanced
Glassfiber Yarns or the surviving person would be greater than our
Consolidated Fixed Charge Coverage Ratio immediately prior to the
transaction;
(3) immediately before and after giving effect to the transaction, no
default or Event of Default has occurred;
(4) each note guarantor, including persons which become note guarantors
as a result of the transaction, must confirm that its note guarantee will
apply for its obligations under the indenture and the notes; and
(5) Advanced Glassfiber Yarns or the surviving person must deliver to the
trustee an officers' certificate and an opinion of counsel, each stating
that the consolidation, merger, sale, lease or other disposition complies
with the applicable provisions of the indenture and that all conditions
under the indenture relating to the transaction have been satisfied.
These limitations do not apply to:
(1) any transfer of the properties or assets of a Restricted Subsidiary
to Advanced Glassfiber Yarns or to another Restricted Subsidiary;
(2) any merger of a Restricted Subsidiary into Advanced Glassfiber Yarns;
or
(3) any merger of Advanced Glassfiber Yarns into a Restricted Subsidiary.
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Each note guarantor, unless its note guarantee is to be released, will not,
and we will not permit any note guarantor to, consolidate with or merge into
any person that is not a note guarantor unless the surviving entity assumes all
of the obligations under the note guarantee.
Limitations on Transactions with Affiliates. Advanced Glassfiber Yarns
will not, and will not permit any of its Restricted Subsidiaries to, enter
into any transaction or series of related transactions with any of our
affiliates, unless:
(1) the terms of the affiliate transaction are no less favorable than
those that could reasonably be expected to be obtained in a comparable
transaction at that time on an arm's-length basis from a person that is
not an affiliate;
(2) in the event that the affiliate transaction involves more than
$5.0 million during any twelve-month period, the terms of that
affiliate transaction are approved by a majority of the board of
directors, including a majority of the disinterested directors; and
(3) in the event that the affiliate transaction, other than one of
the supply agreements described in "Related Party Transactions,"
involves more than $10.0 million during any twelve-month period, we
obtain a favorable opinion as to the fairness of the transaction or
series of related transactions from a financial point of view from an
independent financial advisor.
However, these restrictions do not apply to:
(1) transactions with or among Advanced Glassfiber Yarns and any
Restricted Subsidiary or between or among Restricted Subsidiaries;
(2) reasonable fees and compensation paid to, and any indemnity
provided on behalf of, officers, directors, employees, consultants or
agents of Advanced Glassfiber Yarns or any Restricted Subsidiary, as
determined in good faith by our board of directors;
(3) any transactions undertaken under any contractual obligations or
rights in existence on January 21, 1999;
(4) any Restricted Payments made in compliance with "--Limitation on
Restricted Payments";
(5) loans and advances to officers, directors and employees of
Advanced Glassfiber Yarns or any Restricted Subsidiary for travel,
entertainment, moving and other relocation expenses made in the
ordinary course of business; and
(6) tax sharing or similar arrangements.
Conduct of Business; Limitation on Activities of AGY Capital. Advanced
Glassfiber Yarns and its Restricted Subsidiaries will not engage in any
businesses other than a Permitted Business. In addition, Advanced Glassfiber
Yarns will not permit AGY Capital to acquire or hold any significant assets or
other properties or engage in any business activities.
Reports to Holders. So long as any notes remain outstanding, we will provide
the trustee, the holders and the initial purchasers with annual reports and any
information, documents and other reports as are specified in sections 13 and
15(d) of the Exchange Act within 15 days after the times specified for the
filing. In addition, prior to effectiveness of our exchange offer registration
statement,
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we will make available, upon request, to any holder and any prospective
purchaser of notes the information required in Rule 144A(d)(4) under the
Securities Act.
Payments for Consent. Neither we nor any of our subsidiaries will pay or
cause to be paid any consideration to any holder of any notes for or as an
inducement to any consent, waiver or amendment of any terms or provisions of
the notes, unless the consideration is offered to be paid or agreed to be paid
to all holders of the notes that so consent, waive or agree to amend.
Events of Default
The following events are "Events of Default":
(1) the failure to pay the principal of, or premium, if any, on any note
when due;
(2) the failure to pay any interest on any notes when due, continued for
30 days or more;
(3) the failure to perform or comply with any of the provisions described
under "--Material Covenants--Merger, Consolidation and Sale of Assets";
(4) the failure to perform or comply with any other covenant or agreement
contained in the indenture or in the notes which failure continues for 30
days or more after written notice from the trustee or the holders of at
least 25% of the notes;
(5) the failure to pay at final maturity or upon acceleration of the
final maturity, giving effect to any applicable grace periods and any
extensions of the maturity, the principal amount of any Indebtedness of
Advanced Glassfiber Yarns or any Restricted Subsidiary, if the total
principal amount of that Indebtedness, together with the principal amount
of any other Indebtedness in default for failure to pay principal at final
maturity or which has been so accelerated, totals $7.5 million or more at
any time;
(6) one or more judgments not adequately covered by insurance in an
amount in excess of $7.5 million have been rendered against Advanced
Glassfiber Yarns or any of its Restricted Subsidiaries and the judgment or
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after the judgment or judgments become final and non-appealable;
(7) events of bankruptcy affecting us or any of Advanced Glassfiber
Yarns' "significant" subsidiaries as defined under the Securities Act or
group of subsidiaries that, taken together, would constitute a significant
subsidiary; or
(8) the note guarantee of any note guarantor is declared to be
unenforceable in a judicial proceeding or ceases for any reason to be in
full force and effect or any note guarantor denies or disaffirms its
obligations under the note guarantee.
If any of these Events of Default other than an Event of Default upon
bankruptcy occurs and is continuing, the trustee or the holders of at least 25%
of the notes may declare the principal of and premium, if any, and accrued and
unpaid interest on all the notes to be due and payable. If an Event of Default
upon bankruptcy occurs and is continuing, then all unpaid principal of, and
premium, if any, and accrued and unpaid interest on all of the notes will
automatically become immediately due and payable.
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At any time after a declaration of acceleration with respect to the notes,
the holders of a majority of the notes may rescind and cancel the declaration
and its consequences:
(1) if all existing Events of Default have been cured or waived other
than nonpayment of principal or interest that has become due solely because
of the acceleration;
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by the declaration of acceleration, has been paid; and
(3) if we have paid the trustee its reasonable compensation and
reimbursed the trustee for its reasonable expenses, disbursements and
advances.
The holders of a majority of the notes may waive any existing default or
Event of Default under the indenture, and its consequences, except a default in
the payment of the principal of, premium, if any, or interest on any notes.
The trustee is generally under no obligation to exercise any of its rights or
powers under the indenture at the request, order or direction of any of the
holders, unless those holders have offered to the trustee reasonable indemnity.
The holders of a majority of the notes have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the trustee.
No holder of any notes will have any right to institute any proceeding with
respect to the indenture unless:
(1) that holder gives to the trustee written notice of a continuing Event
of Default;
(2) holders of at least 25% of the notes make a written request to pursue
the remedy;
(3) those holders of the notes provide to the trustee satisfactory
indemnity;
(4) the trustee does not comply within 60 days; and
(5) during the 60-day period the holders of a majority of the notes do
not give the trustee a written direction which, in the opinion of the
trustee, is inconsistent with the request.
Otherwise, no holder of any note will have any right to institute any
proceeding with respect to the indenture except:
(1) a holder of a note may institute suit for enforcement of payment of
the principal of and premium, if any, or interest on the holder's note on
or after the due dates expressed in that note; or
(2) the institution of any proceeding with respect to the indenture,
including acceleration, by the holders of a majority of the notes.
We are required to deliver to the trustee written notice of any event which
would constitute a default, its status and what action we are taking or propose
to take in respect of the default. In addition, we are required to deliver to
the trustee, within 120 days after the end of each year, a certificate
indicating whether we know of any default that occurred during the previous
year.
If a default occurs, is continuing and is known to the trustee, the trustee
must mail to each holder notice of the default within five days after it is
known or written notice of it is received by the
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trustee. Except in the case of a default in the payment of principal of,
premium, if any, or interest on any note, the trustee may withhold notice if
and so long as a committee of its trust officers in good faith determines that
withholding notice is not opposed to the interest of the holders.
Legal Defeasance and Covenant Defeasance
We may, at our option, elect a "defeasance" which means that we would be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding notes, except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when the payments are due;
(2) our obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the trustee and
our related obligations; and
(4) the defeasance provisions of the indenture.
In addition, we may, at our option, elect a "covenant defeasance" which means
we would have our obligations released with respect to some of our covenants
and thereafter any omission to comply with those obligations would not
constitute a default or Event of Default with respect to the notes. In the
event covenant defeasance occurs, some of the events described under "Events of
Default" would no longer constitute an Event of Default. Non-payment,
bankruptcy, receivership, reorganization and insolvency events, however, would
continue to be "Events of Default" with respect to the notes.
In order to exercise either defeasance or covenant defeasance:
(1) we must irrevocably deposit with the trustee amounts sufficient to
pay the principal of, premium, if any, and interest on the notes;
(2) we must deliver to the trustee an opinion of counsel to the effect
that holders will not recognize income, gain or loss for federal income tax
purposes as a result of the defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if the defeasance or covenant
defeasance not occurred;
(3) we must deliver to the trustee an officers' certificate stating that
no default or Event of Default has occurred and is continuing on the date
of deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(4) we must deliver to the trustee an officers' certificate stating that
the defeasance or covenant defeasance will not result in a breach or
violation of, or constitute a default under, the indenture or any other
material agreement or instrument to which we or any of our subsidiaries is
a party or by which we or any of our subsidiaries is bound;
(5) we must deliver to the trustee an officers' certificate stating that
the deposit was not made by us with the intent of preferring the holders
over any other creditors of ours or any
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subsidiary or with the intent of defeating, hindering, delaying or
defrauding any of our other creditors or others;
(6) we must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions relating to the
defeasance or the covenant defeasance have been complied with; and
(7) we must deliver to the trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of the
notes, when any of the following occur:
(1) either:
(a) all the notes have been delivered to the trustee for
cancellation; or
(b) all notes not previously delivered to the trustee for
cancellation have become due and payable, or will be due and payable
within one year or are to be called for redemption within one year, and
we have irrevocably deposited or caused to be deposited with the
trustee funds sufficient to pay and discharge the notes not previously
delivered to the trustee for cancellation;
(2) we have paid all other sums payable under the indenture; and
(3) we have delivered to the trustee an officers' certificate stating
that we have complied with all conditions under the indenture relating to
the satisfaction and discharge of the indenture.
Modification of the Indenture
From time to time, we and the trustee, without the consent of the holders,
may amend the indenture or the notes to:
(1) cure ambiguities, defects or inconsistencies;
(2) provide for additional note guarantors; and
(3) make other changes which do not, in the opinion of the trustee,
materially adversely affect the rights of any of the holders.
In formulating its opinion on these matters, the trustee will be entitled to
rely on evidence it deems appropriate, including solely on an opinion of
counsel. Other modifications and amendments of the indenture or the notes may
be made with the consent of the holders of a majority of the notes. However,
without the consent of the holders, no amendment may:
(1) reduce the amount of notes whose holders must consent to an amendment
or waiver;
(2) reduce the rate of or change the time for payment of interest on any
notes;
(3) reduce the principal of or change the fixed maturity of any notes, or
change the date on which any notes may be subject to redemption, or reduce
the redemption price;
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(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the indenture entitling each holder
to receive payment of principal of, premium, if any, and interest on the
notes on or after the due date of the payment or to bring suit to enforce
the payment, or permitting holders of a majority of notes to waive defaults
or Events of Default;
(6) materially amend, change or modify our obligation to make and
consummate an offer to repurchase the notes upon a change of control that
has occurred or make and consummate a net proceeds offer with respect to
any Asset Sale that has been consummated;
(7) modify the subordination provisions of the indenture with respect to
us or any note guarantor in a manner that adversely affects the rights of
any holder; or
(8) eliminate or modify a note guarantor's obligations with respect to
its note guarantee which materially adversely affects holders.
No amendment may be made to the subordination provisions of the indenture
that adversely affects the rights of any holder of Senior Indebtedness of ours
or a note guarantor unless the holders of the Senior Indebtedness consent to
the change.
Governing Law
The indenture and the notes are governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required.
The Trustee
Except during the continuance of an Event of Default, the trustee will
perform only those duties as are specifically set forth in the indenture.
During the existence of an Event of Default, the trustee will exercise the
rights and powers vested in it by the indenture, and use the same degree of
care and skill as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act contain
limitations on the rights of the trustee, should it become a creditor of ours,
to obtain payments of claims or to realize on property. Subject to the Trust
Indenture Act, the trustee will be permitted to engage in other transactions.
However, if the trustee acquires any conflicting interest as described in the
Trust Indenture Act, it must eliminate the conflict or resign.
Material Definitions
"Acquired Indebtedness" means Indebtedness with respect to any specified
person which:
(1) exists at the time that person becomes a Restricted Subsidiary or at
the time it merges or consolidates with Advanced Glassfiber Yarns or any of
its Restricted Subsidiaries; or
(2) is assumed in connection with the acquisition of assets.
Acquired Indebtedness does not include Indebtedness incurred in connection
with, or in anticipation or contemplation of, the acquisition, merger or
consolidation.
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"Asset Sale" means any sale, issuance, conveyance or other disposition by
Advanced Glassfiber Yarns or any of its Restricted Subsidiaries of:
(1) any capital stock or other equity interests of any Restricted
Subsidiary; or
(2) any other property or assets other than cash, cash equivalents or
capital stock or other equity interests, of Advanced Glassfiber Yarns or
any Restricted Subsidiary other than in the ordinary course of business.
An Asset Sale does not include:
(1) the sale, conveyance or other disposition of all or substantially all
of the assets of Advanced Glassfiber Yarns or its Restricted Subsidiaries,
as permitted under "--Material Covenants--Merger, Consolidation and Sale of
Assets";
(2) any sale of capital stock or other equity interests in, or
Indebtedness or other securities of, an unrestricted subsidiary;
(3) a disposition of inventory or leases in the ordinary course of
business;
(4) dispositions of assets in any year with a fair market value not to
exceed $2.0 million in the aggregate;
(5) for purposes of "Material Covenants--Limitation on Asset Sales" only,
the making of a Permitted Investment or Restricted Payment; and
(6) a disposition in the ordinary course of business of obsolete or worn-
out equipment.
"change of control" means the occurrence of any of the following:
(1) Prior to the first public equity offering:
(a) the Permitted Holders do not beneficially own at least 51% of the
total voting power of Advanced Glassfiber Yarns;
(b) any Permitted Holder ceases to beneficially own at least 10% of
the total voting power of Advanced Glassfiber Yarns; or
(c) any person beneficially owns a percentage of the total voting
power equal to or greater than that beneficially owned by any one
Permitted Holder;
(2) Subsequent to the first public equity offering:
(a) any person, other than one or more Permitted Holders, is or
becomes the beneficial owner of more than 35% of the total voting power
of Advanced Glassfiber Yarns; and
(b) the Permitted Holders beneficially own, in the aggregate, a
lesser percentage of the total voting power of Advanced Glassfiber
Yarns than that other person;
(3) During any period of two consecutive years or, if this event occurs
on or before January 21, 2001, individuals who at the beginning of that
period constituted our board of directors, together with any new directors
whose election by the board of directors or whose nomination for election
by our members was approved by a majority of our directors then still in
office who were either directors at the beginning of that period or whose
election or
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nomination for election was previously so approved, cease for any reason to
constitute a majority of our directors then in office;
(4) Advanced Glassfiber Yarns consolidates with, or merges with or into,
another person, other than a wholly owned Restricted Subsidiary, or
Advanced Glassfiber Yarns or any of its Restricted Subsidiaries sell,
transfer or otherwise dispose of all or substantially all of the assets of
Advanced Glassfiber Yarns and its Restricted Subsidiaries, determined on a
consolidated basis, to any person, other than Advanced Glassfiber Yarns or
any wholly owned Restricted Subsidiary. This does not apply to any
transaction where immediately after the transaction the persons that
beneficially owned a majority of the total voting power of Advanced
Glassfiber Yarns beneficially own a majority of the total voting power of
the then outstanding voting stock of the surviving or transferee person;
(5) Compagnie Saint-Gobain becomes an affiliate of Glass Holdings if that
affiliation results in the termination of the various intellectual property
agreements between Owens Corning and Advanced Glassfiber Yarns; or
(6) The non-compete agreement with Owens Corning ceases to be in full
force and effect at any time prior to September 30, 2003.
"Consolidated EBITDA" means Consolidated Net Income for a period, plus the
following to the extent deducted in calculating the Consolidated Net Income:
(1) Consolidated Income Tax Expense for that period;
(2) Consolidated Interest Expense for that period; and
(3) Consolidated Non-cash Charges for that period; less
(a) all non-cash items increasing Consolidated Net Income for that
period; and
(b) all cash payments during that period relating to non-cash charges
that were added back in determining Consolidated EBITDA in any prior
period.
"Consolidated Fixed Charge Coverage Ratio" is the ratio of the aggregate
amount of Consolidated EBITDA for the four most recent quarters to Consolidated
Fixed Charges for the four quarter period. For purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" is calculated after
giving effect on a pro forma basis to:
(1) the incurrence or repayment of any Indebtedness of Advanced
Glassfiber Yarns or any of its Restricted Subsidiaries occurring during or
after the four quarter period, as if that incurrence or repayment occurred
on the first day of the four quarter period; and
(2) any Investment by us in a person that becomes a Restricted
Subsidiary, acquisition of assets not in the ordinary course of business,
Asset Sale, other asset dispositions not in the ordinary course of
business, or sale or disposition of capital stock occurring during or after
the four quarter period, as if the transaction, including the incurrence of
any Acquired Indebtedness, occurred on the first day of the four quarter
period.
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Also, in calculating "Consolidated Fixed Charges" for purposes of determining
the denominator of this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding variable rate Indebtedness will be deemed to
have accrued at a fixed rate per annum equal to the interest rate in effect
on the date of determination;
(2) if interest on any Indebtedness may optionally be determined at an
interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate
in effect on the date of determination will be deemed to have been in
effect during the four quarter period; and
(3) interest on variable rate Indebtedness, to the extent the interest is
covered by hedging obligations, is deemed to accrue at the rate per annum
resulting after giving effect to the operation of the interest rate hedge
contracts.
For purposes of determining the Consolidated Fixed Charges Coverage Ratio at
any time prior to October 1, 1999, Consolidated EBITDA and Consolidated Fixed
Charges will be calculated as follows:
(1) for the quarter ending December 31, 1998, Consolidated EBITDA and
Consolidated Fixed Charges will equal Consolidated EBITDA and Consolidated
Fixed Charges, respectively, for the quarter;
(2) for the quarter ending March 31, 1999, Consolidated EBITDA and
Consolidated Fixed Charges will equal Consolidated EBITDA and Consolidated
Fixed Charges, respectively, for the two quarters then ending; and
(3) for the quarter ending June 30, 1999, Consolidated EBITDA and
Consolidated Fixed Charges will equal Consolidated EBITDA and Consolidated
Fixed Charges, respectively, for the three quarters then ending.
"Consolidated Fixed Charges" means, for any period, the sum of:
(1) Consolidated Interest Expense; plus
(2) the product of:
(a) the amount of all dividend payments on any series of preferred
stock of Advanced Glassfiber Yarns, other than dividends paid in
qualified capital stock, paid, accrued or scheduled to be paid or
accrued during that period, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the sum of:
.the maximum federal corporate income tax rate in effect during the
taxable year; and
.six percent.
"Consolidated Income Tax Expense" means the product of:
(1) the net income of Advanced Glassfiber Yarns and its Restricted
Subsidiaries for that period as determined on a consolidated basis in
accordance with GAAP; and
(2) the sum of:
. the maximum federal corporate income tax rate in effect during that
period; and
. six percent.
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"Consolidated Interest Expense" means the sum of:
(1) the total cash and non-cash interest expense of Advanced Glassfiber
Yarns and its Restricted Subsidiaries for the relevant period determined on
a consolidated basis in accordance with GAAP, including:
(a) any amortization of debt discount and any amortization or write
off of deferred financing costs;
(b) the net costs under hedging obligations related to Indebtedness,
including amortization of fees;
(c) all capitalized interest;
(d) the interest portion of any deferred payment obligation;
(e) commissions, discounts and other fees and charges incurred under
letters of credit or bankers' acceptances; and
(f) any interest expense on Indebtedness of another person that is
guaranteed by Advanced Glassfiber Yarns or one of its Restricted
Subsidiaries or secured by a Lien on the assets of Advanced Glassfiber
Yarns or one of its Restricted Subsidiaries whether or not the
guarantee or Lien is called upon; and
(2) the interest component of capitalized lease obligations paid, accrued
and/or scheduled to be paid or accrued by Advanced Glassfiber Yarns and its
Restricted Subsidiaries during that period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means the total net income or loss of Advanced
Glassfiber Yarns and its Restricted Subsidiaries for any period on a
consolidated basis, determined in accordance with GAAP. However, we exclude
the following in calculating "Consolidated Net Income":
(1) net after-tax gains and losses from Asset Sales, other asset
dispositions not in the ordinary course of business, or sale or disposition
of capital stock or abandonments of reserves relating to those
transactions;
(2) net after-tax items classified as extraordinary or non-recurring
gains or losses;
(3) the net income of any person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with Advanced Glassfiber Yarns or any Restricted
Subsidiary;
(4) the net income, but not loss, of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by contract, operation
of law or otherwise;
(5) the net income of any person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to Advanced
Glassfiber Yarns or to a Restricted Subsidiary by that person;
(6) any restoration to income of any contingency reserve, except to the
extent that provision for the reserve was made out of Consolidated Net
Income accrued at any time following January 21, 1999; and
(7) all gains and losses from the cumulative effect of any change in
accounting principles.
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"Consolidated Non-cash Charges" means the aggregate depreciation,
amortization and other non-cash expenses of Advanced Glassfiber Yarns and its
Restricted Subsidiaries for that period, determined on a consolidated basis in
accordance with GAAP, excluding any charge which requires an accrual of or a
reserve for cash charges for any future period.
"Disqualified Capital Stock" means that portion of any capital stock or other
equity interests which matures or is mandatorily redeemable, or is redeemable
at the sole option of the holder of the capital stock or other equity interests
on or prior to the 91st day after the final maturity date of the notes.
"Indebtedness" includes the following:
(1) the principal amount or accreted value of all obligations for
borrowed money;
(2) principal amount or accreted value of all obligations evidenced by
bonds, debentures, notes or other similar instruments;
(3) capitalized lease obligations;
(4) all obligations issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any
title retention agreement, excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being properly contested in good faith;
(5) all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations;
(7) with respect to all Indebtedness which is secured by any Lien, the
amount of that Indebtedness being deemed to be the lesser of the fair
market value of the property or asset or the amount of the Indebtedness so
secured;
(8) all hedging obligations; and
(9) all Disqualified Capital Stock. The amount of Indebtedness
represented by the Disqualified Capital Stock is equal to the greater of
its voluntary or involuntary liquidation preference and its maximum fixed
repurchase price, but excluding accrued dividends. The "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price is calculated in accordance with the terms of the
Disqualified Capital Stock as if the Disqualified Capital Stock were
purchased on the date of determination.
"Investment" includes any loan or other extension of credit, including a
guarantee, or capital contribution to, or any purchase or acquisition by that
person of any capital stock or other equity interests, bonds, notes, debentures
or other securities or evidences of Indebtedness. "Investment" excludes
accounts receivable or deposits arising in the ordinary course of business.
For purposes of the "--Limitation on Restricted Payments" covenant:
(1) "Investment" includes the fair market value of the net assets of any
Restricted Subsidiary at the time that the Restricted Subsidiary is
designated an unrestricted subsidiary. Upon a redesignation of the
subsidiary as a Restricted Subsidiary, Advanced Glassfiber Yarns
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would continue to have a permanent "Investment" in an unrestricted
subsidiary in an amount, if positive, equal to:
(a) the total amount of Advanced Glassfiber Yarns' "Investments" in
the subsidiary made prior to or at the time of the redesignation; less
(b) that portion of the fair market value of the net assets of the
subsidiary at the time that the subsidiary is re-designated as a
Restricted Subsidiary that is proportionate to Advanced Glassfiber
Yarns' equity interest in the subsidiary; and
(2) any property transferred to or from an unrestricted subsidiary will
be valued at its fair market value at the time of the transfer.
If Advanced Glassfiber Yarns or any Restricted Subsidiary sells or otherwise
disposes of any common stock of a Restricted Subsidiary in a way that the
Restricted Subsidiary would cease to be a subsidiary of Advanced Glassfiber
Yarns, Advanced Glassfiber Yarns would be deemed to have made an Investment on
the date of the sale or disposition equal to the fair market value of the
common stock of the Restricted Subsidiary not sold or disposed of.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind including any conditional sale or other title
retention agreement, any related lease and any agreement to give any security
interest.
"Permitted Business" means the business or businesses conducted by Advanced
Glassfiber Yarns and its Restricted Subsidiaries as of January 21, 1999 and any
related business.
"Permitted Holders" means any of Owens Corning and its affiliates and Glass
Holdings and Porcher Industries and their affiliates.
"Permitted Indebtedness" means each of the following:
(1) Indebtedness in respect of the old notes and exchange notes and any
replacement notes issued under the indenture, and the related note
guarantees;
(2) guarantees by any note guarantor of Indebtedness of Advanced
Glassfiber Yarns other than the notes;
(3) Indebtedness incurred under the senior credit facility in an
aggregate principal amount at any time outstanding not to exceed $315.0
million, less the amount of any permanent prepayments of Indebtedness made
with the net cash proceeds of an Asset Sale;
(4) other Indebtedness of Advanced Glassfiber Yarns and its Restricted
Subsidiaries outstanding on January 21, 1999, reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanently reduced;
(5) hedging obligations entered into in the ordinary course of business
and not for speculative purposes;
(6) Indebtedness of any Restricted Subsidiary owed to and held by
Advanced Glassfiber Yarns or any note guarantor for so long as the
Indebtedness is held by Advanced Glassfiber Yarns or that note guarantor,
subject to no Lien securing Indebtedness other than Permitted Liens.
However, if any person other than Advanced Glassfiber Yarns or any note
guarantor
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holds any Indebtedness or holds a Lien in respect of the Indebtedness
securing Indebtedness other than Permitted Liens, that would constitute the
incurrence of Indebtedness not constituting Permitted Indebtedness;
(7) Indebtedness of Advanced Glassfiber Yarns owed to and held by any
note guarantor that is unsecured and subordinated to the payment and
performance of Advanced Glassfiber Yarns' obligations under any Senior
Indebtedness, the indenture, the notes and the note guarantees and subject
to no Lien securing Indebtedness other than Permitted Liens. However, if
any person other than any note guarantor owns or holds any Indebtedness or
any person other than any note guarantor holds a Lien in respect of the
Indebtedness securing Indebtedness other than Permitted Liens, that would
constitute the incurrence of Indebtedness not constituting Permitted
Indebtedness;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently, except
in the case of daylight overdrafts, drawn against insufficient funds in the
ordinary course of business as long as the Indebtedness is extinguished
within two business days of incurrence;
(9) Indebtedness represented by letters of credit for the account of
Advanced Glassfiber Yarns or any Restricted Subsidiary in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(10) refinanced Indebtedness, other than Permitted Indebtedness, incurred
under the covenant described under "--Material Covenants--Limitation on
Incurrence of Additional Indebtedness" or Indebtedness incurred under
clause (1) or (4) of this definition of Permitted Indebtedness;
(11) capitalized lease obligations and Purchase Money Indebtedness of
Advanced Glassfiber Yarns and its Restricted Subsidiaries that do not
exceed $10.0 million in the aggregate at any one time;
(12) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations incurred in connection
with the disposition of any business, assets, or Restricted Subsidiary,
other than guarantees of Indebtedness incurred acquiring all or any portion
of the business, assets or Restricted Subsidiary for the purpose of
financing the acquisition. However, the maximum aggregate liability in
respect of all that Indebtedness may at no time exceed the gross proceeds
actually received by Advanced Glassfiber Yarns and the Restricted
Subsidiary in connection with the disposition;
(13) additional Indebtedness of Advanced Glassfiber Yarns or any
Restricted Subsidiary in an aggregate principal amount not to exceed $10.0
million at any one time outstanding;
(14) Indebtedness of foreign subsidiaries which are Restricted
Subsidiaries may incur Indebtedness in the form of local lines of credit
not to exceed $25.0 million in the aggregate at any one time outstanding so
long as that Indebtedness is secured by a letter of credit issued under the
senior credit facility; and
(15) Indebtedness of Advanced Glassfiber Yarns incurred under the keep-
well agreement with Owens Corning.
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"Permitted Investments" means:
(1) Investments by Advanced Glassfiber Yarns or any Restricted Subsidiary
that results in any person becoming a Restricted Subsidiary;
(2) Investments by any Restricted Subsidiary in Advanced Glassfiber
Yarns;
(3) Investments in cash and cash equivalents;
(4) any extension, modification or renewal of any Investments existing as
of January 21, 1999, but not Investments involving additional advances,
contributions or other investments of cash or property, other than as a
result of the accrual or accretion of interest or original issue discount
or payment-in-kind under the terms of that Investment as of January 21,
1999;
(5) transactions or arrangements with officers, directors or employees of
Advanced Glassfiber Yarns or any subsidiary of Advanced Glassfiber Yarns
entered into in the ordinary course of business;
(6) Investments received as a result of the bankruptcy or reorganization
of any person or taken in settlement of or other resolution of claims or
disputes;
(7) Investments in the form of intercompany Indebtedness permitted to be
issued under the covenant entitled "--Limitation on Incurrence of
Additional Indebtedness";
(8) Investments made by Advanced Glassfiber Yarns or its Restricted
Subsidiaries as a result of non-cash consideration permitted to be received
in connection with an Asset Sale that complies with the covenant described
under "--Material Covenants--Limitation on Asset Sales"; and
(9) other Investments not to exceed $5.0 million at any one time
outstanding.
"Permitted Junior Securities" means any securities of Advanced Glassfiber
Yarns or any other person that are:
(1) equity securities without special covenants; or
(2) debt securities expressly subordinated in right of payment to all
Senior Indebtedness under a court order so providing and as to which:
(a) the interest rate on those securities does not exceed the
effective interest rate on the notes on January 21, 1999;
(b) those securities are not entitled to the benefits of covenants or
defaults materially more beneficial to the holders of those securities
than those in effect with respect to the notes on January 21, 1999; and
(c) those securities do not provide for amortization as modified by
the plan of reorganization under which those securities are issued.
"Permitted Liens" means any of the following:
(1) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if a reserve or other appropriate provision
has been made;
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(2) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(3) any interest or title of a lessor under any capitalized lease
obligation so long as the Liens do not extend to any property which is not
leased property subject to that capitalized lease obligation;
(4) purchase money Liens to finance property of Advanced Glassfiber Yarns
or a Restricted Subsidiary acquired in the ordinary course of business as
long as:
(a) the related Purchase Money Indebtedness does not exceed the cost
of that property and is not secured by any property of Advanced
Glassfiber Yarns or any Restricted Subsidiary other than the property
so acquired; and
(b) the Lien securing the Indebtedness is created within 90 days of
the acquisition;
(5) Liens upon specific items of inventory or other goods and proceeds
securing obligations in respect of bankers' acceptances issued or created
to facilitate the purchase, shipment or storage of the inventory or other
goods;
(6) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
those letters of credit;
(7) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(8) Liens securing hedging obligations that relate to Indebtedness that
is incurred in accordance with the covenant described under "--Material
Covenants--Limitation on Incurrence of Additional Indebtedness" and that
are secured by the same assets as secure those hedging obligations;
(9) Liens existing on January 21, 1999 and Liens to secure any refinanced
Indebtedness that has been secured by a Lien permitted under the covenant
described under "--Material Covenants--Limitation on Liens" and which has
been incurred in accordance with the covenant described under "--Material
Covenants--Limitation on Incurrence of Additional Indebtedness" if those
new Liens:
(a) are not materially less favorable to the holders of notes and are
not materially more favorable to the lienholders with respect to those
Liens than the Liens in respect of the Indebtedness being refinanced;
and
(b) do not extend to any property or assets other than the property
or assets securing the refinanced Indebtedness;
(10) Liens securing Acquired Indebtedness incurred in accordance with the
covenant described under "--Material Covenants--Limitation on Incurrence of
Additional Indebtedness" if:
(a) those Liens secured that Acquired Indebtedness prior to the
incurrence of that Acquired Indebtedness by Advanced Glassfiber Yarns
or a Restricted Subsidiary and were not granted in connection with the
incurrence of that Acquired Indebtedness by Advanced Glassfiber Yarns
or a Restricted Subsidiary; and
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(b) those Liens do not extend to or cover any property of Advanced
Glassfiber Yarns or any Restricted Subsidiary other than the property
that secured the Acquired Indebtedness prior to the time the
Indebtedness became Acquired Indebtedness of Advanced Glassfiber Yarns
or a Restricted Subsidiary and are no more favorable to the lienholders
than the Liens securing the Acquired Indebtedness prior to the
incurrence of that Acquired Indebtedness by Advanced Glassfiber Yarns
or a Restricted Subsidiary; and
(11) Liens securing other Indebtedness not in excess of $5.0 million at
any one time outstanding.
"Purchase Money Indebtedness" means Indebtedness of Advanced Glassfiber Yarns
or any Restricted Subsidiary incurred for the purpose of financing all or any
part of the purchase price or other cost of construction or improvement of any
property, as long as the aggregate principal amount of that Indebtedness does
not exceed the lesser of the fair market value of the property or the purchase
price or cost, including any refinancing of that Indebtedness that does not
increase the aggregate principal amount, or accreted amount, if less, of the
Indebtedness as of the date of refinancing.
"Senior Indebtedness" includes the following:
(1) all obligations under the senior credit facility;
(2) all hedging obligations;
(3) all obligations under letters of credit; and
(4) all other Indebtedness permitted under the indenture, including
principal, premium, if any, and interest on that Indebtedness, unless the
instrument under which that Indebtedness is incurred expressly provides
that that Indebtedness is not senior in right of payment to the notes in
the case of Advanced Glassfiber Yarns or a note guarantee in the case of a
note guarantor, and all related renewals, extensions, modifications,
amendments or refinancings.
Nonetheless, Senior Indebtedness does not include:
(1) any obligation for federal, state, local or other taxes;
(2) any Indebtedness between Advanced Glassfiber Yarns and any subsidiary
of Advanced Glassfiber Yarns or any affiliate of Advanced Glassfiber Yarns
or any of that affiliate's subsidiaries, other than Indebtedness created by
Advanced Glassfiber Yarns in connection with the guarantee of Indebtedness
of a subsidiary and unless that Indebtedness has been pledged to secure
obligations under Senior Indebtedness;
(3) any obligation in respect of any trade payable incurred for the
purchase of goods or materials, or for services obtained, in the ordinary
course of business;
(4) that portion of any Indebtedness that is incurred in violation of the
indenture;
(5) Indebtedness evidenced by the notes or the note guarantees;
(6) Indebtedness of Advanced Glassfiber Yarns or a note guarantor that is
expressly junior in right of payment to any other Indebtedness of Advanced
Glassfiber Yarns or a note guarantor;
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(7) any obligation owing under leases, other than capitalized lease
obligations, or management agreements;
(8) any obligation that by operation of law is subordinate to any general
unsecured obligations; and
(9) Indebtedness of Advanced Glassfiber Yarns to the extent the
Indebtedness is owed to and held by any federal, state, local or other
governmental authority, excluding Indebtedness owing to state or local
governmental authorities in the form of industrial revenue bonds or other
state or local bond financings.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes material U.S. federal income tax
considerations associated with the exchange of the old notes for the exchange
notes in the exchange offer and the ownership and disposition of the notes. The
summary is based on the Internal Revenue Code of 1986, as amended, and
regulations, rulings and judicial decisions as of the date of this prospectus,
all of which may be repealed, revoked or modified with possible retroactive
effect. This summary is limited to investors who will hold the notes as capital
assets within the meaning of Section 1221 of the Internal Revenue Code and does
not deal with holders that may be subject to special tax rules including, but
not limited to:
.insurance companies;
.tax-exempt organizations;
.financial institutions;
.dealers in securities or currencies;
.traders in securities electing to mark to market;
.holders whose functional currency is not the U.S. dollar;
.holders who will hold the notes as a hedge against currency risks or as
part of a straddle, synthetic security, conversion transaction or other
integrated investment comprised of the notes and one or more other
investments; or
.except to the extent discussed below, Non-U.S. Holders.
The summary is applicable only to persons who tender their old notes in
exchange for newly issued exchange notes and does not address other purchasers.
This summary is for general information only and does not address all aspects
of federal income taxation that may be relevant to holders of the notes in
light of their particular circumstances. It does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
You should consult your own tax advisor as to the particular tax consequences
to you of the exchange of old notes for exchange notes and the ownership and
disposition of the notes, including the applicability of any federal estate or
gift tax laws, any state, local, or foreign tax laws, any changes in applicable
tax laws, and any pending or proposed legislation or regulations. We have not
asked for or received an opinion of counsel with regard to the following
discussion of federal income tax consequences.
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As used in this prospectus, the term "U.S. Holder" means a holder of notes
that is:
.a citizen or resident of the United States for U.S. federal income tax
purposes;
.a corporation or entity taxed as a corporation created or organized under
the laws of the United States, any state in the U.S. or the District of
Columbia;
.an estate, the income of which is subject to United States federal income
tax without regard to its source; or
.a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.
A "Non-U.S. Holder" is any beneficial holder that is not a U.S. Holder.
Effect of Exchange Offer
There will be no U.S. federal income tax consequences to anyone exchanging an
old note for an exchange note in the exchange offer. You will have the same
adjusted basis and holding period in the exchange note as you had in the old
note immediately before the exchange.
U.S. Taxation of U.S. Holders
Stated interest on notes. Stated interest on a note generally will be
included in the gross income of a U.S. Holder as ordinary income at the time it
accrues or is received in accordance with the U.S. Holder's method of
accounting for U.S. federal income tax purposes.
Disposition of the notes. Upon the sale, exchange, redemption, retirement or
other disposition of a note, collectively, a "Disposition", a U.S. Holder
generally will recognize gain or loss equal to the difference between the
amount realized upon the Disposition, except to the extent such amount is
attributable to accrued but unpaid interest which will be taxable as such, and
such holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax
basis in a note will, in general, be the U.S. Holder's cost for that note. This
gain or loss will be capital gain or loss. Net capital gain, such as capital
gain in excess of capital loss, recognized by an individual U.S. Holder upon
the disposition of a note that has been held for more than one year generally
will be subject to tax at a maximum rate of 20%. A note that has been held for
one year or less will be taxed at ordinary income tax rates. The deductibility
of capital losses is subject to limitations.
Market discount. U.S. Holders, other than original purchasers of the old
notes, should be aware that the sale of the exchange notes may be affected by
the market discount provisions of the Internal Revenue Code. The market
discount rules generally provide that if a U.S. Holder of a note
. purchased the note, after the original offering, at a market discount
exceeding a statutorily defined de minimis amount, and
. thereafter recognizes gain upon a disposition, including a partial
redemption, of the exchange note received in exchange for an old note,
the lesser of the gain or the portion of the market discount that accrued while
the old note and exchange note were held by the U.S. Holder will be treated as
ordinary interest income at the time
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of disposition. The rules also provide that a U.S. Holder who acquires a note
at a market discount may be required to defer a portion of any interest expense
that may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry the note until the U.S. Holder disposes of the note in a
taxable transaction. If a holder of a note elects to include market discount in
income currently, neither of these rules would apply.
Non-U.S. Holders
Under present U.S. federal income tax law, subject to the discussion of
backup withholding and information reporting below:
. payments of principal and interest on the notes to any Non-U.S. Holder
will not be subject to U.S. federal income or withholding tax so long as:
. the Non-U.S. Holder does not actually or constructively own 10% or
more of the total capital or profits interests in Advanced Glassfiber
Yarns or of the total combined voting power of all classes of stock
entitled to vote of AGY Capital;
. the Non-U.S. Holder is not a controlled foreign corporation that is
related to us, directly or indirectly, through stock ownership;
. the interest payments are not effectively connected with a United
States trade or business; and
. the beneficial owner of the note provides, either directly or through
a financial institution that holds the note on behalf of the non-U.S.
Holder and that holds customers' securities in the ordinary course of
its trade or business, us or our agent an IRS Form W-8 or a
substantially similar substitute form, signed under penalties of
perjury, that it is not a United States person and provides its name
and address; and
. a Non-U.S. Holder will not be subject to U.S. federal income tax on gain
realized on the sale, exchange, redemption, retirement or other
disposition of a note, unless:
. the gain is effectively connected with a trade or business carried on
by the holder within the United States or, if a treaty applies,
attributable to the United States permanent establishment maintained
by the holder; or
. the holder is an individual who is present in the United States for
183 days or more in the taxable year of disposition and certain other
requirements are met.
Backup Withholding and Information Reporting
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments made in respect of the notes to a holder who is not an "exempt
recipient" and who fails to provide identifying information, such as the
holder's taxpayer identification number, in the required manner. Generally,
individuals are not exempt recipients, whereas corporations and various other
entities generally are exempt recipients. Payments made in respect of notes to
a U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. A Non-U.S. Holder who provides an IRS
Form W-8 generally will not be subject to backup withholding.
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Upon the sale of a note to, or through, a broker, the broker must withhold
31% of the entire purchase price unless either:
. the broker determines that the seller is a corporation or other exempt
recipient; or
. the seller provides, in the required manner, identifying information and,
in the case of a Non-U.S. Holder, certifies that the seller is a Non-U.S.
Holder.
Such a sale must also be reported by the broker to the IRS, unless either:
. the broker determines that the seller is an exempt recipient; or
. the seller certifies that it is a Non-U.S. Holder.
The amount of any backup withholding imposed on a payment to a holder will be
allowed as a credit against the holder's U.S. federal income tax liability and
may entitle the holder to a refund, provided that the required information is
furnished to the IRS.
THE EXCHANGE OFFER
Purpose and Effect
We sold the old notes on January 21, 1999 to First Union Capital Markets
Corp. and Warburg Dillon Read LLC, which we refer to as the initial purchasers
of the old notes. The initial purchasers subsequently placed the old notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. When we sold the old notes to the initial purchasers, we entered into a
registration rights agreement that required us:
. to file a registration statement with the SEC with respect to an exchange
offer; and
. use our best efforts to cause the exchange offer registration statement
to be declared effective by June 21, 1999.
This prospectus is a part of the exchange offer registration statement that
we were required to file. As soon as the exchange offer registration statement
has been declared effective, we will offer the exchange notes in exchange for
the old notes. We will keep the exchange offer open for at least 20 business
days after the date on which notice of the exchange offer is mailed to the
holders of the old notes. For each old note validly tendered to us and not
withdrawn, the holder of the old note will receive an exchange note having a
principal amount equal to the principal amount of the surrendered old note.
Interest on the exchange notes will accrue from the last interest payment date
on which interest was paid on the old notes or, if no interest was paid on the
old notes, from January 21, 1999, the date of issuance of the old notes.
Under existing SEC interpretations set forth in no-action letters, we believe
that the exchange notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and prospectus
delivery provisions of the Securities Act so long as:
. you are acquiring the exchange notes in the ordinary course of business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
and
. you are not an affiliate of ours.
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If our belief is inaccurate and you transfer any exchange notes without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your exchange notes, you may incur
liability under the Securities Act. We do not assume or indemnify you against
this liability.
Each participating broker-dealer that is issued exchange notes for its own
account in exchange for old notes which were acquired as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of the exchange notes. The accompanying letter of transmittal states
that by so acknowledging and by delivering a prospectus, the broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. A participating broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the exchange notes. We will make
this prospectus and any amendment or supplement to this prospectus available
for a period of 180 days after the date of this prospectus to any participating
broker-dealer for use in connection with any resales. We believe that no
registered holder of the old notes is an affiliate of ours as defined in Rule
405 of the Securities Act.
By tendering your old notes, you will be representing, among other things,
that:
. you are acquiring the exchange notes in the ordinary course of business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
. you are not an affiliate of ours; and
. if you are a participating broker-dealer, you will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of the exchange notes.
All other broker-dealers may not rely on existing SEC interpretations set forth
in no-action letters and, absent an exemption, must comply with the
registration and prospectus delivery requirements of the Securities Act in
order to resell the old notes or the exchange notes. These requirements include
being named as a selling security holder in a registration statement related to
any resales. These broker-dealers may not use the exchange offer prospectus for
any resales.
Registration Rights
The following is a summary of the material terms of the registration rights
agreement. A copy of the registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part.
Under the registration rights agreement, we are obligated to file a "shelf"
registration statement covering resales of the old notes or the exchange notes
if any of the following situations occur:
. new interpretations of the SEC prohibit us from effecting the exchange
offer;
. the exchange offer is not consummated within 30 business days of the date
the exchange offer registration statement became effective;
. an initial purchaser so requests with respect to old notes it acquired
directly from us on or prior to the 20th business day following the
consummation of the exchange offer;
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. any holder notifies us on or prior to the 20th business day following the
consummation of the exchange offer that the holder is not eligible to
participate in the exchange offer or the exchange notes the holder would
receive would not be freely tradable; or
. an initial purchaser participates in the exchange offer and does not
receive freely tradable exchange notes in exchange for old notes
constituting any portion of an unsold allotment and the initial purchaser
notifies us on or prior to the 20th business day following the
consummation of the exchange offer.
If any of the events in the preceding paragraph occur, we will file a shelf
registration statement within 75 days. We will also use our reasonable efforts
to cause the shelf registration statement to be declared effective within 135
days. We will keep the shelf registration statement effective until the earlier
of:
. the time when the old notes or the exchange notes covered by the shelf
registration statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144;
. two years from the date on which the shelf registration statement was
filed; and
. the date as of which all old notes and exchange notes covered by the
shelf registration statement have been sold.
If a shelf registration statement is filed, we will provide to each holder
for whom the shelf registration statement was filed copies of the prospectus
which is a part of the shelf registration statement, notify each holder when
the shelf registration statement has become effective and take other actions as
are required to permit unrestricted resales of the old notes or the exchange
notes. A holder selling old notes or exchange notes pursuant to the shelf
registration statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers. These holders would also be subject to the civil liability
provisions under the Securities Act and would be bound by the indemnification
provisions of the registration rights agreement.
If any of the following "registration defaults" occur:
. we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for those
filings;
. any of the registration statements is not declared effective by the SEC
on or prior to the date specified for effectiveness;
. we fail to consummate the exchange offer within 30 business days of the
date specified for effectiveness of the exchange offer registration
statement;
. the shelf registration statement or the exchange offer registration
statement has been declared effective but the SEC issues a stop order
suspending such effectiveness or proceedings have been initiated under
Sections 8(d) or 8(e) of the Securities Act with respect to the exchange
offer registration statement or shelf registration statement;
. the aggregate number of days in any suspension period referred to in the
preceding bullet point exceeds the number permitted in the registration
rights agreement; or
. the number of suspension periods referred to in the second preceding
bullet point exceeds the number permitted in the registration rights
agreement,
then we will pay liquidated damages to each holder of old notes. During the
first 90-day period immediately following the occurrence of a registration
default, we will pay liquidated damages in an
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amount equal to $0.05 per week per $1,000 principal amount of old notes
outstanding. The amount of the liquidated damages will increase by an
additional $0.05 per week per $1,000 principal amount of old notes for each
subsequent 90-day period until the registration default has been cured, up to
an aggregate maximum amount of liquidated damages of $0.30 per week per $1,000
principal amount of old notes for all registration defaults. We will pay all
accrued liquidated damages on each date that interest must be paid on the old
notes. Following the cure of all registration defaults, the accrual of
liquidated damages will cease and all accrued and unpaid liquidated damages
will be paid promptly thereafter. At all other times, the old notes will bear
interest at the original interest rate.
Terms of the Exchange Offer
Subject to the conditions in this prospectus and in the letter of
transmittal, we will accept old notes validly tendered and not withdrawn prior
to 5:00 p.m., New York City time, on the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding old notes accepted in the exchange offer. You may tender some or
all of your old notes pursuant to the exchange offer. However, tenders of old
notes must be in a minimum principal amount of $1,000 or an integral multiple
of $1,000.
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the old notes, except that:
. the exchange notes will bear a different CUSIP number from the old notes;
. the issuance of the exchange notes will be registered under the
Securities Act and, therefore, the exchange notes will not bear legends
restricting transfer; and
. the holders of the exchange notes will not be entitled to rights under
the registration rights agreement, including liquidated damages.
As of the date of this prospectus, $150,000,000 aggregate principal amount of
old notes were outstanding. This prospectus and the letter of transmittal are
being mailed to persons who were holders of old notes on the close of business
on the date of this prospectus. Holders of old notes do not have any appraisal
or dissenters' rights under the Delaware Limited Liability Company Act or the
Delaware General Corporation Law or the indenture in connection with the
exchange offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder.
We will be deemed to have accepted validly tendered old notes when we have
given written notice thereof to The Bank of New York, as exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the exchange notes from us.
If any tendered old notes are not accepted for exchange for any reason, the
certificates for the unaccepted old notes will be returned, without expense, to
the tendering holders, as soon as possible after the expiration date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes for
exchange notes. We will pay all charges and expenses, other than transfer
taxes, in connection with the exchange offer. See "--Fees and Expenses."
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<PAGE>
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on ,
1999, unless we extend the exchange offer, in which case the term "expiration
date" means the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent by
written notice and will make a public announcement of the extension, each prior
to 9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "--Conditions" have not been satisfied, by giving written notice of
the delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner, whether before or
after any tender of the old notes.
Any delay in acceptance, extension, termination or amendment will be followed
as soon as possible by oral or written notice to the registered holders.
Accrued Interest on the Exchange Notes
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes, or, if no interest was paid
on the old notes, from January 21, 1999, the date of issuance of the old notes.
Holders whose old notes are accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the old notes.
Procedures for Tendering Old Notes
Only a holder of old notes may tender old notes in the exchange offer. Each
holder wishing to accept the exchange offer must:
. complete, sign and date the accompanying letter of transmittal, or a
facsimile thereof, in accordance with the instructions in this prospectus
and the letter of transmittal;
. have the signatures thereon guaranteed if required by the letter of
transmittal or transmit an agent's message in connection with a book-
entry transfer; and
. mail or otherwise deliver the letter of transmittal or facsimile or
agent's message, together with the old notes and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time,
on the expiration date.
Delivery of the old notes may be made by book-entry transfer in accordance with
the procedures described below. Confirmation of book-entry transfer must be
received by the exchange agent prior to the expiration date.
The term "agent's message" means a message transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that the book-entry transfer
facility has received an express acknowledgment from the participant in the
book-entry transfer facility tendering the old notes that the participant has
received and agrees:
. to participate in the Automated Tender Option Program;
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<PAGE>
. to be bound by the terms of the letter of transmittal; and
. that we may enforce such agreement against the participant.
By executing the letter of transmittal, each holder will make the
representations set forth under the heading "--Purpose and Effect" to us. Your
tender and our acceptance will constitute an agreement that you will
participate in the exchange offer in accordance with the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
The method of delivery of the old notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and sole
risk. As an alternative to delivery by mail, you may wish to consider overnight
or hand delivery service. In all cases, you should allow sufficient time to
assure delivery to the exchange agent before the expiration date. You may
request your broker, dealer, commercial bank, trust company or nominee to
effect the exchange of old notes for you.
If you are a beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender your old notes in the exchange offer, you should contact the registered
holder promptly and instruct the registered holder to tender on your behalf.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution." An eligible institution is a member of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a savings institution, commercial bank or trust
company having an office or correspondent in the United States, or otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act. These eligible institutions must each be a member of a recognized
signature guarantee program, such as the Securities Transfer Agents Medallion
Program, Stock Exchange Medallion Program or New York Stock Exchange Medallion
Signature Program. However, signatures on a letter of transmittal or notice of
withdrawal are not required to be guaranteed with respect to old notes that are
tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or
. for the account of an eligible institution.
If a letter of transmittal is signed by a person other than the registered
holder, the old notes must be endorsed or accompanied by a properly completed
bond power, signed by the registered holder with the signature thereon
guaranteed by an eligible institution.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request soon after the date
of this prospectus to establish an account through the facilities of The
Depository Trust Company ("DTC")
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for receipt of the tender of old notes through book-entry delivery. For the
purpose of facilitating the exchange offer, any financial institution that is a
DTC participant may participate in the exchange offer through book-entry
delivery of old notes by causing DTC to transfer the old notes into the
exchange agent's account for the old notes. Although delivery of the old notes
may be effected through book-entry transfer into the exchange agent's account
at DTC, unless an agent's message is received by the exchange agent in
compliance with the Automated Tender Option Program, an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be delivered to
the exchange agent on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under the procedures. Delivery of documents to DTC does not constitute
delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us. We reserve the absolute right to reject old notes not
properly tendered or any old notes that our counsel deems would be unlawful for
us to accept. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of old notes must be
cured within the time as we determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to
give notification. Tenders of old notes will not be deemed to have been made
until defects or irregularities have been cured or waived. Any old notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, soon after the expiration date.
No letter of transmittal, old notes, notice of guaranteed delivery or other
documents should be sent to us or DTC. Delivery of these documents to us or DTC
will not constitute valid delivery.
Guaranteed Delivery Procedures
Holders of old notes who wish to tender their old notes but who cannot, prior
to 5:00 p.m., New York City time, on the expiration date:
. deliver their old notes, the letter of transmittal or any other documents
required by the letter of transmittal to the exchange agent; or
. deliver a confirmation of the book-entry tender of their old notes into
the exchange agent's account at DTC and otherwise complete the procedures
for book-entry transfer,
may effect a tender of old notes if:
.the tender is made through an eligible institution;
. prior to 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from the eligible institution a properly
completed and duly executed notice of guaranteed delivery setting forth
the name and address of the holder, the certificate number(s) and the
principal amount of old notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three business days after the
expiration date, the letter of transmittal,
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<PAGE>
together with the certificate(s) representing the old notes, or a
confirmation of book-entry transfer of the old notes into the exchange
agent's account at DTC, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
. the properly completed and duly executed letter of transmittal, as well
as the certificate(s) representing all tendered old notes in proper form
for transfer, or a confirmation of book-entry transfer of the old notes
into the exchange agent's account at DTC, and all other documents
required by the letter of transmittal are received by the exchange agent
within three business days after the expiration date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Promptly after satisfaction or waiver of all of the conditions to the
exchange offer, we will accept all old notes properly tendered and will issue
the exchange notes. For a description of conditions to the exchange offer, see
"--Conditions" below. We will be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given written notice to the exchange
agent. For each old note accepted for exchange, the holder of such old note
will receive an exchange note having a principal amount equal to that of the
surrendered old note.
In all cases, issuance of exchange notes will be made only after timely
receipt by the exchange agent of certificates for old notes or a timely
confirmation that old notes have been transferred into the exchange agent's
account at DTC, a properly completed and duly executed letter of transmittal
and all other required documents. If any tendered old notes are not accepted
for any reason, or if old notes are submitted for a greater principal amount
than the holder desires to exchange, the unaccepted or non-exchanged old notes
will be returned without expense to the tendering holder soon after the
expiration or termination of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw a tender of
old notes at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of old notes, the exchange agent must receive a
telegram, telex, letter or facsimile transmission notice of withdrawal prior to
5:00 p.m., New York City time, on the expiration date. A notice of withdrawal
must:
. specify the name of the person having deposited the old notes to be
withdrawn;
. identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of the old notes, or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the applicable book-entry procedures, the name and
number of the account at DTC to be credited;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee register the transfer of the old
notes into the name of the person withdrawing the tender; and
. specify the name in which the old notes are to be registered, if
different from that of the depositor.
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We will determine all questions as to the validity, form and eligibility,
including time of receipt, of withdrawal notices. Any old notes so withdrawn
will be deemed not to have been validly tendered and no exchange notes will be
issued unless the old notes so withdrawn are validly retendered. Any old notes
which have been tendered but which are not accepted for exchange will be
returned, without expense, to the holder soon after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may
be retendered by following one of the procedures described above under "--
Procedures for Tendering Old Notes" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we are not required to
accept for exchange any old notes, and may terminate or amend the exchange
offer, if:
. any action or proceeding is instituted or threatened in any court or by
any governmental or quasi-governmental agency which might materially
impair our ability to proceed with the exchange offer or any material
adverse development has occurred in any existing action or proceeding
with respect to us;
. the exchange offer violates applicable law or any applicable SEC
interpretations; or
. any governmental or quasi-governmental approval has not been obtained,
which approval we deem necessary for the consummation of the exchange
offer.
If we determine in our sole, reasonable discretion that any of the foregoing
conditions are not satisfied, we may:
. refuse to accept any old notes and return all tendered old notes to the
tendering holders;
. extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such old notes in accordance with "--Withdrawal of
Tenders"; or
. waive the unsatisfied conditions and accept all properly tendered old
notes which have not been withdrawn.
In addition, we reserve the right, notwithstanding the satisfaction or failure
of any or all of the conditions, to terminate or amend the exchange offer in
any manner.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered or accepted for exchange.
Exchange Agent
The Bank of New York, which also acts as trustee under the indenture, has
been appointed as exchange agent for the exchange offer. Each holder wishing to
accept the exchange offer must deliver:
. a letter of transmittal, the holder's tendered old notes and all other
required documents; or
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<PAGE>
. a notice of guaranteed delivery and all other documents described under
"--Guaranteed Delivery Procedures," to the exchange agent as follows:
By Mail or Hand Delivery: The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Reorganization Section 7-E
Facsimile Transmission: (212) 815-6339
Confirm by Telephone: (212) 815-3502
Delivery to an address other than as set forth above will not constitute
valid delivery.
If you have any questions or need additional copies of this prospectus, the
letter of transmittal or the notice of guaranteed delivery, please write or
telephone the exchange agent.
Fees and Expenses
The principal solicitation of tenders for the exchange offer is being made by
mail; however, additional solicitations may be made by telegraph, telecopy,
telephone or in person by our officers, employees or agents and our affiliates.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others to solicit
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer. We
will pay all other expenses to be incurred in connection with the exchange
offer. These expenses include fees and expenses of the trustee, accounting and
legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, which is face value, as reflected in our accounting records on the date
of exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. The expenses of the exchange
offer will be amortized over the term of the exchange notes.
Consequences of Failure to Exchange
The old notes that are not exchanged for exchange notes will remain
restricted securities. Accordingly, old notes may not be reoffered, resold,
pledged or otherwise transferred except in accordance with applicable state
securities laws and:
. to a person whom the transferor reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
. in an offshore transaction meeting the requirements of Rule 903 or Rule
904 of Regulation S;
. to an institution that is an "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act;
. under an exemption from registration under the Securities Act provided by
Rule 144 thereunder; or
. under an effective registration statement under the Securities Act.
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Following consummation of the exchange offer, holders of the old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes will generally not have any further registration rights under the
registration rights agreement, and the old notes will continue to be subject to
restrictions on transfer. Accordingly, the liquidity of the market for the old
notes could be adversely affected. See "Risk Factors--Old notes outstanding
after the exchange offer will not have registration rights and we expect the
market for the old notes to be illiquid."
PLAN OF DISTRIBUTION
Except as provided herein, this prospectus may not be used for an offer to
resell, a resale or other transfer of exchange notes. Under existing SEC
interpretations set forth in no-action letters, we believe that the exchange
notes may be offered for resale, resold and otherwise transferred, other than
by our affiliates within the meaning of Rule 405 under the Securities Act,
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the exchange notes are acquired
in the ordinary course of business and the holders have no arrangement or
understanding with any person to participate in the distribution of the
exchange notes. Any holder who is one of our affiliates or who intends to
participate in the exchange offer for the purpose of distributing the exchange
notes:
. will not be able to rely on the existing SEC interpretations set forth in
no-action letters;
. will not be able to tender its old notes; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer transaction
unless the sale or transfer is made pursuant to an exemption from the
requirements.
A participating broker-dealer holding old notes may participate in the
exchange offer provided that it acquired the old notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of exchange notes, any participating broker-dealer who receives
exchange notes in the exchange offer may be an "underwriter," within the
meaning of the Securities Act, and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the
exchange notes. The SEC has taken the position that participating broker-
dealers may fulfill their prospectus delivery requirements with respect to the
exchange notes, other than a resale of an unsold allotment from the original
sale of the old notes, with this prospectus, as amended or supplemented from
time to time. Under the registration rights agreement, we are required to allow
participating broker-dealers to use this prospectus, as amended or supplemented
from time to time, in connection with the resale of exchange notes for a period
of 180 days. Each participating broker-dealer wishing to accept the exchange
offer must represent that it will deliver a prospectus meeting the requirements
of the Securities Act if it resells any exchange notes.
All other broker-dealers may not rely on existing SEC interpretations set
forth in no-action letters and, absent an exemption, must comply with the
registration and prospectus delivery requirements of the Securities Act in
order to resell the old notes or the exchange notes. These requirements include
being named as a selling security holder in a registration statement related to
resales. These broker-dealers may not use the exchange offer prospectus for any
resales.
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the exchange notes. In consideration for
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issuing the exchange notes, we will receive a like principal amount of old
notes. The form and terms of the exchange notes will be identical in all
material respects to the form and terms of the old notes, except for the
elimination of transfer restrictions, registration rights and liquidated
damages provisions relating to the old notes.
Exchange notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, or at prices related to
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
and/or the purchasers of the exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account in the exchange
offer and any person that participates in the distribution of exchange notes
may be deemed an "underwriter" within the meaning of the Securities Act. Any
profit on the resale and any commissions or concessions received by any such
broker-dealers may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that any acknowledgment by a
participating broker-dealer that it will deliver a prospectus in connection
with any resale of exchange notes, and any delivery of a prospectus, will not
be deemed an admission by the participating broker-dealer that it is an
underwriter.
For a period of 180 days after the expiration date, we will send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any participating broker-dealer that requests these documents in the
participating broker-dealer's letter of transmittal. By acceptance of the
exchange offer, each broker-dealer that receives exchange notes for old notes
agrees that, upon receipt of notice from us of the happening of any event which
makes any statement in this prospectus untrue in any material respect or which
requires the making of any changes in this prospectus in order to make the
statements herein not materially misleading, which notice we have agreed to
deliver to each broker-dealer, the broker-dealer will suspend the use of this
prospectus until we have amended or supplemented this prospectus to correct the
misstatement or omission and have furnished copies of the amended or
supplemented prospectus to the broker-dealer.
We have agreed, pursuant to the registration rights agreement, to pay all
expenses incident to our performance of the exchange offer and the registration
rights agreement, other than agency fees and commissions, underwriting
discounts and commissions and the fees and disbursements of counsel and other
advisors and experts retained by the holders. In addition, we have agreed to
indemnify the holders of the exchange notes against liabilities under the
Securities Act.
The exchange notes are a new issuance of securities for which there is
currently no trading market. The exchange notes will not be listed on any
national securities exchange or Nasdaq. We have been advised by the initial
purchasers that they intend to make a market in the exchange notes; however,
the initial purchasers are not obligated to do so, and any market making
activities may be discontinued at any time without notice. Accordingly, we
cannot assure you that an active trading market for the exchange notes will
develop or as to the liquidity of a market. In addition, if the exchange notes
are traded after their initial issuance, they may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities, our performance and other factors.
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LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for us
by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
Our financial statements as of December 31, 1997, and for each of the two
years in the period ended December 31, 1997, included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
Our consolidated financial statements as of December 31, 1998, and for the
periods October 1, 1998 to December 31, 1998 and January 1, 1998 to September
30, 1998, included in this prospectus have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we have
filed with the SEC. This prospectus does not contain all of the information set
forth in the registration statement. For further information about us and the
exchange notes, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer you. Since these summaries may not contain all of the information that
you may find important, you should review the full text of these documents. We
have filed material contracts as exhibits to our registration statement.
In addition, we have agreed that for so long as any notes remain outstanding,
we will furnish to you and the trustee and file with the SEC all information,
documents and reports specified in Section 13 or 15(d) of the Exchange Act,
including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K.
You should direct any request for information to our Chief Financial Officer
at least 10 business days before you tender your exchange notes in the exchange
offer. Our mailing address and telephone number are:
Advanced Glassfiber Yarns LLC
2556 Wagener Road
Aiken, South Carolina 29801
(803) 643-1377
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INDEX TO FINANCIAL STATEMENTS
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants....................................... F-2
<CAPTION>
Balance Sheets as of December 31, 1997 and 1998, and March 31, 1999
(unaudited).............................................................. F-4
Statements of Operations for the years ended December 31, 1996 and 1997
and for the periods January 1, 1998 to September 30, 1998, October 1,
1998 to December 31, 1998, January 1, 1998 to March 31, 1998 (unaudited)
and January 1, 1999 to March 31, 1999 (unaudited) ....................... F-5
Statements of Comprehensive Income for the years ended December 31, 1996
and 1997 and for the periods January 1, 1998 to September 30, 1998,
October 1, 1998 to December 31, 1998, January 1, 1998 to March 31, 1998
(unaudited) and January 1, 1999 to March 31, 1999 (unaudited) ........... F-6
Statements of Cash Flows for the years ended December 31, 1996 and 1997
and for the periods January 1, 1998 to September 30, 1998, October 1,
1998 to December 31, 1998, January 1, 1998 to March 31, 1998 (unaudited)
and January 1, 1999 to March 31, 1999 (unaudited)........................ F-7
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Advanced Glassfiber Yarns LLC
We have audited the accompanying consolidated balance sheet of Advanced
Glassfiber Yarns LLC and subsidiaries ("AGY" or "the Company") as of December
31, 1998 and the related statements of operations, comprehensive income and
cash flows for the period from October 1, 1998 to December 31, 1998. We have
also audited the statements of operations, comprehensive income and cash flows
of the Predecessor Business (as described in Note 1) for the period from
January 1, 1998 to September 30, 1998. These financial statements are the
responsibility of the Company's and the Predecessor Business' management,
respectively. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The financial statements for the periods ended prior to October 1, 1998, do
not reflect the new basis of accounting established by the acquisition of the
51% interest in the Predecessor Business as described in Note 1, and are
presented on the historical cost basis existing prior to the acquisition
period.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AGY as of December 31, 1998
and results of their operations and their cash flows for the period from
October 1, 1998 to December 31, 1998 and the results of operations and cash
flows of the Predecessor Business for the period from January 1, 1998 to
September 30, 1998 in conformity with generally accepted accounting principles.
PricewaterhouseCoopers llp
Greensboro, North Carolina
March 26, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Owens Corning
We have audited the accompanying statements of net assets of the GLASS YARNS
AND SPECIALTY MATERIALS BUSINESS (the "Business"), a business unit of OWENS
CORNING, a Delaware corporation as described in Note 1, as of December 31, 1997
and the related statements of operations, comprehensive income and cash flows
for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the GLASS YARNS AND SPECIALTY
MATERIALS BUSINESS as of December 31, 1997, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen llp
Toledo, Ohio
August 14, 1998
F-3
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
The
Predecessor Consolidated Consolidated
Business Company Company
December 31, December 31, March 31,
1997 (Note 1) 1998 1999
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash.................................. $ -- $ 12,779 $ 20,443
Trade receivables, less allowance of
$1,419, $2,823 and $3,504,
respectively......................... 19,272 32,657 37,450
Inventories (Note 3).................. 19,168 24,691 26,636
Deferred income taxes................. 4,396 -- --
Other current assets.................. 291 217 712
-------- -------- --------
Total current assets................. 43,127 70,344 85,241
Deferred income taxes.................. 5,276 -- --
Property, plant and equipment, net
(Note 4).............................. 105,558 152,364 150,528
Intangible assets (Note 5)............. -- 242,148 239,993
Other assets........................... -- 613 681
-------- -------- --------
Total assets......................... $153,961 $465,469 $476,443
======== ======== ========
Liabilities and Net Assets/Members'
Interest
Current liabilities:
Current portion of long-term debt
(Note 7)............................. $ -- $ 14,297 $ 15,734
Accounts payable...................... 11,288 9,716 11,896
Accrued liabilities (Note 6).......... 8,398 11,783 20,356
Income taxes payable.................. 30,237 -- --
Due to Owens Corning.................. -- 2,487 17,287
Other current liabilities............. 5,076 -- --
-------- -------- --------
Total current liabilities............ 54,999 38,283 65,273
Pension and other employee benefit
plans (Note 10)....................... 68,022 18,000 18,949
Long-term debt, less current portion
(Note 7).............................. -- 387,901 373,291
Deferred distribution.................. -- -- 1,611
-------- -------- --------
Total liabilities.................... 123,021 444,184 459,124
Members' interest (Notes 8 and 16)..... -- 21,285 17,319
Net assets............................. 30,940 -- --
-------- -------- --------
Total liabilities and net
assets/members' interest............ $153,961 $465,469 $476,443
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
The
Consolidated Predecessor Consolidated
The Predecessor Business Company Business Company
-------------------------------------------- ----------------- -------------- --------------
Year Year Period from Period from Three Three
Ended Ended January 1, 1998 October 1, 1998 Months Months
December 31, December 31, to to Ended Ended
1996 1997 September 30, 1998 December 31, 1998 March 31, 1998 March 31, 1999
------------ ------------ ------------------ ----------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales (Note 14)..... $274,979 $277,357 $205,248 $63,403 $72,889 $61,970
Cost of sales........... 180,343 182,366 134,820 42,952 48,110 41,994
-------- -------- -------- ------- ------- -------
Gross margin.......... 94,636 94,991 70,428 20,451 24,779 19,976
Selling, general and
administrative
expenses............... 14,345 14,813 11,487 4,665 3,829 5,024
Amortization............ -- -- -- 2,848 -- 2,844
Restructuring costs..... -- -- 2,034 -- 2,034 --
-------- -------- -------- ------- ------- -------
Income from
operations........... 80,291 80,178 56,907 12,938 18,916 12,108
Interest expense (Note
12).................... -- -- -- 9,113 -- 9,380
Other income............ (3,003) (2,688) (2,328) (450) (776) (110)
-------- -------- -------- ------- ------- -------
Income before
provision for income
taxes and
extraordinary item... 83,294 82,866 59,235 4,275 19,692 2,838
Provision for income
taxes (Note 13)........ 33,051 32,540 16,226 -- (7,877) --
-------- -------- -------- ------- ------- -------
Income before
extraordinary item..... 50,243 50,326 43,009 4,275 11,815 2,838
Extraordinary item, loss
on early extinguishment
of debt (Note 17)...... -- -- -- -- -- 3,616
-------- -------- -------- ------- ------- -------
Net income (loss)....... $ 50,243 $ 50,326 $ 43,009 $ 4,275 $11,815 $ (778)
======== ======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
The
Consolidated Predecessor Consolidated
The Predecessor Business Company Business Company
----------------------------------------- ------------ ----------- ------------
Period from
Period from October 1,
Year Year January 1, 1998 1998 Three
Ended Ended to to Months Three Months
December 31, December 31, September 30, December 31, Ended March Ended March
1996 1997 1998 1998 31, 1998 31, 1999
------------ ------------ --------------- ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $50,243 $50,326 $43,009 $4,275 $11,815 $(778)
Other comprehensive
income (loss):
Foreign currency
translation........... (633) (935) 539 (1) (209) (29)
------- ------- ------- ------ ------- -----
Comprehensive income.... $49,610 $49,391 $43,548 $4,274 $11,606 $(807)
======= ======= ======= ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
The
Consolidated Predecessor Consolidated
The Predecessor Business Company Company Company
--------------------------------------------- ----------------- ----------- ------------
Year Year Period from Period from Three
Ended Ended January 1, 1998 October 1, 1998 Months Three Months
December 31, December 31, to to Ended March Ended March
1996 1997 September 30, 1998* December 31, 1998 31, 1998 31, 1999
------------ ------------ ------------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities: (unaudited) (unaudited)
Net income (loss)...... $ 50,243 $ 50,326 $ 43,009 $ 4,275 $ 11,815 $ (778)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation........... 8,233 8,305 6,394 2,753 2,131 3,095
Amortization of debt
issuance costs........ -- -- -- 374 -- 428
Amortization of
goodwill and other
intangibles........... -- -- -- 2,848 -- 2,844
Amortization of bond
discount.............. -- -- -- -- -- 43
Inventory nonrecurring
charge (Note 11)...... -- -- -- 1,321 -- --
Deferred income tax
(credit) provision.... 1,276 2,303 (841) -- (280) --
Loss on disposal of
property, plant and
equipment............. 419 192 -- -- -- --
Loss on early
extinguishment of
debt.................. -- -- -- -- -- 3,616
Alloy usage............ 3,400 3,200 2,499 613 833 500
Changes in assets and
liabilities:
Trade receivables,
net.................. 2,445 3,463 (13,788) (478) (10,902) (4,814)
Inventories........... (3,377) 1,744 (3,591) (2,489) 3,553 (1,944)
Other assets.......... -- (291) (278) (34) 66 (566)
Trade accounts
payable.............. (1,378) 3,374 (468) 6,486 (787) 3,546
Accrued liabilities... (3,675) (6,760) 702 2,250 (2,071) 7,027
Pension and
postretirement....... 411 956 1,912 900 538 949
Due to Owens Corning.. -- -- -- -- -- 14,799
Income taxes payable.. 4,116 (1,538) (7,112) -- 7,877 --
-------- -------- --------- ------- ----------- -----------
Net cash provided by
operating
activities........... 62,113 65,274 28,438 18,819 12,773 28,745
-------- -------- --------- ------- ----------- -----------
Cash flows from
investing activities:
Additions to property,
plant and equipment... (15,314) (8,324) (13,509) (3,327) (277) (3,246)
-------- -------- --------- ------- ----------- -----------
Net cash used in
investing
activities........... (15,314) (8,324) (13,509) (3,327) (277) (3,246)
-------- -------- --------- ------- ----------- -----------
Cash flows from
financing activities:
Proceeds from revolving
loan.................. -- -- 14,000 1,000 -- (7,000)
Proceeds from bridge
facility.............. -- -- 150,000 -- -- --
Payments on bridge
facility.............. -- -- -- -- -- (150,000)
Payments on capital
lease................. -- -- -- -- -- (30)
Proceeds from senior
notes................. -- -- -- -- -- 147,000
Proceeds from (payments
on) term loans........ -- -- 240,000 (3,187) -- (3,188)
Repayments of advances
from members.......... -- -- -- (525) -- --
Distribution to Porcher
Industries ........... -- -- (203,624) -- -- --
Distribution to Owens
Corning............... -- -- (195,638) -- -- --
Contribution from Owens
Corning............... -- -- 2,250 -- -- --
Net transfers to Owens
Corning............... (46,783) (56,922) (14,940) -- (12,490) --
Payment of financing
costs................. -- -- (6,988) -- -- (4,610)
-------- -------- --------- ------- ----------- -----------
Net cash used in
financing
activities........... (46,783) (56,922) (14,940) (2,712) (12,490) (17,828)
-------- -------- --------- ------- ----------- -----------
Effect of exchange rate
on cash............... (16) (28) 11 (1) (6) (7)
-------- -------- --------- ------- ----------- -----------
Net increase (decrease)
in cash -- -- -- 12,779 -- 7,664
Cash, beginning of
period................ -- -- -- -- -- 12,779
-------- -------- --------- ------- ----------- -----------
Cash, end of period.... $ -- $ -- $ -- $12,779 $ -- $ 20,443
-------- -------- --------- ------- ----------- -----------
Interest paid.......... $ -- $ -- $ -- $ 8,929 $ -- $ --
-------- -------- --------- ------- ----------- -----------
Non-cash
financing/investing
activities:
Capital lease.......... $ -- $ -- $ -- $ 386 $ -- $ --
-------- -------- --------- ------- ----------- -----------
Non-cash contributions
to capital, net (Note
8).................... $ -- $ -- $ 87,134 $ -- $ -- $ --
-------- -------- --------- ------- ----------- -----------
Step-up of assets from
sale of 51% interest.. $ -- $ -- $ 267,341 $ -- $ -- $ --
-------- -------- --------- ------- ----------- -----------
Additions to property,
plant and equipment
included in accounts
payable............... $ -- $ -- $ -- $ 3,230 $ -- $ 932
======== ======== ========= ======= =========== ===========
</TABLE>
- -------
*Includes the financing and distribution transactions (See Note 1).
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
Advanced Glassfiber Yarns LLC ("AGY" or the "Company") was formed by Owens
Corning to own and operate Owens Corning's glass yarns and specialty materials
business (the "Predecessor Business" or the "Company"), which was contributed
to AGY on July 1, 1998, then, a wholly owned subsidiary of Owens Corning (the
"Contribution"). On September 30, 1998, Owens Corning sold a 51% interest in
AGY to a wholly owned subsidiary of Porcher Industries, S.A. ("Porcher
Industries") for aggregate consideration of $338.9 million (the "Majority
Purchase"). In addition, Porcher Industries paid fees and expenses of
approximately $3.2 million in connection with the Majority Purchase. Therefore,
the total aggregate consideration paid by Porcher Industries for its 51%
interest in AGY was $342.1 million. Owens Corning retained a 49% interest in
AGY.
Prior to October 1, 1998 the Predecessor Business was managed as an operating
unit of the Composites Systems Business of Owens Corning which has provided it
with certain administrative and operational support. The accompanying financial
statements prior to the Majority Purchase include the cost of the Predecessor
Business' employees and allocations of certain corporate services provided by
Owens Corning. Management, using its experience with the Predecessor Business
and its judgment, has allocated approximately $6.2 million, $7.8 million and
$7.3 million of such corporate services and other support to the Predecessor
Business for the nine months ended September 30, 1998 and for the years ended
1997 and 1996, respectively. The allocations were made primarily by estimating
the proportional historical cost of various corporate departments and other
functions providing services to the Predecessor Business. The proportions were
based primarily upon estimates of the number of full time equivalent employees
rendering service to the Predecessor Business. Management believes that its
methodology is reasonable and that the costs of the operational and
administrative support included in the accompanying financial statements prior
to the Majority Purchase are comparable to those that the Predecessor Business
would have incurred had it operated as a separate entity. The financial
information presented herein may not necessarily reflect the financial position
and results of operations of the Predecessor Business in the future.
Concurrently with the Majority Purchase, AGY was recapitalized. AGY borrowed
an aggregate of $404.0 million through a combination of $254.0 million under a
Senior Credit Facility (as defined herein) and the $150.0 million under a
Senior Subordinated Credit Facility (the "Subordinated Facility"). AGY used the
proceeds from the initial borrowings under the Senior Credit Facility and
Subordinated Facility plus a $2.2 million contribution from Owens Corning to
pay (i) an aggregate cash distribution of $399.2 million (the "Distribution")
to Owens Corning and Porcher Industries in the amounts of $195.6 million and
$203.6 million, respectively, and (ii) approximately $7.0 million in fees and
expenses. The initial borrowings under the Senior Credit Facility and the
Subordinated Facility, and the application of the net proceeds therefrom, are
collectively referred to as the "Financings". The Financings, together with the
Contribution and Majority Purchase are collectively referred to as the
"Formation Transactions."
In connection with the Formation Transactions, the net cash outlay by Porcher
Industries was $138.5 million, represented by the $338.9 million paid for the
Majority Purchase plus fees and
F-8
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
expenses of $3.2 million less the $203.6 million cash distribution Porcher
Industries received from AGY. The total cash consideration received by Owens
Corning was $532.3 million, comprised of the $338.9 million paid by Porcher
Industries and the $195.6 million cash distribution received from AGY less a
$2.2 million contribution.
The acquisition of the 51% interest in AGY by a wholly owned subsidiary of
Porcher Industries was accounted for as a partial purchase business combination
in accordance with the provisions of APB No. 16 "Business Combinations" and
EITF Issue No. 88-16 "Basis in Leveraged Buyout Transactions."
The allocation of the purchase price was as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 16,411
Inventories........................................................ 12,645
Property, plant and equipment...................................... 92,578
Other assets....................................................... 407
Identifiable intangibles........................................... 22,000
Goodwill........................................................... 212,245
Liabilities........................................................ (14,137)
--------
$342,149
========
</TABLE>
2. Accounting Policies
Principles of Consolidation
The business is conducted through the Company and two wholly owned
subsidiaries of the Company, AGY Yarns Canada and AGY Capital Corp. Significant
intercompany accounts and transactions have been eliminated. As of December 31,
1998, the Company did not have any other subsidiaries.
Cash and Cash Equivalents
The Company considers cash on hand, cash deposited in financial institutions
and money market accounts with maturities of less than ninety days at date of
purchase to be cash equivalents. These are stated at cost which approximates
market value.
Inventories
Inventories are stated at the lower of cost or market value and include
material, labor and manufacturing overhead. Cost is determined using the first-
in, first-out (FIFO) method.
Rebuild of Glass Melting Furnaces
Glass melting furnaces periodically require substantial rebuilding. The time
period between rebuilds varies depending upon the utilization of the furnace.
The Company applies the capital method of accounting for the cost to rebuild
glass melting furnaces. Under this method, costs are capitalized when incurred
and depreciated over the estimated useful lives of the rebuilt furnaces, which
is approximately 14 years.
F-9
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Accounting Policies--(Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation of property, plant and equipment is calculated
principally on the straight-line method over the estimated useful lives of the
assets. Repairs and maintenance costs are expensed as incurred; major
replacements and improvements are capitalized. When assets are retired or sold,
the cost and related accumulated depreciation are removed from the accounts
with any resulting gain or loss reflected in operations.
The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements.............................. 15-40 Years
Machinery and equipment........................................... 5-25 Years
</TABLE>
When events or changes in circumstances indicate that assets may be impaired,
an evaluation is performed comparing the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required. Management
does not believe that there are any material impairments at December 31, 1998.
Alloy metals are an integral part of the Company's installed glass melting
furnaces and therefore are classified as property, plant and equipment in the
accompanying financial statements.
Alloy metals, consisting of rhodium and platinum, are the primary component
of the heat resistant glass forming bushings in the Company's glass melting
furnaces. Molten glass is passed through the bushings to form glass filaments.
During the manufacturing process, a small portion of the alloy metals is
physically consumed. The portion of the alloy metal physically consumed is
measured at the time a bushing is reconditioned and is charged to income. The
amount of metal loss and the service life of the bushings are dependent upon a
number of factors including the type of furnace and the product being produced.
Based upon historical metal loss, the Company's alloy metals have a useful life
of up to 50 years.
Revenue Recognition and Concentration of Credit Risk
Revenues are recognized when title to products passes to the customer. Title
in substantially all cases passes at the point of shipment, but in some
instances does not pass until goods are received by the customer. Two customers
accounted for approximately 36% and 28% of the Company's gross accounts
receivable at December 31, 1998 and 1997, respectively.
The following table represents a summary of sales to significant customers as
a percentage of the Company's net sales:
<TABLE>
<CAPTION>
Year Ended Year Ended Period Period
December 31, December 31, January 1, 1998 to October 1, 1998 to
1996 1997 September 30, 1998 December 31, 1998
------------ ------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Customer A.. 21% 21% 19% 22%
Customer B.. 10% 11% 11% 17%
--- --- --- ---
31% 32% 30% 39%
=== === === ===
</TABLE>
F-10
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Accounting Policies--(Continued)
Foreign Currency Translation
The assets and liabilities of the Company's Canadian operations are
translated from its functional currency to U.S. dollars at the year-end
exchange rates and income and expenses are translated at the average exchange
rates prevailing during the period.
Prior to the Formation Transactions, the functional currency of Owens
Corning's European operations was the local currency. Accordingly, assets and
liabilities of the European group were translated at the year-end exchange
rates and income and expenses were translated at the average exchange rates
prevailing during the period. Adjustments resulting from the translations were
recorded as a separate component of Net Assets/Members' Interest.
As of the date of the Formation Transactions, the European operations of AGY
consisted principally of a distributorship. As of the date of the Formation
Transactions, the European operations became a direct and integral component of
the U.S. operations and are not a distinct and separate operation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Intangible Assets
Included in intangible assets are goodwill (i.e., excess of acquisition costs
over identifiable assets), patents and trademarks, debt issuance costs and
covenant not to compete. Goodwill represents the excess of cost over the fair
value of tangible and intangible assets acquired. Debt issuance costs are being
amortized over the terms of the respective debt agreements using the interest
method (See Note 5). The Company's policy is to evaluate goodwill and other
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. This evaluation is based on undiscounted operating cashflows that
will result from the use of such assets. When projected future cashflows on an
undiscounted basis are less than the carrying value of the assets, the impaired
assets are written down to net realizable value. The Company believes there is
no impairment at December 31, 1998.
Other Income
Other income includes royalty and technical service fees, as well as proceeds
from the sale of scrap material.
Research and Development
The Company expenses research and development costs as incurred. These costs
were approximately $225,000 and $500,000 for the periods ended December 31,
1998 and September 30, 1998, respectively.
F-11
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Accounting Policies--(Continued)
Impairment of Long-Lived Assets
The Company assesses whether its long lived assets are impaired as required
by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," based on an evaluation of undiscounted
projected cash flows through the remaining amortization period. If an
impairment exists, the amount of such impairment is calculated based on the
estimated fair value of the asset. The Company believes there is no impairment
at December 31, 1998.
Fair Value of Financial Instruments
The fair value of financial instruments in the accompanying financial
statements approximates the carrying value, unless otherwise disclosed.
Recently Issued Accounting Standards
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives will be recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. The Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Finished goods........................... $14,431 $19,491
Materials and supplies................... 4,737 5,200
------- -------
Total inventories....................... $19,168 $24,691
======= =======
</TABLE>
4. Net Property, Plant and Equipment
Net property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Land.................................... $ 1,057 $ 1,498
Building and leasehold improvements..... 28,918 18,790
Machinery and equipment................. 189,244 96,134
Construction in progress................ 6,330 3,823
-------- --------
Gross property, plant and equipment.... 225,549 120,245
Less: accumulated depreciation......... 142,979 2,753
Alloy metals............................ 22,988 34,872
-------- --------
Net property, plant and equipment....... $105,558 $152,364
======== ========
</TABLE>
The Company leases computer equipment under a capital lease agreement. The
carrying value of equipment under capital leases was approximately $385,000 at
December 31, 1998.
F-12
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Intangible Assets
Goodwill and all other intangible assets are amortized on the straight-line
method over the estimated useful lives of the assets, which are as follows at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
December 31, Amortization
1998 Period
------------ ------------
<S> <C> <C>
Goodwill........................................... $212,245 25 Years
Patents and trademarks............................. 20,000 8 Years
Debt issuance costs................................ 11,125 6-10 Years
Covenant not to compete............................ 2,000 5 Years
--------
245,370
Accumulated amortization........................... (3,222)
--------
$242,148
========
</TABLE>
6. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Vacation........................................... $3,180 $ 3,180
Real and personal property taxes................... 1,904 3,030
Health benefits.................................... 1,205 --
Incentive compensation............................. 331 2,535
Other.............................................. 1,778 3,038
------ -------
$8,398 $11,783
====== =======
</TABLE>
Under the transitional services agreement, from October 1, 1998 to December
31, 1998, with Owens Corning (Note 9), the administration of the Company's
health benefit plan was performed by Owens Corning. As such, the accrued costs
associated with these benefits were included in the payable to Owens Corning.
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Senior Credit Facility
Five year revolving credit facility........................... $ 15,000
Term Loan A................................................... 112,125
Term Loan B................................................... 124,688
Senior Subordinated Credit Facility............................ 150,000
Capital lease obligation....................................... 385
--------
402,198
Less current portion........................................... 14,297
--------
Long-term debt................................................. $387,901
========
</TABLE>
F-13
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-Term Debt--(Continued)
The following is a schedule of future maturities of term debt, including
minimum lease payments (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ending
December 31,
--------------------
<S> <C>
1999....................................................... $ 14,297
2000....................................................... 18,601
2001....................................................... 20,031
2002....................................................... 24,331
2003....................................................... 39,250
2004 and thereafter........................................ 285,688
--------
$402,198
========
</TABLE>
Senior Credit Facility
In connection with the Formation Transactions, AGY entered into a senior
secured credit agreement, pursuant to which the lenders committed to lend to
AGY up to $315.0 million (the "Senior Credit Facility"), including: (i) a six-
year revolving credit facility in an aggregate principal amount of up to $75.0
million (the "Revolver"); (ii) a six-year term loan in an aggregate principal
amount of $115.0 million ("Term Loan A"); (iii) a seven-year term loan in an
aggregate principal amount of $125.0 million ("Term Loan B" and together with
Term Loan A, the "Term Loans").
The Senior Credit Facility is collateralized by a first priority lien on
substantially all of the properties and assets of AGY and its respective
domestic subsidiaries, now owned or acquired thereafter, and a pledge of
Porcher Industries' membership interest in AGY. The Senior Credit Facility will
be guaranteed by all of AGY's future domestic subsidiaries.
At AGY's option, the interest rates per annum applicable to the Revolver and
the Term Loan A is a fluctuating rate of interest measured by reference either
to: (i) LIBOR plus a borrowing margin or (ii) the bank's base rate, which is
the greater of the published prime rate or the overnight federal funds rate
plus 0.5% (the "ABR") plus a borrowing margin. The applicable borrowing margin
for the Revolver and Term Loan A ranges from 1.75% to 3.0% for LIBOR based
borrowings and .5% to 1.75% for ABR based borrowings. The applicable borrowing
margin for the Term Loan B ranges from 3.50% to 3.75% for LIBOR based
borrowings and 2.25% to 2.5% for ABR based borrowings. In October 1998, the
Company entered into interest rate swap agreements which convert the LIBOR
rates of interest on Term Loan A and Term Loan B to 4.92% and 5.04% per annum,
respectively, plus the applicable borrowing margin, in order to limit its
exposure to interest rate fluctuations under the Term Loan portion of the
Senior Credit Facility. These swap agreements remain in effect through the six-
year and seven-year terms of Term Loan A and Term Loan B, respectively. The
notional amount of these swaps was $115,000,000 and $125,000,000 for Term Loan
A and Term Loan B at December 31, 1998, respectively.
F-14
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-Term Debt--(Continued)
The interest rate on borrowings outstanding under the Revolver, Term Loan A
and Term Loan B as of December 31, 1998 was 7.79%, 8.38% and 9.13%,
respectively. The fair value of the interest rate swap agreements, representing
the estimated amount that the Company would receive to terminate the swap
agreements, was approximately $1,099,000 and $2,003,000 at December 31, 1998;
however, the Company has no intention of terminating the swap agreements.
The Senior Credit Facility contains covenants restricting AGY and its
subsidiaries with respect to the incurrence of debt (including guarantees); the
creation of liens; substantially changing the nature of AGY's or its
subsidiaries' businesses; the consummation of certain transactions such as
dispositions of substantial assets, mergers, acquisitions, reorganizations and
recapitalizations; the making of certain investments and loans, non-ordinary
course of business asset sales and capital expenditures; the making of
dividends and other distributions; transactions with affiliates (outside of
trade sales and purchases) and AGY's ability to prepay certain debt. AGY also
is required to comply with certain financial tests and maintain certain
financial ratios. Certain of these financial tests and ratios include: (i)
maintaining a maximum Leverage Ratio; (ii) maintaining a minimum Consolidated
Net Worth (as defined in the Senior Credit Facility); (iii) maintaining a
minimum Interest Coverage Ratio (as defined in the Senior Credit Facility); and
(iv) maintaining a minimum Fixed Charge Coverage Ratio (as defined in the
Senior Credit Facility). At December 31, 1998, the Company was in compliance
with the aforementioned covenants.
The Senior Credit Facility also contains customary Events of Default. An
Event of Default under the Senior Credit Facility will allow the lenders
thereunder to accelerate or, in certain cases, will automatically cause the
acceleration of, the maturity of the debt under the Senior Credit Facility.
Further, in the event of default, the interest rate would be increased.
Senior Subordinated Credit Facility
In connection with the Formation Transactions, AGY entered into the
Subordinated Facility. The Subordinated Facility, which had a maturity of
September 30, 2008, provided for aggregate borrowings in an amount of $150
million and was fully drawn by AGY as of September 30, 1998.
Amounts outstanding under the Subordinated Facility accrued interest at a
rate equal to the sum (a) of the greater of (i) the three month LIBOR rate or
(ii) a Treasury based rate (based on Treasury securities of the same principal
amount as the Subordinated Facility), plus (b) a margin of 4.25%. The 4.25%
margin increases by .25% per annum at the end of each three-month period during
the term of the Subordinated Facility. The maximum annual rate on the
Subordinated Facility was 18%. The rate of interest on the amounts outstanding
under the Subordinated Facility was 9.51% at December 31, 1998.
The Company used the net proceeds from the offering of its 9 7/8% Senior
Subordinated Notes due 2009, together with additional borrowings under the
Senior Credit Facility, to repay all amounts outstanding under the Subordinated
Facility (Note 17).
F-15
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-Term Debt--(Continued)
Other
The Company has outstanding standby letters of credit at December 31, 1998 of
approximately $512,000 to secure workers compensation obligations. Such letters
of credit expire in October 1999.
Keepwell Agreement
In connection with the Formation Transactions, Owens Corning entered into a
Keepwell Agreement to support the liquidity of AGY. In the event that AGY does
not have the liquidity to pay the interest on the Senior Credit Facility or the
9 7/8% Senior Subordinated Notes due 2009 when due, Owens Corning will loan AGY
an amount equal to the aggregate deficiency. Owens Corning's obligations to
make such loans is limited to a maximum aggregate amount of $65 million, and a
maximum annual amount of $20 million. The Owens Corning maximum aggregate
obligation is reduced by $10 million semi-annually beginning in 1999. Any such
loans which are made by Owens Corning will be subordinate to obligations under
the Senior Credit Facility and the Notes. This agreement terminates in January
2002.
F-16
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Membership Interest/Net Assets and Put Rights
The following table sets forth the statement of changes in net
assets/members' interest (deficit) in AGY (in thousands):
<TABLE>
<CAPTION>
Membership Interest
--------------------
Accumulated
Other
Comprehensive Owens
Net Assets Income Corning Porcher Total
---------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ 31,899 $ -- $ -- $ -- $ 31,899
Net income............. 50,243 -- -- -- 50,243
Net transfers to Owens
Corning............... (46,783) -- -- -- (46,783)
Translation loss....... -- (633) -- -- (633)
Other, net............. 2,124 -- -- -- 2,124
-------- ------- --------- --------- ---------
Balance at December 31,
1996................... 37,483 (633) -- -- 36,850
Net income............. 50,326 -- -- -- 50,326
Net transfers to Owens
Corning............... (56,922) -- -- -- (56,922)
Translation loss....... -- (935) -- -- (935)
Other, net............. 1,621 -- -- -- 1,621
-------- ------- --------- --------- ---------
Balance at December 31,
1997................... 32,508 (1,568) -- -- 30,940
Net income from January
1, 1998 to June 30,
1998.................. 24,698 -- -- -- 24,698
Translation gain........ -- 539 -- -- 539
Change from Business
Unit to LLP........... (57,206) 1,029 56,177 -- --
Deferred tax adjustment
due to change from
Business Unit to LLP.. -- -- (10,513) -- (10,513)
Net income from July 1,
1998 to September 30,
1998.................. -- -- 18,311 -- 18,311
Net transfers to Owens
Corning............... -- -- (14,940) -- (14,940)
Net liabilities assumed
by Owens Corning and
treated as capital
contribution.......... -- -- 97,647 -- 97,647
Contribution from Owens
Corning............... -- -- 2,250 -- 2,250
Sale of 51% interest to
Porcher............... -- -- (74,808) 342,149 267,341
Distributions.......... -- -- (195,638) (203,624) (399,262)
-------- ------- --------- --------- ---------
Balance at September 30,
1998................... -- -- (121,514) 138,525 17,011
-------- ------- --------- --------- ---------
Net income from October
1, 1998 to December 31,
1998................... -- 2,095 2,180 4,275
-------- ------- --------- --------- ---------
Foreign currency
translation
adjustment............. (1) (1)
-------- ------- --------- --------- ---------
Balance at December 31,
1998.................... $ -- $ (1) $(119,419) $ 140,705 $ 21,285
======== ======= ========= ========= =========
</TABLE>
Put Right
Commencing September 30, 2003, each of the members have the right to sell not
less than all of their ownership interest to AGY (a "Put Right") in the event
certain conditions described below are satisfied. If either of the members
exercises its Put Right, the value of the ownership interest will be determined
by a third party according to the procedures set forth in the operating
agreement. AGY's
F-17
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(8) Membership Interest/Net Assets and Put Rights--(Continued)
obligation to purchase a member's ownership interest is conditioned upon AGY
financing the purchase with a third party lender while maintaining or obtaining
not less than a B rating on its then outstanding unsecured debt after giving
effect to the purchase. In addition, AGY's ability to fund the Put Right will
be conditioned upon maintaining compliance with the covenants under the Senior
Credit Facility and the Subordinated Credit Facility.
As of December 31, 1998, AGY could not finance the purchase of all or any
portion of either member's ownership interest and maintain a credit rating of
at least B on its existing unsecured debt. If AGY meets this requirement in the
future, the Company will commence accretion to this estimated redemption value
of each member's ownership interest. Such accreted redemption amount will be
presented outside of the members' interest section of the balance sheet after
total liabilities. Management's estimate of the aggregate value of the members'
ownership interests using the measurement procedures specified in the Operating
Agreement is approximately $250 million.
Other, net
Prior to October 1, 1998, the other change in the net assets of the
Predecessor Business reflects the change in the intercompany payable with Owens
Corning related to alloy metals. Alloy metals are owned by Owens Corning's
central alloy operations and were issued to the Predecessor Business as needed
for production. The amount of alloy metals issued to the Predecessor Business
has been included in the opening balance of net assets. When the Predecessor
Business returned alloy metals to the central alloy operations for
reconditioning, the net assets of the Predecessor Business were reduced. When
additional issuances of alloy metals were made to the Predecessor Business, the
net assets of the Predecessor Business were increased.
9. Transactions with Related Parties
The Company engages in several transactions with related parties. The
following is a description of these transactions.
Sales
Porcher Industries and affiliates represented approximately $14,000,000 and
$39,000,000 of AGY's net sales for the periods ended December 31, 1998 and
September 30, 1998, respectively.
Purchases of Materials
The Company purchases glass marbles, which are used as an input material in
the production of certain glass yarns, from Owens Corning. Glass marble
purchases were $1,667,000, $2,157,000, $3,047,000 and $2,889,000 for the
periods ended December 31, 1998 and September 30, 1998 and for the years ended
December 31, 1997 and 1996, respectively.
Glass Forming Bushing Fabrication Services and Alloy Metal Loss
The glass forming bushings used in the Company's glass melting furnaces
require periodic refurbishing. Refurbishing and fabrication services are
provided to the Company by Owens Corning's central alloy operations. Such
services and alloy metals physically consumed in the manufacturing process are
charged to the Company at actual cost and were $721,000, $2,499,000, $3,200,000
and
F-18
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) Transactions with Related Parties--(Continued)
$3,400,000 for the periods ended December 31, 1998, and September 30, 1998 and
for the years ended December 31, 1997 and 1996, respectively.
Borates Supply Agreement
The Company purchases borates, which are used as an input material in the
production of certain glass yarns, from Owens Corning. Borates purchases were
$879,000, $2,550,000, $3,682,000 and $3,986,000 for the periods ended December
31, 1998 and September 30, 1998 and for the years ended December 31, 1997 and
December 31, 1996, respectively. Additionally, Owens Corning began charging the
Company an administrative fee for these services beginning October 1, 1998.
Such administrative charges were $25,000 for the period ended December 31,
1998.
Battice Supply Agreements
The Company purchases certain glass yarn products from Owens Corning's
Battice manufacturing facility for resale. Such purchases were $5,017,000 for
the period ended December 31, 1998. Prior to the Majority Purchase, Owens
Corning's Battice manufacturing facility sold such products directly to the
customer.
Byproducts Supply Agreement
Owens Corning purchases byproducts of the Company's manufacturing processes
called dry chopped yarn and slit hanks from the Company. The Company's sales of
these byproducts to Owens Corning were $244,000, $818,000, $723,000 and
$680,000 for the periods ended December 31, 1998 and September 30, 1998 and for
the years ended December 31, 1997 and December 31, 1996, respectively and are
included in other income.
Owens Corning produces Low Tex Type 30 for the Company's customers. Beginning
October 1, 1998 the Company receives a fee from Owens Corning equal to 10% of
sales of those products to the Company's customers. These fees were
approximately $203,000 for the period ended December 31, 1998.
Transitional Services
The Company entered into a transitional services agreement with Owens Corning
at the time of the Majority Purchase for processing the Company's payroll,
health care and benefit costs, accounts payable and for providing certain
accounting and information services. In addition, the Company reimburses Owens
Corning for paying certain health care costs. Such charges were $1,679,000 and
$2,100,000, respectively, and were included in selling, general and
administrative expenses for the period ended December 31, 1998.
Lease Transactions
The Company has entered into operating sublease agreements with Owens Corning
for certain manufacturing equipment. The rental expense included in the
Company's statements of operations associated with these leases was $557,000,
$1,677,000 and $1,928,000 and $418,000 for the periods ended December 31, 1998
and September 30, 1998 and for the years ended December 31, 1997 and 1996,
respectively.
F-19
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) Transactions with Related Parties--(Continued)
The future minimum rental commitments associated with these leases are as
follows (in thousands):
<TABLE>
<S> <C>
1999............................................ $2,263
2000............................................ 2,263
2001............................................ 1,776
2002............................................ 522
</TABLE>
The Company leases a manufacturing facility from a wholly owned subsidiary of
Porcher Industries. Rental expenses associated with this facility was $165,000
and $110,000 for the periods ended December 31, 1998 and September 30, 1998.
10. Employee Benefits
These disclosures have been restated in accordance with the provisions of
SFAS 132.
Pension Plan
Prior to the Majority Purchase, the hourly and salaried employees of the
Predecessor Business participated in Company wide defined benefit plans
maintained by Owens Corning. Under the plans, pension benefits were generally
based on an employee's pay and number of years of service. Contributions to
these pension plans were based on the calculations of independent actuaries
using the projected unit credit method. Plan assets consisted primarily of
equity securities with the balance in fixed income investments. The
unrecognized cost of retroactive amendments and actuarial gains and losses were
amortized over the average future service period of plan participants expected
to receive benefits.
Pension expense attributed to the Predecessor Business defined benefit
pension plans includes the following (in thousands):
<TABLE>
<CAPTION>
Period January 1, 1998 to
1996 1997 September 30, 1998
------- ------- -------------------------
<S> <C> <C> <C>
Service cost................... $ 1,800 $ 2,000 $ 1,673
Interest cost on projected
benefit obligation............ 7,833 7,777 5,892
Actual return on plan assets... (8,517) (8,649) (6,746)
Amortization of transition
amount........................ (613) (613) (420)
Amortization of actuarial
(gain) loss................... 110 654 1,260
Amortization of prior service
cost.......................... (1,113) (1,113) (765)
------- ------- -------
Net pension expense (credit)... $ (500) $ 56 $ 894
======= ======= =======
</TABLE>
Assumptions used:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rates......................... 7.75% 7.25% 6.50%
Return on asset......................................... 9.0% 9.0% 9.0%
Rate of compensation increase........................... 5.1% 5.0% 5.5%
</TABLE>
F-20
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefits--(Continued)
The change in projected benefit obligation, the change in fair value of plan
assets and the funded status of the pension plans at December 31 is summarized
below (in thousands):
<TABLE>
<CAPTION>
Period
January 1, 1998 to
1997 September 30, 1998
-------- ------------------
<S> <C> <C>
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation at
beginning of period.... $106,681 $112,580
Service cost............ 2,000 1,673
Interest cost........... 7,777 5,892
Plan amendments......... -- --
Actuarial loss.......... 8,660 11,832
Benefit payments........ (12,538) (19,223)
-------- --------
Benefit obligation at
end of period.......... $112,580 $112,754
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan
assets at beginning of
period................. $103,088 $110,924
Actual return on plan
assets................. 20,374 12,436
Employer contributions.. -- --
Benefit payments........ (12,538) (19,223)
-------- --------
Fair value of plan
assets at end of
period................. $110,924 $104,137
======== ========
FUNDED STATUS
Funded status at end of
period................. $ (1,656) $ (8,617)
Unrecognized net
transition asset....... (3,631) (3,069)
Unrecognized net
actuarial loss......... 5,467 9,654
Unrecognized prior
service costs.......... (8,201) (7,181)
Adjustment for Majority
Purchase............... -- 4,113
-------- --------
Net amount recognized... $ (8,021) $ (5,100)
======== ========
AMOUNTS RECOGNIZED IN
THE
STATEMENT OF FINANCIAL
POSITION
Prepaid benefit cost.... $ -- $ --
Accrued benefit
liability.............. (8,021) (5,100)
Intangible asset........ -- --
Accumulated other
comprehensive income... -- --
-------- --------
Net amount recognized... $ (8,021) $ (5,100)
======== ========
</TABLE>
Under the Majority Purchase, Owens Corning continued to remain responsible
for pension benefits earned through September 30, 1998. However, AGY agreed to
pay for subsidized benefits offered under the plan to participants who retire
before normal retirement age. This subsidized benefit is the result of the plan
paying early retirement benefits which are actuarially larger than benefits
provided at normal retirement age. For those participants under age 55 on
September 30, 1998, the subsidy on the entire retirement benefit (including the
portion of the benefit earned while the
F-21
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefits--(Continued)
participant was an employee of the Predecessor Business) has been borne by AGY.
This liability of AGY at September 30, 1998 was actuarially calculated to be
$5.1 million. For those employees eligible to retire, AGY is responsible for
only the subsidy on the portion of the benefit earned subsequent to September
30, 1998.
Additionally, AGY has agreed to be responsible for the service costs under
the plan through December 31, 1999. The amount reimbursable to Owens Corning
attributed to AGY's unfunded contracted responsibility under this agreement
charged to expense for the period October 1, 1998 to December 31, 1998 was
$500,000.
Postretirement
The employees of the Predecessor Business participated in health care and
life insurance benefit plans for certain retired employees and their
dependents. The heath care plans in the U.S. were unfunded and pay either: 1)
stated percentages of covered medically necessary expenses, after subtracting
payments by Medicare or other providers and after stated deductibles have been
met, or, 2) fixed amounts of medical expense retirement.
Employees became eligible to participate in the health care plans upon
retirement under the Predecessor Business' pension plans if they had
accumulated 10 years of service after age 45. Some of the plans were
contributory, with some retiree contributions adjusted annually. The
Predecessor Business reserved the right to change or eliminate these benefit
plans subject to the terms of collective bargaining agreements.
Under the Majority Purchase, AGY assumed the liability for these health care
and life insurance benefits for active employees on September 30, 1998.
The amount of net postretirement benefits cost attributed to AGY and the
Predecessor Business included the following components (in thousands):
<TABLE>
<CAPTION>
Period Period
January 1, 1998 to October 1, 1998 to
1996 1997 September 30, 1998 December 31, 1998
------- ------- ------------------ ------------------
<S> <C> <C> <C> <C>
Service cost............ $ 1,100 $ 900 $ 753 $225
Interest cost on
projected benefit
obligation............. 3,591 3,780 2,864 175
Amortization of
transition amount...... -- -- -- --
Amortization of
actuarial (gain) loss.. -- -- -- --
Amortization of prior
service cost........... (3,780) (3,780) (2,599) --
------- ------- ------- ----
Net pension expense..... $ 911 $ 900 $ 1,018 $400
======= ======= ======= ====
</TABLE>
Assumptions used:
<TABLE>
<CAPTION>
1996 1997 1998
------ ---- -----
<S> <C> <C> <C>
Weighted-average Discount rates...................... 7.75% 7.25% 6.50%
Initial health care cost trend rate.................. 4-10.5% 4-10% 4-9.5%
Ultimate health care cost trend rate................. 4-7% 4-7% 4-7%
</TABLE>
F-22
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefits--(Continued)
The change in benefit obligation, the change in fair value of plan assets and
the funded status of the postretirement benefit plans at December 31, is
summarized below (in thousands):
<TABLE>
<CAPTION>
Period Period
January 1, 1998 to October 1, 1998 to
1997 September 30, 1998 December 31, 1998
-------- ------------------ ------------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of period.......... $ 50,085 $ 56,700 $ 12,000
Service cost.................. 900 753 225
Interest cost................. 3,780 2,864 175
Plan amendments............... -- -- --
Actuarial loss................ 5,524 6,432 --
Expected benefit payments..... (3,589) (3,444) --
Adjustment for Majority
Purchase..................... -- (51,305) --
-------- -------- --------
Benefit obligation at end of
period....................... $ 56,700 $ 12,000 $ 12,400
======== ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of period.......... $ -- $ -- $ --
Actual return on plan assets.. -- -- --
Employer contributions........ -- -- --
Benefit payments.............. -- -- --
-------- -------- --------
Fair value of plan assets at
end of period................ $ -- $ -- $ --
======== ======== ========
FUNDED STATUS
Funded status at end of
period....................... $(56,700) $(12,000) $(12,400)
Unrecognized net transition
(asset)/obligation........... -- -- --
Unrecognized net actuarial
loss......................... 4,536 -- --
Unrecognized prior service
costs........................ (6,048) -- --
-------- -------- --------
Net amount recognized......... $(58,212) $(12,000) $(12,400)
======== ======== ========
</TABLE>
Assumed health care trend rates have significant effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage
Point
-----------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components for 1997................................. $ 867 $ (824)
Effect on postretirement benefit obligation at
October 31, 1997..................................... $7,779 $(7,390)
</TABLE>
<TABLE>
<CAPTION>
1-Percentage
Point
-----------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components for 1998................................. $1,000 $ (950)
Effect on postretirement benefit obligation at
September 30, 1998.................................. $9,595 $(9,115)
</TABLE>
F-23
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefits--(Continued)
Other Benefit Plan
Employees of the Predecessor Business also participated in plans that
provided benefits to former or inactive employees after employment but before
retirement under certain conditions. These benefits included, but are not
limited to, salary continuation, supplemental unemployment benefits, severance
benefits, disability related benefits (including workers' compensation), job
training and counseling. The benefits cost liability attributed to the
Predecessor Business at October 31, 1997, as reflected in the statement of net
assets at December 31, 1997 was $6,865,000 including current liabilities of
$850,000. Such plans were not continued as a result of the Majority Purchase.
11. Restructuring and Nonrecurring Costs
During the first quarter of 1998, the Predecessor Business recorded a $2
million restructuring charge relating to personnel reductions at the Aiken and
Huntingdon plant locations. The charge represents severance costs associated
with the elimination of approximately 100 positions.
During the period October 1, 1998 to December 31, 1998, the Company incurred
nonrecurring charges of $626,000 related to labor agreement settlements
included in the cost of sales and $268,000 related to relocation costs included
in selling, general and administration expense. An additional $130,000 of costs
associated with software training was incurred and is included in selling,
general and administrative expenses. The operating profit for the period
October 1, 1998 to December 31, 1998 was adversely impacted by $1.3 million
attributable to charges resulting from the purchase accounting adjustment to
reflect the fair value of the inventory as of the date of the Majority
Purchase.
12. Interest Expense
Interest expense includes the following for the three months ended December
31, 1998 (in thousands):
<TABLE>
<S> <C>
Interest expense on long-term debt................................ $8,739
Amortization of debt issuance costs............................... 374
------
$9,113
======
</TABLE>
13. Income Taxes
The provision for income taxes, income taxes payable and deferred income
taxes included in the accompanying financial statements have been calculated as
if the Predecessor Business, prior to July 1, 1998 operated as a stand alone
entity. Effective July 1, 1998, the Company was established as a limited
liability company, and is not subject to income tax; therefore, the statement
of operations included herein does not reflect income tax expense for any
period subsequent to July 1, 1998. Income tax expense reflected in the
statement of operations for the nine months ended September 30, 1998 represents
the estimated income tax expense attributable to the results of operations of
the Predecessor Business through June 30, 1998. Income tax for the periods
subsequent to the Contributions is the responsibility of the members based on
their respective interest in AGY.
F-24
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(13) Income Taxes--(Continued)
Income before provision for income taxes (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Period
------------------------ January 1, 1998 to
1996 1997 September 30, 1998
----------- ----------- ------------------
<S> <C> <C> <C>
U.S............................... $ 77,079 $ 81,129 $57,139
Foreign........................... 6,215 1,737 2,096
----------- ----------- -------
Total............................. $ 83,294 $ 82,866 $59,235
=========== =========== =======
The provision for income taxes consists of the following (in thousands):
<CAPTION>
Year Ended December 31, Period
------------------------ January 1, 1998 to
1996 1997 September 30, 1998
----------- ----------- ------------------
<S> <C> <C> <C>
Currently payable:
U.S. state and federal........... $ 29,278 $ 29,539 $16,229
Foreign.......................... 2,497 698 838
Deferred:
U.S. state and federal........... 1,276 2,303 (841)
----------- ----------- -------
Total provision for income
taxes............................ $ 33,051 $ 32,540 $16,226
=========== =========== =======
The reconciliation between U.S. federal statutory rate and the effective
income tax rate is:
<CAPTION>
Year Ended December 31, Period
------------------------ January 1, 1998 to
1996 1997 September 30, 1998
----------- ----------- ------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35% 35% 35%
State and local income taxes..... 4 4 4
Foreign tax rates greater than
U.S. Federal statutory rate..... 1 -- --
LLC income not subject to tax.... -- -- (12)
----------- ----------- -------
40% 39% 27%
=========== =========== =======
</TABLE>
Deferred income taxes were determined based on the estimated future tax
effects of temporary differences between the financial reporting and tax bases
of assets and liabilities, given the provisions of the enacted tax laws. As a
result of the conversion to a limited liability company, the deferred tax asset
at July 1, 1998 of $10,513 was treated as a deemed distribution and reflected
as a reduction of net assets. Deferred tax consequences of significant
temporary differences existing as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Deferred tax assets:
Pension and other employee benefit plans.................... $ 29,692
Other....................................................... 1,668
--------
$ 31,360
========
Deferred tax liabilities:
Fixed assets................................................ $(21,688)
========
</TABLE>
F-25
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. Segment Information
The Company operates in one business segment that manufactures glass fiber
yarns and specialty materials that are used in a variety of industrial and
commercial applications. The following geographic information represents the
Company's net sales based on product shipment location and total assets based
on physical locations for the region and period indicated (in thousands):
<TABLE>
<CAPTION>
Consolidated
The Predecessor Business Company
-------------------------------------------- -----------------
Year Year Period from Period from
Ended Ended January 1, 1998 October 1, 1998
December 31, December 31, to to
1996 1997 September 30, 1998 December 31, 1998
------------ ------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales
U.S.................................................... $175,713 $178,768 $134,020 $47,961
Canada................................................. 19,019 20,401 14,011 3,708
Europe................................................. 75,668 68,429 46,276 10,861
Asia................................................... 4,579 9,759 10,941 873
-------- -------- -------- -------
$274,979 $277,357 $205,248 $63,403
======== ======== ======== =======
</TABLE>
Assets by country:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
United States................................... $142,655 $440,315
Canada.......................................... 1,648 1,712
Europe.......................................... 8,721 20,021
Asia............................................ 937 3,421
-------- --------
$153,961 $465,469
======== ========
</TABLE>
Sales by product category are as follows:
<TABLE>
<CAPTION>
Consolidated
The Predecessor Business Company
-------------------------------------------- -----------------
Year Year Period from Period from
Ended Ended January 1, 1998 October 1, 1998
December 31, December 31, to to
1996 1997 September 30, 1998 December 31, 1998
------------ ------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Heavy yarns............................................. $221,358 $210,791 $151,884 $46,918
Fine yarns.............................................. 53,621 66,566 53,364 16,485
-------- -------- -------- -------
$274,979 $277,357 $205,248 $63,403
======== ======== ======== =======
</TABLE>
15. Pro Forma Supplementary Data (unaudited)
The following (unaudited) pro forma supplementary data (in thousands) for the
period from January 1, 1998 to September 30, 1998 and for the year ended
December 31, 1997 give effect to the formation transactions as if they had
occurred on January 1, 1997. The pro forma supplementary data is provided for
informational purposes only and should not be construed to be indicative of the
F-26
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company's results of operations had the transactions been consummated on the
dates assumed and do not project the Company's results of operations for any
future date (See Notes 1 and 2).
<TABLE>
<CAPTION>
Period from
January 1,
Year Ended 1998 to
December 31, September 30,
1997 1998
------------ -------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales...................................... $277,357 $205,248
Gross profit................................... 86,082 63,281
Income from operations ........................ 59,877 41,216
Net income..................................... 21,039 14,718
</TABLE>
16. Distributions
Pursuant to the terms of the Operating Agreement, the Company will make an
annual distribution (the "Tax Distribution") from its net cash flows and
permitted borrowings under the Senior Credit Facility to each of Owens Corning
and Porcher Industries in order to fund the taxes payable by each owner on
their proportionate share of the Company's net ordinary income and net capital
gain. In connection with the Majority Purchase, the Company has made a
partnership election to step up the basis of certain of the Company's tangible
and intangible assets. The resulting increase in depreciation and amortization
expense will be allocated wholly to Porcher Industries. As a result, the Tax
Distributions will not be made on a pro rata basis and Porcher Industries will
have an unrecovered distribution amount (the "Deferred Distribution"). The
Deferred Distribution will earn interest at the same rate of interest as the
Senior Credit Facility. Based on the members' estimated taxable income for the
three month period ended December 31, 1998 the Tax Distribution will
approximate $3.1 million of which $1.5 million will be paid in cash to Owens
Corning and $1.6 million will be treated as a Deferred Distribution payable to
Porcher Industries.
17. Subsequent Event
On January 15, 1999, the Company issued $150 million of 9 7/8% Senior
Subordinated Notes ($147 million net of discount) due 2009. Interest is payable
semiannually beginning in July 1999. Net proceeds of approximately $141.9
million plus additional borrowings under the revolving credit facility were
used to repay outstanding indebtedness of $150 million under the Subordinated
Facility. In addition, debt issuance costs of $3.6 million associated with the
termination of the Subordinated Facility were written off in the first quarter
of 1999.
The Company's wholly-owned subsidiary, AGY Capital Corp., which was formed
and capitalized on September 24, 1998, is a joint and several obligor of the 9
7/8% Senior Subordinated Notes. AGY Capital Corp. was capitalized with $1,000
of which 1,000 shares of $.01 par value stock were issued. Separate financial
statements or condensed consolidating financial data of AGY Capital Corp. are
not presented because management has determined that they would not be material
to holders of the Company's Senior Subordinated Notes. AGY Capital Corp. has
had no further transactions or activities since the date of formation.
F-27
<PAGE>
18. Events Subsequent to the Date of the Auditor Report (unaudited)
The interim consolidated financial data with respect to March 31, 1998 and
1999 have been prepared without audit; however, in the opinion of management,
all adjustments (which included those that are normal and recurring) necessary
to present fairly the consolidated financial position at March 31, 1999 and the
results of operations and cash flows for the three months ended March 31, 1998
and 1999 have been made. The results for the three months ended March 31, 1999
are not necessarily indicative of the results of operations for a full year.
Interim financial data does not include all the disclosures normally required
under generally accepted accounting principles.
Inventories consist of the following at March 31, 1999:
<TABLE>
<S> <C>
Finished goods.................................................... $21,041
Materials and supplies............................................ 5,595
-------
$26,636
=======
Accrued liabilities consist of the following at March 31, 1999:
Vacation.......................................................... $ 3,377
Accrued interest.................................................. 2,996
Real and personal property taxes.................................. 2,154
Incentive compensation............................................ 1,718
Distribution payable to Owens Corning............................. 1,548
Other............................................................. 8,563
-------
$20,356
=======
</TABLE>
During the three months ended March 31, 1999, selling, general and
administrative expenses include approximately $300,000 in nonrecurring
consulting expenses. During this same period, the Company recorded a
distribution to its members as discussed in Note 16. Accordingly, at March 31,
1999, a distribution payable to Owens Corning of $1,548 is included in accrued
liabilities and the balance sheet reflects a deferred distribution of $1,611 to
Porcher Industries.
F-28
<PAGE>
$150,000,000
ADVANCED GLASSFIBER YARNS LLC
AGY CAPITAL CORP.
Exchange Offer for $150,000,000
of 9 7/8% Senior Subordinated Notes due 2009
, 1999
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
(a) Advanced Glassfiber Yarns LLC
Section 18-108 of the Delaware Limited Liability Company Act (the "Act")
empowers a limited liability company to indemnify and hold harmless any member
or manager or other person from and against any and all claims and demands
whatsoever; subject to such standards and restrictions, if any, set forth in
the operating agreement.
Section 11 of the operating agreement of Advanced Glassfiber Yarns LLC (the
"Company") provides in pertinent part as follows:
(a) Except as otherwise prohibited by the Act, the Company shall
indemnify and hold each owner and its affiliates and its officers,
employees, directors, members, stockholders, managers, agents and
representatives, and their successors and assigns, and each of the members
of the Board of Directors and each officer (collectively, the
"Indemnitees"), harmless from and against any and all losses, claims,
damages, costs, liabilities and expenses (including without limitation
costs of investigation and reasonable attorneys' fees) ("Losses") suffered
or incurred by any and/or all of the Indemnitees (or to which any and/or
all of the Indemnitees may become subject) arising out of, resulting from,
based upon or in connection with the management or conduct of the business
or affairs of the Company or the activities of each such Indemnitee with
respect thereto, other than those which are the result of willful
misconduct or gross negligence by such Indemnitee (the "Indemnified
Damages").
(b) Any payment by the Company to an Indemnitee hereunder shall be
increased by an additional amount sufficient to pay all applicable income
taxes (if any) of any jurisdiction with respect to the total amount
(including both the initial amount and such additional amount) paid to such
Indemnitee hereunder.
(c) To the extent that insurance form third parties has been obtained and
is available in respect of any Indemnified Damages, the amount of any
Indemnified Damages shall be reduced by any amount actually recovered by
the Indemnitee from such third parties (to the extent such reimbursement
was not taken into account in assessing the amount of Indemnified Damages
incurred by the Indemnitee) rather than having the Company make any
payments pursuant to the indemnification obligations contained herein;
provided that if such proceeds are not readily available, the Board of
Directors will cause the Company to pay such Indemnified Damages, in which
event the Company shall be entitled to reimbursement therefor out of the
proceeds of insurance when and if obtained. The Board of Directors may (but
shall not be obligated to) obtain, at the expense of the Company, insurance
against any Indemnified Damages whether or not the Company would, pursuant
to this Section 11.1, be required to indemnify any Indemnitee in respect
thereof.
(d) The Company shall, at its sole cost and expense, (i) maintain, with
insurers or underwriters of national standing, in the name of the Company,
(x) liability insurance to protect members of the Board of Directors and
the officers, and (y) employee fidelity and other insurance consistent with
industry practice, in the case of (x) and (y), in at least such amounts as
are sufficient to cover reasonable risks of loss and are consistent with
industry practice, and (ii) pay all premiums and other sums payable in
respect of maintaining such insurance.
(b) AGY Capital Corp.
Under Section 145 of the General Corporation Law of the State of Delaware, a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request in such capacities with another enterprise,
II-1
<PAGE>
against expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. Delaware law
provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful.
In addition, Delaware law does not permit indemnification of any action or suit
by or in the right of the corporation, where such person has been adjudged
liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter involving a present or former
director or officer has been successfully defended.
AGY Capital Corp.'s certificate of incorporation and bylaws provide, under
certain circumstances, for the indemnification of AGY Capital Corp.'s present
or former directors, officers, employees, agents and persons who, at the
request of AGY Capital Corp., are or were serving in a similar capacity for
another corporation or entity. These provisions also allow the Board of
Directors to purchase and maintain insurance on behalf of AGY Capital Corp.'s
present or former directors, officers or persons who are or were serving at the
request of AGY Capital Corp. as a director or officer of another corporation or
entity.
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Ex. Description
--- -----------
<C> <S>
2.1(1) Amended and Restated Asset Contribution Agreement dated as of July 31,
1998 between Owens Corning and Lincoln Yarns LLC
2.2(1) LLC Interest Sale and Purchase Agreement dated as of July 31, 1998
among Owens Corning, Lincoln Yarns LLC and Glass Holdings Corp.
2.3(1) Amendment No. 1 to LLC Interest Sale and Purchase Agreement dated as
of September 30, 1998 among Owens Corning, Advanced Glassfiber Yarns
LLC and AGY Holdings, Inc.
3.1(1) Certificate of Formation of Advanced Glassfiber Yarns LLC
3.2(1) Advanced Glassfiber Yarns LLC Amended and Restated Limited Liability
Company Operating Agreement between Jefferson Holdings, Inc. and AGY
Holdings, Inc. dated as of September 30, 1998
3.3(1) Certificate of Incorporation of AGY Capital Corp.
3.4(1) Bylaws of AGY Capital Corp.
4.1(1) Indenture, dated as of January 21, 1999, among Advanced Glassfiber
Yarns LLC, AGY Capital Corp., the Guarantors and Bank of New York, as
trustee, relating to $150 million principal amount of 9 7/8% Senior
Subordinated Notes due 2009.
4.2(1) Form of 9 7/8% Series A and Series B Senior Subordinated Notes due
2009 (included in Exhibit 4.1)
4.3(1) Registration Rights Agreement dated as of January 21, 1999 among
Advanced Glassfiber Yarns LLC, AGY Capital Corp. and the Initial
Purchasers
5 Opinion of Alston & Bird LLP re legality
10.1(1) Patent and Know How License Agreement dated as of September 30, 1998
among Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.2(1) Glass Marbles Supply Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Ex. Description
--- -----------
<C> <S>
10.3(1) Alloy Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.4(1) Non-Compete Agreement dated as of September 30, 1998 among Owens
Corning, AGY Holdings Corp., Porcher Industries, S.A. and Advanced
Glassfiber Yarns LLC
10.5(1) Manufacturing Services Agreement dated as of September 30, 1998
between Owens Corning and Advanced Glassfiber Yarns LLC
10.6(1) Trademark Assignment Agreement dated as of September 30, 1998 by
Owens Corning Fiberglas Technology, Inc. and Owens Corning in favor
of Advanced Glassfiber Yarns LLC
10.7(1) Master Patent and Know How Assignment Agreement dated as of September
30, 1998 by Owens Corning Fiberglas Technology, Inc., Owens Corning
and Advanced Glassfiber Yarns LLC
10.8(2) Borates Supply Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.9(1) Transitional Services Agreement dated as of September 30, 1998 by and
among Owens Corning and Advanced Glassfiber Yarns LLC
10.10(1) Support Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.11(1) Software License Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.12(1) Keep-Well Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.13(1) Senior Credit Agreement dated as of September 30, 1998 among Advanced
Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as
agent and lender, and certain other lenders
10.14(1) Senior Subordinated Credit Agreement dated as of September 30, 1998
among Advanced Glassfiber Yarns LLC, the Guarantors, First Union
Investors, Inc., as co-agent and lender, and Warburg Dillon Read LLC,
as co-agent and lender
10.15(1) Note Purchase Agreement dated January 15, 1999 among Advanced
Glassfiber Yarns LLC, AGY Capital Corp. and the Initial Purchasers
12(1) Statement re Computation of Ratios
21(1) Subsidiaries of the Registrant
23.1(1) Consent of Alston & Bird LLP (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
24(1) Power of Attorney (included on signature page)
25(1) Statement of Eligibility (Form T-1) of The Bank of New York, as
Trustee
27(1) Financial Data Schedule
99(1) Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer
</TABLE>
- --------
(1) Previously filed.
(2) Portions of exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed
with the Commission.
(b) Financial Statement Schedules--None
Item 22. Undertakings
(a) Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which,
II-3
<PAGE>
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
a Registrant of expenses incurred or paid by a director, officer or
controlling person of such Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrants
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement No. 333-72305 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Aiken, State of South Carolina, on June 17, 1999.
Advanced Glassfiber Yarns LLC
/s/ Catherine Cuisson
By: _____________________________________________
Catherine Cuisson Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement No. 333-72305 has been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Robert Porcher* Chairman of the
- ------------------------------------ Board of Directors June 17, 1999
Robert Porcher
/s/ Heinz J. Otto* Director
- ------------------------------------ June 17, 1999
Heinz J. Otto
/s/ Serge Piolat* Director
- ------------------------------------ June 17, 1999
Serge Piolat
/s/ Philippe Porcher* Director
- ------------------------------------ June 17, 1999
Philippe Porcher
/s/ Thurston Roach* Director
- ------------------------------------ June 17, 1999
Thurston Roach
/s/ Robert B. Fisher* President
- ------------------------------------ June 17, 1999
Robert B. Fisher
/s/ Catherine Cuisson Chief Financial
- ------------------------------------ Officer (Principal June 17, 1999
Catherine Cuisson Accounting
Officer)
/s/ Catherine Cuisson
*By: _______________________________
Catherine Cuisson
(Attorney-in-fact)
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement No. 333-72305
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Aiken, State of South Carolina, on June 17, 1999.
Agy Capital Corp.
/s/ Catherine Cuisson
By: _________________________________
Catherine Cuisson
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-72305 has been signed by the following
persons in the capacities and on the dates indicated:
Name Title Date
/s/ Robert Porcher* Chairman of the
- ------------------------------------- Board of Directors June 17, 1999
Robert Porcher
/s/ Heinz J. Otto* Director
- ------------------------------------- June 17, 1999
Heinz J. Otto
/s/ Serge Piolat* Director
- ------------------------------------- June 17, 1999
Serge Piolat
/s/ Philippe Porcher* Director
- ------------------------------------- June 17, 1999
Philippe Porcher
/s/ Thurston Roach* Director
- ------------------------------------- June 17, 1999
Thurston Roach
/s/ Robert B. Fisher* President
- ------------------------------------- June 17, 1999
Robert B. Fisher
/s/ Catherine Cuisson Chief Financial
- ------------------------------------- Officer (Principal June 17, 1999
Catherine Cuisson Accounting Officer)
/s/ Catherine Cuisson
*By: ________________________________
Catherine Cuisson (Attorney-in-fact)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Ex. Description
--- -----------
<C> <S>
2.1(1) Amended and Restated Asset Contribution Agreement dated as of July
31, 1998 between Owens Corning and Lincoln Yarns LLC
2.2(1) LLC Interest Sale and Purchase Agreement dated as of July 31, 1998
among Owens Corning, Lincoln Yarns LLC and Glass Holdings Corp.
2.3(1) Amendment No. 1 to LLC Interest Sale and Purchase Agreement dated as
of September 30, 1998 among Owens Corning, Advanced Glassfiber Yarns
LLC and AGY Holdings, Inc.
3.1(1) Certificate of Formation of Advanced Glassfiber Yarns LLC
3.2(1) Advanced Glassfiber Yarns LLC Amended and Restated Limited Liability
Company Operating Agreement between Jefferson Holdings, Inc. and AGY
Holdings, Inc. dated as of September 30, 1998
3.3(1) Certificate of Incorporation of AGY Capital Corp.
3.4(1) Bylaws of AGY Capital Corp.
4.1(1) Indenture, dated as of January 21, 1999, among Advanced Glassfiber
Yarns LLC, AGY Capital Corp., the Guarantors and Bank of New York, as
trustee, relating to $150 million principal amount of 9 7/8% Senior
Subordinated Notes due 2009.
4.2(1) Form of 9 7/8% Series A and Series B Senior Subordinated Notes due
2009 (included in Exhibit 4.1)
4.3(1) Registration Rights Agreement dated as of January 21, 1999 among
Advanced Glassfiber Yarns LLC, AGY Capital Corp. and the Initial
Purchasers
5 Opinion of Alston & Bird LLP re legality
10.1(1) Patent and Know How License Agreement dated as of September 30, 1998
among Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.2(1) Glass Marbles Supply Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.3(1) Alloy Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.4(1) Non-Compete Agreement dated as of September 30, 1998 among Owens
Corning, AGY Holdings Corp., Porcher Industries, S.A. and Advanced
Glassfiber Yarns LLC
10.5(1) Manufacturing Services Agreement dated as of September 30, 1998
between Owens Corning and Advanced Glassfiber Yarns LLC
10.6(1) Trademark Assignment Agreement dated as of September 30, 1998 by
Owens Corning Fiberglas Technology, Inc. and Owens Corning in favor
of Advanced Glassfiber Yarns LLC
10.7(1) Master Patent and Know How Assignment Agreement dated as of September
30, 1998 by Owens Corning Fiberglas Technology, Inc., Owens Corning
and Advanced Glassfiber Yarns LLC
10.8(2) Borates Supply Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.9(1) Transitional Services Agreement dated as of September 30, 1998 by and
among Owens Corning and Advanced Glassfiber Yarns LLC
10.10(1) Support Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.11(1) Software License Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.12(1) Keep-Well Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.13(1) Senior Credit Agreement dated as of September 30, 1998 among Advanced
Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as
agent and lender, and certain other lenders
10.14(1) Senior Subordinated Credit Agreement dated as of September 30, 1998
among Advanced Glassfiber Yarns LLC, the Guarantors, First Union
Investors, Inc., as co-agent and lender, and Warburg Dillon Read LLC,
as co-agent and lender
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ex. Description
--- -----------
<C> <S>
10.15(1) Note Purchase Agreement dated January 15, 1999 among Advanced
Glassfiber Yarns LLC, AGY Capital Corp. and the Initial Purchasers
12(1) Statement re Computation of Ratios
21(1) Subsidiaries of the Registrant
23.1(1) Consent of Alston & Bird LLP (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
24(1) Power of Attorney (included on signature page)
25(1) Statement of Eligibility (Form T-1) of The Bank of New York, as
Trustee
27(1) Financial Data Schedule
99(1) Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer
</TABLE>
- --------
(1) Previously filed.
(2) Portions of exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed
with the Commission.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ALSTON & BIRD LLP APPEARS HERE]
Mark F. McElreath Direct Dial: 404-881-7378 E-mail: [email protected]
June 10, 1999
Advanced Glassfiber Yarns LLC
AGY Capital Corp.
2556 Wagener Road
Aiken, South Carolina 29801
Re: Registration Statement on Form S-4 (No. 333-72305)
Ladies and Gentlemen:
We have acted as legal counsel to Advanced Glassfiber Yarns LLC and AGY
Capital Corp., a Delaware limited liability operating company and a Delaware
corporation respectively (collectively, the "Companies"), in connection with the
filing of the above-referenced Registration Statement (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") to
register under the Securities Act of 1933, as amended (the "Act"), $150,000,000
principal amount of the Companies' 9 7/8% Senior Subordinated Notes due 2009
(the "Exchange Notes") to be issued under that certain Indenture dated as of
January 21, 1999 (the "Indenture") between the Companies and the Bank of New
York, as Trustee (the "Trustee"), in exchange for the identical principal amount
of any and all of the Companies' outstanding 9 7/8% Senior Subordinated Notes
due 2009 (the "Old Notes"). This opinion letter is rendered pursuant to Item 21
of Form S-4 and Item 601(b)(5) of Regulation S-K.
We have examined the Certificate of Formation and the Amended and Restated
Limited Liability Company Operating Agreement of Advanced Glassfiber Yarns LLC
and the Certificate of Incorporation and Bylaws of AGY Capital Corp.; records of
proceedings of the Board of Directors, or committees thereof, the members of
Advanced Glassfiber
<PAGE>
Advanced Glassfiber Yarns LLC
AGY Capital Corp.
June 10, 1999
Yarns LLC and the shareholders of AGY Capital Corp. deemed by us to be relevant
to this opinion letter; the proposed form of Exchange Note; the Indenture, and
the Registration Statement. We also have examined originals or copies, certified
or otherwise identified to our satisfaction, of such other corporate records and
documents of the Companies, such certificates of officers of the Companies and
public officials, and such other records and documents as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic or facsimile
copies, and the authenticity of the originals of such copies, and we have
assumed all certificates of public officials to have been properly given and to
be accurate.
As to certain factual matters relevant to this opinion letter, we have
relied upon the representations and warranties contained in the above-referenced
certificates of officers of the Companies and public officials. Except to the
extent expressly set forth herein, we have made no independent investigations
with regard thereto, and, accordingly, we do not express any opinion as to
matters that might have been disclosed by independent verification.
Our opinion set forth below is limited to the laws of the State of Georgia,
the laws of the State of New York, the Delaware General Corporation Law and the
federal securities laws, and we do not express any opinion herein concerning
any other laws.
On the basis of the foregoing, and subject to the limitations set forth
herein, we are of the opinion that, upon due execution of the Exchange Notes by
the Companies, due authentication thereof by the Trustee in accordance with the
Indenture and issuance and delivery thereof against exchange of the Old Notes as
provided by the Prospectus included in the Registration Statement, the Exchange
Notes will be validly issued and will constitute legally binding obligations of
the Companies entitled to the benefits of the Indenture and enforceable against
the Companies in accordance with their terms except to the extent that (a)
enforceability may be limited by applicable bankruptcy, insolvency, liquidation,
reorganization, moratorium and other laws relating to or affecting the rights
and remedies of creditors generally, and (b) the remedy of specific performance
and other forms of equitable relief may be subject to certain defenses and to
the discretion of the court before which proceedings may be brought (regardless
of whether enforceability is considered in a proceeding in equity or at law).
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part thereof. In giving such consent,
we do not thereby admit that we are
<PAGE>
Advanced Glassfiber Yarns LLC
AGY Capital Corp.
June 10, 1999
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder.
This opinion letter is being furnished by us to the Companies and the
Commission solely for the benefit of the Companies and the Commission in
connection with the Registration Statement and is not to be used, circulated,
quoted or otherwise relied upon by any other person, or by the Companies or the
Commission for any other purpose, without our express written consent. The only
opinion rendered by us consists of those matters set forth in the fifth
paragraph hereof, and no opinion may be implied or inferred beyond those
expressly stated. This opinion letter is rendered as of the date hereof, and we
have no obligation to update this opinion letter.
Sincerely,
ALSTON & BIRD LLP
By: /s/ Mark F. McElreath
--------------------------
Mark F. McElreath, Partner
<PAGE>
EXHIBIT 10.8
BORATES SUPPLY AGREEMENT
BETWEEN
OWENS CORNING
AND
ADVANCED GLASSFIBER YARNS LLC
DATED AS OF SEPTEMBER 30, 1998
<PAGE>
BORATES SUPPLY AGREEMENT
This Borates Supply Agreement (the "Agreement") is executed on this 30th day of
---------
September, 1998, by and between OWENS CORNING, a Delaware corporation
("Seller"), and ADVANCED GLASSFIBER YARNS LLC, a Delaware limited liability
------
company ("Buyer"), and shall be governed by the following clauses.
-----
WHEREAS, Seller has entered into an Agreement (the "Etibank Agreement")
dated January 1, 1998, by and between Etibank and Seller under which Etibank has
agreed to mine, process, sell and deliver * and * (collectively,
"Products") to Seller; and
WHEREAS, Buyer requires certain Borate Products for use in its own
production facilities.
NOW, THEREFORE, Seller and Buyer agree as follows:
1. SALE AND PURCHASE OF PRODUCTS.
-----------------------------
1.1. THE PRODUCTS. Subject to the terms and conditions herein set forth,
------------
Seller agrees to sell, and Buyer agrees to purchase and accept its
requirements for the Products. The Products and the specifications
for the Products (the "Product Specifications") are more fully
----------------------
described in Exhibit A attached hereto and made a part hereof. Buyer
agrees that it is purchasing the Products solely for its own use in
its own facilities and that it will not resell the Products to any
third party.
1.2. NATURE OF OBLIGATION. In the event that Seller is unable purchase or
--------------------
obtain sufficient quantities of one or more Products for Owens Corning
and Buyer for any reason including but not limited to a Force Majeure
Event (as defined in paragraph 11 of this Agreement), the
unavailability or insufficient availability of one or more Products,
termination of the Etibank Agreement (by either party thereto, with or
without cause), unsatisfactory quality of one or more Products,
failure to perform by any person or party other than Seller with
respect to the sale, delivery, shipping or storage of one or more
Products, then, subject to the next succeeding sentence, Seller shall
have no obligation under this Agreement. Notwithstanding the
foregoing, should Seller decide to sever its supply arrangement with
Etibank for any reason, Seller can terminate this Agreement at any
time, provided that it has given Buyer 180 days' written notice prior
to the termination of the arrangement with Etibank. In the event that
Etibank will not allow Seller to resell the Products to Buyer or if
Etibank establishes a marketing arrangement in North America
prohibiting Seller to resell the Products to Buyer,
- -----------
* Omitted pursuant to a request for confidential treatment. The omitted portions
have been separately filed with the Securities and Exchange Commission.
<PAGE>
then Seller can terminate this Agreement. If Seller continues to
purchase the Products from any other supplier or Etibank, Seller
agrees to continue to supply the Products to Buyer under this
Agreement.
1.3. Buyer agrees that Buyer will not, except in case Seller cannot provide
sufficient amount of the Products exceeding the Maximum Volume and
with the express written consent of Seller, purchase or accept the
Products from or approach any third party or Etibank.
1.4. Buyer acknowledges and agrees that Seller, at its sole discretion, may
request Buyer to purchase the Products from ABC, Inc. ("ABC"),
Seller's sole distributor for the Products, provided ABC accepts the
pricing for the Products as provided in Section 4.
2. TERM; CONTRACT YEAR.
-------------------
2.1. TERM. This Agreement shall be effective as of the date of execution
----
and, unless earlier terminated as provided herein, shall continue in
full force and effect for the period of seven years and three months
through and including December 31, 2005. This Agreement shall be
automatically renewed for a period equal to any renewal or extension
of the term of the Etibank Agreement unless terminated by either party
upon 90 days' prior written notice. The initial term, together with
all renewal periods thereof, is referred to hereinafter as the "Term".
----
2.2. CONTRACT YEAR. For purposes of this Agreement, each of the following
-------------
periods is a "Contract Year".
-------------
2.2.1 FIRST CONTRACT YEAR. The first Contract Year shall be the
-------------------
period from the date hereof until December 31, 1998; and
2.2.2 SUBSEQUENT CONTRACT YEARS. Subsequent Contract Years shall be
-------------------------
each successive twelve month period beginning January 1 and
ending December 31 during the Term of the Agreement.
3. ESTIMATES; RELEASES; DELIVERY.
-----------------------------
3.1. BUYER'S CONTRACT YEAR ESTIMATES. Within 30 days of the execution of
-------------------------------
this Agreement and, on or before September 30 of each Contract Year
thereafter during the Term of this Agreement, Buyer shall provide
Seller with Buyer's good-faith estimates of Buyer's requirements for
the Products, by type, and by calendar quarter, for the next
succeeding Contract Year (the "Contract Year Estimates"). Such
-----------------------
Contract Year Estimates shall be subject to the conditions set forth
in
2
<PAGE>
paragraph 1.2 of this Agreement. The aggregate quantity of the
Products set forth in the Contract Year Estimates shall be the maximum
quantities of the Products that Seller is obligated to sell and
deliver to Buyer during the relevant Contract Year and shall be the
minimum quantities of Products that Buyer is obligated to purchase
during the relevant Contract Year. In addition, Seller is not required
to sell and deliver to Buyer more than ten percent (10%) of the
Contract Year Estimates in any given month.
3.2. MAXIMUM VOLUME. Buyer agrees to purchase and Seller agrees to sell a
--------------
maximum quantity of 9,289 tons of * and 7,253 tons of *
("Maximum Volume"). This maximum volume represents the average usage
by Seller of * for the past three years. Buyer can elect to
increase quantities of * and reduce equal quantities of
* subject to availability. Seller agrees to supply Buyer on a
basis of first available quantity. For any quantity exceeding Maximum
Volume, Seller will supply Buyer only after Seller's own needs are
satisfied.
3.3. SELLER'S ASSURANCES. If for any reason Seller believes it will be
-------------------
unable to deliver all or any portion of Buyer's Contract Year
Estimates or Refined Estimates, Seller shall immediately notify Buyer
within ten (10) days of the date of receipt of Buyer's respective
estimates. Such notification shall not relieve Seller of any of its
obligations under this Agreement.
3.4. ORDERS FOR THE PRODUCTS/SHIPMENT. Orders for the Products shall be
--------------------------------
made, at Buyer's discretion, by Buyer issuing signed purchase orders
to Seller. The orders shall be submitted by authorized personnel of
Buyer no later than 30 days' prior to the desired date of delivery and
shall set forth the following: a statement identifying the order with
this Agreement; the number by which the order shall be identified; the
quantity of the Products to be delivered; the date of delivery; and
invoicing instructions. Subject to the volume limitations set forth in
paragraphs 3.1, 3.2 and 3.3 there shall be no limitation on the number
of orders issued hereunder. In the event Buyer places an order which
would exceed its Contract Year Estimate or if Buyer requires a change
in the quantity of more than 10%, type or delivery date of Products to
meet customer requirements, Seller may, but is not obligated to, fill
such order or make such changes. For these purposes, Seller shall
notify Buyer in writing whether it will be able to fill any order
which exceeds Buyer's Contract Year Estimate or which requires a
change in the quantity, type or delivery date of Products within the
10 days following its receipt of such an order.
3.5. DELIVERY. All Products will be sold to Buyer FOB Kings Creek, South
--------
Carolina.
3
<PAGE>
4. PRICE FOR THE PRODUCTS.
----------------------
4.1. The price for the Products sold will equal Seller's cost to purchase,
transport, process and terminal the sold Products (the "Cost")
including a fixed administrative charge of $150,000 to be paid pro-
rata with Product deliveries. If Buyer purchases less than 50% of the
Maximum Volume, the administrative charge will be reduced by 50%.
Prices shall be in United States Dollars. Exhibit B provides a list of
the typical cost items covered under the Cost
4.2. Buyer acknowledges and agrees that Seller will not provide Buyer a
copy of the Etibank Agreement. Seller hereby agrees to provide Buyer
with sufficient proof of the Cost and purchased quantity of the
Products.
5. TITLE AND RISK OF LOSS.
----------------------
The Products sold pursuant to this Agreement shall be delivered to Buyer as
provided in paragraph 4, and title and risk of loss shall pass to Buyer at the
time the Products leave Seller's processor's facility in Kings Creek, South
Carolina.
6. TERMS OF PAYMENT.
----------------
Seller shall invoice Buyer with each delivery of the Products hereunder. Payment
of each invoice shall be made by Buyer within 15 days from the date of Seller's
invoice. Seller shall charge interest equal to the "base rate" of Citibank N.A.
as announced from time to time plus 2.0% per annum beginning on the 16th day
after the invoice date if not then paid in full. Remittance of interest under
this section shall be made in full without any reduction for any withholding or
other taxes. If withholding taxes or other taxes are applicable as prescribed
under laws of the payor country, Buyer shall remit the withholding taxes or
other taxes to the proper governmental agencies in such country on a timely
basis and supply Seller with a withholding tax receipt or other evidence of
payment as soon as legally possible.
7. TAXES, EXCISES AND OTHER CHARGES.
--------------------------------
Except for such taxes which Seller is required by law to collect from Buyer,
each party shall be responsible for payment of such taxes as such party is
required to pay under applicable law, including local, state, federal or foreign
law, and which are based upon or measured by the production, sale,
profitability, transportation, delivery or use of the Products sold and
delivered hereunder. Seller shall show VAT taxes, if applicable, separately on
its invoice.
4
<PAGE>
8. CHANGES, MODIFICATIONS OR SUBSTITUTIONS.
---------------------------------------
Buyer understands and acknowledges that, although there is no obligation to do
so, Etibank, from time to time, to improve the efficiency in the manufacture or
use of the Products, may make changes to, modify or make improvements to the
Products, or substitute newly designed products for the Products. If during the
Term of this Agreement Seller shall propose to make changes, modifications or
improvements to the Products or shall substitute newly designed products for any
of the Products, Seller shall advise Buyer that the change, improvement,
modification or substitution is contemplated. As soon as practicable thereafter,
Seller shall provide Buyer samples of the proposed changed, modified, improved
or substitute product in sufficient laboratory test quantity to enable Buyer to
test and qualify such product in Buyer's manufacturing process. If Etibank
commences commercial manufacture of the changed, modified, improved or
substitute product and the product is qualified by Buyer, the product shall
become a Product and the specifications shall become Product Specifications
hereunder.
9. SELLER'S DISCLAIMER OF WARRANTY.
-------------------------------
BUYER ACKNOWLEDGES THAT ANY SALES MADE TO BUYER HEREUNDER ARE ON AN
ACCOMMODATION BASIS AND SELLER MAKES NO OTHER REPRESENTATION OR
WARRANTY OF ANY KIND WITH RESPECT TO THE PRODUCTS DELIVERED HEREUNDER,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR USE OR PURPOSE, EVEN IF
DISCLOSED TO SELLER, AND SELLER HEREBY DISCLAIMS ANY SUCH OTHER
REPRESENTATION OR WARRANTY.
10. LIMITED WARRANTY.
----------------
Seller warrants that the Products sold to Buyer shall be owned by Seller and
shall be free and clear of all liens and encumbrances, and that Seller shall
have complied with all applicable laws, regulations, ordinances and codes
concerning the Products. However, Seller does not warrant that the Products, in
fact, are of a type and quality desired or requested by Buyer, and Buyer's sole
and exclusive remedy for defects in the Products shall be to request that Seller
pursue a claim against Etibank or such other source, shipper or handler of the
Products as may have caused any such defects, at Buyer's own expense.
5
<PAGE>
11. FORCE MAJEURE.
-------------
Neither party shall be liable to the other for delay or failure to perform in
whole or in part, by reason of contingencies or events which: (i) are beyond the
reasonable control of the party whose performance is affected, (ii) are
unforeseeable, and (iii) could not have been reasonably prevented, whether
herein specifically enumerated or not (a "Force Majeure Event"). These
contingencies include, among others, act of God, act of war, revolution, riot,
acts of public enemies, fire, explosion, breakdown of plant, strike, lockout,
labor dispute, casualty or accident, earthquake, flood, cyclone, tornado,
hurricane or other windstorm, or by reason of any law, order, proclamation,
regulation, ordinance, demand, requisition or requirement or any other act of
any governmental authority, foreign or domestic, local, state or federal
(provided that the Force Majeure Event does not arise due to or is connected in
any way with a violation by party hereto of any law, order, proclamation,
regulation, ordinance, demand, requisition or requirement of any governmental
authority) except that contingencies shall not include a downturn in Buyer's
business or general economic downturn. A party so affected by a Force Majeure
Event shall: (i) promptly give written notice to the other party whenever such
contingency or other act becomes reasonably foreseeable (including an estimate
of the expected duration of the Force Majeure Event and its probable impact on
the performance of such party's obligations hereunder); (ii) exercise all
reasonable efforts to continue to perform its obligations hereunder; (iii) use
its commercially reasonable best efforts to overcome or mitigate the effects of
the contingency as promptly as possible and (iv) promptly give written notice to
the other party of the cessation of such contingency. Neither party, however,
shall be required to resolve a strike, lockout or other labor problem in a
manner which it alone does not deem proper and advisable. In no event shall any
Force Majeure Event excuse party's failure to pay when due any monetary
obligation hereunder. In the case of any Force Majeure Event relied on by
Seller, Seller agrees that it shall treat Buyer no less favorably than the most
favorably treated Affiliate or customer of Seller in dealing with or adjusting
to the consequences of such Force Majeure Event and in relation to the
allocation of any Products, the production or availability of which may have
been interrupted or diminished.
Deliveries of the Product omitted due to any Force Majeure Event affecting
Seller or Buyer shall, without liability, reduce by an equivalent quantity the
quantity of Products to be sold and delivered during the period in which the
Force Majeure Event occurred. To determine the quantity of Products that would
have been sold, the parties shall assume that Buyer's most recent Refined
Estimates would have been purchased on a ratable basis.
12. DEFAULT.
-------
Except as otherwise specifically provided in this Agreement, if either party
fails to perform any of the terms of this Agreement, (a) the other party may
defer its performance under this Agreement until the default is cured by the
defaulting party, or (b) at its option, the party may treat such default as a
breach of the entire Agreement and, if such default is not cured within 30 days
after the giving of notice thereof to the defaulting party (or, in the case of
default in payment of monies, within 10 business days), may immediately
terminate this Agreement upon
6
<PAGE>
notice to the defaulting party. This Agreement shall terminate automatically,
without necessity of notice, in the event Buyer or Seller makes an assignment
for the benefit of creditors generally, is adjudicated bankrupt or in the event
of the filing of any voluntary or involuntary petition in bankruptcy against
Buyer or Seller or the appointment of a receiver for Buyer or Seller or any
substantial part of their respective properties.
13. APPLICABLE LAW.
--------------
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York applicable to a contract executed and performed in such
State without giving effect to the conflicts of law principles thereof.
14. ENTIRE AGREEMENT.
----------------
This Agreement sets forth the entire agreement and understanding of the parties
with respect to the subject matter hereof and supersedes all prior
understandings, negotiations, and dealings between the parties hereto with
respect to this subject matter. No agreement or understanding, oral or written,
in any way purporting to modify the terms hereof shall be binding on either
party hereto unless contained in a written document expressly referring to this
Agreement and duly executed by both parties. There are no representations or
warranties made by one party to the other except as expressly set forth in this
Agreement. In case of a conflict between any of the terms of any purchase order
of Buyer or any acknowledgment by Seller of the purchase order and any of the
terms set forth in this Agreement, the terms of this Agreement shall control. No
additional terms or conditions of sale other than those contained in this
Agreement shall be effective unless approved in writing by an authorized
representative of Seller and Buyer.
15. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of both
parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement shall not be assigned by either party
hereto without the express prior written consent of the other party, and any
attempted assignment, without such consents, shall be null and void.
Notwithstanding any nonassignment provisions contained in this Section 15,
Buyer, or any permitted assignee or transferee of Buyer, may assign or otherwise
transfer some or all of its rights and/or obligations hereunder (i) to any
entity or entities, or any assignee of such entity or entities, providing
financing for the transactions contemplated by this Agreement or to any entity
or entities providing to Buyer, Buyer's Affiliates, or to any such permitted
assignee of Buyer, financing relating to the Business (collectively, the
"Financing Sources"), (ii) to any Affiliate of
7
<PAGE>
Buyer, provided that (x) such Affiliate shall agree with Seller and its
permitted assignees or transferees, if any, in writing to assume the Buyer's
obligations hereunder and (y) any such assignment to an Affiliate of the Buyer
shall not relieve the Buyer from its obligations hereunder or (iii) to any
entity to which Buyer, or any assignee or transferee of Buyer, assigns, sells,
transfers or otherwise conveys (A) all or substantially all of the assets
constituting the Business (a "Complete Assignment") or (B) all or substantially
all of the assets constituting either the Aiken Facility, the Huntingdon
Facility or the South Hill Facility (a "Partial Assignment"), provided that such
acquiring entity agrees with and acknowledges in writing to Seller and its
permitted assignees or transferees, if any, that this Agreement shall be binding
upon and enforceable against such entity as though such acquiring entity were
Buyer and that such entity shall perform all of Buyer's obligations hereunder.
Notwithstanding any nonassignment provisions contained in this Section 15,
Seller, or any permitted assignee or transferee of Seller, may assign or
otherwise transfer some or all of its rights and/or obligations hereunder (i) to
any Affiliate of Seller, provided that (x) such Affiliate shall agree with Buyer
and its permitted assignees or transferees, if any, in writing to assume the
Seller's obligations hereunder and (y) any such assignment to an Affiliate of
the Seller shall not relieve the Seller from its obligations hereunder or (ii)
to any entity to which Seller, or any assignee or transferee of Buyer, assigns,
sells, transfers or otherwise conveys any portion of its business which owns,
licenses, or uses Business Patents or Business Know How (as each is defined in
the Patent and Know How License Agreement), provided that such acquiring entity
agrees with and acknowledges in writing to Buyer and its permitted assignees or
transferees, if any, that this Agreement shall be binding upon and enforceable
against such entity as though such acquiring entity were Seller and that such
entity shall perform all of Seller's obligations hereunder. To the extent that
assignment and/or transfer of any of the rights, privileges, and/or obligations
is permitted, this Agreement shall be binding on, and except as otherwise
expressly provided, shall inure to the benefit of, the legal successors,
assigns, or representatives of the parties.
16. NOTICES.
-------
All communications provided for hereunder shall be in writing and shall be
deemed to be given when delivered in person or by private courier with receipt,
when telefaxed and received, or three (3) days after being deposited in the
United States mail, first-class, registered or certified, return receipt
requested, with postage paid and,
If to Buyer: Advanced Glassfiber Yarns LLC
2556 Wagener Road
Aiken, South Carolina 29801
Fax: 803-643-1526
Attention: General Manager
8
<PAGE>
With a copy to: AGY Holdings, Inc.
c/o Glass Holdings Corp.
3802 Robert Porcher Way
Greensboro, North Carolina 27410
Fax: 336-545-7715
Attention: President
And to: Jefferson Holdings, Inc.
One Owens Corning Parkway
Toledo, Ohio 43659
Fax: 419-248-8445
Attention: Corporate Secretary
If to OC: Owens Corning World Headquarters
One Owens Corning Parkway
Toledo, Ohio 43659
Fax: 419-248-7230
Attention: VP Sourcing: Dick Hottinger
With a copy to: Owens Corning World Headquarters
One Owens Corning Parkway
Toledo, Ohio 43659
Fax: 419-248-1723
Attention: Law Department
or to such other address as any such party shall designate by written
notice to the other parties hereto.
17. MISCELLANEOUS.
-------------
17.1. PARAGRAPH HEADINGS; CONSTRUCTION. The paragraph headings contained
--------------------------------
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
This Agreement is a product of negotiation and shall not be construed
against either party as the drafter.
17.2. SEVERABILITY. If any provision of this Agreement shall be declared
------------
by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be
affected and shall remain in full force and effect.
9
<PAGE>
17.3. AMENDMENT; WAIVER. This Agreement may be amended, supplemented or
-----------------
otherwise modified only by a written instrument executed by the
parties hereto. No waiver by either party of any of the provisions
hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. The waiver by any party hereto of
a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
17.4. SURVIVAL. The provisions of paragraphs 4, 5, 6, 7 and 9 through 17
--------
of this Agreement shall survive any termination or expiration
hereof.
17.5. INDEPENDENT CONTRACTORS. The parties are independent contractors,
-----------------------
and this Agreement does not create a partnership or agency
relationship between the parties, or any other relationship between
the parties except as expressly set forth herein. Neither party has
any right or authority to assume or incur any liability or
obligation on behalf of the other party except to such extent as may
expressly be set forth herein.
17.6. NO THIRD PARTY BENEFICIARIES. This Agreement is entered into solely
----------------------------
for the benefit of the parties hereto and no person other than the
parties hereto, or their permitted successors and assigns, shall be
entitled to exercise any right or enforce any obligation thereunder.
17.7. CONFIDENTIALITY. Each party shall maintain in confidence the terms
--------------
of this Agreement except as may be otherwise required by law.
17.8. LANGUAGE. This Agreement is to be executed in the English language.
--------
17.9. PUBLICITY. Each of Buyer and Seller agrees not to use the name or
---------
trademarks or logos of the other party or its divisions or
affiliates in any publicity, packaging, marketing materials or other
promotional activities or materials without the prior written
consent of the other party.
17.10. CONSENT TO JURISDICTION. Each of the parties hereto, irrevocably
-----------------------
submits to the exclusive jurisdiction of the United States District
Court for the Southern District of New York located in the borough
of Manhattan in the City of New York, or if such court does not have
jurisdiction, the Supreme Court of the State of New York, New York
County, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated
hereby. Each of the parties hereto, further agrees that service of
any process, summons, notice or document by U.S. registered mail to
such party's respective address set forth in paragraph 16 shall be
effective service of process for any action, suit or proceeding in
New York with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding
sentence. Each of the parties hereto, irrevocably and
unconditionally waives any objections to the laying
10
<PAGE>
of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in (a) the United
States District Court for the Southern District of New York or (b)
the Supreme Court of the State of New York, New York County, and
hereby further irrevocably and unconditionally waives and agrees not
to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an
inconvenient forum.
17.11. COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original and all of which together
shall be deemed to be one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by persons authorized to bind their respective companies as of the
date first above written.
OWENS CORNING
By: /s/ Charles E. Dana
-----------------------------
Name: Charles E. Dana
Title: Vice President
ADVANCED GLASSFIBER YARNS LLC
By: /s/ Robert B. Fisher
-----------------------------
Name: Robert B. Fisher
Title: General Manager
12
<PAGE>
EXHIBIT A
PRODUCTS AND PRODUCTS SPECIFICATIONS
See the list attached hereto.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
EXHIBIT B
The Cost typically covers the following items:
Cost Elements
- -------------
Ore
Ocean freight
Agent fees
Marine insurance
Port charges
Dispatching Cost - Turkey
Dispatching Cost - United States
Stevedore
Temporary storage
Rail Frt. to Kings Creek
Rail Frt. to Aiken from Kings Creek
Inventory Carry Cost
Variable Items
- --------------
Each lot has a different cost
Cost varies by * content
Cost varies by moisture content
Cost varies by energy surcharges
Cost varies by over time at port
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
GLASS BATCH RAW MATERIAL
SPECIFICATION CHANGE RECOMMENDATIONS
PURCHASE ACCEPTANCE STANDARD BEING CHANGED. *
-
ACTIVE DOCUMENT DATE: 01/08/98
--------
MATERIAL NAME: *
-
THIS CHANGE WILL AFFECT THE FOLLOWING PLANTS:
Aiken
COMMENTS: The PAS has been revised for new lot.
Appendix A revised for * lot.
THE REVISED SPECIFICATION IS ATTACHED
- ------------------------- -------------------------
WRITTEN BY: J.P. Petreanu APPROVED BY: T. L. Wagner
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
*
A. GUIDING PHILOSOPHY FOR MATERIAL PURCHASES
-----------------------------------------
Owens Corning will enter into quality partnerships with key production
material suppliers. The relationship is a special long-term commitment
between Composites and its suppliers that will accomplish the following:
(1) Provide a product and/or service which meets our fitness-for-use
criteria.
(2) Provide continuing increased value to Owens Corning.
(3) Commit Owens Corning suppliers to use statistical process control
principles in their manufacturing processes.
Owens Corning and our suppliers are committed to sharing information that
will aid in achieving continual improvements in the products and services
supplied and in the Owens Corning processes in which they are used. This
should result in lower manufacturing costs, less variable products and
enhanced Owens Corning customer satisfaction through manufacturing
stability.
B. FITNESS-FOR-USE CRITERIA
------------------------
This document specified the fitness-for-use criteria the material must
meet. Any shipment that does not conform to all these criteria shall not
be shipped to an Owens Corning user-plant.
C. PRODUCT CHARACTERISTICS
-----------------------
There are six sections of product characteristics, C1-C6. Each section has
a specific fitness-for-use criteria. Sections C.2-C.6 are self-
explanatory. However, Section C.1, the Chemical Composition section, is
rather complex, so the following clarifications have been added:
The oxide/elements are divided into one of two categories, either * or
*. * are those which are known to require some particular attention
on the part of the supplier to insure the specification is met. The
attention may be tight control of mining or blending of mine ores or
extra attention to some process variable. * are those which are known
to generally stay within the specification and exhibit acceptable
consistency due to the nature of the deposit and/or the process. They
only require monitoring to show evidence that their conformance to the
specification continues. The difference between * and * is the amount
of attention paid by the supplier and the frequency of the testing
required by
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
Owens Corning. However, Owens Corning reserves the right to reject
material based on * or *.
Based on the supplier's production planning, the material has
calculable average values for all oxides/elements. The specification
is based on the supplier continuing to operate his process such that
these average values, or "Target Nominals" are maintained. For
selected key oxides/elements (those listed in Section C 6.1), the
upper and lower specification limits are defined by adding and
subtracting * the maximum acceptable variation from the "Target
Nominal" value. The other oxides/elements have a lower or upper
specification limit based on Owens Corning's fitness-for-use criteria.
This specification does NOT require that a moving average of
individual shipment values equal the "Target Nominal". It is required
that every shipment be within the specification limits. It is a goal
that the variation of critical oxides/elements be reduced and that the
shipment values approach random variation around the "Target Nominal".
Additional explanations and requirements for the Chemical Composition
are contained in Section C.6, "TECHNICAL NOTES".
C.1 CHEMICAL COMPOSITION
--------------------
PERCENT BY WEIGHT
Oxide or Test
Element Minimum Maximum Frequency
------- ------- ------- ---------
* * * * *
* * * *
*
* * * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
C.2 PHYSICAL COMPOSITION
--------------------
% of Original
Sieve Weight Retained Test Frequency
----- --------------- --------------
* * *
* * *
* * *
NOTE: Physical analysis must be performed according to * procedures using *
sieves.
C.3 CONTAMINATION
-------------
The finished product may not contain any contaminants that are deleterious
to the Owens Corning processes. Contamination, both organic and inorganic,
including but not limited to * shall be avoided throughout the storage,
processing, and rail or truck loading of the shipment.
The ore deposit may contain trace amounts of * . As part of the
qualification procedure. Owens Corning has measured the level of these
contaminants * and determined it to be acceptable. Hereafter, the supplier
is responsible for measuring the level of * contamination as new ore
deposits are opened to insure the level has not changed.
C.4 LABORATORY CERTIFICATION
------------------------
The chemical laboratory must be certified by Owens Corning per procedure *.
Any change in analytical procedure requires re-certification. If the
supplier does not employ a certified chemical laboratory, then he must
submit a schedule by which his chemical laboratory will achieve
certification. This schedule must be mutually agreed upon by the supplier
and Owens Corning.
C.5 SUPPLY OF TEST DATA
-------------------
The supplier shall provide the following data to the Owens Corning user-
plant on the per shipment basis. *, percent retained on the * and *
sieves, and percent through the * sieve. Oxides and elements designated as
"*" shall also be provided at the intervals listed in Section C.1. Data
describing the Chemical and Physical Composition. Section C.1 and C.2
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
respectively, shall be transmitted to the Owens Corning user-plant and
received prior to unloading.
In addition, complete chemistry of * and *, as described in Section C.1,
will be provided to Batch & Melting COE, Granville, Ohio, for the last five
(5) railcars of each lot and the first five (5) railcars of each lot.
The "*" are to be obtained from the pre-shipment sample as defined in
Section E (below) with the exception of *, and *, which will be supplied by
the Analytical Services Laboratory of Owens Corning, based upon the loading
composite for each shipment lot. The chemical analyses shall be generated
by a laboratory that is certified by the Analytical Services Laboratory of
Owens Corning as described in Section C.4.
Control charts for * , as described in Section C.6.2, will be provided to
Batch & Melting COE on a monthly basis.
C.6 TECHNICAL NOTES
---------------
1. Should long-term production planning indicate a need to shift a target
nominal, for instance, to optimize reserves or borate lot shipment
changes, the supplier may propose a change in the specification limits
for *. The supplier must then propose a target nominal value for the
oxide(s), and any proposed change must meet the boundary limits beyond
which no product is acceptable. The change must also meet the limit
on allowed variation. Those limits are:
Boundary Limit Maximum Range
-------------- -------------
* * *
The upper specification for the oxide shall be set as the new target
nominal plus * of the maximum range. The lower specification limit
shall be set as the target nominal minus * of the maximum range. If
the proposed specification results in a violation of the boundary
limit listed above, the Batch & Melting COE Laboratory in Granville,
Ohio, must be informed immediately.
The Batch & Melting COE must be consulted on any proposed change to
the "Target Nominals" for * before the upper/lower specification
limits are set. The new specification will take effect on a date
mutually acceptable to the supplier and to Batch & Melting COE.
2. * is a critical process variable with respect to our manufacturing
process and our finished glass product. The process capability for *
must be established and control charts maintained.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
Any assignable causes which result in out-of-control incidents should
be investigated and appropriate action taken.
3. Significant shifts in organic carbon of the finished product will
impact the manufacturing process at the Owens Corning user-plant. The
supplier must inform the Owens Corning user-plant when there is a
change in fuel source within the supplier's manufacturing process.
D. TEST METHODS
------------
The Supplier may use test methods at his discretion provided that they
yield results which conform to *. Owens Corning test methods are
documented in the "Manual of Procedures for Glass Control".
E. PRESHIPMENT SAMPLING
--------------------
For each shipment, the supplier shall obtain a representative sample of the
material directly loaded for shipment or stored in the bin from which the
shipment was loaded. A sample library must be maintained for a minimum
period of 10 weeks. A representative sample is one which conforms to the
principles of probability sampling and sample size selection as defined in
ASTM Methods * and *. An example of such sampling can be found in ASTM
Methods *. At requested frequency, a * gram minimum split of the
representative sample shall be sent to the Owens Corning user-plant as soon
as possible after loading. If a representative sample is currently
unobtainable, the supplier shall investigate alternate methods of sampling.
F. REJECTIONS
----------
Owens Corning reserves the right to reject upon receipt, and hold for
vendor's disposal, any portion or all of the material furnished under this
specification which does not conform to all of the requirements set forth
herein. Rejection of out-of-specification material will be based solely on
Owens Corning chemical and physical evaluation.
Rejection of material based on non-compliance with Section C.1 (CHEMICAL
COMPOSITION) or Section C.2 (PHYSICAL COMPOSITION) can only be based on
testing of a representative sample (see Section E above for the definition
of a representative sample). If a representative sample is not available
or cannot be obtained, or if the original representative sample has been
compromised (i.e. contaminated, lost, etc.), the sample to be used for
deciding compliance to this specification shall be determined by the Batch
& Melting COE Laboratory of Owens Corning.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
Non-representative sampling such as grab or visual inspection can be used
to test conformance to requirements listed in Section C.3 (CONTAMINATION).
G. SAFETY DOCUMENTATION
--------------------
Material Safety Data Sheets shall be supplied to the Owens Corning user-
plant and the Granville Batch & Melting COE.
H. PACKAGING
---------
This material is to be shipped in 50-pound bags, bulk bags, railcars or
trucks as designed by the Purchasing Department. When covered hoppers are
requested, whenever possible they shall be fitted with a female vibrator
bracket. Bags must be clearly marked as to content. Cars or trucks must
be inspected, cleaned and dried if necessary to insure absence of
contamination before loading. Hoppers must be sealed with orange plastic
------
tags.
I. IDENTIFICATION
--------------
Material is identified on the Bill of Lading and invoice with product name
and the following O-C Stores Code Number: *.
J. SPECIFICATION INQUIRY
---------------------
Any inquiry regarding the contents of this specification should be
addressed to:
Batch & Melting COE
Owens Corning Fiberglas Corporation
2790 Columbus Road, Rt. 16
Granville, OH 43023-1200
and a copy of such inquiry should be forwarded to:
Composites Logistics and Distribution
Owens Corning Fiberglas Corporation
P.O. Box 1287
Anderson, SC 29622-1287
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
APPENDIX A
----------
Attn: Floyd Myers - Industrial Minerals
Please check appropriate box below and respond back concerning the approval for
the following borate lot change:
*
* Minimum Maximum
------------- ------- -------
* * *
Approval
--------
Yes No
Batch & Melting COE X
------ ------
Services & Logistics X
------ ------
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
GLASS BATCH RAW MATERIAL
------------------------
SPECIFICATION CHANGE RECOMMENDATION
PURCHASE ACCEPTANCE STANDARD BEING CHANGED: *
ACTIVE DOCUMENT DATE: 7/23/98
MATERIAL NAME: *
THIS CHANGE WILL AFFECT THE FOLLOWING PLANTS:
Aiken
Anderson
Amarillo
Jackson
COMMENTS: Appendix A revised for * lot.
THE REVISED SPECIFICATION IS ATTACHED.
- --------------------------------- -----------------------------------
WRITTEN BY: J. P. Petreanu APPROVED BY: T. L. Wagner
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
*
A. GUIDING PHILOSOPHY FOR MATERIAL PURCHASES
-----------------------------------------
Owens Corning will enter into quality partnerships with key production
material suppliers. The relationship is a special long-term commitment
between Composites and its suppliers that will accomplish the following:
(1) Provide a product and/or service which meets our fitness-for-use criteria.
(2) Provide continuing increased value to Owens Corning.
(3) Commit Owens Corning suppliers to use statistical process control
principles in their manufacturing processes.
Owens Corning and our suppliers are committed to sharing information that
will aid in achieving continual improvements in the products and services
supplied and in the Owens Corning processes in which they are used. This
should result in lower manufacturing costs, less variable products and
enhanced Owens Corning customer satisfaction through manufacturing
stability.
B. FITNESS-FOR-USE CRITERIA
------------------------
This document specified the fitness-for-use criteria the material must
meet. Any shipment that does not conform to all these criteria shall not
be shipped to an Owens Corning user-plant.
C. PRODUCT CHARACTERISTICS
-----------------------
There are six sections of product characteristics, C.1-C.6. Each section
has a specific fitness-for-use criteria. Sections C.2-C.6 are self-
explanatory. However, Section C.1, the Chemical Composition section, is
rather complex, so the following clarifications have been added:
The oxide/elements are divided into one of two categories, either * or
*. * are those which are known to require some particular attention
on the part of the supplier to insure the specification is met. The
attention may be tight control of mining or blending of mine ores or
extra attention to some process variable. * are those which are known
to generally stay within the specification and exhibit acceptable
consistency due to the nature of the deposit and/or the process. They
only require monitoring to show evidence that their conformance to the
specification continues. The difference between * and * is the amount
of attention paid by the supplier and the frequency of the testing
required by Owens Corning. However, Owens Corning reserves the right
to reject material based on * or *.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
Based on the supplier's production planning, the material has
calculable average values for all oxide/elements. The specification
is based on the supplier continuing to operate his process such that
these average values, or "Target Nominals" are maintained. For
selected key oxides/elements (those listed in Section C.6.1), the
upper and lower specification limits are defined by adding and
subtracting * the maximum acceptable variation from the "Target
Nominal" value. The other oxides/elements have a lower or upper
specification limit based on Owens Corning's fitness-for-use criteria.
This specification does NOT require that a moving average of
individual shipment values equal the "Target Nominal". It is required
that every shipment be within the specification limits. It is a goal
that the variation of critical oxides/elements be reduced and that the
shipment values approach random variation around the "Target Nominal".
Additional explanations and requirements for the Chemical Composition
are contained in Section C.6, "TECHNICAL NOTES".
<TABLE>
<CAPTION>
C.1 CHEMICAL COMPOSITION
--------------------
PERCENT BY WEIGHT
<S> <C> <C> <C> <C>
Oxide or Test
Element Maximum Maximum Frequency
* * * * *
* * * *
*
* * * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * *
*
</TABLE>
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
C.2 PHYSICAL COMPOSITION
--------------------
<TABLE>
<CAPTION>
% of Original
Sieve Weight Retained Test Frequency
<S> <C> <C>
* * *
</TABLE>
NOTE: Physical analysis must be performed according to * procedures using *
sieves.
C.3 CONTAMINATION
-------------
The finished product may not contain any containments that are
deleterious to the Owens Corning processes. Contamination, both organic
and inorganic, including but not limited to * shall be avoided
throughout the storage, processing, and rail or truck loading of the
shipment.
The ore deposit may contain trace amounts of *. As part of the
qualification procedure, Owens Corning has measured the level of these
contaminants * and determined it to be acceptable. Hereafter, the
supplier is responsible for measuring the level of * contamination as new
ore deposits are opened to insure the level has not changed.
C.4 LABORATORY CERTIFICATION
------------------------
The chemical laboratory must be certified by Owens Corning per procedure
*. Any change in analytical procedure requires re-certification. If the
supplier does not employ a certified chemical laboratory, then he must
submit a schedule by which his chemical laboratory will achieve
certification. This schedule must be mutually agreed upon by the supplier
and Owens Corning.
C.5 SUPPLY OF TEST DATA
-------------------
The supplier shall provide the following data to the Owens Corning user-
plant on the per shipment basis: * percent retained on the * and *
sieves, and percent through the * sieve. Oxides and elements designated
as "*" shall also be provided at the intervals listed in Section C.1.
Data describing the Chemical and Physical Composition, Section C.1 and
C.2 respectively, shall be transmitted to the Owens Corning user-plant
and received prior to unloading.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
In addition, complete chemistry of * and *, as described in Section C.1, will be
provided to Batch & Melting COE, Granville, Ohio, for the last ten (10) railcars
of each lot and the first ten (10) railcars of each lot.
The "*" are to be obtained from the pre-shipment sample as defined in Section E
(below). The chemical analyses shall be generated by a laboratory that is
certified by the Analytical Services Laboratory of Owens Corning, as described
in Section C.4.
Control charts for *, as described in Section C.6.2, will be provided to Batch &
Melting COE on a monthly basis.
C.6 TECHNICAL NOTES
---------------
1. Should long-term production planning indicate a need to shift a target
nominal, for instance, to optimize reserves or borate lot shipment
changes, the supplier may propose a change in the specification limits
for *. The supplier must then propose a target nominal value for the
oxide(s), and any proposed change must meet the boundary limits beyond
which no product is acceptable. The change must also meet the limit on
allowed variation. Those limits are:
Boundary Limit Maximum Range
-------------- -------------
* * *
The upper specification for the oxide shall be set as the new target
nominal plus * of the maximum range. The lower specification limit
shall be set as the target nominal minus * of the maximum range. If
the proposed specification results in a violation of the boundary
limit listed above, the Batch & Melting COE Laboratory must be
informed immediately.
The Batch & Melting COE must be consulted on any proposed change to
the "Target Nominals" for * before the upper/lower specification
limits are set. The new specification will take effect on a date
mutually acceptable to the supplier and to Batch & Melting COE.
2. * is a critical process variable with respect to our manufacturing
process and our finished glass product. The process capability for
* must be established and control charts maintained. Any assignable
causes which result in out-of-control incidents should be investigated
and appropriate action taken.
3. Significant shifts in organic carbon of the finished time product will
impact the manufacturing process at the Owens Corning user-plant. The
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
supplier must inform the Owens Corning user-plant when there is a
change in fuel source within the supplier's manufacturing process.
D. TEST METHODS
------------
The supplier may use test methods at his discretion provided that they
yield results which conform to *. Owens Corning test methods are
documented in the Manual of Procedures for Glass Control.
E. PRESHIPMENT SAMPLING
--------------------
For each shipment, the supplier shall obtain a representative sample of the
material directly loaded for shipment or stored in the bin from which the
shipment was loaded. A sample library must be maintained for a minimum
period of 10 weeks. A representative sample is one which conforms to the
principles of probability sampling and sample size selection as defined in
ASTM Methods * and *. An example of such sampling can be found in ASTM
Methods *. At requested frequency, a * gram minimum split of the
representative sample shall be sent to the Owens Corning user-plant as soon
as possible after loadout. If a representative sample is currently
unobtainable, the supplier shall investigate alternate methods of sampling.
F. REJECTIONS
----------
Owens Corning reserves the right to reject upon receipt, and hold for
vendor's disposal, any portion or all of the material furnished under this
specification which does not conform to all of the requirements set forth
herein. Rejection of out-of-specification material will be based solely on
Owens Corning chemical and physical evaluation.
Rejection of material based on non-compliance with Section C.1 (CHEMICAL
COMPOSITION) or Section C.2 (PHYSICAL COMPOSITION) can only be based on
testing of a representative sample (see Section E above for the definition
of a representative sample). If a representative sample is not available
or cannot be obtained, or if the original representative sample has been
compromised (i.e. contaminated, lost, etc.), the sample to be used for
deciding compliance to this specification shall be determined by the Batch
& Melting COE Laboratory of Owens Corning.
Non-representative sampling such as grab or visual inspection can be used
to test conformance to requirements listed in Section C.3 (CONTAMINATION).
G. SAFETY DOCUMENTATION
--------------------
Material Safety Data Sheets shall be supplied to the Owens Corning user-
plant and the Granville Batch & Melting COE.
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
H. PACKAGING
---------
This material is to be shipped in 50-pound bags, railcars or trucks as
designed by the Purchasing Department. When covered hoppers are requested,
whenever possible they shall be fitted with a female vibrator bracket.
Bags must be clearly marked as to content. Cars or trucks must be
inspected, cleaned and dried if necessary to insure absence of
contamination before loading. Hoppers must be sealed with yellow plastic
------
tags.
I. IDENTIFICATION
--------------
Material is identified on the Bill of Lading and invoice with product name
and the following OC Stores Code Number: *
J. SPECIFICATION INQUIRY
---------------------
Any inquiry regarding the contents of this specification should be
addressed to:
Batch & Melting COE
Owens Corning
2790 Columbus Road, Rt. 16
Granville, OH 43023-1200
and a copy of such inquiry should be forwarded to:
Composites Logistics and Distribution
Owens Corning
P.O. Box 1287
Anderson, SC 29622-1287
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
APPENDIX A
----------
Attn: Floyd Myers Industrial Minerals
Please check appropriate box below and respond back concerning the approval for
the following borate lot change:
*
* Minimum Maximum
------------- ------- -------
* * *
Approval
--------
Yes No
------- -------
Batch & Melting COE X
------- -------
Industrial Minerals (Floyd Myers) X
------- -------
CONFIDENTIAL TREATMENT REQUESTED [*]
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated August 14, 1998 included herein and
to all of the references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Toledo, Ohio
June 17, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Advanced Glassfiber Yarns LLC
We consent to the inclusion in this pre-effective amendment No. 2 to the
registration statement on Form S-4 (Registration No. 333-72305) of our report
dated March 26, 1999, on our audits of the financial statements of Advanced
Glassfiber Yarns LLC. We also consent to the references to our firm under the
caption "Experts".
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
June 17, 1999
