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As filed with the Securities and Exchange Commission on May 6, 1999
Registration No. 333-72305
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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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) 643-1501
(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) 643-1501 (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. [_]
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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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MAY 6, 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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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.
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............... 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, among other things.....................
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..................... 9
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
adversely affect our business, financial condition and results of
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 have a
material adverse effect on our financial condition and results of
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 business,
financial condition and results of operations could be adversely
affected................................................................ 12
A disruption at one of our facilities would significantly decrease
production, which could adversely affect our financial condition and
results of operations................................................... 13
Since we sell a significant amount of our products outside the United
States, exchange losses as a result of currency fluctuations could
adversely affect our financial condition and results of operations...... 13
An easing of import restrictions and duties with respect to glass fabrics
could reduce demand for our products, which would adversely affect our
results of operations................................................... 14
Issuance of the old notes and any note guarantee may be subject to
fraudulent conveyance laws.............................................. 14
The year 2000 problem may adversely affect our business operations and we
may suffer significant costs to make our systems year 2000 compliant.... 14
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If we do not maintain good relations with our employees, we could face
labor strikes or stoppages that would adversely affect our business,
financial condition and results of operations.......................... 15
If we become responsible for environmental and safety and health costs,
our financial condition and results of operations could be adversely
affected............................................................... 15
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................................................ 17
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............................................................... 25
Business.................................................................. 35
Management................................................................ 43
Operating Agreement....................................................... 45
Certain Relationships and Related Transactions............................ 48
Security Ownership........................................................ 54
Description of Other Indebtedness......................................... 55
Description of Exchange Notes............................................. 57
United States Federal Tax Considerations.................................. 104
The Exchange Offer........................................................ 108
Plan of Distribution...................................................... 117
Legal Matters............................................................. 119
Experts................................................................... 119
Where You Can Find More Information....................................... 120
Index to Financial Statements............................................. F-1
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ii
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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) 643-1501.
The Exchange Offer
In this prospectus, the terms (1) "old notes" refer to the 9 7/8% Senior
Subordinated Notes due 2009 that we issued on January 21, 1999, (2) "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 (3) "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; provided 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; 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, such
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, such 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 such
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.
Any broker-dealer that is not a participating broker-
dealer may not rely on existing SEC interpretations
set forth in no-action letters and must comply with
the registration and prospectus delivery requirements
of the Securities Act in order to resell the old
notes or the exchange notes. Such requirements
include being named as a selling security holder in a
registration statement relating to any such 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 such
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 be deemed to 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 with respect to us;
. 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 thereof, and mail
or otherwise deliver such documentation, 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, among other things, 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 set
forth 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, accordingly, 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. Accordingly,
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 such
holders.
Exchange Agent..........
The Bank of New York is serving as exchange agent in
connection with 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 January 15 and July 15, beginning on July 15, 1999.
Dates..................
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 such assets,
even if such 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 will contain covenants for your benefit. Such
covenants, among other things, 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 will be 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 such an 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, unless you are an affiliate of ours within the meaning of
Rule 405 under the Securities Act, without compliance with the registration and
prospectus delivery requirements of the Securities Act, so long as you acquired
the exchange notes in the ordinary course of your business and you will not,
and have no arrangement with any person to, participate in the distribution of
the exchange notes. Each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where such old notes were acquired by such
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 such 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 $392.0 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."
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;
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. 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.
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 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 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, among other things.
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;
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. 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 such
circumstances, we may also be required to (1) repay our outstanding senior debt
or (2) 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 such
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 such 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
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<PAGE>
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 may have a material adverse effect on our financial
condition, results of operations and cash flows. As of December 31, 1998, 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 successfully transition these services or operate our business
independently of Owens Corning. See "Certain Relationships and Related
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 "Certain Relationships and Related 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 have a material adverse effect on our business,
financial condition and results of 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 business, financial condition and results of
operations could be adversely affected if Owens Corning stops providing us with
these materials and services.
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We may have conflicts of interest with our equityholders that could adversely
affect our business, financial condition and results of 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 "Certain
Relationships and Related 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 such relationships, any
loss of business resulting from such conflicts could have a material adverse
effect on our business, financial condition and results of 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. 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.
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Our operating performance is dependent upon a limited number of customers. A
decrease of business from major customers could have a material adverse effect
on our financial condition and results of 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. Sales to our largest customer, Porcher Industries, including
its affiliates, such as BGF Industries, accounted for approximately 20% of our
net sales in 1998. A decrease in business from, or the loss of, any of our
major customers could have a material adverse effect on our business, financial
condition and results of operations.
In addition, our future business, financial condition and results of
operations 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 have a
material adverse effect on our business, financial condition and results of
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 adversely affect our business, financial condition and results of
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 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 to us. 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 borates. Boric acid is considered by some to be a
cost-effective substitute for borates. In order to use boric acid as a
substitute, we would have to alter our production processes. This could take
several months to accomplish, and would require moderate capital expenditures.
If our customers switch to other suppliers of glass yarns, such as Vetrotex
which intends to build a plant in Mexico, our business, financial condition and
results of operations could be adversely affected.
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.
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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 adversely affect our financial condition and results of 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 the Huntingdon plant accounted for 29% of our total net sales in 1998.
Approximately 11% of our total net sales in 1998 was 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.
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 have a material adverse effect on our business,
financial condition and results of operations. See "Business--Manufacturing
Facilities," "Business--Employees" and "Certain Relationships and Related
Transactions."
Since we sell a significant amount of our products outside the United States,
exchange losses as a result of currency fluctuations could adversely affect our
financial condition and results of operations.
In 1998, we derived approximately 32.3% of our net sales 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 have a
material adverse effect on our business, financial condition, results of
operations and our ability to pay interest and principal on our debt. 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 have a
material adverse effect on our business, operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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An easing of import restrictions and duties with respect to glass fabrics could
reduce demand for our products, which would adversely affect our results of
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, our
business, financial condition and results of operations.
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 such indebtedness, and
. were insolvent at the time of incurrence;
. were rendered insolvent by reason of such 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 such debts as they matured,
then, in each case, a court of competent jurisdiction could (1) void, in whole
or in part, the notes, and direct the repayment of any amounts paid thereunder
to our creditors, (2) subordinate the notes to our obligations to our existing
and future creditors, or (3) 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 in such case. 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.
The year 2000 problem may adversely affect our business operations and we may
suffer significant costs to make our systems year 2000 compliant.
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
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<PAGE>
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 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.
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.
If we do not maintain good relations with our employees, we could face labor
strikes or stoppages that would adversely affect our business, financial
condition and results of 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 adversely affect our business, financial condition and results of
operations. See "Business--Employees."
If we become responsible for environmental and safety and health costs, our
financial condition and results of operations could be adversely affected.
Various federal, state and local environmental laws and requirements govern
the use of our facilities. Such 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.
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<PAGE>
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 adversely affect our
business, financial condition and results of operations. Moreover, we cannot
assure you that future laws, ordinances or regulations will not give rise to
additional compliance or remediation costs which could have a material adverse
effect on our business, financial condition or results of operations.
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 such 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, such market making activity may be
limited during the pendency of the exchange offer or the effectiveness of a
shelf registration statement in lieu thereof. 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. Such 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 such 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.
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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.
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 (1) 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
(2) approximately $7.0 million in transaction fees and expenses.
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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 December 31, 1998 and
as adjusted to give effect to the issuance and sale of the old notes and the
exchange of old notes for exchange notes as if such events had occurred on
December 31, 1998.
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>
December 31, 1998
-------------------------
Actual As Adjusted
----------- -------------
(dollars in thousands)
<S> <C> <C>
Long-term debt (including current portion):
Senior credit facility(1)........................... $ 251,813 $ 259,938
Senior subordinated credit facility................. 150,000 --
Capital lease obligation............................ 385 385
Exchange notes, net of original issue discount...... -- 147,000
----------- -----------
Total long-term debt.............................. 402,198 407,323
Members' interest(2)................................ 21,285 17,535
----------- -----------
Total capitalization.............................. $ 423,483 $ 424,858
=========== ===========
</TABLE>
- --------
(1) As of December 31, 1998, after giving effect to the offering of the old
notes, we would have had approximately $51.9 million of borrowing
availability under our senior credit facility.
(2) As adjusted. Reflects the write-off of fees of $3.75 million paid by us in
connection with the senior subordinated credit facility which was
originally capitalized as deferred financing costs.
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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/) 38,193
Other income............ (450) (2,328) (748)(/1/) (3,526)
------- -------- --------
Net income............ $ 4,275 $ 59,235 $ 19,487
======= ======== ========
</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
"Certain Relationships and Related 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.
We derived the historical information for each of the years in the two year
period ended December 31, 1997 and the nine months ended September 30, 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 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 such date, or to project
our results of operations for any future period.
We have presented 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 EBITDA as an alternative to net
income (loss), as a measure of operating results, or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
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 EBITDA as income (loss) before income taxes, interest
expense, depreciation and amortization expense, non-recurring charges ($1.0
million in 1998), non-cash charges ($1.3 million in 1998), restructuring
charges ($2.0 million in 1998) and 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 (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.
23
<PAGE>
<TABLE>
<CAPTION>
Advanced
The Predecessor Business Glassfiber Yarns
----------------------------------------------------------- ---------------------
Three
Nine Months Ended Months Pro Forma
Year Ended December 31, September 30, Ended Year Ended
---------------------------------------- ----------------- December December
1994 1995 1996 1997 1998 31, 1998 31, 1998
----------- -------- -------- -------- ----------------- -------- -----------
(unaudited) (unaudited)
(dollars in thousands)
<S> <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
Cost of goods sold....... 175,047 187,153 180,343 182,366 134,820 42,952 184,919
-------- -------- -------- -------- -------- -------- --------
Gross profit............. 76,875 85,242 94,636 94,991 70,428 20,451 83,732
Selling, general and
administrative expense.. 13,157 13,748 14,345 14,813 11,487 4,665 16,152
Amortization............. -- -- -- -- -- 2,848 11,392
Restructuring costs(1)... -- -- -- -- 2,034 -- 2,034
-------- -------- -------- -------- -------- -------- --------
Operating income......... 63,718 71,494 80,291 80,178 56,907 12,938 54,154
Interest Expense......... -- -- -- -- -- 9,113 38,193
Other income, net........ (1,354) (3,041) (3,003) (2,688) (2,328) (450) (3,526)
-------- -------- -------- -------- -------- -------- --------
Income before taxes...... 65,072 74,535 83,294 82,866 59,235 4,275 19,487
Provision for income
taxes................... 25,834 29,594 33,051 32,540 16,226 -- --
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of accounting
change.................. 39,238 44,941 50,243 50,326 43,009 4,275 19,487
Cumulative effect of
change in accounting for
post-employment
benefits(2)............. 5,600 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............... $ 33,638 $ 44,941 $ 50,243 $ 50,326 $ 43,009 $ 4,275 $ 19,487
======== ======== ======== ======== ======== ======== ========
Other Data:
Depreciation and
amortization............ $ 8,167 $ 8,604 $ 8,233 $ 8,305 $ 6,394 $ 5,975 23,759
Capital expenditures..... 13,963 8,458 15,314 8,324 13,509 6,940 20,449
EBITDA................... 73,239 83,139 91,527 91,171 67,663 21,334 84,322
Cash flows from operating
activities.............. 54,313 62,113 65,274 28,438 18,819 N/A
Cash flow from investing
activities.............. (8,458) (15,314) (8,324) (13,509) (3,327) N/A
Cash flows from financing
activities.............. (45,855) (46,783) (56,922) (14,940) (2,712) N/A
Ratio of earnings to
fixed charges........... 155x 164x 136x 78x 67x 1.5x 1.5x
Balance Sheet Data(3) (at
period end):
Working capital
(deficit)............... $ (1,137) $ (1,493) $ (4,944) $(11,872) N/A $ 32,061 $ 32,061
Total assets............. 157,185 159,414 163,839 153,961 N/A 465,469 466,844
Total debt............... -- -- -- -- N/A 402,198 407,323
Net assets............... 25,439 31,899 36,850 30,940 N/A 21,285 17,535
</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.
24
<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 certain 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 certain 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 "Certain
Relationships and Related 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 thereto.
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. For 1998, 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. For 1998,
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.
This decrease in net sales was 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 such changes 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.
25
<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% (raw materials), 8.2% (energy), 23.0%
(direct labor), 17.9% (period labor) and 24.3% (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.
EBITDA. EBITDA is defined as net income or loss before income taxes, interest
expense, depreciation and amortization expense and in 1998 non-recurring
charges of $1.0 million, non-cash charges of $1.3 million and restructuring
charges of $2.0 million. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service indebtedness; however,
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. 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 for 1996, 1997 and
1998.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $275.0 100.0% $277.4 100.0% $268.6 100.0%
Cost of sales....................... 180.4 65.6 182.4 65.8 177.7 66.2
------ ----- ------ ----- ------ -----
Gross profit........................ 94.6 34.4 95.0 34.2 90.9 33.8
Selling, general and administrative
expenses........................... 14.3 5.2 14.8 5.3 16.2 6.0
Amortization........................ -- -- -- -- 2.8 1.0
Restructuring costs................. -- -- -- -- 2.0 .8
------ ----- ------ ----- ------ -----
Income from operations.............. $ 80.3 29.2% $ 80.2 28.9% $ 69.9 26.0%
====== ====== ======
</TABLE>
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
26
<PAGE>
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 restated prices paid to
Owens Corning for raw materials.
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 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 and finance our planned capital
expenditures, including the purchase of new management information systems for
our headquarters at the Aiken facility.
27
<PAGE>
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 in 1998 as compared to 1997 and an increase in receivables and
inventory. The increase was due to our offering of incentives in 1997 for early
payment and an increase in days sales outstanding. Such incentives were not
offered in 1998. Inventory increased due to lower shipments in 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, a reduction in accounts receivable and an
increase in accounts payable 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 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."
We have historically financed our capital expenditures through cash flow from
operations. Capital expenditures, including capital leases, were $15.3 million,
$8.3 million and $20.5 million for 1996, 1997 and 1998, respectively. We expect
to make annual capital expenditures aggregating approximately $18.0
28
<PAGE>
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
(including the notes), 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
29
<PAGE>
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 December 31, 1998, 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 (as defined herein). 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 December
31, 1998, we would have received approximately $3,102,000 to terminate the
agreements. A 1% decrease in LIBOR would decrease the amount received by
approximately $8.7 million. The fair value is based on dealer quotes,
considering current interest rates.
In addition, we are exposed to certain 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.
30
<PAGE>
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 (replacement of which is
also necessary to complete our
separation from Owens Corning's
computer systems)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
IT Non-IT
-------------------------------------- -------------------------------------
<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
certain 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 such 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 such 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 60% of our sales, our
two largest customers and two others have inquired of our year 2000 state of
readiness and we have responded to such 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.
32
<PAGE>
Costs to Address the Year 2000 Issue. As of April 30, 1999, we had spent
approximately $1.2 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 certain 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.
33
<PAGE>
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"). 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.
34
<PAGE>
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
.fine yarns, which accounted for 26% of our 1998 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, 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.
In 1998, our net sales and EBITDA, on a pro forma basis, were $268.6 million
and $84.3 million, respectively. We attribute our strong results and
profitability primarily to the following factors:
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
35
<PAGE>
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.
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. 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.
36
<PAGE>
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. 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) 643-1501.
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: (1) heavy yarns, with a filament
diameter between 7 and 14 microns, which accounted for 74% of our 1998 net
sales; and (2) fine yarns, with a filament diameter generally up to 7 microns,
which accounted for 26% of our 1998 net sales. Products with finer diameters
generally command higher prices and profit margins.
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, are used for aircraft laminates, oxygen
37
<PAGE>
tanks, sporting goods and vehicle armor. Currently, prices for specialty
materials range from approximately $12.00 to $29.00 per kilogram.
Fine Yarns. Fine yarns, which require a significant level of technical
engineering expertise, generally command higher prices and profit margins 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:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Heavy yarns.................................. 83.6% 80.9% 80.5% 76.0% 74.0%
Fine yarns................................... 16.4 19.1 19.5 24.0 26.0
----- ----- ----- ----- -----
Total net sales............................ 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
attributable to each market and some of the end-use applications in each
market:
<TABLE>
<CAPTION>
Percentage
Markets of Net Sales Product Applications
------- ------------ --------------------
<S> <C> <C>
Electronics............. 32.3% 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% 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% reinforced concrete, roofing materials, stucco
reinforcement, insect screening, wall covering,
vertical window blinds, wallboard tape, tile backing
board and draperies
Specialty............... 9.4% 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. In
1998, we had a customer base of approximately 300 customers with our top five
and top ten customers accounting for 57% and 67% of our 1998 sales,
respectively. Our top five customers for 1998 were 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
38
<PAGE>
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.
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:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
North America..................................... 70.8% 71.8% 74.3%
Europe............................................ 27.5 24.7 21.3
Asia.............................................. 1.7 3.5 4.4
-------- -------- --------
Total net sales................................. 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 "Certain
Relationships and Related 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 "Certain
Relationships and Related 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,
39
<PAGE>
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 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
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improved products. The research and development program is managed by our
science and technology group. We spent $5.7 million, $5.9 million and $5.9
million to fund the science and technology group in 1996, 1997 and 1998
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 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 "Certain Relationships and Related 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 "Certain
Relationships and Related Transactions."
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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 such 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 such employees at Huntingdon expires on
October 31, 1999. Management considers our labor relations to be generally
good.
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 such 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 such obligations shall be satisfied
upon and to the extent of final approval of such remedial action by the
governing environmental authority.
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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.
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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.
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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 is qualified in its entirety by reference
to the full text of the operating agreement, which is filed as an exhibit to
the registration statement of which this prospectus is a part.
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;
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. 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 set forth in "Certain Relationships and Related 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 (1) the issuance of additional ownership interests,
and (2) 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 at such time as 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
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<PAGE>
agreement. Our obligation to purchase a member's ownership interest is
conditioned on our ability to 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 (1)
both before and after such distribution there is not a default under the senior
credit facility and the notes, and (2) there are funds to make such
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
"Certain Relationships and Related Transactions--Non-Competition."
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CERTAIN RELATIONSHIPS AND RELATED 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. Such 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 thereto; however, they may result in conflicts of
interest between us and such parties.
The following are summaries of such 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 incurred by such party 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 such 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 such 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 such 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 such 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 $114,483
pursuant to such sublease during the fourth quarter of 1998.
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 paid Owens Corning
$24,480 pursuant to such sublease during the fourth quarter of 1998.
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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 paid Owens Corning $417,988 pursuant to
such sublease during the fourth quarter of 1998.
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 such 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 $721,000 for the refurbishing of bushings during the fourth
quarter of 1998.
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 termination as set forth therein.
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 on such date that Owens Corning or any of its
affiliates no longer owns a 49% ownership interest in us, unless earlier
terminated as set forth therein.
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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 such products 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 such 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 such 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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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 such 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 such 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
such 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 $1.66 million of glass marbles during the fourth quarter
of 1998 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 $900,000 pursuant to such
co-location arrangement in 1998. Also as part of the co-location arrangement,
we lease from BGF Industries manpower at an hourly job rate per employee and
BGF
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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, certain 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, subject to limitations, (1) non-ordinary course
asset dispositions occur, (2) Advanced Glassfiber Yarns or any Credit Facility
Guarantor (as defined below) issues debt or equity securities or (3) 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 (the "Credit
Facility Guarantors").
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
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. 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 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>
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<PAGE>
.maintaining a minimum fixed charge coverage ratio as of the last day of
each quarter of 1.05 to 1.0.
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 (as defined
herein) to meet obligations to the holders of the 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
The exchange notes will be issued under the indenture between us, as joint
and several obligors, and The Bank of New York, as trustee. The terms of the
notes include those stated in the indenture and those incorporated by reference
to the Trust Indenture Act, as in effect on the issue date.
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.
The definitions of capitalized terms used in the following summary are set
forth below under""--Material Definitions." References in this "Description of
Exchange Notes" section to "Advanced Glassfiber Yarns" mean only Advanced
Glassfiber Yarns LLC or any successor or assign of Advanced Glassfiber Yarns
LLC that has become the issuer in accordance with the terms of the indenture
and not any existing or future Subsidiaries that Advanced Glassfiber Yarns LLC
may have and references to "AGY Capital" mean AGY Capital Corp.
The exchange notes will be issued in exchange for an equal principal amount
of old notes in connection with the exchange offer. The exchange notes will be
identical in all material respects to the old notes except that:
(1) the exchange notes will 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.
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The exchange notes will be 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.
As of the date hereof:
.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.
Initially, the trustee will act as paying agent and registrar for the
exchange notes. We may change any paying agent and registrar without notice to
holders of the exchange notes. Holders must surrender exchange notes to a
paying agent to collect principal payments and premium, if any. Principal,
premium, if any, and interest on the exchange notes will be paid by check
mailed to the registered holders at their registered addresses; but all
payments with respect to holders which have given wire transfer instructions to
us will be made by wire transfer of immediately available funds to the accounts
specified by the holders.
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. Interest will be payable
semi-annually in arrears on each January 15 and July 15, commencing on July 15,
1999, to the persons who are registered holders at the close of business on the
January 1 and July 1, respectively, immediately preceding the applicable
interest payment date. 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. The exchange notes
will not be entitled to the benefit of any mandatory sinking fund.
Additional Notes
Subject to the limitations set forth under "--Material Covenants--Limitation
on Incurrence of Additional Indebtedness," we may Incur additional Indebtedness
which, at our option, may consist of additional notes, in one or more series,
having identical terms as old notes or exchange notes. Holders of the
additional notes will have the right to vote together with holders of the old
notes and the exchange notes as one class.
No offering of any additional notes is being made by this prospectus. In
addition, we cannot assure you as to when or whether we will issue any
additional notes or as to the aggregate principal amount of the additional
notes.
Ranking
The exchange notes will rank:
(1) junior to, and be subordinated in right of payment to, all of our
existing and future senior Indebtedness;
(2) pari passu in right of payment with all of our Senior Subordinated
Indebtedness; and
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(3) senior in right of payment to all of our Subordinated Indebtedness.
At March 31, 1999, we had approximately $241.6 million of senior Indebtedness
outstanding, exclusive of unused commitments. All debt Incurred under the
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
In the event that any Person becomes a Restricted Subsidiary, other than
Foreign Subsidiaries, but including a Subsidiary which becomes a Restricted
Subsidiary upon a revocation of the designation of a Subsidiary as an
unrestricted Subsidiary, Advanced Glassfiber Yarns will cause the Restricted
Subsidiary to execute and deliver to the trustee a supplemental indenture in
form reasonably satisfactory to the trustee under which the Restricted
Subsidiary becomes a party to the indenture and thereby unconditionally
guarantee all of our obligations under the exchange notes and the indenture on
the terms set forth in the indenture. Thereafter, the Restricted Subsidiary
shall, unless released in accordance with the terms of the indenture, be a
"Note Guarantor" for all purposes of the indenture.
Each Note Guarantor will irrevocably and unconditionally guarantee, jointly
and severally, on an unsecured senior subordinated basis, the punctual payment
when due, whether at Stated Maturity, by acceleration or otherwise, of all of
our obligations under the indenture and the exchange notes, whether for
principal of, premium, if any, or interest on the exchange notes, expenses,
indemnification or otherwise. Each Note Guarantor will agree to pay, on a
senior subordinated basis and in addition to the "Guaranteed Obligations"
stated above, any and all expenses, including reasonable counsel fees and
expenses, incurred by the trustee or the holders in enforcing any rights under
that Note Guarantor's note guarantee.
The Guaranteed Obligations will rank:
(1) junior to, and be subordinated in right of payment to, all existing
and future senior Indebtedness of the Note Guarantors,
(2) pari passu in right of payment with all Senior Subordinated
Indebtedness of the Note Guarantors; and
(3) senior in right of payment to all Subordinated Indebtedness of the
Note Guarantors.
All debt Incurred under the senior credit facility 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 that
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 under its note guarantee or in
connection with its contribution obligations under the indenture,
result in the Guaranteed Obligations of that Note Guarantor not constituting a
fraudulent conveyance or fraudulent transfer under federal, state or other
applicable law.
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<PAGE>
Each Note Guarantor that makes a payment or distribution under a note
guarantee will be entitled to a contribution from each other Note Guarantor 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."
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 any Note Guarantor,
(3) there is a sale or other disposition of all of the capital stock or
other equity interests of any Note Guarantor or
(4) a Note Guarantor is designated as an unrestricted Subsidiary as
described under "--Material Covenants--Designation of Unrestricted
Subsidiaries,"
the Note Guarantor will be released and relieved of its obligations under its
note guarantee if, in the case of clauses (2) or (3) above, that transaction is
carried out under and in accordance with "--Material Covenants--Limitation on
Asset Sales" and, if applicable, "--Material Covenants --Merger, Consolidation
and Sale of Assets."
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 in right of payment, to the prior payment in
full in cash of all of our existing and future obligations in respect of our
current and future senior Indebtedness. In addition, the payment of any
Guaranteed Obligations of a future Note Guarantor will be subordinated in right
of payment to the prior payment in full of all senior Indebtedness of that Note
Guarantor to substantially the same extent as the exchange notes are
subordinated to all of our existing and future obligations in respect of 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.
Upon any payment or distribution of our assets or the assets of a Note
Guarantor upon a total or partial liquidation, dissolution or reorganization
of, or similar proceeding relating to, us, our property or a Note Guarantor or
its property, the holders of our senior Indebtedness or the senior Indebtedness
of that Note Guarantor will be entitled to receive payment in full of all
obligations due in respect of that senior Indebtedness before the holders of
notes are entitled to receive any payment. Until all obligations due in respect
of the senior Indebtedness are paid in full in cash, any payment or
distribution to which holders of notes would be entitled but for the
subordination provisions of the indenture will be made to holders of our senior
Indebtedness or the senior Indebtedness of that Note Guarantor. If any
distribution is made to holders that, due to the subordination provisions,
should not have been made to them, 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.
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However, neither we nor any Note Guarantor may pay principal of, premium, if
any, or interest on the exchange notes or make any deposit under the provisions
described under "--Legal Defeasance and Covenant Defeasance" below or
repurchase, redeem or otherwise retire any exchange notes (collectively, "pay
the exchange notes") if:
(1) any Designated Senior Indebtedness is not paid when due or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of that Designated Senior Indebtedness is accelerated unless, in
either case, the default has been cured or waived and the acceleration has
been rescinded or that Designated Senior Indebtedness has been paid in full
in cash.
However, either of us or any Note Guarantor may pay the exchange notes without
regard to the foregoing if we and the Note Guarantor and the trustee receive
written notice approving the payment from the Representative of the Designated
Senior Indebtedness with respect to which either of the events set forth in
clause (1) or (2) of the immediately preceding sentence has occurred and is
continuing.
During the continuance of any other default with respect to any Designated
Senior Indebtedness under which the maturity may be accelerated immediately,
without further notice or the expiration of any applicable grace periods,
except that notice which may be required to effect the acceleration, neither we
nor any Note Guarantors may pay the exchange notes for a period which commences
upon the receipt by the trustee, with a copy to us and each Note Guarantor, of
written notice of that default from the Representative of the holders of that
Designated Senior Indebtedness specifying its election to effect a prohibition
on our making any payments under the notes. The period ends 179 days after
receipt of the notice, or earlier if the prohibition on payments is terminated
in any of the following ways:
(1) by written notice to the trustee, the Note Guarantors and us from the
Person or Persons who gave the notice blocking payments on the notes,
(2) because the Representative of the holders of the Designated Senior
Indebtedness has notified the trustee that the default giving rise to the
notice blocking payments on the notes is no longer continuing, or
(3) because the Designated Senior Indebtedness has been repaid in full in
cash.
Unless the holders of the Designated Senior Indebtedness or the Representative
of those holders have accelerated the maturity of the Designated Senior
Indebtedness, we and any Note Guarantors may generally resume payments on the
exchange notes after the end of the period during which we are prohibited by
the holders of that Designated Senior Indebtedness from making any payments on
the exchange notes. The exchange notes and any note guarantees cannot be
subject to more than one of these periods in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during that 360-day period.
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If payment of the exchange notes is accelerated because of an Event of
Default, we or the trustee will promptly notify the holders of Designated
Senior Indebtedness or the Representative of the holders of the acceleration.
By reason of the subordination provisions contained in the indenture:
. in the event of an insolvency, bankruptcy, reorganization, or liquidation
of us, or
. upon the occurrence of a change of control or an Asset Sale requiring
repurchase by Advanced Glassfiber Yarns of any exchange notes, or
. in the event that any Note Guarantors are required to make payments under
their note guarantees,
we may not have sufficient assets remaining to satisfy the claims of the
holders after satisfying the claims of our creditors and creditors of the Note
Guarantors who are holders of senior Indebtedness and claims of creditors of
our other Subsidiaries. For more information, you should review the
section "Risk Factors" under the heading "Your exchange notes will be
subordinate to our senior debt."
The terms of the subordination provisions described above will not apply to
any payment or distribution of Permitted Junior Securities or to payment from
money or the proceeds of U.S. government obligations held in trust by the
trustee for the payment of principal of, premium, if any, and interest on the
exchange notes under the provisions described under "--Legal Defeasance and
Covenant Defeasance."
Redemption
Optional Redemption. The exchange notes will be redeemable, at our option, in
whole at any time or in part from time to time, on and after January 15, 2004,
upon not less than 30 nor more than 60 days' notice, at the following
redemption prices, plus, in each case, accrued interest to the date of
redemption, 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 exchanged notes if redeemed during the twelve-
month period commencing on January 15 of the year set forth below:
<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,
or from time to time, on or prior to January 15, 2002 we may, at our option,
use the net cash proceeds of one or more Public Equity Offerings (as defined
below) to redeem in the aggregate up to 35% of the aggregate principal amount
of the exchange notes originally issued. The redemption price will be equal to
110.125% of the principal amount of the exchange notes, plus accrued and unpaid
interest thereon to the date of redemption, 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. After giving effect to the
redemption, at least 65% of the aggregate principal amount of the exchange
notes originally issued must remain outstanding. In order to effect the
foregoing redemption with the
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proceeds of any Public Equity Offering, we shall make the redemption not more
than 60 days after the consummation of that Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of Advanced Glassfiber
Yarns or AGY Capital under a registration statement filed with the SEC in
accordance with the Securities Act, or any successor statute.
In the event that less than all of the exchange notes are to be redeemed at
any time, selection of the exchange notes for redemption will be made by the
trustee in compliance with the requirements of the principal national
securities exchange, if any, on which those exchange notes are listed or, if
those exchange notes are not then listed on a national securities exchange, on
a pro rata basis, by lot or by a method as the trustee will deem fair and
appropriate; but no exchange notes of a principal amount of $1,000 or less will
be redeemed in part and exchange notes of a principal amount in excess of
$1,000 may be redeemed in part in multiples of $1,000 only. If a partial
redemption is made with the proceeds of a Public Equity Offering, selection of
the exchange notes or portions of the exchange notes for redemption will,
subject to the preceding sentence, be made by the trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable. The selection will be
subject to the procedures of DTC or a successor depositary, unless the method
is otherwise prohibited. Notice of redemption must be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
holder of exchange notes to be redeemed at its registered address. If any
exchange note is to be redeemed in part only, the notice of redemption that
relates to that exchange note will 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 of that exchange note 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 funds in satisfaction of the
applicable redemption price under the indenture.
Change of Control
The indenture provides that, upon the occurrence of a change of control (as
defined in "Material Definitions"), each holder will have the right to require
that we purchase all or a portion, in integral multiples of $1,000, of that
holder's notes in connection with the "Change of Control Offer" described
below, at a purchase price equal to 101% of the principal amount of the notes
plus accrued and unpaid interest thereon to the date of purchase, 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 the date upon which the change of control occurred,
Advanced Glassfiber Yarns must send a notice by first class mail to each
holder, with a copy to the trustee, which notice shall govern the terms of the
Change of Control Offer. The notice shall state, among other things, the
"Change of Control Payment Date", which must be no earlier than 30 days nor
later than 60 days from the date the notice is mailed, unless otherwise
required by law. Holders electing to have a note purchased in connection with a
Change of Control Offer will be required to surrender the note with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the note
completed, to the paying agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
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The senior credit facility contains, and our future senior Indebtedness may
contain, prohibitions on the occurrence of events that would constitute a
change of control and requires that the senior Indebtedness be repaid or
repurchased upon a change of control. Moreover, the exercise by the holders of
their right to require us to repurchase the notes would cause a default under
the senior credit facility and could cause a default under the other senior
Indebtedness, even if the change of control itself does not, due to the
financial effect of the repurchase on us.
If a Change of Control Offer is made, there can be no assurance that we will
have available funds sufficient to pay the change of control purchase price for
all the notes that might be delivered by holders seeking to accept the Change
of Control Offer. 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. In the event we are required to purchase
outstanding notes in connection with a Change of Control Offer, 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, there can be no assurance that we would be able
to obtain this financing.
If we cannot obtain the necessary consents of senior lenders under the senior
Indebtedness outstanding at the time of the change of control and we cannot
obtain the necessary third-party financing to repay the borrowings under that
senior Indebtedness, we will remain prohibited from purchasing the notes. 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 not less
than a majority in principal amount of the outstanding notes. The Event of
Default may not be waived merely by us or the trustee.
We will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent these laws
and regulations are applicable in connection with the purchase of notes upon a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the "Change of Control" provisions of the
indenture, we shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached our obligations under the "Change of
Control" provisions of the indenture by virtue of our failure to comply.
Material Covenants
Limitation on Incurrence of Additional Indebtedness.
(1) Advanced Glassfiber Yarns will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness other than Permitted Indebtedness, including Acquired
Indebtedness; but Advanced Glassfiber Yarns and any Note Guarantor may
Incur Indebtedness if, at the time of and immediately after giving pro
forma effect to the Incurrence of the Indebtedness and the application of
the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio is
greater than 2.0 to 1.0.
(2) For purposes of determining compliance with this covenant, and the
outstanding principal amount of any particular Indebtedness Incurred under
this covenant, the amount of
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Indebtedness issued at a price that is less than the principal amount of
the Indebtedness will be equal to the amount of the liability in respect of
that Indebtedness determined in accordance with GAAP.
Limitation on Restricted Payments. Advanced Glassfiber Yarns will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or in respect
of shares of capital stock or other equity interests of Advanced Glassfiber
Yarns or that Restricted Subsidiary to holders of that capital stock or
other equity interest, other than
(a) dividends or distributions payable
. in Qualified Capital Stock of Advanced Glassfiber Yarns; or
. in warrants, rights or options to purchase or acquire shares of
Qualified Capital Stock of Advanced Glassfiber Yarns; or
. to Advanced Glassfiber Yarns or a Restricted Subsidiary; and
(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 and
other than any capital stock or other equity interests, warrants, rights or
options owned by Advanced Glassfiber Yarns or any Restricted Subsidiary and
other than any purchase, redemption, acquisition or retirement that
constitutes a Permitted Investment;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, as
the case may be, any Subordinated Indebtedness, or
(4) make any Investment (other than Permitted Investments),
if at the time of any of the foregoing "Restricted Payments" or immediately
after giving effect thereto,
(1) a Default or an Event of Default shall have occurred and be
continuing or
(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 aggregate amount of cash or Fair Market Value of any other
property comprising the Restricted Payments, including the proposed
Restricted Payment, made subsequent to the issue date exceeds the sum of:
(a) 50% of cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of the loss)
accrued during the period beginning on
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January 1, 1999 to the end of the most recent fiscal quarter for which
consolidated financial information of Advanced Glassfiber Yarns is
available; plus
(b) 100% of the aggregate 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, or
. the issuance and sale of Qualified Capital Stock of Advanced
Glassfiber Yarns subsequent to the issue date, or
. the issuance and sale of warrants, rights or options to purchase
or acquire shares of capital stock or other equity interests of
Advanced Glassfiber Yarns, or
. the issuance and sale subsequent to the issue date 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 (excluding
any net cash proceeds applied in accordance with the following
paragraph); plus
(c) without duplication of any amounts included in clause (a) above
or clause (d) below, 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 the issue date, an amount equal to the
lesser of the amount of the Investment and the amount received by
Advanced Glassfiber Yarns or any Restricted Subsidiary upon that
disposition, repayment, dividend or distribution; plus
(d) without duplication of any amounts included in clause (c) above,
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 a 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 the issue
date, with respect to any unrestricted Subsidiary that has been
redesignated as a Restricted Subsidiary after the issue date in
accordance with "--Designation of Unrestricted Subsidiaries," an amount
equal to Advanced Glassfiber Yarns' Investment in that unrestricted
Subsidiary; but the amount shall 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 (measured as of the date of designation)
with respect to any Subsidiary of Advanced Glassfiber Yarns which has
been designated as an unrestricted Subsidiary after the issue date in
accordance with "--Designation of Unrestricted Subsidiaries"; and minus
(h) 50% of the distributions made in connection with clause (5) of
the next succeeding paragraph.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of that dividend if that dividend would have been permitted on
the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of 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;
so long as the value of that Qualified Capital Stock or those warrants,
rights and options issued in exchange for the acquired capital stock or
other equity interests, warrants, rights or options and any net cash
proceeds will be excluded from clause (3)(b) of the preceding paragraph
(and were not included in clause (3)(b) at any time);
(3) if no Default or Event of Default shall have occurred and be
continuing, the voluntary prepayment, purchase, defeasance, redemption or
other acquisition or retirement for value of any Subordinated Indebtedness:
(a) 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; but if that capital stock or other equity
interests is, or those warrants, rights or options to purchase that
capital stock or other equity interests are convertible into or
exchangeable at the option of the holder for Disqualified Capital Stock
then the Disqualified Capital Stock will not
. by its terms, or upon the happening of any event, mature or be
mandatorily redeemable in connection with a sinking fund
obligation or otherwise, or be redeemable at the option of the
holder of the Disqualified Capital Stock, in any case, on or
prior to the final maturity of the Indebtedness permitted to be
prepaid, purchased, defeased, redeemed or acquired under this
clause (3) and
. have a Weighted Average Life to Maturity less than the
Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired under this clause (3) or
(b) in exchange for Refinancing 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:
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. 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
. Refinancing Indebtedness; so long as the value of the capital
stock or other equity interests or warrants, rights or options
issued in exchange for the Subordinated Indebtedness and any net
cash proceeds from such exchange will be excluded from clause
(3)(b) of the preceding paragraph (and were not included in
clause (3)(b) at any time);
(4) the making of loans or advances to officers and directors of Advanced
Glassfiber Yarns 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) the making of distributions in cash to JH and Advanced Glassfiber
Holdings within 75 days after the end of each taxable year of Advanced
Glassfiber Yarns 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 the items of ordinary income and expense and net
capital gain allocated to JH or Advanced Glassfiber Holdings, as
the case may be, for that taxable year (taking into account any
special allocations resulting from adjustments under section 743 of
the Code) and
(iii) actual income taxes then being assessed against JH or AGY
Holdings on items of ordinary income and expense and net capital
gain allocated to JH or AGY Holdings
so long as, in each case, immediately both before and after giving
effect to these payments no Event of Default does then exist;
(b) the making of distributions to JH with respect to the purchase
price under the LLC Sale and Purchase Agreement for net asset value not
to exceed $2.5 million and
(6) the repurchase, redemption or other acquisition or retirement for
value of
(a) any capital stock or other equity interests of Advanced
Glassfiber Yarns held by any member of Advanced Glassfiber Yarns'
management under any management equity subscription agreement or stock
option agreement in effect as of the date of the indenture or entered
into thereafter with members of the management of any Person acquired
after the issue date in connection with the acquisition of that Person
or
(b) capital stock or other equity interests of Advanced Glassfiber
Yarns held by employees, former employees, directors or former
directors under the terms of agreements, including employment
agreements, approved by the board of directors; but the aggregate price
paid for all of that repurchased, redeemed, acquired or retired capital
stock or other
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equity interests set forth in clauses (6) (a) and (b) shall not exceed
$750,000 in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after any the
transaction.
In determining the aggregate amount of Restricted Payments made subsequent to
the issue date in accordance with the second clause (3) of the immediately
preceding paragraph, amounts expended in connection with clauses (1) (without
duplication for the declaration of the relevant dividend) and (4) shall be
included in the calculation and amounts expended in connection with clauses
(2), (3), (5) and (6) shall not be included in the calculation.
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 applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of that Asset Sale at
least equal to the Fair Market Value of the assets sold or otherwise
disposed of and
(2) at least 75% of the consideration received for the assets sold by
Advanced Glassfiber Yarns or the Restricted Subsidiary, as the case may be,
in that Asset Sale is in the form of:
(a) cash or Cash Equivalents or
(b) "Replacement Assets" of
. 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, upon the purchase, a Restricted Subsidiary, but
any securities, notes or other obligations received by Advanced
Glassfiber Yarns or a Restricted Subsidiary from those transfers
that are converted within 90 days of receipt by Advanced
Glassfiber Yarns or the Restricted Subsidiary into cash or Cash
Equivalents, to the extent so received, will be deemed to be cash
or Cash Equivalents for purposes of this provision.
The amount of any Indebtedness of Advanced Glassfiber Yarns or that Restricted
Subsidiary that is actually assumed by the transferee in that Asset Sale and
from which Advanced Glassfiber Yarns or that Restricted Subsidiary is fully and
unconditionally released shall be deemed to be cash for purposes of determining
the percentage of cash consideration received by Advanced Glassfiber Yarns or
that Restricted Subsidiary. The foregoing will not apply to Subordinated
Indebtedness assumed by the transferee.
Advanced Glassfiber Yarns or the Restricted Subsidiary, as the case may be,
may apply the Net Cash Proceeds of any Asset Sale within 270 days of that Asset
Sale to:
(1) repay any senior Indebtedness and permanently reduce the commitments,
if any, with respect thereto,
(2) purchase from a Person other than Advanced Glassfiber Yarns and its
Restricted Subsidiaries Replacement Assets or
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(3) any combination of (1) and (2).
If Advanced Glassfiber Yarns or a Restricted Subsidiary makes an investment
in Replacement Assets not earlier than 90 days prior to:
(1) the Asset Sale for purposes of the preceding sentence, or
(2) the execution by Advanced Glassfiber Yarns or a Restricted Subsidiary
of a binding commitment to consummate that Asset Sale, which commitment is
not subject to any conditions precedent other than obtaining necessary
financing and the closing in respect of the Asset Sale that is the subject
of the binding commitment occurs within 90 days of the date the commitment
is executed,
then the investment will satisfy, to the extent of the amount of the
investment, the requirements of clause (2) of the preceding sentence.
To the extent all or a portion of the Net Cash Proceeds of any Asset Sale are
not applied within 270 days of the Asset Sale as described in clause (1), (2)
or (3) of the immediately preceding paragraph (the "Net Proceeds Offer Trigger
Date"), we will make an offer to purchase from all holders on a pro rata basis
(and on a pro rata basis with the holders of any other Senior Subordinated
Indebtedness with similar provisions requiring us to offer to purchase the
Senior Subordinated Indebtedness with the proceeds of Asset Sales), the
principal amount of notes and any other Indebtedness equal to the unapplied Net
Cash Proceeds 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
thereon, to the date of purchase. 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. This "Net
Proceeds Offer" shall occur on the "Net Proceeds Offer Payment Date" which is a
date not less than 20 business days following the date on which the offer is
made, or any longer period as may be required by law, nor more than 60 days
following the Net Proceeds Offer Trigger Date.
We may defer the Net Proceeds Offer until there is an aggregate amount of
unapplied Net Cash Proceeds equal to or in excess of $5.0 million resulting
from one or more Asset Sales, at which time, the entire amount of unapplied Net
Cash Proceeds, and not just the amount in excess of $5.0 million, shall be
applied as required in this paragraph.
Each Net Proceeds Offer will be mailed to the record holders as shown on the
register of holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the trustee, and shall comply with the procedures set
forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent holders of notes and
holders of other Senior Subordinated Indebtedness, if any, which are or is the
subject of a Net Proceeds Offer properly tender notes or the
other Senior Subordinated Indebtedness in an aggregate amount exceeding the
amount of unapplied Net Cash Proceeds, notes of tendering holders and the other
Senior Subordinated Indebtedness of tendering holders will be purchased on a
pro rata basis based on amounts tendered.
We will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent the laws and
regulations are applicable in connection with the purchase of notes in
connection with a Net Proceeds Offer. To the extent that the
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provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the indenture, we shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached our obligations
under the "Asset Sale" provisions of the indenture by virtue of that
compliance.
Upon completion of a Net Proceeds Offer, the amount of Net Cash Proceeds will
be reset at zero. Accordingly, to the extent that the aggregate amount of notes
and other Senior Subordinated Indebtedness tendered in connection with a Net
Proceeds Offer is less than the aggregate amount of unapplied Net Cash
Proceeds, we may use any remaining Net Cash Proceeds for general corporate
purposes.
In the event of the transfer of substantially all, but not all, of the
property and assets of Advanced Glassfiber Yarns and its Restricted
Subsidiaries as an entirety to a Person in a transaction permitted under "--
Merger, Consolidation and Sale of Assets," the entity which survives the
transaction shall be deemed to have sold the properties and assets of Advanced
Glassfiber Yarns and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this
covenant with respect to that deemed sale as if it were an Asset Sale. In
addition, the Fair Market Value of the properties and assets of Advanced
Glassfiber Yarns or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant. If at any time
any non-cash consideration received by Advanced Glassfiber Yarns or any
Restricted Subsidiary, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash, other than interest
received with respect to any non-cash consideration, then the conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds of the conversion or disposition shall be applied in accordance
with this covenant.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Advanced Glassfiber Yarns will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of its
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 of its property or assets to Advanced Glassfiber Yarns
or any other Restricted Subsidiary, except for those encumbrances or
restrictions existing under or by reason of:
(a) applicable law;
(b) the indenture;
(c) the senior credit facility as in effect on the issue date, and
any amendments or restatements of the senior credit facility; so long
as the amendment or restatement is not materially more restrictive with
respect to those encumbrances or restrictions than those in existence
on the issue date;
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(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 encumbrance
or restriction 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 in 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; as long as the
restrictions apply solely to the capital stock or other equity
interests or assets of that Restricted Subsidiary which are being sold;
(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 encumbrance or
restriction is not applicable to any property or assets other than the
property or assets subject to the Lien securing that Indebtedness;
(i) restrictions with respect to a Restricted Subsidiary that is a
Foreign Subsidiary contained in any instrument governing Indebtedness
of any that Restricted Subsidiary permitted under clause (14) of the
definition of Permitted Indebtedness; or
(j) an agreement governing Indebtedness Incurred to Refinance the
Indebtedness issued, assumed or Incurred under an agreement referred to
in clause (c), (e) or (h) above; but the refinancing agreement shall
not be materially more restrictive with respect to the encumbrances or
restrictions than those contained in the agreement referred to in
clauses (c), (e) or (h), as determined by the board of directors in
their reasonable good faith judgment.
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, directly or
indirectly, 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 the 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
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Glassfiber Yarns and its Restricted Subsidiaries and minority shareholders
of that Restricted Subsidiary (or on less than a pro rata basis to any
minority holder if that minority holder does not acquire its pro rata
amount);
(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) that 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
(c) any sale of capital stock or other equity interests by Advanced
Glassfiber Yarns or that Restricted Subsidiary is made in compliance
with the covenant described under""--Limitation on Asset Sales;"
as long as, AGY Capital shall, at all times prior to the reorganization of
Advanced Glassfiber Yarns as a corporation, remain a Wholly Owned Restricted
Subsidiary of Advanced Glassfiber Yarns.
Designation of Unrestricted Subsidiaries. Advanced Glassfiber Yarns may
designate any Subsidiary of Advanced Glassfiber Yarns, other than AGY Capital,
as an "unrestricted Subsidiary" under the indenture only if:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to the designation:
(2) at the time of and after giving effect to the designation, 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, assuming the effectiveness of the designation and treating the
designation as an Investment at that time, under the first paragraph of "--
Limitation on Restricted Payments" in an amount (the "Designation Amount")
equal to the amount of Advanced Glassfiber Yarns' Investment in that
Subsidiary on that date.
Neither Advanced Glassfiber Yarns nor any Restricted Subsidiary shall at any
time:
(1) (a) provide credit support for,
(b) subject any of its property or assets other than the capital stock or other
equity interests of any unrestricted Subsidiary to the satisfaction of,
or
(c) guarantee, any Indebtedness of any unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing that Indebtedness)
unless that credit support or guarantee constitutes an Investment permitted
under the covenant described under "--Limitation on Restricted Payments,"
(2) be directly or indirectly liable for any Indebtedness of any
unrestricted Subsidiary or
(3) be directly or indirectly liable for any Indebtedness which provides
that the holder of the Indebtedness may, upon notice, lapse of time or
both, declare a default thereon or cause the payment of the Indebtedness to
be accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any
unrestricted Subsidiary, except for any non-recourse guarantee given solely
to support the pledge by
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Advanced Glassfiber Yarns or any Restricted Subsidiary of the capital stock
or other equity interests of any unrestricted Subsidiary.
For purposes of this paragraph, the designation of a Subsidiary of Advanced
Glassfiber Yarns as an unrestricted Subsidiary shall be deemed to include the
designation of all of the Subsidiaries of that Subsidiary.
Advanced Glassfiber Yarns may revoke any designation of a Subsidiary as an
unrestricted Subsidiary only if:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to the revocation; and
(2) all Liens and Indebtedness of such unrestricted Subsidiary
outstanding immediately following the revocation would, if Incurred at that
time, have been permitted to be Incurred for all purposes of the indenture.
All designations and revocations must be evidenced by resolutions of the
board of directors of Advanced Glassfiber Yarns, delivered to the trustee
certifying compliance with the foregoing provisions.
Limitation on Layered Indebtedness. Advanced Glassfiber Yarns shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, 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 pari passu with, the notes or, in the case of Restricted Subsidiaries
that are Note Guarantors, that Indebtedness is subordinate in right of payment
to, or ranks pari passu with, the note guarantees of those Note Guarantors.
No Note Guarantor will, directly or indirectly, 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 pari passu with, the note guarantee of the Note Guarantor.
Limitation on Liens. Advanced Glassfiber Yarns will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, Incur
any Liens of any kind against or upon any of their respective properties or
assets, whether owned on the issue date or acquired after the
issue date, or any proceeds therefrom, to secure any Indebtedness unless
contemporaneously therewith effective provision is made:
(1) in the case of us, to secure the notes and all other amounts due
under the indenture, and
(2) in the case of a Note Guarantor, to secure that Note Guarantor's note
guarantee and all other amounts due under the indenture,
in each case, equally and ratably with the Indebtedness, or, in the event that
the Indebtedness is subordinated in right of payment to the notes or that note
guarantee, prior to the Indebtedness, with a Lien on the same properties and
assets securing the Indebtedness for so long as the Indebtedness is secured by
that Lien, except for:
(1) Liens securing any senior Indebtedness and
(2) Permitted Liens.
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Merger, Consolidation and Sale of Assets. Neither of us will, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, whether or not Advanced Glassfiber Yarns is the surviving
Person, or sell, assign, transfer, lease, convey 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 Advanced Glassfiber
Yarns' and its Restricted Subsidiaries' properties and assets (determined on a
consolidated basis for Advanced Glassfiber Yarns and its Restricted
Subsidiaries) to any Person unless:
(1) either
(a) Advanced Glassfiber Yarns will be the surviving or continuing
entity or
(b) the Person, if other than Advanced Glassfiber Yarns, formed by
the consolidation or into which Advanced Glassfiber Yarns is merged or
the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of Advanced
Glassfiber Yarns and of Advanced Glassfiber Yarns' Restricted
Subsidiaries substantially as an entirety
.will be a corporation organized and validly existing under the
laws of the United States or any State within the United States
and
.will expressly assume, by supplemental indenture executed and
delivered to the trustee, 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
(defined below) on the part of Advanced Glassfiber Yarns to be
performed or observed;
(2) immediately after giving effect to the transaction and the assumption
contemplated by clause (1)(b) above, including giving effect on a pro forma
basis to any Indebtedness, including any Acquired Indebtedness, Incurred in
connection with or in respect of the transaction,
(a) Advanced Glassfiber Yarns or the Person formed by or surviving
the transaction, as the case may be, will be 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 Person formed by or surviving the transaction,
as the case may be, would be greater than the Consolidated Fixed Charge
Coverage Ratio for Advanced Glassfiber Yarns immediately prior to the
transaction;
(3) immediately before and immediately after giving effect to the
transaction and the assumption contemplated by clause (1)(b) above,
including giving effect on a pro forma basis to any Indebtedness, including
any Acquired Indebtedness, Incurred and any Lien granted in connection with
or in respect of the transaction, no Default or Event of Default shall have
occurred or be continuing;
(4) each Note Guarantor, including Persons which become Note Guarantors
as a result of the transaction, shall have confirmed by supplemental
indenture that its note guarantee will apply for the obligations in respect
of the indenture and the notes of the Person formed by or surviving the
transaction; and
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(5) Advanced Glassfiber Yarns or the Person formed by or surviving the
transaction shall have delivered to the trustee an Officers' Certificate
and an Opinion of Counsel, each stating that the consolidation, merger,
sale, assignment, transfer, lease, conveyance or other disposition and, if
a supplemental indenture is required in connection with the transaction,
the supplemental indenture, comply with the applicable provisions of the
indenture and that all conditions precedent in the indenture relating to
the transaction have been satisfied.
For purposes of the foregoing, the transfer by lease, assignment, sale or
otherwise, in a single transaction or series of transactions of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Advanced Glassfiber Yarns, the capital stock or other equity
interests of which constitutes all or substantially all of the properties and
assets of Advanced Glassfiber Yarns, shall be deemed to be the transfer of all
or substantially all of the properties and assets of Advanced Glassfiber Yarns.
The provisions of clause (2) above shall not apply to:
(x) any transfer of the properties or assets of a Restricted Subsidiary
of Advanced Glassfiber Yarns to Advanced Glassfiber Yarns or to another
Restricted Subsidiary,
(y) any merger of a Restricted Subsidiary into Advanced Glassfiber Yarns
or
(z) any merger of Advanced Glassfiber Yarns into a Restricted Subsidiary.
The indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the properties and assets of
Advanced Glassfiber Yarns and its Restricted Subsidiaries in accordance with
the foregoing where Advanced Glassfiber Yarns is not the continuing
corporation, the successor Person formed by that consolidation or into which
Advanced Glassfiber Yarns is merged or to which that conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, Advanced Glassfiber Yarns under the indenture and the
notes with the same effect as if the surviving entity had been named as such.
Each Note Guarantor, unless that Note Guarantor's note guarantee is to be
released in accordance with the terms described under "Note Guarantees," will
not, and Advanced Glass Fiber Yarns will not cause that Note Guarantor to,
consolidate with or merge into any Person that is not a Note Guarantor unless
that Person (if that Person is the surviving entity) assumes by supplemental
indenture all of the obligations of the Note Guarantor in respect of its note
guarantee.
Limitations on Transactions with Affiliates.
(1) Advanced Glassfiber Yarns will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions with, or for the benefit of,
any of its Affiliates, unless:
(a) 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 of Advanced Glassfiber Yarns;
(b) in the event that the Affiliate transaction, other than a JV
Contract, involves aggregate payments, or transfers of property or
services with a Fair Market Value in excess of $5.0 million during any
twelve-month period, the terms of that Affiliate transaction shall be
approved by a majority of the members of the board of directors of
Advanced Glassfiber
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Yarns, including a majority of the disinterested members the board of
directors with the approval to be evidenced by a Board Resolution
stating that the board of directors has determined that the transaction
complies with the foregoing provisions;
(c) in the event that the Affiliate transaction constitutes a JV
Contract which involves aggregate payments or transfers of property or
services with a Fair Market Value in excess of $5.0 million during any
twelve month period, the terms of which will be approved by a majority
of the disinterested members of the board of directors of Advanced
Glassfiber Yarns with the approval to be evidenced by a Board
Resolution stating that those members of the board of directors have
determined that the transaction complies with the foregoing provisions
and
(d) in the event that the Affiliate transaction, other than a JV
Contract, involves aggregate payments, or transfer of property or
services with a Fair Market Value, in excess of $10.0 million during
any twelve month period, Advanced Glassfiber Yarns shall, prior to the
consummation of the Affiliate transaction, obtain a favorable opinion
as to the fairness of the transaction or series of related transactions
to Advanced Glassfiber Yarns and the relevant Restricted Subsidiary (if
any) from a financial point of view from an Independent Financial
Advisor and file the same with the trustee.
For purposes hereof, the members of the board of directors representing the LLC
Member which is not a party to the Affiliate transaction shall be deemed to be
disinterested directors.
(2) Notwithstanding the foregoing, the restrictions set forth in
paragraph (1) will not apply to:
(a) transactions with or among Advanced Glassfiber Yarns and any
Restricted Subsidiary or between or among Restricted Subsidiaries;
(b) 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 Advanced Glassfiber Yarns' board of
directors;
(c) any transactions undertaken under any contractual obligations or
rights in existence on the issue date (as in effect on the issue date),
including any JV Contracts;
(d) any Restricted Payments made in compliance with "--Limitation on
Restricted Payments;"
(e) loans and advances to officers, directors and employees of
Advanced Glassfiber Yarns or any Restricted Subsidiary for travel,
entertainment, moving and other relocation expenses, in each case made
in the ordinary course of business; and
(f) the entering into by Advanced Glassfiber Yarns and any of its
consolidated Restricted Subsidiaries of a tax sharing or similar
arrangement.
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. However, Advanced Glassfiber Yarns
will not permit AGY Capital to acquire or hold any significant assets or other
properties or engage in any business activities.
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Reports to Holders. Whether or not we are subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, so long as any notes
remain outstanding, we will:
(1) 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 and applicable to a
U.S. corporation subject to those sections within 15 days after the times
specified for the filing of such information, documents and reports under
those sections and
(2) beginning on the earlier of:
(a) the effective date of the exchange offer registration statement
or
(b) 150 days following the issue date
file with the SEC, to the extent permitted, the information, documents and
reports referred to in clause (1) within the periods specified under those
sections. In addition, at any time when either of us is subject to or is not
current in its reporting obligations under clause (2) of the preceding
sentence, 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 Advanced Glassfiber Yarns nor any of its
Subsidiaries must, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, 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 in the time frame set forth in the solicitation documents
relating to the consent, waiver or agreement.
Events of Default
The following events are defined in the indenture as "Events of Default":
(1) the failure to pay the principal of, or premium, if any, on any note
when due, at Stated Maturity, upon redemption or otherwise, including the
failure to make a required payment to purchase notes tendered in connection
with a Change of Control Offer or a Net Proceeds Offer, whether or not
prohibited by the provisions of the indenture described under
"Subordination of the Exchange Notes and the Note Guarantees";
(2) the failure to pay any interest on any notes when due, which failure
continues for 30 days or more, whether or not prohibited by the provisions
of the indenture described under "Subordination of the Exchange Notes and
the Note Guarantees";
(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 to us from the trustee or the holders of
at least 25% in aggregate principal amount of the outstanding notes;
(5) the failure to pay at 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,
or the acceleration of the final stated maturity of
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that Indebtedness by reason of a default or event of default in respect of
that Indebtedness, in any case, if the aggregate 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, aggregates $7.5 million or more at any time;
(6) one or more judgments in an aggregate amount in excess of $7.5
million (to the extent not covered by third-party insurance as to which a
financially sound insurer has not disclaimed coverage) 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) certain events of bankruptcy affecting either of us or any of
Advanced Glassfiber Yarns' Significant Subsidiaries or group of
Subsidiaries that, taken together, would constitute a Significant
Subsidiary; or
(8) the note guarantee of any Note Guarantor is held or declared to be
unenforceable or invalid in a judicial proceeding or ceases for any reason
to be in full force and effect or any Note Guarantor or any Person acting
on behalf of any Note Guarantor denies or disaffirms that Note Guarantor's
obligations under its note guarantee. This clause (8) does not apply to
note guarantees under which the Note Guarantor is released from its note
guarantee in accordance with the terms of the indenture.
If an Event of Default specified in clauses (1) through (6) and (8) has
occurred and is continuing, the trustee or the holders of at least 25% in
principal amount of outstanding notes may declare the principal of and premium,
if any, and accrued and unpaid interest on all the notes to be due and payable
by notice in writing to us and the trustee. The notice must specify the
respective Event of Default and that it is a "notice of acceleration," and the
notes shall become immediately due and payable. If an Event of Default
specified in clause (7) above relating to either of us occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding notes will automatically become and
be immediately due and payable without any declaration or other act on the part
of the trustee or any holder.
The indenture provides that, at any time after a declaration of acceleration
with respect to the notes occurs, the holders of a majority in principal amount
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.
No rescission will affect any subsequent Default or impair any right arising
therefrom.
The holders of a majority in principal amount 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.
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Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee is 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.
Subject to all provisions of the indenture and applicable law, the holders of a
majority in aggregate principal amount of the then outstanding 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 or for any remedy thereunder, unless:
(1) that holder gives to the trustee written notice of a continuing Event
of Default,
(2) holders of at least 25% in principal amount of the then outstanding
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 in principal
amount of the outstanding 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 or for any remedy thereunder, 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 respective due dates expressed in that note or
(2) the institution of any proceeding with respect to the indenture or
any remedy thereunder, including acceleration, by the holders of a majority
in principal amount of the outstanding notes; if, upon institution of any
proceeding or exercise of any remedy, the holder or holders provide the
trustee with prompt notice of the proceeding.
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 Defaults. In addition, we are required to deliver to
the trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers of the certificate know of any Default that
occurred during the previous fiscal year.
The indenture provides that 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 to a trust officer or written notice of it
is received by the 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.
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Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have our obligations
discharged with respect to the outstanding notes. This "defeasance" of our
obligations means that we will 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 obligations in connection with those rights, powers, trust, duties and
immunities of the trustee and
(4) the provisions of the indenture relating to the defeasance.
In addition, we may, at our option and at any time, elect a "covenant
defeasance" which means we would have our obligations released with respect to
certain covenants that are described in the indenture and thereafter any
omission to comply with those obligations will not constitute a Default or
Event of Default with respect to the notes. In the event covenant defeasance
occurs, certain events described under "Events of Default" will no longer
constitute an Event of Default with respect to the notes. Non-payment,
bankruptcy, receivership, reorganization and insolvency events, however, shall
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, in trust, for the
benefit of the holders cash in U.S. dollars, direct non-callable
obligations of, or guaranteed by, the United States, or a combination of
the foregoing, in amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the notes on the stated date
for payment of principal, premium, if any, and interest or on the
applicable redemption date, as the case may be;
(2) in the case of defeasance, we have delivered to the trustee an
Opinion of Counsel in the United States reasonably acceptable to the
trustee to the effect that we have received from, or there has been
published by, the Internal Revenue Service a ruling or since the issue
date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon the Opinion of Counsel
shall state that, the holders will not recognize income, gain or loss for
federal income tax purposes as a result of the 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 had not
occurred;
(3) in the case of covenant defeasance, we have delivered to the trustee
an Opinion of Counsel in the United States reasonably acceptable to the
trustee to the effect that the holders will not recognize income, gain or
loss for federal income tax purposes as a result of the 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 covenant
defeasance had not occurred;
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(4) the trustee has received an Officers' Certificate stating that no
Default or Event of Default shall have occurred and be 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;
(5) the trustee has received an Officers' Certificate stating that the
defeasance or covenant defeasance shall not result in a breach or violation
of, or constitute a default under, the indenture or any other material
agreement or instrument to which Advanced Glassfiber Yarns or any of its
Subsidiaries is a party or by which Advanced Glassfiber Yarns or any of its
Subsidiaries is bound (and in that connection, the trustee shall have
received a certificate from the agent under the senior credit facility to
that effect with respect to the senior credit facility then in effect);
(6) we have delivered to the trustee an Officers' Certificate stating
that the deposit was not made by us with the intent of preferring the
holders over any of our other creditors or any Subsidiary of Advanced
Glassfiber Yarns or with the intent of defeating, hindering, delaying or
defrauding any of our other creditors or others;
(7) we have delivered to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
or relating to the defeasance or the covenant defeasance have been complied
with;
(8) we have delivered 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; and
(9) other customary conditions precedent are satisfied.
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, as expressly provided for in the indenture, as to all outstanding notes
when
(1) either:
(a) all the notes previously authenticated and delivered, except
lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has previously been deposited in trust or
segregated and held in trust by us and thereafter repaid to us or
discharged from the trust, 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
under arrangements satisfactory to the trustee for the giving of notice
of redemption, and we have irrevocably deposited or caused to be
deposited with the trustee funds or direct, non-callable obligations
of, or guaranteed by, the United States sufficient to pay and discharge
the entire Indebtedness on the notes not previously delivered to the
trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the earlier of the Stated Maturity or the
redemption date together with irrevocable instructions
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from us directing the trustee to apply the funds and/or the proceeds of
the direct, non-callable obligations to the payment of the principal,
premium, if any, and interest at maturity or redemption, as the case
may be;
(2) we have paid all other sums payable under the indenture by us; and
(3) we have delivered to the trustee an Officers' Certificate stating
that all conditions precedent under the indenture relating to the
satisfaction and discharge of the indenture have been complied with.
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 for specified purposes, including
. curing ambiguities, defects or inconsistencies,
. providing for new Note Guarantors and
. making other changes which do not, in the opinion of the trustee,
adversely affect the rights of any of the holders in any material
respect.
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 in principal amount of
the then outstanding notes issued under the indenture, except that, without the
consent of each holder affected thereby, 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 or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any notes, or change the date on which any notes may be
subject to redemption, or reduce the redemption price therefor;
(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 in principal amount of
notes to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Advanced Glassfiber Yarns to make and consummate a Change of Control Offer
in respect of 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
Advanced Glassfiber Yarns or any Note Guarantor in a manner that adversely
affects the rights of any holder; or
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(8) eliminate or modify in any manner a Note Guarantor's obligations with
respect to its note guarantee which adversely affects holders in any
material respect.
No amendment may be made to the subordination provisions of the indenture
that adversely affects the rights of any holder of senior Indebtedness of
Advanced Glassfiber Yarns or a Note Guarantor then outstanding unless the
holders of the senior Indebtedness, or their representative, consent to the
change.
Governing Law
The indenture provides that the indenture and the notes will be 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 thereby.
The Trustee
The indenture provides that, 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 in its exercise 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 us, to
obtain payments of claims in cases or to realize on property received in
respect of the claim as security or otherwise. Subject to the Trust Indenture
Act, the trustee will be permitted to engage in other transactions; but if the
trustee acquires any conflicting interest as described in the Trust Indenture
Act, it must eliminate the conflict or resign.
Material Definitions
The following is a summary of the material defined terms used in the
indenture. Reference is made to the indenture for the full definition of all of
these terms, as well as any other terms used in this description for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries 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 from that
Person
and in each case not Incurred in connection with, or in anticipation or
contemplation of, the acquisition, merger or consolidation. The Indebtedness
shall be deemed to have been Incurred at the time that Person becomes a
Restricted Subsidiary or at the time it merges or consolidates with Advanced
Glassfiber Yarns or a Restricted Subsidiary or at the time the Indebtedness is
assumed in connection with the acquisition of assets from that Person.
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common
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control with, the specified Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling", "controlled
by" and "under common control with" have meanings correlative of the foregoing.
Beneficial ownership of 10% or more of the Voting Stock of a Person will be
deemed to be control.
"AGY Holdings" means AGY Holdings, Inc., a Delaware corporation.
"Asset Acquisition" means:
(1) an Investment by Advanced Glassfiber Yarns or any Restricted
Subsidiary in any other Person resulting in that Person becoming a
Restricted Subsidiary, or that Person being merged with or into Advanced
Glassfiber Yarns or any Restricted Subsidiary, or
(2) the acquisition by Advanced Glassfiber Yarns or any Restricted
Subsidiary of the assets of any Person (other than a Subsidiary of Advanced
Glassfiber Yarns) which constitute all or substantially all of the assets
of that Person or comprise any division or line of business of that Person
or any other properties or assets of that Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, assignment or other transfer for value by Advanced Glassfiber Yarns
or any of its Restricted Subsidiaries, including any Sale and Leaseback
Transaction, to any Person other than Advanced Glassfiber Yarns or a Restricted
Subsidiary, including a Person that is or will become a Restricted Subsidiary
immediately after the sale, issuance, conveyance, transfer, assignment or other
transfer for value, 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 will not include,
(1) the sale, conveyance, disposition or other transfer of all or
substantially all of the assets of Advanced Glassfiber Yarns and 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 fiscal 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.
"Asset Sale Transaction" means Asset Sales and, whether or not constituting
an Asset Sale:
(1) any sale or other disposition of capital stock or other equity
interests and
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(2) any sale or other disposition excluded from the definition of Asset
Sale by clause (1) or (5) of the second sentence of that definition.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the secretary or an assistant secretary of that Person (or person
performing a similar function) to have been duly adopted by the board of
directors of that Person and to be in full force and effect on the date of that
certification, and delivered to the trustee.
"Capitalized Lease Obligations" means, as to any Person, the obligations of
that Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of those obligations at any date shall be the capitalized amount of
those obligations at that date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States government or issued by any agency of the
United States government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of their
acquisition;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any state or any public
instrumentality of any state maturing within one year from the date of
their acquisition and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc.;
(3) commercial paper maturing no more than one year from the date of its
creation and, at the time of acquisition, having a rating of at least A-1
from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of their acquisition issued by any bank organized under
the laws of the United States of America or any state of the United States
of America or the District of Columbia or any U.S. branch of a foreign bank
having at the date of their acquisition combined capital and surplus of not
less than $500.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"change of control" means the occurrence of one or more of the following
events:
(1) Prior to the first Public Equity Offering,
(a) the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate at least of 51% of the total voting power
of the Voting Stock of Advanced Glassfiber Yarns,
(b) any Permitted Holder ceases to be the "beneficial owner",
directly or indirectly, of at least 10% of the total voting power of
the Voting Stock of Advanced Glassfiber Yarns or
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(c) any "person" (as that term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner", directly or indirectly, of a percentage
of the total voting power of the Voting Stock of Advanced Glassfiber
Yarns that is equal to or greater than the percentage of the total
voting power of the Voting Stock of Advanced Glassfiber Yarns
beneficially owned, directly or indirectly, by any one Permitted
Holder, whether, in the case of each of clause (a), (b), or (c), as a
result of the issuance of securities of Advanced Glassfiber Yarns or
any parent company of Advanced Glassfiber Yarns, any merger,
consolidation, liquidation or dissolution of Advanced Glassfiber Yarns,
any direct or indirect transfer of securities by Advanced Glassfiber
Yarns or otherwise. For purposes of this clause (c) the person shall be
deemed to have "beneficial ownership" of all shares that the person has
the right to acquire, whether the right is exercisable immediately or
only after the passage of time.
For purposes of this clause (1) and clause (2) below, the Permitted Holders
will be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own, directly or
indirectly, in the aggregate at least 51% of the voting power of the Voting
Stock of the parent corporation.
(2) Subsequent to the first Public Equity Offering,
(a) any "person" (as that term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rule 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of Advanced Glassfiber Yarns and
(b) the Permitted Holders beneficially own (as defined in this clause
(2)), directly or indirectly, in the aggregate, a lesser percentage of
the total voting power of the Voting Stock of Advanced Glassfiber Yarns
than such other person.
For purposes of this clause (2):
.a person will be deemed to have "beneficial ownership" of all shares
that the person has the right to acquire, whether that right is
exercisable immediately or only after the passage of time; and
.a person will be deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if that person is
the beneficial owner, directly or indirectly, of more than 35% of the
voting power of the Voting Stock of the parent corporation and the
Permitted Holders "beneficially own", directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock
of the parent corporation.
(3) During any period of two consecutive years or, in the case this event
occurs within the first two years after the issue date, any shorter period
as shall have begun on the issue date, individuals who at the beginning of
that period constituted the board of directors of Advanced Glassfiber
Yarns, together with any new directors whose election by the board of
directors or whose nomination for election by the shareholders of Advanced
Glassfiber Yarns was approved by a vote of a majority of the directors of
Advanced Glassfiber Yarns then still in office who were either directors at
the beginning of that period or whose election or nomination for election
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was previously so approved, cease for any reason to constitute a majority
of the board of directors of Advanced Glassfiber Yarns then in office.
(4) Advanced Glassfiber Yarns consolidates with, or merges with or into,
another Person, other than Advanced Glassfiber Yarns or a Wholly Owned
Restricted Subsidiary, or Advanced Glassfiber Yarns or any of its
Restricted Subsidiaries sell, conveys, assigns, transfers, leases or
otherwise disposes of all or substantially all of the assets of Advanced
Glassfiber Yarns and its Restricted Subsidiaries (determined on a
consolidated basis for Advanced Glassfiber Yarns and its Restricted
Subsidiaries) to any Person, other than Advanced Glassfiber Yarns or any
Wholly Owned Restricted Subsidiary. The foregoing shall not apply to any
transaction where immediately after the transaction the Person or Persons
that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), immediately prior to the transaction, directly or
indirectly, a majority of the total voting power of the then outstanding
Voting Stock of Advanced Glassfiber Yarns "beneficially own" (as so
determined), directly or indirectly, a majority of the total voting power
of the then outstanding Voting Stock of the surviving or transferee Person.
For purposes of this clause (4), a Person shall be deemed to have
"beneficial ownership" of all securities that that Person has the right to
acquire, whether the right is exercisable immediately or only after the
passage of time.
(5) Compagnie Saint-Gobain, a corporation organized under the laws of
France, becomes an Affiliate of GHC if that affiliation results in the
termination of the various intellectual property agreements between Owens
Corning and Advanced Glassfiber Yarns.
(6) The Non-Compete Agreement ceases to be in full force and effect at
any time prior to September 30, 2003.
"Change of Control Offer" has the meaning set forth under "Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "Change of
Control."
"Consolidated EBITDA" means, for any period, Consolidated Net Income for that
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" means, as of any date of
determination, the ratio of the aggregate amount of Consolidated EBITDA for the
four most recently ending full fiscal quarters for which financial statements
are available prior to the date of that determination to Consolidated Fixed
Charges for the four quarter period. In addition to the foregoing, for purposes
of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated after giving effect on a pro forma basis for the period of
the calculation to:
(1) the Incurrence or repayment of any Indebtedness of Advanced
Glassfiber Yarns or any of its Restricted Subsidiaries and the application
of the proceeds of the Indebtedness, including
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the Incurrence of any Indebtedness and the application of the proceeds of
the Indebtedness giving rise to the need to make that determination,
occurring during or after the four quarter period and on or prior to that
date of determination, as if the Incurrence or repayment, as the case may
be, and the application of the proceeds of the Indebtedness, occurred on
the first day of the four quarter period and
(2) any Asset Sale Transactions or Asset Acquisitions occurring during
the four quarter period or at any time subsequent to the last day of the
four quarter period and on or prior to that date of determination, as if
the Asset Sale Transaction or Asset Acquisition, including the Incurrence
of that Acquired Indebtedness, occurred on the first day of the four
quarter period.
If Advanced Glassfiber Yarns or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the Incurrence of the guaranteed Indebtedness as if
Advanced Glassfiber Yarns or any of its Restricted Subsidiaries had directly
Incurred that guaranteed Indebtedness. The foregoing shall also include any
Asset Acquisition giving rise to the need to make that determination as a
result of Advanced Glassfiber Yarns or one of its Restricted Subsidiaries,
including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition, Incurring Acquired Indebtedness by giving pro forma effect
to any Consolidated EBITDA; so long as the pro forma Consolidated EBITDA shall
be calculated in a manner consistent with the exclusions in the definition of
"Consolidated Net Income" but without giving effect to clause (3) of the
definition of Consolidated Net Income attributable to the assets which are the
subject of the Asset Sale Transaction or Asset Acquisition during the four
quarter period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the date of determination and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on that Indebtedness in effect on the
date of determination;
(2) if interest on any Indebtedness actually Incurred on the date of
determination 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) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent the interest is covered by Hedging
Obligations, will be deemed to accrue at the rate per annum resulting after
giving effect to the operation of the agreements.
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:
. for the fiscal quarter ending December 31, 1998, Consolidated EBITDA and
Consolidated Fixed Charges shall equal Consolidated EBITDA and
Consolidated Fixed Charges, respectively, for the fiscal quarter;
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. for the fiscal quarter ending March 31, 1999, Consolidated EBITDA and
Consolidated Fixed Charges shall equal Consolidated EBITDA and
Consolidated Fixed Charges, respectively, for the two fiscal quarters
then ending; and
. for the fiscal quarter ending June 30, 1999, Consolidated EBITDA and
Consolidated Fixed Charges shall equal Consolidated EBITDA and
Consolidated Fixed Charges, respectively, for the three fiscal quarters
then ending.
"Consolidated Fixed Charges" means, for any period, the sum, without
duplication, 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, with respect to Advanced Glassfiber
Yarns for any period, 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.
"Consolidated Interest Expense" means, for any period, the sum of, without
duplication:
(1) the aggregate of cash and non-cash interest expense of Advanced
Glassfiber Yarns and its Restricted Subsidiaries for that period determined
on a consolidated basis in accordance with GAAP, and in any event shall
include, whether or not determined to be interest expense in accordance
with GAAP:
(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 in
respect of letters of credit or bankers' acceptances and
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(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, for any period, the aggregate net income or
loss of Advanced Glassfiber Yarns and its Restricted Subsidiaries for that
period on a consolidated basis, determined in accordance with GAAP; but there
will be excluded therefrom:
(1) net after-tax gains and losses (assuming for tax purposes that no
special allocations are made to any member of Advanced Glassfiber Yarns
under Section 743 of the Code) from Asset Sale Transactions or abandonments
of reserves relating thereto,
(2) net after-tax items (assuming for tax purposes that no special
allocations are made to any member of Advanced Glassfiber Yarns under
Section 743 of the Code) 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 the issue date and
(7) all gains and losses from the cumulative effect of any change in
accounting principles.
"Consolidated Non-cash Charges" means, for any period, 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.
"Currency Agreement" means, in respect of any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which that
Person is a party.
"Default" means an event or condition the occurrence of which, with the lapse
of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means:
(1) in respect of Advanced Glassfiber Yarns,
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(a) the senior credit facility; and
(b) any other senior Indebtedness of Advanced Glassfiber Yarns which,
at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the
holders of the Indebtedness are committed to lend up to, at least $25.0
million and is specifically designated by Advanced Glassfiber Yarns in
the instrument evidencing or governing the senior Indebtedness as
"Designated Senior Indebtedness;" and
(2) in respect of any Note Guarantor,
(a) the senior credit facility;
(b) any guarantee by that Note Guarantor of Indebtedness of Advanced
Glassfiber Yarns referred to in clause (1); and
(c) any other senior Indebtedness of that Note Guarantor which, at
the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the
holders of the senior Indebtedness are committed to lend up to, at
least $25.0 million and is specifically designated by that Note
Guarantor in the instrument evidencing or governing the senior
Indebtedness as "Designated Senior Indebtedness."
"Designation Amount" has the meaning set forth under "--Material Covenants--
Designation of Unrestricted Subsidiaries" above.
"Disqualified Capital Stock" means that portion of any capital stock or other
equity interests which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder of the capital stock or other equity interests), or upon the happening
of any event, matures or is mandatorily redeemable, in connection with a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder of the capital stock or other equity interests, in any case, on or
prior to the 91st day after the final maturity date of the notes.
"Fair Market Value" means, with respect to any asset, the price, after taking
into account any liabilities relating to the asset, which could be negotiated
in an arm's-length free market transaction, for cash, between a willing seller
and a willing and able buyer, neither of which is under any compulsion to
complete the transaction; but the Fair Market Value of any asset or assets may
be determined conclusively by the board of directors of Advanced Glassfiber
Yarns acting in good faith, and shall be evidenced by a Board Resolution.
"Foreign Subsidiary" means, with respect to any Person, any direct or
indirect Subsidiary of that Person that is organized under the laws of any
jurisdiction outside the United States or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by another
entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect as of the issue date.
"GHC" means Glass Holdings Corp., a Delaware corporation.
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"GPI" means Groupe Porcher Industries, a corporation organized under the laws
of France.
"Guaranteed Obligations" has the meaning set forth under "Note Guarantees."
"Hedging Obligations" means the obligations of any Person under any Interest
Rate Agreement or Currency Agreement.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, including by conversion, exchange or
otherwise, assume, guarantee or otherwise become liable in respect of that
Indebtedness or other obligation on the balance sheet of that Person.
Indebtedness of any Person or any of its Subsidiaries existing at the time that
Person becomes a Restricted Subsidiary or is merged into or consolidated with
Advanced Glassfiber Yarns or any Restricted Subsidiary, whether or not the
Indebtedness was Incurred in connection with, as a result of, or in
contemplation of, that Person becoming a Restricted Subsidiary or being merged
into or consolidated with Advanced Glassfiber Yarns or any Restricted
Subsidiary, will be deemed Incurred at the time any that Person becomes a
Restricted Subsidiary or merges into or consolidates with Advanced Glassfiber
Yarns or any Restricted Subsidiary. Accrual of interest, the accretion of
accreted value and the payment of regularly scheduled interest in the form of
additional Indebtedness of the same instrument will not be deemed to be an
Incurrence of Indebtedness for purposes of the covenant described under "--
Limitation on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication:
(1) the principal amount (or, if less, the accreted value) of all
obligations of that Person for borrowed money,
(2) principal amount (or, if less, the accreted value) of all obligations
of that Person evidenced by bonds, debentures, notes or other similar
instruments,
(3) Capitalized Lease Obligations of that Person,
(4) all obligations of that Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but 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
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted),
(5) all obligations of that Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction,
(6) guarantees and other contingent obligations of that Person in respect
of Indebtedness referred to in clauses (1) through (5) above and clause (7)
below,
(7) all Indebtedness of any other Person of the type referred to in
clauses (1) through (6) which is secured by any Lien on any property or
asset of that Person, 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 obligations under Hedging Obligations of that Person, and
(9) all Disqualified Capital Stock issued by that Person with the amount
of Indebtedness represented by the Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding
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accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price will be calculated in accordance with the terms of
the Disqualified Capital Stock as if the Disqualified Capital Stock were
purchased on any date on which Indebtedness will be required to be
determined under the indenture, and if the price is based upon, or measured
by, the fair market value of the Disqualified Capital Stock, the fair
market value will be the Fair Market Value of the Disqualified Capital
Stock.
"Independent Financial Advisor" means an accounting firm, appraisal firm,
investment banking firm or consultant to Persons engaged in a Permitted
Business, in each case, of nationally recognized standing that is, in the
judgment of Advanced Glassfiber Yarns' board of directors, qualified to perform
the task for which it has been engaged and which is independent in connection
with the relevant transaction.
"Interest Rate Agreement" of any Person means any interest rate protection
agreement, including interest rate swaps, caps, floors, collars, derivative
instruments and similar agreements, and/or other types of interest hedging
agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit, including a guarantee, or capital contribution to
(by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), 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
issued by, any Person. "Investment" shall exclude accounts receivable or
deposits arising in the ordinary course of business.
For purposes of the "--Limitation on Restricted Payments" covenant,
(1) "Investment" will include and be valued at the Fair Market Value of
the net assets of any Restricted Subsidiary at the time that the Restricted
Subsidiary is designated an unrestricted Subsidiary; but upon a
redesignation of the Subsidiary as a Restricted Subsidiary, Advanced
Glassfiber Yarns will be deemed to 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 so re-designated a
Restricted Subsidiary that is proportionate to Advanced Glassfiber
Yarns' share of the 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 (including any issuance
and sale of capital stock or other equity interests by a Restricted Subsidiary)
in a way that, after giving effect to that sale or disposition, the Restricted
Subsidiary would cease to be a Subsidiary of Advanced Glassfiber Yarns,
Advanced Glassfiber Yarns shall be deemed to have made an Investment on the
date of any the sale or disposition equal to the Fair Market Value of the
common stock of the Restricted Subsidiary not sold or disposed of.
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"issue date" means January 21, 1999.
"JH" means Jefferson Holdings, Inc., a Delaware corporation.
"JV Contract" means all supply, purchase, service and management agreements,
real property and equipment leases, co-location and space-sharing and
allocation agreements and requirements and off-take contracts and agreements
and other like agreements between or among Advanced Glassfiber Yarns and the
LLC Members and their Affiliates existing on the issue date, together with all
renewals, extensions and amendments the JV Contracts, so long as those
renewals, extensions or amendments do not materially change the rights and
obligations of Advanced Glassfiber Yarns or any of its Restricted Subsidiaries,
and all other agreements entered into after the issue date between or among
Advanced Glassfiber Yarns, any Subsidiary of Advanced Glassfiber Yarns, the LLC
Members and their Affiliates.
"Keep-Well Agreement" means the Keep-Well Agreement dated as of September 30,
1998, between Owens Corning and Advanced Glassfiber Yarns, as in effect on the
issue date.
"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 lease in the nature of a conditional sale or
other title retention agreement and any agreement to give any security
interest.
"LLC Members" means collectively, JH and AGY Holdings and, individually,
either of them.
"LLC Interest Sale and Purchase Agreement" means the LLC Interest Sale and
Purchase Agreement dated as of July 31, 1998 among Owens Corning, Advanced
Glassfiber Yarns and GHC, as in effect on the issue date.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by Advanced Glassfiber Yarns or any of its Restricted Subsidiaries
from the Asset Sale, net of:
(1) reasonable out-of-pocket expenses and fees relating to the Asset
Sale, including legal, accounting and investment banking fees and sales
commissions,
(2) the amount of tax distributions reasonably estimated to be required
to be made to JH and AGY Holdings as a result of the Asset Sale within two
years of the date of the Asset Sale,
(3) repayment of Indebtedness that is required to be repaid in connection
with the Asset Sale, and
(4) appropriate amounts to be provided by Advanced Glassfiber Yarns or
any Restricted Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with the Asset Sale and
retained by Advanced Glassfiber Yarns or any Restricted Subsidiary, as the
case may be, after the Asset Sale, including, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with the Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "--Material Covenants--
Limitation on Asset Sales."
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"Net Proceeds Offer Payment Date" has the meaning set forth under "--Material
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--Material
Covenants--Limitation on Asset Sales."
"Non-Compete Agreement" means the Non-Compete Agreement dated as of September
30, 1998, by and among GPI, GHC, Owens Corning and Advanced Glassfiber Yarns,
as in effect on the issue date.
"Note Guarantor" has the meaning set forth in the introduction to this
"Description of Exchange Notes."
"obligations" means, with respect to any Indebtedness, any principal,
interest, including, Post-Petition Interest, penalties, fees, indemnifications,
reimbursements, including, in the case of the notes and the note guarantees in
respect of the foregoing, damages, and other liabilities payable under the
documentation governing the Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the chief executive officer, the president or any vice president of
that Person and the chief financial officer or any treasurer of that Person,
that shall comply with applicable provisions of the indenture.
"Operating Agreement" means the Amended and Restated Limited Liability
Company Operating Agreement for Advanced Glassfiber Yarns dated as of September
30, 1998, by and between JH and AGY Holdings, as in effect on the issue date.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the trustee. The counsel may be an employee of or
counsel to Advanced Glassfiber Yarns or the trustee.
"Permitted Business" means the business or businesses conducted by Advanced
Glassfiber Yarns and its Restricted Subsidiaries as of the issue date and any
business ancillary or complementary or reasonably related thereto.
"Permitted Holders" means any of Owens Corning and its Affiliates and GHC and
GPI and their Affiliates.
"Permitted Indebtedness" means, without duplication, 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 note guarantees in
respect of the notes and exchange notes;
(2) guarantees by any Note Guarantor of Indebtedness of Advanced
Glassfiber Yarns other than the notes; if the guarantee is of Subordinated
Indebtedness, then the note guarantee of that Note Guarantor shall be
senior to that Note Guarantor's guarantee of the Subordinated Indebtedness;
(3) Indebtedness Incurred under the senior credit facility in an
aggregate principal amount at any time outstanding not to exceed $315.0
million, including any amounts Incurred under clause (14) of this
definition, less the amount of any permanent prepayments of Indebtedness
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made with the Net Cash Proceeds of an Asset Sale in connection with the
third sentence under "--Material Covenants--Limitation on Asset Sales;"
(4) other Indebtedness of Advanced Glassfiber Yarns and its Restricted
Subsidiaries outstanding on the issue date, reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(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,
in each case subject to no Lien securing Indebtedness other than Permitted
Liens; so long as, as of any date any Person other than Advanced Glassfiber
Yarns or any Note Guarantor holds any Indebtedness or holds a Lien in
respect of the Indebtedness securing Indebtedness other than Permitted
Liens, that date will be deemed the Incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of the Indebtedness;
(7) Indebtedness of Advanced Glassfiber Yarns owed to and held by any
Note Guarantor that is unsecured and subordinated in right of payment 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; so
long as of any date 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 date will be deemed the Incurrence of Indebtedness not
constituting Permitted Indebtedness by Advanced Glassfiber Yarns;
(8) Indebtedness of Advanced Glassfiber Yarns or any of its Restricted
Subsidiaries 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 of Advanced Glassfiber Yarns or any of its Restricted
Subsidiaries represented by letters of credit for the account of Advanced
Glassfiber Yarns or any Restricted Subsidiary, as the case may be, 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) Refinancing Indebtedness in respect of 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 outstanding;
(12) Indebtedness arising from agreements of Advanced Glassfiber Yarns or
a Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in
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each case, incurred in connection with the disposition of any business,
assets, or Restricted Subsidiary, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of the business, assets
or Restricted Subsidiary for the purpose of financing the acquisition; but
the maximum aggregate liability in respect of all that Indebtedness shall
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; but no more than $5.0 million of
Indebtedness permitted under this clause (13) may be Incurred by Restricted
Subsidiaries that are not Note Guarantors;
(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.
"Permitted Investments" means:
(1) Investments by Advanced Glassfiber Yarns or any Restricted Subsidiary
in any Person that is, or that result in any Person becoming, immediately
after the Investment, a Restricted Subsidiary or constituting a merger or
consolidation of that Person into Advanced Glassfiber Yarns or with or into
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 the issue date, but not Investments involving additional advances,
contributions or other investments of cash or property or other increases
of the Investments, 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 the issue date;
(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, including compensation or
employee benefit arrangements with any officer or director of Advanced
Glassfiber Yarns or any Subsidiary of Advanced Glassfiber Yarns permitted
under the covenant described under "--Material Covenants--Transactions with
Affiliates";
(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, and, in each case, extensions, modifications and renewals of the
Investments;
(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 made
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in compliance 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 that may at the time be outstanding, to substantially
the same extent as, or to a greater extent than, the notes are subordinated
as provided in the indenture, in any event in connection with a court order
so providing and as to which:
(a) the rate of interest on those securities will not exceed the
effective rate of interest on the notes on the issue date,
(b) those securities will not be 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 the
issue date, and
(c) those securities will not provide for amortization, including
sinking fund and mandatory prepayment provisions, commencing prior to
the date six months following the final scheduled maturity date of the
senior Indebtedness (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 the reserve or other appropriate
provision, if any, as shall be required by GAAP, will have been made in
respect of the foregoing;
(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, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government performance
and return-of-money bonds and other similar obligations exclusive of
obligations for the payment of borrowed money;
(3) any interest or title of a lessor under any Capitalized Lease
Obligation; as 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 will not exceed the cost
of that property and shall not be secured by any property of Advanced
Glassfiber Yarns or any Restricted Subsidiary other than the property
so acquired and
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(b) the Lien securing the Indebtedness will created within 90 days of
the acquisition;
(5) Liens upon specific items of inventory or other goods and proceeds of
any Person securing that Person's obligations in respect of bankers'
acceptances issued or created for the account of that Person 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 and products and proceeds of the documents and
other property;
(7) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Advanced
Glassfiber Yarns or a Restricted Subsidiary, including rights of offset and
set-off;
(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 the issue date and Liens to secure any Refinancing
Indebtedness which is Incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the covenant described under "--Material
Covenants--Limitation on Liens" and which Indebtedness 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 Indebtedness Refinanced by the Refinancing
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 at the time of and
prior to the Incurrence of that Acquired Indebtedness by Advanced
Glassfiber Yarns or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of the Incurrence of that Acquired
Indebtedness by Advanced Glassfiber Yarns or a Restricted Subsidiary
and
(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.
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"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision of a governmental agency.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any insolvency or liquidation proceeding in accordance with and
at the contract rate, including any rate applicable upon default, specified in
the agreement or instrument creating, evidencing or governing any Indebtedness,
whether or not, under applicable law or otherwise, the claim for that interest
is allowed as a claim in the insolvency or liquidation proceeding. Post
Petition Interest shall also include any interest that would accrue but for the
commencement of any insolvency or liquidation proceeding.
"Preferred Stock" of any Person means any capital stock or other equity
interests of that Person that has preferential rights over any other capital
stock or other equity interests of that Person with respect to dividends or
redemptions or upon liquidation.
"Public Equity Offering" has the meaning set forth under "Redemption."
"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; but the aggregate principal amount of that Indebtedness shall 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.
"Qualified Capital Stock" means any capital stock or other equity interests
that is not Disqualified Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, that security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Advanced Glassfiber Yarns
or any Restricted Subsidiary, to the extent that the Refinancing does not:
(1) result in an increase in the aggregate principal amount of the
Indebtedness of that Person as of the date of the proposed Refinancing,
plus the amount of any premium required to be paid under the terms of the
instrument governing that Indebtedness and plus the amount of reasonable
expenses incurred by Advanced Glassfiber Yarns in connection with that
Refinancing or
(2) create Indebtedness with
(a) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced
or
(b) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced;
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so long as:
(1) the Indebtedness being Refinanced is Indebtedness of Advanced
Glassfiber Yarns, then the Refinancing Indebtedness will be Indebtedness of
Advanced Glassfiber Yarns,
(2) the Indebtedness being Refinanced is Indebtedness of a Note
Guarantor, then the Refinancing Indebtedness will be Indebtedness of
Advanced Glassfiber Yarns and/or the Note Guarantor, and
(3) the Indebtedness being Refinanced is subordinate or junior to the
notes or any note guarantee, then the Refinancing Indebtedness will be
subordinate to the notes or the note guarantee at least to the same extent
and in the same manner as the Indebtedness being Refinanced.
"Replacement Assets" has the meaning set forth under "--Material Covenants--
Limitation on Asset Sales."
"Representative" means any trustee, agent or representative, if any, for an
issue of senior Indebtedness of Advanced Glassfiber Yarns.
"Restricted Payment" has the meaning set forth under "--Material Covenants--
Limitation on Restricted Payments."
"Restricted Subsidiary" of Advanced Glassfiber Yarns means any Subsidiary of
Advanced Glassfiber Yarns which at the time of determination is not an
unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which that Person is a party providing for the leasing to
Advanced Glassfiber Yarns or a Restricted Subsidiary of any property, whether
owned by Advanced Glassfiber Yarns or any Restricted Subsidiary at the issue
date or later acquired, which has been or is to be sold or transferred by
Advanced Glassfiber Yarns or that Restricted Subsidiary to that Person or to
any other Person by whom funds have been or are to be advanced on the security
of the property.
"senior credit facility" means the Credit Agreement dated as of September 30,
1998, by and between Advanced Glassfiber Yarns, the guarantors from time to
time a party thereto, the lenders from time to time a party thereto and First
Union National Bank, as agent, under which Advanced Glassfiber Yarns may, as of
the issue date, borrow up to $315.0 million in the aggregate at any one time
outstanding together with the documents related thereto, as those agreements
may be amended, restated, supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including adding Subsidiaries of Advanced Glassfiber
Yarns as additional borrowers or guarantors thereunder or increasing the
principal amount available thereunder) all or any portion of the Indebtedness
under the agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders.
"senior Indebtedness" means, at any date, with respect to any Person:
(1) all obligations of that Person under the senior credit facility;
(2) all Hedging Obligations of that Person;
(3) all obligations of that Person under letters of credit; and
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(4) all other Indebtedness of that Person permitted under the indenture,
including principal, premium, if any, and interest, including Post-Petition
Interest, on that Indebtedness, unless the instrument under which that
Indebtedness is Incurred expressly provides that that Indebtedness is not
senior or superior 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 renewals, extensions, modifications, amendments or refinancings of the
Indebtedness in whole or in part.
Notwithstanding the foregoing, senior Indebtedness will not include:
(1) to the extent that it may constitute Indebtedness, any Obligation for
Federal, state, local or other taxes;
(2) any Indebtedness among or 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; unless and for so long as that
Indebtedness has been pledged to secure obligations under or in respect of
senior Indebtedness;
(3) to the extent that it may constitute Indebtedness, 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 subordinate or junior in right of payment to any other
Indebtedness of Advanced Glassfiber Yarns or a Note Guarantor;
(7) to the extent that it may constitute Indebtedness, 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 of that Person; 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.
"Senior Subordinated Indebtedness" means, with respect to Advanced Glassfiber
Yarns, the notes and, with respect to any Note Guarantor, the Note Guarantor's
note guarantee and any other Indebtedness of Advanced Glassfiber Yarns or the
Note Guarantor that specifically provides that the Indebtedness is to rank pari
passu in right of payment with the notes or the note guarantee, as the case may
be, and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of Advanced Glassfiber Yarns or the Note
Guarantor which is not senior Indebtedness.
"Significant Subsidiary" has the meaning set forth in Rule 1-02(w) of
Regulation S-X under the Securities Act.
"Stated Maturity" means, with respect to any security, the date specified in
that security as the fixed date on which the final payment of principal of that
security is due and payable, including in
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connection with any mandatory redemption provision, but excluding any provision
providing for the repurchase of that security at the option of the holder of
the security upon the happening of any contingency unless the contingency has
occurred.
"Subordinated Indebtedness" means, with respect to Advanced Glassfiber Yarns
or any Note Guarantor, any Indebtedness of Advanced Glassfiber Yarns or that
Note Guarantor which is expressly subordinated in right of payment to the notes
or that Note Guarantor's note guarantee.
"Subsidiary," with respect to any Person, means
(1) any corporation of which the outstanding capital stock or other
equity interests having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances will at the
time be owned, directly or indirectly, by that Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by that Person.
"Voting Stock" with respect to any Person, means securities of any class of
capital stock or other equity interests of that Person entitling the holders of
the capital stock or other equity interests (whether at all times or only so
long as no senior class of stock has voting power by reason of any contingency)
to vote in the election of members of the board of directors (or equivalent
governing body) of that Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect of the Indebtedness, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between that date and the making of the payment, by
(2) the then outstanding principal amount or liquidation preference, as
applicable, of the Indebtedness.
"Wholly Owned Restricted Subsidiary" of Advanced Glassfiber Yarns means any
Restricted Subsidiary of which all the outstanding capital stock or other
equity interests (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons under applicable law) are owned by Advanced Glassfiber
Yarns or any Wholly Owned Restricted Subsidiary.
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 pursuant to the exchange offer and the ownership and disposition of the
notes. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), 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
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summary is limited to investors who will hold the notes as capital assets
within the meaning of Section 1221 of the 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 (as defined below).
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.
As used herein, 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.
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Effect of Exchange Offer
There will be no U.S. federal income tax consequences to anyone exchanging an
old note for an exchange note pursuant to 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 (i.e., generally
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 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"
(i.e., at an amount less than the adjusted issue price of the note as
determined on the date of such purchase) 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 such gain or the portion of the market discount that accrued
while the old note and exchange note were held by such U.S. Holder will be
treated as ordinary interest income at the time 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 such note in a taxable transaction. If a
holder of such a note elects to include market discount in income currently,
both of the foregoing rules would not 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 provided
that:
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. 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;
. such 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
such 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 certain 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.
Upon the sale of a note to, or through, a broker, the broker must withhold
31% of the entire purchase price unless either (1) the broker determines that
the seller is a corporation or other exempt recipient or (2) the seller
provides, in the required manner, identifying information and, in the case of a
Non-U.S. Holder, certifies that such seller is a Non-U.S. Holder, and that
other conditions are met. Such a sale must also be reported by the broker to
the IRS, unless either (1) the broker determines that the seller is an exempt
recipient or (2) 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 such holder's U.S. federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS.
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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; provided 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;
and
. you are not an affiliate of ours.
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
such 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, such 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
such participating broker-dealer for use in
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connection with any such 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.
Any broker-dealer that is not a participating broker-dealer may not rely on
existing SEC interpretations set forth in no-action letters and 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 such 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;
. 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:
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. 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
. such 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 such
filing;
. any of the registration statements is not declared effective by the SEC
on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");
. we fail to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to 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 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
thereof.
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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."
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.
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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
such 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 such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the old notes that such participant has
received and agrees:
. to participate in the Automated Tender Option Program;
. to be bound by the terms of the letter of transmittal; and
. that we may enforce such agreement against such 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
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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, and which is, in each case, a member of a recognized signature
guarantee program (i.e., 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") 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 such
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
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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 such 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 such 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 (1) deliver their old
notes, the letter of transmittal or any other documents required by the letter
of transmittal to the exchange agent or (2) 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, together with the
certificate(s) representing the old notes, or a confirmation of book-
entry transfer of such 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 such 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.
114
<PAGE>
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 (the "Depositor");
. 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.
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.
115
<PAGE>
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 (1) a letter of transmittal, the
holder's tendered old notes and all other required documents or (2) 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-
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.
116
<PAGE>
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. Such 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;
. pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder; or
. pursuant to an effective registration statement under the Securities Act.
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 such 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 (within the
meaning
117
<PAGE>
of the Securities Act) 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 such sale or transfer is made pursuant to an exemption from such
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.
Any broker-dealer that is not a participating broker-dealer may not rely on
existing SEC interpretations set forth in no-action letters and 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 such 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 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
118
<PAGE>
prospectus in connection with any resale of exchange notes, and the delivery of
a prospectus, will not be deemed an admission by a 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
such 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 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.
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.
119
<PAGE>
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, even though the SEC does not require us to
do so, for so long as any notes remain outstanding, we will furnish to you and
the trustee and file with the SEC all such
ainformation, 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) 643-1501
120
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
Page
----
Reports of Independent Accountants................................... F-2
Balance Sheets as of December 31, 1998 and 1997...................... F-4
Statements of Operations for the periods October 1, 1998 to
December 31, 1998 and January 1, 1998 to September 30, 1998 and
for the years ended December 31, 1997 and 1996....................... F-5
Statements of Comprehensive Income for the periods October 1, 1998
to December 31, 1998 and January 1, 1998 to September 30, 1998 and
for the years ended December 31, 1997 and 1996....................... F-6
Statements of Cash Flows for the periods October 1, 1998 to
December 31, 1998 and January 1, 1998 to September 30, 1998 and
for the years ended December 31, 1997 and 1996....................... F-7
Notes to Financial Statements........................................ F-8
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
Consolidated Predecessor
Company Business
December 31, December 31,
1998 1997 (Note 1)
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash............................................................................................... $ 12,779 $ --
Trade receivables, less allowance of $2,823 in 1998 and $1,419 in 1997............................. 32,657 19,272
Inventories (Note 3)............................................................................... 24,691 19,168
Deferred income taxes.............................................................................. -- 4,396
Other current assets............................................................................... 217 291
-------- --------
Total current assets.............................................................................. 70,344 43,127
Deferred income taxes............................................................................... -- 5,276
Property, plant and equipment, net (Note 4)......................................................... 152,364 105,558
Intangible assets (Note 5).......................................................................... 242,148 --
Other assets........................................................................................ 613 --
-------- --------
Total assets...................................................................................... $465,469 $153,961
======== ========
Liabilities and Net Assets/Members' Interest
Current liabilities:
Current portion of long-term debt (Note 7)......................................................... $ 14,297 $ --
Accounts payable................................................................................... 9,716 11,288
Accrued liabilities (Note 6)....................................................................... 11,783 8,398
Income taxes payable............................................................................... -- 30,237
Due to Owens Corning............................................................................... 2,487 --
Other current liabilities.......................................................................... -- 5,076
-------- --------
Total current liabilities......................................................................... 38,283 54,999
Pension and other employee benefit plans (Note 10).................................................. 18,000 68,022
Long-term debt, less current portion (Note 7)....................................................... 387,901 --
-------- --------
Total liabilities................................................................................. 444,184 123,021
Members' interest (Notes 8 and 16).................................................................. 21,285 --
Net assets.......................................................................................... -- 30,940
-------- --------
Total liabilities and net assets/members' interest................................................ $465,469 $153,961
======== ========
</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>
Consolidated
Company The Predecessor Business
----------------- --------------------------------------------
Period from Period from Year Year
October 1, 1998 January 1, 1998 Ended Ended
to to December 31, December 31,
December 31, 1998 September 30, 1998 1997 1996
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales (Note 14)........................................... $63,403 $205,248 $277,357 $274,979
Cost of sales................................................. 42,952 134,820 182,366 180,343
------- -------- -------- --------
Gross margin................................................ 20,451 70,428 94,991 94,636
Selling, general and administrative expenses.................. 4,665 11,487 14,813 14,345
Amortization.................................................. 2,848 -- -- --
Restructuring costs........................................... -- 2,034 -- --
------- -------- -------- --------
Income from operations...................................... 12,938 56,907 80,178 80,291
Interest expense (Note 12).................................... 9,113 -- -- --
Other income.................................................. (450) (2,328) (2,688) (3,003)
------- -------- -------- --------
Income before provision for income taxes.................... 4,275 59,235 82,866 83,294
Provision for income taxes (Note 13).......................... -- 16,226 32,540 33,051
------- -------- -------- --------
Net income.................................................... $ 4,275 $ 43,009 $ 50,326 $ 50,243
======= ======== ======== ========
</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>
Consolidated
Company The Predecessor Business
----------------- --------------------------------------------
Period from Period from Year Year
October 1, 1998 January 1, 1998 Ended Ended
to to December 31, December 31,
December 31, 1998 September 30, 1998 1997 1996
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income.................................................... $4,275 $43,009 $50,326 $50,243
Other comprehensive income (loss):
Foreign currency translation................................ (1) 539 (935) (633)
------ ------- ------- -------
Comprehensive income.......................................... $4,274 $43,548 $49,391 $49,610
====== ======= ======= =======
</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>
Consolidated
Company The Predecessor Business
----------------- ---------------------------------------------
Period from Period from Year Year
October 1, 1998 January 1, 1998 Ended Ended
to to December 31, December 31,
December 31, 1998 September 30, 1998* 1997 1996
----------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 4,275 $ 43,009 $ 50,326 $ 50,243
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 2,753 6,394 8,305 8,233
Amortization of debt issuance costs......................... 374 -- -- --
Amortization of goodwill and other intangibles.............. 2,848 -- -- --
Pension and postretirement.................................. 900 1,912 956 411
Inventory noncash change (Note 11).......................... 1,321 -- -- --
Deferred income tax (credit) provision...................... -- (841) 2,303 1,276
Loss on disposal of property, plant and equipment........... -- -- 192 419
Alloy usage................................................. 613 2,499 3,200 3,400
Changes in assets and liabilities:
Trade receivables, net..................................... (478) (13,788) 3,463 2,445
Inventories................................................ (2,489) (3,591) 1,744 (3,377)
Other assets............................................... (34) (278) (291) --
Trade accounts payable..................................... 6,486 (468) 3,374 (1,378)
Accrued liabilities........................................ 2,250 702 (6,760) (3,675)
Income taxes payable....................................... -- (7,112) (1,538) 4,116
------- --------- -------- --------
Net cash provided by operating activities.................. 18,819 28,438 65,274 62,113
------- --------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment.................. (3,327) (13,509) (8,324) (15,314)
------- --------- -------- --------
Net cash used in investing activities...................... (3,327) (13,509) (8,324) (15,314)
------- --------- -------- --------
Cash flows from financing activities:
Proceeds from revolving loan................................ 1,000 14,000 -- --
Proceeds from bridge facility............................... -- 150,000 -- --
Proceeds from (payments on) term loans...................... (3,187) 240,000 -- --
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.............................. -- (14,940) (56,922) (46,783)
Payment of financing costs.................................. -- (6,988) -- --
------- --------- -------- --------
Net cash used in financing activities...................... (2,712) (14,940) (56,922) (46,783)
------- --------- -------- --------
Effect of exchange rate on cash............................. (1) 11 (28) (16)
------- --------- -------- --------
Net increase (decrease) in cash 12,779 -- -- --
Cash, beginning of period................................... -- -- -- --
------- --------- -------- --------
Cash, end of period......................................... $12,779 $ -- $ -- $ --
------- --------- -------- --------
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 $ -- $ -- $ --
</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, which
is typically at shipment. 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>
Period Period Year Ended Year Ended
October 1, 1998 to January 1, 1998 to December 31, December 31,
December 31, 1998 September 30, 1998 1997 1996
------------------ ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Customer A.. 22% 19% 21% 21%
Customer B.. 17% 11% 11% 10%
--- --- --- ---
39% 30% 32% 31%
=== === === ===
</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 assesses whether its goodwill and other intangible 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.
Other Income
Other income includes royalty and technical service fees, as well as proceeds
from the sale of scrap material.
F-11
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Accounting Policies--(Continued)
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.
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, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Finished goods........................... $19,491 $14,431
Materials and supplies................... 5,200 4,737
------- -------
Total inventories....................... $24,691 $19,168
======= =======
</TABLE>
4. Net Property, Plant and Equipment
Net property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Land.................................... $ 1,498 $ 1,057
Building and leasehold improvements..... 18,790 28,918
Machinery and equipment................. 96,134 189,244
Construction in progress................ 3,823 6,330
-------- --------
Gross property, plant and equipment.... 120,245 225,549
Less: accumulated depreciation......... 2,753 142,979
Alloy metals............................ 34,872 22,988
-------- --------
Net property, plant and equipment....... $152,364 $105,558
======== ========
</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,
1998 1997
------------ ------------
<S> <C> <C>
Vacation........................................... $ 3,180 $3,180
Real and personal property taxes................... 3,030 1,904
Health benefits.................................... -- 1,205
Incentive compensation............................. 2,535 331
Other.............................................. 3,038 1,778
------- ------
$11,783 $8,398
======= ======
</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
September 30, 1998 1997 1996
------------------------- ------- -------
<S> <C> <C> <C>
Service cost................... $ 1,673 $ 2,000 $ 1,800
Interest cost on projected
benefit obligation............ 5,892 7,777 7,833
Actual return on plan assets... (6,746) (8,649) (8,517)
Amortization of transition
amount........................ (420) (613) (613)
Amortization of actuarial
(gain) loss................... 1,260 654 110
Amortization of prior service
cost.......................... (765) (1,113) (1,113)
------- ------- -------
Net pension expense (credit)... $ 894 $ 56 $ (500)
======= ======= =======
</TABLE>
Assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rates......................... 6.50% 7.25% 7.75%
Return on asset......................................... 9.0% 9.0% 9.0%
Rate of compensation increase........................... 5.5% 5.0% 5.1%
</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
September 30, 1998 1997
------------------ --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period........ $112,580 $106,681
Service cost..................................... 1,673 2,000
Interest cost.................................... 5,892 7,777
Plan amendments.................................. -- --
Actuarial loss................................... 11,832 8,660
Benefit payments................................. (19,223) (12,538)
-------- --------
Benefit obligation at end of period.............. $112,754 $112,580
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
period.......................................... $110,924 $103,088
Actual return on plan assets..................... 12,436 20,374
Employer contributions........................... -- --
Benefit payments................................. (19,223) (12,538)
-------- --------
Fair value of plan assets at end of period....... $104,137 $110,924
======== ========
FUNDED STATUS
Funded status at end of period................... $ (8,617) $ (1,656)
Unrecognized net transition asset................ (3,069) (3,631)
Unrecognized net actuarial loss.................. 9,654 5,467
Unrecognized prior service costs................. (7,181) (8,201)
Adjustment for Majority Purchase................. 4,113 --
-------- --------
Net amount recognized............................ $ (5,100) $ (8,021)
======== ========
AMOUNTS RECOGNIZED IN THE
STATEMENT OF FINANCIAL POSITION
Prepaid benefit cost............................. $ -- $ --
Accrued benefit liability........................ (5,100) (8,021)
Intangible asset................................. -- --
Accumulated other comprehensive income........... -- --
-------- --------
Net amount recognized............................ $ (5,100) $ (8,021)
======== ========
</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
October 1, 1998 to January 1, 1998 to
December 31, 1998 September 30, 1998 1997 1996
------------------ ------------------ ------- -------
<S> <C> <C> <C> <C>
Service cost............ $225 $ 753 $ 900 $ 1,100
Interest cost on
projected benefit
obligation............. 175 2,864 3,780 3,591
Amortization of
transition amount...... -- -- -- --
Amortization of
actuarial (gain) loss.. -- -- -- --
Amortization of prior
service cost........... -- (2,599) (3,780) (3,780)
---- ------- ------- -------
Net pension expense..... $400 $ 1,018 $ 900 $ 911
==== ======= ======= =======
</TABLE>
Assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ------
<S> <C> <C> <C>
Weighted-average Discount rates...................... 6.50% 7.25% 7.75%
Initial health care cost trend rate.................. 4-9.5% 4-10% 4-10.5%
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
October 1, 1998 to January 1, 1998 to
December 31, 1998 September 30, 1998 1997
------------------ ------------------ --------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of period.......... $ 12,000 $ 56,700 $ 50,085
Service cost.................. 225 753 900
Interest cost................. 175 2,864 3,780
Plan amendments............... -- -- --
Actuarial loss................ -- 6,432 5,524
Expected benefit payments..... -- (3,444) (3,589)
Adjustment for Majority
Purchase..................... -- (51,305) --
-------- -------- --------
Benefit obligation at end of
period....................... $ 12,400 $ 12,000 $ 56,700
======== ======== ========
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....................... $(12,400) $(12,000) $(56,700)
Unrecognized net transition
(asset)/obligation........... -- -- --
Unrecognized net actuarial
loss......................... -- -- 4,536
Unrecognized prior service
costs........................ -- -- (6,048)
-------- -------- --------
Net amount recognized......... $(12,400) $(12,000) $(58,212)
======== ======== ========
</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>
Period Year Ended December 31,
January 1, 1998 to -----------------------
September 30, 1998 1997 1996
------------------ ----------- -----------
<S> <C> <C> <C>
U.S............................ $57,139 $ 81,129 $ 77,079
Foreign........................ 2,096 1,737 6,215
------- ----------- -----------
Total.......................... $59,235 $ 82,866 $ 83,294
======= =========== ===========
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Period Year Ended December 31,
January 1, 1998 to -----------------------
September 30, 1998 1997 1996
------------------ ----------- -----------
<S> <C> <C> <C>
Currently payable:
U.S. state and federal...... $16,229 $ 29,539 $ 29,278
Foreign..................... 838 698 2,497
Deferred:
U.S. state and federal...... (841) 2,303 1,276
------- ----------- -----------
Total provision for income
taxes....................... $16,226 $ 32,540 $ 33,051
======= =========== ===========
</TABLE>
The reconciliation between U.S. federal statutory rate and the effective
income tax rate is:
<TABLE>
<CAPTION>
Period Year Ended December 31,
January 1, 1998 to --------------------------
September 30, 1998 1997 1996
------------------ ----------- -----------
<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) -- --
--- ----------- -----------
27% 39% 40%
=== =========== ===========
</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
Company The Predecessor Business
----------------- --------------------------------------------
Period from Period from Year Year
October 1, 1998 January 1, 1998 Ended Ended
to to December 31, December 31,
December 31, 1998 September 30, 1998 1997 1996
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales
U.S.................................................... $ 47,961 $134,020 $178,768 $175,713
Canada................................................. 3,708 14,011 20,401 19,019
Europe................................................. 10,861 46,276 68,429 75,668
Asia................................................... 873 10,941 9,759 4,579
-------- -------- -------- --------
$ 63,403 $205,248 $277,357 $274,979
======== ======== ======== ========
</TABLE>
Assets by country:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
United States................................... $440,315 $142,655
Canada.......................................... 1,712 1,648
Europe.......................................... 20,021 8,721
Asia............................................ 3,421 937
-------- --------
$465,469 $153,961
======== ========
</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
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,
1998 to Year Ended
September 30, December 31,
1998 1997
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales...................................... $205,248 $277,357
Gross profit................................... 63,281 86,082
Income from operations ........................ 41,216 59,877
Net income..................................... 15,212 21,039
</TABLE>
F-26
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
(formerly Glass Yarns and Specialty Materials Business)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 $3.8 million associated with the
termination of the Subordinated Facility were written off in the first quarter
of 1999.
The 9 7/8% Senior Subordinated Notes are fully and unconditionally guaranteed
by the Company's wholly-owned subsidiary, AGY Capital Corp., which was formed
and capitalized on September 24, 1998. 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>
$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(2) 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(1)(3) 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 Statement re Computation of Ratios
21(1) Subsidiaries of the Registrant
23.1(2) 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 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) To be filed by amendment.
(3) Portions of exhibit have been omitted pursuant to a request for
confidential treatment.
(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. 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 May 6, 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. 1 to Registration Statement No. 333-72305 has been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
Chairman of the
/s/ Robert Porcher* Board of Directors May 6, 1999
- ------------------------------------
Robert Porcher
Director
/s/ Heinz J. Otto* May 6, 1999
- ------------------------------------
Heinz J. Otto
Director
/s/ Serge Piolat* May 6, 1999
- ------------------------------------
Serge Piolat
Director
/s/ Philippe Porcher* May 6, 1999
- ------------------------------------
Philippe Porcher
Director
/s/ Thurston Roach* May 6, 1999
- ------------------------------------
Thurston Roach
President
/s/ Robert B. Fisher* May 6, 1999
- ------------------------------------
Robert B. Fisher
Chief Financial
/s/ Catherine Cuisson Officer (Principal May 6, 1999
- ------------------------------------ Accounting
Catherine Cuisson 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 May 6, 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
Chairman of the
/s/ Robert Porcher* Board of Directors May 6, 1999
- -------------------------------------
Robert Porcher
Director
/s/ Heinz J. Otto* May 6, 1999
- -------------------------------------
Heinz J. Otto
Director
/s/ Serge Piolat* May 6, 1999
- -------------------------------------
Serge Piolat
Director
/s/ Philippe Porcher* May 6, 1999
- -------------------------------------
Philippe Porcher
Director
/s/ Thurston Roach* May 6, 1999
- -------------------------------------
Thurston Roach
President
/s/ Robert B. Fisher* May 6, 1999
- -------------------------------------
Robert B. Fisher
Chief Financial
/s/ Catherine Cuisson Officer (Principal May 6, 1999
- ------------------------------------- Accounting Officer)
Catherine Cuisson
/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(2) 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(1)(3) 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 Statement re Computation of Ratios
21(1) Subsidiaries of the Registrant
23.1(2) 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 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) To be filed by amendment.
(3) Portions of exhibit have been omitted pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT 12
ADVANCED GLASSFIBER YARNS LLC
STATEMENT RE COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio information)
<TABLE>
<CAPTION>
Advanced
Glassfiber Yarns
----------------
Three Nine
Months Months
Ended Ended
December 31, September 30, Year Ended December 31,
---------------- ------------- ---------------------------------
1998 1998 1997 1996 1995 1994
---------------- ------------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income from continuing operations before
income taxes 4,275 59,235 82,866 83,294 74,535 65,072
Fixed charges 9,326 898 1,076 618 457 422
--------------- ----------- ----------------------------------
13,601 60,133 83,942 83,912 74,992 65,494
=============== =========== ==================================
FIXED CHARGES:
Interest, including amortization of debt
issuance costs 9,113 -- -- -- -- --
--------------- ----------- ---------------------------------
Portion of rents representative of interest
factor 213 898 1,076 618 457 422
--------------- ----------- ---------------------------------
9,326 898 1,076 618 457 422
--------------- =========== =================================
--------------- ----------- ---------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 1.5x 67x 78x 136x 164x 155x
=============== =========== =================================
</TABLE>
<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
May 5, 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. 1 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
May 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE GLASS YARNS AND SPECIALTY MATERIALS BUSINESS, A
BUSINESS UNIT OF OWENS CORNING, FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND
1997, AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR ADVANCED
GLASSFIBER YARNS LLC FOR THE THREE MONTHS ENDED DECEMBER 31, 1998.
</LEGEND>
<CIK> 0001078420
<NAME> ADVANCED GLASSFIBER YARNS LLC
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 OCT-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 SEP-30-1998 DEC-31-1998
<CASH> 0 0 0 12,779
<SECURITIES> 0 0 0 0
<RECEIVABLES> 24,798 20,691 0 35,480
<ALLOWANCES> 1,490 1,419 0 2,823
<INVENTORY> 21,246 19,168 0 24,691
<CURRENT-ASSETS> 48,992 43,127 0 70,344
<PP&E> 246,756 248,537 0 155,117
<DEPRECIATION> 139,446 142,979 0 2,753
<TOTAL-ASSETS> 163,839 153,961 0 465,469
<CURRENT-LIABILITIES> 53,936 54,999 0 38,283
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 36,850 30,940 0 21,285
<TOTAL-LIABILITY-AND-EQUITY> 163,839 153,961 0 465,469
<SALES> 274,979 277,357 205,248 63,403
<TOTAL-REVENUES> 274,979 277,357 205,248 63,403
<CGS> 180,343 182,366 134,820 42,952
<TOTAL-COSTS> 180,343 182,366 134,820 42,952
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 9,113
<INCOME-PRETAX> 83,294 82,866 59,235 4,275
<INCOME-TAX> 33,051 32,540 16,226 0
<INCOME-CONTINUING> 50,243 50,326 43,009 4,275
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 50,243 50,326 43,009 4,275
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0
</TABLE>
