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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
GLASSTECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-32185-01 13-3440225
- -------- ----------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
Ampoint Industrial Park, 995 Fourth Street, Perrysburg, Ohio 43551
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 661-9500
Securities registered pursuant to Section 12(d) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the common stock of Glasstech, Inc. held by
non-affiliates of Glasstech, Inc. is not applicable as the common stock of
Glasstech, Inc. is privately held.
The number of shares of common stock, $.01 par value, outstanding as of
September 17, 1999 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form
10-K") including those contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") section and the attached
financial statements, in the Company's press releases and in oral statements
made by or with the approval of an authorized executive officer of the Company
constitute "forward-looking statements" as that term is defined under the
Private Securities Litigation Reform Act of 1995. These may include statements
projecting, forecasting or estimating Company performance and industry trends.
The achievement of the projections, forecasts or estimates is subject to certain
risks and uncertainties. Actual results and events may differ materially from
those projected, forecasted or estimated. The applicable risks and uncertainties
include general economic and industry conditions that affect all international
businesses, as well as matters that are specific to the Company and the markets
it serves.
General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw material price
fluctuations; currency exchange rate fluctuations; business cycles; and
political uncertainties. Specific risks to the Company include risk of recession
in the international markets and industries in which its products are sold; the
concentration of a significant portion of the Company's revenues from customers
whose equipment needs are located in the Asia-Pacific region; the concentration
of a substantial percentage of the Company's sales with a few major customers,
several of whom have significant manufacturing presence in the Asia-Pacific
region; timing of new system orders and the timing of payments due on such
orders; changes in installation schedules, which could lead to deferral of
progress payments or unanticipated production costs; new or emerging
technologies from current competitors, customers' in-house engineering
departments and others; competition from current competitors, customers'
in-house engineering departments and others; and the emergence of a substitute
for glass. In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
PART I.
ITEM 1. BUSINESS.
OVERVIEW
The Company designs and assembles glass bending and tempering (i.e.,
strengthening) systems used by glass manufacturers and processors in the
conversion of flat glass into safety glass. The Company sells its systems
worldwide, primarily to automotive glass manufacturers and processors (the
"Automotive Market") and also to architectural glass manufactures and processors
(the "Architectural Market"). The Company's systems are designed to meet
customers' safety glass production requirements for complexity, accuracy and
optical quality while simultaneously enhancing system productivity, flexibility
and cost efficiency. For the Automotive Market, the Company has developed
bending and tempering systems that meet automobile manufacturers' safety glass
specifications for current and future production models. For the Architectural
Market, the Company's energy-efficient processing systems are capable of
producing high-quality bent or flat glass at output rates tailored to meet
customer-specific production requirements. As a result of the long useful life
and growing worldwide installed base of its systems, the Company is able to
complement its sale of complete systems ("Original Equipment") with the sale of
aftermarket products and services consisting of retrofits, tooling (i.e., molds
used to shape automotive glass) and replacement parts (the "Aftermarket"). The
Company's products feature proprietary technologies that have been developed
over the last 25 years and are protected by more than 700 patents and patent
application filings worldwide.
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For fiscal year ended June 30, 1999, the Company generated net revenue
and EBITDA (as defined in Footnote (d) under the heading "Selected Financial
Data") of $50.5 million and $8.2 million, respectively. Original Equipment
revenue totaled $28.9 million, or 57.1%, of the Company's total revenue for the
same period. The balance of the Company's revenue was generated through
Aftermarket sales including retrofits, tooling and replacement part sales
intended to maintain or enhance the Company's installed base of systems.
A Glasstech system performs a series of processes that bend and
strengthen flat glass in the production of safety glass products such as car
windows. In each system, flat glass supplied by glass manufacturers is conveyed
horizontally on ceramic rollers through a high temperature furnace, a bending
module and a quench module (which completes the tempering process by rapidly
cooling the heated glass). Microprocessor-based controls regulate temperature,
speed and glass location throughout the entire process. In addition, the Company
develops its own proprietary software to control the integrated system. The
modular design of a Glasstech system readily enables the Company to offer
customized systems that meet specific technical requirements of its customers.
Such a design also creates equipment retrofit and upgrade opportunities for the
Company. The Company works closely with its customers as they identify capacity
and functionality requirements for a new system and then throughout the usual 10
to 12 month order, installation and acceptance cycle to ensure satisfaction with
their completed system. Systems designed for the Automotive Market are used to
form and temper glass for automotive back, side and roof windows, as well as to
form and anneal glass used for windshields. Systems designed for the
Architectural Market process curved and flat tempered glass which are used for
skylights, insulating glass, patio doors, furniture and appliances. The Company
has an installed base of approximately 400 systems located in over 45 countries
on six continents.
BACKGROUND
The Company was founded in 1971 to manufacture flat glass tempering
systems for the Architectural Market. Building on its success in that market, in
1977 the Company delivered its first bending and tempering system used to
produce simple glass shapes for the Automotive Market. Through continued product
development programs and technological enhancements, the Company manufactured
its first bending and tempering system for complex glass shapes for the
Automotive Market in 1985. This system enables the Company's customers to bend
and form glass while it is still inside the furnace, which results in enhanced
quality, higher yields (i.e., reduced breakage and fewer defects) and more
precision in the final shape of the safety glass product.
In 1988, and again in 1989, the Company was purchased in separate
leveraged buyout transactions. In December 1992, the Company reorganized its
senior management. In May 1993, the Company filed for protection under Chapter
11 of the Federal Bankruptcy Code due to an inability to service indebtedness
incurred in the 1989 leveraged buyout transaction. While under the protection of
Chapter 11, the new management team refocused its business strategy by, among
other things, focusing on the sale of a more profitable product mix and on the
containment of costs. As a result of these efforts, a reorganization of its
senior management and a reorganization of the Company's debt under a bankruptcy
plan of reorganization, the Company emerged from Chapter 11 in January 1995.
Upon consummation of the Reorganization, the Company's debt holders converted
their debt obligations into 100% of the Company's equity, $42.0 million of 10%
Senior Notes and the right to receive certain cash payments.
In 1997, Glasstech Holding Co ("Holding") and Glasstech Sub Co. ("Sub
Co.") were formed to effect the acquisition of the Company by Key Equity Capital
Corporation ("KECC"), certain of KECC's affiliates and certain members of
management of the Company (collectively, the "Key Equity Group"). The
acquisition was consummated on July 2, 1997 pursuant to an Agreement and Plan of
Merger, dated as of June 5, 1997, among Holding, Sub Co. and the Company, as
amended (the "Merger Agreement"). Under the terms of the Merger Agreement, Sub
Co. was merged into the Company, and the Company continued as the surviving
corporation
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(the "Merger"). The aggregate consideration for the Merger was $77.9 million
(the "Purchase Price"). To finance and complete the Merger (including the
payment of related fees and expenses): (i) the Key Equity Group purchased, for
$15.0 million, all of the outstanding shares of capital stock of Holding; (ii)
Holding purchased, for $15.0 million, all of the outstanding shares of capital
stock of Sub Co. (the "Equity Contribution"); (iii) Sub Co. sold 12 3/4% Senior
Notes Due 2004 (the "Old Notes") in an aggregate principal amount of $70.0
million and the Company issued 70,000 Warrants (received from Holding) to
purchase an aggregate of 877.21 shares of Class A Common Stock of Holding
("Initial Offering"); and (iv) upon completion of the Merger, the Company, as
the surviving entity, became the obligor on the Old Notes. The Company also
entered into a new revolving credit facility (the "Credit Facility"), which is
secured by substantially all of the assets of the Company and provides for
borrowings up to $10.0 million (See Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" for current discussion of the Credit Facility). The foregoing
transactions are collectively referred to herein as the "Transactions". Holding
has no significant activities other than its investment in the Company. In
December 1997, the Company completed an exchange offer under which holders of
the Old Notes were offered the opportunity to exchange their Old Notes for the
Company's Series B 12 3/4% Senior Notes Due 2004 (the "Senior Notes") that were
identical to the Old Notes, except that the Senior Notes were issued in a
transaction registered under the Securities Act of 1933, as amended, and are not
subject to certain restrictions on transfer contained in the Old Notes and do
not provide for any registration rights.
Prior to the consummation of the Merger, the Company redeemed its
existing indebtedness at a premium, paid certain Transaction-related expenses
and remitted any remaining unrestricted cash in excess of $2.0 million to its
stockholders. Also, prior to the consummation of the Merger all existing stock
options and common stock warrants of the Company were deemed exercised and
exchanged for their pro rata share of the Purchase Price.
As a result of the Transaction, the financial position and results of
operations of the Company subsequent to the Transaction (the "Successor
Company") are not necessarily comparable to the financial position and results
of operations of the Company prior to the Transaction (the "Predecessor
Company"). Amounts reported for financial reporting purposes in fiscal 1998
represent the activity of the Successor Company beginning July 2, 1997.
THE MARKET FOR SAFETY GLASS PRODUCTS
In the United States, automobile manufacturers purchase most of their
safety glass products from independent glass manufacturers and processors,
except for DaimlerChrysler Corporation and Ford Motor Company, each of which
produces a portion of its safety glass requirements in-house. In Europe and
Asia-Pacific, the majority of automobile glass manufacturers purchase safety
glass products from independent manufacturers and processors. The Company
believes that most of the major glass manufacturers and processors are customers
of the Company.
Automotive safety glass products are formed into either simple or
complex shapes. Simple glass, which is relatively flat and has little curvature,
is required to conform to exacting physical dimensions and fracture
requirements. Significant bending technology is not required to process this
type of glass. Unlike simple glass, complex glass has a high degree of
curvature, or "bulge." The more curvature that a piece of glass has, the more
likely it is to develop optical distortions unless it is produced to precise
specifications. For this reason, it is important that the bending of complex
glass be done in a manner that produces consistent, repeatable results subject
to minimal process variation.
In the Automotive Market, the majority of side, back and roof windows
consist of a single piece of
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tempered glass. The majority of windshields are of laminated construction, which
requires the insertion of a plastic layer between two pieces of annealed glass.
In the Architectural Market, the most common architectural glazing
product worldwide is flat tempered glass. Such glass is used for building
windows, patio doors, shower enclosures, display cases, furniture glass and
appliance glass.
The Company believes that a future trend in the Automotive Market will
be that of increasing use of additional laminated glass for sidelites and
backlites. If this trend materializes, it will mean the use of more glass in
cars since laminated glass requires the use of two pieces of glass where one is
now used for each sidelite and backlite. If this trend develops, it may increase
the need for the Company's equipment.
THE SAFETY GLASS PRODUCTION PROCESS
The Company's systems process flat glass produced by glass
manufacturers into safety glass. The Company designs and assembles Original
Equipment systems that bend and temper flat glass for automotive, industrial and
architectural applications. The Company also designs and assembles systems that
anneal (rather than temper) glass for use in the production of laminated glass
for products such as automotive windshields. The basic fabrication process
involves placing a piece of glass horizontally on a conveyor of ceramic rollers
that transfers the glass through a furnace where it is heated to the desired
temperature. If the glass then requires bending, it generally will be bent into
either a simple or complex shape. The glass is then moved into the quench where,
depending upon the desired end product, it is either tempered or annealed.
Heating Process. Traditionally, all Glasstech systems heated glass with
electric radiant heat ("ERH"). As an alternative, the Company introduced
gas-fired forced convection heat ("FCH") which was developed in conjunction with
the Gas Research Institute ("GRI"). FCH is currently available for sale in the
Automotive and Architectural Markets and offers customers significant advantages
over ERH technology. For example, FCH can be more cost-effective than ERH,
because gas often is less expensive than electricity. In addition, FCH can heat
glass with special coatings faster and more uniformly than ERH, resulting in
lower production costs, faster outputs and higher quality glass. In spite of
FCH's significant advantages, not all product applications justify the
additional capital expense of an FCH furnace. Accordingly, the Company expects
to continue to offer systems with ERH.
Bending Process. Glasstech systems generally bend glass into simple and
complex shapes through one of three techniques. The gravity-sag technique
creates simple shapes by placing a piece of glass on a ring, heating it to its
softening point and allowing the shape to form via gravity. The deep bending
technique creates complex shapes by placing the glass on a ring mold, heating it
and pressing the heated glass against a full surface area mold. The cylindrical
bending technique creates simple shapes with a single curve by placing the glass
on rollers, heating it and using a set of flexible rollers to curve the glass.
Tempering Process. Tempering is the process of strengthening heated
glass by cooling it rapidly. Tempered glass is up to five times stronger than
untempered glass and, if broken, fractures into small pieces, reducing the risk
of injury. Conversely, untempered glass will splinter and produce sharp edges.
The process the Company uses to temper safety glass is called "quenching" which
involves moving the heated glass into the quench where, through a
computer-controlled process, it is cooled with air directed on the surfaces of
the glass by an array of nozzles that diffuse air from a large blower or fan.
Glass tempered by a Glasstech system meets international fracture standards.
Annealing Process. The annealing process is a preparatory step in the
process of producing laminated glass, which is used to form most vehicle
windshields. The annealing process is similar to the tempering
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process, except that instead of cooling the glass rapidly, it is cooled much
more slowly. Annealed glass breaks more easily upon impact and, unlike tempered
glass, splinters when broken. To complete the lamination process, glass
processors and fabricators layer two pieces of annealed glass, which can be
produced by one of the Company's Original Equipment systems, around a piece of
plastic such that the annealed glass adheres to the plastic when broken. A
laminated glass product breaks relatively easily into a spider web-like pattern
without permitting the object creating the impact to break through the glass,
and any glass particles remain adhered to the plastic layer, thereby reducing
the risk of injury to the vehicle's or building's occupants.
PRODUCTS
Original Equipment-Automotive. Systems designed and assembled for the
Automotive Market process flat glass by bending and tempering it to produce
automotive side, back and roof windows and by bending and annealing flat glass
in the production of laminated glass for windshields. The Company sells four
basic systems, which are primarily differentiated by their bending techniques,
to automotive glass manufacturers and processors.
- Quick-Sag System. Introduced in the late 1970s, the Company's
quick-sag system (the "Quick-Sag System") bends and tempers glass
for side, back and roof automotive windows. Using the gravity-sag
technique, the Quick-Sag System produces high optical-quality
glass in simple shapes. Although this is the Company's oldest
system, the Quick-Sag System continues to have applications in
markets such as China, South America and other developing markets.
Such a system may be retrofitted to provide higher output deep
bending or cylindrical bending capabilities if required by the
Company's customers.
- Deep Bending System. The Company's deep bending system (the "Deep
Bending System") was first introduced in 1985 in response to
customers' demands for more complex safety glass shapes that could
not be produced by the gravity-sag technique used in the Quick-Sag
System. By using the deep-bending technique, such systems shape
glass with enhanced optical quality to precise tolerances with
deep and complex bends for automotive side and back windows. To
form different shapes of complex safety glass, the Deep Bending
System requires different sets of tooling, which the Company
offers as part of its aftermarket business.
- Cylindrical Bending System. Introduced in fiscal 1994 to produce
accurate, simple cylindrical bends using flexible rollers (rather
than tooling), the cylindrical bending system (the "Cylindrical
Bending System") produces side and roof vehicle windows that
require a simple cylindrical bend. Prior to the introduction of
this system, it generally was not cost-effective for the Company
to offer a system that produced glass with a simple cylindrical
bend because the Company was unable to compete favorably against
equipment designed in-house by the Company's customers. With the
introduction of the Cylindrical Bending System, however, the
Company now offers customers the ability to make faster
changeovers by eliminating the tooling requirements typical of its
other bending systems. This feature reduces the customers'
production costs and maximizes their system performance.
- In-line System. Unlike the movement of glass in a Quick-Sag
System or a Deep Bending System, in which glass exits from the
side of the bending module, the glass in an in-line system (the
"In-line System") travels in a straight line throughout the entire
process. An In-line System is capable of producing higher quality
glass at faster output rates and at lower costs per piece of glass
than a side-exit system. The first generation of the In-line
System was introduced in 1985. A second generation In-Line System
was placed into operation in 1995 for the production of windshield
glass. The Company recently introduced an improved version of the
In-line System that is capable of producing complex-shaped glass
for automotive windshields and back windows.
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Original Equipment-Architectural. Systems designed and assembled for
the Architectural Market process flat glass by tempering or by bending and
tempering it for applications including residential and commercial construction,
furniture, display cases, shower enclosures and appliances.
- Flat Glass Tempering Systems. The Company's initial generation of
flat glass tempering for architectural applications was introduced
in 1971. Current systems can be equipped with either ERH or FCH
heating technology. A system with FCH is more expensive initially
than one with ERH, but offers significant energy cost savings and
output advantages, particularly for reflective or low-emissivity
glass.
- Bending and Tempering Systems. Initially introduced in 1990 in
response to the demand for curved glass from the Architectural
Market, these systems are designed to shape glass of varying
thicknesses into custom-specified curves.
Original Equipment-Other. In 1992, the Company formed Stir-Melter, Inc.
("Stir-Melter"), a wholly owned subsidiary that designs and assembles a
glass-melting system that vitrifies (i.e., changes into a glass-like substance
by fusion due to heat) hazardous waste for safe disposal. Stir-Melter's systems
are rapid glass melters that employ aggressive mechanical stirring action in
combination with direct electrical heating.
Aftermarket Business. Aftermarket products and services complement the
Company's Original Equipment business. Sales in this area consist of the
following items: (i) retrofits (extensions or improvements of current systems);
(ii) tooling (complete sets of bending and tempering equipment designed to
produce specific complex-shaped glass products); (iii) ceramic rollers (used to
convey glass through the furnace); (iv) replacement parts for all the individual
system components; and (v) technical services.
- Retrofits. Retrofits are purchased by customers who want to
increase production capacity, extend bending capability, increase
system efficiency or take advantage of the latest computer and
control system developments. Typical retrofits and improvements
include: (i) extensions of heater length to increase capacity;
(ii) conversions from automotive simple bending systems to complex
bending systems, such as from a Quick-Sag System to a Deep Bending
System; (iii) quench upgrades; (iv) conversion of a
single-function system to a dual-function system, such as adding a
Cylindrical Bending System to a Quick-Sag System; and (v) computer
or control upgrades.
- Tooling. The Company's customers in the Automotive Market operate
complex bending and tempering systems that require part-dedicated
tooling equipment to produce individual vehicle window parts that
meet precise design and shape specifications. The Company's
tooling products generally include: (i) bending molds; (ii)
bending rings (to press the glass to the mold); (iii) lift jets
(to raise the glass from the conveyor to the mold); (iv) quench
rings (to transport the glass from the mold to the quench); and
(v) quenching heads (which incorporate nozzles and direct air
against the glass surface).
- Ceramic Rollers. The Company's roller hearth technology was
introduced to eliminate the marks left on glass by older vertical
systems that tempered flat glass by hanging it from tongs. The
ceramic rollers are used to convey the glass horizontally into and
through the furnace and are manufactured to strict specifications
in order to reduce distortion or markings on the glass surface.
- Replacement Parts. Both proprietary and nonproprietary parts are
offered to replace components used in Glasstech systems. Customers
are encouraged to purchase an initial consignment of replacement
parts when purchasing a new system and to maintain critical parts
in inventory throughout the life of their system.
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- Technical Services. The Company's technical services department
provides it with an important competitive advantage. The customer
service staff provides aftermarket technical support and gathers
feedback from customers regarding specific product improvement
recommendations for Glasstech systems.
PRODUCT DEVELOPMENT
The Company's Research and Development ("R&D") effort is a significant
factor in maintaining its market and technological leadership. The objective of
the Company's R&D effort is to develop new products and to improve existing
products to meet present and future market demands. The Company works closely
with its customers to identify their current and future needs, enabling it to
proactively design creative solutions to meet future industry requirements.
Development proposals are submitted to the Company's Executive Technical
Committee to be analyzed and assessed. Proposals are authorized only when the
committee is satisfied that the proposal meets customer or market needs and the
proposed program can be conducted cost-effectively with a reasonable probability
of achieving the desired level of profitability.
The Company has spent approximately $4.6 million, $4.2 million and $3.4
million (exclusive of expenditures relating to demonstration glass tempering
furnaces) in fiscal years 1997, 1998 and 1999, respectively, on the development
of new systems or on the improvement of existing systems.
MARKETING AND SALES
The Company's sales efforts are conducted by personnel operating in the
Americas, Europe (including Africa and the Middle East) and Asia-Pacific. The
Company's international sales efforts are supplemented by nonexclusive sales
agents retained on a commission basis. Commissions are paid only when sales are
confirmed and payments have been received from the customer. Glasstech Ltd., a
wholly owned subsidiary of the Company, supports the Company's sales efforts in
Europe.
The Company has installed approximately 400 systems in over 45
countries on six continents. The Company's customers include virtually all major
glass manufacturers and processors, such as DaimlerChrysler Corporation, Ford
Motor Company, Guardian Industries Corp. and PPG Industries, Inc. in the United
States; Compagnie de Saint-Gobain and Pilkington plc in Europe; Asahi Glass
Company, Central Glass Company and Nippon Sheet Glass Company in Japan; Hankuk
Glass Industry Company and Keumkang Ltd. in Korea; and Shatterprufe (Pty)
Limited in South Africa.
As part of its marketing process, the Company maintains ongoing
customer relationships that enable management to understand its customers' needs
for existing and new product capabilities. Due to the size of a Glasstech
system, from both a physical and economic perspective, a significant commitment
with respect to planning is required on the part of the Company's customers
before they order new equipment and subsequently place it into operation. As
part of this planning process, the customer involves the Company in discussions
that can last up to one or two years before an order is actually placed. At any
point in time, the Company and its customers are involved in numerous
discussions that occur between their respective management teams, technical
staffs and sales/purchasing staffs.
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The customer service staff provides aftermarket technical support and
gathers information from customers regarding specific product improvement
recommendations for Glasstech systems. Customer service representatives are also
available to the Company's customers as consultants on a per diem basis. The
Company's technical representatives train the customer's workforce to properly
operate its Glasstech system and consult on specific technical issues or
production goals. The Company's customer service department has a program that
provides customers with 24-hour troubleshooting services via telephone. In-house
computers enable the Company to simulate system problems that a customer might
experience and provide the customer with prompt solutions.
Installation of a Glasstech system typically requires 12 months from
the time the customer executes a contract to final acceptance of the system.
Completion of aftermarket sales varies with each product and can take anywhere
from 24 hours to 10 months to complete.
A substantial portion of the Company's revenue historically has been
comprised of sales to a limited number of customers. For example, in fiscal
years 1997, 1998 and 1999, Asahi Glass Company, Compagnie de Saint-Gobain,
DaimlerChrysler Corporation, Ford Motor Company, Nippon Sheet Glass Company and
Pilkington plc collectively accounted for 60.6%, 54.8% and 53.8% of total
revenue, respectively. In addition; (i) in fiscal 1997, Asahi Glass Company,
DaimlerChrysler Corporation, Nippon Sheet Glass Company and Pilkington plc each
accounted for more than 10.0% of revenue; (ii) in fiscal 1998, Asahi Glass
Company and Ford Motor Company each accounted for more than 10.0% of revenue,
and (iii) in fiscal 1999 Asahi Glass Company, Compagnie de Saint-Gobain and Ford
Motor Company each accounted for more than 10.0% of revenue.
INTERNATIONAL
The Company's revenue by geographic region is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
YEAR ENDED JUNE 30, YEARS ENDED JUNE 30,
------------------- --------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Asia-Pacific $45,276 $27,654 $14,189
Europe 5,030 11,518 10,338
Latin American 2,616 5,384 1,638
Other 1,242 1,523 385
------- ------- -------
Total Non-United States Sales 54,164 46,079 26,550
United States 22,269 23,509 23,995
------- ------- -------
Total Overall Sales $76,433 $69,588 $50,545
======= ======= =======
</TABLE>
The Company generates a substantial portion of its revenue outside of
the United States. During fiscal 1997, 1998 and 1999, approximately 59.2%, 39.7%
and 28.1% of the Company's net revenue was derived from sales of products to
customers located in the Asia-Pacific region (Australia, China, Indonesia,
Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea,
Taiwan, and Thailand).
Management believes the current economic uncertainties in the
Asia-Pacific region indicate that the timing of orders for the Company's
products will continue to be adversely affected in fiscal 2000. In fiscal 1998
and 1999, the impact of this situation was somewhat mitigated by offsetting
equipment sales to customers in other regions of the world, particularly in
Europe. However, given the inherent difficulty in predicting with certainty the
timing of contract signings and geographic areas into which equipment will be
delivered in fiscal 2000 and beyond, the ultimate severity of the impact of this
situation on the Company's financial performance in fiscal 2000 and beyond is
impossible to predict. The Company will continue to
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monitor the situation in the Asia-Pacific region. Notwithstanding the current
economic conditions in the Asia-Pacific region, the Company believes that given
world demographics and long term economic trends, the Asia-Pacific region will
continue to represent a significant market for the Company's products and it
intends to continue its presence in this area.
COMPETITION
The principal competitive factors in the Automotive Market are price
and system capabilities or specifications. The Company's primary competition in
the Automotive Market comes from either (i) the engineering departments of
certain of its customers, such as Pilkington plc and Compagnie de Saint-Gobain,
which design and build glass processing systems in-house or (ii) glass
manufacturers which process safety glass and sell it to automobile
manufacturers, such as DaimlerChrysler Corporation and Ford Motor Company, which
elect to purchase processed safety glass rather than install their own Glasstech
system. In either case, the Company primarily competes against its customers by
developing systems with greater capabilities than those currently produced
in-house. Management believes that the Company has a significant share of the
market for technologically advanced systems used to bend and temper automotive
glass into complex shapes and is the only significant independent supplier.
In the Architectural Market, there is significant competition among
manufacturers of flat glass tempering systems, but less significant competition
for bending and tempering systems. The Company's principal competitor in the
Architectural Market is Tamglass Oy of Finland, which competes against the
Company mainly in the market for flat glass tempering systems.
PATENTS AND PROPRIETARY RIGHTS
The Company protects its technology by filing patents and patent
applications in the U.S. and in major markets worldwide. It is the Company's
policy to aggressively pursue patent coverage for significant product
developments. The Company holds over 125 patents in the U.S. and more than 375
patents outside the United States. In addition, the Company has more than 225
patent application filings worldwide. Typically, within each Glasstech system,
several patents cover various controls, bending processes or other aspects of
the equipment. While management does not believe that the loss of any one patent
would have a material adverse effect on the Company's business, it believes that
the Company's patent position is material in the aggregate. In the ordinary
course of business, the Company is required to defend its patented technology
from possible or actual infringement that may occur.
The Company's patents cover a range of products and product features,
including: (i) the Quick-Sag System; (ii) the Company's complex in-furnace
bending process (used in both Deep Bending and In-line Systems); (iii) the
Cylindrical Bending System; (iv) quenching systems; (v) process controls for
systems; and (vi) other aspects of its technologies and equipment. As patents on
some of the Company's older technologies, such as the Quick-Sag System, begin to
expire, the Company continually applies for, and is generally issued, patents
relating to its newer, leading edge technologies.
The Company received funding from GRI for the development of the FCH
technology. Under an agreement with GRI, GRI retained rights to the resulting
U.S. patents. Under the GRI agreement, the Company received two exclusive patent
licenses in the U.S. One license permits the Company to use FCH technology in
systems that produce flat tempered glass (the "Flat License") and the other
license permits the Company to use FCH technology in systems that produce bent
glass (the "Bent License"). The exclusivity with respect to the Flat License and
Bent License expires in 2000 and 2005, respectively. Subject to certain
obligations to exploit FCH technology with respect to the Bent License, the
Company will continue to hold nonexclusive licenses for FCH technology for the
duration of the underlying patents. Under the terms of the GRI agreement, the
Company
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<PAGE> 11
holds the exclusive rights to the FCH patents outside of the U.S.
Substantially all Company employees execute technology agreements that
have a confidentiality provision and assign patent rights to the Company.
Members of senior management have entered into employment agreements that
contain noncompete provisions.
MATERIALS AND SUPPLY ARRANGEMENTS
The Company has reached agreement with many of its suppliers, including
most of its major suppliers, which guarantee firm pricing, generally for one
year, but do not have purchase volume requirements obligating the Company to
purchase certain quantities. Management believes that the Company has made
adequate arrangements with backup suppliers to avoid any material adverse effect
that would occur if one of its primary suppliers were unable to fill Company
orders. In fiscal 1999, the Company did not purchase more than 10% of its
materials and supplies from any one supplier.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety
of increasingly complex and stringent federal, state and local laws and
regulations, including those governing the use, storage, handling, generation,
treatment, emission, release, discharge and disposal of certain materials,
substances, and wastes, the remediation of contaminated soil and groundwater,
and the health and safety of employees (collectively, the "Environmental Laws").
As such, the nature of the Company's operations exposes it to the risk of claims
with respect to such matters and there can be no assurance that material costs
or liabilities will not be incurred in connection with such claims. Management
believes its operations and properties are in compliance in all material
respects with Environmental Laws. Based upon its experience to date, management
believes that the future cost of compliance with and liability under existing
Environmental Laws will not have a material adverse effect on the Company's
business, financial condition or operating results. However, future events, such
as the discovery of new information, changes in existing Environmental Laws or
their interpretations and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material.
EMPLOYEES
As of June 30, 1999, the Company employed 192 people compared to 273 at
June 30, 1998. The Company has no union employees, and no attempt has ever been
made to organize its workforce. Management believes that its relations with its
employees are good.
BACKLOG
The Company had a backlog (on a percentage of completion basis) of
approximately $12.1 million at June 30, 1999 as compared to approximately $34.8
million at June 30, 1998. The Company expects to complete substantially all of
this backlog by the end of fiscal 2000. The Company's backlog at August 31, 1999
was $15,242.
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<PAGE> 12
ITEM 2. PROPERTIES.
The Company's facilities are located in Perrysburg, Ohio. The Company
leases a 96,800 square foot facility that houses its offices and plant, as well
as an adjacent 43,200 square foot facility for production and storage. The
96,800 square foot facility is subject to a five-year lease that will expire on
December 31, 1999, after which the Company has an option to extend the lease for
two additional five-year periods. The 43,200 square foot building is subject to
a two-year lease that will expire on January 31, 2000. The Company also owns an
adjacent 108,000 square foot building that house R&D, tooling design, tooling
production and demonstration glass tempering furnaces. The Company believes that
its current facilities are adequate for its foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
On January 15, 1997, James E. Heider, a former executive officer of the
Company, commenced an action against the Company and Mark Christman, the
President of the Company, in the Common Pleas Court of Wood County, Ohio,
relating to the nonrenewal of his employment agreement. On July 24, 1998, the
Company was granted a motion for summary judgement on all counts. Mr. Heider
filed an appeal and on July 16, 1999, the Wood County Court of Appeals entered a
unanimous decision affirming the summary judgment granted in the Company's
favor. Mr. Heider had until August 30, 1999 to file a discretionary appeal to
the Ohio Supreme Court. Mr. Heider did not file a discretionary appeal to the
Ohio Supreme Court and the Company considers this matter resolved.
The Company is subject to other legal proceedings and claims that arise
from time to time in the ordinary course of its business. Management believes
that the amount of any ultimate liability with respect to these actions will not
have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS.
There is no established public trading market for the common stock of
the Company. The sole shareholder of the Company is Holding, a holding company
formed for the purpose of acquiring all of the outstanding stock of the Company.
Holding has no significant activities other than its investment in the Company.
The Company has not declared or paid cash dividends to Holding. The
Company anticipates that all of its earnings in the near future will be retained
for the development and expansion of its business and, therefore, does not
anticipate paying dividends on its common stock in the foreseeable future.
Declaration of dividends on the common stock will depend upon levels of
indebtedness, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions, among other
things. In addition, the agreements governing the Company's indebtedness contain
provisions that restrict the ability of the Company to pay dividends on its
common stock.
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical consolidated
financial and other data of the Company, which have been derived primarily from
the Company's audited consolidated financial statements. Amounts reported for
financial reporting purposes in fiscal 1998 represent the period from July 2,
1997 to June 30, 1998. The information presented below should be read in
conjunction with "Item 7- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Form 10-K. All dollar
amounts in this section are in thousands.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY REORGANIZED COMPANY SUCCESSOR COMPANY
------------ --------------------------------------- ----------------------
PERIOD FROM PERIOD FROM
JULY 1, 1994 JAN. 4, 1995 YEARS ENDED JUNE 30,
THROUGH THROUGH ------------------------------------------------
JAN. 3, 1995 JUN. 30, 1995 1996 1997 1998 1999
------------ ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 25,948 $ 27,854 $ 62,771 $ 76,433 $ 69,588 $ 50,545
Cost of goods sold 16,576 17,036 39,024 45,603 37,760 31,768
--------- --------- --------- --------- --------- ---------
Gross profit 9,372 10,818 23,747 30,830 31,828 18,777
Selling, general and administrative 3,430 5,105 10,724 12,866 11,035 8,632
Research and development 2,082 2,302 4,557 4,594 4,247 3,368
Amortization expense 2,512 1,203 2,407 2,306 4,356 4,243
--------- --------- --------- --------- --------- ---------
Operating profit 1,348 2,208 6,059 11,064 12,190 2,534
Interest expense -- (2,077) (4,200) (4,200) (9,643) (9,668)
Other income (expense) -net 35 784 1,541 2,263 525 352
--------- --------- --------- --------- --------- ---------
Income (loss) before items below 1,383 915 3,400 9,127 3,072 (6,782)
Reorganization items (a) (1,164) -- -- -- -- --
Income taxes not payable in cash (b) -- (445) (1,418) (2,551) (2,249) --
Federal income taxes, current -- -- (105) (78) -- --
Extraordinary gain (c) 214,773 -- -- -- -- --
Cumulative effect on prior years of
change in method of accounting for
non-pension post-retirement benefits
(1,906) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 213,086 $ 470 $ 1,877 $ 6,498 $ 823 $ (6,782)
========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA (d) $ 4,625 $ 4,109 $ 9,780 $ 14,829 $ 18,002 $ 8,242
Depreciation and amortization (e) 3,277 1,901 3,721 3,765 5,812 5,708
Capital Expenditures 480 680 2,152 990 349 47
Backlog 31,941 25,931 38,907 30,307 34,848 12,141
CASH FLOW PROVIDED BY (USED IN):
Operating activities $ 13,803 $ (1,389) $ 22,521 $ 8,973 $ 7,921 $ (4,403)
Investing activities (479) 90 (1,663) (978) (75,521) (57)
Financing activities (6,200) (3,797) 125 (5) 80,721 --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 18,649 $ 21,725 $ 27,599 $ 39,519 $ 6,538 $ 4,896
Total assets 87,952 83,808 95,977 99,364 102,919 88,662
Total debt 42,000 42,000 42,000 42,000 69,357 69,464
Shareholders' equity (f) 20,174 20,644 22,652 29,232 12,545 5,763
</TABLE>
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<PAGE> 15
(a) Reorganization items relate to the period in which the Company was
operating under the protection of Chapter 11 of the Bankruptcy Code.
(b) Income taxes not payable in cash represent the tax effect of certain
acquired temporary differences existing prior to the Transactions and
are recorded as a reduction to goodwill. Such amounts existing prior to
the Reorganization were recorded as a reduction to reorganization value
in excess of amounts allocable to identifiable assets as required by
SOP 90-7.
(c) An extraordinary gain of $214,773 was recognized on January 3, 1995
because the consideration for the discharge of pre-petition liabilities
was less than the carrying value of the recorded liabilities
discharged.
(d) EBITDA for any period means operating profit plus depreciation and
amortization. Management understands that EBITDA is an indicator
customarily used by investors to gauge a company's ability to service
its interest and principal obligations. EBITDA should not be considered
in isolation from, as a substitute for or as being more meaningful than
net income, cash flows from operating, investing and financing
activities, or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles, and should
not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA, as presented herein,
may be calculated differently by other companies and, as such, EBITDA
amounts presented herein may not be comparable to other similarly
titled measures of other companies.
(e) Depreciation and amortization does not include the amortization of
deferred financing costs, which is recorded with interest expense.
(f) The Company has not declared or paid any dividends to its shareholders.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL OVERVIEW
The Company designs and assembles glass bending and tempering (i.e.,
strengthening) systems which are used by glass manufacturers and processors in
the conversion of flat glass into safety glass. Systems are sold worldwide,
primarily to automotive glass manufacturers and processors and, to a lesser
extent, to architectural glass manufacturers and processors. Revenues generated
by the sale of new systems are referred to below as "Original Equipment."
The Company has an installed base of approximately 400 systems in over
45 countries on six continents. As a result of its installed base and the
relatively long useful life of a system, the Company also engages in sales of
aftermarket products and services (retrofit of systems with upgrades, tooling
used to shape glass parts, replacement parts and technical services). Revenues
generated by these types of products are referred to below as "Aftermarket."
In this MD&A section all dollar amounts are in thousands, unless
otherwise indicated.
REVENUES
For financial reporting purposes, the Company includes in income the
ratable portion of profits on uncompleted contracts determined in accordance
with the stage of completion measured by the percentage of costs incurred to
estimated total costs of each contract (generally, Original Equipment, system
retrofits and tooling). Unbilled amounts included in uncompleted contract
receivables represent revenues recognized in excess of amounts billed. Billings
in excess of costs and estimated earnings on uncompleted contracts represent
amounts billed in excess of revenues recognized. Revenue from sales other than
contracts (spare parts and engineering services) is recognized when the products
are shipped.
SELLING EXPENSE
The Company maintains an in-house sales staff and uses the services of
commissioned agents around the world for the sale of Original Equipment and
aftermarket products and services. In addition, the Company maintains a sales
and engineering support office in the United Kingdom. The substantial majority
of the Company's Original Equipment is sold directly to the largest glass
manufacturers and processors in the world or their affiliates.
RESEARCH AND DEVELOPMENT
The Company believes it is the technological leader in the design and
assembly of glass bending systems. The Company works with customers to identify
product needs and market requirements. Periodically, the Company enters into
joint development agreements with customers. From time to time, the Company
allocates a portion of its R&D resources to complete the transition from new
product development to new product introduction. When the Company does this,
these expenses are charged directly to the contracts relating to the
introduction of new products. The Company considers R&D expenses and new product
introductions a very integral part of its future success.
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<PAGE> 17
MANAGEMENT'S ESTIMATES RELATED TO ASIA-PACIFIC CONTRACTS
In the ordinary course of business, management continually makes
estimates on a variety of matters ranging from percentage of completion of
products to collectibility of future payments. Due to the economic uncertainties
evolving in the Asia-Pacific region toward the end of fiscal 1997, management
undertook a careful review of each contract from that region which was still
incomplete at June 30, 1997. This review led management to conclude that the
then unfolding uncertainty and instability in the Asia-Pacific region placed the
collection of the final payments on many of these contracts at significant risk.
Accordingly, management increased estimated costs on Asia-Pacific contracts by
an amount equal to the final payments due on these contracts. During the course
of fiscal 1998, the substantial majority of these contracts were completed in
due course. Subsequently, aggressive and diligent collection efforts by
management resulted in the eventual collection of the final payments owed on
these contracts. In retrospect, the ultimate collection of these payments had
the effect of deferring revenue recognition from fiscal 1997 to fiscal 1998,
with net revenues, gross profit, operating income, net income and EBITDA being
positively impacted in fiscal 1998 approximately as follows: $5,200, $5,200,
$4,100, $2,500 and $4,100, respectively. None of operating income, net income
nor EBITDA reflected the full impact of the $5,200 net revenue increase, due to
the manner in which bonuses were calculated and the changes in effective tax
rates. However, the increase in estimated costs for loss exposures related to
the Asia-Pacific region contracts at June 30, 1997 had no impact on net cash
provided by operating activities since the cash payments were scheduled to be
made, and were made, during fiscal 1998, all as originally provided in the
underlying contracts.
Management believes that the magnitude of the change in estimates
described above represented a unique situation attributed to the following
factors: (1) at the end of fiscal 1997, contracts in process from the
Asia-Pacific region represented a significant percentage of total contracts in
process, both in number of contracts and dollar exposure, and (2) the depth of
the economic uncertainty in that region at June 30, 1997. Management does not
believe that the magnitude of the changes in estimates experienced in fiscal
1998 is likely to recur. No increases in estimated costs of similar magnitude
were made either at June 30, 1998 or June 30, 1999.
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<PAGE> 18
RESULTS OF OPERATIONS
The following table presents the amounts and the percentage of total
net revenue for certain revenue and expense items for the periods indicated:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
------------------------- ----------------------------------------
YEARS ENDED JUNE 30
------------------------------------------------------------------
1997 1998 1999
----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue(a)
Original Equipment $50,237 65.7% $48,873 70.2% $28,885 57.1%
Aftermarket 26,196 34.3 20,715 29.8 21,660 42.9
------- ---- ------- ---- ------- ----
Total net revenue 76,433 100.0 69,588 100.0 50,545 100.0
Cost of goods sold(a) 45,603 59.7 37,760 54.3 31,768 62.9
------- ---- ------- ---- ------- ----
Gross profit 30,830 40.3 31,828 45.7 18,777 37.1
SG&A expense 12,866 16.8 11,035 15.8 8,632 17.1
R&D expense 4,594 6.0 4,247 6.1 3,368 6.6
Amortization expense(b) 2,306 3.0 4,356 6.3 4,243 8.4
------- ---- ------- ---- ------- ----
Operating profit $11,064 14.5% $12,190 17.5% $ 2,534 5.0%
======= ==== ======= ==== ======= ====
Amortization expense(b) 2,306 3.0 4,356 6.3 4,243 8.4
Depreciation expense 1,459 1.9 1,456 2.1 1,465 2.9
------- ---- ------- ---- ------- ----
EBITDA $14,829 19.4% $18,002 25.9% $ 8,242 16.3%
======= ==== ======= ==== ======= ====
</TABLE>
(a) Contract revenue and cost of goods sold are recognized on a percentage
completion basis measured by the percentage of costs incurred to the
estimated total costs of each contract.
(b) Amortization expense excludes the amortization of deferred financing costs
that is included with interest expense.
Fiscal Year 1999 Compared with Fiscal Year 1998
Net revenue for fiscal 1999 decreased $19,043, or 27.4%, to $50,545
from $69,588 for fiscal 1998. Original Equipment revenue decreased $19,988, or
40.9%, to $28,885 for fiscal 1999 compared to $48,873 for fiscal 1998. The
continuing economic difficulties in the Asia-Pacific and other foreign regions
have adversely impacted new contract signings of Original Equipment in fiscal
1999, resulting in a decrease in Original Equipment revenue. Aftermarket revenue
increased $945, or 4.6%, to $21,660 for fiscal 1999 from $20,715 for fiscal
1998. The increase in aftermarket revenue was the result of increased tooling
revenue partially offset by a decline in retrofit revenue. Tooling and retrofit
revenue fluctuate based on customer demands and are influenced by a variety of
factors, including economic conditions and the customers' retrofit schedules and
the timing of automotive manufacturers' design changes, which may impact the
release of tooling orders.
A significant portion of the Company's revenue is generated from
customers outside of the United States. For fiscal 1999, Original Equipment
revenue from foreign customers was $13,698 (47.4% of total Original Equipment
revenue) as compared to $31,287 (64.0% of total Original Equipment revenue) for
fiscal 1998. The percentage of aftermarket revenue from foreign customers
decreased to 59.3% of total aftermarket revenue for fiscal 1999 compared to
71.4% for fiscal 1998.
Gross profit decreased $13,051, to $18,777, or a gross margin
percentage of 37.1%, for fiscal 1999 compared to $31,828, or a gross margin of
45.7%, for fiscal 1998. The decline in the gross margin is the result of a shift
in the current product mix from higher margin automotive contracts to lower
margin architectural contracts and developmental (first of a kind) automotive
contracts, which generally carry lower margins. In
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<PAGE> 19
addition, although the Company continues to reduce and minimize its production
costs (including reductions in workforce and factory overhead) gross margins
have decreased, in part, as a result of fixed factory overhead being applied to
lower production volume.
Selling, general and administrative expenses decreased $2,403, or
21.8%, to $8,632 for fiscal 1999 from $11,035 for fiscal 1998. This decrease was
primarily the result of lower incentive compensation costs due to decreased
earnings and other cost containment measures implemented, including workforce
reductions.
Research and development expenses decreased $879, or 20.7%, to $3,368
for fiscal 1999 from $4,247 for fiscal 1999. This decrease was primarily the
result of the dedication of certain developmental resources to the completion of
certain original equipment contracts and other cost containment measures
implemented, including workforce reductions.
Operating profit decreased $9,656, or 79.2%, to $2,534 for fiscal 1999
from $12,190 for fiscal 1998. Operating profit, as a percentage of revenue, was
5.0% for fiscal 1999 as compared to 17.5% for fiscal 1998. The decrease in
operating profit was the result of the decline in gross profit partially offset
by decreases in selling, general and administrative expenses and research and
development expenses.
No income tax expense or benefit has been provided for fiscal 1999 due
to the recorded loss and the uncertainty related to the future realization of
such amounts. The effective tax rate for fiscal 1998 was 73.2%. The effective
tax rate for fiscal 1998 differs from the Company's statutory tax rate due to
the effects of certain amounts not deductible for income tax purposes,
consisting primarily of goodwill amortization. As a result of the Transaction,
amortization expense related to goodwill increased significantly, resulting in
the unusually high effective tax rate for fiscal 1998.
Net loss was $6,782 for fiscal 1999 compared to net income of $823 for
fiscal 1998. The net loss was the result of the decline in operating profit.
EBITDA, which is defined as operating profit plus depreciation and
amortization, decreased $9,760, or 54.2%, to $8,242 for fiscal 1999 from $18,002
for fiscal 1998.
Fiscal Year 1998 Compared with Fiscal Year 1997
Net revenue for fiscal 1998 decreased $6,845, or 9.0%, to $69,588 from
$76,433 for fiscal 1997. Original Equipment revenue decreased $1,364, or 2.7%,
to $48,873 for fiscal 1998 compared to $50,237 for fiscal 1997. At the end of
fiscal 1997, the Company's backlog of uncompleted contracts contained, both in
dollar amount and number of contracts, a significant number of contracts from
the Asia-Pacific region. This was due to the economic prosperity enjoyed by that
region in fiscal 1996 and, in the case of the Peoples Republic of China,
contracts signed by customers in anticipation of the tightening of import duties
on the Company's equipment which did, in fact, occur. Economic uncertainties in
the Asia-Pacific region, together with the tightening of import duties in the
Peoples Republic of China, resulted in a substantial reduction in both contract
signings and revenues in the Asia-Pacific region in fiscal 1998. This reduction
was somewhat mitigated by offsetting equipment sales to customers in other
regions of the world. In addition, the financial uncertainties which enveloped
the Asia-Pacific region in late fiscal 1997 caused the Company to change its
cost estimates with respect to contracts in the Asia-Pacific region which were
in process at the end of fiscal 1997. See "General Overview - Management's
Estimates Related to Asia-Pacific Contracts". Aftermarket revenue decreased
$5,481, or 20.9%, to $20,715 for fiscal 1998 from $26,196 for fiscal 1997. The
decrease in aftermarket revenue was due primarily to a decline in automotive
retrofit and tooling revenue which generally fluctuate based on customer demands
and are influenced by a variety of factors, including economic conditions and
the customers' retrofit schedules and the timing of automotive manufacturers'
design changes, which may
19
<PAGE> 20
impact the release of tooling orders.
A significant portion of the Company's revenue is generated from
customers outside of the United States. For fiscal 1998, Original Equipment
revenue from foreign customers was $31,287 (64.0% of total Original Equipment
revenue) as compared to $37,096 (73.8% of total Original Equipment revenue) for
fiscal 1997. The percentage of aftermarket revenue from foreign customers
increased to 71.4% of total aftermarket revenue for fiscal 1998 compared to
66.2% for fiscal 1997.
Gross profit increased $998, to $31,828, or a gross margin percentage
of 45.7%, for fiscal 1998 compared to $30,830, or a gross margin of 40.3%, for
fiscal 1997.
Selling, general and administrative expenses decreased $1,831, or
14.2%, to $11,035 for fiscal 1998 from $12,866 for fiscal 1997. This decrease
was primarily the result of decreases in directors' fees and expenses, personnel
recruitment fees and professional fees.
Research and development expenses decreased $347, or 7.6%, to $4,247
for fiscal 1998 from $4,594 for fiscal 1997. For fiscal 1998, certain
developmental engineering resources were dedicated to the completion of certain
original equipment contracts, thereby causing a reduction in research and
development expenses.
Amortization expense increased $2,050, or 88.9%, to $4,356 for fiscal
1998 from $2,306 for fiscal 1997. The increase in amortization expense resulted
from the amortization of goodwill arising from the Transaction.
Operating profit increased $1,126, or 10.2%, to $12,190 for fiscal 1998
from $11,064 for fiscal 1997. Operating profit, as a percentage of revenue, was
17.5% for fiscal 1998 as compared to 14.5% for fiscal 1997. The increase in
operating profit was the result of the increase in gross profit and decreases in
selling, general and administrative expenses and research and development
expenses.
Interest expense increased $5,443 to $9,643 for fiscal 1998 from $4,200
for fiscal 1997 as a result of the increased debt and a higher interest rate
beginning July 2, 1997. Other income, net, which is comprised primarily of
interest income, decreased $1,738 to $525 for fiscal 1998 from $2,263 for fiscal
1997 due to reduced cash balances subsequent to July 2, 1997.
The Company's effective tax rate for the period ended June 30, 1998 and
the year ended June 30, 1997 was 73.2% and 28.8%, respectively. The effective
tax rate for fiscal 1998 differs from the Company's statutory tax rate due to
the effects of certain amounts not deductible for income tax purposes,
consisting primarily of goodwill amortization. As a result of the Transaction,
amortization expense related to goodwill has increased significantly, resulting
in the increased effective tax rate in the current period. However, due to the
Company's current tax position, including available net operating loss
carryforwards, no income taxes are currently payable in cash for fiscal 1998.
Net income decreased $5,675, or 87.3%, to $823 for the period ended
June 30, 1998 compared to $6,498 for the year ended June 30, 1997. This decrease
was due to increased interest expense and the increase in the effective tax
rate.
EBITDA, which is defined as operating profit plus depreciation and
amortization, increased $3,173, or 21.4%, to $18,002 for the period ended June
30, 1998 from $14,829 for the year ended June 30, 1997.
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were significantly
impacted by the Transaction. The Company's primary sources of liquidity are
funds provided by operations and amounts available under the Credit Facility.
The Senior Notes do not require any principal payments prior to maturity. The
Credit Facility is available to fund working capital requirements as needed and
to secure standby letters of credit, which totaled $100 at June 30, 1999. The
Company had no outstanding borrowings under the Credit Facility at June 30, 1999
and the Credit Facility is secured by substantially all of the assets of the
Company. Effective June 29, 1999, the Credit Facility was amended to establish
available borrowing levels up to $10,000 (including standby letters of credit)
subject to a borrowing base of certain qualifying assets. At August 31, 1999,
the borrowing base approximated $7,500. The Company is in compliance with all
material covenants in the Senior Notes and Credit Facility as amended.
Net cash provided by operating activities can vary significantly from
quarter to quarter or year to year due to the number of new system signings and
the amount and timing of new system payments. In most instances, progress
payments on new system orders are invoiced or received in advance of revenue
recognition. When progress payments are invoiced or received in advance of such
revenue recognition, the Company increases current liabilities represented by
its billings in excess of costs and estimated earnings on uncompleted contracts.
When the revenue is earned, the Company recognizes the revenue and reduces the
billings in excess of costs and estimated earnings on uncompleted contract
balances. Net cash used by operating activities for fiscal 1999 was $4,403,
whereas for fiscal 1998, net cash provided by operating activities was $7,921.
The decrease in net cash provided by operating activities for fiscal 1999 was
due in part to fewer new system signings, the timing of new system payments and
to the interest payments totaling $8,925 made on July 1, 1998 and January 1,
1999. Only one interest payment of $4,438 was required for fiscal 1998.
The Company has a backlog (on a percentage of completion basis) at June
30, 1999 of approximately $12,141 as compared to $34,848 at June 30, 1998. The
Company expects to complete a substantial majority of this backlog within the
next 12 months. The Company's backlog at August 31, 1999 was $15,242.
Capital expenditures, including demonstration furnaces classified as
fixed assets, were $47 for fiscal 1999 compared to $349 for fiscal 1998. Future
capital expenditures, excluding demonstration furnaces, used to replace or
improve operating equipment and facilities are estimated to be less than $1,000
per year. In addition, the Company intends to make periodic replacements and
improvements on demonstration furnaces, which are used for customer
demonstrations and research and development purposes. Demonstration furnaces,
which outlive their usefulness for customer demonstrations or research and
development purposes, or both, may be refurbished and sold or put to other
applicable uses.
At June 30, 1999, the Company has net operating loss ("NOL")
carryforwards for regular and alternative minimum tax purposes of approximately
$43,094 and $39,729, respectively, which expire in the years 2009 through 2014.
These NOL's are subject to annual usage limitations.
Although the Company's ability to generate cash has been affected by
the increased interest costs resulting from the Transaction and the decline in
contract signings in fiscal 1999, management believes that internally generated
funds, together with amounts available under the Credit Facility, will be
sufficient to satisfy the Company's operating cash and capital expenditure
requirements, make required payments under the Credit Facility and make
scheduled interest payments on the Senior Notes. However, the ability of the
Company to satisfy its obligations will ultimately be dependent upon the
Company's future operating and financial performance, including increasing
contract signings, and upon its ability to renew or refinance borrowings or to
raise additional equity capital as necessary. The Company's business is subject
to rapid
21
<PAGE> 22
fluctuations due to changes in the world markets for the end products produced
by its equipment (largely in the cyclical markets of automobiles and
construction), currency fluctuations, the local economies of those countries
where users and potential users of the Company's equipment are located,
geopolitical events and other macroeconomic forces largely beyond the ability of
the Company to predict or control. Except as discussed below, management is not
currently aware of any trends, demands, commitments or uncertainties which will
or which are reasonably likely to result in a material change in the Company's
liquidity.
During fiscal 1997, 1998 and 1999, approximately 59.2%, 39.7% and 28.1%
of the Company's net revenue was derived from sales of products to customers
located in the Asia-Pacific region (Australia, China, Indonesia, Japan,
Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea,
Taiwan, and Thailand).
Management believes the current economic uncertainties in the
Asia-Pacific region indicate that the timing of orders for the Company's
products may continue to be adversely affected in fiscal 2000. However, given
the inherent difficulty in predicting with certainty the timing of contract
signings and geographic areas into which equipment will be delivered in fiscal
2000 and beyond, the continued impact of this situation on the Company's
financial performance in fiscal 2000 and beyond is impossible to predict. The
Company will continue to monitor the situation in the Asia-Pacific region.
Notwithstanding the current economic conditions in the Asia-Pacific region, the
Company believes that given world demographics and long term economic trends,
the Asia-Pacific region will continue to represent a significant market for the
Company's products and it intends to continue its presence in this area.
INFLATION
Management believes that the Company's operations have not been
adversely affected by inflation.
YEAR 2000 COMPLIANCE
Since March, 1998, the Company has had a committee reviewing issues and
problems relating to potential year 2000 problems which may arise because
computers, software and firmware programs, applications and information
technology systems (the "IT Systems") and items with embedded microchips (the
"Non-IT Systems" and, together with the IT Systems, the "Systems") only utilize
two digits to refer to a year. The Company has recognized that this year 2000
problem, may cause many of the Systems to fail or perform incorrectly because
they will not properly recognize a year that begins with "20" instead of the
familiar "19." If a computer system or software application used by the Company
or by a third party dealing with the Company fails because of the inability of
the system to properly read the year "2000," this failure could have a material
adverse effect on the Company.
The Company's review and assessment of the year 2000 problem has
focused on four primary areas: (i) the Systems and their relationship to the
Company's operations, (ii) Glasstech systems currently being used by the
Company's customers and currently being sold by the Company, (iii) compliance by
the Company's 50 largest suppliers, and (iv) compliance by the suppliers of the
Company's building and utility systems. The Company has not incurred, and does
not anticipate incurring, material costs related to year 2000 compliance.
The Systems
The Company has completed its review of the Systems, including both the
IT Systems and the Non-IT Systems. In reviewing the Systems, the Company found
that some of them were not year 2000 compliant. The Company has purchased and
installed upgraded versions of the IT Systems, including the software
22
<PAGE> 23
programs used for financial reporting, purchasing, order entry, payroll and
product design/development that the Company has been assured are year 2000
compliant by the vendors of those programs. The majority of these upgrades were
installed by December 1998 and the final upgrade will occur in October 1999. The
Company believes that, with the exception of one of its computer-aided design
("CAD") systems, its manufacturing and design operations are year 2000
compliant. The Company has completed its review of the non-compliant CAD system
and is expected to have an upgraded version operational by November 1999.
Although there can be no assurance that the Company has identified and
corrected, or will identify and correct, every year 2000 problem found in the
Systems, the Company believes that it has a comprehensive program in place to
identify and correct any such problems. The Company does have contingency plans
developed in the event of a failure in any of the systems.
Glasstech Systems
The Company assessed the year 2000 compliance of the Glasstech systems
currently in service. The Company determined that the majority of the Glasstech
systems currently in service should continue to operate after the year 2000;
however, the internal date function on certain systems may not perform properly,
which would require the end-user of a Glasstech system to make certain manual
changes to the maintenance reports printed by the system. The Company has
identified one type of software within certain Glasstech systems which, if not
properly reset, may cause this type of Glasstech system to fail. The Company has
addressed the year 2000 problems in all of the Glasstech systems currently being
sold, and has put out a service bulletin on the Glasstech systems currently in
service to inform customers of the problems. The Company has made software and
hardware upgrades available to its customers that address these problems.
Suppliers
The Company has completed a program to determine the year 2000
compliance efforts of its equipment and raw materials suppliers. The Company
sent out questionnaires to its 47 largest suppliers and the Company has received
responses from all of these suppliers. This program has not revealed any
material problems. Unfortunately, the Company cannot fully control the conduct
of its suppliers, and there can be no guarantee year 2000 problems originating
with a supplier will not occur. The Company believes that it has made adequate
arrangements with backup suppliers to avoid any material adverse effect that
would occur if one of its primary suppliers were unable to fill the Company's
orders for any reason, including as a result of year 2000 problems.
Building and Utility Suppliers
The Company has completed reviews of its building and utility systems
(gas, electrical, telephone, etc.) for the impact of the year 2000 problem.
These suppliers have stated they are year 2000 compliant. If the Company did not
receive utility service from certain of these suppliers, the Company may be
unable to produce Glasstech systems or take orders for new systems. While the
Company continues working diligently with all of its utility suppliers and has
no reason to expect that they will not be able to provide service after the year
2000, there can be no assurance that these suppliers will be able to meet the
Company's requirements. In the case of these suppliers, an acceptable
contingency plan has not yet been developed. Because of the nature of these
suppliers and the fact that they are often the only suppliers of a given service
available in the Company's geographic region, management believes that it may
prove impossible to develop an acceptable contingency plan for certain of the
building and utility systems. The failure of any such supplier to fully
remediate its systems for year 2000 compliance could cause a shut down of the
Company's manufacturing and design facility, which could impact the Company's
ability to meet its obligations to supply Glasstech systems to its customers and
could have a material adverse affect on the Company.
23
<PAGE> 24
ITEM 7(a). MARKET RISK EXPOSURES
Based on the Company's current operations and business practices, the
Company does not believe that it has any significant exposure to interest rate,
foreign currency, commodity price, or equity price market risks.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Report of Independent Auditors.........................................................................26
Consolidated Balance Sheets as of June 30, 1999 and 1998...............................................27
Consolidated Statements of Operations for the Years Ended June 30, 1999, 1998 and 1997.................28
Consolidated Statements of Shareholder's Equity for the Years Ended June 30, 1999, 1998 and 1997.......29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997.................30
Notes to Consolidated Financial Statements.............................................................31
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Glasstech, Inc.
We have audited the accompanying consolidated balance sheets of
Glasstech, Inc. as of June 30, 1999 and 1998, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
three years in the period ended June 30, 1999. Our audits also included the
Financial Statement Schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 an evaluation of the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in the notes to the consolidated financial
statements, effective July 2, 1997, the Company was acquired by Glasstech
Holding Co. The acquisition was accounted for under the purchase method of
accounting for financial reporting purposes. As a result of this acquisition,
the consolidated financial statements for the period after the acquisition are
presented on a different cost basis than that for the period before the
acquisition and, therefore, are not comparable.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Glasstech, Inc. at June 30, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
the June 30, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Toledo, Ohio
August 13, 1999
26
<PAGE> 27
GLASSTECH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
----------------------
(NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,661 $ 13,121
Accounts receivable:
Contracts:
Uncompleted, including unbilled amounts of $1,430 and $6,841 3,602 7,930
Completed 459 931
Trade, less allowance of $40 for doubtful accounts 1,469 1,144
----------------------
5,530 10,005
Inventory:
Replacement and service parts 1,999 1,656
Furnace contracts and other 1,368 2,017
----------------------
3,367 3,673
Prepaid expenses 350 350
----------------------
Total current assets 17,908 27,149
Property, plant and equipment, net 6,789 6,947
Other assets:
Patents, less accumulated amortization of $3,454 and $1,727 14,829 16,556
Goodwill, less accumulated amortization of $5,145 and $2,629 45,280 47,796
Deferred financing costs and other 3,856 4,471
----------------------
Total other assets 63,965 68,823
----------------------
$ 88,662 $ 102,919
======================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 1,710 $ 4,167
Billings in excess of costs and estimated earnings on uncompleted contracts 3,250 4,309
Accrued liabilities:
Interest 4,462 4,462
Salaries and wages 1,702 3,851
Contract costs 795 2,382
Other 1,094 1,440
----------------------
8,053 12,135
----------------------
Total current liabilities 13,013 20,611
Long-term debt 69,464 69,357
Nonpension postretirement benefit obligation 422 406
Shareholder's equity:
Common stock $.01 par value; 1,000 shares authorized, issued and
outstanding -- --
Additional capital 15,750 15,750
Retained earnings (deficit) (5,959) 823
----------------------
9,791 16,573
Shareholder's basis reduction (4,028) (4,028)
----------------------
Total shareholder's equity 5,763 12,545
----------------------
$ 88,662 $ 102,919
======================
</TABLE>
See accompanying notes.
27
<PAGE> 28
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
--------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
(NOTE 1)
<S> <C> <C> <C>
Net revenue $ 50,545 $ 69,588 $ 76,433
Cost of goods sold 31,768 37,760 45,603
--------------------------------
Gross profit 18,777 31,828 30,830
Selling, general and administrative expenses 8,632 11,035 12,866
Research and development expenses 3,368 4,247 4,594
Amortization expense 4,243 4,356 2,306
--------------------------------
Operating profit 2,534 12,190 11,064
Interest expense (9,668) (9,643) (4,200)
Other income - net 352 525 2,263
--------------------------------
(Loss) income before income taxes (6,782) 3,072 9,127
Income taxes not payable in cash -- (2,249) (2,551)
Federal income taxes, current -- -- (78)
--------------------------------
Net (loss) income $ (6,782) $ 823 $ 6,498
================================
</TABLE>
See accompanying notes.
28
<PAGE> 29
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDER'S RETAINED
----------------------- ADDITIONAL BASIS EARNINGS
SHARES AMOUNT CAPITAL REDUCTION (DEFICIT) TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY (NOTE 1)
Balance, June 30, 1996 1,000,001 $ 10 $ 20,295 $ -- $ 2,347 $ 22,652
Net income 6,498 6,498
Issuance of common stock 4,118 -- 82 82
------------------------------------------------------------------------------
Balance, June 30, 1997 1,004,119 $ 10 $ 20,377 $ $ 8,845 $ 29,232
==============================================================================
SUCCESSOR COMPANY (NOTE 1)
Issuance of common stock 1,000 $ -- $ 15,750 $ -- $ -- $ 15,750
Shareholders' basis reduction (4,028) (4,028)
Net income 823 823
------------------------------------------------------------------------------
Balance, June 30, 1998 1,000 -- 15,750 (4,028) 823 12,545
Net loss (6,782) (6,782)
------------------------------------------------------------------------------
Balance, June 30, 1999 1,000 $ -- $ 15,750 $ (4,028) $ (5,959) $ 5,763
==============================================================================
</TABLE>
See accompanying notes.
29
<PAGE> 30
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
--------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
(NOTE 1)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (6,782) $ 823 $ 6,498
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 6,343 6,447 3,764
Accretion of debt discount 107 107 --
Nonpension postretirement benefit obligation expense
in excess of payments 17 15 159
Income taxes not payable in cash -- 2,249 2,551
Other -- 7 11
Changes in assets and liabilities affecting operations:
Restricted cash -- 1,529 (111)
Accounts receivable 4,475 (2,855) 1,397
Inventory (965) 832 (1,697)
Prepaid expenses -- 86 (166)
Accounts payable (2,457) 480 (450)
Billings in excess of costs and estimated earnings
on uncompleted contracts (1,058) (6,583) (4,917)
Accrued liabilities (4,083) 4,784 1,934
--------------------------------
Net cash (used in) provided by operating activities (4,403) 7,921 8,973
INVESTING ACTIVITIES
Additions to property, plant and equipment (47) (349) (990)
Net assets purchased -- (74,796) --
Increase in long-term notes receivable -- (656) --
Proceeds on sale of demonstration furnace -- 270 --
Other (10) 10 12
--------------------------------
Net cash used in investing activities (57) (75,521) (978)
FINANCING ACTIVITIES
Issuance of long-term debt and related warrants -- 70,000 --
Issuance of common stock -- 15,000 82
Deferred financing costs -- (4,279) (87)
--------------------------------
Net cash provided by (used in) financing activities -- 80,721 (5)
(Decrease) increase in cash and cash equivalents (4,460) 13,121 7,990
Cash and cash equivalents at beginning of year 13,121 -- 43,815
--------------------------------
Cash and cash equivalents at end of year $ 8,661 $ 13,121 $ 51,805
================================
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for the following:
Interest $ 8,925 $ 4,438 $ 4,200
================================
Income taxes $ 21 $ (311) $ 337
================================
</TABLE>
See accompanying notes.
30
<PAGE> 31
GLASSTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BACKGROUND AND BASIS OF PRESENTATION
Effective July 2, 1997, Glasstech, Inc. (the "Company") was acquired by
Glasstech Holding Co. ("Holding") (the "Transaction"). In connection with the
Transaction, Holding, a holding company formed for the purpose of completing the
Transaction, formed a wholly owned subsidiary, Glasstech Sub Co. ("Sub Co.")
which acquired all of the outstanding stock of the Company. Subsequently, Sub
Co. was merged into the Company. Holding has no significant activities other
than its investment in the Company. The acquisition was accounted for under the
purchase method of accounting for financial reporting purposes and the purchase
price of approximately $77,900 has been allocated to the underlying net assets
acquired. The Transaction resulted in the Company having substantial goodwill,
increased debt and a significant reduction in cash.
As a result of the Transaction, the financial position and results of
operations of the Company subsequent to the Transaction are not necessarily
comparable to the financial position and results of operations of the Company
prior to the Transaction. In the accompanying consolidated financial statements,
the Company's results of operations prior to the Transaction are indicated as
relating to the "Predecessor Company" while the results of operations subsequent
to the Transaction are indicated as relating to the "Successor Company." Amounts
reported for financial reporting purposes in fiscal 1998 represent the activity
of the Successor Company beginning July 2, 1997.
In connection with accounting for the Transaction, the Company applied
the provisions of Emerging Issues Task Force Issue 88-16 (EITF 88-16), whereby
the carryover equity interests of certain shareholders from the Predecessor
Company to the Successor Company were recorded at their predecessor basis. As a
result, shareholder's equity of the Successor Company has been reduced by $4,028
with a corresponding reduction to the value of goodwill acquired.
The Company has two wholly owned subsidiaries, Glasstech Ltd., a
corporation in the United Kingdom, and Stir-Melter, Inc., a domestic subsidiary,
which are consolidated for financial reporting purposes. All significant
intercompany amounts and transactions have been eliminated.
The Company designs and manufactures glass bending and tempering
equipment and markets and sells such equipment worldwide to both automotive
glass fabricators and architectural glass producers. Glasstech Ltd. provides
engineering, sales, and service support in Europe, the Middle East, and Africa.
Stir-Melter, Inc. designs and markets glass-melting equipment for the treatment
of certain waste products.
31
<PAGE> 32
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
For financial reporting purposes, the Company includes in income the
ratable portion of profits on uncompleted contracts determined in accordance
with the stage of completion measured by the percentage of costs incurred to
estimated total costs of each contract. For income tax purposes, contracts are
accounted for on the inventory accrual basis, whereby income is recognized when
the customer accepts the equipment. Unbilled amounts included in uncompleted
contract accounts receivable represent revenues recognized in excess of amounts
billed. Billings in excess of costs and estimated earnings on uncompleted
contracts represent amounts billed in excess of revenues recognized.
Revenue from sales other than contracts is recognized when the products
are shipped.
CREDIT PRACTICES
Credit terms are granted to customers and periodically revised based on
evaluations of the customer's financial condition with collateral generally not
being required. In certain instances, letters of credit may be obtained to
secure payment.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method.
DEPRECIATION AND AMORTIZATION
Depreciation is based on the estimated useful lives of the assets and
is generally computed using accelerated methods. Amortization of leasehold
improvements is provided on the straight-line basis over the estimated useful
lives of the assets or the terms of the leases, whichever is shorter. The useful
lives range from 10 to 40 years for building and leasehold improvements; 3 to 12
years for machinery and equipment; 7 to 12 years for demonstration glass
tempering furnaces; and 3 to 12 years for office equipment and other.
Patents are being amortized on the straight-line basis over their
estimated useful lives of 10 to 15 years.
Goodwill is being amortized on the straight-line basis over 20 years.
Deferred financing costs are being amortized over 7 years, the length
of the underlying note agreement.
32
<PAGE> 33
2. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
MANAGEMENT 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.
At June 30, 1997, the estimated costs of contracts in the Asia Pacific
region included provisions for loss exposures related to final payments that
would be due upon completion of such contracts in fiscal year 1998. At the time
these estimates were made, the Asia Pacific region was beginning a period of
financial instability and uncertainty that placed receipt of these future final
contract payments at risk. During fiscal 1998, the Company was successful in the
collection of these final contract payments. These changes in estimates in
fiscal 1998 resulted in additional contract revenues of $5,200 for the year
ended June 30, 1998. The provisions for loss exposures related to the
Asia-Pacific region contracts at June 30, 1997 had no impact on net cash
provided by operating activities since the cash payments were scheduled to be
made, and were made, during fiscal 1998, all as originally provided in the
underlying contracts.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133) which establishes new procedures for accounting for derivatives
and hedging activities and supersedes and amends a number of existing standards.
Statement 133 is effective for fiscal years beginning after June 15, 2000.
Statement 133 is not expected to have a significant impact on the Company.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30
1999 1998
------------------
<S> <C> <C>
Cost:
Land $ 110 $ 110
Building and leasehold improvements 2,331 2,329
Machinery and equipment 1,119 1,160
Demonstration glass tempering furnaces 4,360 3,044
Office equipment 1,730 1,693
Other 9 9
------------------
9,659 8,345
Less accumulated depreciation and amortization
(2,870) (1,398)
------------------
NET PROPERTY, PLANT AND EQUIPMENT $ 6,789 $ 6,947
==================
</TABLE>
33
<PAGE> 34
4. NOTES PAYABLE AND LONG-TERM DEBT
In connection with the Transaction, the Company issued $70,000 of
12-3/4% Senior Notes due 2004 (the "Old Notes") in a private offering exempt
from registration under the Securities Act of 1933, as amended (the "1933 Act").
The offering of the Old Notes was also structured to permit resales under Rule
144 of the 1933 Act. In connection with the issuance of the Old Notes, the
Company received from Holding warrants to purchase 877 shares of common stock of
Holding valued at $750. These warrants were issued to the initial purchasers of
the Old Notes. On December 2, 1997 the Company consummated an exchange offer
(the "Exchange Offer") of its $70,000 series B 12-3/4% Senior Notes Due 2004
(the "New Notes"), which were issued in a transaction registered under the 1933
Act, for the Old Notes. The terms of the New Notes are substantially identical
to the terms of the Old Notes and as used herein, will be referred to as the
"Senior Notes." Interest on the Senior Notes is payable semi-annually on each
January 1 and July 1 beginning January 1, 1998. The terms of the Senior Notes do
not require any scheduled principal payments prior to maturity.
The Company also entered into a revolving credit facility ("Credit
Facility") in connection with the Transaction. The Credit Facility provides for
interest on outstanding borrowings at the LIBOR rate plus 2.5% (7.71% at June
30, 1999) payable semi-annually. Effective June 29, 1999, the Credit Facility
was amended to establish available borrowing levels up to $10,000 (including
standby letters of credit) subject to a borrowing base of certain qualifying
assets. At June 30, 1999, the borrowing base approximated $10,000. The Credit
Facility is available to fund working capital requirements as needed and to
secure standby letters of credit, which totaled $100 at June 30, 1999. The
Company had no outstanding borrowings under the Credit Facility at June 30,
1999. The Credit Facility is secured by substantially all of the assets of the
Company.
The Senior Notes and Credit Facility, as amended, contain numerous
financial and other covenants which include the maintenance of certain levels of
earnings as defined, restrictions on the payment of dividends, the incurrence of
additional indebtedness, and as certain types of business activities and
investments. The Company believes that it is in material compliance with all
such covenants.
At June 30, 1999 and 1998, the carrying value of this Company's
long-term debt approximated its fair value based on the Company's incremental
borrowing rates.
5. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement plans that cover
substantially all employees. Contributions for the Employees' Pension Plan,
which are based on participants' compensation, are funded annually, in arrears.
Annual expense for this Plan approximated $616, $639 and $604, for the years
ended June 30, 1999, 1998 and 1997, respectively. The Company does not match
contributions made by employees under the Employees' Savings Plan, a 401(k)
plan.
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (Statement 132) for all years presented which
supersedes previous disclosure requirements. Statement 132 addresses disclosure
issues only and does not change the measurement or recognition of assets or
liabilities.
Glasstech provides certain retiree healthcare insurance benefits to
eligible retired employees. Employees are generally eligible for benefits upon
retirement and completion of a specified number of years
34
<PAGE> 35
of creditable service. These benefits are provided at the discretion of
Glasstech and are subject to revision or termination at any time. The Company
funds such costs as they are incurred.
5. EMPLOYEE BENEFIT PLANS-CONTINUED
The components of the net periodic postretirement benefit cost for the
years ended June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Service cost (benefits earned during the
period) $ 16 $ 16 $ 117
Interest cost on accumulated
postretirement benefit obligation 32 31 128
Net amortization and deferral -- -- (55)
--------------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COST
$ 48 $ 47 $ 190
================================
</TABLE>
The changes in the accumulated postretirement benefit obligation and
amounts accrued were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
Change in accumulated postretirement
benefit obligation:
Benefit obligation, beginning of year $405 $391
Service cost 16 16
Interest cost 32 31
Actuarial loss (gain) 106 (1)
Benefits paid (32) (32)
---------------------------
BENEFIT OBLIGATION, END OF YEAR $527 $405
===========================
Funded status of plan $527 $405
Unrecognized net (loss) gain (105) 1
---------------------------
ACCRUED BENEFIT OBLIGATION $422 $406
===========================
</TABLE>
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at June 30, 1999 and 8.25% at June
30, 1998.
35
<PAGE> 36
6. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax liabilities and assets at June
30 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Deferred income tax liabilities:
Contract revenues $ (4,664) $ (5,469)
Property, plant and equipment (756) (816)
Tax basis differences on purchased assets (497) 1,006
---------------------
Total deferred income tax liabilities (5,917) (5,279)
Deferred income tax assets:
Federal income tax operating loss carryovers 16,376 13,794
Accrued liabilities and reserves 630 1,044
Other 402 321
---------------------
Total deferred income tax assets 17,408 15,159
Less valuation allowance 11,491 9,880
---------------------
Net deferred income tax assets 5,917 5,279
---------------------
TOTAL DEFERRED INCOME TAXES - NET $ -- $ --
=====================
</TABLE>
A valuation allowance has been recorded against the Company's deferred
income tax assets due to the uncertainties surrounding the realization of any
future tax benefit.
36
<PAGE> 37
6. FEDERAL INCOME TAX--CONTINUED
The consolidated effective income tax rate differs from the statutory
U. S. federal tax rate for the following reasons and by the following
percentages:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- -------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Statutory U. S. federal tax rate (34.0)% 34.0% 34.0%
Increase (reduction) in tax rate resulting
from:
Amortization of goodwill and
excess reorganization value 12.7 32.5 2.2
State income taxes - 4.3 -
Effect of increase (reduction) in
valuation reserve for deferred
income taxes 20.9 - (8.6)
Other 0.4 2.4 1.2
------------------------------------------
EFFECTIVE TAX RATE -% 73.2% 28.8%
==========================================
</TABLE>
At June 30, 1999, the Company has net operating loss carryforwards for
regular and alternative minimum tax purposes of approximately $43,094 and
$39,729, respectively, which expire in the years 2009 through 2014. Such loss
carryforwards have annual usage limitations which, if not utilized in a given
year, may be utilized in subsequent years.
Income taxes not payable in cash represent the tax effect of certain
acquired temporary differences and are recorded as a reduction to goodwill.
37
<PAGE> 38
7. LEASES
The Company leases a manufacturing and office building under a
long-term agreement. The minimum annual rental associated with this lease
through its expiration on December 31, 1999 is approximately $300. The Company
has the option to renew the lease for two additional five-year periods at
slightly higher rates. Total rental expense amounted to $300 for each of the
three years in the period ended June 30, 1999.
8. GEOGRAPHIC AND CUSTOMER INFORMATION
Effective the fourth quarter of 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131) which superseded Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise." Statement
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim and annual financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The adoption of Statement 131 did not affect results of operations or
financial position.
The Company's net revenues from external customers are derived from
glass bending and tempering equipment. The Company's net revenues from external
customers by geographic areas and customers who represent 10% or more of total
sales for 1999, 1998 and 1997 are presented below. Long-lived assets, consisting
of property, plant and equipment, patents and goodwill, located outside the
United States are not significant.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- -------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Net Revenue by Geographic Location:
United States $23,995 $23,509 $22,269
Asia-Pacific 14,189 27,654 45,276
Europe 10,338 11,518 5,030
Latin America 1,638 5,384 2,616
Other 385 1,523 1,242
---------------------------------------------
$50,545 $69,588 $76,433
=============================================
</TABLE>
38
<PAGE> 39
8. GEOGRAPHIC AND CUSTOMER INFORMATION--CONTINUED
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- --------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Major customers percentage of net revenue:
Customer A 17.7% 13.4% 12.4%
Customer B 17.3 14.9 6.3
Customer C 10.2 9.7 3.7
Customer D 5.4 5.4 14.3
Customer E 3.0 5.6 11.3
Customer F .2 5.8 12.6
</TABLE>
9. TRANSACTIONS WITH AFFILIATES
Upon consummation of the Transaction and in connection with the related
note offering of the Old Notes and the warrants, the Company paid a $1,000
financing fee to Key Equity Capital Corporation ("KECC"), a major shareholder.
In addition, the Company also entered into an advisory agreement with KECC at an
annual expense of $200 adjusted to $150 effective October 1, 1998.
In connection with the Transaction, the Company advanced $656 to
Holding. The advances were made to Holding to permit Holding to satisfy certain
obligations it entered into in connection with the Transactions.
10. LEGAL PROCEEDINGS
On January 15, 1997, James E. Heider, a former executive officer of the
Company, commenced an action against the Company and Mark Christman, the
President of the Company, in the Common Pleas Court of Wood County, Ohio,
relating to the nonrenewal of his employment agreement. On July 24, 1998, the
Company was granted a motion for summary judgment on all counts. Mr. Heider
filed an appeal and on July 16, 1999, the Wood County Court of Appeals entered a
unanimous decision affirming the summary judgment granted in the Company's
favor. Mr. Heider has until August 30, 1999 to file a discretionary appeal to
the Ohio Supreme Court.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
39
<PAGE> 40
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of the Company's
executive officers (the "Executive Management") and the directors of the Company
and Holding (the "Directors"). The officers and directors of the Company and
Holding are identical and management believes that they will continue to be
identical for the foreseeable future.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark D. Christman 47 Director, President and Chief Executive Officer
John S. Baxter 59 Senior Vice President, Marketing and Sales
Kenneth H. Wetmore 52 Vice President, General Counsel and Secretary
Ronald A. McMaster, Ph.D. 60 Vice President, Corporate Development
Diane S. Tymiak 42 Vice President, Treasurer and Chief Financial Officer
Larry E. Elliott 50 Vice President, Manufacturing
James P. Schnabel 39 Vice President, Development and Engineering
David P. Given 45 Director
John A. LeMay 33 Director
James M. Papada, III 51 Director
Edmund S. Wright 56 Director
</TABLE>
Mark D. Christman has been President and Chief Operating Officer of the
Company since December 31, 1992. Mr. Christman joined the Company in 1976, and
since that time has served in various capacities, including Vice President,
Treasurer, Chief Financial Officer and Executive Vice President. Upon the
consummation of the Transactions, Mr.
Christman was elected Director, President and Chief Executive Officer.
John S. Baxter has been Senior Vice President, Marketing and Sales,
since 1992. Mr. Baxter joined the Company in 1981 and was Managing Director of
Glasstech Ltd. from 1981 to 1992. Prior to joining the Company, Mr. Baxter was
employed by Triplex Safety Glass, a subsidiary of Pilkington plc, for five
years. From July 1997 to February 1998, Mr. Baxter was a Director.
Kenneth H. Wetmore joined the Company in 1988 as General Counsel and
was elected Secretary in 1989 and Vice President in 1991. Mr. Wetmore is also
President of Stir-Melter, Inc. Prior to joining the Company, Mr. Wetmore was
employed by Owens Corning Fiberglas Corp. for 19 years.
Ronald A. McMaster, Ph.D. has been Vice President, Corporate
Development since 1988. Dr. McMaster joined the Company in 1977 and has served
in various capacities, including Vice President, Research and Development and
Vice President, Advanced Engineering. Mr. McMaster and Mr. Christman are first
cousins.
Diane S. Tymiak has been Vice President, Treasurer and Chief Financial
Officer since 1993. Ms. Tymiak joined the Company in 1980 and has served in
various financial capacities since that time.
Larry E. Elliott joined the Company in July 1996 as Vice President and
currently serves as Vice President, Manufacturing. Prior to joining the Company,
Mr. Elliott was employed by the glass division of Ford Motor Company for 25
years, most recently as Supervisor, Fabrication Facilities Engineering.
40
<PAGE> 41
James P. Schnabel was elected Vice President in 1997 and currently
serves as Vice President Development and Engineering. Mr. Schnabel joined the
Company in 1984 and has served in various engineering capacities with the
Company since that time.
David P. Given has been President of KECC, a venture capital firm,
since 1995. Mr. Given joined KECC as a Vice President in 1990 and serves as a
director of several privately-held companies. Upon the consummation of the
Transactions, Mr. Given began to serve as Director.
John A. LeMay joined KECC, a venture capital firm, as a Vice President
in 1998. Prior to joining KECC, Mr. LeMay was employed by the Boston Consulting
Group, Inc. and Salomon Brothers, Inc. Mr. LeMay became a Director in May 1999.
James M. Papada is Chairman of the Board of Directors and CEO of
Technitrol, Inc. (NYSE: TNL), a diversified manufacturer of components for
electrical and electronic equipment. From 1978 to 1982 and from 1988 to 1999 Mr.
Papada was a partner with the law firm of Stradley, Ronon, Stevens & Young,
located in Philadelphia, Pennsylvania. From 1983 to 1988, Mr. Papada was Chief
Operating Officer of Hordis Brothers, Inc., the largest independent glass
processor/fabricator in the United States. Mr. Papada is also a director of
Parra-Chem Southern, Inc. and CTA, Incorporated. Mr. Papada became a Director in
February 1998.
Edmund S. Wright has been a business consultant since 1995. Prior to
that, Mr. Wright was President and CEO of North American Refractory Company from
1981 to 1994, Vice Chairman of NARCO, Canada, Inc. from 1989 to 1994, Chairman
of ZIRCOA, Inc. from 1989 to 1994, President of Tri-Star Refractories, Inc. from
1990 to 1994 and Chairman of Dakota Catalyst Products, Inc. from 1995 to 1997.
Mr. Wright is also a director of Fairmount Minerals, Inc., Unifrax Corporation,
Stonebridge Industries, Inc. and STAM, Inc. Mr. Wright became a Director in
February 1998.
All Directors hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. Executive Officers
serve at the discretion of the Board. Compensation of Directors, not employed by
the Company or affiliated with KECC, is $20,000 per year.
Under the Stockholders' Agreement (as defined herein), Messrs.
Given and LeMay serve as directors as representatives of KECC, and Mr. Christman
serves as a director by virtue of his position as President and Chief Executive
Officer of the Company and Holding. Mr. LeMay replaced Mr. Jon Kleinke, of KECC,
who resigned effective May 1999.
41
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation received by the
Company's Chief Executive Officer and the four other highest paid executive
officers (together with the Chief Executive Officer, the "Named Executive
Officers") for services to the Company in fiscal years 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL ALL OTHER
COMPENSATION COMPENSATION
------------ ------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(a) (b)
- --------------------------- ----------- ------ -------- ---
<S> <C> <C> <C> <C>
Mark D. Christman 1999 $289,909 $1,058,000 $13,848
President and Chief Executive Officer.................... 1998 309,634 970,000 13,348
1997 291,110 700,000 12,520
John S. Baxter 1999 226,935 322,000 14,400
Senior Vice President, Marketing and Sales............... 1998 233,254 296,000 13,900
1997 219,516 215,000 12,590
Kenneth H. Wetmore 1999 196,932 170,000 14,076
Vice President, General Counsel and Secretary............ 1998 200,080 136,000 13,481
1997 190,448 115,000 12,590
Larry E. Elliott 1999 160,403 148,000 13,848
Vice President, Manufacturing and Engineering............ 1998 163,275 136,000 17,446
1997 154,160 - 40,179
James P. Schnabel 1999 146,574 148,000 13,632
Vice President, Development.............................. 1998 144,690 136,000 13,132
1997 128,688 32,000 7,513
</TABLE>
(a) Represent bonus amounts paid in the fiscal years listed but related to prior
year performance.
(b) Represents (i) a pension plan contribution equal to 5% of each Named
Executive Officer's first $160,000 ($150,000 for 1997) of compensation under the
Company's pension plan and (ii) imputed income on life insurance provided by the
Company. In 1997, Mr. Elliott also received a moving allowance of $27,662).
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
Mr. Christman has entered into a five-year employment agreement with
Holding and the Company pursuant to which Mr. Christman serves as the President
and Chief Executive Officer of Holding and the Company (the "President"). Mr.
Christman is paid a base salary subject to certain cost-of-living adjustments,
and receives customary executive benefits. Additionally, pursuant to his
agreement and the Stockholders Agreement (as defined herein), he is entitled to
receive no less than 40% of all distributions from the Performance Bonus Pool
(as defined herein), participate in the Restricted Stock Program (as defined
herein), and participate in the Performance Share Program (as defined herein).
See "Management Incentive Plans." The employment agreement also contains a
noncompetition provision that prohibits Mr. Christman from competing or holding
certain ownership interests in other businesses that compete against the Company
for the later of five years after the initial date of the agreement or two years
following the termination of Mr. Christman's employment (unless Mr. Christman is
terminated without cause, in which case no restriction shall apply). The
employment agreement is renewable by the Company for one-year successive terms
upon completion of the initial five-year term.
42
<PAGE> 43
Each of the other members of Executive Management also entered into an
employment agreement (each, an "Employment Agreement" and, collectively with the
President's employment agreement, the "Employment Agreements") that is
substantially similar to Mr. Christman's agreement, but is paid a base salary
per year, subject to certain cost-of-living adjustments.
MANAGEMENT INCENTIVE PLANS
In connection with the Transactions, the Company and Holding have
established (i) a performance bonus pool (the "Performance Bonus Pool"); (ii) a
restricted stock plan (the "Restricted Stock Program"); and (iii) a performance
share program (the "Performance Share Program"), all of which were designed to
retain and reward members of Executive Management. No table describing options
granted in the last fiscal year has been included, because neither the Company
nor Holding has granted any options to Executive Management in the past fiscal
year and no options to Executive Management are currently outstanding.
Performance Bonus Pool. Each member of Executive Management is eligible
to receive a distribution from the Performance Bonus Pool (based upon a
calculated EBITDA as defined in the Employment Agreements). Amounts made
available by the Company pursuant to the Performance Bonus Pool at the end of
each fiscal year are based on the calculated EBITDA of the Company for such
fiscal year or the average calculated EBITDA for all fiscal years, whichever is
greater (as defined in the Employment Agreements). If calculated EBITDA (which
for such purpose will be computed before deducting any fees payable to KECC) is
between $14.0 million and $15.0 million as of such fiscal year, then amounts
available for distribution pursuant to the Performance Bonus Pool will generally
be 5.0% of calculated EBITDA. If calculated EBITDA is more than $15.0 million
but not over $16.0 million, then amounts available for distribution pursuant to
the Performance Bonus Pool will generally be 7.5% of calculated EBITDA. If
calculated EBITDA is more than $16.0 million, then amounts available for
distribution pursuant to the Performance Bonus Pool will generally be 10.0% of
calculated EBITDA. The Directors, at their discretion, but after consultation
with the President, will distribute the Performance Bonus Pool among the members
of Executive Management using its discretion; but Mr. Christman, under the terms
of his employment agreement, is entitled to receive at least 40% of the
Performance Bonus Pool. The Directors are required to distribute the entire
amount of the Performance Bonus Pool among some or all members of Executive
Management.
Restricted Stock Program. Simultaneous with the consummation of the
Transactions, Holding and the members of the Key Equity Group entered into a
stockholders agreement (the "Stockholders Agreement"), pursuant to which Holding
established the Restricted Stock Program. Under the terms of the Restricted
Stock Program, members of Executive Management were granted, under their
employment agreements, in the aggregate, 1,667 shares of restricted Class C
Common Stock (as defined herein) of Holding. The restricted Class C Common Stock
may not be sold or otherwise transferred while the restrictions are in effect
and may be forfeited to the Company if the recipient leaves the Company before
the restrictions lapse. The shares of Class C Common Stock are non-voting and
the restrictions will generally lapse in equal amounts over a four-year period.
However, all such restrictions will lapse upon a Change of Control (as defined
in the Employment Agreements).
Performance Share Program. The Performance Share Program was
established under the Stockholders Agreement. Under the terms of the Performance
Share Program, members of Executive Management purchased shares of Class D
Common Stock of Holding (the "Class D Holders") by paying $0.01 in cash and
paying for the balance by issuing to Holding promissory notes in consideration
therefor and pledging such shares to Holding to secure such debt. Upon the
occurrence of a Liquidity Event (as defined herein), a final determination of
the number of shares of Class D Common Stock that will be retained by members of
Executive Management will be made based upon the achievement by the Key Equity
Group of certain goals relating to its return on the Equity Contribution, as
adjusted to account for the value attributable to the Warrants. "Liquidity
Event" is defined in the Stockholders Agreement as the first to occur of (i) the
sale of Holding and (ii) a public offering of any of
43
<PAGE> 44
Holding's securities (each, a "Liquidity Event"). The Company will have the
right to repurchase shares of Class D Common Stock under certain circumstances
upon a termination of employment.
EMPLOYEES' PENSION PLAN AND EMPLOYEES' SAVINGS PLAN
The Company's Employees' Pension Plan and Employees' Savings Plan cover
substantially all of its employees. Under the Employees' Pension Plan, the
Company may make annual contributions to the participants equal to 5% of each
participant's compensation up to $160,000 ($150,000 for fiscal year 1997). For
the fiscal years ended June 30, 1997, 1998 and 1999, the Company's expense under
the Employees' Pension Plan approximated $604,000 $639,000 and $616,000,
respectively. The Company does not match contributions made by employees under
the Employees' Savings Plan, a 401(k) plan.
44
<PAGE> 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGMENT.
Holding owns 100% of the issued and outstanding common stock of the
Company. As of September 17, 1999, the following entities or persons owned the
outstanding Common Stock of Holding as set forth below.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK CLASS C COMMON STOCK CLASS D COMMON STOCK
-------------------- -------------------- -------------------- --------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES(a) OWNERSHIP(b) SHARES(c) OWNERSHIP SHARES OWNERSHIP SHARES OWNERSHIP
--------- ------------ --------- --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Key Equity Capital Corporation
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(d)(e) 1,550 37.5% 8,405 100.0% -- -- -- --
Key Equity Partners 97
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(e) -- -- -- -- 3,335 66.7% -- --
David Given(f)
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 1,550 37.5% 8,405 100.0% 3,335 66.7% -- --
Executive Management(g)
Mark D. Christman 1,010 24.4% -- -- 834 16.7% 4,000 40.0%
John S. Baxter 175 4.2% -- -- 267 5.3% 1,800 18.0%
Kenneth H. Wetmore 125 3.0% -- -- 133 2.7% 1,000 10.0%
Ronald A. McMaster, Ph.D. 150 3.6% -- -- 67 1.3% 500 5.0%
Diane S. Tymiak 90 2.2% -- -- 100 1.9% 700 7.0%
Larry E. Elliot 35 0.9% -- -- 133 2.7% 1,000 10.0%
James P. Schnabel 75 1.8% -- -- 133 2.7% 1,000 10.0%
Key Equity Group(h) 3,210 77.6% 8,405 100.0% 5,002 100.0% 10,000 100.0%
James M. Papada, III 25 0.6% -- -- -- -- -- --
Edmund S. Wright 25 0.6% -- -- -- -- -- --
All officers and directors as a group 3,260 78.8% 8,405 100.0% 5,002 100.0% 10,000 100.0%
</TABLE>
(a) Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock, or following the occurrence of a Conversion Event,
Class C Common Stock.
(b) Assumes 877.21 shares of Class A Common Stock issuable pursuant to the
Warrants are outstanding.
(c) Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock.
(d) KECC is a wholly owned subsidiary of Key Bank, N.A., which is a wholly owned
subsidiary of KeyCorp, a bank holding corporation.
(e) Mr. Given is the President and Director of KECC and is a partner of KEP 97.
Accordingly, Mr. Given may be deemed to beneficially own the shares owned by
KECC and KEP 97. Mr. Given disclaims beneficial ownership of the shares
owned by KECC.
(f) Includes all the shares of Class A Common Stock and Class B Common Stock
owned by KECC and all the shares of Class C Common Stock owned by KEP 97,
because as the President and a Director of KECC and a partner of KEP 97, Mr.
Given may be deemed to beneficially own all such shares.
(g) Simultaneously with the consummation of Transactions, Executive Management
purchased 1,660 shares of Class A Common Stock on the same terms and
conditions as those shares of Class A Common Stock that are purchased by
KECC. In addition, Executive Management received 1,667 shares of Class C
Common Stock in connection with the Restricted Stock Plan and up to 10,000
shares of Class D Common Stock that may be earned under the Performance
Share Program.
(h) The Key Equity Group is comprised of Executive Management, KECC and KEP 97.
45
<PAGE> 46
STOCKHOLDERS AGREEMENT
Simultaneously with the consummation of the Transactions, members of
the Key Equity Group and Holding entered into a Stockholders' Agreement (the
"Stockholders Agreement") which, together with the Amended and Restated
Certificate of Incorporation of Holding (the "Certificate of Incorporation"),
governs the terms of the capital stock of Holding.
Classes of Common Stock. The authorized shares of capital stock of
Holding (the "Common Stock") consists of: (i) 18,072 authorized shares of Class
A Voting Common Stock, $0.01 par value (the "Class A Common Stock"); (ii) 13,070
authorized shares of Class B Non-Voting Common Stock, $0.01 par value (the
"Class B Common Stock"); (iii) 5,002 shares of Class C Stock Non-Voting Common
Stock, $0.01 par value (the "Class C Common Stock"); and (iv) 10,000 shares of
Class D Non-Voting Common Stock, $0.01 par value (the "Class D Common Stock").
The holders of Class A Common Stock have the right to vote on all matters to be
voted on by the stockholders of Holding. At every meeting of stockholders of
Holding, each holder of Class A Common Stock is entitled to one vote per share.
Except as otherwise required by law, a holder of Class B Common Stock, Class C
Common Stock or Class D Common Stock has no voting rights with respect to such
Common Stock.
Control. The Certificate of Incorporation requires Holding to obtain
the approval by vote or written consent of 55% of the then outstanding shares of
Class A Common Stock, in addition to any other vote required by law, in order to
do any of the following: (i) redeem, purchase or otherwise acquire for value any
shares of Common Stock or any other shares of its capital stock, except as
specifically permitted in the Stockholders Agreement; (ii) authorize or issue,
or obligate itself to authorize or issue, additional shares of Common Stock or
any other shares of its capital stock except as contemplated in the Certificate
of Incorporation or in the Stockholders Agreement; (iii) amend, alter or repeal
the Certificate of Incorporation or the By-Laws of Holding (the "By-Laws"); (iv)
declare or pay any dividends or make any distributions with respect to any of
its capital stock; or (v) except as specifically permitted by the Stockholders
Agreement, effect, or obligate itself to effect, any sale, lease, assignment,
transfer or other conveyance of all or substantially all of the assets of
Holding or any subsidiary thereof, or any consolidation or merger involving
Holding or any subsidiary thereof, or any reclassification or other change of
capital stock, or any recapitalization or reorganization or any dissolution,
liquidation or winding up of Holding or any subsidiary thereof, except for the
merger into Holding of, or the transfer of assets to Holding from, any wholly
owned subsidiary.
In addition, the Stockholders Agreement provides that Holding will not,
and will not permit any of its subsidiaries (including the Company), to take any
of the following actions without the written consent of KECC or Key Equity
Partners 97, a general partnership comprised of certain affiliates of KECC ("KEP
97"): (i) acquire any assets (other than in the ordinary course of business),
capital stock, or any other interest in another business or entity; (ii) sell,
lease, transfer, mortgage, pledge, or encumber all or substantially all of its
assets; (iii) dispose of any business entity or product line or any division or
subsidiary; (iv) enter into any merger, consolidation, reorganization or
recapitalization, or any agreement to do any of the foregoing or reclassify any
of its equity securities; (v) issue any equity security, or issue any options,
warrants, convertible securities, or other rights (contingent or otherwise) to
acquire any equity securities, except for shares of Class A Common Stock issued
pursuant to the Warrants and the issuance of stock to an employee of Holding or
any of its subsidiaries in accordance with a stock purchase or award program
plan or the conversion of stock as described in the Certificate of
Incorporation; (vi) form or acquire any subsidiary except those now existing;
(vii) except as otherwise contemplated by the Stockholders Agreement, declare or
pay any dividends or distributions on the Common Stock or other equity
securities or redeem or repurchase any Common Stock; (viii) grant its consent to
a transfer of stock otherwise prohibited by the Stockholders Agreement; (ix)
incur, assume or guaranty any indebtedness for borrowed money in excess of
certain amounts in any fiscal year; (x) make any loans or advances to any
stockholders or any employees of Holding or any of its subsidiaries other than
advances to
46
<PAGE> 47
employees in the ordinary course of business which do not exceed certain amounts
per year; (xi) make capital expenditures in excess of certain amounts in any
fiscal year; (xii) except as otherwise contemplated by the Stockholders
Agreement, enter into any transaction with any stockholder or any affiliate of
Holding or its subsidiaries or any stockholder that is on terms less favorable
to Holding and its subsidiaries than could be obtained from unaffiliated third
parties on an arm's-length basis; (xiii) amend its Certificate of Incorporation
or By-Laws; or (xiv) enter into any agreement to do any of the foregoing.
Conversion. Each holder of Class B Common Stock is entitled at any time
and from time to time to convert any or all of the shares of that holder's Class
B Common Stock into the same number of shares of Class A Common Stock as
provided in the Certificate of Incorporation; each holder of Class A Common
Stock is entitled at any time and from time to time to convert any or all of the
shares of that holder's Class A Common Stock into the same number of shares of
Class B Common Stock as provided in the Certificate of Incorporation; provided
that in the case of a conversion from Class B Common Stock, which is non-voting,
into Class A Common Stock, which is voting, the holder of shares to be converted
would be permitted under applicable law to hold the total number of shares of
Class A Common Stock which would be held after giving effect to the conversion.
The conversion of the Class B Common Stock held by KECC could result in a change
of control of Holding and the Company, since Holding is the sole stockholder of
the Company.
Each holder of Class C Common Stock is entitled to convert any or all
of the shares of that holder's Class C Common Stock into the same number of
shares of Class A Common Stock only upon the occurrence of any public offering
or public sale of securities of the Corporation (including a public offering
registered under the Securities Act and a sale pursuant to Rule 144 of the
Securities Act or any similar rule then in effect) (any such offering, a
"Conversion Event"). In addition, each holder of Class C Common Stock is
entitled to convert shares of Class C Common Stock if such holder reasonably
believes that a Conversion Event will be consummated. The Company is obligated,
upon written request of the holder of Class C Common Stock, to effect such
conversion in a timely manner so as to enable each such holder to participate in
such Conversion Event. If any shares of Class C Common Stock are converted into
shares of Class A Common Stock in connection with a Conversion Event and such
shares of Class A Common Stock are not actually distributed, disposed of or sold
pursuant to such Conversion Event, such shares of Class A Common Stock will
promptly be converted back into the same number of shares of Class C Common
Stock that had been the subject of the request for conversion.
Restrictions on Transfer. Generally, the shares of Common Stock are
subject to certain restrictions on transfer contained in the Stockholders
Agreement. The shares of Common Stock may be transferred among affiliates and
immediate family members without restrictions as long as the recipient complies
with the provisions of the Stockholders Agreement and the applicable rules and
regulations of the Commission. In addition, Holding may repurchase shares of
Common Stock from departing members of Executive Management.
Preemptive Rights. The holders of Common Stock have a pro rata right to
participate in all future offerings of shares of equity securities of Holding or
any securities convertible into or exchangeable for or carrying rights or
options to purchase any shares or any other equity securities of the Company.
Certain Rights of KECC and KEP 97. KECC and KEP 97 have the right, in
the future to exercise a right to require Holding to repurchase their shares of
Common Stock any time after June 2004. In addition, KECC and KEP 97 also have
certain demand registration rights pursuant to which members of Executive
Management may also be able to participate.
47
<PAGE> 48
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS.
KECC received a financing fee in an amount equal to $1.0 million for
its assistance in structuring, arranging and closing the Transactions.
The Company arranged for the payment of success bonuses to members of
Executive Management in connection with the successful completion of the
Transactions. The aggregate amount of such success bonuses was $2.7 million, the
allocation of which was as follows: (i) Mark D. Christman received $1,865,000;
(ii) John S. Baxter received $280,000; (iii) Kenneth H. Wetmore received
$165,000; (iv) Diane S. Tymiak received $165,000; (v) Larry E. Elliott received
$95,000; and (vi) James P. Schnabel, Jr. received $95,000.
Upon consummation of the Transactions, the Company entered into an
advisory agreement with KECC, pursuant to which KECC consults with the Directors
and members of Executive Management on such general business and financial
matters as may be requested by the Board of Directors, including: (i) corporate
strategy; (ii) budgeting of future corporate investment; and (iii) acquisition
and divestiture strategies. In exchange for such services, KECC receives an
annual fee of $200,000, payable quarterly in arrears. Effective October 1, 1998,
this fee was adjusted to $150,000.
The Company has advanced to Holding the sum of $656,399. The advances
have been made to Holding to permit Holding to satisfy certain obligations it
entered into in connection with the Transactions, including, without limitation,
obligations to loan funds to members of Executive Management to allow them to
satisfy certain tax liabilities. The tax liabilities resulted from the members
of Executive Management making certain elections under Section 83(b) of the Code
with respect to the shares of Class C Common Stock.
48
<PAGE> 49
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
See Index to Consolidated Financial Statements on page 25 included
herein.
(a) (2) Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts on page S-1.
All other schedules are omitted as the required information is not
applicable or not present in amounts sufficient to require
submission of the schedule, or because the information is
presented in the consolidated financial statements or related
notes.
(a) (3) Exhibits:
2.1(a) Agreement and Plan of Merger
2.2(a) Amendment to Agreement and Plan of Merger
3.1(a) Restated Certificate of Incorporation of the
Registrant
3.2(a) By-laws of the Registrant
4.1(a) Indenture (including form of Note)
4.2(a) First Supplemental Indenture
10.1(a) Financing and Security Agreement between Bank of
America, N.A., (f/k/a NationsBank, N.A.) and the
Registrant
10.1.1(b) Second Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A. and the Registrant
10.1.2(c) Third Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A. and the Registrant
10.2(a) Plant and Office Lease
10.3(a) Warehouse Lease
10.4(a) Advisory Agreement between the Registrant and Key
Equity Capital Corporation
10.5(a) Form of Exchange Agent Agreement between United
States Trust Company of New York and the Registrant
10.6(a) Employment Agreement among Glasstech Holding Co., the
Registrant and John S. Baxter
10.7(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Mark D. Christman
10.8(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Larry E. Elliott
10.9(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Ronald A. McMaster
10.10(a) Employment Agreement among Glasstech Holding Co., the
Registrant and James P. Schnabel, Jr.
10.11(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Diane S. Tymiak
10.12(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Kenneth H. Wetmore
10.13(a) Securities Purchase Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
10.14(a) Registration Rights Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
21.1(a) List of Subsidiaries.
27.1(c) Financial Data Schedule
(a) Incorporated by reference from the Company's Registration
Statement on Form S-4 (Registration No. 333-34391) (the "Form
S-4") filed on August 26, 1997. Each of the above exhibits has
the same exhibit number in the Form S-4.
(b) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed on February 11, 1999.
(c) Filed herewith.
(b) Reports on Form 8-K:
No reports have been filed during the last quarter of the fiscal
year covered by this report on Form 10-K. .
49
<PAGE> 50
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GLASSTECH, INC.
Date: September 23, 1999 /s/ Mark D. Christman
------------------------------------
MARK D. CHRISTMAN
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
Date: September 23, 1999 /s/ Mark D. Christman
----------------------------------------
MARK D. CHRISTMAN
Director, President and Chief
Executive Officer
(Principal Executive Officer)
Date: September 23, 1999 /s/ Diane S. Tymiak
----------------------------------------
DIANE S. TYMIAK
Vice President, Treasurer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Date: September 23, 1999 /s/ David P. Given
----------------------------------------
DAVID P. GIVEN
Director
Date: September 23, 1999 /s/ John LeMay
----------------------------------------
JOHN LEMAY
Director
Date: September 23, 1999 /s/ James M. Papada, III
----------------------------------------
JAMES M. PAPADA, III
Director
Date: September 23, 1999 /s/ Edmund S. Wright
----------------------------------------
EDMUND S. WRIGHT
Director
50
<PAGE> 51
GLASSTECH, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED BALANCE
BALANCE AT TO AMOUNT AT
BEGINNING COSTS AND CHARGED END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
----------- --------- -------- --- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1999:
Allowance for doubtful accounts $ 40 $ -- $ -- $ 40
====== ========== ========== ======
Accrued contract costs $2,382 $ 1,694 $ 3,281 $ 795
====== ========== ========== ======
Year ended June 30, 1998:
Allowance for doubtful accounts $ 141 $ (101) $ -- $ 40
====== ========== ========== ======
Accrued contract costs $3,780 $ 1,717 $ 3,115 $2,382
====== ========== ========== ======
Year ended June 30, 1997:
Allowance for doubtful accounts $ 178 $ (37) $ -- $ 141
====== ========== ========== ======
Accrued contract costs $2,701 $ 3,364 $ 2,285 $3,780
====== ========== ========== ======
</TABLE>
S-1
<PAGE> 52
EXHIBIT INDEX
2.1(a) Agreement and Plan of Merger
2.2(a) Amendment to Agreement and Plan of Merger
3.1(a) Restated Certificate of Incorporation of the
Registrant
3.2(a) By-laws of the Registrant
4.1(a) Indenture (including form of Note)
4.2(a) First Supplemental Indenture
10.1(a) Financing and Security Agreement between Bank of
America, N.A., (f/k/a NationsBank, N.A.) and the
Registrant
10.1.1(b) Second Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A. and the Registrant
10.1.2(c) Third Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A. and the Registrant
10.2(a) Plant and Office Lease
10.3(a) Warehouse Lease
10.4(a) Advisory Agreement between the Registrant and Key
Equity Capital Corporation
10.5(a) Form of Exchange Agent Agreement between United
States Trust Company of New York and the Registrant
10.6(a) Employment Agreement among Glasstech Holding Co., the
Registrant and John S. Baxter
10.7(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Mark D. Christman
10.8(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Larry E. Elliott
10.9(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Ronald A. McMaster
10.10(a) Employment Agreement among Glasstech Holding Co., the
Registrant and James P. Schnabel, Jr.
10.11(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Diane S. Tymiak
10.12(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Kenneth H. Wetmore
10.13(a) Securities Purchase Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
10.14(a) Registration Rights Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
21.1(a) List of Subsidiaries.
27.1(c) Financial Data Schedule
(a) Incorporated by reference from the Company's Registration
Statement on Form S-4 (Registration No. 333-34391) (the "Form
S-4") filed on August 26, 1997. Each of the above exhibits has
the same exhibit number in the Form S-4.
(b) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed on February 11, 1999.
(c) Filed herewith.
E-1
<PAGE> 1
EXHIBIT 10.1.2
--------------
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
---------------------------------------------------
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this "Agreement")
is made as of the 29th day of June, 1999, by GLASSTECH, INC., a corporation
organized under the laws of Delaware (the "Borrower"), and BANK OF AMERICA,
NATIONAL ASSOCIATION, a national banking association (the "Lender"), formerly
"NationsBank, N.A.".
RECITALS
--------
A. The Borrower and the Lender entered into a Financing and Security
Agreement dated July 2, 1997 (the same, as amended by (i) that certain First
Amendment to Financing and Security Agreement dated as of October 29, 1997 and
(ii) that certain Second Amendment to Financing and Security Agreement dated as
of December 31, 1998 and as amended, modified, substituted, extended, and
renewed from time to time, the "Financing Agreement"). The Financing Agreement
provides for agreements between the Borrower and the Lender with respect to the
"Loans" (as defined in the Financing Agreement), including a revolving credit
facility in an amount not to exceed $10,000,000.
B. The Borrower has requested that the Lender amend certain financial
covenants contained in the Financing Agreement.
C. The Lender is willing to agree to the Borrower's request on the
condition that this Agreement be executed.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrower
and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals above are a part
of this Agreement. Unless otherwise expressly defined in this Agreement, terms
defined in the Financing Agreement shall have the same meaning under this
Agreement.
2. The Borrower represents and warrants to the Lender as follows:
(a) The Borrower is a corporation duly organized, and validly
existing and in good standing under the laws of the state in which it was
organized and is duly qualified to do business as a foreign corporation in good
standing in every other state wherein the conduct of its business or the
ownership of its property requires such qualification and in which the failure
to qualify would materially adversely affect the business, operations or
properties of the Borrower and/or its Subsidiaries.
<PAGE> 2
(b) The Borrower has the power and authority to execute and
deliver this Agreement and perform its obligations hereunder and has taken all
necessary and appropriate corporate action to authorize the execution, delivery
and performance of this Agreement.
(c) The Financing Agreement, as amended by this Agreement, and
each of the other Financing Documents remains in full force and effect, and each
constitutes the valid and legally binding obligation of the Borrower,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties, and general principles of
equity regardless of whether applied in a proceeding in equity or at law.
(d) All of the Borrower's representations and warranties
contained in the Financing Agreement are true and correct on and as of the date
of the Borrower's execution of this Agreement, except that the representations
and warranties which relate to financial statements which are referred to in
Section 4.1.11 of the Financing Agreement, shall also be deemed to cover
financial statements furnished from time to time to the Lender pursuant to
Section 6.1.1 (Financial Statements) of the Financing Agreement.
(e) No Event of Default and no event which, with notice, lapse
of time or both would constitute an Event of Default, has occurred and is
continuing under the Financing Agreement or the other Financing Documents.
3. The definition of "Post Default Rate" in Section 1.1 of the
Financing Agreement is hereby deleted in its entirety, and the following is
substituted in its place:
"Post-Default Rate" means the Base Rate in effect from
time to time plus 200 basis points.
4. The following are hereby added as new definitions to Section 1.1 of
the Financing Agreement:
"Assets" means at any date all assets that, in
accordance with GAAP consistently applied, should be classified as
assets on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"Borrowing Base" has the meaning described in Section
2.1.7 (Borrowing Base).
"Borrowing Base Deficiency" has the meaning described
in 2.1.7 (Borrowing Base).
"Borrowing Base Report" has the meaning described in
Section 2.1.8 (Borrowing Base Report).
-2-
<PAGE> 3
"Eligible Inventory" means that portion of the
Borrower's parts inventory consisting solely of (i) ceramic roll
grinding inventory; (ii) spare parts inventory consisting of parts for
which specific, firm purchase orders exist; and (iii) furnace supply
inventory consisting of parts of standard manufacture and not
specialized for the Borrower's business, to the extent the same such
inventory is held by the Borrower for sale in the ordinary course of
business, valued at the lowest of the Borrower's net purchase cost or
net manufacturing cost, any ceiling prices which may be established by
any Law of any Governmental Authority or prevailing market value,
excluding, however, any Inventory which consists of:
(a) any goods located outside of the United States,
(b) any goods located outside of a state in which the Lender
has properly and unavoidably perfected its security interests by filing
in that state, free and clear of all other Liens,
(c) any goods not in the actual possession of the Borrower,
except to the extent provided in subsection (d) below,
(d) any goods in the possession of a bailee, warehouseman,
consignee or similar third party, except to the extent that such
bailee, warehouseman, consignee or similar third party has entered into
an agreement with the Lender in which such bailee, warehouseman,
consignee or similar third party consents and agrees to the Lender's
Lien on such goods and to such other terms and conditions as may be
required by the Lender, PROVIDED, HOWEVER, that, so long as the
Borrower is using its continuing reasonable efforts to obtain such a
waiver from its landlord at Ampointe Industrial Complex, Perrysburg,
Ohio 43551, the inventory at that location shall not be excluded from
the "Eligible Inventory" on account of this clause (d),
(e) any goods located on premises leased or rented to the
Borrower or otherwise not owned by the Borrower, unless the Lender has
received a waiver and consent from the lessor, landlord and/or owner,
in form and substance satisfactory to the Lender and from any mortgagee
of such lessor, landlord or owner to the extent required by the Lender,
(f) any goods the sale or other disposition of which has
given rise to a Receivable,
(g) any goods which fail to meet all standards and
requirements imposed by any Governmental Authority over such goods,
their production, storage, use or sale,
(h) work-in-process, supplies, displays, packaging and
promotional materials,
-3-
<PAGE> 4
(i) (1) any goods as to which the Lender determines in the
reasonable exercise of its discretion at any time are not in good
condition or are defective, unmerchantable or obsolete and (2) blank
ceramic rolls that have not been sold for over two (2) years and other
goods that have not been sold for over one (1) year, and
(j) any goods which the Lender in the reasonable exercise of
its discretion has deemed to be ineligible because the Lender otherwise
considers the collateral value to the Lender to be impaired or its
ability to realize such value to be insecure.
"Eligible Progress Billing" means the collective
reference to accounts of the Borrower arising with respect to the sale
of (A) glass bending and tempering/annealing systems or (B) retrofits
or component subsystems of such systems, all manufactured by the
Borrower, such accounts consisting solely of progress billings due with
respect to such systems, retrofits and subsystems that have been
shipped to the Account Debtor, but not finally accepted by the Account
Debtor.
"Eligible Receivable" and "Eligible Receivables" mean,
at any time of determination thereof, the unpaid portion of each
account (net of any returns, discounts, claims, credits, charges,
accrued rebates or other allowances, offsets, deductions,
counterclaims, disputes or other defenses and reduced by the aggregate
amount of all reserves, limits and deductions reasonably established by
the Lender) payable in United States Dollars by the Borrower, provided
each account arises (i) following the completion of installation and
demonstration of (A) glass bending and tempering/annealing systems or
(B) retrofits or component subsystems of such systems, and all other
requirements for final payment under the applicable contracts, (ii)
from trade receivables arising from sales of inventory relating to or
from service of machinery manufactured by the Borrower, or (iii) from
Eligible Progress Billings and conforms and continues to conform to the
following criteria to the reasonable satisfaction of the Lender:
(a) the account arose in the ordinary course of the
Borrower's business from a bona fide outright sale of goods by the
Borrower (except that in the case of Eligible Progress Billings, such
sale may not be complete) or from services performed by the Borrower;
(b) the account is a valid, legally enforceable
obligation of the Account Debtor and requires no further act on the
part of any Person under any circumstances to make the account payable
by the Account Debtor, although further performance will be required
under contracts related to Eligible Progress Receivables;
(c) the account is based upon an enforceable order or
contract, written or oral, for goods shipped or for services performed,
and the same were shipped or performed in accordance with such order or
contract,
-4-
<PAGE> 5
although further performance will be required under contracts related
to Eligible Progress Receivables;
(d) if the account arises from the sale of goods, the
goods the sale of which gave rise to the account have been shipped or
delivered to the Account Debtor on an absolute sale basis (although
further performance will be required under contracts related to
Eligible Progress Receivables) and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return
basis, or on the basis of any other similar understanding;
(e) if the account arises from the performance of
services, such services have been fully rendered and do not relate to
any warranty claim or obligation;
(f) the account is evidenced by an invoice or other
documentation in form acceptable to the Lender, dated no later than the
date of shipment or performance and containing only terms normally
offered by the Borrower;
(g) the amount shown on the books of the Borrower and on
any invoice, certificate, schedule or statement delivered to the Lender
is owing to the Borrower and no partial payment has been received
unless reflected with that delivery;
(h) except with respect to the Account Debtors
identified on Schedule 1.1 attached to and made a part of this
Agreement, the account is not outstanding more than ninety (90) days
from the date of the invoice therefor or past due more than sixty (60)
days after its due date, which shall not be later than thirty (30) days
after the invoice date;
(i) only with respect to the Account Debtors identified
on Schedule 1.1 attached to and made a part of this Agreement, the
account is not outstanding more than one hundred twenty (120) days from
the date of the invoice therefor or past due more than ninety (90) days
after its due date, which shall not be later than sixty (60) days after
the invoice date;
(j) the account is not owing by any Account Debtor for
which the Lender has, in accordance with this Agreement, deemed fifty
percent (50%) or more of such Account Debtor's other accounts due to
the Borrower to be non-Eligible Receivables;
(k) the account is not owing by an Account Debtor whose
accounts owing to the Borrower in the aggregate exceed in the aggregate
the credit limit determined by Lender in its reasonable discretion, but
only to the extent such accounts exceed such limit;
-5-
<PAGE> 6
(l) the Account Debtor has not returned, rejected or
refused to retain, or otherwise notified the Borrower of any dispute
concerning, or claimed nonconformity of, any of the goods or services
from the sale or furnishing of which the account arose;
m) the account is not subject to any present or
contingent (and no facts exist which are the basis for any future)
offset, claim, deduction or counterclaim, dispute or defense in law or
equity on the part of such Account Debtor, or any claim for credits,
allowances, or adjustments by the Account Debtor because of returned,
inferior, or damaged goods or unsatisfactory services, or for any other
reason including, without limitation, those arising on account of a
breach of any express or implied representation or warranty;
(n) the Account Debtor is not a Subsidiary or Affiliate
of the Borrower or an employee, officer, director or shareholder of the
Borrower or any Subsidiary or Affiliate of the Borrower;
(o) except for the Account Debtors identified on
SCHEDULE 1.1 or except to the extent the account is secured by a letter
of credit that has been assigned to the Lender, is subject to a first
Lien security interest in favor of the Lender, and is in the Lender's
possession, the Account Debtor is not incorporated or primarily
conducting business or otherwise located in any jurisdiction outside of
the United States of America;
(p) as to which none of the following events has
occurred with respect to the Account Debtor on such account: death or
judicial declaration of incompetency of an Account Debtor who is an
individual; the filing by or against the Account Debtor of a request or
petition for liquidation, reorganization, arrangement, adjustment of
debts, adjudication as a bankrupt, winding-up, or other relief under
the bankruptcy, insolvency, or similar laws of the United States, any
state or territory thereof, or any foreign jurisdiction, now or
hereafter in effect; the making of any general assignment by the
Account Debtor for the benefit of creditors; the appointment of a
receiver or trustee for the Account Debtor or for any of the assets of
the Account Debtor, including, without limitation, the appointment of
or taking possession by a "custodian," as defined in the Federal
Bankruptcy Code; the institution by or against the Account Debtor of
any other type of insolvency proceeding (under the bankruptcy laws of
the United States or otherwise) or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims against, or
winding up of affairs of, the Account Debtor; the sale, assignment, or
transfer of all or any material part of the assets of the Account
Debtor; the nonpayment generally by the Account Debtor of its debts as
they become due; or the cessation of the business of the Account Debtor
as a going concern;
(q) the Account Debtor is not a Governmental Authority;
-6-
<PAGE> 7
(r) the Borrower is not indebted in any manner to the
Account Debtor (as creditor, lessor, supplier or otherwise), with the
exception of customary credits, adjustments and/or discounts given to
an Account Debtor by the Borrower in the ordinary course of its
business, although further performance will be required under contracts
related to Eligible Progress Receivables;
(s) the account does not arise from services under or
related to any warranty obligation of the Borrower or out of service
charges, finance charges or other fees for the time value of money;
(t) the account is not evidenced by chattel paper or an
instrument of any kind and is not secured by any letter of credit;
(u) the title of the Borrower to the account is absolute
and is not subject to any prior assignment, claim, Lien, or security
interest, except Permitted Liens;
(v) no bond or other undertaking by a guarantor or
surety has been or is required to be obtained, supporting the
Borrower's obligations in respect of the underlying contract;
(w) the Borrower has the full and unqualified right and
power to assign and grant a security interest in, and Lien on, the
account to the Lender as security and collateral for the payment of the
Obligations;
(x) the account does not arise out of a contract with,
or order from, an Account Debtor that, by its terms, forbids or makes
void or unenforceable the assignment or grant of a security interest by
the Borrower to the Lender of the account arising from such contract or
order;
(y) the account is subject to a Lien in favor of the
Lender, which Lien is perfected as to the account by the filing of
financing statements and which Lien upon such filing constitutes a
first priority security interest and Lien;
(z) the goods giving rise to the account were not, at
the time of the sale thereof, subject to any Lien, except those in
favor of the Lender;
(aa) except for Eligible Progress Billings, no part of
the account represents a progress billing or a retainage;
(bb) the Lender in the good faith exercise of its
discretion has not deemed the account ineligible because of uncertainty
as to the creditworthiness of the Account Debtor or because the Lender
otherwise considers the collateral value of such account to the Lender
to be impaired or its ability to realize such value to be insecure; and
(cc) if the Account Debtor is located in a state
requiring the filing of a Notice of Business Activities Report or
similar report in order to
-7-
<PAGE> 8
permit the Borrower to seek judicial enforcement in such state of
payment of such Account, the Borrower has qualified to do business in
such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year.
"Senior Liabilities" means for any period of
determination thereof an amount equal to the total of the aggregate
amount of all of the Obligations and other Liabilities other than the
Senior Notes.
"Tangible Capital Funds" means for any date of
determination thereof the total of Tangible Net Worth plus the
outstanding principal balance of the Senior Notes.
"Tangible Net Worth" means as to the Borrower and its
Subsidiaries at any date of determination thereof, the sum at such time
of: Net Worth less the total of (a) all Assets which would be
classified as intangible assets under GAAP consistently applied, (b)
leasehold improvements, (c) applicable reserves, allowances and other
similar properly deductible items to the extent such reserves,
allowances and other similar properly deductible items have not been
previously deducted by the Lender in the calculation of Net Worth, (d)
any revaluation or other write-up in book value of assets subsequent to
the date of the most recent financial statements delivered to the
Lender, and (e) the amount of all loans and advances to, or investments
in, any Person, excluding Cash Equivalents and deposit accounts
maintained by the Borrower or its Subsidiaries with any financial
institution.
5. The third paragraph of Section 2.1.1 of the Financing Agreement is
hereby deleted in its entirety, and the following is substituted in its place:
During the Revolving Credit Commitment Period, the
Lender agrees to make advances under the Revolving Loan requested by
the Borrower from time to time provided that after giving effect to the
Borrower's request, the outstanding principal balance of the Revolving
Loan and of the Letter of Credit Obligations would not exceed the
lesser of (a) the Revolving Credit Committed Amount, or (b) the then
most current Borrowing Base.
6. Section 2.1.2 of the Financing Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
The Borrower may borrow, prepay and reborrow under
the Revolving Credit Commitment on any Business Day. Advances under the
Revolving Loan shall be deposited to a demand deposit account of the
Borrower with the Lender (or an Affiliate of the Lender) or shall be
otherwise applied as directed by the Borrower, which direction the
Lender may require to be in writing. No later than noon (Baltimore
time) on the date of the requested borrowing, the Borrower shall give
the Lender oral or written notice (a "Loan Notice") of the amount and
(if requested by the Lender) the purpose of the requested borrowing.
Any oral Loan Notice shall be confirmed in writing by the Borrower
within three (3)
-8-
<PAGE> 9
Business Days after the making of the requested Revolving Loan. In
addition, the Borrower hereby irrevocably authorizes the Lender at any
time and from time to time, without further request from or notice to
the Borrower, to make advances under the Revolving Loan, and to
establish, without duplication, reserves against the Borrowing Base,
which the Lender, in its reasonable discretion, deems necessary to
cover debit balances in the Revolving Loan Account, principal of,
and/or interest on, any Loan, any of the Obligations, and/or
Enforcement Costs, prior to, on, or after the termination of other
advances under this Agreement, regardless of whether the outstanding
principal amount of the Revolving Loan which the Lender may make
hereunder exceeds the Revolving Credit Committed Amount or the
Borrowing Base.
7. Section 2.1.6 (Early Termination Fee) of the Financing Agreement is
hereby deleted in its entirety without renumbering. References in the Financing
Agreement to the "Early Termination Fee" shall be of no further force or effect.
8. The following are hereby added as new subsections to Section 2.1 of
the Financing Agreement:
2.1.7 BORROWING BASE.
As used in this Agreement, the term "Borrowing Base"
means at any time, an amount equal to the aggregate of (a) eighty five
percent (85%) of the amount of Eligible Receivables, PLUS (b) the
lesser of $1,000,000 or twenty percent (20%) of the amount of Eligible
Inventory, PLUS (c) eighty percent (80%) of the orderly liquidation
value of Equipment; PLUS (d) one hundred percent (100%) of the forced
liquidation value of the Mortgaged Property; PLUS (e) the lesser of
$5,000,000 or twenty-five percent (25%) of the fair market value of the
United States Patents subject to the duly recorded Assignment of
Patents; MINUS (f) $150,000 times the number of the Borrower's fiscal
quarters ending after September 30, 1999 and on or prior to the date of
the computation of the Borrowing Base. The values described in clauses
(c), (d) and (e) (the appraisal required by clause (e) having not yet
been made) shall be determined by appraisals prepared for the Lender
from time to time by appraisers satisfactory to the Lender and shall
include, without limitation, information required by applicable law and
regulation and by the internal policies of the Lenders and shall be
subject to internal review by the Lender. At the time of any sale,
other disposition or addition of Equipment with a fair market of
$100,000 or more that changes the value used in computing clause (c)
above, the Borrower shall so notify the Lender, identify the applicable
Equipment and the orderly liquidation value thereof (which, in the case
of additions, shall be accompanied by an appraisal meeting the
requirements of the preceding sentence). The Lender shall thereupon
adjust the amount applicable under clause (f) above pro rata based on
the changes to Equipment and so notify the Borrower.
The Borrowing Base shall be computed based on the
Borrowing Base Report most recently delivered to, and accepted by, the
Lender in its reasonable discretion. In the event the Borrower shall
fail to furnish a Borrowing
-9-
<PAGE> 10
Base Report required by Section 2.1.8 (Borrowing Base Report), or in
the event the Lender reasonably believes that a Borrowing Base Report
is no longer accurate, the Lender may, in its sole and absolute
discretion exercised from time to time and without limiting its other
rights and remedies under this Agreement, continue, suspend the making
of or limit advances under the Revolving Loan. The Borrowing Base shall
be subject to reduction by the amount of any Receivable or any
Inventory which was included in the Borrowing Base but which the Lender
determines, in accordance with this Agreement, fails to meet the
respective criteria applicable from time to time for Eligible
Receivables or Eligible Inventory.
If at any time the total of the aggregate principal
amount of the Revolving Loan and Outstanding Letter of Credit
Obligations exceeds the Borrowing Base, a borrowing base deficiency
("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base
Deficiency exists, the Borrower, at the sole and absolute discretion of
the Lender exercised from time to time, shall pay the Borrowing Base
Deficiency ON DEMAND to the Lender.
2.1.8 BORROWING BASE REPORT.
The Borrower will furnish to the Lender a report of
the Borrowing Base (each a "Borrowing Base Report"; collectively, the
"Borrowing Base Reports") in the form required from time to time by the
Lender, appropriately completed and duly signed, (x) no less frequently
than MONTHLY (i) as of the last day of October, November and December,
1999 and (ii) as of the last day of each other month during which any
amount shall be outstanding under the Revolving Loans in excess of that
permitted under the aggregate of clauses (c), (d), and (e) of the
definition of "Borrowing Base," and, otherwise, no less frequently than
QUARTERLY, and (y) at the time of requesting an advance under the
Revolving Loans in excess of that permitted under the aggregate of
clauses (c), (d), and (e) of the definition of "Borrowing Base" if no
Borrowing Base Report has been furnished as of the end of the month
preceding the month in which the advance is requested, and (z) at such
other times as may be reasonably requested by the Lender. The Borrowing
Base Report shall contain the amount and payments on the Receivables,
the value of Inventory, other property components included in the
definition of "Borrowing Base" and the calculations of the Borrowing
Base, all in such detail, and accompanied by such supporting and other
information, as the Lender may from time to time reasonably request.
Upon the Lender's reasonable request upon the creation of any
Receivables or at such other intervals as the Lender may reasonably
require, the Borrower will provide the Lender with: (a) confirmatory
assignment schedules; (b) copies of Account Debtor invoices; (c)
evidence of shipment or delivery; and (d) such further schedules,
documents and/or information regarding any of the Receivables and the
Inventory as the Lender may reasonably require. The items to be
provided under this subsection shall be in form satisfactory to the
Lender, certified as true and correct by a Responsible Officer (or by
any other officers or employees of the Borrower whom a Responsible
Officer from time to time authorizes in writing to do so), and
-10-
<PAGE> 11
delivered to the Lender from time to time solely for the Lender's
convenience in maintaining records of the Collateral. The failure of
the Borrower to deliver any such items to the Lender shall not affect,
terminate, modify, or otherwise limit the Liens of the Lender on the
Collateral.
2.1.9 MANDATORY PREPAYMENTS OF REVOLVING LOAN.
The Borrower shall make the mandatory prepayments
(each a "Revolving Loan Mandatory Prepayment" and collectively, the
"Revolving Loan Mandatory Prepayments") of the Revolving Loan at any
time and from time to time in such amounts requested by the Lender
pursuant to Section 2.1.7 (Borrowing Base) of this Agreement in order
to cover any Borrowing Base Deficiency.
9. Section 2.2.1 of the Financing Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
Subject to and upon the provisions of this Agreement,
and as a part of the Revolving Credit Commitment, the Borrower may,
upon the prior approval of the Lender, obtain standby letters of credit
(as the same may from time to time be amended, supplemented or
otherwise modified, each a "Letter of Credit" and collectively the
"Letters of Credit") from the Lender from time to time from the Closing
Date until the Business Day preceding the Revolving Credit Termination
Date. The Borrower will not be entitled to obtain a Letter of Credit
hereunder unless (a) after giving effect to the request, the
outstanding principal balance of the Revolving Loan and of the Letter
of Credit Obligations would not exceed the lesser of (i) the Revolving
Credit Committed Amount, or (ii) the most current Borrowing Base and
(b) the sum of the aggregate face amount of the then outstanding
Letters of Credit (including the face amount of the requested Letter of
Credit) does not exceed Five Million Dollars ($5,000,000).
10. Section 2.2.2 of the Financing Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
2.2.2 LETTER OF CREDIT FEES. At the opening of each
Letter of Credit, there shall be due from the Borrower to the Lender, a
letter of credit fee (each a "Letter of Credit Fee" and collectively
the "Letter of Credit Fees") in an amount equal to 200 basis points per
annum of the amount of the Letter of Credit, based on a term beginning
with the date of issuance and ending on the expiration date of the
Letter of Credit. Such Letter of Credit Fees shall be paid quarterly,
in arrears, on the last day of each March, June, September and
December. In addition, the Borrower shall pay to the Lender any and all
additional issuance, negotiation, processing, transfer or other fees to
the extent and as and when required by the provisions of any Letter of
Credit Agreement, which shall be no greater than the fees therefor
customarily charged by the Lender; such additional fees are included in
and a part of the "Fees" payable by the Borrower under the provisions
of this Agreement.
-11-
<PAGE> 12
11. Section 2.3.1(c) of the Financing Agreement is hereby deleted in
its entirety, and the following is substituted in its place:
(c) The Applicable Margin for (i) LIBOR Loans shall
be 250 basis points per annum, and (ii) Base Rate Loans shall be 50
basis points per annum.
12. Section 2.3.5 of the Financing Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
2.3.5 PAYMENT OF INTEREST.
(a) Unpaid and accrued interest on any advance of the
Revolving Loan which consists of a Base Rate Loan shall be paid
monthly, in arrears, on the first day of each calendar month,
commencing on the first such date after the date of this Agreement, and
on the first day of each calendar month thereafter, and at maturity
(whether by acceleration, declaration, extension or otherwise).
(b) Unpaid and accrued interest on any LIBOR Loan
shall be paid (i) monthly, in arrears, on the first day of each
calendar month, commencing October 1, 1999, and (ii) on the last
Business Day of each Interest Period for such LIBOR Loan and at
maturity (whether by acceleration, declaration, extension or
otherwise); provided, however that any and all unpaid and accrued
interest on any LIBOR Loan prepaid prior to expiration of the then
current Interest Period for such LIBOR Loan shall be paid immediately
upon prepayment.
13. The following is hereby added to the Financing Agreement as new
Section 4.1.25:
4.1.25 COMPLIANCE WITH ELIGIBILITY STANDARDS.
To the best of the Borrower's knowledge, each
Account, all Inventory and all other property components included in
the calculation of the Borrowing Base meet and comply with all of the
standards for Eligible Receivables, Eligible Inventory and such other
components. With respect to those Accounts which the Lender has deemed
Eligible Receivables to the best of the Borrower's knowledge, (a) there
are no facts, events or occurrences which in any way impair the
validity, collectibility or enforceability thereof or tend to reduce
the amount payable thereunder; and (b) there are no proceedings or
actions known to the Borrower which are threatened or pending against
any Account Debtor which might result in any material adverse change in
the Borrowing Base.
14. The following is hereby added to the Financing Agreement as new
Section 5.2.5:
5.2.5 BORROWING BASE.
The Borrower shall have furnished all Borrowing Base
Reports required by Section 2.1.8 (Borrowing Base Report), there shall
exist no Borrowing Base Deficiency, and as evidence thereof, the
Borrower shall have furnished to the Lender such reports, schedules,
certificates, records and other
-12-
<PAGE> 13
papers as may be reasonably requested by the Lender, and the Borrower
shall be in compliance with the provisions of Section 2.1.8 (Borrowing
Base Report) both immediately before and immediately after the making
of the advance requested.
15. Subsections (c) and (d) of Section 6.1.1 of the Financing Agreement
are hereby deleted in its entirety, and the following is substituted in their
place:
(c) MONTHLY STATEMENTS AND CERTIFICATES. The Borrower
shall furnish to the Lender as soon as available, but in no event more
than forty-five (45) days after the end of each month that is also the
end of a fiscal quarter and not more than thirty (30) days after the
end of each other month, a financial statement in reasonable detail
satisfactory to the Lender relating to the Borrower and its
Subsidiaries, prepared in accordance with GAAP, which financial
statement shall include a consolidated balance sheet of the Borrower
and its Subsidiaries, as of the end of such month and consolidated
statements of income, cash flows and changes in shareholders equity of
the Borrower and its Subsidiaries for such month, and (ii) a Compliance
Certificate, in substantially the form attached to this Agreement as
EXHIBIT C, containing a detailed computation of each financial covenant
which is tested at the end of the period reported and a certification
that no material change has occurred to the information contained in
the Collateral Disclosure List (except as set forth on any schedule
attached to the certification), all as prepared and certified by a
Responsible Officer of the Borrower and accompanied by a certificate of
that officer stating whether any event has occurred which constitutes a
Default or an Event of Default hereunder, and, if so, stating the facts
with respect thereto.
(d) OTHER MONTHLY REPORTS. The Borrower shall furnish
to the Lender within thirty (30) days after the end of each month, a
report containing the following information:
(i) a summary aging schedule of all Receivables by
Account Debtor, and accompanied by such supporting information
as the Lender may from time to time reasonably request;
(ii) a summary aging of all accounts payable;
(iii) a listing of all Inventory by component and
category, in such detail, and accompanied by such supporting
information as the Lender may from time to time reasonably
request; and
(iv) such other information as the Lender may
reasonably request.
16. Section 6.1.15 of the Financing Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
6.1.15 FINANCIAL COVENANTS.
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<PAGE> 14
(a) FIXED CHARGE COVERAGE RATIO. The Borrower will
maintain, tested for each four (4) quarter period ending as of the last
day of each of the Borrower's fiscal quarters commencing June 30, 1999,
a Fixed Charge Coverage Ratio of not less than the following:
- -------------------------------------------------------------------------------
Period Ending Ratio
- -------------------------------------------------------------------------------
June 30, 1999 0.82 to 1.0
- -------------------------------------------------------------------------------
September 30, 1999 0.55 to 1.0
- -------------------------------------------------------------------------------
December 31, 1999 0.53 to 1.0
- -------------------------------------------------------------------------------
March 31, 2000 0.62 to 1.0
- -------------------------------------------------------------------------------
June 30, 2000 0.81 to 1.0
- -------------------------------------------------------------------------------
September 30, 2000 and thereafter 1.00 to 1.0
- -------------------------------------------------------------------------------
(b) SENIOR LIABILITIES TO TANGIBLE CAPITAL FUNDS. The
Borrower will maintain, tested as of the last day of each of the
Borrower's fiscal quarters commencing June 30, 1999, a ratio of Senior
Liabilities to Tangible Capital Funds of not more than the following:
- -------------------------------------------------------------------------------
Period Ending Ratio
- -------------------------------------------------------------------------------
June 30, 1999 1.70 to 1.0
- -------------------------------------------------------------------------------
September 30, 1999 1.60 to 1.0
- -------------------------------------------------------------------------------
December 31, 1999 2.24 to 1.0
- -------------------------------------------------------------------------------
March 31 and June 30, 2000 2.00 to 1.0
- -------------------------------------------------------------------------------
September 30 and December 31, 2000; 1.90 to 1.0
March 31 and June 30, 2001
- -------------------------------------------------------------------------------
September 30, 2001 and thereafter 1.35 to 1.0
- -------------------------------------------------------------------------------
17. Notwithstanding any other provision of this Agreement, the Borrower
acknowledges and agrees that the Lender shall have no obligation at any time to
include in the Borrowing Base any Patents unless and until the Assignment of
Patents has been recorded.
18. The Borrower shall pay at the time this Agreement is executed and
delivered all fees, commissions, costs, charges, taxes and other expenses
incurred by the Lender and its counsel in connection with this Agreement,
including, but not limited to, reasonable fees and expenses of the Lender's
counsel and all recording fees, taxes and charges.
19. This Agreement may be executed in any number of duplicate originals
or counterparts, each of such duplicate originals or counterparts shall be
deemed to be an original
-14-
<PAGE> 15
and taken together shall constitute but one and the same instrument. The parties
agree that their respective signatures may be delivered by facsimile. Any party
which chooses to deliver its signature by facsimile agrees to provide a
counterpart of this Agreement with its inked signature promptly to each other
party.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement under seal as of the date and year first written above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS: BANK OF AMERICA, NATIONAL ASSOCIATION, formerly
"NationsBank, N.A."
/s/ Cherilyn Sauers By: /s/ Melba B. Quizon (SEAL)
- ------------------------------ -----------------------------------
Name: Melba B. Quizon
Title Vice President
WITNESS: GLASSTECH, INC.
/s/ Kenneth H. Wetmore By: /s/ Diane S. Tymiak (SEAL)
- ------------------------------ -----------------------------------
Name: Diane S.Tymiak
Title: Vice President,
Treasurer and Chief
Financial Officer
</TABLE>
-15-
<PAGE> 16
Schedule 1.1
The Account Debtors referred to in the clauses (h), (i) and (o) of the
definition of "Eligible Receivables" are:
Asahi Glass Group
Central Glass Group
Compaigne de Saint-Gobain Group
DaimlerChrysler Group
Ford Motor Company Group
*Guardian Glass Group
*Hankuk Glass Group
*Keumkang Chemical Group
Nippon Sheet Glass Group
PPG Industries Group
Pilkington Group
provided, however, that an Account Debtor with an "*" by its name shall not
qualify for the exceptions under clauses (h), (i) and (o) of the definition of
"Eligible Receivables" until the Lender completes its due diligence for that
Account Debtor.
-16-
<PAGE> 17
EXHIBIT C
COMPLIANCE CERTIFICATE
----------------------
(QUARTER END AND YEAR END)
THIS CERTIFICATE is made as of __________________, _________, by
GLASSTECH, INC., a corporation organized under the laws of Delaware (the
"Borrower"), BANK OF AMERICA, NATIONAL ASSOCIATION, a national banking
association (the "Lender"), formerly "NationsBank, N.A.," pursuant to Section
6.1.1(c) of the Financing and Security Agreement dated October 29, 1997, (as
amended by (i) that certain First Amendment to Financing and Security Agreement
dated as of October 29, 1997, (ii) that certain Second Amendment to Financing
and Security Agreement dated as of December 31, 1998, and (iii) Third Amendment
to Financing and Security Agreement dated June 29, 1999, and as amended,
modified, restated, substituted, extended and renewed at any time and from time
to time, the "Financing Agreement") by and between the Borrower and the Lender.
I, ____________________, hereby certify that I am the ______________ of
the Borrower and am a Responsible Officer (as that term is defined in the
Financing Agreement) authorized to certify to the Lender on behalf the Borrower
as follows:
1. This Certificate is given to induce the Lender to make advances to
the Borrower under the Financing Agreement.
2. This Certificate accompanies the _____________ financial statements
for the period ended ___________________, ____ (the "Current Financials") which
the Borrower is furnishing to the Lender pursuant to Section 6.1.1(__) of the
Financing Agreement. The Current Financials have been prepared in accordance
with GAAP (as that term is defined in the Financing Agreement).
3. As required by Section 6.1.1(__) of the Financing Agreement, I have
set forth on Schedule 1 a detailed computation of each financial covenant in
Financing Agreement.
4. No change has occurred to the information contained in the
Collateral Disclosure List except as set forth on Schedule 2 to this
Certificate. By way of example and not limitation, the Collateral Disclosure
List, together with Schedule 2, contains a listing of all of the Borrower's
Patents, Trademarks, Copyrights (as those terms are defined in the Financing
Agreement), all locations (owned, leased, warehouses or otherwise) where any
Collateral (as that term is defined in the Financing Agreement) is located, all
Subsidiaries (as that term is defined in the Financing Agreement).
5. As of the date hereof, there exists no Default or Event of Default,
as defined in the Article 7 of the Financing Agreement, nor any event which,
upon notice or the lapse of time, or both, would constitute such an Event of
Default.
6. On the date hereof, the representations and warranties contained in
Article 4 of the Financing Agreement are true with the same effect as though
such representations and warranties had been made on the date hereof, except
that the representations and warranties which relate to
-17-
<PAGE> 18
financial statements which are referred to in Section 4.1.11 of the Financing
Agreement, shall also be deemed to cover financial statements furnished from
time to time to the Lender pursuant to Section 6.1.1 (Financial Statements) of
the Financing Agreement.
WITNESS my signature this _____ day of ____________, _______.
------------------------------
Name:
Title:
-18-
<PAGE> 19
EXHIBIT C
COMPLIANCE CERTIFICATE
(MONTHLY)
THIS CERTIFICATE is made as of __________________, _________, by
GLASSTECH, INC., a corporation organized under the laws of Delaware (the
"Borrower"), BANK OF AMERICA, NATIONAL ASSOCIATION, a national banking
association (the "Lender"), formerly "NationsBank, N.A.," pursuant to Section
6.1.1(c) of the Financing and Security Agreement dated October 29, 1997, (as
amended by (i) that certain First Amendment to Financing and Security Agreement
dated as of October 29, 1997, (ii) that certain Second Amendment to Financing
and Security Agreement dated as of December 31, 1998, and (iii) Third Amendment
to Financing and Security Agreement dated June 29, 1999, and as amended,
modified, restated, substituted, extended and renewed at any time and from time
to time, the "Financing Agreement") by and between the Borrower and the Lender.
I, ____________________, hereby certify that I am the ______________ of
the Borrower and am a Responsible Officer (as that term is defined in the
Financing Agreement) authorized to certify to the Lender on behalf the Borrower
as follows:
1. This Certificate is given to induce the Lender to make advances to
the Borrower under the Financing Agreement.
2. This Certificate accompanies the monthly financial statements for
the period ended ___________________, ____ (the "Current Financials") which the
Borrower is furnishing to the Lender pursuant to Section 6.1.1(c) of the
Financing Agreement. The Current Financials have been prepared in accordance
with GAAP (as that term is defined in the Financing Agreement).
3. No material change has occurred to the information contained in the
Collateral Disclosure List except as set forth on Schedule 2 to this
Certificate.
4. As of the date hereof, there exists no Default or Event of Default,
as defined in the Article 7 of the Financing Agreement, nor any event which,
upon notice or the lapse of time, or both, would constitute such an Event of
Default.
5. On the date hereof, the representations and warranties contained in
Article 4 of the Financing Agreement are true with the same effect as though
such representations and warranties had been made on the date hereof, except
that the representations and warranties which relate to financial statements
which are referred to in Section 4.1.11 of the Financing Agreement, shall also
be deemed to cover financial statements furnished from time to time to the
Lender pursuant to Section 6.1.1 (Financial Statements) of the Financing
Agreement.
-19-
<PAGE> 20
WITNESS my signature this _____ day of ____________, _______.
------------------------------
Name:
Title:
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 8,661
<SECURITIES> 0
<RECEIVABLES> 5,570
<ALLOWANCES> (40)
<INVENTORY> 3,367
<CURRENT-ASSETS> 17,908
<PP&E> 9,659
<DEPRECIATION> (2,870)
<TOTAL-ASSETS> 88,662
<CURRENT-LIABILITIES> 13,013
<BONDS> 69,464
0
0
<COMMON> 0
<OTHER-SE> 5,763
<TOTAL-LIABILITY-AND-EQUITY> 88,662
<SALES> 50,545
<TOTAL-REVENUES> 50,545
<CGS> 31,768
<TOTAL-COSTS> 31,768
<OTHER-EXPENSES> 16,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,668
<INCOME-PRETAX> (6,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,782)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
