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August 12, 2000

    The 108-page agreement between PPG Industries and Apogee Enterprises, Inc. offers an interesting insight into the formation and future plans of the new PPG Auto Glass LLC (PAGL). The agreement, signed by Gary Goudy, PPG's vice president, ARG and Robert Barbieri, Apogee's financial officer, details the scope of the new company. Barbieri, who announced his resignation less than three weeks after the signing of the agreement, signed the contract to create a new distribution company of which PPG holds a 66 percent equity stake and Apogee a 34 percent equity stake. Among the interesting provisions:

Asset Transfer

    The agreement calls for Apogee to convey all its assets that are used or reserved for use exclusively in the operations of the company's field locations. There is a long list of exempted assets, including Apogee's "National Distribution Center" and its inventory. The assets of Harmon Retail and Harmon Solutions are also specifically exempted from the sale.

Employees

    Both companies are leasing employees to the new company. The agreement calls for a "leasing period" during which employees from each of PPG and Apogee will be leased to the new company. At the end of leasing period, the contributed employees will be offered positions with PAGL. Contributed employees who receive an offer of employment from PAGL will not be eligible for severance benefits from either PPG or Apogee. Those who do not become leased or transferred employees will be provided severance benefits. >

Management and Operating Policies

    The new company has a Board of Managers consisted of five people-three designated by PPG and two by Apogee. The new company also has nine officers-chair, president, chief financial officer, controller and four regional vice presidents. As long as PPG's equity is greater than 50 percent the president CFO and director of human resources will be elected by the managers designated by PPG. As long as PPG's equity percentage is greater than 50 percent, PAGl will adopt the financial, accounting, environmental, health, safety, human resources, budget preparation, capital expenditure approval, contract approval and other similar policies of PPG. >

Purchase Right in the Event of a Change in Control of Either Company

    Should the control of Apogee change, PPG may chose to take one of three actions. It may purchase all of Apogee's interest in PAGL at a value determined by prescribed buy-out formula; or it may increase its membership interest through purchase to 80 percent, or it may choose to accept the new minority member.

    Should the control of PPG's glass business change, Apogee could choose one of two actins. It could require PPG to purchase all of Apogee's interest at a value determined by a prescribed buy-out formula, or it could accept the new majority member without objection. There is an interesting note in the contract that defines PPG's glass business to mean its automotive flat glass manufacturing, auto glass fabrication and automotive replacement glass businesses so long as these businesses continue to be an integrated operation; if they are no so integrated, then it shall mean only PPG's automotive replacement glass business. For avoidance of doubt, PPG's automotive replacement glass business many have a Change of Control independent from the rest of the PPG Glass Business …"

Poor Financial Performance

    The contract calls for each company to have differing options in the event of what it calls "poor financial performance." In such event, Apogee could "trigger" PPG to do one of the following:

1. Purchase Apogee's interest at a value determined by a prescribed buy-out formula;
2. Permit Apogee to transfer all its interest to another party. A partial transfer is not allowed.
3. Require both to pursue a reorganization transaction;
4. Require both parties to pursue liquidation.

PPG can also trigger either of the last two actions (3 or 4) in light of poor financial performance

(c)2000 by Key Communications, Inc., publishers of USGlass and AGRR magazines. All rights reserved. Reprinted with permission.

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