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Registration No. 333-163906
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-1
 
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Globe Specialty Metals, Inc.
(Exact name of registrant as specified in its charter)
 
 
         
Delaware
  3330   20-2055624
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)
  Classification Code Number)   Identification Number)
 
 
One Penn Plaza
250 West 34th Street, Suite 2514
New York, NY 10119
(212) 798-8122
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
 
 
Jeff Bradley, Chief Executive Officer
One Penn Plaza
250 West 34th Street, Suite 2514
New York, NY 10119
(212) 798-8122
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Jeffrey E. Jordan, Esq.
Arent Fox LLP
1050 Connecticut Avenue
Washington DC 20036
(202) 857-6000
 
 
Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  þ
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
                         
            Proposed Maximum
    Proposed Maximum
    Amount of
Title of Each Class of
    Amount to be
    Offering Price
    Aggregate Offering
    Registration
Security Being Registered     Registered     per Share(2)     Price(2)     Fee(2)
Common Stock, $0.0001 par value
    54,756,950(1)     $8.565     $468,993,277     $26,170.00
Common Stock, $0.0001 par value
    3,349,902(1)     $9.14     $30,618,104.28     $2,183.07
Total
    58,106,852(1)                 $28,353.07(3)
                         
(1) Of the 58,106,852 shares included in this offering, 54,756,950 shares were previously registered on a Registration Statement on Form S-1 filed on August 3, 2009 and amended on October 15, 2009 (File No. 333-160973).
(2) Calculated pursuant to Rule 457(c) of the rules and regulations under the Securities Act, the offering price and the registration fee are calculated on the basis of the average high and low prices of the shares of the registrant’s common stock as of a date within five business days prior to the date of the filing of the registration statement (October 8, 2009 for File No. 333-160973 and December 18, 2009 for this registration statement).
(3) $26,170.00 was previously paid in connection with File No. 333-160973 and $2,183.07 was previously paid in connection with this registration statement.
 
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included in this Registration Statement is a combined prospectus that also relates to the Registration Statement (File No. 333-160973), previously filed by the Registrant on Form S-1.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED APRIL 20, 2010
PRELIMINARY PROSPECTUS
 
58,106,852 Shares
 
(GLOBE SPECIALITY METALS LOGO)
 
Common Stock
 
 
The selling stockholders named in this prospectus are offering up to 58,106,852 shares of our common stock. The selling stockholders will receive all proceeds from the sale of the common stock, and therefore we will not receive any of the proceeds from their sale of the common stock.
 
Our common stock is listed on the NASDAQ Global Select Market under the symbol “GSM.” On April 19, 2010, the closing price of our common stock on the NASDAQ Global Select Market was $11.90 per share. We expect that the selling stockholders will sell their shares of our common stock at prevailing market prices or privately negotiated prices. See also “Plan of Distribution.”
 
Investing in our common stock involves risks. See “Risk Factors” on page 3.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is April 20, 2010


 

 
TABLE OF CONTENTS
 
         
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    F-1  
 
 
You should rely only on the information contained in or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different. The securities are offered only in jurisdictions where offers and sales are permitted. The information appearing in this prospectus, as well as information in documents we previously filed with the Securities and Exchange Commission and incorporated herein by reference, may only be accurate as of their respective dates or on other dates which are specified in those documents, regardless of the time of delivery of this prospectus or of any sale of the securities. Our business, financial condition, results of operations and prospects may have changed since those dates.


 

 
PROSPECTUS SUMMARY
 
This summary does not contain all of the information that you should consider in making an investment decision. You should read the entire prospectus and the documents incorporated by reference before investing. Unless otherwise stated in this prospectus, references to “we,” “us” or “our company” refer to Globe Specialty Metals, Inc. and its subsidiaries.
 
Our Business
 
Overview
 
We are one of the leading manufacturers of silicon metal and silicon-based alloys. We own ten manufacturing facilities principally in three primary operating segments: GMI, our U.S. operations, including the Core Metals Group companies acquired on April 1, 2010; Globe Metais, our Brazilian operations, the manufacturing component of which was sold on November 5, 2009; and Globe Metales, our Argentine operations.
 
Our principal offices are located at One Penn Plaza, Suite 2514, 250 West 34th Street, New York, NY 10119. Our telephone number there is (212) 798-8122.
 
Risk Factors
 
Please read the section entitled “Risk Factors” for a discussion of the risk factors you should carefully consider before deciding to invest in our common stock.


1


 

The Offering
 
Issuer Globe Specialty Metals, Inc.
 
Common Stock offered by the selling stockholders
A total of up to 58,106,852 shares held by the selling stockholders. The selling stockholders may or may not sell any or all of the shares that have been registered by us.
 
Common Stock outstanding 74,323,268 shares of common stock. Our outstanding shares exclude:
 
• 4,365,000 shares of common stock issuable upon the exercise of stock options outstanding as of April 19, 2010 at a weighted-average exercise price of $5.21 per share; and
 
• 631,919 shares of common stock reserved for future awards under our stock plan.
 
Use of Proceeds We will not receive any proceeds from the sale of our common stock by the selling stockholders pursuant to this prospectus.
 
Risk Factors Please read “Risk Factors” beginning on page 3 of this prospectus for a discussion of factors you should carefully consider before deciding to purchase shares of our common stock.
 
NASDAQ Global Select Market symbol
“GSM”


2


 

 
RISK FACTORS
 
An investment in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below and in our annual report on Form 10-K and subsequent quarterly report on Form 10-Q, incorporated into this prospectus, together with all of the other information included or incorporated by reference in this prospectus, before deciding to invest in our common stock. If any of the events described in the risk factors actually occur, our business, business prospects, financial condition, results of operations or cash flows could be materially affected. In any such case, the trading price of our common stock could decline, and you could lose all or part of your investment. This prospectus also contains or incorporates by reference forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described.
 
Risks Associated with our Business and Industry
 
For a description of the risks associated with our business and industry please see the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended June 30, 2009 and the section entitled “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2009.
 
Risks Related to the Offering
 
A substantial portion of our total outstanding shares may be sold into the market at any time. This could cause the market price of our common stock to drop significantly, regardless of our financial results.
 
All of the shares being sold in this offering will be freely tradable without restrictions or further registration under the federal securities laws, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Sales of a substantial number of shares of our common stock, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
 
The concentration of our capital stock ownership among our largest stockholders, and their affiliates, will limit your ability to influence corporate matters.
 
Our four largest stockholders, including our Executive Chairman, together beneficially own approximately 40% of our outstanding common stock. Consequently, these stockholders have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership will limit your ability to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial.
 
Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.
 
Our stock price may be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the price at which you purchase the shares. The market price for our common stock may be influenced by many factors, including:
 
  •  the success of competitive products or technologies;
 
  •  regulatory developments in the United States and foreign countries;
 
  •  developments or disputes concerning patents or other proprietary rights;
 
  •  the recruitment or departure of key personnel;
 
  •  quarterly or annual variations in our financial results or those of companies that are perceived to be similar to us;


3


 

 
  •  market conditions in the industries in which we compete and issuance of new or changed securities analysts’ reports or recommendations;
 
  •  the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
 
  •  the inability to meet the financial estimates of analysts who follow our common stock;
 
  •  investor perception of our company and of the industry in which we compete; and
 
  •  general economic, political and market conditions.
 
We do not expect to pay any cash dividends in the foreseeable future.
 
We intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock may be your sole source of gain for the foreseeable future.
 
Provisions of our certificate of incorporation and by-laws could discourage potential acquisition proposals and could deter or prevent a change in control.
 
Some provisions in our certificate of incorporation and by-laws, as well as Delaware statutes, may have the effect of delaying, deferring or preventing a change in control. These provisions, including those providing for the possible issuance of shares of our preferred stock and the right of the Board of Directors to amend the bylaws, may make it more difficult for other persons, without the approval of our Board of Directors, to make a tender offer or otherwise acquire a substantial number of shares of our common stock or to launch other takeover attempts that a stockholder might consider to be in his or her best interest. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock.


4


 

 
DIVIDEND POLICY
 
At the present time, we intend to retain all of our available earnings generated by operations for the development and growth of the business. The decision to pay dividends is at the discretion of our Board of Directors and depends on our financial condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant.


5


 

 
USE OF PROCEEDS
 
We will not receive any proceeds from the sale of our common stock by the selling stockholders pursuant to this prospectus.


6


 

 
PRICE RANGE OF OUR COMMON STOCK
 
Our common stock is listed on the NASDAQ Global Select Market under the symbol “GSM.” As of April 19, 2010, we had 74,323,268 shares of common stock outstanding and approximately 77 shareholders of record. The number of record holders does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
 
The table below provides, for the periods indicated, the high and low sales price per share of our common stock, as quoted on the NASDAQ Global Select Market. Our shares have been traded on the NASDAQ Global Select Market since our initial U.S. public offering on July 30, 2009.
 
                 
    High     Low  
 
Fiscal Year 2010:
               
First Quarter (July 30, 2009 — September 30, 2009)
  $ 9.22     $ 6.81  
Second Quarter (October 1, 2009 — December 31, 2009)
    9.75       7.60  
Third Quarter (January 1, 2010 — March 31, 2010)
    11.35       9.28  
Fourth Quarter (April 1, 2010 — April 19, 2010)
    12.15       11.24  


7


 

 
PRINCIPAL STOCKHOLDERS
 
The following table sets forth information as of April 19, 2010, as to the beneficial ownership of our common stock, in each case, by:
 
  •  each of our Named Executive Officers;
 
  •  each of our directors;
 
  •  all our current executive officers and directors as a group; and
 
  •  each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock.
 
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of April 19, 2010, pursuant to the exercise of options, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 74,323,268 shares of common stock outstanding on April 19, 2010. Brokers or other nominees may hold shares of our common stock in “street name” for customers who are the beneficial owners of the shares. As a result, we may not be aware of each person or group of affiliated persons who own more than 5% of our common stock.
 
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Globe Specialty Metals, Inc., One Penn Plaza, 250 West 34th Street, Suite 2514, New York, NY 10119.
 
                 
    Shares
    Percentage of Shares
 
Name of Beneficial Owner
  Beneficially Owned     Beneficially Owned  
 
Directors and Executive Officers:
               
Alan Kestenbaum(1)
    11,502,505       15 %
Jeff Bradley(2)
    375,000       *
Arden Sims(3)
    910,082       1 %
Malcolm Appelbaum(4)
    150,000       *
Stephen Lebowitz(5)
    96,500       *
Theodore A. Heilman, Jr.(6)
    740,373       *
Stuart E. Eizenstat(7)
    13,060       *
Daniel Karosen(8)
    13,570       *
Donald G. Barger, Jr(9)
    14,135       *
Thomas A. Danjczek(10)
    12,761       *
Franklin Lavin(11)
    13,205       *
All directors and executive officers as a group (11 individuals)(12)
    13,841,191       19 %
                 
Five Percent Stockholders:
               
Luxor Capital Group LP(13)
    6,863,225       9 %
D.E. Shaw Laminar International, Inc. and affiliates(14)
    6,523,453       9 %
FMR LLC(15)
    5,937,564       8 %
Goodman & Company, Investment Counsel Ltd.(16)
    4,526,523       6 %
 
 
Less than one (1%) percent.
 
(1) Includes 375,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010 and 77,967 shares subject to an escrow agreement and forfeiture in certain cases.


8


 

 
(2) Includes 187,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(3) Includes 125,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010 and 19,112 shares subject to an escrow agreement and forfeiture in certain cases.
 
(4) Includes 75,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(5) Includes 37,500 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(6) Includes 419 shares subject to an escrow agreement and forfeiture in certain cases.
 
(7) Includes 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(8) Includes 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(9) Includes 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(10) Includes 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(11) Includes 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(12) Includes 830,750 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010 and 97,498 shares subject to an escrow agreement and forfeiture in certain cases.
 
(13) Based upon an amended Schedule 13G filed with the SEC on February 16, 2010. Luxor Capital Group, LP (LCG) acts as the investment manager of proprietary private investment funds and separately managed accounts that own the shares, and as investment manager LCG may exercise dispositive and voting authority over the shares. Luxor Management, LLC is the general partner of LCG.
 
(14) Based upon a Schedule 13G filed with the SEC on November 5, 2009. Consists of shares from D.E. Shaw Laminar International, Inc., D.E. Shaw Composite Side Pocket Series 1, L.L.C., and D.E. Shaw Composite Side Pocket Series 7, L.L.C., of which 112,282 shares are subject to an escrow agreement and forfeiture in certain cases. D.E. Shaw & Co., L.P., as investment adviser, has voting and investment control over the shares beneficially owned by D.E. Shaw Laminar International, Inc., D.E. Shaw Composite Side Pocket Series 1, L.L.C., and D.E. Shaw Composite Side Pocket Series 7, L.L.C.
 
(15) Based upon a Schedule 13G filed with the SEC on February 16, 2010. Fidelity Management & Research Company (“Fidelity”), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of these shares of Globe Specialty Metals, Inc. (the “Company”) as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940 (the “Funds”). FMR reported that it possessed sole voting and dispositive power of 5,937,564 shares. It also reported that it did not possess shared voting or dispositive power over any shares beneficially owned.
 
(16) Based upon a Schedule 13G filed with the SEC on January 26, 2010. Goodman & Company, Investment Counsel Ltd. (“Goodman”), One Adelaide Street East, 29th Floor, Toronto, Ontario, Canada, M5C 2V9, is the beneficial owner of these shares which are held by mutual funds or other client accounts managed by them acting as Investment Counsel and Portfolio Manager. Goodman reported that it possessed sole voting and dispositive power of 4,526,523 shares. It also reported that it did not possess shared voting or dispositive power over any shares beneficially owned.


9


 

 
SELLING STOCKHOLDERS
 
The selling stockholders may from time to time offer and sell pursuant to this prospectus any or all of the shares of common stock set forth below in the column entitled “Shares Being Offered Pursuant to This Prospectus.” When we refer to the selling stockholders in this prospectus, we mean those persons listed in the table below, as well as the permitted transferees, pledgees, donees, assignees, successors and others who later come to hold any of the selling stockholders’ interests other than through a public sale.
 
The table below sets forth the name of each selling stockholder and the number of shares of common stock that each selling stockholder may offer pursuant to this prospectus. Unless otherwise noted in the footnotes to the table below, the information regarding the number of “Shares Beneficially Owned by the Selling Stockholders Before the Offering” is based on information provided to us by those stockholders or reported to the SEC on Schedule 13G. Except as noted in the footnotes to the table below, we are not aware of any sale of shares by the selling stockholders subsequent to October 15, 2009 pursuant to the registration statement previously filed on Form S-1 (File No. 333-160973). Except as noted below, none of the selling stockholders has, or within the past three years has had, any material relationship with us or any of our affiliates.
 
Based on the information provided to us by the selling stockholders, assuming that the selling stockholders sell all of the shares of common stock beneficially owned by them that have been registered by us and do not acquire any additional shares of common stock, each selling stockholder will not beneficially own any shares of common stock other than the shares of common stock appearing in the column entitled “Shares Beneficially Owned After This Offering.” We cannot advise you as to whether the selling stockholders will in fact sell any or all of such shares. In addition, the selling stockholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the shares of common stock after the date on which each selling stockholder actually provided the information set forth in the table below.
 
                                     
        Shares
           
        Being
           
        Offered
           
        Pursuant
           
        to This
           
    Shares
  Prospectus
           
    Beneficially
  (Maximum
  Shares
  Percentage
    Owned
  Number
  Beneficially
  Beneficially Owned
    Before
  That May
  Owned After
  Before
  After
Name of Selling Stockholder
  This Offering   be Sold)   This Offering   Offering   Offering
 
Alan Kestenbaum **†(1)
    11,510,205       10,760,205       750,000       15 %   1%
Luxor Capital Group LP†(2)
    7,005,212       7,005,212             9 %  
Plainfield Asset Management LLC†(3)
    6,914,443       6,914,443             9 %  
D.E. Shaw Laminar International, Inc. and affiliates†(4)     6,523,453       6,523,453             9 %  
FMR LLC†(5)
    6,032,260       4,948,741       1,083,519       8 %   1%
Franklin Mutual Advisers, LLC†(6)
    3,090,952       3,090,952             4 %  
Cartesian Capital Group, LLC†(7)
    2,746,962       2,746,962             4 %  
Corsair Capital Management†(8)
    2,364,352       2,364,352             3 %  
Samlyn Capital LLC†(9)
    1,819,647       1,819,647             2 %  
Michael Barenholtz†(10)
    1,677,385       1,677,385             2 %  
Steven Major†(11)
    1,256,067       516,447       739,620       2 %   1%
Arch Capital Investors, LP†(12)
    981,000       981,000             1 %  
Perry Corp.†(13)
    933,776       386,900       546,876       1 %   *
Trellus Management Co., LLC†(14)
    905,000       905,000             1 %  
Arden Sims **†(15)
    910,082       660,082       250,000       1 %   *
Tensor Opportunity Equities Ltd.(16)
    750,000       750,000             *    
Theodore A. Heilman, Jr. **†(17)
    740,373       240,373       500,000       *     *


10


 

                                     
        Shares
           
        Being
           
        Offered
           
        Pursuant
           
        to This
           
    Shares
  Prospectus
           
    Beneficially
  (Maximum
  Shares
  Percentage
    Owned
  Number
  Beneficially
  Beneficially Owned
    Before
  That May
  Owned After
  Before
  After
Name of Selling Stockholder
  This Offering   be Sold)   This Offering   Offering   Offering
 
Eastern Advisors Capital†(18)
    710,725       710,725             *    
Super Energy Co. Limited†(19)
    540,551       540,551             *    
Jonathan Lee†(20)
    471,452       471,452             *    
Serengeti Asset Management LP†(21)
    450,000       450,000             *    
Canyon Capital Advisors LP†(22)
    443,112       443,112             *    
Wasatch Funds(23)
    426,585       426,585             *    
Jay Petscheck†
    365,198       365,198             *    
BNP Paribas(24)
    230,564       230,564             *    
U Capital Partners LP†(25)
    200,390       200,390             *    
Long Ball Partners, LLC†(26)
    170,104       170,104             *    
Rockwood Group LLC(27)
    145,668       145,668             *    
Cetus Capital, LLC†(28)
    134,010       134,010             *    
Lyrical Partners, L.P.†(29)
    124,000       124,000             *    
Whitebox Advisors, LLC†(30)
    89,314       89,314             *    
Sheldon Goldman†
    78,372       78,372             *    
Birch Run Capital LLC(31)
    76,900       76,900             *    
Eric E. Chen†
    60,000       60,000             *    
U Capital Offshore Investments LP†(32)
    58,940       58,940             *    
Periscope Partners L.P.†(33)
    48,495       48,495             *    
SFG Global Fund†(34)
    40,500       40,500             *    
Schindlers Reg. Treuunternehmen(35)
    34,540       34,540             *    
Renstone Investment Limited†(36)
    33,333       33,333             *    
Kamyar Vaghar Vincent
    27,000       27,000             *    
LKES Ltd.(37)
    25,236       25,236             *    
Brad Gold
    25,000       25,000             *    
Cedarview Capital Management, L.P.†(38)
    20,400       20,400             *    
Glickenhaus & Co.†(39)
    17,000       17,000             *    
Anson Beard†
    15,500       15,500             *    
Marlin Perkins **†
    13,410       13,410             *    
Jefferies International Ltd.(40)
    11,702       11,702             *    
Hayes Kern ***†
    11,175       11,175             *    
Duane Huck **†
    11,175       11,175             *    
Alec Henry†
    8,498       8,498             *    
Institutional Benchmark Series (Master Feeder) Limited in Respect of Centaur†(41)     7,252       7,252             *    
WPS Capital Fund, LLC(42)
    7,000       4,000       3,000       *     *
Daniel Karosen **†(43)
    13,570       171       13,399       *     *
Stuart Eizenstat **†(44)
    13,060       110       12,950       *     *
Jonathan Hollander
    6,200       6,200             *    
Sam Berger†
    5,622       5,622             *    
Ronald Black†
    5,250       5,250             *    

11


 

                                     
        Shares
           
        Being
           
        Offered
           
        Pursuant
           
        to This
           
    Shares
  Prospectus
           
    Beneficially
  (Maximum
  Shares
  Percentage
    Owned
  Number
  Beneficially
  Beneficially Owned
    Before
  That May
  Owned After
  Before
  After
Name of Selling Stockholder
  This Offering   be Sold)   This Offering   Offering   Offering
 
Uniwire International Limited Profit Sharing Plan†(45)     4,877       4,877             *    
Kasemsante Boonswang†
    4,000       4,000             *    
Azai Appelbaum†
    3,808       3,808             *    
Fort Vale Engineering Limited(46)
    3,150       3,150             *    
Lewis Kessler
    2,500       2,500             *    
Archer Capital Management LP†(47)
    2,240       2,240             *    
Dr. H.J. Beentje
    1,370       1,370             *    
Barry Allan Mosheim†
    1,330       1,330             *    
Andrew Mies†
    1,268       1,268             *    
Tommy Hess†
    975       975             *    
Mordechai Pluchenik†
    975       975             *    
Elie Mishaan†
    679       679             *    
Jennifer Furr
    500       500             *    
Jonathan Meltzer
    150       150             *    
All other selling stockholders
    640,422       640,422             *    
 
 
 * Less than one (1%) percent.
 
** Individual listed is one of our officers or directors.
 
*** Individual listed is a former officer of a subsidiary of the company.
 
†  All of the shares held by this holder were registered pursuant to the Registration Statement (File No. 333-160973), previously filed by the Registrant on Form S-1.
 
(1) Includes 77,658 shares subject to an escrow agreement and forfeiture in certain cases. Shares Beneficially Owned Before This Offering include 375,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010. Since October 15, 2009, Mr. Kestenbaum has made gifts of 7,700 shares registered pursuant to this registration statement.
 
(2) Luxor Capital Group, LP (LCG) acts as the investment manager of proprietary private investment funds and separately managed accounts that own the shares, and as investment manager LCG may exercise dispositive and voting authority over the shares. Luxor Management, LLC is the general partner of LCG. Mr. Christian Leone is the managing member of Luxor Management, LLC. LCG Holdings, LLC is the general partner or managing member of the proprietary private investment funds organized in the United States. Mr. Leone is the managing member of LCG Holdings, LLC. For a description of other material relationships the selling stockholder has had with the company, see the section entitled “Certain Relationships and Related Party Transactions” in our Annual Report on Form 10-K filed on October 5, 2009. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Luxor Capital Group, LP has sold 141,987 shares.
 
(3) Includes 32,601 shares subject to an escrow agreement and forfeiture in certain cases. Max Holmes, Chief Investment Officer of Plainfield Asset Management LLC (Plainfield), has the power to direct investments and/or vote the securities held by the affiliates of Plainfield, for which Plainfield serves as investment manager. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Plainfield and Max Holmes may be deemed to be a beneficial owner of such securities; however, Plainfield and Max Holmes each expressly disclaim beneficial ownership of such securities. For a

12


 

description of other material relationships the selling stockholder has had with the company, see the section entitled “Certain Relationships and Related Party Transactions” in our Annual Report on Form 10-K filed on October 5, 2009. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Plainfield Asset Management LLC has sold 3,448,771 of its shares.
 
(4) Consists of shares from D.E. Shaw Laminar International, Inc., D.E. Shaw Composite Side Pocket Series 1, L.L.C., and D.E. Shaw Composite Side Pocket Series 7, L.L.C., of which 112,282 shares are subject to an escrow agreement and forfeiture in certain cases. D.E. Shaw & Co., L.P., as investment adviser, has voting and investment control over the shares beneficially owned by D.E. Shaw Laminar International, Inc., D.E. Shaw Composite Side Pocket Series 1, L.L.C., and D.E. Shaw Composite Side Pocket Series 7, L.L.C. Julius Gaudio, Eric Wepsic, Maximilian Stone, Anne Dinning, and Lou Salkind, or their designees, exercise voting and investment control over the shares on D.E. Shaw & Co., L.P.’s behalf. For a description of other material relationships the selling stockholder has had with the company, see the section entitled “Certain Relationships and Related Party Transactions” in our Annual Report on Form 10-K filed on October 5, 2009.
 
(5) Fidelity Management & Research Company (“Fidelity”), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 5,937,641 shares of Globe Specialty Metals, Inc. (the “Company”) as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940 (the “Funds”). Edward C. Johnson 3d, Chairman of FMR LLC, and FMR LLC, through its control of Fidelity, and the Funds each has sole power to dispose of the 5,937,641 shares owned by the Funds. Neither FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to vote or direct the voting of the shares owned directly by the Funds, which power resides with the Funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds’ Board of Trustees.
 
Pyramis Global Advisors Trust Company (“PGATC”), 900 Salem Street, Smithfield, Rhode Island, 02917, an indirect wholly-owned subsidiary of FMR LLC and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 1,100 shares of the Company as a result of its serving as investment manager of institutional account(s) owning such shares. Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole dispositive power over 1,100 shares. Neither FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to vote or to direct the voting of these shares.
 
The shares reported as beneficially owned by FMR LLC also includes shares beneficially owned by FIL Limited (“FIL”), Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, and various foreign-based subsidiaries of FIL that provide investment advisory and management services to a number of non-U.S. investment companies and certain institutional investors. FIL is the beneficial owner of 93,519 shares of the Company. FIL has sole dispositive power over 93,519 shares and sole power to vote or to direct the voting of 93,519 shares of common stock owned by the account(s) managed by FIL as reported above.
 
FMR LLC and FIL are separate and independent corporate entities, and their Boards of Directors are generally composed of different individuals. FMR LLC and FIL are of the view that they are not acting as a “Group” for purposes of Section 13(d) under the Securities Exchange Act of 1934 (the “1934 Act”) and that they are not otherwise required to attribute to each other the “beneficial ownership” of securities “beneficially owned” by the other corporation within the meaning of Rule 13d-3 promulgated under the 1934 Act. Therefore, they are of the view that the shares held by the other corporation need not be aggregated for purposes of Section 13(d). However, FMR LLC reports beneficial ownership of shares for purposes of Section 13(d) under the 1934 Act on a voluntary basis as if all of the shares are beneficially owned by FMR LLC and FIL on a joint basis. Since October 15, 2009, based on our knowledge and belief as of the date hereof, FMR LLC has sold 94,696 shares.


13


 

 
The following table identifies the specific Funds that are participating in this offering pursuant to this registration statement, and includes, for each Fund, the total number of common shares owned before the offering and the number of shares being offered:
 
                 
    Total No. of
  No. of
    Common
  Common
    Shares
  Shares Being
Fund
  Owned   Offered
 
Variable Insurance Products Fund III: Value Strategies Portfolio
    140,455       109,855  
Variable Insurance Products Fund II: Contrafund Portfolio
    2,251,833       2,093,133  
Fidelity Devonshire Trust: Fidelity Series All-Sector Equity Fund
    645,208       577,108  
Fidelity Advisor Series I: Fidelity Advisor Balanced Fund
    84,100       78,300  
Fidelity Puritan Trust: Fidelity Balanced Fund
    1,697,000       1,579,600  
Fidelity Advisor Series I: Fidelity Advisor Value Strategies Fund
    462,145       360,745  
Fidelity Mt. Vernon Street Trust: Fidelity New Millennium Fund
    150,000       150,000  
 
(6) The selling stockholder has indicated that Franklin Mutual Advisers, LLC (FMA) is an investment adviser registered under the Investment Advisers Act of 1940 and serves as investment adviser with power to direct investments and/or sole power to vote these securities. Peter Langerman, President of FMA, exercises dispositive and voting authority over the shares. For purposes of the reporting requirements of the Securities Exchange Act of 1934, FMA and Peter Langerman are deemed to be beneficial owners of such securities; however, FMA and Peter Langerman each expressly disclaim beneficial ownership of such securities. The selling stockholder has also advised us that it is affiliated with a registered broker-dealer, that it acquired its shares in the ordinary course of business and at the time of the acquisition did not have any arrangements or understandings with any person to distribute the securities.
 
(7) Peter M. Yu, Managing Partner, exercises dispositive and voting authority over the shares. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Cartesian Capital Group, LLC has sold 160,000 of its shares.
 
(8) Corsair Capital Management LLC (Corsair) serves as investment manager of various individuals and private investment funds. Corsair shares with such individuals and funds the power to direct investments and/or vote the securities owned by them. Corsair is controlled by Steven Major and Jay Petschek, each of whom may be deemed to have beneficial ownership of the shares beneficially owned by Corsair for purposes of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Corsair Capital Management LLC has sold 516,140 of its shares.
 
(9) Robert Pohly, Managing Member, exercises dispositive and voting authority over the shares.
 
(10) Michael Barenholtz previously served as one of our officers. Includes 3,774 shares subject to an escrow agreement and forfeiture in certain cases.
 
(11) Includes 20,200 shares held in an Individual Retirement Account. 124,931 of the shares held by this holder were registered pursuant to the Registration Statement (File No. 333-160973), previously filed by the Registrant on Form S-1.
 
(12) Stephen Korn, Principal, exercises dispositive and voting authority over the shares. 388,097 of the shares held by this holder were registered pursuant to the Registration Statement (File No. 333-160973), previously filed by the Registrant on Form S-1.
 
(13) Includes shares held for accounts of two private investment funds for which Perry Corp., a registered investment advisor under the Investment Advisors Act of 1940, acts as managing general partner or investment manager. Richard Perry is the sole stockholder and President of Perry Corp. Perry Corp. and Richard Perry have voting and investment power with respect to the foregoing securities, but each disclaims beneficial ownership of such securities except to the extent of any pecuniary interest therein for purposes of Section 16 of the Securities Exchange Act of 1934.


14


 

 
(14) Adam Usdan, President of Trellus Management, exercises dispositive and voting authority over the shares.
 
(15) Includes 19,112 shares subject to an escrow agreement and forfeiture in certain cases. Shares Beneficially Owned Before This Offering include 125,000 shares issuable upon exercise of options exercisable within 60 days of April 19, 2009.
 
(16) Kevin Barrett, Chief Financial Officer of EMS Capital LP, the investment manager of the stockholder, exercises dispositive and voting authority over the shares.
 
(17) Includes 419 shares subject to an escrow agreement and forfeiture in certain cases. Shares Beneficially Owned Before This Offering include 500,000 shares issuable upon exercise of options exercisable within 60 days of October 5, 2009.
 
(18) Scott V. Booth, Managing Partner, exercises dispositive and voting authority over the shares.
 
(19) Includes 27,028 shares subject to an escrow agreement and forfeiture in certain cases. Shih Tzu Wu is authorized to exercise dispositive and voting authority over these shares.
 
(20) Includes 8,563 shares subject to an escrow agreement and forfeiture in certain cases.
 
(21) Joseph A. LaNasa III, Director of Serengeti Asset Management LP, exercises dispositive and voting authority over the shares. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Serengeti Asset Management LP has sold all of these shares.
 
(22) Amounts include: (a) 270,208 shares of common stock held by The Canyon Value Realization Fund (Cayman), Ltd., or CVRF; (b) 109,847 shares of common stock held by Canyon Value Realization Fund, L.P., or VRF; (c) 45,035 shares of common stock held by Canyon Balanced Master Fund, Ltd., or CBF; (d) 13,517 shares of common stock held by Canyon Value Realization MAC-18, Ltd., or MAC-18; and (e) 4,505 shares of common stock held by Citi Canyon, Ltd., or CITI. Canyon Capital Advisors LLC acts as the investment manager of each of CVRF, VRF, CBF, MAC-18 and CITI, or collectively, Canyon-Related Entities, and as investment manager Canyon Capital Advisors LLC may exercise dispositive and voting authority over the shares. Joshua S. Friedman and Mitchell R. Julis are Co-Chairmen and Co-Chief Executive Officers of Canyon Capital Advisors LLC. Each of Messrs. Friedman and Julis disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Canyon Capital Advisors LP has sold all of these shares.
 
(23) Jim Larkins and Brian Bythrow, each a Portfolio Manager, exercise dispositive and voting authority over the shares.
 
(24) John Carneglia, Prime Brokerage Sales Trader, exercises dispositive and voting authority over the shares.
 
(25) Jonathan Urfrig, Managing Member of the General Partner, U Capital Group, LLC, exercises dispositive and voting authority over the shares.
 
(26) Mark Martis, Chief Operating Officer, exercises dispositive and voting authority over the shares. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Long Ball Partners, LLC has sold all of these shares.
 
(27) Dan Purjes, Managing Member, exercises dispositive and voting authority over the shares.
 
(28) Richard Maybaum, Managing Director of Cetus Capital, LLC, exercises dispositive and voting authority over the shares.
 
(29) Lyrical Partners, L.P. acts as the investment manager of private investment funds that own the shares, and as investment manager, Lyrical Partners, L.P. may exercise dispositive and voting authority over the shares. Jeffrey Keswin is the Managing Partner of Lyrical Partners, L.P.
 
(30) Whitebox Advisors, LLC acts as the investment manager of private investment funds that own the shares, and as investment manager, Whitebox Advisors, LLC may exercise dispositive and voting authority over the shares. Andrew Redleaf is the Chief Executive Officer and Managing Partner of Whitebox Advisors, LLC. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Whitebox Advisors, LLC has sold all of these shares.


15


 

 
(31) Gregory H. Smith and Daniel Beltzman, each a Manager, exercise dispositive and voting authority over the shares.
 
(32) Jonathan Urfrig, Managing Member of the General Partner, U Capital Group, LLC, exercises dispositive and voting authority over the shares.
 
(33) Leon Frenkel, General Partner, exercises dispositive and voting authority over the shares.
 
(34) Chris Jackson, President of SFG Asset Advisors, the investment manager, exercises dispositive and voting authority over the shares.
 
(35) Mandy Feldman, Alex Goodman, and Hilton Schindler, Trustees, exercise dispositive and voting authority over the shares.
 
(36) Ben Lister, authorized person, exercises dispositive and voting authority over the shares.
 
(37) Jacques Ollech exercises dispositive and voting authority over the shares.
 
(38) Cedarview Capital Management, L.P. acts as the investment manager of private investment funds that own the shares, and as investment manager, Cedarview Capital Management, L.P. may exercise dispositive and voting authority over the shares. Burton Weinstein is the Managing Partner of Cedarview Capital Management, L.P.
 
(39) Seth M. Glickenhaus, Senior Partner of Glickenhaus & Co., exercises dispositive and voting authority over the shares.
 
(40) Omar Saad, the Head of International Equity Trading, exercises dispositive and voting authority over the shares.
 
(41) Francois Bocqueraz and Didier Centis each exercises dispositive and voting authority over the shares. Since October 15, 2009, based on our knowledge and belief as of the date hereof, Institutional Benchmarks has sold all of these shares.
 
(42) W. Patrick Schubmehl, Jr., Portfolio Manager, exercises dispositive and voting authority over the shares.
 
(43) Shares Beneficially Owned Before This Offering include 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(44) Shares Beneficially Owned Before This Offering include 6,250 shares issuable upon exercise of options exercisable within 60 days of April 19, 2010.
 
(45) Jonathan Tulkoff, Trustee of Uniwire International Limited Profit Sharing Plan, exercises dispositive and voting authority over the shares.
 
(46) Edward Sagar Fort OBE, Founder and Chairman, Edward Martin Drury, Financial Director, and John Horsfall, IT Director, exercise dispositive and voting authority over the shares.
 
(47) Joshua Lobel and Eric Edidin, each an authorized person, have dispositive and voting authority over the shares.


16


 

 
DESCRIPTION OF CAPITAL STOCK
 
We are authorized to issue 150,000,000 shares of common stock, $.0001 par value per share, and 1,000,000 shares of preferred stock, $.0001 par value per share, and there are no shares of preferred stock outstanding on April 19, 2010. As of April 19, 2010, we had 74,323,268 shares of common stock outstanding held of record by 77 stockholders and at April 19, 2010 there were outstanding options to purchase 4,365,000 shares of common stock.
 
Common Stock
 
Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available for dividend payments. All outstanding shares of common stock are fully paid and non-assessable. The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.
 
Preferred Stock
 
The preferred stock, if issued, would have priority over the common stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. Our Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal.
 
Certain Provisions of Our Amended and Restated Certificate of Incorporation and Bylaws
 
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.
 
Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:
 
  •  permit our Board of Directors to issue up to 1,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;
 
  •  provide that the authorized number of directors may be changed only by resolution of the Board of Directors;
 
  •  provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;


17


 

 
  •  provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;
 
  •  do not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose;
 
  •  provide that special meetings of our stockholders may be called only by the Board of Directors or by the chief executive officer, president or secretary pursuant to a written request by a majority of directors or the written request of at least 10% of all outstanding shares entitled to vote on the action proposed; and
 
  •  provide that our amended and restated bylaws can be amended or repealed at any regular or special meeting of stockholders or by the affirmative vote of a majority of the entire Board of Directors.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for the common stock is Computershare Trust Company N.A. Its telephone number is 800-962-4284.
 
Listing
 
Our common stock is listed on The NASDAQ Global Select Market under the symbol “GSM.”


18


 

 
PLAN OF DISTRIBUTION
 
The selling stockholders, or their pledgees, donees, transferees, or any of their successors in interest selling shares received from a named selling stockholder as a gift, partnership distribution or other non-sale-related transfer after the date of this prospectus (all of whom may be selling stockholders), may sell the shares of common stock offered by this prospectus from time to time on any stock exchange or automated interdealer quotation system on which the common stock is listed or quoted at the time of sale, in the over-the-counter market, in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at prices otherwise negotiated. The selling stockholders may sell the shares by one or more of the following methods, without limitation:
 
  •  block trades in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
  •  purchases by a broker or dealer as principal and resale by the broker or dealer for its own account pursuant to this prospectus;
 
  •  an exchange distribution in accordance with the rules of any stock exchange on which the common stock is listed;
 
  •  ordinary brokerage transactions and transactions in which the broker solicits purchases;
 
  •  privately negotiated transactions;
 
  •  short sales;
 
  •  through the writing of options on the shares, whether or not the options are listed on an options exchange;
 
  •  through the distribution of the shares by any selling stockholder to its partners, members or stockholders;
 
  •  one or more underwritten offerings on a firm commitment or best efforts basis; and
 
  •  any combination of any of these methods of sale.
 
These transactions may include crosses, which are transactions in which the same broker acts as an agent on both sides of the trade. The selling stockholders may also transfer the shares by gift. The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale of the shares offered hereby. The selling stockholders have advised us that they have not entered into any agreements, arrangements or understandings for the sale of any of their shares.
 
The selling stockholders may sell shares directly to market makers acting as principals and/or to brokers and dealers, acting as agents for themselves or their customers. Brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the shares. Broker-dealers may agree with a selling stockholder to sell a specified number of the shares at a stipulated price per share. If the broker-dealer is unable to sell shares acting as agent for a selling stockholder, it may purchase as principal any unsold shares at the stipulated price. Broker-dealers who acquire shares as principals may thereafter resell the shares from time to time in transactions in any stock exchange or automated interdealer quotation system on which the common stock is then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above. The selling stockholders may also sell the shares in accordance with Rule 144 or Rule 144A under the Securities Act. In order to comply with the securities laws of some states, if applicable, the shares may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the shares may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
 
From time to time, one or more of the selling stockholders may pledge, hypothecate or grant a security interest in some or all of the shares owned by them. The pledgees, secured parties or person to whom the


19


 

shares have been hypothecated will, upon foreclosure in the event of default, be deemed to be selling stockholders. The number of a selling stockholder’s shares offered under this prospectus will decrease as and when it takes such actions. The plan of distribution for that selling stockholder’s shares will otherwise remain unchanged. In addition, a selling stockholder may, from time to time, sell the shares short, and, in those instances, this prospectus may be delivered in connection with the short sales and the shares offered under this prospectus may be used to cover short sales.
 
A selling stockholder may enter into hedging transactions with broker-dealers and the broker-dealers may engage in short sales of the common stock in the course of hedging the positions they assume with that selling stockholder, including, without limitation, in connection with distributions of the shares by those broker-dealers. A selling stockholder may enter into option or other transactions with broker-dealers, who may then resell or otherwise transfer those shares pursuant to this prospectus, as supplemented or amended to reflect such transactions. A selling stockholder may also loan or pledge the shares offered by this prospectus to a broker-dealer and the broker-dealer may sell the shares offered by this prospectus so loaned or upon a default may sell or otherwise transfer the pledged shares offered by this prospectus.
 
To the extent required under the Securities Act, the aggregate amount of selling stockholders’ shares being offered and the terms of the offering, the names of any agents, brokers, dealers or underwriters, any applicable commission and other material facts with respect to a particular offer will be set forth in an accompanying prospectus supplement or a post-effective amendment to the registration statement of which this prospectus is a part, as appropriate. Any underwriters, dealers, brokers or agents participating in the distribution of the shares may receive compensation in the form of underwriting discounts, concessions, commissions or fees from a selling stockholder and/or purchasers of selling stockholders’ shares, for whom they may act (which compensation as to a particular broker-dealer might be less than or in excess of customary commissions). Neither we nor any selling stockholder can presently estimate the amount of any such compensation.
 
The selling stockholders and any underwriters, brokers, dealers or agents that participate in the distribution of the shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any discounts, concessions, commissions or fees received by them and any profit on the resale of the shares sold by them may be deemed to be underwriting discounts and commissions. If a selling stockholder is deemed to be an underwriter, the selling stockholder may be subject to certain statutory liabilities including, but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act. Selling stockholders who are deemed underwriters within the meaning of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. The SEC staff is of a view that selling stockholders who are registered broker-dealers or affiliates of registered broker-dealers may be underwriters under the Securities Act. In compliance with the guidelines of the Financial Industry Regulatory Authority (FINRA), the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not exceed 8% for the sale of any shares registered hereunder. We will not pay any compensation or give any discounts or commissions to any underwriter in connection with the shares being offered by this prospectus.
 
The selling stockholders and other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act, and the rules and regulations under the Securities Exchange Act, including Regulation M. This regulation may limit the timing of purchases and sales of any of the shares by the selling stockholders and any other person. The anti-manipulation rules under the Securities Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. Regulation M may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to the particular shares being distributed. These restrictions may affect the marketability of the shares and the ability of any person or entity to engage in market-making activities with respect to the common stock. The selling stockholders have acknowledged that they understand their obligations to comply with the provisions of the Securities Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M.
 
The shares offered by this prospectus were originally issued to the selling stockholders pursuant to an exemption from the registration requirements of the Securities Act. We agreed to register certain of the shares


20


 

under the Securities Act, and we intend to keep the registration statement of which this prospectus is a part effective until the earliest of:
 
  •  the date on which the shares offered hereby have been sold in accordance with this prospectus and the registration statement to which this prospectus relates;
 
  •  the date on which the shares offered hereby are distributed to the public pursuant to Rule 144 under the Securities Act (or any similar provision then in effect) or are saleable pursuant to Rule 144 under the Securities Act;
 
  •  the shares offered hereby are no longer outstanding; or
 
  •  October 15, 2010.
 
We may suspend offers and sales of the shares pursuant to the registration statement to which this prospectus relates in certain circumstances.
 
We have agreed to pay all expenses incident to the registration of the shares, but not including broker or underwriting discounts and commissions or any transfer taxes relating to the sale or disposition of the shares by the selling stockholders.
 
The aggregate proceeds to the selling stockholders from the sale of the shares offered by them will be the purchase price of the shares less discounts and commissions, if any. If the shares are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts and commissions and/or agent’s commissions. We will not receive any proceeds from sales of any shares by the selling stockholders.
 
We cannot assure you that the selling stockholders will sell all or any portion of the shares offered by this prospectus. In addition, we cannot assure you that a selling stockholder will not transfer shares by other means not described in this prospectus.
 
CUSIP Number
 
The Committee on Uniform Securities Identification Procedures assigns a unique number, known as a CUSIP number, to a class or issue of securities in which all of the securities have similar rights. Prior to any registered resale, all of the securities covered by this prospectus are restricted securities under Rule 144 and their CUSIP number refers to such restricted status.
 
Any sales of our shares by means of this prospectus must be settled with shares bearing our general (not necessarily restricted) common stock CUSIP number. A selling stockholder named in this prospectus may obtain shares bearing our general common stock CUSIP number for settlement purposes by presenting the shares to be sold (with a restricted CUSIP) to our transfer agent, Computershare Trust Company N.A. The process of obtaining such shares might take a number of business days. SEC rules generally require trades in the secondary market to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, a selling stockholder who holds securities with a restricted CUSIP at the time of the trade might wish to specify an alternate settlement cycle at the time of any such trade to provide sufficient time to obtain the shares with an unrestricted CUSIP in order to prevent a failed settlement.


21


 

 
INFORMATION INCORPORATED BY REFERENCE
 
The Securities and Exchange Commission allows us to “incorporate by reference” information we file with it. This means that we can disclose important information to you by referring you to those documents. Any information we reference in this manner is considered part of this prospectus. Information contained in this prospectus supersedes information incorporated by reference that we have filed with the Securities and Exchange Commission prior to the date of this prospectus. We incorporate by reference the documents listed below, except to the extent that any information contained in any such document is deemed “furnished” in accordance with the rules of the Securities and Exchange Commission:
 
  •  Our Annual Report on Form 10-K for the year ended June 30, 2009 filed on October 5, 2009;
 
  •  Our Current Report on Form 8-K filed on November 12, 2009, including the unaudited pro forma condensed consolidated financial statements included as Exhibit 99.2 thereto;
 
  •  Our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009;
 
  •  Our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009 filed on February 16, 2010;
 
  •  Our Current Report on Form 8-K filed on April 1, 2010; and
 
  •  Our Current Report on Form 8-K filed on April 6, 2010.
 
We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the reports or documents that we incorporate by reference in this prospectus contained in the registration statement (except exhibits to the documents that are not specifically incorporated by reference) at no cost to you, by writing or calling us at:
 
Globe Specialty Metals, Inc.
One Penn Plaza, Suite 2514
250 West 34th Street
New York, NY 10119
(212) 798-8122
 
Information about us, including the documents incorporated by reference to this prospectus, is also available at our website at http://www.glbsm.com. However, the information in our website is not a part of this prospectus, and other than the documents specifically incorporated by reference, is not incorporated by reference into this prospectus.


22


 

 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We have filed with the SEC a registration statement on Form S-1, which includes exhibits and schedules, under the Securities Act with respect to this offering of our securities. The registration statement contains additional information about us and our stock. The rules and regulations of the SEC permit us to omit from this prospectus certain information included in the registration statement. We refer you to the registration statement for further information about us, our stock and this offering. The registration statement and its exhibits and schedules, as well as any other documents that we have filed with the SEC, can be read and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549-1004. The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at http://www.sec.gov that contains the registration statement and other reports, proxy and information statements and information that we file electronically with the SEC.
 
We file annual, quarterly and current reports, proxy statements and other information with the SEC and make these filings available on our website. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the SEC, or you can review these documents on the SEC’s website, as described above. In addition, we provide electronic or paper copies of our filings free of charge upon request.


23


 

 
LEGAL MATTERS
 
The validity of the securities offered in this prospectus is being passed upon for us by Arent Fox LLP, Washington DC.


24


 

 
EXPERTS
 
The consolidated financial statements of Globe Specialty Metals, Inc. and subsidiary companies as of June 30, 2009 and 2008, and for each of the years in the three-year period ended June 30, 2009, have been incorporated herein by reference in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
 
The consolidated financial statements of Globe Metallurgical, Inc. and Subsidiaries as of November 12, 2006 and for the period from July 1, 2006 to November 12, 2006, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
 
The audited consolidated financial statements of Globe Metallurgical, Inc. as of and for each of the years ended June 30, 2006 and June 30, 2005, have been included herein and in the registration statement in reliance upon the audited reports of Hobe and Lucas Certified Public Accountants, Inc., independent registered public accounting firm, for the audited reports as of and for the years ended June 30, 2006 and June 30, 2005 appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
 
The audited financial statements of Globe Metais S. A. (formerly Camargo Correa Metais S.A) as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004, and their accompanying notes thereto, included in this Prospectus have been audited by BDO, independent auditors, as stated in their report appearing elsewhere herein and are included in reliance upon the report of such firm given upon their authority as an expert in accounting and auditing.
 
The audited financial statements of Globe Metales S. A. (formerly Stein Ferroaleaciones S.A.C.I.F.yA.) as of June 30, 2006 and 2005 and for the years ended June 30, 2006, 2005 and 2004, included in this registration statement have been audited by Deloitte & Co. S.R.L., independent auditors, as stated in their report appearing herein (which report expressed an unqualified opinion and included an explanatory paragraph stating that accounting principles generally accepted in Buenos Aires City, Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America, and that the information relating to the nature and effect on such differences is presented in Notes 16 and 17 to the financial statements), and are included in reliance upon the report of such firm given upon their authority as an expert in accounting and auditing.
 
The audited financial statements of Solsil, Inc. as of June 30, 2007 and for the year ended June 30, 2007, and their accompanying notes thereto, included in this registration statement have been audited by Hobe and Lucas Certified Public Accountants, Inc., independent registered accounting firm, as stated in their report appearing elsewhere herein, and are included in reliance upon the report of such firm given upon their authority as an expert in accounting and auditing.


25


 

 
INDEX TO FINANCIAL STATEMENTS
 
GLOBE SPECIALTY METALS, INC.
 
         
    Page
 
The following financial statements are included in this prospectus:
       
       
    F-2  
    F-28  
    F-50  
    F-81  
    F-93  
       
The following financial statements are incorporated by reference:
       
Globe Specialty Metals, Inc. Consolidated Financial Statements — Years ended June 30, 2009, 2008 and 2007;
       
Globe Specialty Metals, Inc. Condensed Consolidated Financial Statements (Unaudited) — Six months ended December 31, 2009 and December 31, 2008; and
       
Globe Specialty Metals, Inc. Pro Forma Condensed Consolidated Financial Statements (Unaudited) — Year ended June 30, 2009.
       


F-1


 

GLOBE METALLURGICAL, INC. AND SUBSIDIARIES
 
Consolidated Financial Statements
 
November 12, 2006 and June 30, 2006 and 2005
 
(With Independent Auditors’ Reports Thereon)
 


F-2


 

Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Globe Metallurgical, Inc. and Subsidiaries:
 
 
We have audited the accompanying consolidated balance sheet of Globe Metallurgical, Inc. and Subsidiaries (the Company) as of November 12, 2006 and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for the period from July 1, 2006 to November 12, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Globe Metallurgical, Inc. and Subsidiaries as of November 12, 2006, and the results of their operations and their cash flow for the period from July 1, 2006 to November 12, 2006, in conformity with U.S. generally accepted accounting principles.
 
/s/  KPMG LLP
 
Columbus, Ohio
July 18, 2008


F-3


 

Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Globe Metallurgical, Inc. and Subsidiaries
 
 
We have audited the accompanying consolidated balance sheets of Globe Metallurgical, Inc. and Subsidiaries as of June 30, 2006 and 2005 and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Globe Metallurgical, Inc. and Subsidiaries as of June 30, 2006 and 2005, and the results of their operation and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
 
 
/s/  Hobe & Lucas
     Certified Public Accountants, Inc.
 
Hobe & Lucas
Certified Public Accountants, Inc.
 
Independence, Ohio
October 11, 2006


F-4


 

Globe Metallurgical, Inc. and Subsidiaries
 
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
 
                         
    November 12,
    June 30,
    June 30,
 
    2006     2006     2005  
 
ASSETS
Current assets
                       
Cash and cash equivalents
  $              
Trade accounts receivable, net
    18,292       17,095       10,443  
Accounts receivable, other
    887       2,222       87  
Inventory
    20,695       17,200       13,842  
Prepaid expenses
    907       1,537       2,982  
                         
Total current assets
    40,781       38,054       27,354  
Property, machinery, and equipment, net
    54,382       54,860       30,008  
Other assets
                       
Deferred expenses
    2,111       2,179       350  
Customer contract, net
    1,951       2,180        
Deferred tax asset
    4,409              
Investment in subsidiary
    1,740       1,618       1,598  
Other assets
    151       278       141  
Goodwill
    1,194       1,194        
Reorganization value in excess of amounts allocable to identifiable assets
    26,995       40,209       40,209  
                         
Total other assets
    38,551       47,658       42,298  
                         
Total assets
  $ 133,714       140,572       99,660  
                         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
                       
Accounts payable trade
  $ 19,695       12,078       7,232  
Revolving credit facility
    5,375       5,500       5,525  
Accrued expenses and other liabilities
    3,759       2,007       1,432  
Current portion of long-term debt
    3,066       3,066       1,982  
Accrued taxes payable
    1,533       8,107       6,112  
Accrued pension payable, current portion
          1,433       1,150  
Interest payable
    383       306       357  
                         
Total current liabilities
    33,811       32,497       23,790  
Long-term liabilities
                       
Pension, net of current portion
    2,563       1,014       2,478  
Preferred stock, $.01 par value. Authorized 10,000 shares; 2,500 shares issued and outstanding, at June 30, 2006 and June 30, 2005 subject to mandatory redemption
          1,696       1,637  
Deferred tax liability
          4,900       4,898  
Other liabilities
    4,033       175        
Long-term debt, net of current portion
    41,094       41,865       46,548  
                         
Total long-term liabilities
    47,690       49,650       55,561  
Stockholders’ equity
                       
Common stock, $.0001 par value. Authorized 2,500 shares, 1,993 shares issued and outstanding at November 12, 2006 and June 30, 2006; 1,000 shares issued and outstanding at June 30, 2005
                 
Additional paid-in capital
    47,508       47,508       12,508  
Accumulated other comprehensive loss
    (1,098 )     (584 )     (559 )
Retained earnings
    5,803       11,501       8,360  
                         
Total stockholders’ equity
    52,213       58,425       20,309  
                         
Total liabilities and stockholders’ equity
  $ 133,714       140,572       99,660  
                         
 
See accompanying notes to consolidated financial statements.


F-5


 

Globe Metallurgical, Inc. and Subsidiaries

Consolidated Statements of Operations
Period from July 1, 2006 to November 12, 2006, and Years Ended June 30, 2006 and 2005
(In thousands, except per share amounts)
 
                         
    November 12,
    June 30,
    June 30,
 
    2006     2006     2005  
 
Net sales
  $ 73,173       173,008       132,223  
Cost of sales
    66,683       147,682       103,566  
Selling, general, and administrative expenses
    7,409       14,261       9,180  
                         
Operating income (loss)
    (919 )     11,065       19,477  
Other income (expense)
                       
Equity in income of affiliate
    122       20       147  
Bankruptcy and restructuring professional costs
    (163 )     (237 )     (611 )
Interest expense
    (3,066 )     (5,677 )     (5,099 )
Westbrook legal expense
    (3,800 )            
Miscellaneous income (expense)
    (672 )     (116 )     272  
                         
Income (loss) before income taxes
    (8,498 )     5,055       14,186  
(Provisions for) benefit from income taxes
    2,800       (1,914 )     (4,968 )
                         
Net income (loss)
  $ (5,698 )     3,141       9,218  
                         
Earnings (loss) per common share — basic and diluted
  $ (2,947.26 )     2,067.04       9,218.06  
                         
 
See accompanying notes to consolidated financial statements.


F-6


 

Globe Metallurgical, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income
For the Period July 1, 2006 to November 12, 2006, and Years Ended June 30, 2006 and 2005
(In thousands, except share amounts)
 
                                                 
                      Accumulated
             
                      Other
             
    Common Stock     Additional
    Comprehensive
    Retained
       
    Shares     Amount     Paid-In Capital     Income (Loss)     Earnings     Total  
 
Beginning balance, July 1, 2004
    1,000     $       12,508       135       (858 )     11,785  
Comprehensive income
                                               
Net income
                            9,218       9,218  
Accrued pension, net of taxes
                      (694 )           (694 )
                                                 
Total comprehensive income
                                  8,524  
                                                 
Balance, June 30, 2005
    1,000             12,508       (559 )     8,360       20,309  
Issuance of common stock
December 21, 2005
    993             35,000                   35,000  
Comprehensive income
                                               
Net income
                            3,141       3,141  
Accrued pension, net of taxes
                      (25 )           (25 )
                                                 
Total comprehensive income
                                            3,116  
                                                 
Balance, June 30, 2006
    1,993             47,508       (584 )     11,501       58,425  
Comprehensive income
                                               
Net loss
                            (5,698 )     (5,698 )
Accrued pension, net of taxes
                      (514 )           (514 )
                                                 
Total comprehensive loss
                                  (6,212 )
                                                 
Balance, November 12, 2006
    1,993     $       47,508       (1,098 )     5,803       52,213  
                                                 
 
See accompanying notes to consolidated financial statements.


F-7


 

Globe Metallurgical, Inc. and Subsidiaries
 
Consolidated Statement of Cash Flows
For the Period July 1, 2006 to November 12, 2006, and Years Ended June 30, 2006 and 2005
(In thousands)
 
                         
    November 12,
    June 30,
    June 30,
 
    2006     2006     2005  
 
Cash flows from operating activities:
                       
Net income (loss)
  $ (5,698 )     3,141       9,218  
Adjustments to reconcile net income (loss)to net cash provided by operating activities:
                       
Depreciation
    2,533       5,156       3,332  
Amortization
    229       875       190  
(Gain) loss on sale of assets
    (6 )           38  
Deferred income taxes
    (2,828 )     2       (532 )
Equity in income of affiliate
    (122 )     (20 )     (147 )
Pension (benefit) cost
    (45 )     (104 )     (62 )
Pension contributions
    (669 )     (1,121 )     (679 )
Non-cash interest
    804       596       1,478  
Changes in operating assets and liabilities:
                       
Accounts receivable
    362       (8,546 )     179  
Inventories
    (3,495 )     6,710       (3,638 )
Prepaid expenses and other current assets
    630       1,462       (2,455 )
Deferred expenses
    68       (2,518 )     59  
Cash surrender value — officer’s life insurance
          55       89  
Restricted cash
                780  
Other assets
    127       (112 )     (4 )
Accounts payable
    7,617       4,846       1,940  
Accrued expenses and other liabilities
    6,162       2,401       5,447  
                         
Net cash provided by operating activities
    5,669       12,823       15,233  
                         
Cash flows from investing activities:
                       
Acquisition of businesses
          (38,764 )      
Purchases of property, machinery, and equipment
    (2,273 )     (4,884 )     (3,841 )
                         
Net cash used in investing activities
    (2,273 )     (43,648 )     (3,841 )
                         
Cash flows from financing activities:
                       
Preferred stock redemption
    (2,500 )            
Repayments of long-term debt
    (771 )     (51,348 )     (10,737 )
Proceeds from long-term debt
          47,198        
Issuance of common stock
          35,000        
Net borrowings of short-term debt
    (125 )     (25 )     (3,256 )
                         
Net cash provided by (used in) financing activities
    (3,396 )     30,825       (13,993 )
                         
Net change in cash and cash equivalents
                (2,601 )
Cash and cash equivalents at beginning of period
                2,601  
                         
Cash and cash equivalents at end of period
  $              
                         
Interest paid
  $ 1,936       4,358       2,541  
                         
Income taxes paid
  $ 56       505        
                         
 
See accompanying notes to consolidated financial statements.


F-8


 

GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(1)   Nature of Business and Summary of Significant Accounting Policies
 
(a)  Background
 
Globe Metallurgical, Inc. and Subsidiaries (the Company) own and operate plants in Ohio, West Virginia and Alabama, which produce silicon metal and ferroalloy products. The Company’s products are sold primarily to the chemical, aluminum, metal castings and solar cell industries, nationally and internationally. Additionally, the Company owns an idle plant located in Niagara Falls, New York.
 
(b)  Consolidation and Basis of Presentation
 
The consolidated financial statements include the accounts of the Company, from December 21, 2005 forward, its wholly owned subsidiary, West Virginia Alloys, Inc., and from January 20, 2006 forward, its wholly owned subsidiary, Alabama Sand and Gravel, Inc. (ASG). The June 30, 2006 accounts also include the accounts of West Virginia Environmental Services, Inc. which the Company sold prior to June 30, 2006 at a net loss of $249 (note 6). Intercompany transactions are eliminated.
 
The Company’s 50% ownership of Norchem, Inc. (Norchem) is accounted for under the equity method.
 
(c)  Cash and Cash Equivalents
 
The Company considers cash equivalents to be highly liquid investments that are readily convertible into cash. Securities with contractual maturities of three months or less, when purchased, are considered cash equivalents. The Company records changes in a book overdraft position, in which the Company’s bank account is not overdrawn but recently issued and outstanding checks result in a negative general ledger balance as cash flows from operating activities.
 
(d)  Accounts Receivable
 
Credit is granted to both domestic and international customers. An allowance for doubtful accounts in the amount of $114 at November 12, 2006 and June 30, 2006 and 2005 is recorded using the Company’s prior bad debt experience and current estimates of uncollectible accounts. The Company’s policy is to maintain credit insurance coverage on substantially all trade receivables over $25 which are not covered by letters of credit or bank documentary collections.
 
(e)  Inventories
 
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
 
(f)  Property, Machinery, and Equipment
 
Property, machinery, and equipment are carried at cost, except as required by fresh-start reporting (see note 17). Depreciation is computed using the straight-line method over the estimated useful lives of the related assets; 20 years for land improvements, 30 years for buildings and improvements and 5 to 15 years for machinery and equipment. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized as income for the period. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.


F-9


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
 
(g)  Impairment of Long-Lived Assets
 
The Company reviews the recoverability of our long-lived assets, such as machinery and equipment and definite-lived intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. We assess the recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is measured based on the difference between estimated fair value and carrying value. Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
 
(h)  Revenue Recognition
 
Revenue is recognized when a firm sales agreement is in place, delivery has occurred and title and risks of ownership have passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. Sales of goods do not include multiple product and/or service elements. Shipping and other transportation costs charged to buyers are recorded in both sales and cost of goods sold. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from sales in the consolidated income statements.
 
(i)  Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
 
(j)  Income Tax
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
 
(k)  Asset Retirement Obligations
 
Asset retirement obligations are initially recorded at fair value and are capitalized as part of the cost of the related long-lived asset and depreciated in accordance with the Company’s depreciation policies for property, machinery and equipment. The fair value of the obligation is determined as the discounted value of expected future cash flows. Accretion expense is recorded each month to increase this discounted obligation over time. The Company’s asset retirement obligations primarily relate to mine post closure restoration costs. Asset retirement obligations of $65, $175 and $0 have been recorded within other liabilities at November 12, 2006 and June 30, 2006 and 2005, respectively.


F-10


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
 
(l)  Financial Instruments
 
The Company accounts for derivatives and hedging activities in accordance with Statement of Financial Standards (SFAS) No. 133, Accounting for Derivative Instruments and Certain hedging Activities (SFAS 133), as amended by SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company’s sole derivative instrument consists of an interest rate swap employed to manage interest rate exposures on half of the Company’s initial balance of the senior term loan discussed in note 9. The agreement, which expires in March 2011, involves the exchange of the interest obligations relating to an initial $15,000 notional amount of debt, with the notional amount decreasing by $375 per quarter consistent with half of the debt amortization on the senior term loan. The remaining notional amount is $13,125 at November 12, 2006. Under the interest rate swap, the Company receives the London Interbank Offered Rate (LIBOR) in exchange for a fixed interest rate of 5.23% over the life of the agreement. The agreement provides for a net cash settlement. The Company believes it is not practical to designate the cash-settled interest rate swap agreement as a fair value hedge as defined under SFAS 133. Therefore, in accordance with SFAS 133, the Company adjusts the interest rate swap agreement to current market value through the consolidated income statement based on the fair value of the swap agreement as of each period-end. The approximate fair value of this derivative is recorded in other assets with a value of $75 at November 12, 2006.
 
(m)  Reorganization Value in Excess of Amounts Allocable to Identifiable Assets and Goodwill
 
The Company follows the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. The standard provides that goodwill and intangible assets with indefinite lives are no longer amortized. The standard provides that goodwill be tested for impairment annually and will be tested for impairment between annual tests if an event occurs or circumstances change that more likely than not would indicate the carrying amount may be impaired. The Company selected June 30 for its annual impairment testing. The Company recognized no impairment during the period from July 1, 2006 to November 12, 2006 or the years ended June 30, 2006 and 2005.
 
(n)  Intangibles Subject to Amortization
 
An acquired customer contract (note 6) with a life of four years is amortized using the straight-line method.
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Customer contract
  $ 2,491       2,491        
Accumulated amortization
    540       311        
                         
    $ 1,951       2,180        
                         
 
Amortization expense for the period from July 1, 2006 to November 12, 2006 and the year ended June 30, 2006 was $229 and $311, respectively. Total estimated future amortization expense for the period from November 13, 2006 to June 30, 2007 and for the subsequent years ended June 30, 2008, 2009 and 2010 is $396, $622, $622 and $311, respectively.


F-11


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(o)  Deferred Issuance Costs
 
Deferred financing costs are amortized as interest expense over the lives of the respective debt using the straight-line method.
 
(p)  Legal Costs
 
Loss contingencies associated with outstanding litigation for which it is determined it is probable that a loss has occurred and the amount of loss can be reasonably estimated are accrued when those costs can be reasonably estimated. Legal fees are expensed as incurred.
 
(q)  Operating Leases
 
The Company enters into operating leases as described in note 11. Rent expense on operating leases is charged to the profit and loss account on a straight-line basis over the lease term, even if the payments are not made on such a basis.
 
(r)  New Accounting Pronouncements
 
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the application of SFAS No. 109, Accounting for Income Taxes, by establishing a threshold condition that a tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. In addition to recognition, FIN 48 provides guidance concerning measurement, derecognition, classification, and disclosure of tax positions. The requirements of FIN 48 were originally effective for the years beginning after December 15, 2006, however, the FASB decided to defer the effective date of FIN 48 for nonpublic entities for a period of one year if certain conditions are met. As such, the Company has elected to defer the adoption of FIN 48 for the period ended November 12, 2006.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157). SFAS 157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The statement does not require any new fair value measures. The Company is required to adopt SFAS 157 beginning on July 1, 2008. SFAS 157 is required to be applied prospectively, except for certain financial instruments. Any transition adjustment will be recognized as an adjustment to opening retained earnings in the year of adoption. The Company is currently evaluating the impact of adopting SFAS 157 on its results of operations and financial position.
 
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position, to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income, and to measure the funded status of a plan as of the date of its yearend statement of financial position. The Company will adopt SFAS 158 as required on June 30, 2007. The impact of adopting SFAS 158 will not be material to the Company’s consolidated results of operations and financial condition.
 
In September 2006, the FASB issued FSP AUG AIR-1, Accounting for Planned Major Maintenance Activities (AUG AIR-1). The FSP prohibits companies from accruing the cost of planned major maintenance in advance of the activities actually occurring. The Company adopted the provisions of AUG AIR-1 beginning July 1, 2006. The impact of adopting FSP AUG AIR-1 was not material to the Company’s consolidated results of operations and financial condition.


F-12


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (SFAS 159). This statement permits companies, at their option, to choose to measure many financial instruments and certain other items at fair value. If the option to use fair value is chosen, the statement requires additional disclosures related to the fair value measurements included in the financial statements. This statement is effective on July 1, 2008 for the Company. The Company is currently evaluating the impact of adopting SFAS 159 on its results of operations and financial position.
 
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This statement establishes principles and requirements for how the acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after July 1, 2009.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for the Company on July 1, 2009. The Company is currently assessing the potential effect of SFAS 160 on its financial statements.
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the potential effect of SFAS 161 on its results of operations and financial position.
 
In March 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the implementation of this statement to have an impact on its results of operations and financial position.


F-13


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
 
(2)   Inventory
 
Inventory, net at November 12, 2006 and June 30, 2006 and 2005 consisted of the following:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Finished goods
  $ 9,205       4,669       2,601  
Raw materials
    5,519       6,387       6,635  
Supplies
    5,971       6,144       4,606  
                         
    $ 20,695       17,200       13,842  
                         
 
(3)   Property, Machinery, and Equipment
 
Property, machinery, and equipment at November 12, 2006 and June 30, 2006 and 2005 consisted of the following:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Land and improvements
  $ 3,277       3,332       965  
Buildings and improvements
    3,650       3,650       2,481  
Equipment
    57,112       56,476       29,403  
Construction in progress
    1,814       411       1,014  
                         
      65,853       63,869       33,863  
Less accumulated depreciation
    11,471       9,009       3,855  
                         
    $ 54,382       54,860       30,008  
                         
 
Depreciation expense for the periods from July 1, 2006 to November 12, 2006, and for the years ended June 30, 2006 and 2005 was $2,533, $5,156 and $3,332 of which $1,863, $4,040 and $2,826 was included in Cost of Sales and $670, $1,116 and $506 was included in Selling, General and Administrative Expenses, respectively.
 
(4)   Financial Information of Equity Affiliates
 
The Company has a 50% ownership of Norchem. Norchem sells additives that enhance the durability of concrete. Certain of these additives are derived from by-products generated in the Company’s production process. The equity method of accounting has been used for this investment because the Company has the ability to exercise significant influence over, but does not control this entity. The Company received back office fees from Norchem of $0, $225 and $255 from July 1, 2006 to November 12, 2006, and the years ended June 30, 2006 and 2005, respectively. The Company had $1,111, $2,798, and $2,404 in sales to Norchem during the period from July 1, 2006 to November 12, 2006 and years ended June 30, 2006 and 2005, respectively.


F-14


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(5)   Earnings (Loss) per Common Share
 
Basic earnings (loss) per common share is based on net income (loss) divided by the weighted average number of common shares outstanding for the period from July 1, 2006 to November 12, 2006, and years ended June 30, 2006 and 2005. The Company had no instruments outstanding which would result in dilutive potential common share during the period from November 12, 2006 or during the years ended June 30, 2006 and 2005.
 
                         
          June 30,
    June 30,
 
    November 12, 2006     2006     2005  
 
Net (loss) income
  $ (5,698 )     3,141       9,218  
Weighted average common shares
    1,933       1,520       1,000  
                         
Earnings (loss) per share — basic and diluted
  $ (2,947.26 )     2,067.04       9,218.06  
                         
 
(6)   Acquisitions
 
On December 21, 2005, the Company, through its wholly owned subsidiaries established on that date, West Virginia Alloys, Inc. (WVA) and West Virginia Environmental Services, Inc. (WVES), purchased the West Virginia smelting assets of Elkem Metals Company-Alloy, L.P. (Elkem) for $36,000 plus $1,014 of acquisition costs. Accordingly, the results of the West Virginia smelting operations have been included in the accompanying consolidated financial statements from that date forward. The acquisition was made for the purpose of expanding the Company’s manufacturing capacity in silicon metal. The Company disposed of the stock of WVES on June 16, 2006 at a loss of $249. Subsequent to the sale of the stock, the Company entered into a 30-year cost sharing agreement with WVES under which it agreed to monthly disposal services of $46 subject to volume and cost adjustments. In addition, the Company agreed to reimburse, if required, up to $600 of closure costs related to a nonhazardous industrial waste disposal facility owned by WVES. Following is a condensed balance sheet showing the fair value of the assets acquired and the liabilities assumed as of the date of acquisition:
 
         
    WVA  
 
Current assets
  $ 10,061  
Property, machinery, and equipment
    24,412  
Customer contract
    2,491  
Intangible assets
    50  
         
Net assets acquired
  $ 37,014  
         
 
The remaining assets of Elkem, a hydroelectric facility, were purchased by a related party, Alloy Power (note 15).


F-15


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
On January 20, 2006 the Company acquired the stock of ASG from Elkem for $1,750. Accordingly, the results of ASG operations are included in the accompanying consolidated financial statements from that date forward. The acquisition was made to vertically integrate a producer of the principal raw material used in the Company’s manufacturing processes. Following is a condensed balance sheet showing the fair values of assets acquired and the liabilities assumed as of the date of acquisition:
 
         
    ASG  
 
Current assets
  $ 274  
Property, machinery and equipment
    713  
Other assets
    25  
Goodwill arising in the acquisition
    1,194  
         
      2,206  
Current liabilities
    281  
Long-term liabilities
    175  
         
Net assets acquired
  $ 1,750  
         
 
For both acquisitions noted above, the allocation of the acquisition cost is based on an appraisal of fair values.
 
(7)   Preferred Stock
 
The Company’s preferred stock pays no dividends and provides for its redemption at $1 per share ($2,500) from 20% of the Company’s Free Cash Flow, as defined, beginning September 30, 2005, but no later than May 2010. The Company is restricted from amending its Articles of Incorporation and Bylaws, issuing additional preferred shares or declaring any dividends as long as any of the preferred shares remain outstanding. The Company did not anticipate the redemption of these shares until May 2010. As a result, the preferred stock is presented as a discounted long-term liability at June 30, 2006 and 2005.
 
On November 12, 2006, the Company redeemed the preferred stock for $2,500, including accreted interest of $804, which was recorded in interest expense.
 
(8)   Revolving Loan
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Revolving credit facility due to a bank:
                       
$27,500 limit expiring November 10, 2009; interest accrued at LIBOR or prime, at the Company’s option, plus an applicable margin percentage; (7.82% at November 12, 2006 and 7.92% at June 30, 2006), secured by substantially all assets of the Company and subject to certain covenant restrictions
  $ 5,375       5,500        
Revolving credit facility — D.E. Shaw*:
                       
$17,000 limit expiring June 22, 2007; interest accrued at LIBOR plus 5.00%; (8.13%) secured by substantially all assets of the Company
                5,525  
                         
      5,375       5,500       5,525  
                         
 
 
* Related Party


F-16


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(9)   Long-Term Debt
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Senior term loan due to a bank:
                       
Principal due in quarterly payments of $750 plus interest at LIBOR or prime, at the Company’s option, plus an applicable margin percentage (9.07% at November 12, 2006 and 9.35% at June 30, 2006) unpaid principal due November 2010; secured by substantially all assets of the Company and subject to certain covenant restrictions
  $ 27,000       27,750        
Junior subordinated term debt —
                       
MI Capital*:
                       
Principal due November 2011; interest accrues quarterly at prime plus 3.25%, minimum 10% (11.50% at November 12, 2006 and at June 30, 2006); secured by substantially all assets of the Company and subject to certain loan covenant restrictions
    8,500       8,500        
Junior subordinated term debt — D.E. Shaw*:
                       
Principal due November 2011; interest accrues monthly at LIBOR plus 8%, minimum 10% (13.32% at November 12, 2006 and 13.2% at June 30, 2006); secured by substantially all assets of the Company on a subordinated basis and subject to certain loan covenant restrictions
    8,500       8,500        
Various capital leases with monthly payments aggregating $6
    160       181        
Term loan agreement — D.E. Shaw*:
                       
Principal due in 2005; interest accrued at LIBOR plus 5.70% (8.83%); secured by substantially all assets of the Company
                1,982  
Term loan A — MI Capital*:
                       
Principal due in 2010; interest accrued quarterly at 7.00%; secured by substantially all assets of the Company
                20,000  
Term loan B — MI Capital*:
                       
Principal due in 2010; interest accrued at the prime rate plus 3.00%, minimum 10% beginning November 11, 2005 and payable in kind; secured by substantially all assets of the Company
                23,448  
Term loan C — MI Capital*:
                       
Principal due in 2009; interest accrued at 12.00%; (5% payable in cash and 7% payable in kind); secured by substantially all assets of the Company
                3,000  
Term loan C — finance fee — MI Capital*:
                       
Principal due in 2009; interest accrued quarterly at 12.00%; secured by substantially all assets of the Company
                100  
                         
      44,160       44,931       48,530  
Less current portion
    3,066       3,066       1,982  
                         
    $ 41,094       41,865       46,548  
                         
 
* Related parties


F-17


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
Future principal payments on long-term debt are as follows:
 
         
November 12:
     
 
2007
  $ 3,066  
2008
    3,066  
2009
    3,028  
2010
    3,000  
2011
    32,000  
         
    $ 44,160  
         
 
Additionally, the Company has two letters of credit with a lender totaling $425 and $425 at November 12, 2006 and June 30, 2006, respectively.


F-18


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(10)   Pension and Other Benefits
 
The Company sponsors three noncontributory defined benefit pension plans that were frozen in 2003.
 
The Company used a November 12, 2006 measurement date for the period from July 1, 2006 to November 12, 2006 and a June 30 measurement date for the years ended June 30, 2006 and 2005. The following provides a reconciliation of benefit obligations, plan assets and funded status of these plans:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Change in benefit obligation:
                       
Benefit obligation, beginning of year
  $ 18,506       18,426       16,942  
Interest cost
    428       1,078       1,072  
Actuarial loss (gain)
    1,504       (10 )     1,355  
Benefit payments
    (357 )     (988 )     (943 )
                         
Benefit obligation, end of year
    20,081       18,506       18,426  
                         
Change in plan assets:
                       
Fair value of plan assets, beginning of year
    16,057       14,794       13,791  
Actual return on assets
    1,149       1,131       1,267  
Employer contributions
    669       1,122       679  
Benefit payments
    (357 )     (988 )     (943 )
                         
Fair value of plan assets, end of year
    17,518       16,059       14,794  
                         
Funded status
    (2,563 )     (2,447 )     (3,632 )
Calculation of net amount recognized:
                       
Fund status end of year
    (2,563 )     (2,447 )     (3,632 )
Unrecognized net actuarial loss
    1,854       1,025       984  
                         
Net amount recognized
    (709 )     (1,422 )     (2,648 )
                         
Classification of net amount recognized:
                       
Accrued benefit cost
    (2,563 )     (2,447 )     (3,632 )
Accumulated other comprehensive loss
    1,854       1,025       984  
                         
Net amount recognized
  $ (709 )     (1,422 )     (2,648 )
                         
 
Plans with accumulated benefit obligations in excess of plan assets as of November 12, 2006 and June 30, 2006 and 2005, consist of the following:
 
                         
    Accumulated Benefit Obligation Exceeds
 
    Fair Value of Plan Assets  
    November 12,
    June 30,  
    2006     2006     2005  
 
Projected benefit obligation
  $ 20,081       18,506       18,426  
Accumulated benefit obligation
    20,081       18,506       18,426  
Fair value of plan assets
    17,518       16,059       14,794  


F-19


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
Components of the net periodic pension benefit were as follows:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Interest cost
  $ 428       1,078       1,072  
Expected return on plan assets
    (514 )     (1,268 )     (1,134 )
Recognized actuarial loss
    41       86        
                         
Net periodic pension benefit
  $ (45 )     (104 )     (62 )
                         
 
Assumptions
 
The Company determines its actuarial assumptions on an annual basis. The assumptions for the defined benefit calculations for the period from July 1, 2006 to November 12, 2006 and years ended June 30, 2006 and 2005 are as follows:
 
                         
    Period from
             
    July 1,
             
    2006
             
    through
    Years Ended
 
    November 12,
    June 30,  
    2006     2006     2005  
 
Discount rate
    5.75 %     6.25 %     6.00 %
Expected return on plan assets
    8.50 %     8.50 %     8.50 %
Rate of compensation increase
    N/A       N/A       N/A  
 
Expected return on plan assets is determined based on historical results adjusted for anticipated market movements.
 
The Company expects to contribute approximately $473 to the plan from November 13, 2006 to June 30, 2007. Benefits expected to be paid by the plan during the ensuing five years and thereafter are approximately as follows:
 
                 
11/13/06 - 6/30/07
          $ 635  
7/1/07 - 6/30/08
            986  
7/1/08 - 6/30/09
            1,041  
7/1/09 - 6/30/10
            1,122  
7/1/10 - 6/30/11
            1,178  
7/1/12 - 6/30/16
            6,211  
 
Following is an analysis of plan assets by category:
 
                                 
    November 12,
    June 30,        
    2006     2006     2005        
 
Fair value:
                               
Fixed income
    32 %     32 %     37 %        
Equity
    53       52       46          
International equity
    15       16       17          
                                 
      100 %     100 %     100 %        
                                 


F-20


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
The Company’s overall strategy is to invest in high-grade securities and other assets with a limited risk of market value fluctuation. In general, the Company’s goal is to maintain the following allocation ranges:
 
         
Fixed income
    30%-40 %
Equity
    40-50  
International equity
    15-20  
 
The Company administers healthcare benefits for certain retired employees through a separate welfare plan requiring reimbursement from the retirees.
 
The Company provides two defined contribution plans (401(k) Plans) that allow for employee contributions on a pretax basis. Employer contributions have been suspended.
 
Other benefit plans offered by the Company include a Section 125 Cafeteria Plan for the pretax payment of healthcare costs and a flexible spending arrangement.
 
(11)   Lease Arrangements
 
The Company leases certain machinery and equipment, automobiles, and railcars under both operating leases and on a month-to-month basis. Rent expense was $660, $745, and $814 for the period from July 1, 2006 to November 12, 2006 and the years ended June 30, 2006 and 2005, respectively.
 
Future minimum lease payments under noncancelable operating leases with initial lease terms longer than one year at November 12, 2006 were as follows:
 
         
2007
  $ 1,372  
2008
    1,018  
2009
    517  
2010
    18  
         
    $ 2,925  
         
 
(12)   Commitments and Contingencies
 
Legal Contingencies
 
The Company was sued by Westbrook Resources Limited, an English company, for an alleged failure to perform under a contract entered into in January 2005, to acquire 30,000 tons of manganese ore. There is a counterclaim by the Company against Westbrook in respect to the same subject matter whereby we maintain that the quality, quantity and delivery schedules maintained by Westbrook were in breach of the contract. The case went to trial in June 2007, and a judgment was rendered in November 2007 in favor of Westbrook for a sum to be assessed. The assessment hearing took place early in 2008. Westbrook is seeking damages of approximately $2,750 and reimbursement of legal costs of approximately GBP 500. Management intends to appeal any such judgment but there is no assurance that the Company will be successful in its appeal. The Company has reserved a total of $3,800 related to this contingency at November 12, 2006.
 
We are subject to various lawsuits, claims, and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters. Although it is not presently possible to determine the outcome of these matters, in the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity.


F-21


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
Environmental Contingencies
 
The Company accrues for costs associated with environmental assessments, remedial efforts and other environmental liabilities when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. When a liability for environmental remediation is recorded, such amounts will be recorded without giving effect to any possible future recoveries. At November 12, 2006, June 30, 2006 and June 30, 2005 there are no liabilities recorded for environmental contingencies. With respect to the cost of ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred.
 
Tax Contingencies
 
The Company is subject to income taxes in the United States. In the ordinary course of business, there are transactions and calculations that involve uncertain tax implications. Accruals for tax contingencies are provided for in accordance with the requirements of SFAS No. 5, Accounting for Contingencies. The Company believes we have adequate support for the positions taken on our tax returns and that adequate provisions have been made for all outstanding issues for all jurisdictions and all open years.
 
Concentration of Credit Risk
 
The Company’s products are sold primarily to the chemical, aluminum, metal castings and solar cell industries.
 
For the period from July 1, 2006 to November 12, 2006, two customers accounted for 16.3% and 10.7% of sales, respectively. Accounts receivable from these customers were $1,329 and $1,019, respectively, at November 12, 2006.
 
For the year ended June 30, 2006, three customers accounted for 13%, 12%, and 10% of sales, respectively. Accounts receivable from these customers were $2,460, $2,808, and $841, respectively, at June 30, 2006.
 
For the year ended June 30, 2005, one customer accounted for 13% of sales. Accounts receivable from this customer were $477 at June 30, 2005.
 
The Company’s policy is to maintain credit insurance coverage on substantially all trade receivables over $25 which are not covered by letters of credit or bank documentary collections. Trade receivables of $18,292, $17,095 and $10,443 were outstanding at November 12, 2006 and June 30, 2006 and 2005, respectively.
 
At November 12, 2006, 44% of the Company’s labor force was subject to collective bargaining agreements. No contracts are scheduled to expire in the next year.


F-22


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
Power Commitments
 
Electric power is a major cost of the Company’s production process, as large amounts of electricity are required to operate arc furnaces. A summary of electric power purchase commitments follows:
 
                 
            Price
   
Facility   Supplier   Terms   Structure   Capacity
 
Beverly, Ohio
  American Electric
Power
  Evergreen, 1 year   Published tariff rate   2.5 MW firm,
85 MW interruptible
Selma, Alabama
  Alabama Power   Evergreen, 1 year   Published tariff rate   43 MW
                 
Alloy, West
Virginia
  Appalachian Power   Through October 30,
2012
  Published tariff rate   110 MW
Alloy, West
Virginia
  Brookfield Power   Through December 31,
2021
  Fixed rate   100 MW
 
(13)   Income Taxes
 
Income taxes for the period from July 1, 2006 to November 12, 2006 and the years ended June 30, 2006 and 2005 are as follows:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Current
  $ 28       1,912       5,500  
Deferred
    (2,828 )     2       (532 )
                         
    $ (2,800 )     1,914       4,968  
                         
 
The following is a reconciliation of the U.S. statutory federal income tax rate to our effective tax rate stated in percentages:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Federal statutory rate
    34.0 %     34.0       34.0  
State taxes, net of federal benefit
    2.4       3.9       1.0  
Nondeductible interest expense
    (3.0 )            
Other
    (0.4 )            
                         
Effective tax rate
    33.0 %     37.9       35.0  
                         


F-23


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
The Company’s deferred tax assets and liabilities at November 12, 2006 and June 30, 2006 and 2005 consist of:
 
                         
    November 12,
    June 30,  
    2006     2006     2005  
 
Deferred tax assets:
                       
Net operating losses and carryforwards
  $ 13,349       19,192       18,960  
Inventory reserves
          71        
Accruals
    3,184       1,262       1,589  
Other assets
    81       135       61  
                         
      16,614       20,660       20,610  
Deferred tax liabilities:
                       
Fixed assets
    (6,107 )     (6,030 )     (5,845 )
Investments
    (558 )     (513 )     (505 )
Intangibles
    (16 )     (57 )      
Other
    (36 )           (198 )
                         
      (6,717 )     (6,600 )     (6,548 )
Valuation allowance
    (5,488 )     (18,960 )     (18,960 )
                         
Net deferred tax assets (liabilities)
  $ 4,409       (4,900 )     (4,898 )
                         
 
Deferred taxes are provided for the difference between the book and tax basis of assets and liabilities recorded for financial statement and income tax reporting purposes. Principal differences relate to net operating loss carryforwards, depreciable assets (use of different depreciation lives and methods), accounts receivable (use of different valuation reserve methods), inventory (use of different cost capitalization and valuation reserve methods), investments (different valuation methods) and certain accrued expenses (use of different expensing methods).
 
At November 12, 2006, the Company has, for book purposes, approximately $11,816 of net operating loss carryforwards (NOLs), expiring through 2026. The Company has approximately $1,540 of alternative minimum tax and tax credit carryforwards at November 12, 2006. At November 12, 2006, the valuation allowance was reduced $13,472 of which $13,213 reduced the reorganization value in excess of amounts allocable to identifiable assets for changes to the methodology used to determine the availability of the Company’s historical net operating losses available to offset future earnings.
 
The composition of the valuation allowance at November 12, 2006 is as follows:
 
         
    November 12,
 
    2006  
Federal NOLs
  $ (3,738 )
State NOLs
    (330 )
Federal credits
    (1,336 )
Capital loss carryover
    (84 )
         
    $ (5,488 )
         


F-24


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
(14)   Financial Instruments
 
The Company used the following methods and assumptions to estimate the fair value of financial instruments:
 
Cash and Cash Equivalents — The carrying amounts approximate fair value.
 
Long and Short-Term Debt — The carrying amounts of short-term borrowings approximate fair value. The fair value of long-term debt with fixed interest rates is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amount of borrowings under variable interest rate agreements approximates fair value.
 
The carrying amounts and fair values of financial instruments at November 12, 2006 and June 30, 2006 and 2005 are as follows:
 
                                                 
    November 12, 2006     2006     2005  
    Carrying
    Fair
    Carrying
    Fair
    Carrying
    Fair
 
    Amount     Value     Amount     Value     Amount     Value  
 
Cash and cash equivalents
  $                                
Long-term debt:
                                               
Revolving credit
    5,375       5,375       5,500       5,500       5,525       5,525  
Variable rate debt
    44,000       44,000       44,750       44,750       25,430       25,430  
Fixed rate debt
    160       160       181       181       23,100       22,665  
 
(15)   Related-Party Transactions
 
In December 2005, the Company entered into a 15-year supply agreement with Alloy Power to purchase hydroelectric power, which amounted to $7,653 during the period from December 21, 2005 to June 30, 2006 and no payable balance from July 1, 2006 to November 12, 2006. This supply of hydroelectric power to the Company was subsequently contracted to be purchased from an unrelated third party in October 2006.
 
Shareholders and affiliates have entered into financing arrangements with the Company (notes 8 and 9).
 
The Company sold assets for making refined silicon to Solsil, Inc. (Solsil) during the year ended June 30, 2006. Solsil paid approximately $2,510 for the reimbursement of administrative expenses and other costs and the Company recorded the proceeds against selling, general, and administrative expenses. The total amount sold to Solsil under a supply agreement for the period from July 1, 2006 and November 12, 2006 was $687. The receivable associated with this supply agreement was $161 at November 12, 2006. Additionally, the Company entered into a facility site lease with Solsil. The site lease begins July 1, 2006 at a monthly rate of approximately $6 per month. Amounts purchased from Solsil were $198 during the period from July 1, 2006 to November 12, 2006, of which $37 was payable to Solsil at November 12, 2006. There were no amounts purchased from Solsil prior to June 30, 2006. Additionally, there were receivables from Solsil in the amount of $1,543 as of June 30, 2006 related to the sale of assets to Solsil. Additional sales of assets were sold to this related party from July 1, 2006 to November 12, 2006 in the amount of $225.
 
The Company has a 50% ownership interest in Norchem. The Company received a back office fee from Norchem of $0, $225 and $225 and sales to Norchem of $1,111, $2,798 and $2,404 during the period from July 1, 2006 to November 12, 2006 and years ended June 30, 2006 and 2005, respectively. Amounts due from Norchem and included in accounts receivable were $299, $242, and $137 at November 12, 2006, June 30, 2006 and 2005, respectively.


F-25


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
The Company paid a management fee to MI Capital for various services of $125, $300 and $300 during the period from July 1, 2006 and November 12, 2006, and the years ended June 30, 2006 and 2005, respectively.
 
(16)   Operating Segment
 
We operate in one reportable segment, silicon metal and silicon-based specialty alloys.
 
(17)   Petition for Relief Under Chapter 11
 
On April 2, 2003, the Company filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of New York. Under Chapter 11, certain claims against the Company in existence prior to the filing of the petitions for relief under federal bankruptcy laws were stayed while the Company continued business operations as debtor-in-possession
 
On December 31, 2003, a Plan of Reorganization and Disclosure Statement for Globe Metallurgical Inc. was filed with the United States Bankruptcy Court for the Southern District of New York.
 
On May 11, 2004, the Company emerged from bankruptcy under a plan of reorganization which provided the following:
 
(a)  Secured Lender Claims
 
The holders of approximately $54,065 of secured debt received the following for their secured debt: (a) a new term note for $20,000 due May 2010 with interest at 7% payable quarterly; (b) a new term note for $24,000 due May 2010 with interest at prime plus 3%, and not less than 10%, payable annually beginning November 2005; and (c) 77% of the newly issued voting common stock of the Company.
 
(b)  Trade and Other Miscellaneous Claims
 
The holders of approximately $17,600 of trade and other miscellaneous claims received the following for their claims: (a) 2% of the newly issued voting common stock of the Company, (b) $100 in cash and (c) 100% (2,500 shares), of the newly issued preferred stock of the Company.
 
(c)  Fresh-Start Reporting
 
The Company accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are restated to reflect their reorganization value, which approximates fair value at the date of reorganization. The fair value of property, machinery and equipment was based on independent third-party appraisals obtained by the Company.
 
Under fresh-start accounting, the compromise total enterprise value (see below) was allocated to the Company’s assets based on their respective fair values in conformity with the purchase method of accounting for business combinations in accordance with SFAS No. 141, Business Combinations. Any portion not attributed to specific tangible or identified intangible assets has been recorded as an indefinite-lived intangible asset referred to as “reorganization value in excess of amounts allocable to identifiable assets” and reported as goodwill.


F-26


 

 
GLOBE METALLURGICAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share amounts)
 
  (d)   Compromise Total Enterprise Value; Reorganization Value in Excess of Amounts Allocable to Identifiable Assets (Goodwill)
 
Compromise total enterprise value (reorganization value) represents the amount of resources available, or that become available, for the satisfaction of post-petition liabilities and allowed claims, as negotiated between the Company and its pre-petition creditors (the interested parties). This value along with other terms of the Plan of Reorganization was determined only after extensive arms-length negotiations amongst the interested parties. Each interested party developed its view of what the value should be based primarily upon expected future cash flows of the business after emergence from Chapter 11, discounted at rates reflecting perceived business and financial risks. This value is viewed as the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the Company immediately after restructuring.
 
The amount of reorganization value in excess of amounts allocated to identifiable assets (goodwill) is a function of compromise total enterprise value. While the Company believes that the compromise enterprise value approximated fair value, differences between the methodology used in testing for goodwill impairment and the negotiated value could result in this asset being written down in value in the future.
 
(18)   Subsequent Event
 
In August 2006, the Company entered into a merger agreement with International Metal Enterprises, Inc. whose name was subsequently changed to Globe Specialty Metals, Inc. (GSM). On November 13, 2006, GSM finalized the merger agreement by acquiring 100% of the outstanding stock of the Company. The aggregate purchase price was $134,064, which comprised 8.6 million shares of GSM common stock valued at $47,961, cash of $33,220, GSM’s direct costs associated with the acquisition of $3,348 and assumed debt of $49,535.


F-27


 

 
CAMARGO CORREA METAIS S.A.
 
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2006, 2005 AND 2004
 


F-28


 

(BDO LETTERHEAD)
 
INDEPENDENT AUDITORS’ REPORT
 
To the Shareholders and Management of
Camargo Corrêa Metais S.A.
Breu Branco — PA
 
1.  We have audited the consolidated balance sheets of Camargo Corrêa Metais S.A. as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and changes in financial position for the three years ended December 31, 2006, 2005 and 2004, all expressed in Brazilian reais and prepared under the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements.
 
2.  We conducted our audits in accordance with auditing standards generally accepted in Brazil and with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
3.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Camargo Corrêa Metais S.A. as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and changes in financial position for the three years ended December 31, 2006, 2005 and 2004 in conformity with Brazilian accounting standards.
 
4.  As mentioned in Note 7, the Company has total recoverable taxes of R$15.984 thousand and R$9.834 thousand as of December 31, 2006 and 2005, respectively, that may be compensated with other Federal tax debits arising from the Company’s normal business future operations, and for which the Company depends on Tax Authorities’ approval for both compensation and/or refund. The Company estimates to use the total amount of its recoverable taxes in 5 years starting in year 2008. The Brazilian Federal Revenue Service has a 5-year period to approve the Company’s requests.


F-29


 

(BDO LETTERHEAD)
 
INDEPENDENT AUDITORS’ REPORT
 
To the Shareholders and Management of
Camargo Corrêa Metais S.A.
Breu Branco — PA
 
1.  Brazilian accounting standards vary in certain respects from the accounting principles generally accepted in the United States of America, including the presentation of a statement of cash flow. Information relating to the nature and effect of such differences is presented in Notes 18 and 19 in the consolidated financial statements.
 
2.  This report is being reissued in connection with the consolidated financial statements of the Company’s new parent company Globe Specialty Metals, Inc. as commented in Note 20.
 
São Paulo, March 30, 2007,
except for Notes 7, 18 and 19 for which the date is June 11, 2008.
 
/s/  Esmir de Oliveira
Esmir de Oliveira
Audit Partner
BDO Trevisan Auditores Independentes


F-30


 

SCHEDULE 1 (Page 1)
 
CAMARGO CORRÊA METAIS S.A.
 
Section .1.   CONSOLIDATED BALANCE SHEETS IN DECEMBER 31, 2006 AND 2005
 
                 
    December 31,
    December 31,
 
    2006     2005  
    (Amounts stated in thousands of Brazilian Reais - R$)  
 
ASSETS
                 
Current
               
Cash and banks
    12,522       299  
Accounts receivable from customers
    19,414       19,393  
Inventories
    19,793       21,285  
Recoverable taxes
    2,290       2,032  
Other receivables
    459       396  
                 
      54,478       43,405  
                 
Non-current
               
Long-term assets
               
Recoverable taxes
    13,694       7,802  
Other receivables
    275       193  
                 
      13,969       7,995  
Investments
    650       650  
Deferred charges
    4,314       4,655  
Property, plant and equipment, net
    97,043       103,490  
                 
Total noncurrent assets
    115,976       116,790  
                 
Total assets
    170,454       160,195  
                 


F-31


 

SCHEDULE 1 (Page 2)
 
CAMARGO CORRÊA METAIS S.A.
 
Section .2.   CONSOLIDATED BALANCE SHEETS IN DECEMBER 31, 2006 AND 2005
 
                 
    December 31,
    December 31,
 
    2006     2005  
    (Amounts stated in thousands of Brazilian Reais - R$)  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current
               
Suppliers — trade payables
    25,949       12,387  
Financial institutions
    12,469       15,081  
Salary and vacations payable
    2,111       2,492  
Dividends and interest on equity capital
          319  
Taxes payable
    3,271       158  
Other liabilities
    261        
                 
Total current liabilities
    44,061       30,437  
                 
Non-current
               
Financial institutions
    7,114       10,556  
Other liabilities
    1,953       1,528  
                 
Total non-current liabilities
    9,067       12,084  
Stockholders’ equity
               
Capital stock
    289,010       289,010  
Capital reserve
    15       15  
Accumulated losses
    (171,699 )     (171,351 )
                 
      117,326       117,674  
                 
Total liabilities and stockholders’ equity
    170,454       160,195  
                 
 
The accompanying notes are an integral part of these financial statements.


F-32


 

SCHEDULE 2
 
CAMARGO CORRÊA METAIS S.A.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
                         
    December 31,
    December 31,
    December 31,
 
    2006     2005     2004  
    (Amounts stated in thousands of
 
    Brazilian Reais - R$)  
 
Gross sales
    137,354       114,675       125,301  
Deductions from sales
    (5,665 )     (3,372 )     (2,927 )
                         
      131,689       111,303       122,374  
Cost of goods sold
    (103,402 )     (90,508 )     (96,896 )
Depreciation
    (8,847 )     (8,208 )     (8,374 )
                         
Gross profit
    19,440       12,587       17,104  
                         
Operating expenses
                       
Selling expenses
    (12,434 )     (6,030 )     (5,430 )
Administrative expenses
    (5,382 )     (5,578 )     (4,472 )
Depreciation
    (687 )     (653 )     (473 )
                         
      937       326       6,729  
Interest income (expense)
    (153 )     (204 )     617  
Other income (expense), net
    (908 )     (8,636 )     613  
                         
Operating (loss) income
    (124 )     (8,514 )     7,959  
Non-operating results
    (30 )     93       (748 )
                         
Results before income taxes and participation of employees and administrators
    (154 )     (8,421 )     7,211  
Provision for income taxes
                (1,443 )
Participation of the employees and administrators in the results
    (194 )     (826 )     (339 )
                         
Net (loss) income
    (348 )     (9,247 )     5,429  
                         
 
The accompanying notes are an integral part of these financial statements.


F-33


 

SCHEDULE 3
 
 
CAMARGO CORRÊA METAIS S.A.
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
                                 
                Retained
       
                Earnings
       
    Capital
    Capital
    (Accumulated
       
    Stock     Reserve     Losses)     Total  
    (Amounts stated in thousands of Brazilian Reais — R$)  
 
Balances as of December 31, 2003
    289,010       15       (165,775 )     123,250  
Profit for the year
                5,429       5,429  
Proportional distribution of profit
                (1,758 )     (1,758 )
                                 
Balances as of December 31, 2004
    289,010       15       (162,104 )     126,921  
Loss for the year
                (9,247 )     (9,247 )
                                 
Balances as of December 31, 2005
    289,010       15       (171,351 )     117,674  
Loss for the year
                (348 )     (348 )
                                 
Balances as of December 31, 2006
    289,010       15       (171,699 )     117,326  
                                 
 
The accompanying notes are an integral part of these financial statements.


F-34


 

SCHEDULE 4
 
 
CAMARGO CORRÊA METAIS S.A.
 
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
AS OF DECEMBER, 31 2006, 2005 AND 2004
 
                         
    December 31,
    December 31,
    December 31,
 
    2006     2005     2004  
    (Amounts stated in thousands of Brazilian Reais — R$)  
 
SOURCES OF FUNDS
                       
                         
Cash flows from operating activities:
                       
                         
From operations
                       
Noncash items
                       
Depreciation and amortization
    9,534       8,861       8,847  
Write-off of property, plant and equipment
    1,126       148       748  
                         
      10,660       9,009       9,595  
From third parties
                       
Increase in other long-term liabilities
    425       10,204       2,118  
Transfers from long-term assets to current assets
    79              
                         
      504       10,204       2,118  
Total sources of funds
    11,164       19,213       11,713  
                         
USES OF FUNDS
                       
                         
(Loss) Income for the year
    348       9,247       (5,429 )
Addition to property, plant and equipment
    2,869       4,861       11,247  
Additions to deferred charges
    1,004       1,406       1,785  
Increase in other long-term assets
    6,052       7,803       23  
Dividends and interest on equity capital
                1,758  
Decrease in long-term liabilities
    812              
Transfer from long-term liabilities to current liabilities
    2,630       702       178  
                         
      13,715       24,019       9,562  
(Decrease) increase in working capital
    (2,551 )     (4,806 )     2,151  
                         
Represented by:
                       
                         
Current assets
                       
At end of year
    54,478       43,405       44,565  
At beginning of year
    43,405       44,565       42,245  
                         
                         
Increase (decrease)
    11,073       (1,160 )     2,320  
                         
Current liabilities
                       
At end of year
    44,061       30,437       26,791  
At beginning of year
    30,437       26,791       26,622  
                         
      13,624       3,646       169  
(Decrease) increase in working capital
    (2,551 )     (4,806 )     2,151  
                         
 
The accompanying notes are an integral part of these financial statements.


F-35


 

CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006, 2005 AND 2004
 
1.  OPERATIONS
 
Camargo Corrêa Metais S.A. (the “Company”) main purpose is the production, sale, and export of silicon metal and silica fume. Their exports represent a substantial part of the Company’s sales. Its plant, installed in the town of Breu Branco, State of Para, serves metallurgical and chemical industries. To that end it may explore mineral deposits in Brazil, sell minerals for producing and selling silicon, silica fume and other alloys, produce and sell charcoal and timber and forested and reforested land.
 
2.  PRESENTATION OF THE FINANCIAL STATEMENTS
 
The Company’s financial statements have been prepared in accordance with Laws 6.404/76 and 9.249/95 that, in 1996, extinguished adjustment for inflation of permanent assets, shareholders’ equity, and other non-cash items of the Balance Sheets.
 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
 
3.1.  Statement of income, and current and noncurrent assets and liabilities
 
  a.  they are based on the accrual basis of accounting;
 
  b.  the classification of current and noncurrent assets and liabilities is made in compliance with articles 179 and 180 of Law No. 6.404/76;
 
  c.  assets are stated at their net realizable values, including earnings and accruals incurred, when applicable;
 
  d.  liabilities are stated at their known or estimated values, plus any corresponding charges incurred, when applicable;
 
  e.  income and social contribution taxes were determined based on the respective rates in effect on the tax basis and in conformity with legal provisions; and
 
  f.  for better presentation and accounting disclosure, the Company reclassified expenditures from CPMF or Provisional Contribution on Financial Movements to Interest Income (Expense), net that were previously classified in Administrative Expenses as the nature of these expenses related more to interest payments than administrative expenses.
 
3.2.  Inventories
 
Stated at the lower of cost or market. (note 6)
 
3.3.  Investments
 
Valued at cost, adjusted for inflation through December 1995. A provision for possible losses during realization are recognized at the amount deemed necessary.
 
3.4.  Property, plant and equipment
 
Recorded at acquisition and installation cost, less accumulated depreciation. Depreciation was calculated on the straight-line method at rates that take into consideration the useful lives of assets and were established in conformity with a technical report, except for forest, for which depletion is based on the area harvested during the year.


F-36


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
3.5.  Revenue recognition
 
Revenue is recorded when title passes to the customer, represented by the date in which the products are shipped normally at FOB sales method to the client. Selling prices are fixed based on purchase orders or contractual arrangements. Provision, when applicable, is made for estimated returns and estimated credit losses.
 
Shipping and handling costs are classified as selling expenses in the consolidated statement of income.
 
3.6.  Income tax and social contribution
 
Income tax and social contribution are calculated according to prevailing tax legislation over taxable income, adjusted from income before tax. The provision for income tax is recognized at the rate of 15%, plus 10% surtax on taxable income. The provision for social contribution tax is recognized at the rate of 9%.
 
3.7.  Use of estimates
 
The preparation of financial statements in accordance with Brazilian accounting practices 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
4.  CONSOLIDATED FINANCIAL STATEMENTS
 
The consolidated financial statements as of December 31, 2006, 2005 and 2004 were prepared in accordance with the consolidation practices provided in the Corporate Law and comprise the individual financial statements of Camargo Corrêa Metais S.A. and of its subsidiary Reflorestadora Água Azul Ltda.
 
The consolidation process of balance sheet accounts and statement of operations accounts corresponds to the sum of the balances of assets, liabilities, income and expenses of the companies included in the consolidation, according to their nature, complemented by the elimination of interests held in the shareholders’ equity of Camargo Corrêa Metais S.A., as well as assets, liabilities, income, costs and expenses arising from transactions between them.
 
5.  CUSTOMERS — TRADE RECEIVABLES
 
                 
    12/31/2006     12/31/2005  
    (R$’000)  
 
Trade notes receivable — Domestic customers
    3,348       1,862  
Customers overseas — Third parties
    6,828       128  
Customers overseas — Companies of the Group
    19,836       25,157  
(-) Advances on export contracts
    (10,598 )     (7,754 )
                 
Total
    19,414       19,393  
                 


F-37


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
6.  INVENTORIES
 
                 
    12/31/2006     12/31/2005  
    (R$’000)  
 
Finished products
    7,881       8,229  
Work in process
    3,074       5,005  
Raw materials
    6,577       5,536  
Production and packing materials
    448       577  
Advances to suppliers
    252       304  
Others
    1,561       1,634  
                 
Total
    19,793       21,285  
                 
 
7.  RECOVERABLE TAXES
 
                 
    12/31/2006     12/31/2005  
    (R$’000)  
 
Short-term
               
IRPJ and CSL — Prepayments in the current year
    1,097       2,032  
COFINS to offset
    174        
IPI to offset
    804        
Other taxes recoverable
    215        
                 
Total
    2,290       2,032  
                 
Long-term
               
IRPJ and CSL — Prepayments from prior years
    2,627       259  
PIS recoverable
    1,924       1,480  
COFINS recoverable
    8,140       5,324  
IPI credits — Refund requests
    990       726  
Other taxes recoverable
    13       13  
                 
      13,694       7,802  
                 
Total
    15,984       9,834  
                 
Captions:
               
IRPJ — Corporate Income Tax
               
CSL — Social Contribution Tax on Income
               
PIS — Contribution the Social Integration Program
               
COFINS — Contribution for Social Security Funding
               
IPI — Federal VAT
               


F-38


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
Refund requests regarding PIS and COFINS are associated with credits taken on the acquisition of electric power, services, and inputs used in the production process. Refund requests for all the above-mentioned tax credits have been filed with the Federal Revenue Service, as legally required. The Company may also compensate all Federal tax credits, including PIS and COFINS, with other Federal tax debits arising from the Company’s normal business future operations, for which the Company depends on Tax Authorities’ approval. The Company estimates to use the total amount of its recoverable taxes in 5 years starting in year 2008. The Brazilian Federal Revenue Service has a 5-year period to approve the Company’s requests.
 
8.   PROPERTY, PLANT AND EQUIPMENT
 
                                     
    12/31/2006     12/31/2005  
              Accumulated
             
        Cost
    Depreciation
             
    Depreciation Rates   (R$’000)     (R$’000)     Net (R$’000)     Net (R$’000)  
 
Plots of land
      1,061             1,061       1,061  
Buildings and facilities
  2,33 to 4,00     60,912       25,067       35,845       37,114  
Machinery and equipment
  3,33 to 33,33     103,074       70,376       32,698       38,968  
Furniture and fixtures
  10     514       394       120       154  
Vehicles
  5,00 to 20,00     447       407       40       160  
Forests(1)
  Variable     31,464       5,362       26,102       24,893  
Trademarks
  Variable     929       268       661       701  
Others
  Variable     959       443       516       439  
                                     
Total
        199,360       102,317       97,043       103,490  
                                     
 
 
(1) Forests refers to accumulated costs of the Company’s reforestation project including labor preparation of seedlings, mechanical clearing and chemical weeding. Depletion is calculated as a percentage of the total area of the forest that is being cut.
 
9.   SUPPLIERS — TRADE PAYABLES
 
                 
    12/31/2006     12/31/2005  
    (R$’000)  
 
Centrais Betricas Norte do Brasil
               
Eletronorte
    16,978       4,647  
SGL Carbon
    2,460       2,493  
Other suppliers and accounts payable
    6,511       5,247  
                 
Total
    25,949       12,387  
                 
 
The Company has an electric power supply contract until 2018 with Eletronorte. In 2008, in compliance with the contract, the tariff will be adjusted. Since August 2005, Eletronorte has not included in its invoices amounts representing the collection of the power transmission. The Company, following the opinion of its legal counselors, has been formally protesting on a monthly basis that non-billing, and the amount is duly recorded in Trade Payable. ANEEL — Brazilian Electric Power Agency, started the mediation between the parties.


F-39


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
10.   FINANCIAL INSTITUTIONS
 
Loans and financing were made chiefly for export operations and acquisition of property, plant, and equipment for the Company. Their composition is shown below:
 
                         
Bank
 
Type
 
Interest Rates
  12/31/2006   12/31/2005
            (R$’000)
 
Short-term:                        
Bradesco
  Export financing   5,49% to 5,80%     94       7  
Unibanco
  Export financing   4,40% to 6,00%     1,664       3,582  
Unibanco
  Export prepayment   Libor + 1,25%     2,256        
Banco Votorantim
  Export financing   5.80%     1,596        
Citibank
  Export financing   5,13% to 5,29%           706  
HSBC
  Export financing   4,10% to 5,71%           4,755  
Banco do Brasil
  Export financing   4,15% to 6,02%     6,359       5,557  
Banco do Brasil
  FINAME   TJLP     500       474  
                         
              12,469       15,081  
Long-term:                        
Unibanco
  Export prepayment   Libor + 1,25%     6,412       9,360  
Banco do Brasil
  FINAME   TJLP     702       1,196  
                         
              7,114       10,556  
              19,583       25,637  
                         
 
Captions:
 
TJLP — Long-term Interest Rate
FINAME — Government Agency for Machinery & Equipment Financing
 
Long-term amounts have the following composition per year of maturity:
 
                 
Maturity
  12/31/2006     12/31/2005  
    (R$’000)  
 
2007
          2,834  
2008
    6,908       7,515  
2009
    206       207  
                 
      7,114       10,556  
                 
 
11.   TAXES PAYABLE
 
                 
    12/31/2006     12/31/2005  
    (R$’000)  
 
State VAT (ICMS)
    2,644       48  
Other taxes and contributions
    627       110  
                 
Total
    3,271       158  
                 
 
Until April 2006, in compliance with Law 6,489/02, the Company, as well as other 186 companies, had a tax incentive from the government of the State of Pará regarding ICMS. Starting in April 2006, item I of article 5 of Law 6,489/02 was declared unconstitutional by the Brazilian Supreme Federal Court. The amounts


F-40


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
of ICMS payable since then are recorded in Taxes Payable, whose period was extended by the Government of Pará, as a way of softening the effect of the incentive loss.
 
On December 15, 2006, the Government of Pará enacted Decree 2680, reestablishing the Tax Incentive with the same previous benefits.
 
12.   RELATED PARTY TRANSACTIONS
 
                                                                 
    Camargo Correa
    Camargo Correa
             
    Overseas LTD     Cimentos S/A     Camargo Correa S/A     Other Related Parties  
    12/31/2006     12/31/2005     12/31/2006     12/31/2005     12/31/2006     12/31/2005     12/31/2006     12/31/2005  
    (R$’000)  
 
Balance sheet positions:
                                                               
Accounts receivable
    19,836       25,157             5                          
Accounts payable
                                        370       546  
Interest on equity (capital payable)
                                  319              
Income statement:
                                                               
Sales
    82,931       77,096       3,047                                  
Exchange variation
    (894 )     1,570                                      
Cost and/ or expenses
                                        1,028       1,587  
 
13.   CONTINGENT LIABILITIES
 
Based on the evaluation of legal advisors, the financial statements do not include provisions for contingent liabilities of civil, tax / fiscal or labor natures. According to that evaluation, the most relevant proceedings against the Company classified as possible loss are commented below:
 
13.1.  Tax contingencies
 
The Company is a defendant in the following Tax Proceedings:
 
  •  Tax deficiency notice issued by the Federal Revenue Service and taxes claimed in court by the National Treasury, concerning Import Tax and Federal VAT (IPI), supposedly due to the non-compliance with the Drawback regime, at an amount of R$2,871 thousand (R$2,155 thousand in 2005);
 
  •  Tax deficiency notice issued by the Treasury Department of the State of Pará due to the assumed lack of payment of the ICMS rate difference in the acquisition of materials used in the Production process, at an amount of R$334 thousand;
 
  •  Tax deficiency notice of IBAMA for the assumed suppression of native vegetation without authorization of the competent agency, at an amount of R$214 thousand;
 
  •  Fiscal execution by the National Treasury in relation to taxes offset in the Statement of Federal Taxes and Contributions (DCTF), rejected due to the supposed expiration of the right to the Credits used in the offsetting, at an amount of R$47 thousand;
 
  •  Fiscal execution by the National Treasury in relation to taxes offset in the Statement of Federal Taxes and Contributions (DCTF) and rejected due to the supposed expiration of the right to the Credits used in the offsetting, at an amount of R$221 thousand; and
 
  •  Taxes offset in the Statement of Federal Taxes and Contributions (DCTF), whose credits used in the process were partially rejected by the Federal Revenue Service, at an amount of R$448 thousand.


F-41


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
 
13.2.  Labor Contingencies
 
The Company is a defendant in individual and collective Labor Proceedings, and is codefendant in labor complaints filed by employees of outsourced companies, at an amount of R$616 thousand.
 
13.3.  Civil Contingencies
 
The Company is a defendant in the following Civil Proceedings:
 
  •  An action filed by OSCAR LUIS DE MORAES for compensation of assumed losses to a Rural Property, at an amount of R$850 thousand;
 
  •  An action filed by TRANSMIX — Comercio, Representacoes e Trasportes Ltda, for compensation of supposed material and moral damages, and loss of profits, amounting to R$17,931 thousand, whose sentence was favorable to CCM, determining the termination of the action without judgment of merit.
 
14.   SHAREHOLDERS’ EQUITY
 
14.1.  Capital Stock
 
The company’s capital stock is represented by 33,115,708,363 common shares, all nominative and without par value.
 
14.2.  Capital Reserve
 
Relates to investments made in fiscal incentives.
 
15.   TAX LOSSES AND CREDITS TO OFFSET
 
The Company has tax losses at the amount of R$181,489 thousand (R$181,217 thousand in 2005) and social contribution tax negative basis of R$119,368 thousand (R$119,097 thousand in 2005) to be offset with future income. The company did not recognize a deferred tax asset from these bases because of the lack of historical losses in current earnings. The Company’s management intends to accrue a deferred tax asset as soon as conditions for recovery together with expectation of future positive basis begin to be of reasonable occurrence.
 
16.   INSURANCE
 
The Company has insurance policies to cover its assets of the kinds named and operational risks (fire, break of machines, electric damages, tumults and strikes, flooding, equipment in general and others), loss of profits, civil liability, group life insurance, and transportation. For renewal of the policy to the period 2006/2007, the services of a specialized company was contracted to evaluate the assets and real estate properties of the Company, based on market values.
 
17.   FINANCIAL INSTRUMENTS
 
The Company operates and manages those investments through control policies and establishment of operating strategy approved by the management.
 
As established by CVM (Brazilian SEC) Instruction No. 235/95, we present the following information about financial instruments:
 
Cash on hand, in banks and financial investments:
 
The amounts accounted for are close to their realization values.


F-42


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
Derivatives:
 
The Company does not operate with derivatives.
 
Risk management:
 
(i) Exchange and interest rate risks
 
This risk is due to the possibility of the Company incurring losses in view of fluctuations in exchange and interest rates. Therefore, the Company continually monitors those oscillations, with the purpose of evaluating the need of contracting operations to protect the Company against the risk of instability in exchange and interest rates, and the Company adopts a conservative policy in the investment of its resources. The Company does not have financial instruments deemed to protect exposure to exchange rates and interest rates as of December 31, 2006 and 2005.
 
(ii) Credit Risks
 
The Company’s sales policy is associated to the level of credit risk it is willing to run in the course of business.
 
The diversification of its receivables, the selection of customers, as well as the follow-up of financing periods of sales and individual limits are procedures adopted to minimize possible problems of default related to accounts receivable.
 
18.   RECONCILIATION OF STATEMENTS OF SHAREHOLDERS’ EQUITY AND NET INCOME FOR DIFFERENCES BETWEEN BRAZILIAN GAAP AND US GAAP AS OF DECEMBER 31, 2006, 2005 AND 2004
 
                         
    2006     2005     2004  
    (R$’000)  
 
Shareholders’ equity — BR GAAP
    117,326       117,674       126,921  
US GAAP adjustments:
                       
Deferred charges written-off under US GAAP (Note A)
    (4,314 )     (4,655 )     (4,447 )
Asset retirement obligation — SFAS 143 (Note B)
    (126 )     (84 )     (42 )
Deferred income tax on US GAAP differences (Note C)
    1,492       1,583       1,512  
Inflationary restatement period when Brazilian Reais not considered to be a functional currency (Note D)
    8,739       9,712       10,585  
                         
Fair value adjustment of available for sale Security — OCI (Note E)
    (98 )     (156 )      
                         
Shareholders’ equity — US GAAP
    123,019       124,074       134,529  
                         
                         
Net (loss) income — BR GAAP
    (348 )     (9,247 )     5,429  
US GAAP adjustments:
                       
Deferred charges treatment — (Note A)
    266       (208 )     (1,254 )
Asset retirement obligation — SFAS 143 (Note B)
    (63 )     (63 )     (63 )
Deferred tax on US GAAP differences (Note C)
    (69 )     92       447  
Inflationary restatement (Note D)
    (851 )     (871 )     166  
                         
Net (loss) income — US GAAP
    (1,065 )     (10,297 )     4,725  
                         


F-43


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
A.   ACCUMULATED EFFECTS OF DEFERRED CHARGES
 
                         
    2006     2005     2004  
    (R$’000)  
 
Write-off of deferred charges from balance position:
                       
Research and development
    (1,652 )     (1,957 )     (1,738 )
SAP implementation
    (1,548 )     (1,333 )     (981 )
Other maintenance
    (1,114 )     (1,365 )     (1,728 )
                         
Total write-off
    (4,314 )     (4,655 )     (4,447 )
Effect in shareholder’s equity:
                       
Beginning balance of 2004
    (3,193 )     (3,193 )     (3,193 )
Current earnings 2004
    (827 )     (827 )     (827 )
Current earnings 2005
    (137 )     (137 )      
Current earnings 2006
    176              
Deferred tax effect 2004
    (427 )     (427 )     (427 )
Deferred tax effect 2005
    (71 )     (71 )      
Deferred tax effect 2006
    90              
Write off
    75              
                         
Total effect in equity
    (4,314 )     (4,655 )     (4,447 )
Effect in net income:
                       
Cost of goods sold: depreciation
    936       933       497  
Selling, general and administrative: depreciation
    333       265       34  
Administrative expenses
    (1,003 )     (1,406 )     (1,785 )
                         
Gross effect in net income
    266       (208 )     (1,254 )
Deferred tax effect (34%)
    (90 )     71       427  
                         
Total net effect in net income
    176       (137 )     (827 )
                         
 
Under Brazilian GAAP pre-operational expenses relating to start-up operations, research and development, implementation of software and other maintenance costs are registered as deferred charges in long-term assets and amortized over a five year period using the straight-line method. According to US GAAP those expenses are expensed immediately in current earnings when incurred. Accordingly, the net amounts of R$4,314 thousand, R$4,655 thousand and R$4,447 thousand were written off against accumulated losses, including reversion of the amount amortized in current earnings of 2006, 2005 and 2004, respectively.
 
B.   ASSET RETIREMENT OBLIGATIONS (ARO)
 
Under Brazilian GAAP no accounting provision exists for costs to be incurred by the company for closing and restoration of the pit mines. For US GAAP, according to SFAS 143 all future costs incurred by the company related to closing, reforestation, and restoration should be measured as per its discounted present value. This value is calculated as the present value to restore four pit mines in time ranges from five to thirty years. The average value used to restore each mine is $0.50 of Reais (fifty cents of Reais) per depleted ton. The estimate of $0.50 per ton is based on past costs incurred by the Company with other mines already depleted. The total future value restoration cost for the four mines with different depletion time horizons is R$1,198 thousand. This value is equivalent to R$186 thousand in 2003 present value terms. The discount rate


F-44


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
used to calculate the present value obligations is the TJLP — Long Term Interest Rate issued by the Brazilian National Monetary Council of 9% representing the discount rate on long-term liabilities.
 
The reconciliation statement to US GAAP recognizes an ARO in 2003 and increased its carrying amount by R$186 thousand, which is accrued against the liability.
 
The reconciliation statement to US GAAP also recognizes yearly amortization of R$14 thousand on the asset portion of ARO. Concurrently, the annual amount of R$49 thousand is accrued to liabilities as accretion (interest) expense to justify the ARO’s additional future cost.
 
The adjustments relating to recognition of the Asset Retirement Obligation are as follows:
 
                         
    2006     2005     2004  
    (R$’000)  
 
Adjustments in assets:
                       
Current assets
                       
Deferred tax over ARO (accumulated net income effect x 34%)
    63       42       21  
Other assets
                       
Asset retirement obligation
    144       158       172  
                         
ARO related assets
    207       200       193  
Adjustments in liabilities:
                       
Other liabilities
                       
ARO liability
    333       284       235  
Adjustments in shareholder’s equity:
                       
Current earnings 2004
    (42 )     (42 )     (42 )
Current earnings 2005
    (42 )     (42 )      
Current earnings 2006
    (42 )            
                         
Total shareholders’ equity
    (126 )     (84 )     (42 )
                         
Total liabilities & equity — US GAAP
    207       200       193  
                         
Adjustments in current earnings:
                       
Income US GAAP adjustment
                       
Accretion (interest) expense
    (49 )     (49 )     (49 )
ARO depreciation expense
    (14 )     (14 )     (14 )
                         
Deferred charges (deferred tax effect not included)
    (63 )     (63 )     (63 )
                         
 
C.  DEFERRED INCOME TAXES
 
The reconciliation statement to US GAAP recognizes the deferred income tax effect over all temporary differences from the restatement from Brazilian GAAP. Only the adjustments of ARO and write-off of Deferred Charges are considered temporary differences. The inflationary restatement of fixed assets and share capital based on EITF 94-2 is considered a permanent difference since it will not reoccur in the future.


F-45


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
The adjustments of deferred tax assets can be summarized as follows:
 
                         
    2006     2005     2004  
    (R$’000)  
 
Adjustments affecting equity:
                       
Deferred charges written off from long-term assets
    (4,314 )     (4,655 )     (4,447 )
Creation of ARO
    (126 )     (84 )     (42 )
Other
    52       84       42  
                         
      (4,388 )     (4,655 )     (4,447 )
      x 34 %     x 34 %     x 34 %
                         
Deferred tax credit created against accumulated earnings
    1,492       1,583       1,512  
Adjustments affecting current earnings:
                       
Deferred charges adjustments to income statement to agree with US GAAP
    266       (208 )     (1,252 )
Amortization of ARO in current earnings
    (63 )     (63 )     (63 )
                         
      203       (271 )     (1,315 )
Deferred tax effect over:
                       
Deferred charges (34%)
    (90 )     71       426  
ARO (34%)
    21       21       21  
                         
Deferred tax (expense) created in current earnings
    (69 )     92       447  
                         
 
D.  INFLATIONARY RESTATEMENT
 
Brazil changed its currency during 1995 from Cruzeiro to Real. Prior to 1995 Brazil was considered a hyperinflationary economy. This practice usually converged to the U.S. Dollar to serve as proxy functional currency. Starting in 1995 Brazil entered a period of currency stability. Starting from end of 1997 the Brazilian economy was no longer considered hyperinflationary after the three consecutive years, and the new currency, the Real, could be used as a functional currency for US GAAP purposes. This adjustment to the Real as a new functional currency creates an inflationary restatement.
 
The effects of the inflationary restatement to US GAAP are demonstrated as follows:
 
                         
    2006     2005     2004  
    (R$’000)  
 
Effect in equity:
                       
Share capital restatement
    31,949       31,949       31,949  
Fixed asset restatement (net effect)
    (23,210 )     (22,237 )     (21,364 )
                         
Net effect in equity
    8,739       9,712       10,585  
                         
Effect in current earnings:
                       
(Reversal) Addition of depreciation expense from restatement
    (851 )     (871 )     166  
                         
 
E.   FAIR VALUE ADJUSTMENT OF AVAILABLE FOR SALE SECURITY — ELETROBRÁS
 
The Company has interest shares on Eletrobrás (public trading company in Brazil), which is kept at cost method with no adjustment at fair value in accordance with Brazilian GAAP. For US GAAP purposes, this


F-46


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
investment is classified as an available for sale security and in this regard has to be adjusted at fair value against Other Comprehensive Income, within the equity account, with no effect in the income statement, as in accordance with FAS 115 — Accounting for Certain Instruments in Debit and Equity Securities. The adjustments presented in the reconciliation are net of 34% income tax. The Company obtained the shares on Eletrobrás on April 28, 2005. The shares of Eletrobrás are quoted at Bovespa (São Paulo Stock Exchange).
 
19.   STATEMENTS OF CASH FLOW AS OF DECEMBER 31, 2006, 2005 AND 2004
 
19.1.  Statements of Cash Flow per Brazilian GAAP
 
                         
    2006     2005     2004  
    (R$’000)  
 
Cash flows from operating activities:
                       
Net income (loss) for the year
    (348 )     (9,247 )     5,429  
Adjustments to reconcile net income (loss):
                       
Depreciation and amortization
    9,534       8,861       8,847  
Loss on disposal of permanent assets
    1,126       148       748  
Interest, monetary and exchange variation
    95       1,079       750  
Increases and decreases in operating assets and liabilities:
                       
Trade receivable
    (21 )     (9,040 )     13,192  
Inventories
    1,492       1,822       (9,178 )
Suppliers
    13,562       1,639       (2,557 )
Tax and contribution payable
    3,113       (274 )     (139 )
Payment of software implementation costs
    (697 )     (575 )     (1,148 )
Payment of research and development costs
    (307 )     (831 )     (637 )
Other assets and liabilities, net
    (5,990 )     (2,765 )     (2,739 )
                         
      21,907       64       7,139  
Net cash provided by operating activities
    21,559       (9,183 )     12,568  
                         
Cash flow from investing activities:
                       
Acquisition of property plant and equipment
    (2,869 )     (4,861 )     (11,247 )
                         
Net cash used in investing activities
    (2,869 )     (4,861 )     (11,247 )
Cash flow from financing activities:
                       
Borrowings from short and long term debts
    19,719       29,308       28,768  
Payments of short and long term debts
    (25,867 )     (18,121 )     (25,710 )
Payment of interest on equity capital
    (319 )     (1,176 )     (1,952 )
                         
Net cash used in financing activities
    (6,467 )     10,011       1,106  
Net increase (decrease) in cash
    12,223       (4,033 )     2,427  
Cash at the beginning of the year
    299       4,332       1,905  
                         
Cash at the end of the year
    12,522       299       4,332  
                         
Additional information:
                       
Interest paid
    1,477       686       398  
                         
Income tax paid or compensated
                1,443  
                         


F-47


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
19.2.  Reconciliation of Statements of Cash Flow for differences between Brazilian GAAP and US GAAP
 
                                                                         
    2006     2005     2004  
    Brazilian
          U.S.
    Brazilian
          U.S.
    Brazilian
          U.S.
 
    GAAP     Adjust.     GAAP     GAAP     Adjust.     GAAP     GAAP     Adjust.     GAAP  
    (R$’000)  
 
Net Income
    (348 )     (717 )     (1,065 )     (9,247 )     (1,050 )     (10,297 )     5,429       (704 )     4,725  
Operating activities per Brazilian GAAP
    21,907             21,907       64             64       7,139             7,139  
US GAAP adjustments:
                                                                       
Deferred charges treatment — (Note 19-A)
          (266 )     (266 )           208       208             1,254       1,254  
Asset retirement obligations — (Note 19-B)
          63       63             63       63             63       63  
Deferred tax on US GAAP differences - (Note 19-C)
          69       69             (92 )     (92 )           (447 )     (447 )
Inflationary restatement — (Note 19-D)
          851       851             871       871             (166 )     (166 )
                                                                         
Total cash provided by operating activities
    21,559             21,559       (9,183 )           (9,183 )     12,568             12,568  
Total cash provided by (used in) investing activities
    (2,869 )           (2,869 )     (4,861 )           (4,861 )     (11,247 )           (11,247 )
Total cash provided by (used in) financing activities
    (6,467 )           (6,467 )     10,011             10,011       1,106             1,106  
                                                                         
Net increase (decrease) in cash
    12,223             12,223       (4,033 )           (4,033 )     2,427             2,427  
Cash at the beginning of the year
    299             299       4,332             4,332       1,905             1,905  
                                                                         
Cash at the end of the year
    12,522             12,522       299             299       4,332             4,332  
                                                                         
Additional information:
                                                                       
Interest paid
    1,477             1,477       686             686       398             398  
                                                                         
Income tax paid / compensated
                                        1,443             1,443  
                                                                         
 
20.   SUPPLEMENTAL DISCLOSURE — OTHER INCOME (EXPENSE), NET
 
                         
    2006     2005     2004  
          (R$’000)        
 
Settlement loss from local taxing authority
          (8,854 )(a)      
Net (loss) gain from forest sale
    (881 )     169       365  
Other
    (27 )     50       248  
                         
      (908 )     (8,635 )     613  
                         
 
 
(a) The settlement loss from local taxing authority represents the one-time payment of a disputed item with a local taxing authority.
 
21.   DEFERRED TAX ASSET AND VALUATION ALLOWANCE
 
FAS 109 requires establishment of a deferred tax asset with the related valuation allowance arisen from accumulated tax losses presumed to be offset in the future. According to Brazilian income tax, accumulated losses are indefinite and can be compensated up to 30% with future income. Income tax rate is 34% (25% income tax and 9% social contribution). The Company’s deferred tax asset would be around R$61.706 thousand in 2006 and R$61.614 thousand in 2005, which are reduced by a 100% valuation allowance.


F-48


 

 
CAMARGO CORRÊA METAIS S.A.
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
 
22.   SUBSEQUENT EVENTS
 
In January 2007 there was a change in the Company’s shareholding. The 33.115.698.412 registered common shares belonging to Camargo Corrêa S.A. were sold to Globe Metais Participações Ltda.
 
During an Extraordinary Meeting held on February 26, 2007 the new shareholders decided to change the Company’s name to Globe Metais Ind. e Com. S.A. During the same meeting, it approved the merger between Globe Metais Participações Ltda and Globe Metais Ind. e Com. S.A., with all shares of the new company being held by Globe Specialty Metals, Inc.


F-49


 

 
GLOBE METALES S.A.
(FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)

Carlos Pellegrini 1141 — Piso 11
CIUDAD AUTÓNOMA DE BUENOS AIRES — ARGENTINA
 
Main activity: Manufacture and sale of special ferrous alloys
 
Date of Registration with the Argentina Public Registry of Commerce: February 28, 1975
 
Last amendment to the Bylaws: May 24, 2007
 
Registration with the Company’s Inspection Bureau (IGJ): 252,694
 
Expiration date of its Bylaws: February 28, 2074
 
Name of Parent Company (Note 1): Global Specialty Metals, Inc.
 
Legal Address: 615 DuPont Highway, Kent County, Dove, Delaware,
United States of America
 
Main activity of Parent Company: Manufacture and sale of special ferrous alloys
 
Ownership interest held by the Parent Company (direct and indirect interest): 100%
 
FISCAL YEAR No 32
BEGINNING ON JULY 1, 2005

FINANCIAL STATEMENTS AS OF JUNE 30, 2006
(presented comparatively with fiscal years ended June 30, 2005 and 2004)

CAPITAL STRUCTURE AS OF JUNE 30, 2006 and 2005
(in Argentine pesos — Note 4)
 
         
    Subscribed and Paid in  
 
25,000,000 common non-endorsable shares with a face value of $1 and one vote per share
    25,000,000  
         


F-50


 

INDEPENDENT AUDITORS’ REPORT
 
To the Board of Directors and Shareholders
of Globe Metales S.A. (formerly Stein Ferroaleaciones S.A.C.I.F.yA.):
 
We have audited the accompanying balance sheets of Globe Metales S.A. (the “Company”) as of June 30, 2006 and 2005, and the related statements of income, shareholders’ equity, and cash flows for the each of the three years in the period ended June 30, 2006 with related notes 1 to 17 and supplemental appendices I to VI, thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2006 and 2005, and the results of their operations and their cash flows for the each of the three years in the period ended June 30, 2006 in conformity with accounting principles generally accepted in Buenos Aires City, Argentina.
 
Accounting principles generally accepted in Buenos Aires City, Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America (US GAAP). A description of the significant differences between such principles and those accounting principles generally accepted in the United States of America and the effect of those differences on the determination of the results of operations and the statements of cash flows for each of the three years in the period ended June 30, 2006 and on the determination of shareholders’ equity as of June, 2006 and 2005, are set forth in Notes 16 and 17 to the accompanying financial statements.
 
 
Deloitte & Co. S.R.L.
Buenos Aires City, Argentina
 
/s/  Guillermo Cohen
 
Guillermo Cohen
(Partner)
 
July 11, 2008


F-51


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
BALANCE SHEET AS OF JUNE 30, 2006
(presented comparatively with fiscal year ended June 30, 2005) (Note 2.1)
 
                 
    2006     2005  
    (In Argentine pesos)  
 
ASSETS
CURRENT ASSETS
               
Cash on hand and banks (Note 3.a)
    4,720,941       4,873,739  
Investments (Appendix I)
    343,676       190,844  
Trade receivables (Note 3.b)
    10,619,625       5,188,505  
Other receivables (Note 3.c)
    6,745,126       5,566,873  
Inventories (Note 3.d)
    12,024,420       9,864,422  
Other assets (Note 3.e)
    1,573,706       1,032,260  
                 
Total current assets
    36,027,494       26,716,643  
                 
NON-CURRENT ASSETS
               
Other receivables (Note 3.c)
    4,435,896       9,544,914  
Fixed assets (Appendix II)
    35,366,938       36,465,785  
                 
Total non-current assets
    39,802,834       46,010,699  
                 
TOTAL ASSETS
    75,830,328       72,727,342  
                 
 
LIABILITIES
CURRENT LIABILITIES
               
Trade accounts payable (Note 3.f)
    12,668,760       10,022,636  
Bank and financial loans (Note 3.g)
    3,854,865       3,311,364  
Salaries and social security contributions (Note 3.h)
    932,865       739,495  
Taxes payable (Note 3.i)
    489,314       233,698  
Other liabilities (Note 3.j)
    214,020       238,854  
                 
Total current liabilities
    18,159,824       14,546,047  
                 
NON-CURRENT LIABILITIES
               
Trade accounts payable (Note 3.f)
    1,119,041        
Bank and financial loans (Note 3.g)
    1,542,000       2,089,132  
Deferred income taxes (Note 3.k)
    2,525,284       1,844,775  
Other liabilities (Note 3.j)
    3,758,382       3,891,265  
Reserves (Appendix III)
    3,961,715       3,126,060  
                 
Total non-current liabilities
    12,906,422       10,951,232  
                 
TOTAL LIABILITIES
    31,066,246       25,497,279  
                 
SHAREHOLDERS’ EQUITY (according to the corresponding statement)
    44,764,082       47,230,063  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
    75,830,328       72,727,342  
                 
 
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements


F-52


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED JUNE 30, 2006
(presented comparatively with the fiscal years ended June 30, 2005 and 2004) (Note 2.1)
 
                         
    2006     2005     2004  
    (In Argentine pesos)  
 
Net sales (Note 3.l)
    101,462,933       99,316,171       78,058,542  
Cost of sales (Appendix IV)
    (76,060,325 )     (71,446,936 )     (60,947,297 )
                         
Gross profit
    25,402,608       27,869,235       17,111,245  
Selling expenses (Appendix VI)
    (14,545,136 )     (14,467,711 )     (10,418,592 )
Administrative expenses (Appendix VI)
    (1,440,423 )     (1,204,386 )     (1,138,530 )
Financial results — net (Note 3.m)
    (3,039,276 )     (3,614,996 )     (1,391,771 )
Other income and expenses (Note 3.n)
    1,578,672       722,689       (951,068 )
                         
Income from ordinary operations before income tax
    7,956,445       9,304,831       3,211,284  
Income tax (Note 3.o)
    (1,879,203 )     (3,125,810 )     (1,030,211 )
                         
Income from ordinary operations
    6,077,242       6,179,021       2,181,073  
Extraordinary loss (Note 3.p)
          (28,910 )     (6,597 )
                         
Net income for the year
    6,077,242       6,150,111       2,174,476  
                         
 
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements


F-53


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005) (Note 2.1)
 
                                                                                 
    2006     2005  
    Shareholders’ Contributions     Retained Earnings              
          Adjustment
                                  Technical
             
          to Capital
          Legal
                Unappropriated
    Appraisal
             
    Capital
    Stock
          Reserves
    Other
    Total
    Retained
    Reserve
             
    Stock     (Note 2.3.h)     Total     (Note 2.3.h)     Reserves     Reserves     Earnings     (Note 2.3.g)     Total     Total  
    (In Argentine pesos)  
 
Balance at the beginning of the year
    25,000,000       6,969,027       31,969,027       2,847,015             2,847,015       9,816,061       6,207,930       50,840,033       43,418,637  
Adjustment to prior years (Notes 2.1 and 15)
                                        (3,609,970 )           (3,609,970 )     (1,359,944 )
                                                                                 
Total balances modified at the beginning of the year
    25,000,000       6,969,027       31,969,027       2,847,015             2,847,015       6,206,091       6,207,930       47,230,063       42,058,693  
Resolution of the Ordinary Shareholders’
                                                                               
Meeting held on September 14, 2005:
                                                                               
— Legal reserves and other reserves
                      420,007       1,500,000       1,920,007       (1,920,007 )                  
— Dividends declared
                                        (7,880,055 )           (7,880,055 )     (337,102 )
Technical appraisal reserve decrease due to:
                                                                               
— Fixed assets depreciation (Appendix II)
                                              (663,168 )     (663,168 )     (641,639 )
Net income for the year
                                        6,077,242             6,077,242       6,150,111  
                                                                                 
Balance at the end of year
    25,000,000       6,969,027       31,969,027       3,267,022       1,500,000       4,767,022       2,483,271       5,544,762       44,764,082       47,230,063  
                                                                                 
 
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements


F-54


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
(presented comparatively with the fiscal years ended June 30, 2005 and 2004) (Note 2.1)
 
                         
    2006     2005     2004  
    (In Argentine pesos)  
 
CASH VARIATION
                       
Cash and cash equivalent at the beginning of the year(1)
    4,873,739       1,911,909       4,850,086  
Cash and cash equivalent at the end of year(1)
    4,720,941       4,873,739       1,911,909  
                         
Net (decrease) increase in cash and cash equivalent
    (152,798 )     2,961,830       (2,938,177 )
                         
CAUSES OF VARIATION
                       
Cash flows from operating activities
                       
Ordinary income for the year
    6,077,242       6,179,021       2,181,073  
Interest income
    (163,569 )     (379,930 )     (362,254 )
Interest expense
    1,460,415       1,089,710       661,200  
Income tax
    1,879,203       3,125,810       1,030,211  
Adjustments to reconcile the net cash flow from operating activities:
                       
Expenses not representing use of cash (Note 11.a)
    3,816,745       3,330,278       2,572,622  
Income not representing sources of cash (Note 11.b)
    (122,778 )     (299,614 )     (878,677 )
Net changes in operating assets and liabilities:
                       
(Increase) decrease in trade receivables
    (5,267,551 )     267,892       251,197  
(Increase) decrease in current investments
    (97,640 )     (122,021 )     19,316  
Increase in other receivables
    (1,960,674 )     (278,247 )     (3,211,253 )
Increase in inventories
    (2,159,998 )     (2,953,475 )     (1,358,510 )
Increase in other assets
    (298,885 )     (45,759 )      
Net increase (decrease) in current and non-current liabilities except insolvency proceedings and financial loans
    3,111,859       (127,189 )     4,083,374  
Net decrease of insolvency proceedings
    (10,105 )           (15,951 )
Decrease in reserves
          (60,037 )      
Dividend payments
    (1,447,357 )     (337,102 )      
                         
Net cash provided by ordinary operations
    4,816,907       9,389,337       4,972,348  
                         
Extraordinary loss for the year
          (28,910 )     (6,597 )
                         
Net cash provided by operating activities
    4,816,907       9,360,427       4,965,751  
                         
Cash flows from investing activities
                       
Acquisition of fixed assets
    (2,384,735 )     (3,530,777 )     (14,124,609 )
Loans to related companies
    (2,223,216 )     (485,778 )     (148,350 )
Proceeds from sale of fixed assets
                70,441  
                         
Net cash used in investing activities
    (4,607,951 )     (4,016,555 )     (14,202,518 )
                         
Cash flows from financing activities
                       
Net (decrease) increase in loans
    (361,754 )     (2,382,042 )     6,298,590  
                         
Net cash (used in) provided by financing activities
    (361,754 )     (2,382,042 )     6,298,590  
                         
Net (decrease) increase in cash and cash equivalent
    (152,798 )     2,961,830       (2,938,177 )
                         
 
 
(1) The Company considers as cash and cash equivalent the balances of cash on hand and banks and highly liquid short term investments with originally maturities of three month or less.
 
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements


F-55


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS
(in Argentine Pesos, except where otherwise indicated)
 
1.   BUSINESS DESCRIPTION AND CHANGES IN THE COMPANY’S OWNERSHIP
 
Globe Metales S.A. (former Stein Ferroaleaciones S.A.C.I.F.y A.) (the “Company”), manufactures silicon metal alloys, primarily calcium silicide and magnesium ferrosilicon, in industrial plants located in the provinces of Mendoza and San Luis in Argentina. Approximately 80% of its production is exported, and the remaining 20% goes to the domestic market. Its primary clients are several national and worldwide steel mills and casting companies.
 
On November 20, 2006, 100% of Stein Ferroaleaciones S.A.C.I.F.y A.’s capital stock was acquired by Globe Specialty Metals, Inc., located in the United States. As a consequence of such acquisition, the Company is now a subsidiary of Globe Specialty Metals, Inc. which has operations and industrial plants for silicon metal alloy production in the United States, Brazil, Argentina and Poland.
 
Due to the abovementioned shares transfer, on May 21, 2007, the Company’s Special Shareholders’ Meeting was called and decided to change Stein Ferroaleaciones S.A.C.I.F.y A.’s corporation name to Globe Metales S.A.
 
On February 10, 2000, the First National Commercial Circuit Court No. 9 approved the agreement entered into by the Company with its common creditors who were verified by the Company’s Insolvency Proceedings. At the issuing of these financial statements, the Company has been paying these liabilities in accordance with agreed payment proposal agreement (Note 3.j).
 
The present value of these liabilities presented as current amount to 214,020 and 212,961 as of June 30, 2006 and 2005, respectively, and non-current amount to 3,713,678 and 3,841,265 as of June 30, 2006 and 2005, respectively (Note 3.j).
 
2.   BASIS FOR THE PREPARATION OF THESE FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
 
2.1 Accounting policies applied and purpose of the financial statements
 
These financial statements have been prepared in accordance with the provisions of Technical Resolutions of the Federación Argentina de Consejos Profesionales de Ciencias Economicas (F.A.C.P.C.E.) (Argentine Federation of Professional Economic Council), with the modifications adopted by the Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (C.P.C.E.C.A.B.A.) (Institute of Professional Economic Council of the City of Buenos Aires), herein (Argentine GAAP).
 
These financial statements have been prepared for inclusion in its parent company’s registration statement on Form S-1 to be filed with the United States Securities and Exchange Commission (SEC).
 
The Company’s financial statements for the fiscal years ended June 30, 2006, 2005 and 2004 have been prepared in accordance with Argentine GAAP. The Argentine GAAP financial statements were previously issued by the Company for statutory purposes in Argentina and approved by the Company’s Board of Directors on September 11, 2006, September 8, 2005 and October 14, 2004, respectively.
 
These Argentine GAAP financial statements included herein contain certain adjustments and reclassifications as approved by the Company’s Shareholders meeting held on May 5, 2008 and the Company’s Board of Directors meeting held on July 11, 2008, as detailed in Note 15.
 
2.2 Consideration for the effects of inflation
 
These financial statements have been price level adjusted to December 31, 2002, to reflect the effects of the price level variations, applying the method established by Argentine Technical Resolution No 6 of the F.A.C.P.C.E.


F-56


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
Decree No 664/03 and Resolution No 4/03 issued by the Inspección General de Justicia (Company Inspection Bureau) suspended the adjustment for inflation of financial statements effective March 1, 2003, whereas the C.P.C.E.C.A.B.A. did the same effective October 1, 2003, (according to Resolution CD 190 of 2003 issued by the C.P.C.E.C.A.B.A.).
 
Given the low inflation rates measured by the variation of the wholesale internal price index general level, which is the index established to homogeneously adjust financial statements between December, 2002 and September, 2003, the Company decided not to apply any adjustment for such period.
 
2.3 Principal valuation criteria
 
The main valuation criteria used in the preparation of the financial statements are as follow:
 
a) Current monetary items:
 
Cash on hand and banks, receivables and liabilities in Argentine pesos have been stated at their nominal values, including, when applicable, the interest accrued at each year-end. Due to the low variation level of the overall wholesale internal price index, both year-ends as of June 30, 2006 and 2005 are regarded as periods of monetary stability, therefore implicit financial components of current items have not been segregated.
 
b) Assets and liabilities denominated in foreign currency
 
Assets and liabilities stated in foreign currency have been valued at the prevailing exchange rate at each year-end. Due to the low variation level of the wholesale internal price index, both year-ends have been regarded as periods of monetary stability, therefore implicit financial components of current items have not been segregated.
 
c) Investments:
 
Investments in government securities have been valued at their market value at the end of each year.
 
Investments in deposits in guarantees for future foreign exchange contracts have been valued at face value, adjusted, as applicable, for the market value change of such contract at the end of the year (Notes 7 and 12).
 
d) Non-current receivables and payables:
 
Long-term receivables and payables with no associated interest rate or other type of financial compensation have been valued at their discounted value or net realizable value, as applicable, at the end of the year.
 
e) Inventories:
 
Inventories have been valued at cost and approximately at their replacement cost at the end of each year. The value of inventories does not exceed their recoverable value at the end of each year.
 
f) Other assets:
 
Assets held for sale: have been valued at their net realizable value at the end of the year.
 
Spare parts: have been valued at the cost of last purchase, which is representative of replacement costs value at the end of each year.
 
The values determined do not exceed their recoverable values.


F-57


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
g) Fixed assets:
 
Original values: were inflation adjusted as detailed in Note 2.2, net of accumulated depreciation corresponding to their assigned useful life.
 
Depreciation: is calculated by the straight-line method on their inflation adjusted values as detailed in Note 2.2 according to their estimated useful life of each group of assets.
 
In October 1996, the Company’s fixed assets located in Mendoza and San Luis were technically revaluated. The Company’s management, in consultation with the third parties, concluded to recognize the valuation excess over the book value with an offsetting entry in the technical appraisal reserve account in the statement of changes in shareholders’ equity. The adjusted book value, which includes revaluation and adjustment for inflation as detailed in Note 2.2, was the basis to assess such fixed assets depreciation.
 
The technical appraisal reserve is depreciated over the remaining useful life of fixed assets with an off-set by reducing in the same amount the reserve initially recorded in the statement of changes in shareholders’ equity.
 
The carrying value of fixed assets does not exceed their recoverable value.
 
h) Shareholders’ equity:
 
Capital Stock, Reserves and Retained Earnings: these accounts have been adjusted by inflation as detailed in Note 2.2. Excess value of adjusted Capital Stock over its face value is allocated to Adjustment to Capital Stock account in Shareholders’ Equity.
 
Legal reserve: in accordance with the provisions of Argentine Law N° 19,550; 5% of net income for the year is to be appropriated to the legal reserve until such reserve reaches 20% of the Company’s capital stock plus adjustment to capital stock.
 
i) Income accounts:
 
These accounts were stated at their nominal values, except charges for assets consumed (depreciation and decreases of fixed assets) recognized according to the adjusted values of such assets as detailed in Note 2.2.
 
j) Income taxes:
 
Argentine GAAP require that income taxes be recorded by applying the deferred income tax method. This criterion implies recognizing tax assets and liabilities from temporary differences between accounting and tax valuations.
 
According to the new generally accepted accounting principles set forth in resolution CD No. 93/2005 of the C.P.C.E.C.A.B.A., effective as of January 1, 2008, the difference between the book value of fixed assets adjusted into constant Argentine pesos and their corresponding basis used for tax purposes corresponds to a temporary difference considered in deferred income tax computations. However, Argentine GAAP allows the option to disclose the mentioned effect in a note to the financial statements. The Company has opted, as allowed by accounting standards, not to recognize the deferred tax liability due to the difference between the adjusted value of fixed assets and their tax value. The value of this liability not recognized in the financial statements is approximately 3,600,000 and 3,900,000 as of June 30, 2006 and 2005, respectively, with an estimated reversal period of 17 years.


F-58


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
k) Allowances and reserves:
 
Allowances: amounts have been provided in order to reduce the valuation of trade receivables based on analysis of doubtful accounts.
 
Reserves: amounts have been provided for various contingencies which are probable and can be reasonably estimated, based on management’s expectations in consultation with the legal counsels.
 
l) Use of estimates:
 
The preparation of financial statements in conformity with Argentine GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities disclosed and the disclosure of contingent assets and liabilities in the financial statements and the amounts of reported revenue and expenses during the reporting period. Actual results could differ from these estimates.
 
3.   DETAIL OF MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
 
a)  Cash on hand and banks
 
                 
    2006     2005  
 
In Argentine Pesos
               
Cash on hand
    24,058       26,374  
Banks
    1,791,748       220,656  
                 
Subtotal
    1,815,806       247,030  
                 
In foreign currency (Appendix V)
               
Cash on hand
    24,674       10,766  
Banks
    2,880,461       4,615,943  
                 
Subtotal
    2,905,135       4,626,709  
                 
Total
    4,720,941       4,873,739  
                 
 
b)  Trade receivables
 
                 
    2006     2005  
 
In Argentine Pesos
               
Accounts receivable
    3,510,672       641,434  
Checks to be deposited
    427,440       213,110  
                 
Subtotal
    3,938,112       854,544  
In foreign currency (Appendix V)
               
Accounts receivable
    1,552,128       1,897,908  
Related companies (Note 13)
    5,211,857       2,518,525  
                 
Subtotal
    6,763,985       4,416,433  
Deduct:
               
Allowance for doubtful accounts (Appendix III)
    (82,472 )     (82,472 )
                 
Total
    10,619,625       5,188,505  
                 


F-59


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
c)  Other receivables
 
                 
    2006     2005  
 
Current
               
In Argentine Pesos
               
Export VAT reimbursement
    1,327,942       1,976,466  
Tax credit balances
    2,828,382       2,111,023  
Income tax advances and withholdings (net of income tax
               
provision of 1,198,695 in 2006 and 1,638,429 in 2005)
    538,085       15,617  
Prepaid expenses
    702,590       411,620  
Deposits in guarantee
    47,775       32,602  
Loans to personnel
    35,493       18,500  
                 
Subtotal
    5,480,267       4,565,828  
                 
In foreign currency (Appendix V)
               
Export VAT reimbursements
    1,264,859       875,766  
Other receivables
          125,279  
                 
Subtotal
    1,264,859       1,001,045  
                 
Total
    6,745,126       5,566,873  
                 
Non-current
               
In Argentine Pesos
               
Loans
    485,778       485,778  
Tax credit balances
    1,443,458       2,262,976  
                 
Subtotal
    1,929,236       2,748,754  
                 
In foreign currency (Appendix V)
               
Loan to related companies (Note 13)
    2,506,660       283,444  
Parent company (Note 13)
          6,432,697  
Other receivables
          80,019  
                 
Subtotal
    2,506,660       6,796,160  
                 
Total
    4,435,896       9,544,914  
                 
 
d)  Inventories
 
                 
    2006     2005  
 
Finished products
    4,456,910       3,370,031  
Raw materials
    6,793,566       5,743,768  
Packaging materials
    531,705       354,964  
Goods in transit
    242,239       207,569  
                 
Subtotal
    12,024,420       9,676,332  
Advances to suppliers
          188,090  
                 
Total
    12,024,420       9,864,422  
                 


F-60


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
e)  Other assets
 
                 
    2006     2005  
 
Assets held for sale
    487,360       244,799  
Spare parts
    1,086,346       787,461  
                 
Total
    1,573,706       1,032,260  
                 
 
f)  Trade accounts payable
 
                 
    2006     2005  
 
Current
               
In Argentine Pesos
               
Trade accounts payable
    7,191,808       6,186,466  
Accrual for invoices to be received
    2,865,426       2,351,931  
                 
Subtotal
    10,057,234       8,538,397  
                 
In foreign currency (Appendix V)
               
Trade accounts payable
    1,687,282       1,346,824  
Related companies (Note 13)
    924,244       137,415  
                 
Subtotal
    2,611,526       1,484,239  
                 
Total
    12,668,760       10,022,636  
                 
Non-current
               
In Argentine Pesos Trade accounts payable
    1,119,041        
                 
Total
    1,119,041        
                 
 
g)  Bank and financial loans
 
                 
    2006     2005  
 
Current
               
In Argentine Pesos
               
Bank loans(1)
    2,012,516        
                 
Subtotal
    2,012,516        
                 
In foreign currency (Appendix V)
               
Financial loans(2) and (3)
    1,842,349       3,311,364  
                 
Total
    3,854,865       3,311,364  
                 
Non-current
               
In foreign currency (Appendix V)
               
Financial loans(2)
    1,542,000       2,089,132  
                 
Total
    1,542,000       2,089,132  
                 
 
 
(1) In June 2006, the Company obtained a 2,000,000 loan maturing in November 2006 that accrues interest of BIBOR (Buenos Aires Interbank Offered Rate) plus 2.5%.


F-61


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
 
(2) In the year 2004, the Company entered into an exclusive distribution agreement by which the Company received US$1,250,000 as advanced payment for exports. Such amount accrues an annual interest rate of 8% and has a final maturity in 2009. The outstanding balances as of June 30, 2006 and 2005 are current of 981,842 and 762,605 and non-current of 1,542,000 and 2,089,132, respectively.
 
(3) In June 2005, the Company obtained on different dates US$500,000 maturing between July and August 2006 and accruing 8.25% annual interest.
 
h)  Salaries and social security contributions
 
                 
    2006     2005  
 
Salaries payable
    659,326       517,101  
Social security payable
    273,539       222,394  
                 
Total
    932,865       739,495  
                 
 
i)  Taxes payable
 
                 
    2006     2005  
 
Withholdings
    475,764       215,764  
Other tax liabilities
    13,550       17,934  
                 
Total
    489,314       233,698  
                 
 
j)  Other liabilities
 
                 
    2006     2005  
 
Current
               
Insolvency proceedings:
               
Preferred creditors
    5,145       10,095  
Common creditors
    208,875       202,866  
Others
          25,893  
                 
Total
    214,020       238,854  
                 
Non-current
               
Insolvency proceedings:
               
Common creditors
    3,576,091       3,314,629  
Late reviewed creditors
    330,072       330,072  
Preferred creditors
          4,809  
Discount present value adjustment
    (806,435 )     (422,195 )
Creditors with preference under review
    613,950       613,950  
                 
Subtotal
    3,713,678       3,841,265  
                 
Others accruals
    44,704       50,000  
                 
Subtotal
    44,704       50,000  
                 
Total
    3,758,382       3,891,265  
                 


F-62


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
k)  Deferred income taxes
 
                 
    2006     2005  
 
Deferred income tax details are as follows:
               
Non-current liabilities for deferred taxes, net
               
Trade accounts receivable
    (1,313,283 )     (964,369 )
Other receivables
    (351,580 )     (182,439 )
Inventories
    843,372       591,570  
Fixed assets
    4,190,739       3,138,882  
Other assets
    122,034        
Other liabilities
    255,216       189,866  
Reserves
    (1,221,214 )     (928,735 )
                 
Total
    2,525,284       1,844,775  
                 
 
l)  Net sales
 
                         
    2006     2005     2004  
 
Domestic market sales
    22,450,612       20,090,253       16,840,638  
Export market sales
    80,351,406       80,162,511       61,986,701  
Tax refund on exports
    1,898,305       1,934,967       1,469,525  
Withholdings taxes on exports
    (3,237,390 )     (2,871,560 )     (2,238,322 )
                         
Total
    101,462,933       99,316,171       78,058,542  
                         
 
m)  Financial results — net
 
                         
    2006     2005     2004  
 
Generated by assets
                       
Interest income
    163,569       379,930       362,264  
Adjustment of discounted value of tax credits
    (483,266 )     73,904        
Exchange differences
    232,658       (1,222,136 )     148,020  
Holding results of other assets(1)
    242,561              
                         
Subtotal profit — (loss)
    155,522       (768,302 )     510,284  
                         
Generated by liabilities
                       
Financial expenses (Appendix VI)
    (3,317,576 )     (2,823,952 )     (1,776,312 )
Adjustment of insolvency proceeding liabilities
    122,778       (100,316 )     (62,370 )
Exchange differences
          77,574       (63,373 )
Subtotal loss
    (3,194,798 )     (2,846,694 )     (1,902,055 )
                         
Total loss
    (3,039,276 )     (3,614,996 )     (1,391,771 )
                         
 
 
(1) Corresponds to holding results from the valuation of assets held for sale at their realizable value at the end of the fiscal year ended June 30, 2006.


F-63


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
 
n)  Other income and expenses
 
                         
    2006     2005     2004  
 
Decrease in insolvency proceedings liabilities
          428,840        
Insurance refunds(1)
    4,616,328       409,630        
Income from sale of fixed assets
    234,720       6,300        
Insolvency proceedings expenses
    (606 )     (11,973 )     (159,495 )
Decrease in tax credits
          (110,108 )      
Reserve for labor lawsuits
    (52,557 )           (210,117 )
Legal expenses
                (146,848 )
Reserve for contingencies
    (300,693 )            
Results for sale of other assets
                148,824  
Renegotiations of electric supply contract(2)
    (2,918,520 )            
Others
                (583,432 )
                         
Total income — (loss)
    1,578,672       722,689       (951,068 )
                         
 
 
(1) On January 23, 2005, an accident occurred which resulted in shutting down alloy number 3 (furnace). The Company negotiated and received from the insurance company compensation for its losses.
 
(2) In August 2005, the Company signed an agreement with Empresa Distribuidora de Energía de Mendoza S.A. (EDEMSA) by which the amount paid for energy in previous periods was revised with an impact of 2,918,520 recorded as other expense. Such amount will be paid in 31 monthly installments. The balance of this amount as of June 30, 2006 is included in trade accounts payable current for 1,220,771 and trade accounts payable non-current for 1,119,041 and accrues interest at an annual rate of 16%.
 
o)  Income tax
 
                         
    2006     2005     2004  
 
Current tax (Note 10)
    (1,198,695 )     (1,638,429 )     (184,746 )
Deferred tax
    (680,508 )     (1,487,381 )     (845,465 )
                         
Total
    (1,879,203 )     (3,125,810 )     (1,030,211 )
                         
 
The reconciliation between the income tax recognized in the statement of income and the income tax resulting from applying the tax rate effective to income before income taxes for the years ended on June 30, 2006, 2005 and 2004 is as follows:
 
                         
    2006     2005     2004  
 
Net income for the year before income tax
    7,956,445       9,275,921       3,204,687  
Income tax rate in effect
    35 %     35 %     35 %
                         
Income tax rate in effect applied to net
                       
income for the year before income tax
    (2,784,756 )     (3,246,572 )     (1,121,640 )
Permanent differences
    905,553       120,762       91,429  
                         
Total income tax
    (1,879,203 )     (3,125,810 )     (1,030,211 )
                         


F-64


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
p)  Extraordinary loss
 
                         
    2006     2005     2004  
 
Results for adjustments in relation to insolvency proceedings
          (28,910 )     (6,597 )
                         
Total loss
          (28,910 )     (6,597 )
                         
 
4.   CAPITAL STOCK
 
As of June 30, 2006 and 2005 and according to the minutes of the Extraordinary General Shareholders meeting held on August 2, 1996, the Company’s capital stock amounted to 25,000,000 shares, subscribed and paid in, and registered with the Company Inspection Bureau of the Buenos Aires City on December 3, 1996.
 
5.   TERMS AND INTEREST RATES OF INVESTMENTS, RECEIVABLES AND LIABILITIES
 
a)  Classification of investments and receivables
 
                 
    2006     2005  
 
Past due
    1,554,124       1,485,025  
Without fixed maturity
    391,450       6,939,588  
Due:
               
Up to 3 months
    12,122,685       8,592,587  
Between 3 to 6 months
    1,967,447       277,224  
Between 6 to 9 months
    1,257,223       223,654  
Between 9 to 12 months
    497,970       157,513  
Between 1 to 2 years
    3,425,276       1,177,372  
Between 2 to 3 years
    1,010,620       1,720,645  
                 
Subtotal
    22,226,795       20,573,608  
                 
Less: Allowance for doubtful accounts
    (82,472 )     (82,472 )
                 
Total
    22,144,323       20,491,136  
                 
 
Accrual of interest:
 
As of June 30, 2006, accounts receivables with related companies accrue interest at LIBOR (London Interbank Offered Rate) plus 4% annually.


F-65


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
b)  Classification of liabilities
 
                 
    2006     2005  
 
Without fixed maturity
    1,992,060       476,575  
Due:
               
Up to 3 months
    12,862,554       11,918,574  
Between 3 to 6 months
    2,171,347       1,275,452  
Between 6 to 9 months
    875,823       231,853  
Between 9 to 12 months
    442,260       763,872  
Between 1 to 2 years
    5,917,714       2,902,700  
Between 2 and 3 years
    865,141       814,141  
Over 3 years
    1,977,632       3,988,052  
                 
      27,104,531       22,371,219  
                 
 
Interest rate in relation to bank and financial loans and the trade account payable in relation to the contract with EDEMSA are detailed in Notes 3.g and 3.n, respectively.
 
6.   ASSETS SUBJECT TO AUTHORIZATION FOR DISPOSAL
 
The insolvency agreement noted in Note 1 restricts the Company from selling certain assets and requires an approval to be obtained for disposal. As of June 30, 2006 and 2005, the Company was in compliance with these restrictions.
 
7.   GUARANTEES GRANTED
 
As of June 30, 2006, the Company guaranteed a US$1,000,000 bank loan by transferring trade accounts receivable balances until the loan is paid.
 
As of June 30, 2006, the Company had deposits in the amount of 97,640 for open foreign currency positions (Note 12).
 
As of June 30, 2006, the Company granted the rights of collection of certain purchase orders to a local client for the payment of a 2,000,000 loan until the loan is paid in full.
 
As of June 30, 2006, the Company had an outstanding revolving pledge on a distribution contract for 179 tons of steel strips that guaranteed a US$99,196 bank debt. The debt was paid in full in July 2006.
 
8.   MORTGAGED ASSETS
 
During 2004, the Company received, as an export advance payment, US$1,250,000 for a distribution agreement signed with an overseas client, which was approved by the Company’s Board of Directors. As guarantee for such advance payment, the electrical furnace No. 4 from the plant in Mendoza was pledged for an amount of US$1,400,000. The amount of the liability in relation to such advance is 2,523,842 and 2,851,737 as of June 30, 2006 and 2005, respectively.
 
9.   PROMOTIONAL BENEFITS
 
In accordance with law No 22.095 and as a consequence of the merger that took place in 1996 with Silarsa S.A., the Company has the following benefits: Mining promotion Regime established by Resolution No 20/88 of the Mining Secretariat and its modification 4/2005, whereby it exempts the production of Furnace No 4 from income tax payments until 2008 and the production of Furnace No 5 until 2012, in agreement with


F-66


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
a decreasing exemption scale. These benefits are conditioned to the export of a minimum of 80% of annual sales.
 
The plant located in the Lujan de Cuyo Petrochemical Industrial Park, in the Province of Mendoza, has the benefits of Law No 24.196 of mining promotion. The assets included in the calculation of the presumptive minimum income tax are exempt by this law.
 
10.   INCOME TAX AND PRESUMPTIVE MINIMUM INCOME TAX
 
For the fiscal years ended June 30, 2006, 2005 and 2004, the Company determined income tax due by applying the corresponding tax rate to net taxable income, which resulted in charges to income of such fiscal years for 1,198,695, 1,638,429 and 184,746, respectively.
 
Additionally, the Company calculates tax on minimum presumed income applying the current 1% tax rate to taxable assets estimated at year-end. This tax is complementary to income tax. The Company’s tax liability will coincide with the higher of such taxes. However, if the tax on minimum presumed income exceeds income tax during one tax year, such excess may be computed as prepayment of any income tax excess over the tax on minimum presumed income that may be generated in the next ten years. For the fiscal years ended June 30, 2006, 2005 and 2004, no accrual has been made for the presumptive minimum income tax, since the income tax charge was greater.
 
11.   STATEMENT OF CASH FLOWS
 
a)  Expenses not representing use of cash
 
                         
    2006     2005     2004  
 
Depreciation of fixed assets
    2,820,065       2,668,097       2,285,686  
Write-offs of fixed assets residual value
    349              
Net financial results
    160,676       28,076        
Increase in reserves
    835,655       584,105       286,936  
Increase in accruals
          50,000        
                         
Total
    3,816,745       3,330,278       2,572,622  
                         
 
b)  Income not representing sources of cash
 
                         
    2006     2005     2004  
 
Reserves
                (111,512 )
Net financial results
                (687,308 )
Income from sales of other assets
                (148,824 )
Financial result net related to insolvency proceeding
    (122,778 )     (299,614 )     68,967  
                         
Total
    (122,778 )     (299,614 )     (878,677 )
                         
 
12.   DERIVATIVE INSTRUMENTS
 
The Company has entered into future foreign exchange contracts for US$35,000 that mature in July and August 2006. As of June 30, 2006, the future contracts were valued at their respective market values, resulting in a loss of 105 for the fiscal year ended June 30, 2006 which was recognized in statement of income in the financial result — net account.


F-67


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
13.   BALANCES AND TRANSACTIONS WITH THE PARENT COMPANY AND RELATED COMPANIES
 
Balances at June 30, 2006 are as follows:
 
                                         
          Other
                   
    Trade
    Non-current
    Trade Accounts
             
Companies
  Receivables     Receivables     Payable     Sales     Purchases  
 
Related Companies:
                                       
Ultracore Polska
    4,445,041       2,506,660       157,605       3,386,733       254,683  
Ultracore USA
    766,816             693,918       1,003,468       438,509  
Product
                72,721             72,579  
                                         
Total
    5,211,857       2,506,660       924,244       4,390,201       765,771  
                                         
 
Balances at June 30, 2005 are as follows:
 
                                         
          Other
                   
          Non-current
    Trade Accounts
             
Companies
  Trade Receivables     Receivables     Payable     Sales     Purchases  
 
Parent Company:
                                       
Hurlington S.A.(1)
          6,432,697                    
Related companies:
                                       
Ultracore Polska
    1,372,635       283,444             484,795        
Ultracore USA
    1,056,552             137,415       19,363,648       137,415  
Product
    89,338                   89,338        
                                         
Total
    2,518,525       6,716,141       137,415       19,937,781       137,415  
                                         
 
 
(1) Parent company of Stein Ferroaleaciones S.A.C.I.F.y A. until acquired by Globe Specialty Metals, Inc. on November 20, 2006.
 
14.   SUBSEQUENT EVENTS
 
On July 19, 2006, the Company signed a mutual contract for US$4,000,000 to finance its expansion operations. This contract has a 3-year maturity, and the contract contains a guarantee which includes a floating pledge on the Mendoza plant’s inventory for US$1,500,000 and the partial assignment of the collection from the distribution contract mentioned in Note 8.
 
On November 20, 2006, 100% of Stein Ferroaleaciones S.A.C.I.F.y A.’s capital stock was bought by Globe Specialty Metals, Inc., located in the United States. As a consequence of such acquisition, the Company is now a subsidiary of Globe Specialty Metals, Inc. which has operations and industrial plants for silicon metal alloys production in the United States, Brazil, Argentina and Poland.
 
Due to the abovementioned shares transfer, on May 21, 2007, the Company’s Special Shareholders’ Meeting was called and decided to change Stein Ferroaleaciones S.A.C.I.F.y A.’s corporation name to Globe Metales S.A.
 
In April 2007, the Company acquired a 100% capital interest in Ultra Core Energy S.A. Through such acquisition, the Company holds 9.73% of Inversora Nihuiles S.A., parent company of Hidroeléctrica Nihuiles S.A., and 8.40% of Inversora Diamante S.A., a parent company of Hidroeléctrica Diamante S.A., both in the province of Mendoza, Argentina.


F-68


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
The Company has signed a sale agreement for the property classified as assets held for sale amounting to 487,360 (Note 3.e). This property was sold for 486,541 on April 19, 2007 and the amount collected was recognized as advance payments in the fiscal year 2007. Such property transfer is to be approved by the court involved in the composition with creditors’ procedure (Note 1). The approval is pending with the court.
 
15.   ADJUSTMENTS AND RECLASSIFICATIONS
 
Effective for the Company on July 1, 2006, except for certain matters which application will be effective as from July 1, 2008, new generally accepted accounting principles were introduced by Resolution CD No. 93/2005 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires to converge the accounting principles in Argentina and involved the issuance of Resolution No. 312/2005 by the Argentine Federation of Professional Councils in Economic Sciences.
 
Since the acquisition of the Company by Globe Specialty Metals, Inc., the Company’s new management has made certain adjustments and reclassification to conform these financial statements to consolidated parent company financial statements and accounting policies.
 
During the fiscal year ended June 30, 2007, as a consequence of the changes introduced in Argentine GAAP as mentioned above, the Company’s new management changed the accounting criterion to measure the deferred tax applied historically, where discounted values were used to measure deferred income tax assets and liabilities. The Company’s new management has adopted measuring deferred income tax assets and liabilities on an undiscounted basis. This change has been retroactively applied by the Company in these financial statements. Additionally, the Company recognized the deferred income tax effect related to the corresponding adjustment detailed below. This change and the deferred income tax effect related to the corresponding adjustments detailed below have resulted in an increase in the deferred income tax liability as of June 30, 2006 and 2005 of 1,544,284 and 1,844,775, respectively, and a (decrease) — increase in deferred income tax expense of (300,491), 1,487,381 and 845,465 for the fiscal years ended June 30, 2006, 2005 and 2004 respectively.
 
During the fiscal year ended June 30, 2007, the Company’s new management modified the accounting criterion applied historically for the recognition of major furnace maintenance provisions which was based on the recognition of a provision before such maintenance was carried out. The Company’s new management has adopted a policy which requires the capitalization of the major maintenance expenses of furnaces when done and depreciation of the major maintenance expenses until the next maintenance period. This change has been retroactively applied by the Company in these financial statements. Such change resulted in a decrease in the other non-current liabilities as of June 30, 2006 and 2005 in the amount of 3,027,504 and 2,434,057, respectively, and, as of June 30, 2006, an increase in fixed assets in the amount of 380,808 and a decrease in production costs for 974,255, 684,177 and 599,544 for the fiscal years ended June 30, 2006, 2005 and 2004, respectively.
 
During the fiscal year ended June 30, 2007, in accordance with new Argentine accounting principles in effect as mentioned above, the Company’s new management recognized an impairment charge for fixed assets in the amount of 2,621,602. This impairment charge offset the impaired assets revaluation adjustment made during 1996 (Note 2.3.g) with an offsetting entry reducing the technical appraisal reserve account in the statement of changes in shareholders’ equity.
 
During the fiscal year ended June 30, 2007, the Company’s new management has determined based on new estimates and projections of the Company’s future activities and operations, that a portion of the VAT receivable balance will not be recoverable, therefore reducing it during such fiscal year.
 
For the purpose of these financial statements and considering the requirement to submit the information detailed in Notes 16 and 17 and in accordance with the new parent company’s accounting policies, the


F-69


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
Company has adopted the revenue recognition criteria followed by the parent company which establishes that revenue is recognized when a firm sales agreement is in place, delivery has occurred and title and risk of ownership have passed to the customer, the sale price is fixed and determinable, and collectability is reasonably assured. The Company’s new management has decided to retroactively modify the revenue recognition criteria previously followed under Argentine GAAP in previous years. Such change has caused a decrease in net sales of 996,895 and 2,672,869 for the fiscal years ended June 2006 and 2005, respectively, and a decrease in net income for 213,520 and 862,392 for the fiscal years ended June 30, 2006 and 2005, respectively.
 
During the fiscal year ended June 30, 2007, and based on the information and consultation with legal advisors, the Company’s new management accrued additional amounts compared to those estimated by the previous management as of June 30, 2006 and 2005. This change represents a correction of prior year balances as of June 30, 2006 and 2005, and for the fiscal years ended June 30, 2006, 2005 and 2004. These additional accruals primarily relate to contingencies for Customs General Administration claims associated with temporary imports of assets with an import date prior to 1999. These additional amounts have resulted in an increase in the non-current reserve balances as of June 30, 2006 and 2005 in the amount of 3,164,675 and 2,682,270, respectively, and an increase in financial result-net loss in the statement of income in the amount of 482,405, 584,105 and 76,819 for the fiscal years ended June 30, 2006, 2005 and 2004, respectively.
 
During the fiscal year ended June 30, 2007, the Company’s new management accrued an additional amount for insolvency proceedings compared to the one estimated by the previous management as of June 30, 2006 and 2005. That change represents a correction of prior year balances as of June 30, 2006 and 2005, and for the fiscal years ended June 30, 2006, 2005 and 2004. These additional accruals primarily relate to adjustments of the amounts due to creditors who were verified by the Company’s insolvency Proceedings. These additional amounts have resulted in an increase in the non-current reserve balances as of June 30, 2006 and 2005 in the amount of 1,405,975 and 654,590, respectively, and a loss (gain) in the financial result-net in the statement of income in the amount of 751,325, 325 and (16,712) for the fiscal years ended June 30, 2006, 2005 and 2004, respectively.
 
The combined effect of these adjustments described in this note at the beginning of the years ended June 30, 2006 and 2005 amounts to 3,609,970 and 1,359,944, respectively, that have been included in the statement of changes in Shareholder’s Equity as adjustments to prior years.
 
16.   SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ARGENTINE GAAP AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
 
The Company’s financial statements have been prepared in accordance with Argentine GAAP, which differs in certain respects from US GAAP. Such differences involve certain methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.
 
Inflation accounting
 
As discussed in Note 2.2, under Argentine GAAP, the financial statements are presented in constant Argentine pesos based on the application of therein mentioned resolutions.
 
Under US GAAP, financial statements are prepared on a historical cost basis. However, the reconciliation detailed in Note 17 do not include the reversal of the adjustment to net income and shareholders’ equity for the effects of inflation, as permitted by the SEC, as this adjustment represents a comprehensive measure of the effects of price-level changes in the Argentine economy, and as such, is considered a more meaningful presentation than historical cost-based financial reporting for both Argentine and US GAAP. Consequently, the


F-70


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
reconciliation, as permitted by SEC regulations, does not include the effects of inflation on US GAAP net income and shareholders’ equity.
 
Valuation differences
 
The principal valuation differences, other than inflation accounting, between Argentine GAAP and US GAAP as they relate to the Company’s shareholders’ equity as of June 30, 2006 and 2005 and net income for the years ended June 30, 2006, 2005 and 2004, are reflected in the amounts provided in Note 17 and principally relate to the items discussed in the following paragraphs. The additional disclosures required under US GAAP have not been included.
 
a)  Deferred income taxes
 
Under Argentine GAAP, the Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
 
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income for the period that includes the enactment date. A valuation allowance is recognized for that component of deferred tax assets which is not recoverable. The Argentine GAAP is similar to US GAAP set forth in Statement of Financial Accounting Standards issued by the Financial Accounting Standards Board in the United States of America (SFAS) No. 109, “Accounting for Income Taxes”. However, under Argentine GAAP and in accordance with C.P.C.E.C.A.B.A. Resolution MD No. 11/2003, the differences between the price-level adjusted amounts of assets and liabilities and their tax basis are treated as permanent differences for deferred income tax calculation purposes. Under US GAAP, the Company applies Emerging Issues Task Force in the United States of America (EITF) 93-9, “Application of FASB Statement No. 109 in Foreign Financial Statements Restated for General Price-Level Changes”, which requires such differences to be treated as temporary differences in calculating deferred income taxes.
 
In addition, the US GAAP deferred income tax adjustment includes the effect on deferred income taxes of the other reconciling items described herein, as appropriate.
 
b)  Capitalization of interest cost
 
Through December 31, 2005, the capitalization of interest cost for those assets which require a period of time to get them ready for their intended use was discretionary under Argentine GAAP. The Company did not capitalize interest over the value of its fixed assets in accordance with Argentine GAAP.
 
Under US GAAP, the Company applied SFAS No. 34, “Capitalization of Interest Cost”, whereby interest capitalization on assets is mandatory for those assets which require a period of time to get them ready for their intended use.
 
c)  Discounted value of certain receivables and liabilities
 
Under Argentine GAAP, certain long-term receivables and liabilities (except for deferred income tax liabilities) were valued based on the best estimate of discounted value of amounts expected to be received or paid. Such discount was reversed for US GAAP purposes.


F-71


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
d)  Holding gains on assets held for sale
 
Under Argentine GAAP, assets held for sale are valued at their net realizable value at the end of the year. Under US GAAP, assets held for sale are valued at the lower of the assets carrying amount or fair value less cost to sell.
 
e)  Valuation of fixed assets — technical appraisal reserve
 
Under Argentine GAAP, in the year 1996, the accounting values of certain fixed assets were technically appraised based on a report issued by an independent valuation specialist. Under Argentine GAAP, technical appraisal and revaluation adjustments of certain fixed assets was permitted until the year 2003 under certain circumstances. Technical appraisal resulting in upward adjustment of fixed assets is not permitted under US GAAP.
 
New US GAAP accounting pronouncement
 
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income tax positions. FIN 48 requires that management determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. The Company has decided to apply the provisions of FIN 48 on a prospective basis effective on July 1, 2007.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 will be effective for the Company on July 1, 2008. However, the FASB deferred the effective date of SFAS 157 until the beginning of the Company’s 2009 fiscal year, as it relates to fair value measurement requirements for non-financial assets and liabilities that are not remeasured at fair value on a recurring basis. SFAS 157 is required to be applied prospectively, except for certain financial instruments. The Company is currently evaluating the impact that the adoption of SFAS No. 157 could have on its financial statements.


F-72


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
17.   RECONCILIATION OF NET INCOME, AND SHAREHOLDERS’ EQUITY TO US GAAP
 
The following is a summary of the significant adjustments to net income for the years ended June 30, 2006, 2005 and 2004, and to shareholders’ equity as of June 30, 2006 and 2005, which would have been required if US GAAP had been applied instead of Argentine GAAP in the financial statements. The additional US GAAP disclosures have not been included.
 
(Amounts are expressed in Argentine pesos)
 
                         
RECONCILIATION OF NET INCOME
  2006     2005     2004  
 
Net Income in accordance with Argentine GAAP
    6,077,242       6,150,111       2,174,476  
US GAAP adjustments:
                       
Discounted value of certain receivables and liabilities (Note 16.c)
    151,834       129,486       212,826  
Capitalization of interest cost and related depreciation of capitalized interest (Note 16.b)
    (13,678 )     (13,678 )     259,880  
Difference in deferred income taxes (Note 16.a)
    (157,734 )     427,990       (74,362 )
Holding gains on assets held for sale (Note 16.d)
    (242,561 )            
                         
Net Income in accordance with US GAAP
    5,815,103       6,693,909       2,572,820  
                         
 
                 
RECONCILIATION OF SHAREHOLDER’S EQUITY
  2006     2005  
 
Shareholder’s Equity in accordance with Argentine GAAP
    44,764,082       47,230,063  
US GAAP adjustments:
               
Valuation of fixed assets — technical appraisal reserve (Note 16.e)
    (5,544,762 )     (6,207,930 )
Discounted value of certain receivables and liabilities (Note 16.c)
    250,889       99,055  
Capitalization of Interest cost (Note 16.b)
    232,525       246,203  
Difference in deferred income taxes (Note 16.a)
    (2,383,697 )     (2,225,963 )
Holding gains on assets held for sale (Note 16.d)
    (242,561 )      
                 
Shareholder’s Equity in accordance with US GAAP
    37,076,476       39,141,428  
                 
 
Additional information on the Statements of Cash flows
 
The statements of cash flows presented in the financial statements are prepared based on Argentine GAAP. Under both Argentine GAAP and US GAAP, the Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents. As a result, no differences exist between the total amounts of cash and cash equivalents reported in the statements of cash flows prepared under Argentine GAAP and US GAAP.


F-73


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(in Argentine Pesos, except where otherwise indicated)
 
Main differences in the Company’s cash flow statements between Argentine GAAP and US GAAP relates to the disclosure of certain items that should be classified differently between operating and financing activities under Argentine GAAP and US GAAP. Such differences mainly relate to dividends paid and interest paid, and the presentation of the effect of exchange rate changes on cash balances held in foreign currencies as a separate part of the reconciliation of the change in cash and cash equivalents during the years.
 
                         
RECONCILIATION OF CASH FLOW
  2006     2005     2004  
 
Total cash provided by operating activities in accordance with Argentine GAAP
    4,816,907       9,360,427       4,965,751  
US GAAP adjustments:
                       
Dividends paid
    1,447,357       377,102        
Financial interests
    (358,121 )     (398,682 )     (72,332 )
Effect of exchange rate changes on cash and cash equivalents
    (321,900 )     72,447       (215,674 )
                         
Total cash provided by operating activities in accordance with US GAAP
    5,584,243       9,411,294       4,677,745  
                         
Total cash used by investing activities in accordance with Argentine GAAP and US GAAP
    (4,607,951 )     (4,016,555 )     (14,202,518 )
                         
                         
Total cash provided by (used in) financing activities in accordance with Argentine GAAP
    (361,754 )     (2,382,042 )     6,298,590  
US GAAP adjustments:
                       
Dividends paid
    (1,447,357 )     (377,102 )      
Financial interests
    358,121       398,682       72,332  
                         
Total cash provided by (used in) financing activities in accordance with US GAAP
    (1,450,990 )     (2,360,462 )     6,370,922  
                         
Net (decrease) increase in cash
    (474,698 )     3,034,277       (3,153,851 )
CASH AT THE BEGINNING OF THE YEAR
    4,873,739       1,911,909       4,850,086  
Effect of exchange rate changes on cash and cash equivalents
    321,900       (72,447 )     215,674  
                         
CASH AT THE END OF THE YEAR
    4,720,941       4,873,739       1,911,909  
                         


F-74


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
Appendix I
 
INVESTMENTS
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005)
(in Argentine pesos)
 
                 
    Book Value  
Denomination
  2006     2005  
 
CURRENT
               
In foreign currency (Appendix V)
               
Deposits in guarantee for future contracts (Notes 7 and 12)
    97,640        
Government securities
    246,036       190,844  
                 
Total
    343,676       190,844  
                 


F-75


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
Appendix II
 
FIXED ASSETS
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005)
(in Argentine pesos)
 
                                                                                         
    ORIGINAL VALUES     DEPRECIATION     NET  
                            Accumulated
                                     
    Values at the
                      at the
                      Accumulated
             
    Beginning of
                Values at the
    Beginning of
          Rate
    Amount
    at the End of
    Book Value
    Book Value
 
ITEMS
  Year     Additions     Write-offs     End of Year     Year     Write-offs     %     (1)     Year     2006     2005  
 
Land
    490,047                       490,047                                               490,047       490,047  
Buildings
    8,884,410       78,062               8,962,472       3,723,256               2 %     199,842       3,923,098       5,039,374       5,161,154  
Machinery
    4,590,033       69,860               4,659,893       3,807,631               7 %     245,793       4,053,424       606,469       782,402  
Vehicles
    391,120                       391,120       348,263               20 %     12,394       360,657       30,463       42,857  
Tools
    176,996                       176,996       156,348               20 %     5,162       161,510       15,486       20,648  
Furniture
    1,263,331       380,808               1,644,139       1,230,312               10 %     12,338       1,242,650       401,489       33,019  
Installations
    1,916,078       692,023               2,608,101       1,278,262               20 %     92,765       1,371,027       1,237,074       637,816  
Furnaces
    58,135,571       544,890       (529,996 )     58,150,465       29,305,113       (529,647 )     5 %     2,278,511       31,053,977       27,096,488       28,830,458  
Equipment
    12,554,257       519,187       (254,668 )     12,818,776       12,132,833       (254,668 )     10 %     627,869       12,506,034       312,742       421,424  
Computer systems
    74,920       10,691               85,611       28,960                       8,559       37,519       48,092       45,960  
Advances to suppliers
            89,214               89,214                                               89,214          
                                                                                         
Total 2006
    88,476,763       2,384,735       (784,664 )     90,076,834       52,010,978       (784,315 )             3,483,233       54,709,896       35,366,938          
                                                                                         
Total 2005
    84,977,135       3,530,777       (31,149 )     88,476,763       48,732,391       (31,149 )             3,309,736       52,010,978               36,465,785  
                                                                                         
 
 
(1) Includes 2,820,065 and 2,668,097 charged to production cost (Appendix VI) for the fiscal years ended June 30, 2006 and 2005, respectively, and 663,168 and 641,639 charged to the technical appraisal reserve for the fiscal years ended June 30, 2006 and 2005, respectively.


F-76


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
Appendix III
 
ALLOWANCES AND RESERVES
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005)
(in Argentine pesos)
 
                                         
    Balances at
                Balance at End of Year  
    Beginning of Year     Increases     Decreases     2006     2005  
 
Deducted from current assets
                                       
Accounts receivable
                                       
Allowance for doubtful accounts
    82,472                   82,472       82,472  
                                         
Total
    82,472                       82,472       82,472  
                                         
Included in non-current liabilities
                                       
Reserve for labor lawsuits
    242,670 (1)     52,557             295,227       242,670  
Reserve for contingencies
    2,883,390 (2)     783,098             3,666,488       2,883,390  
                                         
Subtotal
    3,126,060       835,655             3,961,715       3,126,060  
                                         
Total 2006
    3,208,532       835,655               4,044,187          
                                         
Total 2005
    2,684,464 (3)     584,105       (60,037 )             3,208,532  
                                         
 
 
(1) Included in other income and expenses.
 
(2) Included 300,693 in other income and expenses and 482,405 in financial result — net
 
(3) Included in financial result — net.


F-77


 

 
GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
Appendix IV
 
COST OF SALES
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005 and 2004)
(in Argentine pesos)
 
                         
Items
  2006     2005     2004  
 
Inventory at the beginning of year (except advances to suppliers)
    9,676,332       6,910,947       5,552,437  
Purchases for the year
    48,163,371       47,659,462       40,417,294  
Production costs (Appendix VI)
    30,245,042       26,552,859       21,888,513  
Inventory at the end of year (except advances to suppliers)
    (12,024,420 )     (9,676,332 )     (6,910,947 )
                         
Cost of sales
    76,060,325       71,446,936       60,947,297  
                         


F-78


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
 
Appendix V
 
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended June 30, 2005)
 
                                     
              Applicable
             
    Foreign
        Exchange
    Amount in Argentine pesos  
Account
  Currency   Amount     Rate     2006     2005  
 
ASSETS
                                   
CURRENT ASSETS
                                   
Cash on hand and banks
  US   $ 336,450       3.046       1,024,827       3,941,875  
    Euros     403,586       3.892       1,570,755       676,711  
    Chilean Pesos     6,333       0.006       38        
    Reales     123       1.399       172       1,342  
    Pounds     55,004       5.624       309,343       6,781  
                                     
Subtotal
                        2,905,135       4,626,709  
                                     
Investments
  US   $ 75,427       3.046       229,750       110,924  
    Euros     29,272       3.892       113,926       79,920  
                                     
Subtotal
                        343,676       190,844  
                                     
Trade receivables
  US   $ 1,869,683       3.046       5,695,053       3,161,004  
    Euros     274,296       3.897       1,068,932       1,255,429  
                                     
Subtotal
                        6,763,985       4,416,433  
                                     
Other receivables
  US   $ 403,280       3.046       1,228,391       956,845  
    Euros     9,370       3.892       36,468       41,472  
    Pounds                           2,728  
                                     
Subtotal
                        1,264,859       1,001,045  
                                     
Total current assets
                        11,277,655       10,235,031  
                                     
NON-CURRENT ASSETS
                                   
Other receivables
  US   $ 757,023       3.046       2,305,892       6,796,160  
    Euros     51,585       3.892       200,768        
                                     
Subtotal
                        2,506,660       6,796,160  
                                     
Total non-current assets
                        2,506,660       6,796,160  
                                     
Total assets
                        13,784,315       17,031,191  
                                     
LIABILITIES
                                   
CURRENT LIABILITIES
                                   
Trade accounts payable
  US   $ 819,703       3.086       2,529,603       1,484,239  
    Euros     21,049       3.892       81,923        
                                     
Subtotal
                        2,611,526       1,484,239  
                                     
Bank and financial loans
  US   $ 597,002       3.086       1,842,349       3,311,364  
                                     
Total current liabilities
                        4,453,875       4,795,603  
                                     
NON-CURRENT LIABILITIES
                                   
Bank and financial loans
  US   $ 499,676       3.086       1,542,000       2,089,132  
                                     
Total non-current liabilities
                        1,542,000       2,089,132  
                                     
Total liabilities
                        5,995,875       6,884,735  
                                     


F-79


 

GLOBE METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A)
 
Appendix VI
 
INFORMATION REQUIRED UNDER LAW ARTICLE 64, Inc. b) OF LAW No. 19.550
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal years ended June 30, 2005 and 2004)
(in Argentine pesos)
 
                                                         
    2006              
          Production
    Selling
    Administrative
    Financial
    Total
    Total
 
Items
  Total     Costs     Expenses     Expenses     Expenses     2005     2004  
 
Fees
    626,595       242,858       164,842       218,895             363,703       399,122  
Salaries and wages
    8,044,394       6,940,362       580,761       523,271             6,089,351       4,258,339  
Social security payments
    1,320,817       1,119,639       95,922       105,256             1,027,964       809,127  
Other personnel benefits
    1,088,905       1,014,308       20,572       54,025             1,074,915       688,780  
Bank and financial interest
    358,120                         358,120       398,682       72,332  
Fees and bank commissions
    415,547                         415,547       384,453       378,114  
Supplier and other interest
    1,303,022                         1,303,022       1,172,845       415,632  
Tax interest
    282,882                         282,882       2,297       170,973  
Taxes, impositions, and contributions
    1,134,821       55,550       338,485       8,284       732,502       1,074,530       953,363  
Insurance
    645,571       375,921       8,694       35,453       225,503       543,385       258,677  
Electricity
    10,724,660       10,718,740       3,263       2,657             8,182,459       5,975,432  
Utilities
    367,888       247,895       52,063       67,930             347,086       303,593  
Maintenance, spares, and materials
    3,061,501       3,040,510       3,416       17,575             3,792,471       4,451,206  
Commissions
    2,056,969             2,056,969                   1,971,453       1,183,085  
Mobility, travel allowances, and representation expenses
    1,670,208       336,872       1,208,917       124,419             1,222,071       1,128,136  
Third party services
    2,440,671       2,235,583       175,386       29,702             2,861,739       1,629,736  
Leases
    393,073       307,099             85,974             324,476       130,148  
Transport costs
    6,597,963       375,312       6,222,651                   7,160,113       6,209,868  
Export expenses
    2,980,761             2,980,761                   3,885,154       3,056,225  
Depreciation of fixed assets
    2,820,065       2,808,838       6,946       4,281             2,668,097       2,285,686  
Computer expenses
    102,898       74,821       5,750       22,327             98,809       112,157  
Postage and office supplies
    142,860       63,602       40,946       38,312             133,094       113,275  
Cleaning and gardening services
    291,100       271,706       4,084       15,310             169,151       105,103  
Others
    676,886       15,426       574,708       86,752             100,610       133,838  
                                                         
Total 2006
    49,548,177       30,245,042       14,545,136       1,440,423       3,317,576                  
                                                         
Total 2005
            26,552,859       14,467,711       1,204,386       2,823,952       45,048,908          
                                                         
Total 2004
            21,888,513       10,418,592       1,138,530       1,776,312               35,221,947  
                                                         


F-80


 

 
SOLSIL, INC.
 
(A DEVELOPMENT STAGE COMPANY)
 
FINANCIAL STATEMENTS
 
JUNE 30, 2007
 


F-81


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Solsil, Inc.
Beverly, Ohio
 
We have audited the accompanying balance sheet of Solsil, Inc. (a development stage company) as of June 30, 2007, and the related statements of operation, stockholders’ equity, and cash flows for the year then ended, and the period beginning March 29, 2006 (inception) and ended June 30, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solsil, Inc. as of June 30, 2007 and the results of its operations and its cash flows for the year then ended, and the period beginning March 29, 2006 (inception) and ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/  Hobe & Lucas
     Certified Public Accountants, Inc.
 
Hobe & Lucas
Certified Public Accountants, Inc.
 
Independence, Ohio
September 17, 2007, except for Note 9, as to which the date is June 25, 2008


F-82


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET
JUNE 30, 2007
 
ASSETS
 
         
    2007  
 
Current assets
       
Cash
  $ 254,014  
Accounts receivable
    136,091  
Inventory
    942,842  
         
Total current assets
    1,332,947  
         
Property, plant and equipment — at cost
       
Buildings
    98,189  
Equipment
    6,383,158  
         
      6,481,347  
Less: accumulated depreciation
    337,051  
         
Net property, plant and equipment
    6,144,296  
         
Total assets
  $ 7,477,243  
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
         
Current liabilities
       
Accounts payable
  $ 3,502,518  
Deferred revenue
    1,120,000  
         
Total current liabilities
    4,622,518  
         
Stockholders’ Equity
       
8% cumulative voting series A preferred stock, $0.01 par value 275 shares authorized, -0- issued and outstanding
     
Common stock, $0.01 par value, 3,000 shares authorized, 1,457 shares issued and 1,447 shares outstanding
    15  
Additional paid-in capital
    12,798,078  
(Deficit) accumulated during development stage
    (9,923,368 )
         
      2,874,725  
Less: Treasury stock 10 common shares at cost
    (20,000 )
         
Total stockholders’ equity
    2,854,725  
         
Total liabilities and stockholders’ equity
  $ 7,477,243  
         
 
The accompanying notes are an integral part of these financial statements


F-83


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATION
FOR THE YEAR ENDED JUNE 30, 2007, AND FOR THE PERIOD BEGINNING
MARCH 29, 2006 (INCEPTION) AND ENDED JUNE 30, 2007
 
                 
          Inception
 
          through
 
    2007     June 30, 2007  
 
Sales — net
  $ 2,647,884       2,647,884  
                 
Cost of sales
    8,998,478       11,332,980  
                 
                 
Gross deficit — (net research and development)
    (6,350,594 )     (8,685,096 )
                 
Expenses
               
General and administrative expenses
    1,399,051       2,186,256  
                 
Loss from operations
    (7,749,645 )     (10,871,352 )
                 
                 
Other income
               
Interest income
    154,479       167,984  
Other income
    780,000       780,000  
                 
      934,479       947,984  
                 
Net loss before provision for income taxes
    (6,815,166 )     (9,923,368 )
                 
Provision for income taxes
           
                 
                 
Net loss
  $ (6,815,166 )     (9,923,368 )
                 
                 
Loss per share
  $ (4,696.39 )     Not applicable  
                 
 
The accompanying notes are an integral part of these financial statements


F-84


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED JUNE 30, 2007 AND THE PERIOD BEGINNING MARCH 29, 2006
(INCEPTION) AND ENDED JUNE 30, 2007
 
                                                 
          Issued
                         
    Common
    Common
    Additional
                   
    Stock
    Stock
    Paid-In
    Accumulated Treasury        
    Shares     Amount     Capital     (Deficit)     Stock     Total  
 
Issuance of common stock
    1,348.3900     $   14       5,024,078                   5,024,092  
Purchase of treasury shares
                            (20,000 )     (20,000 )
Stock-based compensation expense
                759,926                   759,926  
Net loss — June 30, 2006
                        (3,108,202 )           (3,108,202 )
                                                 
Balance — June 30, 2006
    1,348.3900       14       5,784,004       (3,108,202 )     (20,000 )     2,655,816  
Issuance of common stock, Net of issuance costs of $43,379
    108.2668       1       6,056,619                   6,056,620  
Stock-based compensation expense
                957,455                   957,455  
Net loss — June 30, 2007
                        (6,815,166 )           (6,815,166 )
                                                 
Balance — June 30, 2007
    1,456.6568     $ 15       12,798,078       (9,923,368 )     (20,000 )     2,854,725  
                                                 
 
The accompanying notes are an integral part of these financial statements.


F-85


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2007 AND THE PERIOD BEGINNING MARCH 29, 2006
(INCEPTION) AND ENDED JUNE 30, 2007
 
                 
          Inception
 
          through
 
   
2007
    June 30, 2007  
 
Cash flows from operating activities
               
Net loss
  $ (6,815,166 )     (9,923,368 )
                 
Adjustments to reconcile net (loss) to cash provided (used) by operating activities:
               
Stock based compensation
    957,455       1,717,381  
Depreciation
    337,051       337,051  
Increase in accounts receivable
    (136,091 )     (136,091 )
Increase in inventory
    (942,842 )     (942,842 )
Increase in accounts payable
    850,519       3,502,518  
Decrease in accrued expenses
    (4,167 )      
Increase in deferred revenue
    1,120,000       1,120,000  
                 
Net cash used in operating activities
    (4,633,241 )     (4,325,351 )
                 
                 
Cash flows from investing activities
               
Purchase of property, plant and equipment
    (5,183,852 )     (6,481,347 )
                 
Net cash used in investing activities
    (5,183,852 )     (6,481,347 )
                 
                 
Cash flows from financing activities
               
Proceeds from issuance of common stock
    6,056,621       11,080,712  
Purchase of treasury stock
          (20,000 )
                 
Net cash provided by financing activities
    6,056,621       11,060,712  
                 
                 
Net (decrease) increase in cash
    (3,760,472 )     254,014  
                 
Cash and equivalents — beginning
    4,014,486        
                 
                 
Cash and equivalents — ending
  $ 254,014       254,014  
                 
                 
Supplemental schedule of cash flow information
               
Interest
  $        
                 
Income taxes
  $        
                 
 
The accompanying notes are an integral part of these financial statements


F-86


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007
 
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
This summary of significant policies of Solsil, Inc., (hereinafter the “Company”), is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
 
Nature of Operations
 
The Company is primarily engaged in the development of refined silicon to be used in the solar panel industry. The Company recognizes its revenues as required by Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements”. Revenue is only recognized on product sales once the product has been shipped to the customers (FOB Origin), and all other obligations have been met.
 
Accounts Receivable
 
The Company grants credit to its customers in the ordinary course of business. The Company provides for an allowance for uncollectible receivables based on prior experience. The allowance at June 30, 2007 was zero.
 
Inventories
 
Inventories are recorded at the lower of cost (first-in, first out) or market.
 
Research and Development
 
Research and development costs are charged to operations when incurred and are included in operating expenses. The amount charged in 2007 was $6,350,594.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
 
Income Tax
 
In 2006, the Company was part of a controlled group with Globe Metallurgical, Inc. (GMI). As a result, surtax and minimum exemptions and expensing of depreciable assets were allocated among related parties. At June 30, 2006, 100% of the allocable items were allocated to GMI. As of July 1, 2006 the Company is no longer part of a controlled group. Deferred tax assets and liabilities are determined based on the difference between financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
 
Development Stage Entity
 
The Company was incorporated in the state of Delaware on March 29, 2006. It is primarily engaged in the development and marketing of refined silicon to be used in the solar panel industry. Realization of a major


F-87


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS — (Continued)
JUNE 30, 2007
 
portion of its assets is dependent upon the Company’s ability to successfully develop and market its products, meet its future financing requirements, and the success of future operations (see Note 9).
 
Concentrations of Risk
 
The Company’s cash is deposited in FDIC-insured banks. The funds are insured up to $100,000. Periodically the cash in the bank exceeds federally insured limits.
 
During 2007, 84% of sales were derived from two customers who are also related parties of the Company. Accounts receivable at June 30, 2007 were $136,091 from these customers.
 
Depreciation
 
Property, plant and equipment are stated at cost. The Company depreciates property, plant and equipment over its estimated useful lives on a straight-line basis. Useful lives of property, plant and equipment range between 7 to 10 years for equipment and 40 years for buildings.
 
Stock Options
 
The Company maintains the 2006 Non-Qualified Stock Plan (the plan). The plan provides for the granting of non-qualified stock options to select employees, officers, directors and consultants as an incentive to such eligible persons. There are 100 shares available for grant under the plan. Each option is exercisable as stated in the recipient’s employment agreement and expires ten years after the date of grant. Each option shall be at fair market value on the date of the grant. At June 30, 2006, 100 shares with exercise prices of $50,000 were outstanding of which 33 shares were exercisable. At June 30, 2007, 100 shares with exercise prices of $50,000 were outstanding of which 66 shares were exercisable.
 
A summary of option activity under the plans follows:
 
                 
          Weighted
 
    Number of
    Average
 
    Shares Under
    Exercise
 
    Option     Price  
 
Outstanding at March 29, 2006 (Inception)
        $  
Granted
    100       50,000  
Exercised
           
Cancelled
           
                 
                 
Outstanding at June 30, 2006
    100       50,000  
Granted
           
Exercised
           
Cancelled
           
                 
                 
Outstanding at June 30, 2007
    100     $ 50,000  
                 
                 
Exercisable shares at June 30, 2007
    66     $ 50,000  
                 
 
In December 2004 the Financial Accounting Standards Board (“FASB”) issued FASB No. 123 (revised), Share-Based Payment, (“FASB 123(R)”). FASB 123(R) eliminates the alternative of using Accounting Principles Board’s Opinion No. 25, “Accounting for stock issued to employees” (“APB No. 25”) intrinsic


F-88


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS — (Continued)
JUNE 30, 2007
 
value method of accounting that was provided in FASB 123 as originally issued. Under APB No. 25, issuing stock options to employees generally resulted in recognition of no compensation cost. FASB No. 123(R) requires entities to recognize the cost of services received in exchange for awards of equity instruments based on the grant-date fair value of these awards (with limited exceptions.). The Company has incurred an additional $957,455 of compensation cost in 2007.
 
The fair value for the stock was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for all options granted: a risk free interest rate of 5.07%, expected life of the options of six years, no expected dividend yield and a volatility factor of 63%.
 
Shipping and Handling Costs
 
Shipping and handling costs are included in the cost of sales.
 
NOTE 2 — INVENTORIES
 
Inventories at June 30, 2007 consists of:
 
         
Finished goods
  $ 141,484  
Work in process
    15,635  
Raw materials
    785,723  
         
    $ 942,842  
         
 
NOTE 3 — FAIR VALUE OF FINANCIAL STATEMENTS
 
The carrying amount of cash, accounts receivable and liabilities approximates the fair value reported on the balance sheet.
 
NOTE 4 — INCOME TAXES
 
The sources of loss from continuing operations before income taxes for the year ended June 30, 2007 were generated completely from its U.S. operations in the amount of $(6,815,166).
 
Income taxes for the period ended June 30 are as follows:
 
         
    2007  
 
Current
  $      —  
Deferred
     
         
    $  
         
 
The significant reconciling items between the income tax charge stated and the amount of income tax charge that would result from applying the U.S. domestic federal statutory tax rate of 34% is a valuation allowance against deferred tax assets.
 
         
    2007  
 
Federal tax rate
    (34.0 )%
Increase in valuation allowance
    34.0 %
         
Effective tax rate
     
         


F-89


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS — (Continued)
JUNE 30, 2007
 
 
The Company’s deferred tax assets and liabilities at June 30 consist of:
 
         
    2007  
 
Deferred tax assets:
       
Net operating losses and carryforwards
  $ 2,900,000  
Stock based compensation
    584,000  
Research and development credits
    236,800  
         
      3,720,800  
Deferred tax liabilities:
       
Property, plant and equipment
    (196,300 )
         
Valuation allowance
    (3,524,500 )
         
Net deferred taxes
  $  
         
 
Deferred taxes are provided for the difference between the book and tax basis of assets and liabilities recorded for financial statement and income tax reporting purposes. Principal differences relate to depreciation methods of property, plant and equipment, net operating loss carryforwards and research and development credits.
 
During 2007, the valuation allowance increased by $2,311,500.
 
At June 30, 2007 the Company has approximately $8,535,000 of net operating loss carryforwards expiring in 2026 and 2027.
 
The Company has approximately $236,000 of research and development tax credit carryforwards expiring in 2026.
 
NOTE 5 — STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
Each share of the series A convertible preferred stock is convertible into common shares based on the original issue price plus accrued dividends divided by $48,804.89. Preferred shares are entitled to cumulative dividends at a rate of 9.5% if paid by additional preferred shares or 8% if paid by cash. In the event no cash dividends are paid prior to June 30, 2009 the cumulative dividends rate becomes 12%. The preferred shares are to be redeemed anytime on or after July 3, 2012 with the vote of 75% of the preferred shares for the original issue price plus accrued dividends. Please see the cancellation of preferred shares in subsequent event footnote 9.
 
Board of Directors
 
The Company’s Board of Directors consists of six individuals, four elected by common shareholders including one designated by a specific shareholder and two elected by preferred shareholders, both of which are designated by two specific preferred shareholders.


F-90


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS — (Continued)
JUNE 30, 2007
 
NOTE 6 — LOSS PER SHARE
 
Basic loss per common share is based on net loss divided by the weighted average number of common shares outstanding for the year ended June 30, 2007. There is no dilutive effect of basic earnings per share.
 
         
    June 30,
 
    2007  
 
Net loss
  $ (6,815,166 )
Weighted average common shares
    1,451.15  
         
Loss per share — basic and diluted
  $ (4,696.39 )
         
 
NOTE — 7 OPERATING SEGMENT
 
The Company operates in one reportable segment, silicon metal.
 
NOTE 8 — RELATED PARTY TRANSACTIONS
 
Related Party Sales
 
During 2007, 84% of sales were derived from two customers who are also related parties of the Company. Accounts receivable at June 30, 2007 were $136,091 from these customers.
 
Sales Agreement
 
In July 2006 the Company entered into an agreement with a shareholder to supply solar grade silicon through September 2011. The agreement calls for a fee of $3,900,000 of which $1,900,000 was received as of June 30, 2007, with $2,000,000 due upon completion of specific terms. Revenue recognized from this agreement was $780,000 in 2007, with $1,120,000 of deferred revenue at June 30, 2007. The agreement has a three-year renewal option. The agreement provides that the Company supply at a fixed price, at least 300 and up to 700 metric tons annually to be used solely in the shareholder’s production process. The sales price per kilogram under this agreement is independent of the Company’s actual cost of production. Sales to this customer were $1,066,028 in 2007. See note 9 regarding subsequent replacement of this agreement.
 
GMI Agreements
 
The Company purchased assets for manufacturing refined silicon from GMI, a related party, during the period beginning March 29, 2006 and ending June 30, 2006. The price paid included reimbursement of administrative expenses and other costs amounting to $2,509,910, plus 8% interest, calculated on an annual basis, beginning March 31, 2006. The interest was $32,872 during the June 30, 2006 fiscal year. Additionally, the Company entered into a supply agreement, operating and facility site lease with GMI. There was no activity under the supply agreement during the year. The site lease began July 1, 2006. Accounts payable to this related party were $1,757,481 at June 30, 2007 and are included in accounts payable. Additionally, in 2007, the Company purchased additional assets from this related party in the amount of $224,978.
 
Supply Agreement
 
The supply agreement with GMI expires in December 2026 with a ten-year renewal option. The agreement calls for GMI to provide “S-1” metallurgical grade silicon at the greater of GMI’s direct cost plus 15% or the mean price of the bid and ask prices in Ryan’s Notes the week prior to delivery. Purchases from GMI were $2,198,655 in 2007.


F-91


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS — (Continued)
JUNE 30, 2007
 
 
Operating Agreement
 
Under the agreement, GMI is to provide administrative and operating services. The Company shall reimburse GMI for its direct cost plus 5%. Expenses related to this agreement were $3,006,564 in 2007.
 
Facility Site Lease
 
The facility site lease expires June 2026 with two ten-year renewal options. Rent is payable in monthly installments of $6,250. Rent expense was $75,000 for 2007.
 
NOTE 9 — SUBSEQUENT EVENTS
 
On July 1, 2007, the Company determined that they were no longer a development stage company since they have effectively brought their upgraded metallurgical grade silicon product to market.
 
In July 2007, the Company entered an agreement to issue up to 225.3863 of its Series A 8% cumulative convertible Preferred Stock (Preferred Shares) at $48,805 per share. On February 29, 2008, pursuant to the merger agreement with Globe Specialty Metals, Inc. (GSM), each of the Company’s Preferred Shares issued and outstanding on February 28, 2008 were converted into 6,058.543 shares of GSM’s stock in exchange for all obligations due to the preferred stockholders of record on February 28, 2008.
 
In July 2007 the Company issued 81.9588 preferred shares in exchange for $4,000,000.
 
In October 2007 the Company obtained $3,000,000 short term financing from related parties and existing investors. The paid in kind interest is to be capitalized as principal outstanding on these notes. The interest rate is the sum of the LIBOR rate plus 3%. The financing maturity date is October 24, 2008.
 
On February 29, 2008, 81% of Solsil stock was acquired by Globe Specialty Metals, Inc. (GSM). Based on the terms of the acquisition agreement, GSM will issue 5,628,657 new shares of common stock to shareholders and option holders of Solsil in exchange for the approximate 81% interest in Solsil. The estimated purchase price for Solsil was $75.7 million.
 
On April 24, 2008, the Company and Globe Metallurgical, Inc. signed an agreement with BP Solar International, Inc. for the sale of solar grade silicon from Solsil to BP Solar on a take or pay basis. BP Solar will also deploy certain existing BP Solar silicon technology at Solsil’s facility and will jointly develop new technology to enhance Solsil’s proprietary upgraded solar silicon metallurgical process.
 
As discussed in Note 8 (Related Party Transactions), the Company entered into an agreement with a shareholder to supply solar grade silicon through September 2011. Effective January 1, 2008, this agreement was replaced with a new agreement extending through December 31, 2012. The selling price per kilogram under the new agreement is the lower of the Company’s fully loaded costs, as defined in the agreement, plus an applicable profit margin or a fixed price specified in the agreement. The fixed price decreases on an annual basis through calendar year 2012.


F-92


 

 
SOLSIL, INC.
 
FINANCIAL STATEMENTS
 
(UNAUDITED)
 


F-93


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
BALANCE SHEETS
DECEMBER 31, 2007 AND JUNE 30, 2007

                 
    December 31,
    June 30,
 
    2007     2007  
    (UNAUDITED)        
 
ASSETS
Current assets
               
Cash
  $ 727,126       254,014  
Accounts receivable
    989,913       136,091  
Prepaid expenses
    40,431        
Inventory
    909,584       942,842  
                 
Total current assets
    2,667,054       1,332,947  
                 
Property, plant and equipment — at cost
               
Buildings
    98,189       98,189  
Equipment
    6,493,001       6,383,158  
Construction in progress
    616,570        
                 
      7,207,760       6,481,347  
Less: Accumulated depreciation
    676,036       337,051  
                 
Net property, plant and equipment
    6,531,724       6,144,296  
                 
Total assets
  $ 9,198,778       7,477,243  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
               
Accounts payable
  $ 2,559,290       3,502,518  
Notes payable
    3,000,000        
Accrued expenses
    40,194        
Deferred revenue
    730,000       1,120,000  
                 
Total current liabilities
    6,329,484       4,622,518  
                 
Stockholders’ equity
               
8% cumulative voting series A preferred stock, $0.01 par value, 275 shares authorized, 82 shares issued and outstanding at December 31, 2007; -0- shares issued and outstanding at June 30, 2007
    1        
Common stock, $0.01 par value, 3,000 shares authorized,
1,457 shares issued and 1,447 shares outstanding
    15       15  
Additional paid-in capital
    16,910,898       12,798,078  
Accumulated deficit
    (4,098,252 )      
Deficit accumulated during development stage
    (9,923,368 )     (9,923,368 )
                 
      2,889,294       2,874,725  
Less: Treasury stock, 10 common shares at cost
    (20,000 )     (20,000 )
                 
Total stockholders’ equity
    2,869,294       2,854,725  
                 
Total liabilities and stockholders’ equity
  $ 9,198,778       7,477,243  
                 
 
The accompanying notes are an integral part of these financial statements


F-94


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF OPERATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
AND 2006
AND FOR THE PERIOD BEGINNING MARCH 29, 2006 (INCEPTION) AND
ENDED JUNE 30, 2007
(UNAUDITED)
 
                         
                Inception to
 
    December 31,     June 30,
 
    2007     2006     2007  
 
Net sales
  $ 4,241,050       905,160       2,647,884  
Cost of sales
    8,139,315       3,813,968       11,332,980  
                         
Gross deficit
    (3,898,265 )     (2,908,808 )     (8,685,096 )
General and administrative expenses
    624,109       669,306       2,186,256  
                         
Loss from operations
    (4,522,374 )     (3,578,114 )     (10,871,352 )
                         
Other income
                       
Interest income
    34,122       95,656       167,984  
Other income
    390,000             780,000  
                         
      424,122       95,656       947,984  
                         
Net loss before provision for income taxes
    (4,098,252 )     (3,482,458 )     (9,923,368 )
Provision for income taxes
                 
                         
Net loss
  $ (4,098,252 )     (3,482,458 )     (9,923,368 )
                         
Net loss per share: basic and diluted
  $ (2,813.46 )     (2,408.79 )     Not applicable  
                         
 
The accompanying notes are an integral part of these financial statements


F-95


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
(UNAUDITED)
                                                         
    Common
                                     
    Stock
    Issued
    Issued
                         
    and
    Common
    Preferred
    Additional
                   
    Preferred Stock
    Stock
    Stock
    Paid-In
    Accumulated
    Treasury
       
    Shares     Amount     Amount     Capital     Deficit     Stock     Total  
    (Unaudited)  
 
Balance — June 30, 2007
    1,456.6568     $ 15             12,798,078       (9,923,368 )     (20,000 )     2,854,725  
Issuance of preferred stock
    81.9588             1       3,999,990                   3,999,991  
Syndication costs
                      (42,053 )                 (42,053 )
Stock based compensation
                      154,883                   154,883  
Net loss — December 31, 2007
                            (4,098,252 )           (4,098,252 )
                                                         
Balance — December 31, 2007
    1,538.6156     $ 15       1       16,910,898       (14,021,620 )     (20,000 )     2,869,294  
                                                         
 
The accompanying notes are an integral part of these financial statements


F-96


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
AND FOR THE PERIOD BEGINNING MARCH 29, 2006 (INCEPTION) AND
ENDED JUNE 30, 2007
(UNAUDITED)
 
                         
                Inception to
 
    December 31,     June 30,
 
    2007     2006     2007  
 
Cash flows from operating activities
                       
Net loss
  $ (4,098,252 )     (3,482,458 )     (9,923,368 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
                       
Stock based compensation
    154,883       478,728       1,717,381  
Depreciation expense
    338,985       168,526       337,051  
Increase in accounts receivable
    (853,822 )     (470,046 )     (136,091 )
(Increase) decrease in inventory
    33,258       (447,218 )     (942,842 )
Increase in prepaid expense
    (40,431 )     (82,231 )      
Increase (decrease) in accounts payable
    (943,228 )     20,656       3,502,518  
Increase (decrease) in accrued expenses
    40,194       (4,167 )      
Increase (decrease) in deferred revenue
    (390,000 )           1,120,000  
                         
Net cash used in operating activities
    (5,758,413 )     (3,818,210 )     (4,325,351 )
                         
Cash flows from investing activities
                       
Purchase of property, plant and equipment
    (726,413 )     (3,618,073 )     (6,481,347 )
                         
Net cash used in investing activities
    (726,413 )     (3,618,073 )     (6,481,347 )
                         
Cash flows from financing activities
                       
Proceeds from issuance of common stock
          6,100,002       11,080,712  
Payments of syndication costs
    (42,052 )     (43,379 )      
Purchase of treasury stock
                (20,000 )
Proceeds from preferred stock issue
    3,999,990              
Proceeds from notes payable
    3,000,000              
                         
Net cash provided by financing activities
    6,957,938       6,056,623       11,060,712  
                         
Net (decrease) increase in cash
    473,112       (1,379,660 )     254,014  
Cash and equivalents — beginning
    254,014       4,014,485        
                         
Cash and equivalents — ending
  $ 727,126       2,634,825       254,014  
                         
Supplemental schedule of cash flow information
                       
Interest
  $              
                         
Income taxes
  $              
                         
 
The accompanying notes are an integral part of these financial statements


F-97


 

SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
This summary of significant policies of Solsil, Inc., (hereinafter the “Company” or “Solsil”), is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
 
Nature of Operations
 
The Company is primarily engaged in the development of refined silicon to be used in the solar panel industry. The Company recognizes its revenues as required by Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements”. Revenue is only recognized on product sales once the product has been shipped to the customers (FOB origin), and all other obligations have been met.
 
Accounts Receivable
 
The Company grants credit to its customers in the ordinary course of business. The Company provides for an allowance for uncollectible receivables based on prior experience. There was no allowance for uncollectible receivables at December 31, 2007 and June 30, 2007.
 
Inventories
 
Inventories are recorded at the lower of cost (first-in, first-out) or market.
 
Research and Development
 
Research and development costs are charged to operations when incurred and are included in operating expenses. The amounts charged in during the six months ended December 31, 2007 and 2006 were $3,898,265 and $2,908,808, respectively.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
 
Income Tax
 
In 2006, the Company was part of a controlled group with Globe Metallurgical, Inc. (GMI). As a result, surtax and minimum exemptions and expensing of depreciable assets were allocated among related parties. At June 30, 2006, 100% of the allocable items were allocated to GMI. As of July 1, 2006 the Company was no longer part of a controlled group. Deferred tax assets and liabilities are determined based on the difference between financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
 
Development Stage Entity
 
The Company was incorporated in the state of Delaware on March 29, 2006. It is primarily engaged in the development and marketing of refined silicon to be used in the solar panel industry. The Company’s ability


F-98


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
 
to successfully develop and market its products, meet its future financing requirements, are conditions for the success of future operations. On July 1, 2007, the Company determined that they were no longer a developmental stage company since it effectively brought its upgraded metallurgical grade silicon product to market.
 
Concentrations of Risk
 
The Company’s cash is deposited in FDIC-insured banks. The funds are insured up to $100,000. Periodically, the cash balances in the bank exceed federally insured limits.
 
During the six months ended December 31, 2007, 88% of sales were derived from two customers who are also related parties of the Company. Accounts receivable at December 31, 2007 were $966,247 from these customers. During the six months ended December 31, 2006, 91% of sales were derived from two customers who are also related parties of the Company. Accounts receivable at June 30, 2007 were $136,091 from these customers.
 
Depreciation
 
Property, plant and equipment are stated at cost. The Company depreciates property, plant and equipment over its estimated useful lives on a straight-line basis. Useful lives of property, plant and equipment range between 7 to 10 years for equipment and 40 years for buildings.
 
Stock Options
 
The Company maintains the 2006 Non-Qualified Stock Plan (the Plan). The Plan provides for the granting of non-qualified stock options to select employees, officers, directors and consultants as an incentive to such eligible persons. There are 100 shares available for grant under the Plan. Each option is exercisable as stated in the recipient’s employment agreement and expires ten years after the date of grant. Each option shall be at fair market value on the date of the grant. At December 31, 2006, 100 shares with exercise prices of $50,000 were outstanding of which 50 shares were exercisable. At December 31, 2007, 100 shares with exercise prices of $50,000 were outstanding of which 83 shares were exercisable.
 
A summary of option activity under the plans follows:
 
                 
          Weighted
 
    Number of
    Average
 
    Shares Under
    Exercise
 
    Option     Price  
 
Outstanding at June 30, 2007
    100     $ 50,000  
Granted
           
Exercised
           
Cancelled
           
                 
Outstanding at December 31, 2007
    100     $ 50,000  
                 
Exercisable shares at June 30, 2007
    66     $ 50,000  
                 
Exercisable shares at December 31, 2007
    83     $ 50,000  
                 
 
In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB No. 123 (revised), Share-Based Payment, (“FASB 123(R)”). FASB 123(R) eliminates the alternative of using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) intrinsic value method of accounting that was provided in FASB 123 as originally issued. Under APB No. 25, issuing stock


F-99


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
 
options to employees generally resulted in recognition of no compensation cost. FASB No. 123(R) requires entities to recognize the cost of services received in exchange for awards of equity instruments based on the grant-date fair value of these awards (with limited exceptions.). The Company has incurred $154,833 and $478,728 of stock-based compensation expense for the six months ended December 31, 2007 and 2006, respectively.
 
The fair value for the stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for all options granted: a risk free interest rate of 5.07%, expected life of the options of six years, no expected dividend yield and a volatility factor of 63%.
 
Shipping and Handling Costs
 
Shipping and handling costs are included in the cost of sales.
 
NOTE 2 — INVENTORIES
 
Inventories at December 31, 2007 and June 30, 2007 consists of the following:
 
                 
    December 31,
    June 30,
 
    2007     2007  
 
Finished goods
  $ 104,332     $ 141,484  
Work in process
    89,507       15,635  
Raw materials and supplies
    715,745       785,723  
                 
    $ 909,584     $ 942,842  
                 
 
NOTE 3 — FAIR VALUE OF FINANCIAL STATEMENTS
 
The carrying amount of cash, accounts receivable and liabilities approximates the fair value reported on the balance sheet.
 
NOTE 4 — INCOME TAXES
 
The sources of loss from continuing operations before income taxes for the six months ended December 31, 2007 and December 31, 2006 were generated completely from the Company’s U.S. operations in the amount of $(4,098,252) and $(3,482,458), respectively.
 
Income taxes for the six month periods ended December 31, are as follows:
 
                 
    2007     2006  
 
Current
  $     $  
Deferred
           
                 
    $     $  
                 


F-100


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
 
The Company’s deferred tax assets and liabilities at December 31, 2007 and June 30, 2007 consist of:
 
                 
    December 31,
    June 30,
 
    2007     2007  
 
Deferred tax assets:
               
Net operating losses and carryforwards
  $ 4,398,000       2,900,000  
Stock based compensation
    636,600       584,000  
Research and development credits
    236,800       236,800  
                 
      5,271,400       3,720,800  
Deferred tax liabilities:
               
Property, plant and equipment
    (348,400 )     (196,300 )
                 
Valuation allowance
    (4,923,000 )     (3,524,500 )
                 
Net deferred taxes
  $        
                 
 
Deferred taxes are provided for the difference between the book and tax basis of assets and liabilities recorded for financial statement and income tax reporting purposes. Principal differences relate to depreciation methods of property, plant and equipment, net operating loss carryforwards and research and development credits.
 
The significant reconciling items between the income tax charge stated and the amount of income tax charge that would result from applying the US domestic federal statutory rate of 34% is a valuation allowance against deferred tax assets.
 
                 
    December 31,  
    2007     2006  
 
Federal tax rate
    (34.0 )%     (34.0 )
Increase in valuation allowance
    34.0       34.0  
                 
Effective tax rate
    %      
                 
 
At December 31, 2007 the Company has approximately $12,935,000 of net operating loss carry forwards expiring in 2026 and 2027. At December 31, 2007, the Company had $236,000 of research and development tax credit carryforwards expiring in 2026.
 
NOTE 5 — STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
Each share of the series A convertible preferred stock is convertible into common shares based on the original issue price plus accrued dividends divided by $48,804.89. Preferred shares are entitled to cumulative dividends at a rate of 9.5% if paid by additional preferred shares or 8% if paid by cash. In the event no cash dividends are paid prior to June 30, 2009, the cumulative dividends rate becomes 12%. On February 29, 2008, pursuant to the merger agreement with Globe Specialty Metals, Inc. (GSM), each of the Company’s preferred shares issued and outstanding on February 28, 2008 were converted into 6,058.543 shares of GSM’s stock in exchange of all the obligations due to the preferred stockholder.


F-101


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
 
Board of Directors
 
The Company’s Board of Directors consists of six individuals, four elected by common shareholders including one designated by a specific shareholder and two elected by preferred shareholders, both of which are designated by two specific preferred shareholders.
 
NOTE 6 — LOSS PER SHARE
 
Basic loss per common share is based on net loss divided by the weighted average number of common shares outstanding for the six months ended December 31, 2007 and December 31, 2006. There is no dilutive effect on basic earnings per share.
 
                 
    December 31,  
    2007     2006  
 
Net loss
  $ (4,098,252 )     (3,482,458 )
Weighted average common shares
    1,456.66       1,445.73  
                 
Net loss per share — basic and diluted
  $ (2,813.46 )     (2,408.79 )
                 
 
NOTE 7 — RELATED PARTY TRANSACTIONS
 
Related Party Sales
 
During the six months ended December 31, 2007 and 2006, 88% and 91% of sales, respectively were derived from two customers who are also related parties of the Company. Accounts receivable from these customers at December 31, 2007 and 2006 were $966,247 and $823,526, respectively.
 
Sales Agreement
 
In July 2006 the Company entered into an agreement with a shareholder to supply solar grade silicon through September 2011. The agreement calls for a fee of $3,900,000 of which $1,900,000 was received during 2007, with $2,000,000 due upon completion of specific terms. Revenue recognized from this agreement was $390,000 in 2007, with $730,000 of deferred revenue at December 31, 2007. The agreement has a three-year renewal option. The agreement provides that the Company supply at least 300 and up to 700 metric tons annually to be used solely in the shareholder’s production process. The sales price per kilogram under this agreement is independent of the Company’s actual cost of production. Sales to this customer were $2,413,830 and $177,208 for the six months ended December 31, 2007 and 2006, respectively. See note 10 regarding subsequent replacement of this agreement.
 
GMI Agreements
 
The Company purchased assets for manufacturing refined silicon from GMI, a related party, during the period beginning March 29, 2006 and ending June 30, 2006. The price paid included reimbursement of administrative expenses and other costs, amounting to $2,509,910, plus 8% interest, calculated on an annual basis, beginning March 31, 2006. The interest was $0 and $49,958 during the six months ended December 31, 2007 and 2006, respectively. Additionally, the Company entered into a supply agreement (see below), operating and facility site lease with GMI. The site lease began July 1, 2006. Accounts payable to this related party were $962,227 and $804,080 at December 31, 2007 and 2006, respectively and are included in accounts payable.


F-102


 

 
SOLSIL, INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
 
Supply Agreement
 
The supply agreement with GMI expires in December 2026 with a ten-year renewal option. The agreement calls for GMI to provide “S-1” metallurgical grade silicon at the greater of GMI’s direct cost plus 15% or the mean price of the bid and ask prices in Ryan’s Notes the week prior to delivery. Purchases from GMI were $1,928,018 and $976,364 for the six months ended December 31, 2007 and 2006, respectively.
 
Operating Agreement
 
Under the agreement, GMI is to provide administrative and operating services. The Company shall reimburse GMI for its direct costs plus 5%. Expenses related to this agreement were $3,006,564 and $1,754,106 for the six months ended December 31, 2007 and 2006, respectively.
 
Facility Site Lease
 
The facility site lease expires June 2026 with two ten-year renewal options. Rent is payable in monthly installments of $6,250. Rent expense was $38,403 for the six months ended December 31, 2007 and $37,500 for the six months ended December 31, 2006.
 
NOTE 8 — BUSINESS SEGMENTS
 
The Company operates in one reportable segment, silicon metal.
 
NOTE 9 — NOTES PAYABLE
 
On October 24, 2007, the Company obtained a $3,000,000 short-term financing from related parties at a variable interest rate per annum equal to the sum of the LIBOR rate plus 3%. The paid in kind interest is to be capitalized quarterly as principal outstanding on these notes. These notes mature on October 24, 2008 and are secured by all assets and properties of the Company.
 
NOTE 10 — SUBSEQUENT EVENTS
 
On February 29, 2008, approximately 81% of Solsil stock was acquired by Globe Specialty Metals, Inc. (GSM). Based on the terms of the acquisition agreement, GSM issued 5,628,657 new shares of GSM’s common stock to shareholders and option holders of Solsil in exchange for the approximate 81% interest in Solsil. The estimated purchase price for the 81% interest in Solsil is $75.7 million.
 
On April 24, 2008, Solsil, Inc. and Globe Metallurgical, Inc. signed an agreement with BP Solar International Inc. for the sale of solar grade silicon. The Company said BP Solar and Solsil will also deploy certain existing BP Solar silicon technology at Solsil’s facility and will jointly develop new technology to enhance Solsil’s proprietary upgraded solar silicon metallurgical process.
 
As discussed in Note 7 (Related Party Transactions), the Company entered into an agreement with a shareholder to supply solar grade silicon through September 2011. Effective January 1, 2008, this agreement was replaced with a new agreement extending through December 31, 2012. The selling price per kilogram under the new agreement is the lower of the Company’s fully loaded costs, as defined in the agreement, plus an applicable profit margin or a fixed price specified in the agreement. The fixed price decreases on an annual basis through calendar year 2012.


F-103


 

PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.   Other Expenses of Issuance and Distribution.
 
The following table sets forth an itemization of the various costs and expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered. All of the amounts shown are estimated except the SEC registration fee:
 
         
SEC registration fee
  $ 2,183.07  
Accounting fees and expense
    20,000  
Legal fees and expenses
    5,000  
Miscellaneous expenses
    5,000  
         
Total
  $ 32,183.07  
         
         
 
Item 14.   Indemnification of Directors and Officers.
 
Our certificate of incorporation and bylaws provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or an officer of Globe Specialty Metals, Inc. or is or was serving at our request as a director, officer, or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by us to the fullest extent authorized by the Delaware General Corporation Law against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such.
 
Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, ( i.e ., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
 
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, Article Eighth of our certificate of incorporation eliminates the liability of a director to us for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
 
  •  from any breach of the director’s duty of loyalty to us;
 
  •  from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
 
  •  under Section 174 of the Delaware General Corporation Law; and
 
  •  from any transaction from which the director derived an improper personal benefit.


II-1


 

 
We carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity as directors and officers.
 
Item 15.   Recent Sales of Unregistered Securities.
 
In the three years preceding the filing of this Registration Statement, we have sold the following securities that were not registered under the Securities Act.
 
(a)   Issuances of Capital Stock and Warrants
 
The sales and issuances of shares to US persons pursuant to the exercise of warrants, pursuant to the exercise of UPOs and in connection with an acquisition were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The sales and issuances of shares to non-US persons pursuant to the exercise of warrants were deemed to be exempt from registration under the Securities Act pursuant to Regulation S governing offers and sales made outside the United States.
 
  •  Between January 2007 and May 2007, we issued an aggregate of 14,201,302 shares of common stock pursuant to offers to repurchase, redeem or convert warrants made to our warrant holders resulting in proceeds of $19,458,000.
 
  •  Between July 1, 2007 and June 30, 2008, we issued 699,440 shares of common stock to warrant holders in connection with the exercise of warrants at an exercise price of $5.00 per share and 50,131 shares to UPO holders in connection with the cashless exercise of UPOs.
 
  •  On February 29, 2008, we issued 5,628,657 shares of common stock to the stockholders of Solsil, Inc. in connection with the acquisition of Solsil, Inc.
 
  •  Between July 1, 2008 and June 30, 2009, we issued 166,668 shares of common stock to warrant holders in connection with the exercise of warrants at an exercise price of $5.00 per share and 242,753 shares to UPO holders in connection with the cashless exercise of UPOs.
 
  •  Between September 6, 2009 and October 2, 2009, we issued 1,574,529 shares to UPO holders in connection with the exercise of UPOs and 201,404 shares to warrant holders in connection with the exercise of outstanding warrants. These exercises resulted in proceeds of $1,497,000.
 
The sales and issuances of securities described below were deemed to be exempt from registration under the Securities Act by virtue of Section 3(a)(9) as an exchange by the issuer with existing security holders exclusively. No commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
 
  •  Between March 2009 and June 2009, we issued a total of 3,484,417 shares of common stock to warrant holders in exchange for the surrender of 19,164,294 warrants. We received no cash in connection with these exchanges.
 
(b)   Certain Grants and Exercises of Stock Options
 
The sale and issuance of the securities described below were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering.
 
Pursuant to our stock plans and certain stand-alone stock option agreements, we have issued options to purchase an aggregate of 4,441,000 shares of common stock as of April 19, 2010. Of these options:
 
  •  options to purchase 76,000 shares of common stock have been canceled or lapsed without being exercised;
 
  •  options to purchase 0 shares of common stock have been exercised; and


II-2


 

 
  •  options to purchase a total of 4,365,000 shares of common stock are currently outstanding, at a weighted average exercise price of $5.21 per share.
 
Item 16.   Exhibits and Financial Statement Schedules.
 
(a) The following exhibits are filed as part of this Registration Statement:
 
         
Exhibit
   
Number
 
Description of Document
 
  2 .1   Agreement and Plan of Merger, dated as of January 8, 2008, by and among GSM, Solsil Acquisition Corp. and Solsil**
  2 .2   Amendment to Agreement and Plan of Merger, dated as of February 29, 2008, by and among GSM, Solsil Acquisition Corp., Solsil and the Representatives named therein**
  2 .3   Purchase Agreement, dated as of November 5, 2009, by and between Dow Corning Corporation and Globe Specialty Metals, Inc.***
  2 .4   Purchase and Sale Agreement dated as of March 26, 2010, by and among Globe Metals Enterprises, Inc., Core Metals Group Holdings, LLC and the Sellers set forth therein******
  3 .1   Amended and Restated Certificate of Incorporation*
  3 .2   Certificate of Amendment to the Amended and Restated Certificate of Incorporation*
  3 .3   Amended and Restated Bylaws**
  4 .1   Second Amended and Restated Credit Agreement dated as of September 18, 2008, by and among GMI, Alabama Sand and Gravel, Inc., Laurel Ford Resources, Inc., West Virginia Alloys, Inc., as subsidiary guarantors, GSM, as Parent, the lender parties thereto, and Societe Generale, as Sole Arranger, Administrative Agent, Issuing Bank, Swingline Lender and Collateral Agent**
  5 .1   Opinion of Arent Fox LLP (filed herewith)
  10 .1   2006 Employee, Director and Consultant Stock Option Plan*
  10 .2   Employment Agreement, dated May 26, 2008, between GSM and Jeff Bradley*
  10 .3   Employment Agreement, dated November 13, 2006, between GSM and Alan Kestenbaum*
  10 .4   Employment Agreement, dated May 31, 2006, between Solsil and Alan Kestenbaum*
  10 .5   Employment Agreement, dated November 13, 2006, between GSM and Arden Sims*
  10 .6   Employment Agreement, dated May 31, 2006, between Solsil and Arden Sims*
  10 .7   Employment Agreement, dated November 13, 2006, between GSM and Theodore A. Heilman, Jr.*
  10 .8   Employment Agreement, dated June 8, 2007, between GSM and Daniel Krofcheck*
  10 .9   Employment Agreement, dated June 20, 2008, between GSM and Stephen Lebowitz*
  10 .10   Solsil Secured Promissory Note made on October 24, 2007 and issued to Plainfield Direct Inc.**
  10 .11   Solsil Secured Promissory Note made on October 24, 2007 and issued to Plainfield Direct Inc.****
  10 .12   Employment Agreement dated September 21, 2008 between GSM and Malcolm Appelbaum*****
  10 .13   Amended and Restated Limited Liability Company Agreement of WVA Manufacturing, LLC, dated as of November 5, 2009, by and among WVA Manufacturing, LLC, Globe Specialty Metals, Inc., GSM Alloys I, Inc., GSM Alloys II, Inc., Dow Corning Enterprises, Inc. and Dow Corning Corporation***
  10 .14   Output and Supply Agreement, dated as of November 5, 2009, by and among WVA Manufacturing, LLC, Dow Corning Corporation, Globe Metallurgical Inc., and Globe Specialty Metals, Inc.*** (Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24B-2 of the Securities Exchange Act of 1934, as amended.)
  21 .1   Subsidiaries*
  23 .1   Consent of KPMG LLP†
  23 .2   Consent of Deloitte & Co. S.R.L.†
  23 .3   Consents of Hobe & Lucas Certified Public Accountants, Inc.†
  23 .4   Consent of BDO Trevisan†


II-3


 

         
Exhibit
   
Number
 
Description of Document
 
  23 .5   Consent of Arent Fox LLP (included in Exhibit 5.1)
  24     Power of Attorney (included on the signature page of this Registration Statement, previously filed on December 22, 2009)
 
 
†  Incorporated by reference to the exhibit with the same designation filed with this registration statement on Form S-1 (Registration No. 333-163906) on December 22, 2009.
 
Incorporated by reference to the exhibit with the same designation filed with the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on July 25, 2008.
 
** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 1 to the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on November 4, 2008.
 
*** Incorporated by reference to the exhibit with the same designation filed with the Company’s current report on Form 8-K filed on November 12, 2009.
 
**** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 2 to the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on June 9, 2009.
 
***** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 3 to the Company’s registration statement on Form S-1 (Registration Statement No. 33-152513) filed on July 16, 2009.
 
****** Incorporated by reference to Exhibit 2.1 filed with the Company’s current report on Form 8-K on April 1, 2010.
 
Item 17.   Undertakings.
 
(a) The undersigned registrant hereby undertakes:
 
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
 
i. To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
 
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
 
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
 
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

II-4


 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser, if the Registrant is subject to Rule 430C under the Securities Act, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
 
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


II-5


 

SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on April 20, 2010.
 
Globe Specialty Metals, Inc.
 
  By: 
/s/  Alan Kestenbaum
Alan Kestenbaum, Executive Chairman
 
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.
 
             
SIGNATURE
 
TITLE
 
DATE
 
         
/s/  Alan Kestenbaum

Alan Kestenbaum
  Executive Chairman and Director   April 20, 2010
         
/s/  Jeff Bradley

Jeff Bradley
  Chief Executive Officer
and Principal Executive Officer
  April 20, 2010
         
/s/  Malcolm Appelbaum

Malcolm Appelbaum
  Chief Financial Officer and
Principal Accounting Officer
  April 20, 2010
         
/s/  Stuart E. Eizenstat*

Stuart E. Eizenstat
  Director   April 20, 2010
         
/s/  Daniel Karosen*

Daniel Karosen
  Director   April 20, 2010
         
/s/  Franklin Lavin*

Franklin Lavin
  Director   April 20, 2010
         
/s/  Donald Barger*

Donald Barger
  Director   April 20, 2010
         
/s/  Thomas Danjczek*

Thomas Danjczek
  Director   April 20, 2010
         
* Signed pursuant to power of attorney previously filed        
             
By:  
/s/  Stephen Lebowitz

Stephen Lebowitz
      April 20, 2010


II-6


 

EXHIBIT INDEX
 
         
Exhibit
   
Number
 
Description of Document
 
  2 .1   Agreement and Plan of Merger, dated as of January 8, 2008, by and among GSM, Solsil Acquisition Corp. and Solsil**
  2 .2   Amendment to Agreement and Plan of Merger, dated as of February 29, 2008, by and among GSM, Solsil Acquisition Corp., Solsil and the Representatives named therein**
  2 .3   Purchase Agreement, dated as of November 5, 2009, by and between Dow Corning Corporation and Globe Specialty Metals, Inc.***
  2 .4   Purchase and Sale Agreement dated as of March 26, 2010, by and among Globe Metals Enterprises, Inc., Core Metals Group Holdings, LLC and the Sellers set forth therein******
  3 .1   Amended and Restated Certificate of Incorporation*
  3 .2   Certificate of Amendment to the Amended and Restated Certificate of Incorporation*
  3 .3   Amended and Restated Bylaws**
  4 .1   Second Amended and Restated Credit Agreement dated as of September 18, 2008, by and among GMI, Alabama Sand and Gravel, Inc., Laurel Ford Resources, Inc., West Virginia Alloys, Inc., as subsidiary guarantors, GSM, as Parent, the lender parties thereto, and Societe Generale, as Sole Arranger, Administrative Agent, Issuing Bank, Swingline Lender and Collateral Agent**
  5 .1   Opinion of Arent Fox LLP (filed herewith)
  10 .1   2006 Employee, Director and Consultant Stock Option Plan*
  10 .2   Employment Agreement, dated May 26, 2008, between GSM and Jeff Bradley*
  10 .3   Employment Agreement, dated November 13, 2006, between GSM and Alan Kestenbaum*
  10 .4   Employment Agreement, dated May 31, 2006, between Solsil and Alan Kestenbaum*
  10 .5   Employment Agreement, dated November 13, 2006, between GSM and Arden Sims*
  10 .6   Employment Agreement, dated May 31, 2006, between Solsil and Arden Sims*
  10 .7   Employment Agreement, dated November 13, 2006, between GSM and Theodore A. Heilman, Jr.*
  10 .8   Employment Agreement, dated June 8, 2007, between GSM and Daniel Krofcheck*
  10 .9   Employment Agreement, dated June 20, 2008, between GSM and Stephen Lebowitz*
  10 .10   Solsil Secured Promissory Note made on October 24, 2007 and issued to Plainfield Direct Inc.**
  10 .11   Solsil Secured Promissory Note made on October 24, 2007 and issued to Plainfield Direct Inc.****
  10 .12   Employment Agreement dated September 21, 2008 between GSM and Malcolm Appelbaum*****
  10 .13   Amended and Restated Limited Liability Company Agreement of WVA Manufacturing, LLC, dated as of November 5, 2009, by and among WVA Manufacturing, LLC, Globe Specialty Metals, Inc., GSM Alloys I, Inc., GSM Alloys II, Inc., Dow Corning Enterprises, Inc. and Dow Corning Corporation***
  10 .14   Output and Supply Agreement, dated as of November 5, 2009, by and among WVA Manufacturing, LLC, Dow Corning Corporation, Globe Metallurgical Inc., and Globe Specialty Metals, Inc.*** (Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24B-2 of the Securities Exchange Act of 1934, as amended.)
  21 .1   Subsidiaries*
  23 .1   Consent of KPMG LLP†
  23 .2   Consent of Deloitte & Co. S.R.L.†
  23 .3   Consents of Hobe & Lucas Certified Public Accountants, Inc.†
  23 .4   Consent of BDO Trevisan†
  23 .5   Consent of Arent Fox LLP (included in Exhibit 5.1)
  24     Power of Attorney (included on the signature page of this Registration Statement, previously filed on December 22, 2009)
 
 
†  Incorporated by reference to the exhibit with the same designation filed with this registration statement on Form S-1 (Registration No. 333-163906) on December 22, 2009.


 

 
Incorporated by reference to the exhibit with the same designation filed with the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on July 25, 2008.
 
** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 1 to the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on November 4, 2008.
 
*** Incorporated by reference to the exhibit with the same designation filed with the Company’s current report on Form 8-K filed on November 12, 2009.
 
**** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 2 to the Company’s registration statement on Form S-1 (Registration No. 333-152513) filed on June 9, 2009.
 
***** Incorporated by reference to the exhibit with the same designation filed with Amendment No. 3 to the Company’s registration statement on Form S-1 (Registration Statement No. 33-152513) filed on July 16, 2009.
 
****** Incorporated by reference to Exhibit 2.1 filed with the Company’s current report on Form 8-K on April 1, 2010.