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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-49971
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EAGLE-PICHER HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE -- 13-3989553
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SUITE 500
250 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 721-7010
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID N. HALL
EAGLE-PICHER HOLDINGS, INC.
250 EAST FIFTH STREET, SUITE 500
CINCINNATI, OHIO 45202
(513) 721-7010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
SCOTT F. SMITH, ESQ.
HOWARD, DARBY & LEVIN
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________
------------------------
THE 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
________________________________________________________________________________
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CROSS-REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K,
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
REQUIRED TO BE INCLUDED THEREIN IN ACCORDANCE WITH PART I OF FORM S-4
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ITEM NUMBER AND HEADING ON FORM S-4 CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------------------- ------------------------------------------
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1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus............................................. Facing Page; Outside Front Cover Page of
the Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus.......... Inside Front and Outside Back Cover Pages
of the Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and Other
Information.................................................... Summary; Risk Factors; Summary of
Historical and Pro Forma Condensed
Consolidated Financial Information;
Selected Historical Condensed
Consolidated Financial Information; The
Preferred Stock Exchange Offer
4. Terms of the Transaction......................................... Summary; The Preferred Stock Exchange
Offer; Description of the Preferred
Stock; Certain
U.S. Federal Income Tax Considerations
5. Pro Forma Financial Information.................................. Summary of Historical and Pro Forma
Condensed Consolidated Financial
Information; Unaudited Pro Forma
Consolidated Financial Statements;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
6. Material Contacts with Company Being Acquired.................... *
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters.............................. *
8. Interests of Named Experts and Counsel........................... *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities..................................... *
10. Information with Respect to S-3 Registrants...................... *
11. Incorporation of Certain Information by Reference................ *
12. Information with Respect to S-2 or S-3 Registrants............... *
13. Incorporation of Certain Information by Reference................ *
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<CAPTION>
ITEM NUMBER AND HEADING ON FORM S-4 CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------------------- ------------------------------------------
<S> <C> <C>
14. Information with Respect to Registrants Other Than S-3 or S-2
Registrants.................................................... Summary; Risk Factors; Summary of
Historical and Pro Forma Condensed
Consolidated Financial Information;
Selected Historical Condensed
Consolidated Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Description of
Industrial Revenue Bonds, Description of
New Credit Agreement; Description of
Preferred Stock; Description of Notes;
Description of Exchange Debentures;
Financial Statements.
15. Information with Respect to S-3 Companies........................ *
16. Information with Respect to S-2 or S-3 Companies................. *
17. Information with Respect to Companies Other Than S-3 or S-2
Companies...................................................... *
18. Information if Proxies, Consents or Authorizations Are to be
Solicited...................................................... *
19. Information if Proxies, Consents or Authorizations Are Not to be
Solicited, or in an Exchange Offer............................. Management; Executive Compensation;
Security Ownership and Certain
Beneficial Owners and Management of
Parent; Certain Relationships and
Related Transactions; The Preferred
Stock Exchange Offer
</TABLE>
- ------------
* Item is inapplicable or response thereto is in the negative.
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SUBJECT TO COMPLETION, DATED JUNE 5, 1998
PROSPECTUS
EAGLE-PICHER HOLDINGS, INC.
OFFER TO EXCHANGE ITS
11 3/4% SERIES B CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
WHICH HAS BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/4% SERIES A CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
THE PREFERRED STOCK EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JULY 10, 1998, UNLESS EXTENDED
Eagle-Picher Holdings, Inc., a Delaware corporation ('Parent'), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (the 'Prospectus') and the accompanying Letter of Transmittal (the
'Letter of Transmittal'), to exchange (the 'Preferred Stock Exchange Offer')
shares of its 11 3/4% Series B Cumulative Redeemable Exchangeable Preferred
Stock (the 'Series B Preferred Stock') for an equal number of shares of its
11 3/4% Series A Cumulative Redeemable Exchangeable Preferred Stock (the 'Series
A Preferred Stock' and, together with the Series B Preferred Stock, the
'Preferred Stock'), of which 14,191 shares are outstanding. The form and terms
of the Series B Preferred Stock are identical in all material respects to the
form and terms of the Series A Preferred Stock, except for certain transfer
restrictions and registration and other rights relating to the exchange of
Series B Preferred Stock for Series A Preferred Stock. See 'The Preferred Stock
Exchange Offer' and 'Description of the Preferred Stock.' Concurrently with the
Preferred Stock Exchange Offer, Parent's direct wholly-owned subsidiary,
Eagle-Picher Industries, Inc. (the 'Company'), is offering (the 'Notes Exchange
Offer' and, together with the Preferred Stock Exchange Offer, the 'Exchange
Offers') to exchange its 9 3/8% Senior Subordinated Notes due 2008 (the 'New
Notes') for an equal principal amount of its 9 3/8% Senior Subordinated Notes
due 2008 (the 'Old Notes' and, together with the New Notes, the 'Notes'), of
which $220.0 million aggregate principal amount is outstanding.
The initial aggregate liquidation preference of the Preferred Stock at its
initial issuance on February 24, 1998 (the 'Issue Date') was $80,004,601. Each
share of Preferred Stock had an initial liquidation preference of $5,637.7 per
share. Subject to any Special Accretion (as defined herein), the liquidation
preference of each share of Preferred Stock will accrete during the first five
years after the Issue Date, on a daily basis, at a rate of 11.75% per annum (the
'Accretion Rate'), compounded semi-annually, to an accreted liquidation
preference of $10,000 on March 1, 2003. Commencing on March 1, 2003, cumulative
dividends on the Preferred Stock will accrue at a rate per annum of 11.75% of
the accreted liquidation preference and will be payable semi-annually in arrears
on March 1 and September 1 of each year. On the earlier of March 1, 2008 or the
making of a Mandatory Redemption Demand (as defined herein) upon the occurrence
of a Matured Mandatory Redemption Event (as defined herein), Parent will be
required to redeem the Preferred Stock at a redemption price equal to the then
effective liquidation preference thereof plus all accumulated and unpaid
dividends, if any, to such date. There can be no assurance that Parent will have
the financial resources necessary, or be permitted by its debt or other
agreements, to redeem the Preferred Stock upon a Matured Mandatory Redemption
Event. See 'Description of Preferred Stock -- Mandatory Redemption.'
On March 1, 2003 and on any subsequent dividend payment date of the
Preferred Stock, Parent may, at its option, but subject to certain conditions,
exchange all, but not less than all, of the shares of Preferred Stock then
outstanding for Parent's 11 3/4% Exchange Debentures due 2008 (the 'Exchange
Debentures'). The Exchange Debentures will bear interest at a rate of 11.75% per
annum, payable semi-annually in arrears in cash on March 1 and September 1 of
each year, commencing with the first such date to occur after the date of
exchange. The Preferred Stock and the Exchange Debentures are referred to herein
as the 'Securities.'
The Securities may be redeemed at the option of Parent, in whole or in
part, at any time on or after March 1, 2003, at the redemption prices set forth
herein plus, in the case of the Preferred Stock, all accumulated and unpaid
dividends per share, if any, to the redemption date, or in the case of Exchange
Debentures, all accrued and unpaid interest thereon, if any, to the redemption
date. Parent may also redeem up to 35% of the shares of Preferred Stock
outstanding on the Issue Date at its option, at any time on or prior to March 1,
2001, at a redemption price equal to 111.75% of the liquidation preference
(excluding any Special Accretion) at such time, together with the amount of any
Special
(cover continued on next page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BEFORE TENDERING PREFERRED STOCK IN THE PREFERRED STOCK
EXCHANGE OFFER.
------------------------
THE PREFERRED STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JUNE , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
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(cover continued)
Accretion to the date of redemption, with the proceeds of one or more Equity
Offerings (as defined herein) provided at least $50 million aggregate amount of
liquidation preference of Preferred Stock remains outstanding after such
redemption. Upon the occurrence of a Change of Control (as defined herein),
Parent will be required to offer to repurchase all or any part of each holder's
Preferred Stock or Exchange Debentures at a price equal to, in the case of the
Preferred Stock, 101% of the liquidation preference (excluding any Special
Accretion) at the time of the Change of Control, plus all accumulated and unpaid
dividends and the amount of Special Accretion per share, if any, to the date of
repurchase or, in the case of the Exchange Debentures, 101% of the aggregate
principal amount thereof plus an amount in cash equal to all accrued and unpaid
interest thereon, if any, to the date of repurchase.
Creditors of Parent have priority over the Preferred Stock with respect to
claims on assets of Parent. In addition, creditors and stockholders of Parent's
subsidiaries (including creditors of the Company) have priority over the holders
of Preferred Stock with respect to claims on the assets of such subsidiaries. As
of February 28, 1998, the Company and its consolidated subsidiaries had
approximately $547.0 million of Indebtedness outstanding, all of which was
structurally senior to the Preferred Stock. The ratio of long-term debt and
preferred stock to total capitalization at February 28, 1998 was 86.2%. The
Exchange Debentures, if issued, will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of Parent.
Parent will accept for exchange any and all Series A Preferred Stock
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
July 10, 1998, unless extended (the 'Expiration Date'). Tenders of Series A
Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Preferred Stock Exchange Offer is subject to
certain customary conditions. See 'The Preferred Stock Exchange Offer.'
Prior to this offering, there has been no public market for the Preferred
Stock. Parent does not intend to list the Series B Preferred Stock on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the Series
B Preferred Stock will develop.
The Series B Preferred Stock is being offered hereunder in order to satisfy
certain obligations of Parent contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the 'Commission') set forth in no-action letters issued to
third parties, Parent believes the Series B Preferred Stock issued pursuant to
the Preferred Stock Exchange Offer in exchange for Series A Preferred Stock may
be offered for resale, resold and otherwise transferred by any holder thereof
(other than Restricted Holders (as defined herein) or Participating
Broker-Dealers (as defined herein)) without compliance with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
'Securities Act'). Any holder who tenders in the Preferred Stock Exchange Offer
with the intention to participate, or for the purpose of participating, in a
distribution of the Series B Preferred Stock or who is an affiliate of Parent
may not rely upon such interpretations by the staff of the Commission and, in
the absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Holders of Series A Preferred Stock wishing to
accept the Preferred Stock Exchange Offer must represent to Parent in the Letter
of Transmittal that such conditions have been met.
Each broker-dealer (other than a Restricted Holder) that receives Series B
Preferred Stock for its own account pursuant to the Preferred Stock Exchange
Offer (a 'Participating Broker-Dealer') must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Preferred Stock. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Series B Preferred Stock received in exchange for
Series A Preferred Stock where such Series A Preferred Stock was acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Parent has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.' Any
broker-dealer who is an affiliate of
2
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(cover continued)
Parent may not rely on such no-action letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Parent will not receive any proceeds from the Preferred Stock Exchange
Offer. No dealer-manager is being used in connection with this Preferred Stock
Exchange Offer.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Series B Preferred
Stock received in exchange for Series A Preferred Stock where such Series A
Preferred Stock was acquired by such broker-dealer as a result of market-making
activities or other trading activities. See 'Plan of Distribution.'
AVAILABLE INFORMATION
Parent has filed with the Commission a Registration Statement on Form S-4
(together with any amendments, exhibits, annexes and schedules thereto, the
'Registration Statement,') under the Securities Act, with respect to the Series
B Preferred Stock being offered by this Prospectus. This Prospectus, which
contains a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference. The Registration
Statement (including the exhibits and schedules thereto) may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
http://www.sec.gov.
Upon consummation of the Preferred Stock Exchange Offer, Parent will become
subject to the information requirements of the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'), and in accordance therewith will be required to
file periodic reports and other information with the Commission. In the event
that Parent is not subject to the reporting requirements of the Exchange Act at
any time following consummation of the Preferred Stock Exchange Offer, Parent
will be required under the Certificate of Designations, Preferences and Rights
of 11 3/4% Series A Cumulative Redeemable Exchange Preferred Stock and 11 3/4%
Series B Cumulative Redeemable Exchangeable Preferred Stock of Eagle-Picher
Holdings, Inc., dated February 23, 1998 (the 'Certificate'), pursuant to which
the Series A Preferred Stock was, and the Series B Preferred Stock will be,
issued, to continue to file with the Commission, and to furnish holders of the
Preferred Stock with (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such forms, including a
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' with respect to Parent, and, with respect to the annual information
only, a report on the financial statements therein by the Company's certified
independent accountants, and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, for so long as any of the Series A Preferred Stock remains
outstanding, Parent has agreed to make available to any prospective purchaser of
the Series A Preferred Stock or beneficial owner of the Series A Preferred Stock
in connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act.
3
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SUMMARY
The following summary is qualified in its entirety and should be read in
conjunction with by the more detailed information, including the financial
statements and notes thereto, appearing elsewhere in this Prospectus. Except
where otherwise indicated, 'Parent' means Eagle-Picher Holdings, Inc., and
'Eagle-Picher' and the 'Company' mean Eagle-Picher Industries, Inc. and its
subsidiaries. Except as otherwise indicated, a 'Fiscal Year' means the fiscal
year of the Company ended November 30 of the year specified, e.g., '1997 Fiscal
Year' and 'Fiscal 1997' mean the fiscal year ended November 30, 1997.
THE COMPANY
Founded in 1843, Eagle-Picher is a diversified manufacturer of industrial
products for the automotive, aerospace, defense, telecommunications, food and
beverage and construction industries. The Company's long history of innovation
in technology and engineering has helped it become a leader in certain niche
markets in which it competes. Eagle-Picher operates more than 50 plants in the
U.S., England, Germany, Spain and Mexico, and sells its products in over 60
countries worldwide. The Company has achieved significant internal growth in
both sales and EBITDA (as defined herein), with a compounded annual growth rate
since 1993 of 8.2% and 10.9%, respectively. For the 1997 Fiscal Year, the
Company realized net sales and EBITDA of $906.1 million and $104.0 million,
respectively. For the 1997 fiscal year, the Company had a net loss of $3.9
million. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' for a discussion of the Company's net income (loss). The
Company's operations are organized under three major business groups: the
Automotive Group, the Machinery Group and the Industrial Group, which accounted
for 48.1%, 29.8% and 22.1% of the Company's net sales and, after allocation of
corporate overhead, accounted for 49.2%, 27.0% and 23.8% of the Company's
EBITDA, respectively, for the 1997 Fiscal Year.
On February 24, 1998, the Company was acquired (the 'Acquisition') by
Granaria Industries BV ('Granaria Industries') from the Eagle-Picher Industries,
Inc. Personal Injury Settlement Trust (the 'Trust'). At November 30, 1997 and
for the fiscal year then ended, after giving effect to the Acquisition, the pro
forma consolidated financial statements of the Parent compared to the audited
consolidated financial statements for the 1997 Fiscal Year reflected an increase
in total debt from $273.4 million to $547.5 million, an increase in interest
expense from $31.3 million to $54.9 million, an increase in the net loss from
$3.9 million to $9.3 million, and a decrease in shareholder's equity from $336.1
million to $170.6 million.
The Automotive Group. The Automotive Group designs, develops, and
manufactures precision machined and rubber coated metal components for the
global automotive industry. Its customers include automotive original equipment
manufacturers ('OEMs') such as Ford Motor Company ('Ford'), General Motors
Corporation ('GM'), Chrysler Corporation ('Chrysler'), Toyota Motor Corporation
('Toyota'), Nissan Motor Manufacturing Corporation U.S.A. ('Nissan'), Honda of
America, Inc. ('Honda'), FMA (SPA) ('Fiat'), Bayerische Motoren Werke AG ('BMW')
and BMW's subsidiary, Rover Group Limited ('Rover'), as well as direct suppliers
to OEMs (referred to herein as 'Tier I' suppliers). The Company pioneered the
development of materials and processes for coating metal with elastomer (rubber)
compounds, and the Company believes its proprietary technologies in this area
give it competitive advantages. The Company's rubber coated metal products
consist of highly specialized gaskets and materials for high-temperature and
high-pressure applications, including disc brake noise insulators, air
conditioning compressor gaskets, and gaskets and coated materials for automotive
powertrains. More than 150 precision machined components are produced by the
Automotive Group, including vibration dampening devices for engine and
drivetrain applications and automatic transmission pump assemblies. The Company
believes that it is the only non-OEM in North America manufacturing high volumes
of automatic transmission oil pumps and is one of the top three companies
worldwide that design and produce torsional crankshaft dampers. The Automotive
Group also produces fluid systems assemblies, molded rubber products, aluminum
castings, and interior trim products.
4
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The Machinery Group. The Machinery Group designs and produces special
purpose batteries, construction equipment and can washing and coating machinery.
The Company has played a crucial role in the development of power systems for
U.S. space flight, and its batteries have powered missions from the back-up
system that safely brought Apollo 13 back to Earth 28 years ago, to last year's
Mars Pathfinder. The Company's batteries are also used in virtually every U.S.
missile system, including the Patriot and Tomahawk missiles. Recognized as one
of the world leaders in nickel-hydrogen technology since it powered the first
communication satellite launch in 1983, the Company believes it is a world
leader in providing power systems for communications and surveillance
satellites, including Motorola Inc.'s ('Motorola') Iridium'r' project.
Construction equipment produced by the Machinery Group includes elevating wheel
tractor scrapers, which are made under a sole-source contract with Caterpillar,
Inc. ('Caterpillar'), and a premium line of heavy duty forklift trucks, as well
as related replacement parts. The Machinery Group also designs, manufactures and
installs specialized high volume can washing and coating machinery for the
manufacturers of two-piece cans primarily for the food and beverage industry.
The Industrial Group. The Industrial Group is a leading producer of
specialty materials, filter aids and absorbents which are used in a wide range
of applications. The Company's specialty materials business, which has grown by
approximately 60%, as measured by net sales, in the past two years, develops,
manufactures and tests high-purity materials including germanium wafers (used in
solar cells for the satellite industry), germanium tetrachloride (used in fiber
optic cables for the telecommunications industry) and boron (used as a neutron
absorber in nuclear power plants and as a semiconductor dopant). With a 30-year
history of developing processing techniques, the Company produces the highest
purity boron and germanium available in the market. Recent innovations by the
Industrial Group have led to development stage production of a zinc selenide
crystal that adds blue and green to the existing red color spectrum of light
emitting diodes (LEDs), with potential use in flat panel displays and signage.
The Industrial Group is also one of the world's largest producers of
diatomaceous earth filter aids, which are used for high purity filtration by
food and beverage processors and by chemical and pharmaceutical companies.
BUSINESS STRATEGY
The Company's strategy is to enhance its competitive position as a leading
global manufacturer for the automotive, aerospace, defense, telecommunications,
food and beverage, and construction industries. To achieve this objective, the
Company will continue to build upon the following strengths:
Leading Positions in Niche Markets. Eagle-Picher's long history of
innovation and reputation for quality have afforded it leading positions in
certain niche markets. The Company enjoys leading positions in, among others,
the market for rubber coated metal products, the North American non-OEM market
for transmission pumps, the market for nickel-hydrogen batteries and the market
for two-piece can washers. The Company believes that it has achieved significant
market share in these markets because of its customer relationships, engineering
excellence, high quality standards and industry reputation.
Strong Customer Relationships. The Company has established long-term
relationships with many of its customers. It has been supplying its products to
each of Ford, GM and Chrysler for more than 45 years; Lockheed Martin
Corporation ('Lockheed Martin') for more than 40 years; and Motorola for more
than 30 years. The Company believes it has developed strong customer
relationships by working closely with customers to design products that meet the
customers' specifications. Often, the Company provides innovative and
cost-efficient engineering solutions to customer problems. For example, the
Industrial Group continuously works with customers to develop lighter and
longer-lasting battery systems to complement the latest generations of missiles
and satellites. In addition, through the development of a new camshaft damper,
the Automotive Group recently solved a significant powertrain vibration problem
for certain OEMs.
Many of the Company's facilities are located near customer plants,
enhancing the Company's ability to respond to its customers' needs. The
Automotive Group recently built a new transmission pump
5
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production facility in Manchester, Tennessee and a new manufacturing facility in
San Luis Potosi, Mexico, in each case to meet the increasing needs of OEMs
located nearby. The Company believes that its strong relationships with
customers, particularly automotive and capital equipment OEMs, give the Company
a competitive advantage and position the Company to capitalize on a growing
trend toward outsourcing.
Diversified Product Lines; Global Presence. The Company manufactures
hundreds of products for the automotive, aerospace, defense, telecommunications,
food and beverage and construction industries. The Company sells its products to
customers located in over 60 countries through its extensive network, including
global manufacturing facilities throughout the U.S. and Europe. The Automotive
Group alone serves virtually all major automotive OEMs worldwide. The Company
believes that its product diversification and global sales reduce its exposure
to any one market segment or customer.
Superior Product Quality. The Company believes it has a reputation among
its customers for providing technologically advanced, high quality products. The
Company has been honored by many of its customers for its commitment to quality
and service, and, in the last two years, has earned Ford's 'Supplier of the Year
Award' (Ford's Sharonville facility), Hughes Space and Communications Company's
('Hughes SC') 'Performance Excellence Award,' McDonnell Douglas Corporation's
('MD') 'Preferred Supplier Award' and Lockheed Martin's 'Tradition of Excellence
Award.'
Low Cost Structure. The Company is committed to controlling costs and
improving operating efficiencies. The Company believes that it is a low cost
producer in many of the markets in which it competes. The Company attributes its
low cost position to its leading positions in niche markets, relatively low
overhead costs due to the small town locations of many of its facilities, a
primarily non-union workforce, advanced proprietary technology and advanced
manufacturing processes, including the Toyota Production System at one of the
Automotive Group's facilities. Low cost is essential to the Company's ability to
continue to remain competitive.
The Company's principal executive offices are located at
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202 and its
telephone number is (513) 721-7010.
THE ACQUISITION AND USE OF PROCEEDS
On February 24, 1998, the Company was acquired by Granaria Industries BV
from the Trust. The Trust was established pursuant to the Company's Consolidated
Plan of Reorganization upon its emergence from bankruptcy. See 'Company
History;' 'Business -- Plan of Reorganization and Related Injunction.' The
Acquisition was effected pursuant to the Merger Agreement, dated as of December
23, 1997, as amended by Amendment No. 1, dated February 23, 1998 (the 'Merger
Agreement'), among E-P Acquisition, Inc., a Delaware corporation (the 'Issuer'),
Parent, the Company and the Trust. In accordance with the Merger Agreement, on
February 24, 1998, the Issuer was merged into the Company, with the Company
continuing as the surviving corporation (the 'Merger').
At the closing of the Acquisition (the 'Closing'): (i) $100 million (the
'Equity Investment') was contributed to Parent by Granaria Industries and Lange
Voorhout Investments B.V. ('LV Investment'), an affiliate of ABN AMRO Bank, N.V.
('ABN AMRO Bank'); (ii) Parent received gross proceeds of approximately $80
million from an offering of its 11 3/4% Cumulative Redeemable Exchangeable
Preferred Stock (the 'Preferred Stock Offering'); (iii) Parent contributed to
the Issuer in the form of common equity approximately $180 million (the 'Equity
Contribution') comprising the Equity Investment and all of the proceeds of the
Preferred Stock Offering; (iv) the Issuer borrowed $225 million in term loans
and $79.1 million in revolving loans under a syndicated senior secured loan
facility (the 'New Credit Agreement') with ABN AMRO Bank, and completed the
offering of the Old Notes; (v) the Company (a) terminated the Credit Agreement
dated as of November 29, 1996 by and among the Company, certain subsidiaries of
the Company, PNC Bank, Ohio, National Association, as Agent, and the banks named
as parties therein (the 'PNC Bank Facility,' under which there was no
outstanding indebtedness at Closing) and (b) redeemed 660,000 shares of common
stock, par value $.01 per share (the 'Common Stock') of the Company from the
Trust for an aggregate purchase price of $29
6
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<PAGE>
million (the 'Redemption Amount'); and (vi) the Issuer was merged into the
Company. As a result of these transactions, the Company became a wholly-owned
subsidiary of Parent and assumed all of the obligations and liabilities of the
Issuer, including the Issuer's obligations and liabilities under the Old Notes,
the Indenture, the Registration Rights Agreement and the New Credit Agreement.
Simultaneously with the effectiveness of the Merger (the 'Effective Time'), the
Company paid the total outstanding amount under the Company's 10% Senior
Unsecured Sinking Fund Debentures due November 29, 2006 (the '10% Debentures').
In connection with the Acquisition, the Trust, the sole holder of the 10%
Debentures, waived the prepayment penalty on the 10% Debentures.
The following table sets forth the approximate cash sources and uses of
funds, including the application of the proceeds therefrom, at the Effective
Time.
<TABLE>
<CAPTION>
SOURCES OF FUNDS(A)
(DOLLARS IN MILLIONS)
<S> <C>
New Credit Agreement:
Revolving Credit Facility(B)............. $ 79.1
Term Loans............................... 225.0
Senior Subordinated Notes(C).................. 219.6
Equity Contribution(D)........................ 180.0
Cash.......................................... 39.5
------
Total............................... $743.2
------
------
<CAPTION>
USES OF FUNDS(A)
(DOLLARS IN MILLIONS)
<S> <C>
Merger Consideration(E)....................... $417.6
Repayment of Existing Indebtedness(F)......... 255.9
Common Stock Redemption(G).................... 29.0
Estimated Transaction Fees and Expenses(H).... 27.8
Management Compensation(I).................... 12.9
------
Total............................... $743.2
------
------
</TABLE>
- ------------
(A) Sources and uses of funds are based on (i) the borrowings of debt
outstanding under the Company's existing credit facilities on February 24,
1998 (the 'Closing Date') and (ii) the purchase price paid for the Company
in connection with the Acquisition.
(B) Immediately following the Acquisition, the Company borrowed approximately
$28.6 million under the revolving credit facility under the New Credit
Agreement for use as credit support in the form of letters of credit,
leaving approximately $52.3 million available for additional borrowings
under the revolving credit facility under the New Credit Agreement.
(C) Includes original issue discount of $0.4 million.
(D) Parent funded the Equity Contribution from the Equity Investment and the
Preferred Stock Offering (the fees and expenses of which were paid by the
Company).
(E) Merger Consideration (the 'Merger Consideration') represents the sum of (i)
$410.0 million and (ii) an additional amount equal to 8% on an annual basis
on $410.0 million from December 1, 1997 up to and including the Closing
Date.
(F) Consists of payment of $250.0 million principal amount due under the 10%
Debentures and $5.9 million of interest accrued thereon from December 1,
1997 up to and including the Closing Date.
(G) The Company redeemed 660,000 shares of Common Stock immediately prior to
the Effective Time.
(H) Approximately $27.8 million in transaction fees and expenses (including an
amount equal to approximately 1% of the transaction value payable to
Granaria Holdings (as defined herein)) was paid on the Closing Date. This
amount includes $2.6 million in fees and expenses of Parent related to the
Preferred Stock Offering.
(I) Following the Acquisition, the Company paid approximately $10.0 million to
a trust established for the benefit of certain members of senior management
of the Company (the 'E-P Management Trust') and $2.9 million for the
related tax obligation. The E-P Management Trust used the $10.0 million to
satisfy a loan from Granaria Holdings, the proceeds of which were used by
the E-P Management Trust to acquire 16% of the common stock of Granaria
Industries. See 'Executive Compensation -- Compensation to Senior
Management.' The Company made additional payments to certain members of
senior management of the Company in the amount of approximately $7.6
million, which consists of $2.7 million in stay-put bonuses and $4.9
million in sales incentive bonuses under the STSP (as defined herein). See
'Executive Compensation -- Short Term Sale Program.'
7
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THE PREFERRED STOCK OFFERING
<TABLE>
<S> <C>
The Issuer....................... The Series A Preferred Stock were sold by Parent on February 24, 1998 (i) to
'qualified institutional buyers' (as defined in Rule 144A under the Securities
Act) in reliance upon Rule 144A under the Securities Act and (ii) outside the
United States to persons other than U.S. persons in reliance upon Regulation S
under the Securities Act.
Registration Rights Agreement.... In connection with the sale of the Series A Preferred Stock, Parent executed
and delivered for the benefit of the holders of the Series A Preferred Stock a
registration rights agreement (the 'Registration Rights Agreement') providing
for, among other things, the Preferred Stock Exchange Offer.
</TABLE>
THE PREFERRED STOCK EXCHANGE OFFER
As used in this section and the 'Terms of the Preferred Stock' section of
the Summary, the 'Description of Preferred Stock' and the 'Description of the
Exchange Debentures,' the 'Company' refers only to Eagle-Picher Industries, Inc.
and does not include its subsidiaries.
<TABLE>
<S> <C>
The Preferred Stock
Exchange Offer................. Parent is offering to exchange up to 14,191 shares of Series B Preferred Stock
for up to 14,191 shares of Series A Preferred Stock issued in the Preferred
Stock Offering in reliance upon an exemption from registration under the
Securities Act. Upon consummation of the Preferred Stock Exchange Offer, the
terms of the Series B Preferred Stock (including liquidation preference,
accretion rate, dividends and ranking) will be identical in all material
respects to the terms of the Series A Preferred Stock for which they may be
exchanged pursuant to the Preferred Stock Exchange Offer, except that the
Series B Preferred Stock has been registered under the Securities Act and
therefore will not bear legends restricting its transfer and will not contain
terms providing for an increase in the accretion rate thereon under certain
circumstances described in the Registration Rights Agreement.
Based on interpretations by the staff of the Commission set forth in no-action
letters issued to third parties, Parent believes that Series B Preferred Stock
issued pursuant to the Preferred Stock Exchange Offer in exchange for Series A
Preferred Stock may be offered for resale, resold and otherwise transferred by
a holder thereof (other than a Restricted Holder or a Participating
Broker-Dealer) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Series B
Preferred Stock is acquired in the ordinary course of such holder's business
and that such holder is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, the
distribution of such Series B Preferred Stock.
Any Participating Broker-Dealer that receives Series B Preferred Stock for its
own account in exchange for Series A Preferred Stock, where such Series A
Preferred Stock was acquired by such broker or dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Series B
Preferred Stock. The Letter of Transmittal states that by so acknowledging and
by delivering
</TABLE>
8
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<PAGE>
<TABLE>
<S> <C>
a prospectus, a Participating Broker-Dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with the resale of Series
B Preferred Stock received in exchange for Series A Preferred Stock where such
Series A Preferred Stock was acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities. Parent has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See 'Plan of Distribution.'
Any holder who tenders in the Preferred Stock Exchange Offer with the
intention of participating, or for the purpose of participating, in a
distribution of the Series B Preferred Stock may not rely on the position of
the staff of the Commission enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale.
Expiration Date.................. 5:00 p.m., New York City time, on July 10, 1998, unless the Preferred
Stock Exchange Offer is extended, in which case the term 'Expiration Date'
means the latest date and time to which the Preferred Stock Exchange Offer is
extended.
Conditions to the Preferred Stock
Exchange Offer................. The obligation of Parent to consummate the Preferred Stock Exchange Offer is
subject to certain conditions. See 'The Preferred Stock Exchange
Offer -- Conditions.' Parent reserves the right to terminate or amend the
Preferred Stock Exchange Offer at any time prior to the Expiration Date upon
the occurrence of any such condition.
Procedures for Tendering Series A
Preferred Stock................ Each holder of Series A Preferred Stock wishing to accept the Preferred Stock
Exchange Offer must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, or transmit an Agent's Message (as defined herein) in
connection with a book-entry transfer, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver such Letter of
Transmittal, such facsimile, or such Agent's Message, together with the Series
A Preferred Stock and any other required documentation to the exchange agent
(the 'Exchange Agent') at the address set forth herein. By executing the
Letter of Transmittal or Agent's Message, each holder will represent to Parent
that, among other things, the Series B Preferred Stock acquired pursuant to
the Preferred Stock Exchange Offer is being obtained in the ordinary course of
business of the person receiving such Series B Preferred Stock, whether or not
such person is the holder, that neither the holder nor any such other person
(i) has any arrangement or understanding with any person to participate in the
distribution of the Series B Preferred Stock, (ii) is engaging or intends to
engage in the distribution of such Series B Preferred Stock or (iii) is an
'affiliate,' as defined under Rule 405 of the Securities Act, of Parent. See
'The Preferred Stock Exchange Offer -- Purpose and Effect of the Preferred
Stock Exchange Offer,' ' -- Procedures for Tendering' and 'Plan of
Distribution.'
</TABLE>
9
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<PAGE>
<TABLE>
<S> <C>
Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Series A Preferred Stock is registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering his
Series A Preferred Stock, either make appropriate arrangements to register
ownership of the Series A Preferred Stock in such owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time. See 'The Preferred Stock
Exchange Offer -- Procedures for Tendering.'
Guaranteed Delivery
Procedures..................... Holders of Series A Preferred Stock who wish to tender their Series A
Preferred Stock and whose Series A Preferred Stock is not entirely available
or who cannot deliver their Series A Preferred Stock, the Letter of
Transmittal or any other documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must tender their Series A
Preferred Stock according to the guaranteed delivery procedures set forth in
'The Preferred Stock Exchange Offer -- Guaranteed Delivery Procedures.'
Withdrawal Rights................ Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. See 'The Preferred Stock Exchange Offer -- Withdrawal
of Tenders.'
Acceptance of Old Notes and
Delivery of Series B Preferred
Stock.......................... Parent will accept for exchange any and all shares of Series A Preferred Stock
which are properly tendered in the Preferred Stock Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The Series B Preferred
Stock issued pursuant to the Preferred Stock Exchange Offer will be delivered
promptly following the Expiration Date. See 'The Preferred Stock Exchange
Offer -- Terms of the Preferred Stock Exchange Offer.'
Exchange Agent................... The Bank of New York is serving as Exchange Agent in connection with the
Exchange Offers. See 'The Preferred Stock Exchange Offer -- Exchange Agent.'
</TABLE>
THE SERIES B PREFERRED STOCK
The Preferred Stock Exchange Offer applies to 14,191 shares of Series A
Preferred Stock. The terms of the Series B Preferred Stock are identical in all
material respects to the Series A Preferred Stock, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Series A Preferred Stock for Series B Preferred Stock. The Series B Preferred
Stock will be entitled to the benefits of the Certificate under which both the
Series A Preferred Stock was, and the Series B Preferred Stock will be, issued.
See 'Description of the Preferred Stock.'
<TABLE>
<S> <C>
PREFERRED STOCK:
Issuer........................... Eagle-Picher Holdings, Inc.
Preferred Stock Offered.......... 14,191 shares of 11 3/4% Series B Cumulative Redeemable Exchangeable Preferred
Stock.
</TABLE>
10
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<TABLE>
<S> <C>
Liquidation Preference........... Subject to any Special Accretion, on the Expiration Date, the liquidation
preference of the Preferred Stock will initially be $5,637.7 per share plus
any accretion from February 24, 1998 to the Expiration Date, and the
liquidation preference of the Preferred Stock will accrete from the Expiration
Date to March 1, 2003, on a daily basis, at the rate of 11.75% per annum,
compounded semi-annually, to a liquidation preference of $10,000 per share on
March 1, 2003. The accreted value of the Preferred Stock, at any date of
determination, will hereinafter be referred to as the 'Liquidation
Preference.'
Dividends........................ No dividends will accrue on the Preferred Stock prior to March 1, 2003.
Holders of Preferred Stock will subsequently be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends on the Preferred Stock at a rate per annum equal to 11.75%
of the Liquidation Preference. All dividends will be cumulative, whether or
not earned or declared, on a daily basis from March 1, 2003 and will be
payable semi-annually in arrears on March 1 and September 1 of each year,
commencing on September 1, 2003.
Ranking.......................... Creditors of Parent have priority over the Preferred Stock with respect to
claims on the assets of Parent. In addition, creditors and stockholders of
Parent's subsidiaries (including creditors of the Company) have priority over
the holders of Preferred Stock with respect to claims on the assets of such
subsidiaries. As of February 28, 1998, the Company and its consolidated
subsidiaries had approximately $547.0 million of Indebtedness outstanding, all
of which was structurally senior to the Preferred Stock. See 'Risk
Factors -- Ranking of the Preferred Stock; Subordination of Exchange
Debentures.'
Optional Redemption.............. The Preferred Stock is redeemable at the option of Parent, in whole or in
part, at any time (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) on or after March 1,
2003, at certain redemption prices set forth herein, together with accrued and
unpaid dividends, if any. Parent may also redeem up to 35% of the shares of
Preferred Stock outstanding on the Issue Date at any time on or prior to March
1, 2001, at a redemption price equal to 111.75% of the Liquidation Preference
(excluding any Special Accretion) at the time of redemption, together with the
amount of any Special Accretion to the date of redemption, with the proceeds
of one or more Equity Offerings; provided, that at least $50.0 million
aggregate amount of Liquidation Preference remains outstanding after each such
redemption.
Mandatory Redemption............. The Preferred Stock is mandatorily redeemable by Parent on the earlier of
March 1, 2008 and the making of a Mandatory Redemption Demand upon the
occurrence of a Matured Mandatory Redemption Event at a price equal to the
then effective Liquidation Preference, together with all accumulated and
unpaid dividends, if any, to the redemption date. See 'Description of
Preferred Stock -- Mandatory Redemption.'
Change of Control................ Upon the occurrence of a Change of Control, each holder of Preferred Stock
will have the right to require that Parent repurchase such holder's shares of
Preferred Stock for a cash price equal to 101% of the Liquidation Preference
(excluding any Special Accretion) of the
</TABLE>
11
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<TABLE>
<S> <C>
Preferred Stock at the time of the occurrence of the Change of Control, plus
all accumulated and unpaid dividends and the amount of Special Accretion, if
any, to the date of repurchase.
Voting Rights.................... Holders of the Preferred Stock have no voting rights with respect to general
corporate matters except as provided by law or as set forth in the
Certificate. The Certificate provides that in certain circumstances, holders
of Preferred Stock will be entitled to elect a majority of Parent's Board of
Directors.
Early Mandatory
Redemption Events.............. It is considered an Early Mandatory Redemption Event under the Certificate if
Parent does not comply with specific limitations on its ability: (a) to incur
additional indebtedness, issue any capital stock, engage in any activities
other than the performance of its guarantees under the New Credit Agreement
and the Notes Indenture (as defined herein), or merge or consolidate with any
other Person (as defined herein) or (b) to permit the Company or its
Restricted Subsidiaries to incur additional indebtedness, issue capital stock,
make restricted payments, pay dividends or make other distributions, enter
into certain transactions with affiliates, or enter into certain mergers or
consolidations or sell all or substantially all of the assets of the Company
and the Restricted Subsidiaries. These Early Mandatory Redemption Events are
subject to a number of significant exceptions and qualifications. The
Certificate also requires Parent to deliver certain reports and information to
holders of the Preferred Stock. See 'Description of Preferred Stock -- Early
Mandatory Redemption Events.'
Exchange Feature................. On March 1, 2003 and on any subsequent dividend payment date, Parent may, at
its option, but subject to certain conditions, exchange all but not less than
all of the shares of Preferred Stock then outstanding for the Exchange
Debentures.
Use of Proceeds.................. There will be no proceeds to the Company from any exchange pursuant to the
Preferred Stock Exchange Offer.
EXCHANGE DEBENTURES:
Issuer........................... Eagle-Picher Holdings, Inc.
Securities Offered............... 11 3/4% Exchange Debentures due 2008.
Maturity......................... March 1, 2008.
Interest......................... The Exchange Debentures will bear interest at a rate of 11.75% per annum,
payable semi-annually in arrears on March 1 and September 1 of each year,
commencing on the first such date to occur after the date of exchange.
Ranking.......................... The Exchange Debentures will be general unsecured obligations of Parent,
subordinated to all existing and future Senior Indebtedness of Parent. As of
February 28, 1998, Parent had no Senior Indebtedness (other than its
guarantees of $385 million of borrowings under the New Credit Agreement and
$220 million of Notes). See 'Risk Factors -- Ranking of the Preferred Stock;
Subordination of Exchange Debentures' and 'Description of Exchange
Debentures.'
Optional Redemption.............. The Exchange Debentures will be redeemable at the option of Parent, in whole
or in part, at any time (subject to contractual and other restrictions with
respect thereto) on or after March 1, 2003, at the
</TABLE>
12
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<TABLE>
<S> <C>
redemption prices set forth herein, together with accrued and unpaid interest
thereon.
Change of Control................ Upon the occurrence of a Change of Control, each holder of Exchange Debentures
will have the right to require that Parent repurchase such holder's Exchange
Debentures for a cash price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon.
Certain Covenants................ The Exchange Debentures Indenture (as defined below) contains certain
covenants that, among other things, limit the ability of Parent: (a) to incur
additional indebtedness, issue any capital stock, engage in any activities
other than the performance of its guarantees under the New Credit Agreement
and the Notes Indenture or merge or consolidate with any other Person and (b)
to permit the Company or its Restricted Subsidiaries to incur additional
indebtedness, issue capital stock, make restricted payments, pay dividends or
make other distributions, enter into certain transactions with affiliates, or
enter into certain mergers or consolidations or sell all or substantially all
of the assets of the Company and the Restricted Subsidiaries. These covenants
are subject to a number of significant exceptions and qualifications. The
Exchange Debentures Indenture requires Parent to deliver certain reports and
information to holders of Exchange Debentures. See 'Description of Exchange
Debentures -- Certain Covenants'.
</TABLE>
RISK FACTORS
See 'Risk Factors' for a discussion of certain factors that should be
considered before tendering Series A Preferred Stock in the Preferred Stock
Exchange Offer.
13
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SUMMARY OF HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following historical condensed consolidated financial information is
derived from the Consolidated Financial Statements of Parent. The unaudited pro
forma condensed consolidated statement of income (loss) for the year ended
November 30, 1997 gives effect to the Acquisition and the application of the
proceeds as if it had been consummated on December 1, 1996. Effective November
29, 1996, Parent emerged from bankruptcy and, accordingly, it adopted
fresh-start reporting in accordance with Statement of Position 90-7, 'Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code.' As a result,
the condensed consolidated financial information for the periods subsequent to
the adoption of fresh-start reporting are presented on a different cost basis
than the information for prior periods and, therefore, are not comparable.
Accordingly, a vertical black line is shown to separate post-emergence
operations. Parent recorded a number of charges in 1995 and 1996 in connection
with its reorganization and emergence from bankruptcy as set forth in the
financial information herein. Given that the Parent has emerged from bankruptcy,
there will be no further reorganization charges. The unaudited condensed
consolidated financial information presented for the three months ended February
28, 1997 and 1998 and as of February 28, 1998 are derived from the unaudited
consolidated financial statements of Parent and include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial information for such periods.
As a result of the Acquisition, which was accounted for as a purchase, Parent's
results of operations and financial position for periods after February 24, 1998
are not comparable to prior periods. See Note A below. The unaudited pro forma
condensed consolidated statement of income (loss) for the three months ended
February 28, 1998 gives effect to the Acquisition as if it had been consummated
on December 1, 1996. Pro forma balance sheet data as of February 28, 1998 are
not included herewith because the effects of the Acquisition have already been
reflected in such balance sheet data. Neither the historical condensed
consolidated financial data nor the pro forma condensed consolidated financial
data are necessarily indicative of either the future results of operations or
the results of operations that would have occurred if those events had been
consummated on the indicated dates. The following condensed consolidated
financial information should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,' the
Pro Forma Condensed Consolidated Financial Statements (as defined herein) and
the historical Consolidated Financial Statements, related notes, and other
financial information all included elsewhere herein.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED FEBRUARY 28,
-----------------------------------
1998(A)
----------------------
ACTUAL PRO FORMA 1997
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME (LOSS):
Net sales(B)...................................... $205,842 $205,842 $223,607
Operating income.................................. 11,027 11,024 9,040
Adjustment for asbestos litigation................ -- -- --
Fresh start revaluation........................... -- -- --
Reorganization items and claims(E)................ -- -- --
Interest expense.................................. (6,940) (12,969) (8,927)
Other income (expense)............................ 820 820 1,703
Income (loss) before taxes, extraordinary items
and accounting changes.......................... 4,907 (1,125) 1,816
Income (loss) before extraordinary items and
accounting changes.............................. 807 (1,675) (1,220)
Extraordinary items and accounting changes........
Net income (loss)................................. 807 (1,675) (1,220)
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................... $162,450 -- $208,373
Property, plant and equipment, net................ 239,337 -- 260,850
Total assets...................................... 867,139 -- 831,943
Total debt........................................ 546,996 -- 372,170
Redeemable Preferred Stock........................ 80,005 -- --
Shareholder's equity (deficit).................... 100,001 -- 338,642
OTHER DATA:
EBITDA(H)......................................... $ 25,905 $ 25,905 $ 23,482
Depreciation and amortization..................... 12,822 13,221 14,442
Capital expenditures.............................. 5,692 5,692 15,857
Cash provided by (used in) operating activities... (9,083) 176 17,914
Cash used in investing activities................. (6,734) (6,734) (17,040)
Cash used in financing activities................. (18,955) (2,860) (14,223)
SELECTED RATIOS:
EBITDA/interest expense and preferred stock
dividends....................................... 3.65x 1.55x 2.63x
Total debt and preferred stock/EBITDA............. N/M N/M N/M
Total debt and preferred stock/capitalization..... 86.2% N/M 52.4%
Earnings/fixed charges and preferred stock
dividends(J).................................... 1.69x N/M(K) 1.20x
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
-----------------------------------------------------
1997
------------------------
ACTUAL PRO FORMA 1996 1995
-------- --------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME (LOSS):
Net sales(B)...................................... $906,077 $906,077 $ 891,287 $ 848,548
Operating income.................................. 45,558(C) 29,843 62,106 63,087
Adjustment for asbestos litigation................ -- -- 502,197 (1,005,511)
Fresh start revaluation........................... -- -- 118,684(D) --
Reorganization items and claims(E)................ -- -- (6,593) (2,225)
Interest expense.................................. (31,261) (54,881) (3,083) (1,926)
Other income (expense)............................ (251) (251) 1,345 11,704(F)
Income (loss) before taxes, extraordinary items
and accounting changes.......................... 14,046 (25,289) 674,656 (934,871)
Income (loss) before extraordinary items and
accounting changes.............................. (3,854) (15,089) 622,086 (944,171)
Extraordinary items and accounting changes........ -- -- 1,524,305(G) --
Net income (loss)................................. (3,854) (15,089) 2,146,391 (944,171)
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................... $187,968 -- $ 211,808 $ 243,495
Property, plant and equipment, net................ 243,538 -- 256,351 155,818
Total assets...................................... 746,881 -- 848,880 580,073
Total debt........................................ 273,397 -- 386,439 20,628
Redeemable Preferred Stock........................ -- -- -- --
Shareholder's equity (deficit).................... 336,117 -- 341,807 (2,211,308)
OTHER DATA:
EBITDA(H)......................................... $103,958 $103,958 $ 92,856 $ 91,795
Depreciation and amortization..................... 55,989 56,749 30,750 28,708
Capital expenditures.............................. 51,324(I) 51,324 44,957 40,558
Cash provided by (used in) operating activities... 147,883 107,279 72,861 30,456
Cash used in investing activities................. (13,827) (13,827) (41,770) (28,713)
Cash used in financing activities................. (113,042) (139,337) (3,198) (1,019)
SELECTED RATIOS:
EBITDA/interest expense and preferred stock
dividends....................................... 3.33x 1.89 x 30.12x 47.66x
Total debt and preferred stock/EBITDA............. 2.63 N/M 4.16 0.22
Total debt and preferred stock/capitalization..... 44.9% N/M 53.1% N/M
Earnings/fixed charges and preferred stock
dividends(J).................................... 1.43x N/M (K) 173.50x(L) --(L)
</TABLE>
(footnotes on next page)
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NOTES TO HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)
(A) The unaudited condensed consolidated financial statements as of and for the
three months ended February 28, 1998 include the effects of the Acquisition
that result as of February 24, 1998, the Closing Date. Accordingly, the
historical condensed consolidated statement of income (loss) for the three
months ended February 28, 1998 includes results of operations from (1)
December 1, 1997 through February 24, 1998 of the Company prior to the
consummation of the Acquisition (for clarity, sometimes referred to herein
as the 'Predecessor Company') and (2) February 25 through February 28, 1998
of Parent.
(B) In 1997, Parent sold the Plastics division, the Transicoil division and the
Fabricon Products division and contributed the Suspension Systems division
to the Eagle-Picher-Boge L.L.C. joint venture (collectively, the 'Divested
Divisions'). In 1997, 1996, 1995, and the three months ended February 28,
1997, the Divested Divisions contributed net sales of $78,604, $138,116,
$145,339 and $29,254, respectively.
(C) Operating income in 1997 includes (i) amortization of reorganization value
in excess of amounts allocable to identifiable assets in the amount of
$16,284, (ii) depreciation of assets written up to fair value in the amount
of $9,804 and (iii) loss on sale of divisions of $2,411. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Effects of Reorganization on Operations and Financial
Condition.'
(D) Fresh-start valuation gain of $118,684 reflects transactions related to
emergence from bankruptcy and reorganization in accordance with Statement
of Position 90-7, 'Financial Reporting by Entities in Reorganization under
the United States Bankruptcy Code.' See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Effects of
Reorganization on Operations and Financial Condition.'
(E) Reflects provision for claims of $4,244 in 1996. Remaining reorganization
items is net expense resulting from the Company's bankruptcy filing. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Effects of Reorganization on Operations and Financial
Condition.'
(F) Other income (expense) reflects a gain of $11,505 in 1995 relating to the
sale of an investment in a Canadian mining concern.
(G) Reflects (i) a gain of $1,525,540 in 1996 related to emergence from
bankruptcy and reorganization in accordance with Statement of Position
90-7, 'Financial Reporting by Entities in Reorganization under the United
States Bankruptcy Code' and (ii) a loss of $1,235 in 1996 due to an
accounting change of its method of computing LIFO inventories.
(H) 'EBITDA' is used as defined in the Indenture and may not be comparable to
similarly titled measures reported by other companies. See 'Description of
the Notes.' 'EBITDA' is presented because management believes it is an
indicator of a company's ability to service and incur debt. EBITDA does not
represent net income or cash flows from operations as those terms are
defined by generally accepted accounting principles and does not
necessarily indicate whether cash flows will be sufficient to fund cash
needs. Certain funds depicted by 'EBITDA' are not available for
management's discretionary use due to requirements to conserve funds for
debt service, interest and dividend payments and other commitments and
uncertainties. Under the Indenture, the definition of EBITDA excludes loss
on sale of divisions and any other non-cash items affecting Consolidated
Net Income (including, without limitation, charges for asbestos litigation
and reversal of asbestos litigation reserves). The Divested Divisions
contributed $361, $3,615, $7,695 and ($652) of EBITDA in 1997, 1996, 1995,
and the three months ended February 28, 1997, respectively.
(I) Includes capital expenditures in 1997 of (i) $10,157 in connection with the
new facility in Manchester, Tennessee, (ii) $6,495 in connection with the
completion of a $13,054 diatomaceous
(footnotes continued on next page)
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(footnotes continued from previous page)
earth processing facility in Vale, Oregon and (iii) $4,651 in connection
with a new automotive facility in Tamworth, England.
(J) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, 'earnings' consist of income before provision
(benefit) for income taxes and fixed charges. 'Fixed charges' consist of
interest expense (including amortization of deferred financing costs) and
approximately 30% of rental expense, representing that portion of rental
expense deemed representative of the interest factor.
(K) Pro forma earnings were insufficient to cover fixed charges and preferred
stock dividends for the three months ended February 28, 1998 by $3,475 and
for the year ended November 30, 1997 by $34,690.
(L) Such ratio of earnings to fixed charges and preferred stock dividends is
not meaningful for 1995 because of significant charges for an asbestos
litigation and is not meaningful for 1996 because of significant reversal
of asbestos litigation reserves, fresh-start revaluation and extraordinary
items. Earnings were inadequate to cover fixed charges and preferred stock
dividends by $934,871 for the year ended November 30, 1995.
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RISK FACTORS
In addition to the other information in this Prospectus, holders of the
Series A Preferred Stock should consider carefully the following risk factors
before deciding to tender their Series A Preferred Stock in the Preferred Stock
Exchange Offer.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
Parent and its subsidiaries are highly leveraged and have significant debt
service requirements. At November 30, 1997 and for the fiscal year then ended,
after giving effect to the Acquisition, the pro forma consolidated financial
statements of Parent compared to the audited consolidated financial statements
for the 1997 Fiscal Year reflected an increase in total debt from $273.4 million
to $547.5 million, an increase in interest expense from $31.3 million to $54.9
million, an increase in the net loss from $3.9 million to $15.1 million, and a
decrease in shareholder's equity from $336.1 million to $164.8 million. At
February 28, 1998, Parent and its subsidiaries had $627.0 million of long-term
debt and preferred stock outstanding, $323.8 million of which was secured, and
Parent's ratio of long-term debt and preferred stock to total capitalization was
86.2%. Under the New Credit Agreement, the Company has scheduled principal
payments aggregating $5.3 million, $10.4 million and $15.4 million for the years
1998, 1999 and 2000, respectively, increasing to a maximum of $73.9 million in
2006. All such payments are fully and unconditionally guaranteed on a joint and
several basis by Parent and the Subsidiary Guarantors. For the 1997 Fiscal Year,
on a pro forma basis after giving effect to the Acquisition, the total debt and
Preferred Stock to EBITDA ratio of Parent and its subsidiaries would have been
6.04x. The degree to which Parent is leveraged could have important consequences
to holders of the Securities, including: (i) the ability of Parent and its
subsidiaries to obtain additional financing, whether for working capital,
acquisitions, capital expenditures or other purposes, may be impaired; (ii) a
substantial portion of cash flow from operations of Parent's subsidiaries will
be required for debt service, thereby reducing funds available to them for their
operations and for distribution to Parent; (iii) certain indebtedness of Parent
and its subsidiaries contains financial and other restrictive covenants which,
if breached, would result in an event of default under such indebtedness; (iv)
the level of indebtedness may limit the flexibility of Parent and its
subsidiaries in planning for or reacting to changes in market conditions; (v)
Parent and its subsidiaries may be more vulnerable upon a downturn in their
business or in an industry in which they operate; and (vi) to the extent that
Parent and its subsidiaries incur any indebtedness at variable rates, including
under the New Credit Agreement, Parent and its subsidiaries will be vulnerable
to increases in interest rates.
Based on the current level of operations (assuming Parent and its
subsidiaries do not incur any material liabilities not presently known to them
(including any environmental liabilities)) and anticipated future growth, Parent
believes that the operating cash flow of its subsidiaries, together with
available borrowings under the New Credit Agreement, will be sufficient to meet
their dividend obligations (including future dividends to Parent on the
Preferred Stock) and their debt service obligations on their indebtedness
(including distributions to Parent to pay interest on the Exchange Debentures,
if issued), meet their working capital needs and fund their capital expenditures
and other operating expenses. However, there can be no assurance that Parent's
or its subsidiaries' business will generate cash flow at levels sufficient to
meet these obligations. If Parent's subsidiaries are unable to generate
sufficient cash flow from operations to service their debt obligations and to
meet other cash requirements, they may be required to sell assets, reduce
capital expenditures, refinance all or a portion of their existing debt or
obtain additional financing. There can be no assurance that any such asset sales
or refinancing would be possible or that any additional financing would be
available, if at all, on terms acceptable to Parent or its subsidiaries. The
ability of Parent to meet its dividend obligations and debt service obligations
will be dependent upon the future performance of its subsidiaries which, in
turn, will be subject to future economic conditions and to financial, business
and other factors, many of which are beyond the control of Parent and its
subsidiaries.
The terms of the New Credit Agreement, the Notes Indenture, the Certificate
and the other agreements governing the indebtedness of Parent and its
subsidiaries impose operating and financing restrictions on Parent and its
subsidiaries. Such restrictions affect, and in many respects limit or prohibit,
among other things, the ability of Parent and its subsidiaries to incur
additional indebtedness,
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pay dividends or repurchase stock or make other distributions, create liens,
make certain investments, sell assets, or enter into mergers or consolidations.
The New Credit Agreement requires Parent's subsidiaries to comply with certain
financial ratios and tests, under which they are required to achieve certain
financial and operating results. The restrictions could limit the ability of
Parent and its subsidiaries to plan for or react to market conditions or meet
extraordinary capital needs or otherwise could restrict corporate activities.
There can be no assurance that such restrictions will not adversely affect the
ability of Parent and its subsidiaries to finance their future operations or
capital needs or to engage in other business activities that would be in the
interest of Parent and its subsidiaries. Moreover, any default under the
documents governing the indebtedness of Parent and its subsidiaries could have a
material adverse effect on the market value of the Preferred Stock.
HOLDING COMPANY STRUCTURE; DEPENDENCE UPON CASH FLOW FROM SUBSIDIARIES
Parent is a holding company and is prohibited by the Certificate and the
Exchange Debentures Indenture from entering into any transaction or agreement
(including incurring any debt) or engaging in any business or other actions,
with certain exceptions including the guarantees under the New Credit Agreement
and the Notes Indenture. It currently has no assets other than the common stock
of the Company and conducts all of its business through the Company and its
subsidiaries. Consequently, the ability of Parent to meet its financial
obligations, including with respect to the Preferred Stock and, if issued, the
Exchange Debentures, will be dependent on the ability of Parent to receive
dividends and other payments or advances from its subsidiaries or to obtain
additional capital. The Company and its subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts on the Preferred Stock or, if issued, the Exchange Debentures, or to
make funds available therefor. The ability of Parent's subsidiaries to pay
dividends or make other payments or advances to Parent will depend on the
operating results of such subsidiaries and any restrictions on paying such
dividends or making such payments or advances to which such subsidiaries are
subject. The New Credit Agreement and the Notes Indenture restrict the Company's
ability to make dividends or other distributions to Parent. See 'Description of
New Credit Agreement -- Certain Covenants' and 'Description of Notes -- Certain
Covenants -- Limitations on Restricted Payments.' Any failure by Parent to make
payments with respect to the Preferred Stock would entitle the holders thereof
to elect a majority of Parent's Board of Directors. See 'Description of
Preferred Stock -- Voting Rights.'
LIMITED REMEDIES OF HOLDERS UPON PARENT'S FAILURE TO PAY DIVIDENDS OR TO
REDEEM PREFERRED STOCK
If Parent fails to pay dividends on or to redeem the Preferred Stock upon
any Mandatory Redemption Demand, the holders of the Preferred Stock may be
unable to obtain and enforce a judgment against Parent and are not likely to be
recognized as creditors of Parent that would have rights to commence an
involuntary bankruptcy proceeding against Parent. The sole remedy of the holders
of the Preferred Stock in the event that Parent fails to effect the mandatory
redemption would be the election of majority of Parent's Board of Directors. See
'Description of Preferred Stock -- Mandatory Redemption.'
RESTRICTIONS ON DIVIDENDS AND REPURCHASES OF CAPITAL STOCK
The holders of Preferred Stock will not be entitled to receive dividends,
and no dividends will accrue, on the Preferred Stock, until March 1, 2003. In
addition, under Delaware law, Parent is permitted to pay dividends on its
capital stock, including the Preferred Stock, only out of its surplus or, in the
event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, Parent must have surplus or net profits equal to the full
amount of the cash dividend at the time such dividend is declared. Although
Delaware law permits a board of directors to re-value a company's assets and
liabilities in accordance with their fair market value in order to create
surplus from which to pay dividends, Parent cannot predict what the future fair
market value of its assets and
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liabilities will be. Therefore, there can be no assurance that Parent will be
able to pay cash dividends in the future.
If Exchange Debentures are issued, the Exchange Debenture Indenture will
restrict, among other things, Parent's ability to pay dividends or make certain
other restricted payments, including the payment of cash dividends on or the
redemption of its capital stock.
RANKING OF THE PREFERRED STOCK; SUBORDINATION OF EXCHANGE DEBENTURES
The Preferred Stock ranks junior in right of payment to all existing and
future liabilities and obligations of Parent (other than any obligations with
respect to Junior Securities (as defined herein)). All claims of the Preferred
Stock, including without limitation, claims with respect to dividend payments,
redemption payments, mandatory purchase payments or rights upon liquidation,
winding-up or dissolution, rank junior to the holders of any debt of Parent or
all other creditors of Parent, including under Parent's guarantee of the
Company's obligations under the New Credit Agreement and the Notes. As of
February 28, 1998, Parent, after giving effect to the Acquisition, had no
Indebtedness outstanding, other than its guarantees of the $385.0 million of
borrowings under the New Credit Agreement and $220.0 million of the Notes.
The Exchange Debentures, if issued, will be general unsecured obligations
of Parent, subordinated in right of payment to all existing and future Senior
Indebtedness of Parent, including its guarantee of the Company's obligations
under the New Credit Agreement and the Notes. In the event of a bankruptcy,
liquidation or reorganization of Parent, or in the event that any default in
payment of any debt constituting Senior Indebtedness of Parent occurs, holders
of Senior Indebtedness will be entitled to payment in full from the proceeds of
all assets of Parent prior to any payment of such proceeds to holders of
Exchange Debentures. Sufficient assets may not remain to pay amounts due on any
or all of the Exchange Debentures then outstanding. In addition, upon the
occurrence of payment defaults in respect of certain Senior Indebtedness, Parent
will be prohibited from making any payments in respect of the Exchange
Debentures under certain circumstances.
In addition, the Exchange Debentures, if issued, will be effectively
subordinated to all secured obligations of Parent to the extent of the assets
securing such obligations. Following consummation of the Acquisition, Parent's
sole asset will be the capital stock of the Issuer, all of which will be pledged
to the lenders under the New Credit Agreement.
The Preferred Stock is, and the Exchange Debentures, if issued, will be,
structurally subordinated to all obligations (including trade payables and
accrued liabilities) of Parent's subsidiaries. See ' -- Holding Company
Structure; Dependence Upon Cash Flow from Subsidiaries.'
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE PREFERRED STOCK AND THE
EXCHANGE DEBENTURES; POTENTIAL FOR ORIGINAL ISSUE DISCOUNT
If the redemption price of the Preferred Stock exceeds its issue price by
more than a de minimis amount, such excess may be treated as a constructive
distribution with respect to the Preferred Stock of additional stock over the
term of the Preferred Stock using a constant yield method similar to that used
for accruing original issue discount.
Parent may, at its option and under certain circumstances, issue Exchange
Debentures in exchange for the Preferred Stock. Any such exchange will be a
taxable event to holders of the Preferred Stock. Furthermore, the Exchange
Debentures may in certain circumstances be treated as having been issued with
original issue discount ('OID') for federal income tax purposes. In such event,
holders of Exchange Debentures will be required to include such OID (as ordinary
income) in income over the life of the Exchange Debentures, in advance of the
receipt of the cash attributable to such income.
CYCLICALITY OF MARKETS
Certain industries in which the Company competes are highly cyclical and
can be affected by the strength of the economy generally. In particular, the
Company's automotive and construction equipment businesses depend, in large
part, on the overall strength of demand for light trucks, passenger cars,
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forklifts and wheel tractor scrapers. There can be no assurance that the
industries for which the Company supplies components will not experience
downturns in the future. An economic recession typically impacts substantially
leveraged companies such as the Company more than similarly situated companies
with less leverage. A decrease in overall demand for light trucks, passenger
cars, forklifts and wheel tractor scrapers could have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
RELIANCE ON PRINCIPAL CUSTOMERS; GOVERNMENT APPROVALS
Sales to the Company's three largest customers, Ford, GM and Caterpillar,
accounted for approximately 18.8%, 7.1% and 6.1%, respectively, of the Company's
net sales for Fiscal 1997. Although the Company has ongoing relationships with
Ford, GM and Caterpillar, there can be no assurance that sales to these
customers will continue at the same levels.
Ford has notified the Company that from December 1997 through March 1999,
it will no longer purchase certain product lines of the Company. These product
lines contributed approximately $19.4 million, or 2.1%, of the Company's net
sales for Fiscal 1997 (which represents 11.4% of the Company's sales to Ford in
Fiscal 1997). Although the Company believes that this revenue will be replaced
by new programs currently being implemented with other customers, there can be
no assurance that Ford or other customers will continue to purchase products for
the Company at current levels. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
Continuation of the Company's relationships with its principal customers is
dependent upon the customers' satisfaction with the price, quality and delivery
of the Company's products. While the Company believes its relationships with its
customers (including Ford) are satisfactory, if any of its principal customers
were to reduce substantially or discontinue its purchases from the Company, the
financial condition, results of operations or cash flows of the Company could be
materially adversely affected.
The Company manufactures certain products for U.S. government agencies
(including National Aeronautics and Space Administration ('NASA') and the U.S.
Department of Defense ('DOD')), many of which have concerns about doing business
with non-U.S. entities and some of which require the Company to maintain special
security clearance and other arrangements. Because the Company is controlled by
a non-U.S. citizen as a result of the Acquisition, it is required to enter into
additional special security clearance and other arrangements with the DOD. The
Company is currently in discussions with the DOD regarding the terms of the
special security clearance arrangements and a filing under the Exon-Florio
provisions of the Defense Production Act. There can be no assurance, however,
that the U.S. government will continue as a customer of the Company or will
continue to do business with the Company at its current level. Contracts funded,
directly or indirectly, by various agencies of the federal government that
require security clearance represented approximately 6% of the Company's net
sales for Fiscal 1997.
THE OEM SUPPLIER INDUSTRY
The Company's automotive business competes in the global OEM supplier
industry. The automotive industry is characterized by a small number of OEMs
that are able to exert considerable pressure on component and system suppliers
to reduce costs, improve quality and provide additional design and engineering
capabilities. In the past, OEMs have generally demanded and received price
reductions and measurable increases in quality by implementing competitive
selection processes, rating programs and various other arrangements. Also,
through increased partnering on platform work, OEMs have generally required
component and system suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. There can be no assurance that
future price reductions, increased quality standards or additional engineering
capabilities required by OEMs will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
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ENVIRONMENTAL MATTERS
Like companies involved in similar manufacturing businesses, the Company's
operations and properties are subject to extensive federal, state, local and
foreign environmental laws and regulations, including those concerning, among
other things, the treatment, storage and disposal of wastes, the investigation
and remediation of soil and groundwater affected by hazardous substances, the
discharge or emission of substances into the soil, water or air or otherwise
relating to environmental protection and various health and safety matters
(collectively and as amended, 'Environmental Laws'). Certain Environmental Laws,
such as the Comprehensive Environmental Response, Compensation, and Liability
Act, as amended ('CERCLA'), impose strict, retroactive and joint and several
liability upon persons responsible for releases of hazardous substances. Failure
to comply with such Environmental Laws can lead to the imposition of civil or
criminal penalties, injunctive relief and denial or loss of, or imposition of
significant restrictions on, environmental permits. In addition, the Company
could be subject to suit by third parties in connection with violations of or
liability under Environmental Laws. The Company currently is undertaking
remedial activities at a number of its facilities and properties, and has
received notices under CERCLA or analogous state laws of liability or potential
liability in connection with the disposal of material from the Company's
operations or former operations. See 'Business -- Environmental Matters.'
The Company's expenditures related to environmental matters have not had,
and are not currently expected to have, a material adverse effect on the
Company's financial condition, results of operations or cash flows. However, the
Environmental Laws under which the Company's facilities operate are numerous,
complicated and often ambiguous. Moreover, the Environmental Laws are constantly
changing, historically have become increasingly more stringent, and may be
applied retroactively. Accordingly, there can be no assurance that the Company
will not be required to make substantial additional expenditures to remain in or
to achieve compliance with Environmental Laws in the future or that any such
additional expenditures will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
COMPETITION
The Company operates in highly competitive industries. The Company competes
with major national and international manufacturers in each of its product
lines, and its competitors include customers of the Company, such as automotive
OEMs, many of which are significantly larger and have greater financial,
technical, marketing, distribution and other resources than the Company. The
Company competes with such other companies in different product lines to various
degrees on the basis of price, technical performance, product features, product
system compatibility, customized design, availability, quality and sales and
technical support. The Company's ability to compete successfully depends on
elements both within and outside of the Company's control, including its product
mix, successful and timely development of new technology, products and
manufacturing processes, product performance and quality, manufacturing yields
and product availability, customer service, pricing, industry trends and general
economic trends. The Company believes that its experience in product design and
development, design engineering and implementing cost reduction programs and
ability to control manufacturing and development costs should allow the
Company's products and prices to remain competitive. However, there can be no
assurance that the Company will be able to improve or maintain its sales or its
profit margins on sales to OEMs or other customers.
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
Certain industries in which the Company competes are subject to rapid
technological change resulting in the frequent introduction of new and
increasingly complex and powerful products, evolving industry standards, rapid
product obsolescence and price erosion, and fluctuations in end user demand. The
Company believes that its success depends, in part, on its ability to improve
its existing core products, to develop new products, to develop and implement
new technologies, to adapt products and processes to technological changes and
to adopt emerging industry standards. If the Company is not able to implement
new technologies or develop or introduce new products successfully, the Company
may lose its position as a market leader and its financial condition, results of
operations or cash flows
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may be adversely affected. The Company must continue to develop and introduce
new products that compete effectively on the basis of price and performance and
that satisfy customer requirements.
In order to attempt to anticipate its customers' needs and market trends,
the Company monitors technological changes in the various industries in which it
competes and works closely with certain of its customers to develop new
products. Because the development process can be time consuming, decisions to
undertake development must anticipate both future demand and changes in the
technology to supply such demand. There can be no assurance that the Company
will be able to identify new product opportunities or that the Company will be
able to develop and market new products successfully. Delays in developing new
products or achieving volume production of certain new products could have a
material adverse effect on the Company's financial condition, results of
operations or cash flows. In addition, there can be no assurance that such
products, if introduced, will gain market acceptance or that the Company will be
able to respond effectively to new technological changes or new product
announcements by others.
ACCESS TO RAW MATERIALS
Certain of the Company's manufacturing operations depend upon obtaining
adequate supplies of raw materials such as steel, rubber, germanium, gallium,
chemicals and gases and other inputs on a timely basis. The Company purchases
such raw materials and other inputs from a limited number of suppliers which the
Company believes to be reliable. The Company's financial condition, results of
operations or cash flows would be adversely affected if it were unable to obtain
adequate supplies of raw materials and other inputs in a timely manner or if
there were significant increases in the costs of raw materials and other inputs.
RELIANCE ON KEY MANAGEMENT AND PERSONNEL
The Company's success depends to a significant extent upon, among other
factors, its ability to continue to attract, retain and motivate qualified
personnel, including key senior executives and research and development,
engineering, marketing, sales, manufacturing, support and other personnel.
Although all of the key management employees have employment contracts with the
Company and own shares of common stock of Granaria Industries, there can be no
assurance that such individuals will remain employed with the Company. If, for
any reason, such key personnel do not continue to be active in the Company's
management, the Company's financial condition, results of operations or cash
flows could be adversely affected. The Company has no key man life insurance
policies with respect to any of its senior executives.
CONTROL BY PRINCIPAL SHAREHOLDERS
Granaria Holdings and LV Investment (the 'Shareholders') beneficially own
approximately 90% of the outstanding common stock of Parent and the Company.
Circumstances may occur in which the interests of the Shareholders could be in
conflict with the interests of the holders of the Securities. In particular, ABN
AMRO Bank, an affiliate of LV Investment, acted as agent and arranger for loan
facilities of $385 million under the New Credit Agreement. See 'Description of
New Credit Agreement.' If the Company encounters financial difficulties, or is
unable to pay certain of its debts as they mature, the interests of the
Shareholders (whether or not as holders of the Company's equity securities)
might conflict with those of the holders of the Securities. In addition, the
Shareholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders of
the Securities.
PLAN OF REORGANIZATION AND RELATED INJUNCTION
In January 1991, Eagle-Picher and seven of its U.S. subsidiaries
(collectively, the 'Eagle-Picher Group') filed voluntary petitions for
reorganization under the United States Bankruptcy Code, as amended (the
'Bankruptcy Code'). The Consolidated Plan of Reorganization (the 'Plan') of the
Eagle-Picher Group was jointly confirmed by an order (the 'Order') of the United
States Bankruptcy
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Court for the Southern District of Ohio (the 'Bankruptcy Court') and the United
States District Court for the Southern District of Ohio (the 'Ohio District
Court') in November 1996. A consolidated appeal of the Order (the 'Appeal') is
currently pending before the United States Circuit Court for the Sixth Circuit
(the 'Sixth Circuit'); however, the Order was not stayed pending the Appeal and
the Plan was consummated and, commencing on November 29, 1996, distributions
were made pursuant to the Plan. See 'Business -- Plan of Reorganization and
Related Injunction.'
Among other things, the Plan discharges all past, present and future
asbestos-related and lead-related claims against Eagle-Picher and the
Eagle-Picher Group arising out of business operations prior to the date of the
bankruptcy petitions by (i) requiring the establishment of the Trust and of a
separate Eagle-Picher Industries, Inc. Property Damage Settlement Trust (the 'PD
Trust'), (ii) contributing to the Trust assets valued at approximately $730.0
million in the aggregate, consisting of $51.3 million in cash, $250.0 million in
10% Debentures, $69.1 million in Tax Refund Notes (as defined herein), $18.1
million in Divestiture Notes (as defined herein) and 10 million shares of Common
Stock (representing all outstanding shares of Common Stock), and an escrow of
$3.0 million in cash for use in funding the PD Trust once it is established and
(iii) imposing injunctions (collectively, the 'Injunction') prohibiting the
assertion of any asbestos-related and lead-related claims against Eagle-Picher
and the Eagle-Picher Group and directing that such claims be asserted only
against the Trust or the PD Trust. See 'Business -- Plan of Reorganization and
Related Injunction.'
Although the Injunction has not, to the Company's knowledge, been the
subject of any filed legal challenges (other than the Appeal), it is possible
that one or more components of the Injunction could be vacated, modified or
restricted in applicability pursuant to the Appeal or otherwise. The Company
believes that the Injunction is critical to its ability to continue to operate
its business. See 'Business -- Plan of Reorganization and Related Injunction.'
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Parent will be required to make
an offer to purchase all of the outstanding shares of Preferred Stock at 101% of
the liquidation preference at such time, together with accumulated and unpaid
dividends, if any, to the date of purchase or, if issued, all of the outstanding
Exchange Debentures at 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. There can be no assurance that
Parent will have sufficient funds available, will be able to raise sufficient
funds through a refinancing of the Preferred Stock or, if issued, the Exchange
Debentures, or will be permitted by its other debt agreements (including the New
Credit Agreement and the Notes Indenture) to purchase the Preferred Stock or, if
issued, the Exchange Debentures, upon the occurrence of a Change of Control. In
addition, the occurrence of a Change of Control may require Parent and its
subsidiaries to offer to purchase other outstanding indebtedness and may cause a
default under the New Credit Agreement and the Notes Indenture. The inability to
purchase all of the tendered Preferred Stock or, if issued, the Exchange
Debentures would constitute an Early Mandatory Redemption Event under the
Certificate or an Event of Default under the Exchange Debentures Indenture,
respectively. See ' -- Holding Company Structure; Dependence Upon Cash Flow from
Subsidiaries,' ' -- Restrictions on Dividends and Repurchases of Capital Stock'
and 'Description of Preferred Stock -- Change of Control.'
ABSENCE OF PUBLIC MARKET
The Preferred Stock is a new security for which there is no existing
market. There can be no assurance as to the liquidity of any markets that may
develop for the Preferred Stock, the ability of the holders of the Preferred
Stock to sell their Preferred Stock or the price at which holders would be able
to sell their Preferred Stock. Future trading prices of the Preferred Stock will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results, and the market for similar securities.
The Company and Parent do not intend to apply for listing of the Preferred Stock
on any securities exchange.
The liquidity of, and trading market for, the Preferred Stock may also be
materially and adversely affected by declines in the market for high yield
securities generally. Such a decline may materially and
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adversely affect such liquidity and trading independent of the financial
performance of, and prospects for, Parent and its subsidiaries.
CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Series B Preferred Stock in exchange for the Series A
Preferred Stock pursuant to the Preferred Stock Exchange Offer will be made only
after a timely receipt by Parent of such Series A Preferred Stock, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Series A Preferred Stock desiring to tender
such Series A Preferred Stock in exchange for Series B Preferred Stock should
allow sufficient time to ensure timely delivery. Parent is under no duty to give
notification of defects or irregularities with respect to the tenders of Series
A Preferred Stock for exchange.
Holders of Series A Preferred Stock who do not exchange their Series A
Preferred Stock for Series B Preferred Stock pursuant to the Preferred Stock
Exchange Offer, including holders of Series A Preferred Stock whose Series A
Preferred Stock is tendered but not accepted, will continue to be subject to the
restrictions on transfer of such Series A Preferred Stock as set forth in the
legend thereon and, except in certain limited circumstances, will no longer have
any registration rights with respect to the Series A Preferred Stock. In
general, the Series A Preferred Stock may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Series
A Preferred Stock under the Securities Act. Series B Preferred Stock issued
pursuant to the Preferred Stock Exchange Offer in exchange for Series A
Preferred Stock may be offered for resale, resold or otherwise transferred by
Holders thereof (other than Restricted Holders or Participating Broker-Dealers)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Holder represents, among other things,
such Holder is not an 'affiliate' of Parent (as defined in Rule 405 of the
Securities Act), that such Series B Preferred Stock is acquired in the ordinary
course of such Holder's business and that such Holder is not engaged in, and
does not intend to engage in, and has no arrangement or understanding with any
person to participate in, the distribution of such Series B Preferred Stock. Any
Holder unable to make such representations will not be able to participate in
the Preferred Stock Exchange Offer and may only sell its Series A Preferred
Stock pursuant to a registration statement and prospectus meeting the
requirements of the Securities Act or pursuant to an exemption from the
registration requirement of the Securities Act.
Any Participating Broker-Dealer that receives Series B Preferred Stock for
its own account in exchange for Series A Preferred Stock, where such Series A
Preferred Stock was acquired by such broker or dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Series B
Preferred Stock. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with the resale of Series B
Preferred Stock received in exchange for Series A Preferred Stock where such
Series A Preferred Stock was acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities. Parent has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See 'Plan of Distribution.' This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Series B Preferred Stock received in
exchange for Series A Preferred Stock where such Series A Preferred Stock was
acquired by such broker-dealer as a result of market-making activities or other
trading activities. Parent has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.' However, to
comply with the securities laws of certain jurisdictions, if applicable, the
Series B Preferred Stock may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. To the extent
that Series A Preferred
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Stock is tendered and accepted in the Preferred Stock Exchange Offer, the
trading market for untendered and tendered but unaccepted Series A Preferred
Stock will be adversely affected.
FORWARD-LOOKING STATEMENTS
Certain information included in this Prospectus is forward-looking,
including statements contained in 'Summary,' 'Risk Factors,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' and includes statements regarding the intent, belief and current
expectations of the Company and Parent and their directors and officers. Such
forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, Parent or the Company.
These risks and uncertainties include, but are not limited to, the ability of
the Company to maintain existing relationships with long-standing customers, the
ability of the Company to successfully implement productivity improvements, cost
reduction initiatives, facilities expansion and the ability of the Company and
Parent to develop, market and sell new products and to continue to comply with
environmental laws, rules and regulations. Other risks and uncertainties include
uncertainties relating to economic conditions, acquisitions and divestitures,
government and regulatory policies, technological developments and changes in
the competitive environment in which Parent and the Company operate. Persons
reading this Prospectus are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, readers should specifically consider the various factors which could
cause actual events or results to differ materially from those indicated by such
forward-looking statements, including those discussed in 'Risk Factors.'
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COMPANY HISTORY
The Company was founded in Cincinnati in 1843 and was incorporated in 1867
under the laws of the State of Ohio. The Company evolved into a diversified
manufacturer of industrial products, a small portion of which included
asbestos-containing insulating cements. In 1971, the Company made the management
decision to discontinue operations relating to such products, and ceased
production and sale of such products in August of that year, except for filling
a few special orders until April 1972. In January 1991, the Eagle-Picher Group
filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code in the Bankruptcy Court. The filings were precipitated primarily by costs
and expenses resulting from litigation arising out of the Eagle-Picher Group's
previous asbestos-related business operations. In connection with the bankruptcy
proceedings and pursuant to the Plan, which was confirmed by the Bankruptcy
Court and the Ohio District Court in November 1996, all of the outstanding
shares of Common Stock were transferred to the Trust on November 29, 1996. See
'Risk Factors -- Plan of Reorganization and Related Injunction;'
'Business -- Plan of Reorganization and Related Injunction.'
THE ACQUISITION
On February 24, 1998, the Company was acquired by Granaria Industries from
the Trust. The Acquisition was effected pursuant to the Merger Agreement, in
accordance with which, among other things, the Issuer was merged into the
Company, with the Company continuing as the surviving corporation.
Granaria Industries, which owns all of the voting stock of Parent, is
controlled by Granaria Holdings B.V., a private Dutch company ('Granaria
Holdings'). See 'Security Ownership and Certain Beneficial Owners and Management
of Parent.' Granaria Holdings is a Netherlands-based food processing and
investment company, which was founded in 1912 by Louis Wyler. Granaria Holdings'
food processing division, which processes and distributes nuts and dried fruits,
portion pack and partly-baked bread from its manufacturing facilities in The
Netherlands, France, Poland and Russia, has annual net sales in excess of $200.0
million. Granaria Holdings' investment portfolio includes real estate
investments in The Netherlands, the United Kingdom and the U.S., and minority
holdings in special situation funds and private companies. The principal owner
of Granaria Holdings is the Wyler family of The Netherlands.
At the Closing the following occurred: (i) the Equity Investment was
contributed to Parent by Granaria Industries and LV Investment; (ii) Parent
received gross proceeds of approximately $80.0 million from the Preferred Stock
Offering; (iii) Parent contributed to the Issuer in the form of common equity
approximately $180.0 million comprising the Equity Investment and all of the
proceeds of the Preferred Stock Offering; (iv) the Issuer borrowed $225.0
million in term loans and $79.1 million in revolving loans under the New Credit
Agreement and completed the Notes Offering; (v) the Company (a) terminated the
PNC Credit Facility (under which there was no outstanding indebtedness at
Closing) and (b) redeemed 660,000 shares of Common Stock from the Trust for the
Redemption Amount; and (vi) the Issuer was merged into the Company. See
'Security Ownership and Certain Beneficial Owners and Management of Parent.' As
a result of these transactions, the Company became a wholly-owned subsidiary of
Parent and assumed all of the obligations and liabilities of the Issuer,
including the Issuer's obligations and liabilities under the Old Notes, the
Indenture, the Registration Rights Agreement and the New Credit Agreement.
Simultaneously with the Effective Time, the Company paid the total outstanding
amount under the 10% Debentures. In connection with the Acquisition, the Trust
waived the prepayment penalty on the 10% Debentures.
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The following table sets forth the approximate cash sources and uses of
funds, including the application of the proceeds therefrom, at the Effective
Time.
<TABLE>
<CAPTION>
SOURCES OF FUNDS(A)
(DOLLARS IN MILLIONS)
<S> <C>
New Credit Agreement:
Revolving Credit Facility(B)................ $ 79.1
Term Loans.................................. 225.0
Senior Subordinated Notes(C).................. 219.6
Equity Contribution(D)........................ 180.0
Cash.......................................... 39.5
------
Total............................... $743.2
------
------
<CAPTION>
USES OF FUNDS(A)
(DOLLARS IN MILLIONS)
<S> <C>
Merger Consideration(E)....................... $417.6
Repayment of Existing Indebtedness(F)......... 255.9
Common Stock Redemption(G).................... 29.0
Estimated Transaction Fees and Expenses(H).... 27.8
Management Compensation(I).................... 12.9
------
Total............................... $743.2
------
------
</TABLE>
- ------------
(A) Sources and uses of funds are based on (i) the borrowings of debt
outstanding under the Company's existing credit facilities on the Closing
Date and (ii) the purchase price paid for the Company in connection with
the Acquisition.
(B) Immediately following the Acquisition, the Company borrowed approximately
$28.6 million under the revolving credit facility under the New Credit
Agreement for use as credit support in the form of letters of credit,
leaving approximately $52.3 million available for additional borrowings
under such facility.
(C) Includes original issue discount of $0.4 million.
(D) Parent funded the Equity Contribution from the Equity Investment and the
Preferred Stock Offering (the fees and expenses of which were paid by the
Company).
(E) Merger Consideration represents the sum of (i) $410.0 million and (ii) an
additional amount equal to 8.0% on an annual basis on $410.0 million from
December 1, 1997 up to and including the Closing Date.
(F) Consists of payment of $250.0 million principal amount due under the
Company's 10% Debentures and $5.9 million of interest accrued on the 10%
Debentures from December 1, 1997 up to and including the Closing Date.
(G) The Company redeemed 660,000 shares of Common Stock immediately prior to
the Effective Time.
(H) Approximately $27.8 million in transaction fees and expenses (including an
amount equal to approximately 1% of the transaction value payable to
Granaria Holdings) was paid on the Closing Date. This amount includes
approximately $2.6 million in fees and expenses of Parent related to the
Preferred Stock Offering.
(I) Following the Acquisition, the Company paid approximately $10.0 million to
the E-P Management Trust and $2.9 million for the related tax obligation.
The E-P Management Trust used the $10.0 million to satisfy a loan from
Granaria Holdings, the proceeds of which were used by the E-P Management
Trust to acquire 16% of the common stock of Granaria Industries. See
'Executive Compensation -- Compensation to Senior Management.' In March
1998, the Company made additional payments to certain members of senior
management of the Company shortly after the Acquisition in the amount of
approximately $7.6 million, which consists of $2.7 million in stay-put
bonuses and $4.9 million in sales incentive bonuses under the STSP. Such
amounts will be reflected in the Company's consolidated financial
statements in the second quarter of 1998.
USE OF PROCEEDS
There will be no proceeds to the Company from any exchange pursuant to the
Exchange Offers.
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THE PREFERRED STOCK EXCHANGE OFFER
PURPOSE AND EFFECT OF THE PREFERRED STOCK EXCHANGE OFFER
The Series A Preferred Stock was sold by Parent on February 24, 1998 to SBC
Warburg Dillon Read Inc. and ABN AMRO Incorporated (together, the 'Initial
Purchasers'), who resold the Series A Preferred Stock to 'qualified
institutional buyers' (as defined in Rule 144A under the Securities Act) in
reliance upon Rule 144A under the Securities Act. In connection therewith,
Parent and the Initial Purchasers entered into the Registration Rights
Agreement.
The Registration Rights Agreement requires that, among other things, as
soon as practicable within 45 days following the original issuance of the Series
A Preferred Stock, Parent file with the Commission a Registration Statement (the
'Preferred Stock Exchange Offer Registration Statement,' of which this
Prospectus is a part) under the Securities Act with respect to an issue of new
preferred stock of Parent identical in all material respects to the Series A
Preferred Stock, use its best efforts to cause such Preferred Stock Exchange
Offer Registration Statement to be declared effective by the Commission under
the Securities Act on or prior to 90 days after the issuance of the Series A
Preferred Stock and, upon the effectiveness of the Preferred Stock Exchange
Offer Registration Statement, offer to the Holders of the Series A Preferred
Stock the opportunity to exchange their Series A Preferred Stock for an equal
number of shares of Series B Preferred Stock, to be issued without a legend
restricting their transfer and which may, subject to certain exceptions
described below, be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Preferred Stock Exchange Offer
Registration Statement. The term 'Holder' with respect to any Note means any
person in whose name such Note is registered on the books of the Company.
Each Holder desiring to participate in the Preferred Stock Exchange Offer
will be required to represent, among other things, that (i) it is not an
'affiliate' (as defined in Rule 405 of the Securities Act) of Parent (ii) it is
not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Series B
Preferred Stock and (iii) it is acquiring the Series B Preferred Stock in the
ordinary course of its business (a Holder unable to make the foregoing
representation is referred to as a 'Restricted Holder'). A Restricted Holder
will not be able to participate in the Preferred Stock Exchange Offer and may
only sell its Series A Preferred Stock pursuant to a registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K under the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the Series
B Preferred Stock issued pursuant to the Preferred Stock Exchange Offer may be
offered for resale, resold and otherwise transferred by any holder of such
Series B Preferred Stock (other than Restricted Holders or Participating
Broker-Dealers) without compliance with the registration and prospectus delivery
provisions of the Securities Act. Any Holder who tenders in the Preferred Stock
Exchange Offer for the purpose of participating in a distribution of the Series
B Preferred Stock cannot rely on the staff position enunciated in the no-action
letters issued to third parties referred to above and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Series B Preferred Stock. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
Based upon interpretations by the staff of the Commission, the Company believes
that Series B Preferred Stock issued pursuant to the Preferred Stock Exchange
Offer to Participating Broker-Dealers may be offered for resale, resold and
otherwise transferred by a Participating Broker-Dealer upon compliance with the
prospectus delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-dealer in
connection with resales of Series B Preferred Stock received in exchange for
Series A Preferred Stock where such Series A Preferred Stock was acquired as a
result of market-
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making activities or other trading activities. Parent has agreed that, for a
period of 180 days after the date the Preferred Stock Exchange Offer
Registration Statement is declared effective by the Commission, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. By acceptance of this Preffered Stock Exchange Offer, each
broker-dealer that receives Series B Preferred Stock pursuant to the Preferred
Stock Exchange Offer agrees to notify Parent prior to using this Prospectus in
connection with the sale or transfer of Series B Preferred Stock. See 'Plan of
Distribution.'
As a result of the filing and the effectiveness of the Preferred Stock
Exchange Offer Registration Statement and the consummation of the Preferred
Stock Exchange Offer, the Series A Preferred Stock will no longer be subject to
Special Accretions, which would be added to its Liquidation Preference in
certain circumstances. The Series A Preferred Stock was issued to a limited
number of institutional investors on February 24, 1998 and there is no public
market for them at present. To the extent Series A Preferred Stock is tendered
and accepted in the exchange, the principal amount of outstanding Series A
Preferred Stock will decrease with a resulting decrease in the liquidity in the
market therefor. Following the consummation of the Preferred Stock Exchange
Offer, holders of Series A Preferred Stock will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Series A Preferred Stock could be adversely affected.
The Registration Rights Agreement provides that if (i) Parent is not
required to file the Preferred Stock Exchange Offer Registration Statement
because the Preferred Stock Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any holder of Transfer Restricted Securities (as
defined herein) notifies Parent within 20 days after the commencement of the
Preferred Stock Exchange Offer that (a) it is prohibited by law or Commission
policy from participating in the Preferred Stock Exchange Offer or (b) it may
not resell the Series B Preferred Stock acquired by it in the Preferred Stock
Exchange Offer to the public without delivering a prospectus, and the Prospectus
contained in the Preferred Stock Exchange Offer Registration Statement is not
appropriate or available for such resales or (c) it is a broker-dealer and holds
Series A Preferred Stock acquired directly from Parent or an affiliate of
Parent, Parent will file with the Commission a shelf registration statement (the
'Shelf Registration Statement') to cover resales of the Preferred Stock by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. For purposes of
the foregoing, 'Transfer Restricted Securities' means each share of Series A
Preferred Stock or Series B Preferred Stock until (i) the date on which such
Series A Preferred Stock has been exchanged by a person other than a
broker-dealer for Series B Preferred Stock in the Preferred Stock Exchange
Offer, (ii) following the exchange by a broker-dealer in the Preferred Stock
Exchange Offer of Series A Preferred Stock for Series B Preferred Stock, the
date on which such Series B Preferred Stock is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Preferred Stock Exchange Offer Registration
Statement, (iii) the date on which such Series A Preferred Stock has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Series A
Preferred Stock could be resold pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that if (a) Parent fails to file
within 45 days of the Issue Date, or cause to become effective within 90 days of
the Issue Date, the Preferred Stock Exchange Offer Registration Statement or (b)
Parent is obligated to file the Shelf Registration Statement and such Shelf
Registration Statement is not filed within 45 days, or declared effective within
90 days, of the date on which Parent became so obligated or (c) Parent fails to
consummate the Preferred Stock Exchange Offer within 45 days of the Preferred
Stock Exchange Offer Effective Date or (d) the Shelf Registration Statement or
the Preferred Stock Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
'Registration Default'), from and including the date on which any such
Registration Default shall occur to but excluding the date on which any such
Registration Defaults have been cured, the then current Accretion Rate on the
Liquidation Preference per share of Preferred Stock will be increased by 0.25%
per annum during the 90-day period immediately following the occurrence of any
Registration Default and by 0.25% per annum at the end of each subsequent 90-day
period
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<PAGE>
('Special Accretion'); provided that the Accretion Rate will in no event be
increased by more than 1.5% per annum in the aggregate as a result of any
Registration Default or Registration Defaults.
TERMS OF THE PREFERRED STOCK EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Parent will accept any and all Series A
Preferred Stock validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. As of the date of this Prospectus, 14,191
shares of Series A Preferred Stock are outstanding. Parent will issue one share
of Series B Preferred Stock in exchange for each share of Series A Preferred
Stock accepted in the Preferred Stock Exchange Offer. Holders may tender some or
all of their Series A Preferred Stock pursuant to the Preferred Stock Exchange
Offer.
The form and terms of the Series B Preferred Stock will be identical in all
material respects to the form and terms of the Series A Preferred Stock, except
that the Series B Preferred Stock has been registered under the Securities Act
and therefore will not bear legends restricting the transfer thereof. The Series
B Preferred Stock will be entitled to the benefits of the Certificate under
which the Series A Preferred Stock was, and the Series B Preferred Stock will
be, issued.
Holders of the Series A Preferred Stock do not have any appraisal or
dissenters' rights under law or the Certificate in connection with the Preferred
Stock Exchange Offer. Parent intends to conduct the Preferred Stock Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder.
Parent shall be deemed to have accepted validly tendered Series A Preferred
Stock when, as and if Parent has given oral (promptly confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purpose of receiving the Series B
Preferred Stock from Parent.
If any tendered Series A Preferred Stock is not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Series A Preferred
Stock will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Series A Preferred Stock in the Preferred Stock Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Series A Preferred Stock pursuant to the Preferred Stock
Exchange Offer. Parent will pay all charges and expenses, other than certain
applicable taxes, in connection with the Preferred Stock Exchange Offer. See
' -- Fees and Expenses.'
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' means 5:00 p.m., New York City time, on July 10,
1998, unless Parent, in its sole discretion, extends the Preferred Stock
Exchange Offer, in which case the term 'Expiration Date' shall mean the
latest date and time to which the Preferred Stock Exchange Offer is extended.
In order to extend the Preferred Stock Exchange Offer, Parent will notify
the Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date unless
otherwise required by applicable law or regulation.
Parent reserves the right, in its reasonable discretion, (i) to delay
accepting any Series A Preferred Stock, to extend the Preferred Stock Exchange
Offer or, if any of the conditions set forth below under 'Conditions' shall not
have been satisfied, to terminate the Preferred Stock Exchange Offer, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, or (ii) to amend the terms of the Preferred Stock Exchange Offer in any
manner. Any such delay in acceptance,
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extension, termination or amendment will be followed as promptly as practicable
by a public announcement thereof. If the Preferred Stock Exchange Offer is
amended in a manner determined by Parent to constitute a material change, Parent
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the registered holders, and Parent will extend the
Preferred Stock Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Preferred Stock Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which Parent may choose to make public
announcement of any delay, extension, termination or amendment of the Preferred
Stock Exchange Offer, Parent shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a Holder of Series A Preferred Stock may tender such Series A
Preferred Stock in the Preferred Stock Exchange Offer. To tender in the
Preferred Stock Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Series A Preferred
Stock (or a confirmation of an appropriate book-entry transfer into the Exchange
Agent's account at The Depository Trust Company ('DTC' or the 'Depositary') (as
described below)) and any other required documents, to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Series A Preferred Stock (or a timely confirmation of a
book-entry transfer of such Series A Preferred Stock into the Exchange Agent's
account at DTC as described below), Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under 'Exchange Agent' prior to 5:00 p.m., New York City time, on the Expiration
Date.
The tender by a holder will constitute an agreement between such holder and
Parent in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The Exchange Agent has established an account with respect to the Series A
Preferred Stock at DTC, and any financial institution which is a participant in
DTC may make book-entry delivery of the Series A Preferred Stock by causing DTC
to transfer such Series A Preferred Stock into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Series A
Preferred Stock may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal, with any required signature
guarantees and any other required documents, must in any case be transmitted to
and received by the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date at one of its addresses set forth below under 'Exchange
Agent', or the guaranteed delivery procedure described below must be complied
with. Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the Exchange Agent. All references in this Prospectus to
deposit or delivery of Series A Preferred Stock shall be deemed to include DTC's
book-entry delivery method.
The method of delivery of Series A Preferred Stock and the Letter of
Transmittal and all other required documents to the Exchange Agent, including
delivery through DTC, is at the election and risk of the holder. Instead of
delivery by mail, it is recommended that Holders use an overnight or hand
delivery service. If Series A Preferred Stock is sent by mail, registered mail
with return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent
before the Expiration Date. No Letter of Transmittal or Series A Preferred Stock
should be sent to Parent.
Holders may request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose Series A Preferred Stock is registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to
31
<PAGE>
<PAGE>
completing and executing the Letter of Transmittal and delivering such owner's
Series A Preferred Stock, either make appropriate arrangements to register
ownership of the Series A Preferred Stock in such owner's name or obtain a
properly completed stock power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Series A Preferred Stock tendered pursuant thereto is tendered (i) by
a registered holder who has not completed the box entitled 'Special Issuance
Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 under the Exchange Act (an 'Eligible Institution').
If the Letter of Transmittal or any Series A Preferred Stock or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by Parent, proper evidence satisfactory to Parent of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series A Preferred Stock will be
determined by Parent in its sole discretion, which determination will be final
and binding. Parent reserves the absolute right to reject any and all Series A
Preferred Stock not properly tendered or any Series A Preferred Stock Parent's
acceptance of which would, in the opinion of counsel for Parent, be unlawful.
Parent also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Series A Preferred Stock. Parent's
interpretation of the terms and conditions of the Preferred Stock Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Preferred Stock must be cured within such
time as Parent shall determine. Although Parent intends to notify holders of
defects or irregularities with respect to tenders of Series A Preferred Stock,
neither Parent, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of Series A Preferred
Stock will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Series A Preferred Stock received by the Exchange
Agent that is not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders (or, in the case of Series A Preferred Stock
delivered by book-entry transfer within DTC, will be credited to the account
maintained within DTC by the participant in DTC which delivered such Series A
Preferred Stock), unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, Parent reserves the right in its sole discretion to purchase
or make offers for any Series A Preferred Stock that remains outstanding
subsequent to the Expiration Date or, as set forth below under 'Conditions,' to
terminate the Preferred Stock Exchange Offer and, to the extent permitted by
applicable law, purchase Series A Preferred Stock in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the Preferred Stock Exchange Offer.
By tendering, each Holder will represent to the Company that, among other
things, such Holder is not a Restricted Holder. In addition, each Participating
Broker-Dealer must acknowledge that it will deliver a prospectus in connection
with any resale of Series B Preferred Stock. See 'Plan of Distribution.'
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Series A Preferred Stock at the Depositary promptly
after the date of this Prospectus, and any financial
32
<PAGE>
<PAGE>
institution that is a participant in the Depositary and whose name appears on a
security position listing as the owner of Series A Preferred Stock may make a
book-entry tender of Series A Preferred Stock by causing the Depositary to
transfer such Series A Preferred Stock into the Exchange Agent's account in
accordance with the Depositary's procedures for such transfer. However, although
tender of Series A Preferred Stock may be effected through book-entry transfer
into the Exchange Agent's account at the Depositary, the Letter of Transmittal
(or a manually-signed facsimile thereof), properly completed and validly
executed, with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other required documents, must, in any
case, be received by the Exchange Agent at its address set forth below under the
caption 'Exchange Agent' on or prior to the Expiration Date, or the guaranteed
delivery procedures described below must be complied with. The confirmation of
book-entry transfer of Series A Preferred Stock into the Exchange Agent's
account at the Depositary as described above is referred to herein as a
'Book-Entry Confirmation.' Delivery of documents to the Depositary in accordance
with the Depositary's procedures does not constitute delivery to the Exchange
Agent.
The term 'Agent's Message' means a message transmitted by the Depositary
to, and received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that the Depositary has received an express
acknowledgment from the participant in the Depositary tendering Series A
Preferred Stock stating (i) the number of shares of Series A Preferred Stock
which have been tendered by such participant, (ii) that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
(iii) that Parent may enforce such agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Preferred Stock and (i) whose
Series A Preferred Stock is not immediately available or (ii) who cannot deliver
their Series A Preferred Stock (or a confirmation of book-entry transfer of
Series A Preferred Stock into the Exchange Agent's account at DTC), the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of such Series A Preferred
Stock and the number of shares of Series A Preferred Stock tendered,
stating that the tender is being made thereby and guaranteeing that, within
three (3) New York Stock Exchange, Inc. trading days after the Expiration
Date, a duly executed Letter of Transmittal (or facsimile thereof) together
with the Series A Preferred Stock (or a confirmation of book-entry transfer
of such Series A Preferred Stock into the Exchange Agent's account at DTC),
and any other documents required by the Letter of Transmittal and the
instructions thereto, will be deposited by such Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), and all tendered Series A Preferred Stock in proper
form for transfer (or a confirmation of book-entry transfer of such Series
A Preferred Stock into the Exchange Agent's account at DTC) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within three (3) New York Stock Exchange, Inc. trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Preferred Stock according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Preferred Stock
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
33
<PAGE>
<PAGE>
To withdraw a tender of Series A Preferred Stock in the Preferred Stock
Exchange Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m.. New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Series A Preferred
Stock to be withdrawn (the 'Depositor'), (ii) identify the Series A Preferred
Stock to be withdrawn (including the certificate number or numbers and number of
shares of such Series A Preferred Stock). (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
Series A Preferred Stock were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Series A Preferred Stock register the transfer of
such Series A Preferred Stock into the name of the person withdrawing the tender
and (iv) specify the name in which any such Series A Preferred Stock is to be
registered, if different from that of the Depositor. If the Series A Preferred
Stock has been delivered pursuant to the book-entry procedure set forth above
under ' -- Procedures for Tendering,' any notice of withdrawal must specify the
name and number of the participant's account at DTC to be credited with the
withdrawn Series A Preferred Stock. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
Parent in its sole discretion, which determination shall be final and binding on
all parties. Any Series A Preferred Stock so withdrawn will be deemed not to
have been validly tendered for purposes of the Preferred Stock Exchange Offer
and no Series B Preferred Stock will be issued with respect thereto unless the
Series A Preferred Stock so withdrawn is validly retendered. Properly withdrawn
Series A Preferred Stock may be retendered by following one of the procedures
described above under ' -- Procedures for Tendering' at any time prior to the
Expiration Date.
Any Series A Preferred Stock which is tendered but which is not accepted
due to withdrawal, rejection of tender or termination of the Preferred Stock
Exchange Offer will be returned as soon as practicable to the holder thereof
without cost to such holder (or, in the case of Series A Preferred Stock
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Series A Preferred Stock will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes).
CONDITIONS
Notwithstanding any other term of the Preferred Stock Exchange Offer,
Parent shall not be required to accept for exchange, or exchange Series B
Preferred Stock for, any Series A Preferred Stock, and may terminate the
Preferred Stock Exchange Offer as provided herein before the acceptance of such
Series A Preferred Stock, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Preferred Stock
Exchange Offer which, in the reasonable judgment of Parent, might
materially impair the ability of Parent to proceed with the Preferred Stock
Exchange Offer or materially impair the contemplated benefits of the
Preferred Stock Exchange Offer to Parent, or any material adverse
development has occurred in any existing action or proceeding with respect
to Parent or any of its subsidiaries, or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of Parent or any of its subsidiaries has
occurred which, in the reasonable judgment of Parent, might materially
impair the ability of Parent to proceed with the Preferred Stock Exchange
Offer or materially impair the contemplated benefits of the Preferred Stock
Exchange Offer to Parent; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the reasonable judgment of Parent, might materially
impair the ability of Parent to proceed with the Preferred Stock Exchange
Offer or materially impair the contemplated benefits of the Preferred Stock
Exchange Offer to Parent; or
(d) there shall have occurred (i) any general suspension of trading
in, or general limitation on prices for, securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to Parent or the
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<PAGE>
Company or (iii) a commencement of war, armed hostilities or other similar
international calamity directly or indirectly involving the United States;
or, in the case any of the foregoing exists at the time of commencement of
the Preferred Stock Exchange Offer, a material acceleration or worsening
thereof; or
(e) any governmental approval has not been obtained, which approval
Parent shall in its reasonable judgment, deem necessary, for the
consummation of the Preferred Stock Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of Parent and may be
asserted by Parent regardless of the circumstances giving rise to any such
condition or may be waived by Parent in whole or in part at any time and from
time to time in its reasonable discretion. The failure by Parent at any time to
exercise any of the foregoing rights shall not be deemed a waiver of such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
If Parent determines in its reasonable judgment that any of the conditions
are not satisfied, Parent may (i) refuse to accept any Series A Preferred Stock
and return all tendered Series A Preferred Stock to the tendering Holders (or,
in the case of Series A Preferred Stock delivered by book-entry transfer within
DTC, credit such Series A Preferred Stock to the account maintained within DTC
by the participant in DTC which delivered such Series A Preferred Stock), (ii)
extend the Preferred Stock Exchange Offer and retain all Series A Preferred
Stock tendered prior to the expiration of the Preferred Stock Exchange Offer,
subject, however, to the rights of Holders to withdraw such tenders of Series A
Preferred Stock (see 'Withdrawal of Tenders' above) or (iii) waive such
unsatisfied conditions with respect to the Preferred Stock Exchange Offer and
accept all properly tendered Series A Preferred Stock which have not been
withdrawn. If such waiver constitutes a material change to the Preferred Stock
Exchange Offer, Parent will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered Holders, and
Parent will extend the Preferred Stock Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered Holders, if the Preferred Stock Exchange Offer
would otherwise expire during such five to ten business day period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Preferred
Stock Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Hand Or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail:
Tender & Exchange Department (Eligible Institutions Only) Tender & Exchange Department
101 Barclay Street (212) 815-6213 P.O. Box 11248
Receive and Deliver Window To Confirm by Telephone Church Street Station
New York, New York 10286 or for Information Call: New York, New York 10286-1248
(800) 507-9357
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of Parent, the Company and their affiliates.
Neither Parent nor the Company has retained any dealer-manager in
connection with the Preferred Stock Exchange Offer and will not make any
payments to brokers, dealers or others soliciting acceptance of the Preferred
Stock Exchange Offer. The Company, however, will pay the Exchange Agent
reasonable and customary fees for services and will reimburse it for its
reasonable out-of-pocket
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<PAGE>
expenses in connection therewith and will pay the reasonable fees and expenses
of one firm acting as counsel for the holders of Series A Preferred Stock should
such holders deem it advisable to appoint such counsel.
The cash expenses to be incurred in connection with the Preferred Stock
Exchange Offer will be paid by the Company. Such expenses include fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Preferred Stock pursuant to the Preferred Stock Exchange Offer. If,
however, Series A Preferred Stock or Series B Preferred Stock for shares not
tendered or accepted for exchange are to be registered, or are to be issued in
the name of, or delivered to, any person other than the registered holder, or if
tendered Series A Preferred Stock is registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Series A Preferred Stock
pursuant to the Preferred Stock Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The Series B Preferred Stock will be recorded at the same carrying value as
the Series A Preferred Stock on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized by Parent. The expenses of
the Preferred Stock Exchange Offer and the unamortized expenses relating to the
issuance of the Series A Preferred Stock will be amortized over the term of the
Series B Preferred Stock.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of Parent
and its subsidiaries (including the Company) as of November 30, 1997 assuming
that Parent had been formed at such date and after giving pro forma effect to
the Acquisition. This table should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, and the
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
----------------------
PARENT
PRO FORMA
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term Debt, including Current Maturities
New Credit Agreement:
Term Loan A...................................................................... $100,000(A)
Term Loan B...................................................................... 50,000(A)
Term Loan C...................................................................... 75,000(A)
Revolving Credit Facility........................................................ 79,100(B)
9 3/8% Senior Subordinated Notes due 2008............................................. 220,000(C)
Industrial Revenue Bonds.............................................................. 18,400
Debt of Foreign Subsidiaries.......................................................... 4,997
-----------
Total Long-term Debt, including Current Maturities............................... 547,497
Cumulative Exchangeable Redeemable Preferred Stock......................................... 80,005(D)
Shareholders' Equity
Common Stock.......................................................................... 100,000
Retained Earnings (Deficit)........................................................... (9,425)
-----------
Total Shareholders' Equity....................................................... 90,575
-----------
Total Capitalization....................................................................... $718,077
-----------
-----------
</TABLE>
- ------------
NOTES TO CAPITALIZATION TABLE OF PARENT
(Dollars in thousands)
(A) Reflects senior secured term loans under the New Credit Agreement of
$100,000, $50,000 and $75,000 for Term Loans A, B and C, respectively.
(B) Reflects revolving credit loans under the New Credit Agreement of $160,000
of which $79,100 was drawn at Closing, $28,600 was used for credit support
in the form of letters of credit and $52,300 was undrawn at Closing. See
'Description of New Credit Agreement.'
(C) Reflects senior subordinated notes of $220,000.
(D) Reflects gross proceeds of approximately $80,005 from the offering of
cumulative redeemable exchangeable preferred stock offered in the Preferred
Stock Offering.
37
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<PAGE>
SELECTED HISTORICAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth the historical condensed consolidated
financial data of Parent for the periods indicated. The historical selected
financial information is derived from the historical Consolidated Financial
Statements of Eagle-Picher. Effective November 29, 1996, Parent emerged from
bankruptcy and, accordingly, it adopted fresh-start reporting in accordance with
Statement of Position 90-7, 'Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code.' As a result, the condensed consolidated financial
information for the periods subsequent to the adoption of fresh-start reporting
are presented on a different cost basis than that for prior periods and,
therefore, are not comparable. Accordingly, a vertical black line is shown to
separate post-emergence operations.
The unaudited condensed consolidated financial information presented for
the three months ended February 28, 1997 and 1998 and as of February 28, 1998
are derived from the unaudited consolidated financial statements of Parent and
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
information for such periods. As a result of the Acquisition, which was
accounted for as a purchase, Parent's results of operations and financial
position for periods after February 24, 1998 are not comparable to prior
periods. See Note A below. See 'Summary -- The Acquisition and Use of Proceeds';
'The Acquisition.'
The following selected historical consolidated financial information should
be read in conjunction with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations,' the Pro Forma Consolidated Financial Data
and the Consolidated Financial Statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
FEBRUARY 28,
---------------------------------
(DOLLARS IN THOUSANDS) 1998(A) 1997
--------------------- --------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C> <C>
STATEMENT OF INCOME (LOSS):
Net sales(B)................... $205,842 $205,842 $223,607
Operating income............... 11,027 11,024 9,040
Adjustment for asbestos
litigation................... -- -- --
Fresh-start revaluation........ -- -- --
Reorganization items and
claims(E).................... -- -- --
Interest expense............... (6,940) (12,969) (8,927)
Other income (expense)......... 820 820 1,703
Income (loss) before taxes,
extraordinary items and
accounting changes........... 4,907 (1,125) 1,816
Income (loss) before
extraordinary items and
accounting changes........... 807 (1,675) (1,220)
Extraordinary items and
accounting changes........... -- -- --
Net income (loss).............. 807 (1,675) (1,220)
BALANCE SHEET DATA (END OF PERIOD):
Working capital................ $162,451 -- $208,373
Property, plant and equipment,
net.......................... 239,337 -- 260,850
Total assets................... 867,140 -- 831,943
Total debt..................... 546,996 -- 372,170
Redeemable Preferred Stock..... 80,005 -- --
Shareholders' equity
(deficit).................... 100,001 -- 338,642
OTHER DATA:
EBITDA(H)...................... $ 25,905 $ 25,905 $ 23,482
Depreciation and
amortization................. 12,822 13,221 14,442
Capital expenditures........... 5,692 5,692 15,857
Cash provided by (used in)
operating activities......... (9,083) 176 17,914
Cash used in investing
activities................... (6,734) (6,734) (17,040)
Cash used in financing
activities................... (18,955) (2,860) (14,223)
SELECTED RATIOS:
EBITDA/interest expense and
preferred stock dividends.... 3.65x 1.55 x 2.63x
Total debt and preferred
stock/EBITDA................. N/M N/M N/M
Total debt and preferred
stock/capitalization......... 86.2% N/M 57.4%
Earnings/fixed charges and
preferred stock
dividends(J)................. 1.69x N/M (K) 1.20x
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
-------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME (LOSS):
Net sales(B)................... $906,077 $ 891,287 $ 848,548 $ 756,741 $ 661,452
Operating income............... 45,558(C) 62,106 63,087 58,281 43,754
Adjustment for asbestos
litigation................... -- 502,197 (1,005,511) -- (1,135,500)
Fresh-start revaluation........ -- 118,684(D) -- -- --
Reorganization items and
claims(E).................... -- (6,593) (2,225) (3,426) (45,780)
Interest expense............... (31,261) (3,083) (1,926) (1,809) (2,070)
Other income (expense)......... (251) 1,345 11,704(F) 703 (174)
Income (loss) before taxes,
extraordinary items and
accounting changes........... 14,046 674,656 (934,871) 53,749 (1,139,770)
Income (loss) before
extraordinary items and
accounting changes........... (3,854) 622,086 (944,171) 48,749 (1,144,770)
Extraordinary items and
accounting changes........... -- 1,524,305(G) -- -- (12,598)(G)
Net income (loss).............. (3,854) 2,146,391 (944,171) 48,749 (1,157,368)
BALANCE SHEET DATA (END OF PERIOD):
Working capital................ $187,968 $ 211,808 $ 243,495 $ 210,298 $ 187,224
Property, plant and equipment,
net.......................... 243,538 256,351 155,818 144,649 134,401
Total assets................... 746,881 848,880 580,073 521,107 459,360
Total debt..................... 273,397 386,439 20,628 21,622 24,449
Redeemable Preferred Stock..... -- -- -- -- --
Shareholders' equity
(deficit).................... 336,117 341,807 (2,211,308) (1,266,693) (1,317,206)
OTHER DATA:
EBITDA(H)...................... $103,958 $ 92,856 $ 91,795 $ 84,424 $ 68,709
Depreciation and
amortization................. 55,989 30,750 28,708 26,143 24,955
Capital expenditures........... 51,324(I) 44,957 40,558 35,887 28,512
Cash provided by (used in)
operating activities......... 147,883 72,861 30,456 45,093 37,676
Cash used in investing
activities................... (13,827) (41,770) (28,713) (34,087) (28,177)
Cash used in financing
activities................... (113,042) (3,198) (1,019) (2,974) (3,041)
SELECTED RATIOS:
EBITDA/interest expense and
preferred stock dividends.... 3.33x 30.12x 47.66x 46.67x 33.19x
Total debt and preferred
stock/EBITDA................. 2.63 4.16 0.22 0.26 0.36
Total debt and preferred
stock/capitalization......... 44.9% 53.1% N/M N/M N/M
Earnings/fixed charges and
preferred stock
dividends(J)................. 1.43x 173.50x(L) --(L) 24.28x --(L)
</TABLE>
(footnotes on next page)
38
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<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)
(A) The unaudited condensed consolidated financial statements as of and for the
three months ended February 28, 1998 include the effects of the Acquisition
that resulted as of February 24, 1998, the Closing Date. Accordingly, the
historical condensed consolidated statement of income (loss) for the three
months ended February 28, 1998 include results of operations from (1)
December 1, 1997 through February 24, 1998 of the Predecessor Company and
(2) February 25 through February 28, 1998 of Parent.
(B) Includes net sales attributed to the Divested Divisions of $78,604 in 1997,
$138,116 in 1996, $145,339 in 1995, $127,229 in 1994, $115,008 in 1993 and
$29,254 for the three months ended February 28, 1997.
(C) Operating income in 1997 includes (i) amortization of reorganization value
in excess of amounts allocable to identifiable assets in the amount of
$16,284, (ii) depreciation of assets written-up to fair value in the amount
of $9,804 and (iii) loss on sale of divisions of $2,411. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Effects of Reorganization on Operations and Financial
Condition.'
(D) Fresh-start valuation gain of $118,684 reflects transactions related to
emergence from bankruptcy and reorganization in accordance with Statement of
Position 90-7, 'Financial Reporting by Entities in Reorganization under the
Bankruptcy Code.' See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Effects of Reorganization on
Operations and Financial Condition.'
(E) Reflects provision for claims of $4,244 in 1996 and $41,436 in 1993.
Remaining reorganization items are net expense resulting from the Company's
bankruptcy filing. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Effects of Reorganization on
Operations and Financial Condition.'
(F) Other income (expense) reflects a gain of $11,505 in 1995 relating to the
sale of an investment in a Canadian mining concern.
(G) Reflects (i) a gain of $1,525,540 in 1996 related to emergence from
bankruptcy and reorganization in accordance with Statement of Position 90-7,
'Financial Reporting by Entities in Reorganization under the Bankruptcy
Code;' (ii) a loss of $1,235 in 1996 due to an accounting change of its
method of computing LIFO inventories of boron, germanium and other rare
metals; and (iii) a loss of $12,598 in 1993 due to an accounting change to
reflect adoption of Statement of Financial Accounting Standards No. 106
'Employers Accounting for Postretirement Benefits.'
(H) 'EBITDA' as used herein is defined in the Indenture and may not be
comparable to similarly titled measures reported by other companies. See
'Description of the Notes.' 'EBITDA' is presented because management
believes it is an indicator of a company's ability to service and incur
debt. EBITDA does not represent net income or cash flows from operations as
those terms are defined by generally accepted accounting principles and does
not necessarily indicate whether cash flows will be sufficient to fund cash
needs. Certain funds depicted by 'EBITDA' are not available for management's
discretionary use due to requirements to conserve funds for debt service,
interest and dividend payments and other commitments and uncertainties.
Under the Indenture, the definition of EBITDA excludes loss on sale of
divisions and any other non-cash items affecting Consolidated Net Income
(including, without limitation, charges for asbestos litigation and reversal
of asbestos litigation reserves). Includes EBITDA attributed to the Divested
Divisions of $361 in 1997, $3,615 in 1996, $7,695 in 1995, $7,552 in 1994,
$7,053 in 1993 and ($652) for the three months ended February 28, 1997.
(I) Includes capital expenditures in 1997 of (i) $10,157 in connection with the
new facility in Manchester, Tennessee, (ii) $6,495 in connection with a
$13,054 diatomaceous earth processing facility in Vale, Oregon and (iii)
$4,651 in connection with a new automotive facility in Tamworth, England.
(J) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, 'earnings' consist of income before provision
(benefit) for income taxes and fixed charges. 'Fixed
(footnotes continued on next page)
39
<PAGE>
<PAGE>
(footnotes continued from previous page)
charges' consist of interest expense (including amortization of deferred
financing costs) and approximately 30% of rental expense, representing that
portion of rental expense deemed representative of the interest factor.
(K) Pro forma earnings were insufficient to cover fixed charges and preferred
stock dividends for the three months ended February 28, 1998 by $34,690.
(L) Such ratio of earnings to fixed charges and preferred stock dividends is not
meaningful for 1995 and 1993 because of significant charges for asbestos
litigation and is not meaningful for 1996 because of significant reversal of
asbestos litigation reserves, fresh-start revaluation and extraordinary
items. Earnings were inadequate to cover fixed charges by $934,871 and
$1,139,770 for the years ended November 30, 1995 and 1993, respectively.
40
<PAGE>
<PAGE>
UNAUDITED PARENT PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated statements of operations
(the 'Pro Forma Statements of Operations') are based on the historical financial
statements of Parent included elsewhere in this Prospectus.
The unaudited pro forma statement of operations for the year ended November
30, 1997 and the unaudited pro forma statement of operations for the three
months ended February 28, 1998 give effect to the Acquisition as though it were
consummated on December 1, 1996. The pro forma adjustments are based upon
available information and certain assumptions that Parent believes are
reasonable. A pro forma balance sheet as of February 28, 1998 is not included
herewith because the effects of the Acquisition have already been reflected in
the consolidated balance sheet as of February 28, 1998 included elsewhere in
this Prospectus.
The acquisition of Eagle-Picher was accounted for using the purchase method
of accounting. The preliminary allocation of the purchase price of the Company
has been determined based upon estimates of fair value and are subject to
change. Appraisals are currently being completed to value property, plant,
equipment and identifiable intangible assets. The excess of purchase price over
the assessed values of those assets will be allocated to goodwill. The Company
expects to finalize the purchase price allocation by November 30, 1998.
Adjustments are not expected to be material.
The Pro Forma Statements of Operations do not purport to be indicative of
the results that would have been obtained had such transactions described above
occurred as of the assumed dates. In addition, the Pro Forma Statements of
Operations do not purport to project Parent's results of operations for any
future date or period. The Pro Forma Statements of Operations should be read in
conjunction with the financial statements of Parent, and the notes thereto,
included elsewhere herein.
41
<PAGE>
<PAGE>
UNAUDITED PARENT PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL -----------------------------------
-------- ACQUISITION AND PARENT
PARENT OFFERING ADJUSTMENTS PRO FORMA
-------- -------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales....................................................... $906,077 $-- $906,077
Operating costs and expenses:
Cost of products sold...................................... 725,010 -- 725,010
Selling and administrative................................. 77,109 -- 77,109
Management compensation expense............................ -- 14,955 14,955
Depreciation............................................... 39,671 -- 39,671
Amortization of intangibles................................ 16,318 760(B) 17,078
Loss on sale of divisions.................................. 2,411 -- 2,411
-------- ----------- ---------
860,519 15,715 876,234
Operating income (loss)......................................... 45,558 (15,715) 29,843
Interest expense........................................... (31,261) (23,620)(C) (54,881)
Other...................................................... (251) -- (251)
-------- ----------- ---------
Income (loss) before taxes...................................... 14,046 (39,335) (25,289)
Income taxes (benefit).......................................... 17,900 (28,100)(D) (10,200)
-------- ----------- ---------
Net loss........................................................ (3,854) (11,235) (15,089)
Preferred dividends............................................. -- (9,401)(E) (9,401)
-------- ----------- ---------
Net loss applicable to common shareholders...................... $ (3,854) $(20,636) $(24,490)
-------- ----------- ---------
-------- ----------- ---------
</TABLE>
- ------------------------
NOTES TO UNAUDITED PARENT PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(A) To record management compensation expenses as follows:
<TABLE>
<S> <C>
Compensation earned by certain members of senior managment representing the portion of the
$10,000 contribution to the E-P Management Trust for the stock that has been earned and
vested and the expected tax payments for the same stock................................... $ 6,100
Sales incentive bonus....................................................................... 5,828
'Stay-put' bonus............................................................................ 3,027
-------
$14,955
-------
-------
</TABLE>
(B) To reflect the difference in the amortization of the reorganization value in
excess of amounts allocable to identifiable asset of $16,318 compared to the
excess of assets over cost of $17,078.
(C) Pro forma interest expense increased $23,620 as follows:
<TABLE>
<S> <C>
Interest expense associated with the redemption of 10% Debentures.......................... $(25,000)
Interest expense on New Credit Facilities and Senior Subordinated Notes.................... 45,610
Amortization of debt transaction fees and expenses over weighted average life of 8.18
years.................................................................................... 2,750
Amortization of Preferred Stock Offering fees and expenses over 10 years................... 260
--------
Interest expense adjustment................................................................ $ 23,620
--------
--------
</TABLE>
The actual interest expense for the year ended November 30, 1997 included
interest expense of $4,417 relating to debt obligations that were paid off in
1997. Such debt obligations primarily consisted of the Divestiture Notes and Tax
Refund Notes. The pro forma adjustments do not give effect to the reduction in
interest expense.
(D) To record incremental tax benefit.
(E) Assumes $80,005 of cumulative exchangeable redeemable preferred stock
outstanding with a dividend rate of 11.75%.
42
<PAGE>
<PAGE>
UNAUDITED PARENT PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL -------------------------
-------- ACQUISITION
COMPANY ADJUSTMENTS COMPANY
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................ $205,842 $ -- $205,842
Operating costs and expenses:
Cost of products sold............................................... 162,796 -- 162,796
Selling and administrative.......................................... 17,141 -- 17,141
Management compensation expense..................................... 2,056 (396)(A) 1,660
Depreciation........................................................ 8,983 -- 8,983
Amortization of intangibles......................................... 3,839 399(B) 4,238
-------- ----------- ---------
194,815 3 194,818
Operating income (loss).................................................. 11,027 (3) 11,024
Interest expense.................................................... (6,940) (6,029)(C) (12,969)
Other............................................................... 820 -- 820
-------- ----------- ---------
Income (loss) before taxes............................................... 4,907 (6,032) (1,125)
Income taxes (benefit)................................................... 4,100 (3,550)(D) 550
-------- ----------- ---------
Net income (loss)........................................................ 807 (2,482) (1,675)
Preferred Dividends...................................................... -- (2,350)(E) (2,350)
-------- ----------- ---------
Net income (loss) applicable to common shareholders...................... $ 807 $ (4,832) $ (4,025)
-------- ----------- ---------
-------- ----------- ---------
</TABLE>
- ------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(A) To record managment compensation expense as follows:
<TABLE>
<S> <C>
Compensation earned by certain members of senior management
representing the portion of the $10,000 contribution to the
E-P Management Trust for the stock that has been earned and
vested and the expected tax payments for the same stock............................. $ 1,400
'Stay-put' bonus...................................................................... 260
Amounts recognized associated with the 'stay-put' bonus and
sales incentive bonus............................................................... (2,056)
-------
$ (396)
-------
-------
</TABLE>
(B) To reflect the difference in the amortization of the reorganization value
in excess of amounts allocable to identifiable assets of $3,839 (4 year
amortization) compared to the excess of assets over cost of $4,238 (15 year
amortization).
(C) Pro forma interest expense increased $6,182 as follows:
<TABLE>
<S> <C>
Interest expense associated with the redemption of
10% Debentures..................................................................... $(5,903)
Interest expense on New Credit Facilities and Senior
Subordinated Notes................................................................. 11,250
Amortization of debt transaction fees and expenses
over weighted average life of the debt............................................. 617
Amortization of Preferred Stock Offering fees and
expenses over 10 years............................................................. 65
-------
Interest expense adjustment.......................................................... $ 6,029
-------
-------
</TABLE>
(D) To record incremental tax benefit.
(E) Assumes $80,005 of cumulative exchangeable preferred stock outstanding with
a dividend rate of 11.75%.
43
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unless otherwise stated, any reference to a year in this section refers to
Parent's fiscal year.
RESULTS OF OPERATIONS
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for Parent's businesses for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
1997 % 1996 % 1995 %
------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales and segment sales as percentage of
total:
Automotive................................... $435.2 48.0% $439.6 49.3% $433.2 51.1%
Machinery.................................... 270.8 29.9 257.6 28.9 254.7 30.0
Industrial................................... 200.1 22.1 194.1 21.8 160.6 18.9
------ ------ ------ ------ ------ ------
Total........................................ $906.1 100.0% $891.3 100.0% $848.5 100.0%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
EBITDA by segment:
Automotive................................... $ 60.1 $ 57.2 $ 59.7
Machinery.................................... 32.0 27.5 28.8
Industrial................................... 30.6 27.5 21.7
Corporate overhead........................... (18.7) (19.3) (18.4)
------ ------ ------
Total........................................ $104.0 $ 92.9 $ 91.8
------ ------ ------
------ ------ ------
</TABLE>
The Company's international net sales were $198.4 million, or 21.9% of net
sales, in 1997; $189.1 million, or 21.2% of net sales, in 1996; and $170.2
million, or 20.1% of net sales, in 1995. The Company's U.S. export sales, which
are included in the Company's international net sales, were $113.6 million,
$108.5 million and $92.5 million in 1997, 1996 and 1995, respectively. The
Company's non-U.S. operations are subject to the usual risks that may affect
such operations. Such operations, however, are located in countires where the
Company believes the risks to be minimal.
Current economic conditions in certain Asian markets have adversely
affected the Company's growth in those markets. Historically, sales to such
markets have been insignificant to the Company's total net sales and have not
had, nor are they expected to have, a material adverse effect on the Company's
operations. Despite the economic conditions in Asia, the Company believes the
Asia region continues to have solid long-term growth opportunities, and the
Company will continue to explore those opportunities.
The Company expects strong price pressure to continue across all product
lines, especially in the Automotive Group. The Company will continue to pursue
productivity improvements and material cost reductions to mitigate such price
pressure.
Since the 1980's, OEMs such as Ford, GM and Chrysler have been outsourcing
an increasing percentage of their production requirements. OEMs benefit from
outsourcing because outside suppliers generally have significantly lower cost
structures and can assist in shortening development periods for new products.
The Company expects to continue to benefit from the trend toward outsourcing.
EFFECTS OF REORGANIZATION ON OPERATIONS AND FINANCIAL CONDITION
Upon emergence from bankruptcy, the Company applied the 'fresh-start'
provisions of the American Institute of Certified Public Accountants Statement
of Position No. 90-7 ('SOP 90-7'). In accordance with SOP 90-7, the assets and
liabilities of the Company were restated at their fair value and a valuation of
equity was made based on the appraised reorganization value of the business. The
reorganization value in excess of amounts allocable to identifiable assets was
capitalized. Of the $268.8 million increase in total assets for the year ended
November 30, 1996 over those at November 30, 1995, $86.6 million and $65.1
million were due to the restatement of property, plant and equipment at their
44
<PAGE>
<PAGE>
fair value and the reorganization value in excess of amounts allocable to
identifiable assets, respectively, and $69.1 million was due to a federal income
tax refund receivable. Consequently, results of operations in 1996 and 1997 are
not comparable, primarily due to increased depreciation on the property, plant
and equipment and amortization of the reorganization value in excess of amounts
allocable to identifiable assets.
Adjusting the assets and liabilities to fair value resulted in the
fresh-start revaluation of $118.7 million in 1996. Other reorganization items in
1996 and 1995 were the costs of the reorganization process, net of the interest
income earned on accumulated cash balances.
The Plan included a settlement of the Eagle-Picher Group's aggregate
liability on account of present and future asbestos-related and lead-related
personal injury claims. An adjustment was made to the consolidated financial
statements in 1996 to reflect this settlement. The order confirming the Plan
contains a permanent injunction which precludes holders of present or future
asbestos-related or lead-related personal injury claims from pursuing their
claims against the reorganized Eagle-Picher Group. Those claims will be
channeled to the Trust, which is an independently administered qualified
settlement trust established to resolve and satisfy those claims.
The Company's emergence from bankruptcy on November 29, 1996 resulted in an
extraordinary gain of $1.5 billion on the discharge of pre-petition liabilities,
including the asbestos liability, because the value of consideration distributed
and expected to be distributed to the Trust and other unsecured creditors is
approximately 37% of the amount of the allowed claims. The Plan and the Order
confirming the Plan provide that the pre-petition unsecured claims, including
the asbestos-related claims, are thereby discharged and the Eagle-Picher Group
has no further liability in connection with such claims.
In 1997, the Company received federal tax refunds totaling $69.1 million
resulting from net operating losses ('NOLs') carried back to recover taxes paid
in prior years. The majority of the NOLs were created when the Company
contributed cash and securities to the Trust in the bankruptcy. Losses remaining
after the NOL carryback were carried forward to reduce taxable income in future
years. NOLs, which were carried forward, along with other items that are
deductible in the future, such as the repayment of the debt issued in
conjunction with the Company's emergence from bankruptcy, resulted in Deferred
Tax Assets of $128.5 million at November 30, 1996. Deductions for debt
previously contributed to the Trust are taken when the debt is repaid. The 10%
Debentures were repaid in connection with the Acquisition. For tax purposes, the
Acquisition was treated like a sale of assets. The gains on the sale of the
assets of the Company absorbed most of the NOL carryforwards that the Company
had available and any NOL carryforwards that were not absorbed were lost.
Interest expense increased by $28.2 million in 1997 primarily due to the
debt issued to the Trust and unsecured creditors upon the Company's emergence
from bankruptcy. In addition, interest expense was not recorded on unsecured
debt or undersecured debt during the duration of the bankruptcy proceedings,
which resulted in minimal interest expense in 1996 and 1995.
NET INCOME
Asbestos-related claims and items related to bankruptcy and emergence
therefrom ('Reorganization Items') have significantly affected the Company's net
income (loss) since 1995. Reorganization Items increased income by $2,139.8
million in 1996 and reduced income by $1,007.7 million in 1995. Other items
affecting the comparability of net income (loss) include interest expense, which
increased significantly in 1997 because of debt incurred in connection with the
Company's reorganization on November 29, 1996, amortization and depreciation
related to the Company's adoption of fresh-start reporting in accordance with
Statement of Position 90-7, 'Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code' ('Fresh-Start Expenses'), effective November 29,
1996, and income tax expense, which is not comparable due to the effect on
income of interest expense, Reorganization Items and Fresh-Start Expenses.
Interest expense was $31.3 million, $3.1 million and $1.9 million for 1997, 1996
and 1995, respectively. Fresh-Start Expenses totaled $26.1 million in 1997.
Income tax expense totaled $17.9 million, $52.6 million and $9.3 million in
1997, 1996 and 1995, respectively. Net income before Reorganization Items,
interest expense, Fresh-Start Expenses and
45
<PAGE>
<PAGE>
income tax expense totaled $71.4 million, $63.5 million and $74.7 million for
1997, 1996 and 1995, respectively.
Three Months Ended February 28, 1998 Compared to Three Months Ended February 28,
1997
As a result of the Acquisition of the Company by Granaria Industries from
the Trust as of February 24, 1998, which was accounted for as a purchase, the
Company's results of operations and financial position for periods after
February 24, 1998 are not comparable to prior periods. The unaudited condensed
consolidated statement of income (loss) as of February 28, 1998 includes results
of operations from (1) December 1, 1997 through February 24, 1998 of the
Predecessor Company and (2) February 25 through February 28, 1998 of the
Company.
Net Sales. The Company's net sales decreased by approximately $17.8
million, or 8.0%, from $223.6 million in the three months ended February 28,
1997 to $205.8 million in the three months ended February 28, 1998. Included in
the results for the first three months of 1997 are $29.3 million of sales of the
Divested Divisions which, if excluded, would reflect an increase in the
Company's quarterly net sales of approximately 5.9%.
First quarter net sales for the Industrial Group, excluding net sales of
the Divested Divisions, decreased 8.8% from 1997 to 1998 due primarily to
decreased sales of germanium products. Germanium sales have been affected by
lower market prices, increased use of recycled germanium by the Company's
customers and the completion of a major satellite project. Germanium prices have
decreased by as much as half during the last year due to increased supplies. In
response to sharp increases in the cost of germanium during 1996, the Company's
customers have increasingly been recycling scrap germanium. As a result, its
customers supply a larger portion of the Company's raw materials. While the
Company has been able to maintain its margins, the sales volume is less as a
toll refiner than as a buyer and seller of germanium.
Net sales for the Machinery Group in the first three months of 1998,
excluding net sales of the Divested Divisions, increased 7.4% from the first
three months of 1997 on increased sales of special purpose batteries. Net sales
for the Automotive Group, excluding net sales of the Divested Divisions,
increased 11.5% on increased sales of precision machined components.
Cost of Products Sold. Cost of products sold, excluding depreciation
expense, decreased by $17.6 million, or 9.8% from $180.4 million in the three
months ended February 28, 1997 to $162.8 million in the three months ended
February 28, 1998. Excluding the results of Divested Divisions, as a percentage
of sales, cost of products sold remained stable at approximately 79.0%.
Selling and Administrative. Selling and administrative expenses decreased
by $2.6 million, or 13.1% from $19.7 million for the three months ended February
28, 1997 to $17.1 million for the three months ended February 28, 1998.
Excluding the results of Divested Divisions, selling and administrative expenses
for the first three months of 1998 decreased by $1.0 million from the first
three months of 1997.
Depreciation and Amortization. Depreciation and amortization decreased by
$1.6 million, or 11.1% from $14.4 million for the three months ended February
28, 1997 to $12.8 million for the three months ended February 28, 1998.
Excluding the results of Divested Divisions, depreciation and amortization was
$13.0 million for the first three months of 1997.
EBITDA. The Company's earnings before interest, taxes, depreciation and
amortization ('EBITDA') increased by approximately $2.4 million, or 10.3%, from
$23.5 million in 1997 to $25.9 million in 1998. Excluding the $.6 million
negative impact of the Divested Divisions on 1997 EBITDA, the EBITDA of the
Company increased $1.8 million, or 7.5%.
Despite decreased sales, EBITDA of the Industrial Group for the first three
months of 1998, exclusive of EBITDA of the Divested Divisions, increased by 1.3%
over the first three months of 1997. This increase was due to improved results
at the Company's Boron operations and the Company's ability to maintain its
margins despite decreased germanium sales. First quarter 1998 EBITDA of the
Machinery Group, exclusive of the results of Divested Divisions, was unchanged
from the first quarter of 1997. Increased profitability of special-purpose
batteries due to higher volumes was offset by startup
46
<PAGE>
<PAGE>
costs of new construction equipment products. EBITDA of the Automotive Group for
the first three months of 1998 increased by 9.6% from the first three months of
1997 due to higher volumes of precision machined components.
Interest Expense. Interest expense decreased by $2.0 million, or 22.5%,
from $8.9 million for the three months ended February 28, 1997 to $6.9 million
for the three months ended February 28, 1998. Most of this decrease was due to
the retirement of $125.9 million of debt during 1997, which included $50.0
million of divestiture notes, $69.1 million of tax refund notes and $6.8 million
of secured notes bearing interest at 9%, 6.5% and 10%, respectively. Of the
total debt that was retired during 1997, only $16.7 million was retired during
the first three months of 1997. The decrease in interest expense due to debt
retirements was partially offset by interest on an additional $8.0 million of
Industrial Revenue Bonds issued during the third quarter of 1997 and revolving
lines of credit, for which interest during the first three months of 1998 was
$0.1 million.
Fiscal Year Ended 1997 Compared to Fiscal Year Ended 1996
In addition to the effects of reorganization, another factor affecting
comparability of operations is the sale of the Plastics, Transicoil and Fabricon
Products divisions in 1997. The Company's aggregate loss on these transactions
was $2.4 million. The Company also contributed the assets of its former
Suspension Systems division to Eagle-Picher-Boge, L.L.C., a joint venture formed
in 1997 in which the Company has a 45% interest.
Net Sales. The Company's net sales increased approximately $14.8 million,
or 1.7%, from $891.3 million in 1996 to $906.1 million in 1997. Included are net
sales of the Divested Divisions which, if excluded for both periods, would
reflect an increase in the Company's net sales of approximately 9.9%. In 1996
and 1997, the Divested Divisions contributed net sales of approximately $138.2
million and $78.6 million, respectively.
Net sales for the Industrial Group, excluding net sales of the Divested
Divisions, increased 10.2% primarily due to increased demand for germanium
products used in aerospace applications, such as solar cell substrates for
satellites. In the Machinery Group, net sales increased by 7.6% (excluding net
sales of the Divested Divisions), which increase was primarily attributable to
increased demand for batteries used in satellite applications. Net sales for the
Automotive Group (excluding net sales of the Divested Divisions) increased by
11.2% in 1997, which increase was attributable primarily to increased sales
volume of precision machined components and interior trim products. Many of the
precision machined components are used in light trucks, vans and sport utility
vehicles which have recently grown in popularity. Several new programs at the
automotive trim operation, which had been delayed by customers, are beginning to
reach anticipated production volumes. The Company has been notified by Ford that
it will no longer purchase certain product lines from the Automotive Group. The
first program was discontinued in December 1997, and other programs will be
discontinued at various times through March 1999. The total amount of 1997 net
sales contributed by these programs was $19.4 million. The Company anticipates
that this revenue will be replaced by new programs currently being implemented.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) increased by $8.1 million, or 1.1%, from $716.9 million in 1996 to
$725.0 million in 1997. As a percentage of net sales, cost of products sold
remained constant at 80.0% excluding the cost of products sold of the Divested
Divisions.
Selling and Administrative. Selling and administrative expenses decreased
by $4.4 million, or 5.4%, from $81.5 million in 1996 to $77.1 million in 1997.
Excluding expenses of the Divested Divisions, the selling and administrative
expenses remained constant from 1996 to 1997.
Depreciation and Amortization. See comments above regarding the effects of
reorganization.
Loss on Sale of Divisions. In 1997, the Company sold the Plastics,
Transicoil and Fabricon Products divisions for approximately $30.7 million, $8.3
million and $3.1 million, respectively. The aggregate loss on the sales of the
Divested Divisions (excluding Suspension Systems) in 1997 was $2.4 million.
47
<PAGE>
<PAGE>
EBITDA. Due to the increased depreciation and amortization in connection
with the Company's emergence from bankruptcy, a comparison of 1997 and 1996
operating income is not meaningful. The Company's EBITDA increased by $11.1
million, or 11.9%, from $92.9 million in 1996 to $104.0 million in 1997. In 1996
and 1997, the EBITDA of the Divested Divisions was $3.6 million and $0.4
million, respectively. The Company's EBITDA, excluding EBITDA of the Divested
Divisions, increased 17.7%. The Industrial Group's EBITDA, excluding EBITDA of
the Divested Divisions, increased by 13.5%, primarily as a result of increased
demand for germanium products. Also, the Industrial Group's diatomaceous earth
product processing operation contributed to the increase in EBITDA for 1997 due
to non-recurring charges taken in 1996.
The Machinery Group's EBITDA, excluding EBITDA of the Divested Divisions,
increased 18.9% as a result of increases in battery sales and an increase in the
margins of the operations that manufacture wheel tractor scrapers and heavy duty
forklift trucks. Despite flat sales in those product lines, EBITDA increased for
wheel tractor scrapers and heavy duty forklift trucks as a result of increased
efficiencies and lower costs associated primarily with expansion of the
Machinery Group's operations in Mexico. The Automotive Group's EBITDA, excluding
EBITDA of the Divested Divisions, increased 11.7% as a result of increased sales
and a better absorption of fixed costs. Currency exchange differences offset
volume gains in the European operations, and therefore, results of these
operations were relatively flat.
Interest Expense. Interest expense increased by $28.2 million, or 909.7%,
from $3.1 million in 1996 to $31.3 million in 1997, for reasons discussed above
related to the effects of reorganization on the Company's results.
Fiscal Year Ended 1996 Compared to Fiscal Year Ended 1995
Net Sales. The Company's net sales increased by approximately $42.8
million, or 5.0%, from $848.5 million in 1995 to $891.3 million in 1996. The
Industrial Group's net sales increased 20.9% due primarily to increased sales of
germanium products. Approximately one-third of the increase was due to increases
in the market price of germanium itself, which increased significantly during
the year.
In the Machinery Group, net sales were relatively flat. Increases in sales
of special-purpose batteries were offset by declines in volume of wheel tractor
scrapers and forklift trucks of 15.6% and 11.1%, respectively. The Machinery
Group's sales were unusually high in 1995 because a significant order backlog of
forklift trucks was worked off during 1995 and because demand for wheel tractor
scrapers was high. Net sales for the Automotive Group were relatively flat from
1995 to 1996. Two factors which offset increases in volumes in the Automotive
Group by approximately $14.5 million were the sale of an injection molding
business in the first quarter of 1996 and the loss of sales volume at the
Plastics Division, most of which resulted when GM discontinued production of its
all-purpose van during 1996.
Cost of Products Sold. Cost of products sold (excluding depreciation),
increased by $35.5 million, or 5.2%, from $681.4 million in 1995 to $716.9
million in 1996. As a percentage of net sales, cost of products sold remained
constant at 80.0%.
Selling and Administrative. Selling and administrative expenses increased
by $6.1 million, or 8.1%, from $75.4 million in 1995 to $81.5 million in 1996 in
part as a result of start-up costs associated with establishing European
administrative and sales offices for the Automotive Group.
EBITDA. The Company's EBITDA increased by $1.1 million, or 1.2%, from $91.8
million in 1995 to $92.9 million in 1996. The increase in sales of germanium
products contributed to a 26.7% increase in EBITDA in the Industrial Group. The
decline in back orders and demand in the Machinery Group, described above, as
well as start-up costs of certain satellite battery programs, resulted in a
decrease in the Machinery Group's EBITDA of 4.5% for 1996 as compared to 1995.
The decreased volume at the Plastics Division was also a primary reason for the
decrease in EBITDA from $59.7 million in 1995 to $57.2 million in 1996 in the
Automotive Group. Other contributing factors to this decrease include a new
plant in Brighton, Michigan that produces extruded nylon parts for fuel and
brake systems.
Adjustment for Asbestos Litigation and Provision for Other Claims. In
December 1995, the Bankruptcy Court estimated the Company's aggregate liability
for asbestos-related personal injury
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claims to be $2.5 billion. The Company adjusted the 1995 consolidated financial
statements by $1.0 billion to increase the asbestos liability subject to
compromise to $2.5 billion. In 1996, the consolidated financial statements were
adjusted by $502.2 million to $2.0 billion to reflect the amount of the
settlement on which the Plan was based. A provision for other claims related to
the bankruptcy proceedings of $4.2 million was also made in Fiscal 1996.
Interest Expense. Interest expense increased by $1.2 million, or 63.2%,
from $1.9 million in 1995 to $3.1 million in 1996. The principal reason for the
increase was the settlement of certain secured tax claims in the bankruptcy for
which the claimants were entitled to interest.
Gain on Sale of Investment. In 1995, the Company sold an investment in
stock of a Canadian mining concern which resulted in a gain of $11.5 million.
OPERATING ACTIVITIES
Cash and cash equivalents were $53.7 million at November 30, 1997 compared
to $32.7 million and $93.3 million at November 30, 1996 and 1995, respectively.
Cash flows from operations in 1997, excluding a tax refund of $69.1 million,
were $78.8 million, despite the small net loss of $3.9 million, and in 1996 and
1995 were $72.9 million and $30.5 million, respectively. In 1997, the repayment
of the Divestiture Notes and the Tax Refund Notes resulted in deductions in
excess of income, so that the Company's current federal income tax liability was
minimal. Income taxes were paid primarily to foreign, state and local
jurisdictions in 1997 and amounted to, net of miscellaneous small refunds, $4.3
million. In 1996 and 1995, the Company paid income taxes, including federal
income taxes, of $17.3 million and $28.8 million, respectively.
Cash and cash equivalents were $19.0 million at February 28, 1998.
As previously discussed, depreciation and amortization increased
significantly in 1997 to $56.0 million as compared to $30.8 million in 1996 and
$28.7 million in 1995. The reorganization value in excess of amounts allocable
to identifiable assets is being amortized over four years.
Changes in working capital and other items provided approximately $6.9
million in cash in 1997. Certain divisions have been able to negotiate better
terms on their accounts payable following the Company's emergence from
bankruptcy. Decreases in certain working capital components have more than
offset increases in receivables and inventories which have resulted from
increased sales volumes. Working capital provided approximately $4.0 million in
1996, but $27.0 million was used for working capital items in 1995. In 1995 into
1996, the Company commenced several new programs in the Automotive Group that
required investment in customer tooling. It is common practice in the Automotive
Industry for suppliers such as the Company to accumulate customer tooling costs
while the tooling is under construction and to bill the customer upon its
completion. In 1995, an $11.5 million increase in the amount of tooling carried
on the Company's consolidated balance sheet brought the total of such amount to
$26.5 million at November 30, 1995. Tooling costs recorded on the Company's
consolidated balance sheet were $10.6 million and $11.5 million at November 30,
1997 and 1996, respectively. The accumulation of tooling costs was on top of
'normal' growth of working capital due to revenue growth. In 1996, as the new
programs were instituted, amounts for tooling were collected from customers;
however, revenue growth from these new programs resulted in 'normal' working
capital growth that partially offset the decrease in working capital resulting
from decreases in tooling activity. Another factor contributing to the less than
expected decrease in working capital in 1996 was the increase in the price of
germanium which resulted in increased inventories and receivables.
INVESTING ACTIVITIES
Capital expenditures were $51.3 million in 1997. Major additions included
two new plants to manufacture precision machined parts, one in Manchester,
Tennessee and the other in Tamworth, England. Construction on the new
diatomaceous earth processing unit in Vale, Oregon, which commenced in 1996, was
completed in 1997. Capital expenditures were $45.0 million and $40.6 million in
1996 and 1995, respectively. In addition to amounts spent on construction of the
facility in Vale, Oregon in 1996 and the addition of a new coating line for the
manufacture of rubber coated metal products in 1995, significant expenditures
were made to increase machine capacity at existing facilities
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or improve processes, particularly in the Automotive Group. The Company does not
have any plans for major expansions in the near future. The Company anticipates
capital expenditures of $35.0 million for 1998. The Company believes that its
minimum capital expenditure level is approximately $15.0 million.
The Company sold the Plastics, Transicoil and Fabricon Products divisions
in 1997. The net cash proceeds of these transactions totaled $39.0 million. The
injection molding operations of the Orthane Division were sold in 1996 for $4.2
million. No other divestitures have been announced or committed to at this time;
however, the possibility of future divestitures of certain businesses exists,
particularly if the Company needs cash to fund future expansions.
In 1995, the Company sold an investment in stock of a Canadian mining
concern which had no book value for $11.5 million. The stock, which had been
received in settlement of certain indebtedness, was deemed by the Company to be
impaired and was written down to zero. The Company generally does not invest in
marketable securities of this nature. Any available cash is generally invested
in cash equivalent instruments.
FINANCING ACTIVITIES
The Company used the proceeds of tax refunds totaling $69.1 million
received in 1997 to redeem the $69.1 million Tax Refund Notes (the 'Tax Refund
Notes') which were issued by the Company to the Trust in conjunction with the
Company's emergence from bankruptcy. The Divestiture Notes were issued to the
Trust and other unsecured creditors on the Consummation Date (as defined
herein). A total of $45.3 million of the Divestiture Notes was prepaid in August
1997 with the proceeds of the divestiture of the Divested Divisions; the
remaining obligation of $4.7 million was reclassified to accrued liabilities as
a reserve for the final bankruptcy distribution. The Divestiture Notes bore
interest at 9% and had a maturity date of November 29, 1999. In addition,
secured notes totaling $6.8 million at November 30, 1996 were repaid in full in
1997 due, in certain cases, to the sale of the assets which secured the notes.
In 1997, the Company issued an $8.0 million Industrial Revenue Bond to finance
the new facility in Manchester, Tennessee. Debt totaling $5.0 million was
incurred in Europe to finance the expansion activities.
Following the Acquisition, the Company has a $160.0 million revolving
credit facility available to finance short-term borrowings and letters of
credit. In connection with the Acquisition, $79.1 million was drawn against the
revolving credit facility, approximately $52.3 million was available for
additional borrowings and $28.6 million was used for credit support in the form
of letters of credit. See 'Description of the New Credit Agreement.' The
Company's European operations also had several lines of credit totaling $20.2
million at November 30, 1997, of which, at the Closing Date, $5.0 million was
borrowed. At Closing, the Company had $15.7 million available under the European
operations' lines of credit. The European operations' lines of credit contain
financial covenants, with which the Company is in compliance. The Company
believes that the European operations should generate enough cash through
operations and borrowings on lines of credit to finance growth in the near-term.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for debt service and capital
maintenance. The Company believes that its cash flows from operations and
available borrowings under its bank credit facilities will be sufficient to fund
its anticipated liquidity requirements for the next twelve months. In the event
that the foregoing sources are not sufficient to fund the Company's expenditures
and service its indebtedness, the Company would be required to raise additional
funds. See 'Description of New Credit Agreement.'
Because the Company is highly leveraged and has significant debt service
requirements, the financial results of prior periods will not be indicative of
future results. On February 28, 1998, after giving effect to the Acquisition,
the Company had $547.0 million of long-term debt outstanding, $323.8 million of
which was secured. Under the New Credit Agreement, the Company has scheduled
principal payments aggregating $5.3 million, $10.4 million and $15.4 million for
the years 1998, 1999 and 2000, respectively, increasing to a maximum of $73.9
million in 2006. For the year ended November 30, 1997, after giving effect to
the Acquisition, pro forma interest expense would have been $54.9 million
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compared to the actual interest expense of $31.3 million, $3.1 million and $1.9
million for 1997, 1996 and 1995, respectively.
Future financial results will also differ from prior periods because of the
increased depreciation and amortization of assets that were restated to their
fair values upon the Company's emergence from bankruptcy and again at the date
of the Acquisition. See 'Effects of Reorganization on Operations and Financial
Condition'. For the year ended November 30, 1997, after giving effect to the
Acquisition, the pro forma depreciation and amortization would have been $56.7
million compared to actual depreciation and amortization of $30.8 million and
$28.7 million for 1996 and 1995, respectively.
YEAR 2000
The Company is performing a comprehensive review to identify the systems
affected by the Year 2000 issue. A project committee meets regularly to review
the status of the investigation into and resolution of Year 2000 issues. As a
result of the committee's progress to date, the Company expects to modify or
upgrade existing systems and, in some cases, replace systems. The Company does
not expect to spend any significant incremental amounts with outside contractors
to complete any necessary modifications or conversions, but is redeploying
existing internal resources. The Company presently believes that through the
planned modification to existing systems and conversion to new systems, as well
as ongoing correspondence with suppliers and customers, the Year 2000 issue will
be resolved on a timely basis, and any related costs will not have a material
impact on the results of operations, cash flows or financial condition of the
Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the FASB issued Statement of Financial Accounting Standards No.
128, 'Earnings per share' ('SFAS 128'), Statement of Financial Accounting
Standards No. 130, 'Reporting Comprehensive Income' ('SFAS 130') and Statement
of Financial Accounting Standards No. 131, 'Disclosures About Segments of an
Enterprise and Related Information' ('SFAS 131'). SFAS 128 establishes standards
for computing and presenting earnings per share ('EPS') and applies to entities
with publicly held common stock or potential common stock. This statement
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. SFAS 130
establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net income and all other nonowner changes
in equity. SFAS 131 introduces a new segment reporting model called the
'management approach.' The management approach is based on the manner in which
management organizes segments within a company for making operating decisions
and assessing performance. The management approach replaces the notion of
industry and geographic segments. The Company will adopt SFAS 128 in the fiscal
year ending November 30, 1998, including interim periods. The Company does not
expect to adopt SFAS 130 and SFAS 131 until the end of its fiscal year ending
November 30, 1999. The Company believes that the adoption of SFAS 128, SFAS 130
and SFAS 131 will not significantly affect the Company's financial condition,
results of operations or cash flows.
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BUSINESS
The Company operates in certain self-defined markets for which public
market share information is not readily available. The market share information
and description of the markets contained in this Prospectus are based on
management's good faith estimates. Management's estimates are based on, among
other things, the following factors: (i) management's knowledge of the market
based on its historical business and industry experience; (ii) discussions with
customers and competitors in the various niche markets in which the Company
competes; and (iii) the Company's product sales compared to management's
calculated estimates of the total product sales in each particular market. The
Company has not independently verified this market share data and makes no
representation as to its accuracy.
GENERAL
Founded in 1843, Eagle-Picher is a diversified manufacturer of industrial
products for the automotive, aerospace, defense, telecommunications, food and
beverage and construction industries. The Company's long history of innovation
in technology and engineering has helped it become a leader in certain niche
markets in which it competes. Eagle-Picher operates more than 50 plants in the
U.S., England, Germany, Spain and Mexico, and sells its products in over 60
countries worldwide. The Company has achieved significant internal growth in
both sales and EBITDA, with a compounded annual growth rate since 1993 of 8.2%
and 10.9%, respectively. For the 1997 Fiscal Year, the Company realized net
sales and EBITDA of $906.1 million and $104.0 million, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' for a discussion of the Company's net income (loss). The Company's
operations are organized under three major business groups: the Automotive
Group, the Machinery Group and the Industrial Group, which accounted for 48.0%,
29.9% and 22.1% of the Company's net sales and, after allocation of corporate
overhead, accounted for 49.2%, 27.0% and 23.8% of the Company's EBITDA,
respectively, for the 1997 Fiscal Year.
The Automotive Group. The Automotive Group designs, develops, and
manufactures precision machined and rubber coated metal components for the
global automotive industry. Its customers include OEMs such as Ford, GM,
Chrysler, Toyota, Nissan, Honda, Fiat, BMW and Rover, as well as Tier I
suppliers. The Company pioneered the development of materials and processes for
coating metal with elastomer (rubber) compounds, and the Company believes its
proprietary technologies in this area give it competitive advantages. The
Company's rubber coated metal products consist of highly specialized gaskets and
materials for high-temperature and high-pressure applications, including disc
brake noise insulators, air conditioning compressor gaskets, and gaskets and
coated materials for automotive powertrains. More than 150 precision machined
components are produced by the Automotive Group, including vibration dampening
devices for engine and drivetrain applications and automatic transmission pump
assemblies. The Company believes that it is the only non-OEM in North America
manufacturing high volumes of automatic transmission oil pumps and is one of the
top three companies worldwide that design and produce torsional crankshaft
dampers. The Automotive Group also produces fluid systems assemblies, molded
rubber products, aluminum castings, and interior trim products.
The Machinery Group. The Machinery Group designs and produces special
purpose batteries, construction equipment and can washing and coating machinery.
The Company has played a crucial role in the development of power systems for
U.S. space flight, and its batteries have powered missions from the back-up
system that safely brought Apollo 13 back to Earth 28 years ago, to last year's
Mars Pathfinder. The Company's batteries are also used in virtually every U.S.
missile system, including the Patriot and Tomahawk missiles. Recognized as one
of the world leaders in nickel-hydrogen technology since it powered the first
communication satellite launch in 1983, the Company believes it is a world
leader in providing power systems for communications and surveillance
satellites, including Motorola's Iridium'r' project. Construction equipment
produced by the Machinery Group includes elevating wheel tractor scrapers, which
are made under a sole-source contract with Caterpillar, and a premium line of
heavy duty forklift trucks, as well as related replacement parts. The Machinery
Group also designs, manufactures and installs specialized high volume can
washing and coating machinery primarily for the manufacturers of two-piece cans
primarily for the food and beverage industry.
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The Industrial Group. The Industrial Group is a leading producer of
specialty materials, filter aids and absorbents which are used in a wide range
of applications. The Company's specialty materials business, which has grown by
approximately 60%, as measured by net sales, in the past two years, develops,
manufactures and tests high-purity materials including germanium wafers (used in
solar cells for the satellite industry), germanium tetrachloride (used in fiber
optic cables for the telecommunications industry) and boron (used as a neutron
absorber in nuclear power plants and as a semiconductor dopant). With a 30-year
history of developing processing techniques, the Company produces the highest
purity boron and germanium available in the market. Recent innovations by the
Industrial Group have led to development stage production of a zinc selenide
crystal that adds blue and true-green to the existing red color spectrum of
LEDs, with potential use in flat panel displays and signage. The Industrial
Group is also one of the world's largest producers of diatomaceous earth and
perlite filter aids, which are used for high purity filtration by food and
beverage processors and by chemical and pharmaceutical companies.
BUSINESS STRATEGY
The Company's strategy is to enhance its competitive position as a leading
global manufacturer for the automotive, aerospace, defense, telecommunications,
food and beverage, and construction industries. To achieve this objective, the
Company will continue to build upon the following strengths:
Leading Positions in Niche Markets. Eagle-Picher's long history of
innovation and reputation for quality have afforded it leading positions in
certain niche markets. The Company enjoys leading positions in, among others,
the market for rubber coated metal products, the North American non-OEM market
for transmission pumps, the market for nickel-hydrogen batteries and the market
for two-piece can washers. The Company believes that it has achieved significant
market share in these markets because of its customer relationships, engineering
excellence, high quality standards and industry reputation.
Strong Customer Relationships. The Company has established long-term
relationships with many of its customers. It has been supplying its products to
each of Ford, GM and Chrysler for more than 45 years; Lockheed Martin for more
than 40 years; and Motorola for more than 30 years. The Company believes it has
developed strong customer relationships by working closely with customers to
design products that meet the customers' specifications. Often, the Company
provides innovative and cost-efficient engineering solutions to customer
problems. For example, the Industrial Group continuously works with customers to
develop lighter and longer-lasting battery systems to complement the latest
generations of missiles and satellites. In addition, through the development of
a new camshaft damper, the Automotive Group recently solved a significant
powertrain vibration problem for certain OEMs.
Many of the Company's facilities are located near customer plants,
enhancing the Company's ability to respond to its customers' needs. The
Automotive Group recently built a new transmission pump production facility in
Manchester, Tennessee and a new manufacturing facility in San Luis Potosi,
Mexico, in each case to meet the increasing needs of OEMs located nearby. The
Company believes that its strong relationships with customers, particularly
automotive and capital equipment OEMs, give the Company a competitive advantage
and position the Company to capitalize on a growing trend toward outsourcing.
Diversified Product Lines; Global Presence. The Company manufactures
hundreds of products for the automotive, aerospace, defense, telecommunications,
food and beverage and construction industries. The Company sells its products to
customers located in over 60 countries through its extensive network, including
global manufacturing facilities throughout the U.S. and Europe. The Automotive
Group alone serves virtually all major automotive OEMs worldwide. The Company
believes that its product diversification and global sales reduce its exposure
to any one market segment or customer.
Superior Product Quality. The Company believes it has a reputation among
its customers for providing technologically advanced, high quality products. The
Company has been honored by many of its customers for its commitment to quality
and service, and, in the last two years, has earned Ford's 'Supplier of the Year
Award' (Ford's Sharonville facility), Hughes SC's 'Performance Excellence
Award,' MD's 'Preferred Supplier Award' and Lockheed Martin's 'Tradition of
Excellence Award.'
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Low Cost Structure. The Company is committed to controlling costs and
improving operating efficiencies. The Company believes that it is a low cost
producer in many of the markets in which it competes. The Company attributes its
low cost position to its leading positions in niche markets, relatively low
overhead costs due to the small town locations of many of its facilities, a
primarily non-union workforce, advanced proprietary technology and advanced
manufacturing processes, including the Toyota Production System at one of the
Automotive Group's facilities. Low cost is essential to the Company's ability to
continue to remain competitive.
INDUSTRY OVERVIEW
AUTOMOTIVE
The Automotive Group's performance, growth and strategic plan are directly
related to certain trends within the OEM and Tier I markets, including the OEMs'
increasing reliance on outsourcing, the expansion of OEM supplier
responsibilities and the shift by OEMs to the purchase of 'systems' (several
components assembled together) rather than individual components, all of which
have contributed to a consolidation of OEM suppliers.
Since the 1980's, OEMs such as Ford, GM and Chrysler have been outsourcing
an increasing percentage of their production requirements. OEMs benefit from
outsourcing because outside suppliers generally have significantly lower cost
structures and can assist in shortening development periods for new products.
Consistent with the trend toward outsourcing, OEMs have focused on developing
long-term, sole source relationships with suppliers that accept significant
responsibility for product management and meet increasingly strict standards for
product quality, on-time delivery and lower manufacturing costs. These suppliers
are expected to control all aspects of the production of system components,
including design, development, component sourcing, manufacturing, quality
assurance, testing and delivery to the customer's assembly plant. Many suppliers
do not have the resources to meet these requirements and the Company believes
that, as a result, the automotive OEM supplier market will be divided among a
smaller group of high quality key suppliers.
While the OEMs' focus today is on quality, cost and service, the Company
believes that their focus for the future will be on global capabilities,
innovation and ability to provide value-added products and systems. The OEMs
have been very successful in making high quality and low cost a minimum
requirement to remain in the industry, rather than a competitive advantage for
certain suppliers.
These evolving requirements can best be addressed by suppliers with
sufficient resources to meet such demands. For suppliers such as the Company,
this environment provides an opportunity to grow by obtaining business
previously provided by other suppliers who can no longer meet the current or
future requirements and expectations of the OEMs and by acquisitions that
further enhance product manufacturing and service capabilities.
INDUSTRIAL AND MACHINERY
Defense and Space Power Systems. The defense and space power systems
markets to which the Industrial and Machinery Groups sell their products design,
develop, produce and sell components or systems for use in a variety of military
applications (including missiles, smart weapons and aircraft) and space power
applications (including satellites, spacecraft and launch vehicles).
In recent years, the defense industry in the U.S. has been characterized by
steadily declining defense budgets primarily as a result of a change in the
nature of perceived threats to U.S. national security interests since the
dissolution of the Soviet Union in 1991 and growing political pressure to
balance the federal budget. Industry sales to the DOD declined for eight
consecutive years through 1995. As a result, many U.S. spacepower and
defense-related companies have focused on a strategy of downsizing and
consolidation.
Although the defense budget is shrinking, the U.S. government is still the
largest consumer of space power. However, propelled by rapid growth in
telecommunications, broadcast, aircraft navigation, and imaging applications,
worldwide non-governmental spending in the space power market is growing. If
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this trend continues, non-governmental space power spending could surpass
government space power spending within a decade.
Significant markets in the commercial space segment include satellites,
satellite launchers and supporting ground equipment. U.S.-based companies
manufacture of satellites worldwide, led by Hughes and other U.S. satellite
manufacturers including Lockheed Martin, Loral Space and Communication Ltd., TRW
Inc. and Ball Corporation.
Despite their lead in satellite technology and production, U.S. companies
command only about one-third of the worldwide satellite launch business. Market
participants include Paris-based Arianespace, an affiliate of The European Space
Union, as well as U.S.-based Lockheed Martin and The Boeing Company ('Boeing').
In addition, NASA's Space Shuttle is used to launch commercial as well as
government satellites, and U.S. companies are developing next-generation
reusable launch vehicles. Several other countries, including China, India,
Israel, Brazil and Japan, are also developing satellite launch capabilities, and
certain Russian and Ukrainian companies have entered into joint ventures with
U.S. companies. The rapid growth in satellite launch demand has been furthered
by the development of an array of satellite services companies and the
development of new services such as satellite broadcast cable television and
global mobile telephone services and high-volume data transfer.
In the military space power market, satellite reconnaissance and
communications capabilities are becoming more important. For example, the U.S.
Air Force has a number of important space programs including DSP (Defense
Support Program), Milstar satellite communications, and Navstar Global
Positioning System, and continues to provide funding for the production of
medium launch vehicles and Titan heavy launch vehicles. The primary Army space
program provides ground systems for the Defense Satellite Communications System,
while the Navy operates its Fleet Satellite Communications System.
Telecommunications. A number of trends within the telecommunications
industry have had and will continue to have a fundamental impact on the
satellite market. Advances in cellular and satellite technologies have made
possible mobile satellite systems that could link the entire world in a single,
seamless wireless communication system. Owners and operators of communication
satellites, which continually need space access, have fueled the growth in this
industry and now account for virtually all of the private sector market for
commercial launch services. Six new services planned for implementation between
1998 and 2000 will rely on large low earth orbiting ('LEO') satellite systems to
offer global mobile telephone, television, internet and other information
services. LEO satellites, with orbits of approximately 1,500 nautical miles, are
typically smaller and lighter than their geostationary ('GEO') counterparts,
which orbit at a distance of approximately 22,300 nautical miles, and mid-earth
orbit satellite systems, which orbit the Earth at distances between the orbits
of LEOs and GEOs. The demand for these services is expected to result in the
production and launch of hundreds of satellites between 1998 and 2000. The
Company believes that these satellite constellations will increase future demand
because the satellites are expected to be replaced every five years.
The primary customers of satellite components are the satellite
manufacturers such as Hughes and Lockheed Martin, and satellite owners such as
Iridium World Communications Ltd. (30% of which is owned by Motorola),
Globalstar Telecommunications Limited ('Globalstar') (which is owned by
Loral/Qualcomm Incorporated) and Orbital Sciences Corporation. The increased
demand for satellites has attracted several small companies and several larger
satellite manufacturers to become satellite owners.
Semiconductors. Semiconductors are the basic building blocks used to create
a variety of components and systems used in satellites, spacecraft and aircraft
as well as a broad array of other communications, computer and computer
peripheral and consumer electronics applications. Continual improvements in
semiconductor processes and design technologies have enabled the production of
complex, highly integrated circuits which provide faster execution, increased
functionality and greater reliability at lower cost. As a result, semiconductor
demand has grown substantially in its primary markets of computing and
communications, and has experienced increased growth in additional markets such
as consumer electronic devices, automotive products and industrial automation
and control systems.
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Construction Equipment. The construction equipment industry in which the
Machinery Group competes has a broad spectrum of participants that specialize in
various product lines. The principal factors affecting the market are
distribution strength, market share objectives, profit objectives, unique
product or service advantages and product support. The construction industry in
the Midwest and Northeast is highly seasonal. Construction activity slows down,
especially in these regions, beginning in November and continuing through the
first quarter. North American retail demand for construction equipment is
strongest in the second and fourth quarters. In the construction equipment
market, the Company is the sole producer of elevating wheel tractor scrapers for
Caterpillar. The other major participant in this market is Deere & Company. The
primary participants in the vertical mast rough-terrain forklift truck market,
in addition to the Company, are Case Corporation, JCB Inc. and Sellick Equipment
Limited.
The materials handling industry to which the Machinery Group supplies its
cushion-tire forklift trucks, which are primarily used in the paper, metals and
automotive markets, is a mature industry which historically has been cyclical.
Fluctuations in the rate of orders for forklift trucks reflect the capital
investment decisions of the customers, which in turn depend upon the general
level of economic activity in the various industries served by such customers.
In the most recent business cycle, the North American market for forklift trucks
reached its lowest level in 1991 and has increased in all but one year
thereafter.
Can Washing Equipment. The U.S. metal beverage container industry in which
the Machinery Group also competes has experienced slow demand growth at a
compounded annual rate of approximately 2% over the last decade, with much of
that growth in the soft drink market. As a result, capital spending on can
manufacturing equipment has been minimal and the Company has focused on
servicing and providing replacement parts for existing equipment. The demand for
can manufacturing equipment is primarily from emerging markets such as China,
Vietnam, Thailand, Poland, Russia, India and Brazil. The majority of the
Company's sales of new two-piece can washers is expected to be in these emerging
markets for the foreseeable future.
DESCRIPTION OF BUSINESSES
THE AUTOMOTIVE GROUP
The Automotive Group is a supplier in the global automotive market offering
a diverse range of products to three primary geographic markets -- North
America, Europe and Asia. The Automotive Group is primarily engaged in the
production and sale of mechanical and structural parts for passenger cars,
trucks, vans and recreational and utility vehicles. Their offerings include
state-of-the-art products based on proprietary technologies and staple products
within different markets. Manufacturing plants, largely in the U.S., but also in
England, Germany, Mexico and Spain, and sales and engineering offices in the
U.S., Japan and Europe serve automotive markets around the world. The operating
strategy of the Automotive Group is to identify and target niche markets and
then to create substantial market positions within these niche markets. The
Company believes that the Automotive Group is positioned to capitalize on the
recent trend by OEMs to outsource their products. The Automotive Group
distributes its products primarily to Ford, GM, Chrysler, Toyota, Nissan and
Honda, and to Tier I suppliers of those manufacturers, directly through its
internal sales personnel. With respect to the hundreds of products manufactured
by the Automotive Group, competition varies widely as to the number and type of
competitors, the methods of competition, and the Automotive Group's competitive
positions. Generally, competitive conditions for the Automotive Group are
characterized by a decrease in the number of competitors while at the same time
an increase in the size of existing competitors, increased foreign competition
(particularly from Asia), increased emphasis on quality and intense pricing
pressures from major customers.
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The Automotive Group is composed of two major product groups: Precision Machined
Components and Rubber Coated Metal Products. The following table sets forth, for
the last three fiscal years, the net sales and the percentage of the Company's
total net sales contributed by each product group.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
% OF TOTAL % OF TOTAL % OF TOTAL
NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Precision Machined Components................. $ 205.6 22.7% $ 182.1 20.4% $ 168.9 20.0%
Rubber Coated Metal Products.................. 80.8 8.9 83.9 9.4 77.9 9.2
Other Automotive Products..................... 112.5 12.5 92.8 10.4 92.1 10.8
Divested Automotive Products.................. 36.3 4.0 80.8 9.1 94.3 11.1
--------- ----- --------- ----- --------- -----
Total............................... $ 435.2 48.1% $ 439.6 49.3% $ 433.2 51.1%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
Precision Machined Components. The Automotive Group's Hillsdale division
specializes in the design, manufacture and distribution of a full line of
precision machined aluminum and steel parts for the worldwide automotive market.
Precision machined components include vibration dampening devices and precision
machined castings and forgings which are designed and engineered for engine,
transmission and driveline applications.
The Automotive Group's transmission products include pump assemblies for
use in automatic transmissions. The Company believes that it is the only non-OEM
in North America manufacturing high volumes of automatic transmission oil pumps.
The Hillsdale division produces the entire pump assembly for Ford's electronic
four-speed overdrive transmission, which is used on pick-up trucks, vans and
sport utility vehicles. Each pump contains over 50 components which are
machined, assembled and tested by Hillsdale.
The Automotive Group also produces torsional vibration dampening devices
for use in engine and drivetrain applications. A damper is a vibration control
device which reduces the torsional stress vibrations caused by internal
combustion engine systems, thereby alleviating the stress on shafts and relaxing
the flex points. Dampers reduce fatigue and prevent cracking thereby enhancing
the durability of engines and their components. The Company believes it is one
of the top three companies worldwide which designs and produces torsional
crankshaft dampers. The Automotive Group recently expanded its international
operations by opening a new facility in Tamworth, England to service existing
and new customer needs.
The Automotive Group also produces nearly 150 different machined castings
and forgings for power steering, drivetrain and transmission applications from
numerous metals. Each part is specially designed to meet a customer's
specifications. Once a product is designed for a customer, the Company believes
it becomes the sole source provider of such products to that customer.
The Automotive Group also produces its own rubber compounds which enables
it to consistently maintain high quality and to manipulate the composition of
the rubber for its different products. By controlling the quality and
composition of its rubber, the Automotive Group is better able to manufacture
components to critical tolerances, giving it an advantage over its competitors.
Hillsdale continues to diversify its customer base, application and product
range, as well as its international presence, most notably in Mexico. Hillsdale
has experienced growth within the expanding Japanese plant operations in the
U.S. with such products as torsional vibration dampers and transmission pumps.
As a result of such business, and consistent with its strategy to remain close
to its customer base, Hillsdale recently completed a new manufacturing facility
in Manchester, Tennessee to supply the nearby Nissan assembly plant's
transmission pump needs, which were approximately 271,000 for the year ended
December 31, 1997. The Company believes that its Manchester facility will have
the capacity to produce 300,000 transmission pumps annually by the end of 1998.
The market for precision machined components tends to have a few strong and
well-positioned competitors including the OEMs, as well as Simpson Industries,
Inc. and Freudenberg-NOK General Partnership ('Freudenberg'). The Automotive
Group competes in this market primarily on the basis of price, delivery, quality
and service.
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Rubber Coated Metal Products. The Automotive Group's rubber coated metal
products, which are manufactured by its Wolverine Gasket division, consist of
highly specialized gaskets and materials for high-temperature and high-pressure
applications in the automotive industry using proprietary processes and
formulations. Generally, gaskets are compressible, lightweight material placed
between metal parts to act as a seal and prevent fluids and gases from leaking.
Rubber coated metal products are composed of three principal product lines: disc
brake noise insulators, compressor gaskets for air conditioning units and
gaskets and coated materials for powertrain applications (including head
gaskets).
Wolverine Gasket pioneered the development of materials to manufacture the
high-torque sealing products needed to withstand intense heat and pressure.
Wolverine Gasket also invented the process of coating materials with a thin
elastomer to render them impervious to fluid penetration and able to withstand
high-torque loads. This technology makes possible the coating of the wide range
of substrate materials necessary to operate a complex machine such as a car,
which generates intense heat and pressure. The Automotive Group's widely used
compounds include Wolverine Steel N'r', a steel base with an oil-resistant
specialty compounded rubber; Foamet'r', a temperature-resistant compound which
is bonded to steel or aluminum; Alum-N'r', an aluminum alloy-based product
coated with nitrile synthetic rubber which is particularly effective where
corrosion or weight is a factor; and Vulkol'r', a coated rubber-to-vulcanized
fiber sealing material. Wolverine Gasket, which is currently a supplier to OEMs
including Ford, Toyota and GM, plans to expand its sales to Tier I suppliers in
the future.
The trend in the auto industry toward high-temperature, high-compression
and longer-lasting engines requires that engine gaskets meet more stringent
specifications for durability and sealing. Wolverine Gasket's coated metal
products provide the most significant component of multilayer steel head
gaskets, which the Company believes will become the gasket of choice for future
engine designs. A multilayer steel head gasket is a sealing material which is
better able to withstand intense heat and pressure, such as those which are
common in diesel engines. In addition, Wolverine Gasket expects the brake
insulator market to grow as more cars are equipped with four-wheel disc brakes.
Wolverine Gasket's coating expertise, combined with its recent major investment
in a state-of-the-art coating line, gives the Company the opportunity to sell
its material to a new customer base throughout the world. The Automotive Group's
new 50,000 square foot facility in Blacksburg, Virginia contains a technically-
advanced liquid rubber-to-steel coil coating line which enables the Company to
produce rubber coated metal to closer tolerances.
The market for rubber coated metal products is highly fragmented. The
Automotive Group competes against a variety of different companies in the
geographical markets it supplies, and has no primary competitor. The Company
believes that it is the sole supplier to the U.S. automotive compressor gasket
market. The Company also believes that it has 70% of the U.S. market for disc
brake noise insulators.
THE MACHINERY GROUP
The Machinery Group is composed of two major product groups: special
purpose batteries and construction equipment. The following table sets forth,
for the last three fiscal years, the net sales and percentage of the Company's
total net sales contributed by each product group:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
% OF TOTAL % OF TOTAL % OF TOTAL
NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Special Purpose Batteries..................... $ 131.0 14.4% $ 108.8 12.2% $ 99.3 11.7%
Construction Equipment........................ 96.8 10.7 95.1 10.7 108.4 12.8
Other Machinery Products...................... 30.2 3.3 35.7 4.0 32.2 3.8
Divested Machinery Products................... 12.8 1.4 18.0 2.0 14.8 1.7
--------- ----- --------- ----- --------- -----
Total............................... $ 270.8 29.8% $ 257.6 28.9% $ 254.7 30.0%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
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Special Purpose Batteries
The Machinery Group, primarily through its Federal Systems, Power Systems
and Power Subsystems departments, designs, manufactures and tests special
purpose batteries for advanced value-added products for three markets:
telecommunications, aerospace and the U.S. government. The Company is the
leading supplier of special purpose batteries for aerospace and defense
applications. The Company's broad line of specialty batteries includes: (i)
thermal batteries (used primarily in missiles, smart weapons and other defense
systems); (ii) silver-zinc batteries (used primarily in military applications
and in launch vehicles); (iii) nickel-hydrogen cells and batteries (used in
military, scientific and commercial aerospace and telecommunications
satellites); (iv) lead acid batteries (used in emergency lighting,
uninterruptible power systems, telecommunications, handheld power tools and
ride-on toys); and (v) nickel-cadmium batteries (used in aircraft and aerospace
applications). The Company believes that its special purpose batteries have been
used in virtually every U.S. missile system, including the Patriot and Tomahawk
missiles used in the Persian Gulf war, and in all spacecrafts used in the
principal U.S. space missions, including the space shuttle and the Mercury,
Gemini and Apollo spacecrafts.
Thermal Batteries and Silver-Zinc Batteries. Thermal batteries, unlike most
other batteries, can remain dormant for long periods of time prior to their use.
The Company believes that it is the leading supplier of batteries for missiles,
submunitions, mines, sonobuoys, fuses and aerospace power backup. The Company
has supplied batteries for virtually every U.S. missile system and accounts for
70% of all thermal battery sales for U.S. military applications and 50% of all
such sales for military applications for the U.S. and its allies combined. It
was the Company's silver-zinc batteries that provided the essential back-up
power systems for the life support, guidance and communications that safely
brought the Apollo 13 spacecraft back to Earth 28 years ago, as well as the
batteries used to power the Mars Pathfinder in the exploration of Mars last
year. The Company believes that it is the market leader in thermal and silver-
zinc batteries on the basis of quality, customer satisfaction, technological
innovation and cost structure. The Machinery Group's primary competitor for
thermal batteries is (ASB) Aerospatiale Batteries, which has a large share of
the European market. The Machinery Group's primary competitor for silver-zinc
batteries is Yardney Technical Products, Inc. in the U.S. and SAFT in Europe.
The Company believes that its higher quality and lower cost have enabled it to
maintain its market share.
Nickel-Hydrogen Batteries. The Company believes that it is the world leader
in nickel-hydrogen technology as well as being the most diversified manufacturer
of special purpose NiH2 power systems. The nickel-hydrogen battery system, which
is the most widely-used power source for weather, communications and military
satellites, is recognized for its long-life (typically greater than 15 years),
reliability and durability. The NiH2 power system, which is designed to outlast
most systems in which it is installed, powered the first communication satellite
launch in 1983 and is currently part of the Hubble Space Telescope. The Company
believes that more than 90% of the communications and surveillance satellites
manufactured in the U.S. are powered by Eagle-Picher nickel-hydrogen batteries,
including all major global telecommunications systems. The Company believes that
it is the primary or sole source supplier to such customers as Lockheed Martin,
SS/Loral, Hughes and Boeing. The Company has several contracts for satellite
components with several of these satellite projects including Motorola's
Iridium'r' system consisting of 66 LEO satellites and offering digital
communications (voice, data, fax and paging capability) to subscribers and
Globalstar's system consisting of 48 LEO satellites to provide fixed and
mobile telecommunication services by 1999.
Lead-Acid Batteries. The Machinery Group manufactures an extensive line of
rechargeable valve regulated lead-acid ('VRLA') batteries under the Carefree'r'
brand. Carefree'r' sealed lead-acid batteries are typically small rechargeable
batteries used in emergency lighting, uninterruptible power systems,
telecommunications, handheld power tools and ride-on toys. The Carefree'r' line
has approximately 6% of the $250 million market for less-than-60-ampere-hour
VRLA batteries. Major customers of the Carefree'r' line include Peg Perego,
Simplex, C.E.A. and Lithonia. The Company competes with companies that have a
significantly larger market share. The Company believes that it offers the
shortest lead times of any manufacturer, superior telecommunications product
performance and the ability to provide unique battery shapes and sizes to adapt
to a customer's needs.
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Nickel Cadmium Batteries. The Company supplies its nickel cadmium batteries
for space and satellite programs to NASA and U.S. satellite builders, such as
Hughes and TRW. They also sell to the DOD and aircraft manufacturers, such as
Lockheed Martin and Bell Helicopter, for use in airplanes and helicopters. The
Company competes primarily on the basis of quality, performance and cost.
Construction Equipment
The Machinery Group's Construction Equipment division manufactures
primarily two construction equipment products: elevating wheel tractor scrapers
and heavy-duty industrial forklift trucks. Wheel tractor scrapers are used for
removal of overburden in open-pit mining and site preparation on highway,
commercial, municipal and industrial projects. The Company is the exclusive
source of elevating wheel tractor scrapers to Caterpillar, which the Company
believes has 85% of the U.S. market for elevating wheel tractor scrapers. In
1996, the Company received Caterpillar's 'Certified Supplier' designation.
The Machinery Group manufactures several different models of heavy duty
forklifts. Through its Construction Equipment division, the Machinery Group
utilizes Caterpillar's dealer network to sell its own branded products,
including cushion-tire forklift trucks, which are sold primarily to paper, metal
and automotive manufacturers, and its R-Series, which are sold primarily to
independent rental fleets such as The Hertz Corporation and U.S. Rentals. The
division recently introduced a lower cost truckmounted forklift called
'TrailerMate' which is also sold to a variety of customers through the
Caterpillar dealer network. The industrial forklift market is highly fragmented
and many of the Company's competitors have a greater market share. However, in
the niche markets in which the Company competes, such as in the heavy duty rough
terrain market, the Company has a significant market share. The Company also
sells to the replacement parts market, which accounts for 12% of the sales of
the Company's Construction Equipment division. The Construction Equipment
division recently expanded its facility in Mexico, which now has more than 300
employees.
THE INDUSTRIAL GROUP
The Industrial Group is composed of two product groups: specialty materials
and filter aids and absorbent products. The following table sets forth, for the
periods indicated, the net sales and percentage of the Company's total net sales
contributed by each product line:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
% OF TOTAL % OF TOTAL % OF TOTAL
NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Specialty Materials............................ $ 101.9 11.3% $ 88.4 9.9% $ 62.2 7.3%
Filter Aids/Absorbent Products................. 63.6 7.0 61.8 7.0 58.1 6.8
Other Industrial Products...................... 5.1 0.5 4.6 0.5 4.1 0.5
Divested Industrial Products................... 29.5 3.3 39.3 4.4 36.2 4.3
--------- ----- --------- ----- --------- -----
Total................................ $ 200.1 22.1% $ 194.1 21.8% $ 160.6 18.9%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
Specialty Materials
The Industrial Group, primarily through its Environmental Science and
Technology ('ESAT'), Electro-Optic Materials ('EOM') and Boron departments,
develops, manufactures and tests high-purity specialty materials for a wide
range of services and products. The Industrial Group's significant specialty
materials products include germanium and boron.
Germanium. The Industrial Group is one of the world's leading manufacturers
of germanium products. With over 50% of the market, the Industrial Group is one
of the leading suppliers of thin polished germanium substrates (known as wafers)
for solar cells on space satellites. The wafers are used in the production of
solar cells which power satellites and recharge their batteries. The Industrial
Group's germanium wafers are used on the Hubble Space Telescope, satellite
systems including Panamsat, Indiasat, the Lockheed Martin A-2100 Buss and the
Iridium'r' network. The Industrial Group also produces germanium tetrachloride,
which is used as a dopant in the manufacture of fiber optic
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cable. Germanium tetrachloride, when added to glass fiber, changes the light
guiding properties of the fiber, enabling light signals to travel for over 60
miles. The Industrial Group also supplies germanium metal for use in infrared
optics (such as night vision lenses) and germanium dioxide, which is used as a
catalyst in the production of polyethylene terephthalate (PET) bottles in the
Asian market.
Boron. The Industrial Group's Boron department developed the sophisticated
manufacturing processes necessary to produce isotopically pure boron, which
involves the separation of boron into its isotopes, and to produce high purity
enriched boron compounds. One of its primary products is enriched boric acid,
which is used as a neutron absorber in nuclear power plants. The nuclear power
plants that use enriched boron are primarily those that use mixed oxide ('MOX')
fuels, which create a more intense reaction. Other plants that have not
converted to the use of MOX fuels can use non-enriched boron, which is not
manufactured by the Company, as a control material. Boron isotopes can also be
used in the manufacture of nuclear control rod pellets and in storage casks used
to transport and store spent nuclear fuel and other materials. The Industrial
Group supplies over 90% of the world's demand for 10B and 11B isotopes. Although
there are few competitors in the enriched boron markets, the Industrial Group's
primary competition is manufacturers of alternate materials made of non-enriched
boron compounds. The Industrial group competes in the boron market primarily on
the basis of a facility's overall operating cost.
Semiconductor Dopants and Crystal Growth. The Industrial Group, through its
ESAT, EOM and Boron departments, also manufactures semiconductor dopants.
Semiconductors which are the 'brains' of the modern computer, are tiny powerful
devices that control electrical currents. In recent years, the trend in the
semiconductor market has been toward producing smaller and more powerful chips
which are more sensitive to impurities in the production process. The Industrial
Group, through its patented 'Chromacut' purification process, purifies
semiconductor dopants beyond current standards. The Industrial Group has
pioneered certain development stage products including a zinc selenide crystal
that adds blue and green to the existing red color spectrum of light emitting
diodes (LEDs). This development provides increased brightness and definition for
a variety of applications including flat panel displays (personal computers),
signage (athletic facilities), aircraft cockpit display, traffic lights and
automotive instrumentation.
Filter Aids and Absorbent Products
The Industrial Group produces diatomaceous earth (diatomite) filter aids
and perlite filter aids which are used primarily by the food and beverage
industry and for general industrial applications. Diatomite is an odorless and
tasteless non-metallic mineral, derived from the skeletal remains of aquatic
plants, with a honeycomb structure that is ideal for filtration. Perlite is a
non-metallic mineral of volcanic origin that expands like popcorn when heated to
elevated temperatures. The diatomite and the expanded perlite are milled and
classified into appropriate particle size ranges, producing low density,
efficient filter aids. Examples of diatomite and perlite filtration applications
include corn sweeteners, vegetable oils, cane and beet sugar, fruit juices,
beer, wine, chemicals, pharmaceuticals, and water purification. The Industrial
Group also produces diatomite granular absorbents and functional fillers. These
products are used as industrial absorbents, soil amendments, fillers, catalyst
carriers, and for agricultural applications. The diatomite and perlite filter
aids are marketed worldwide under the brand name Celatom'r' and the absorbents
are marketed under the brand name Floor Dry'r'. The Industrial Group competes
globally in the market for diatomaceous earth and perlite filter aids and in
North America for industrial absorbents. The Company believes that it has the
second largest market share in the worldwide filter aids market. The largest
market share is held by World Minerals, a division of Alleghany Corporation. In
the North American market for industrial absorbents, the Industrial Group has a
variety of competitors, some of which have a larger market share.
RESEARCH AND DEVELOPMENT
In fiscal 1997, Eagle-Picher spent approximately $14.8 million for research
and development and related activities, primarily for the development of new
products or the improvement of existing products. Comparable costs were $18.0
million and $17.3 million for 1996 and 1995, respectively.
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RAW MATERIALS
The prices of raw materials are subject to volatility. The Company's
principal raw materials are rubber, steel, zinc, nickel, germanium, gallium and
boron. These raw materials are commodities that are widely available. Although
the Company has alternate sources for most of its raw materials, the Company's
policy is to establish arrangements with select vendors, based upon price,
quality, and delivery terms. By limiting the number of its suppliers, the
Company believes that it obtains materials of consistently high quality at
favorable prices.
BACKLOG
At November 30, 1997 and 1996, the Company's order backlog was
approximately $250.0 million. The Company expects the order backlog outstanding
at November 30, 1997 to be filled within the 1998 Fiscal Year. Approximately
$13.2 million of the Company's order backlog at November 30, 1996 was
attributable to sales of the Transicoil business, which was sold by the Company
in July 1997. As customary in the automotive industry, the Company enters into
blanket purchase orders with their customers with respect to specific product
orders. From time to time, the customer, depending on its needs, will provide
the Company with releases on a blanket purchase order for a specified amount of
products. As a result, the Automotive Group has virtually no order backlog.
The Company's Industrial and Machinery Groups have contracts with the U.S.
Government which have standard termination provisions. The U.S. Government
retains the right to terminate contracts at its convenience. However, if
contracts are terminated, the Company is entitled to be reimbursed for allowable
costs and profits to the date of termination relating to authorized work
performed to such date. U.S. Government contracts are also subject to reduction
or modification in the event of changes in Government requirements or budgetary
constraints.
INTELLECTUAL PROPERTY
The Company holds more than 50 patents, primarily in the United States and
Canada. Many of the Company's products incorporate a wide variety of
technological innovations, some of which are protected by individual patents.
Many of these innovations are treated as trade secrets with programs in place to
protect these trade secrets. Accordingly, no one patent or group of related
patents is material to the Company's business. The Company also has numerous
trademarks, including the Eagle-Picher name, and considers the Eagle-Picher name
to be material to its business.
PLAN OF REORGANIZATION AND RELATED INJUNCTION
In January 1991, the Eagle-Picher Group filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code. The filings were not
precipitated by any fundamental business problems. Rather, the filings were
caused by contingent liabilities, settlement costs and legal expenses resulting
from more than two decades of litigation arising out of tens of thousands of
claims asserted against the Eagle-Picher Group in connection with its
asbestos-related business operations, which ceased by 1974. In August 1996, the
Eagle-Picher Group, together with the Injury Claimants' Committee and the
Representative for Future Claimants who was appointed by the Bankruptcy Court,
proposed the Plan to the Bankruptcy Court. The Bankruptcy Court and the Ohio
District Court jointly issued the Order confirming the Plan in November 1996,
and the Plan was consummated on November 29, 1996 (the 'Consummation Date'). The
major component of the Plan was a settlement of the Eagle-Picher Group's
liability for present and future asbestos-related personal injury claims arising
out of business operations prior to the date of the bankruptcy petitions under
which it was agreed that these claims had a total value of $2 billion. Pursuant
to the Plan, (i) the Trust was established and the Company contributed assets to
the Trust valued at approximately $730 million in the aggregate (representing
the approximately 37% distribution upon the $2 billion allowed claim of the
asbestos claimants, as unsecured creditors), consisting of $51.3 million in
cash, $250 million in the 10% Debentures, $69.1 million in Tax Refund Notes,
$18.1 million in Divestiture Notes and 10,000,000 shares of Common Stock
(representing all outstanding shares of Common Stock), and (ii) the PD Trust is
to be established and funded with $3 million in cash (which is currently held in
escrow by the Company). Pursuant to the
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Plan, the asbestos-related claims are discharged and the Eagle-Picher Group has
no further liability in connection with such claims.
Pursuant to the Plan, the Eagle-Picher Group is discharged of the burden of
defending more than 150,000 asbestos-related, as well as any lead-related,
claims that had been, as well as any such claims that may in the future be,
filed against the Eagle-Picher Group. This relief has been accomplished through
the establishment of the independent trusts under the Plan to assume,
administer, settle and pay such claims. In addition, the Order includes the
Injunction, which prohibits claimants with asbestos-related or lead related
claims from bringing actions against the Eagle-Picher Group, and instead
requires these claimants to assert such claims only against the Trust or, as to
asbestos-related property damage claims, against the PD Trust, each of which
was, or in the case of the PD Trust, will be, funded by the Company pursuant to
the Plan. Under the Plan the Trust assumed all liability and responsibility for
asbestos-related and lead-related personal injury claims against the
Eagle-Picher Group, and the PD Trust assumed all liability and responsibility
for asbestos-related property damage claims. The Company believes that the Plan,
the Injunction and the Bankruptcy Code together will enjoin any claims against
the Company or the Eagle-Picher Group with respect to any past, present, or
future asbestos-related or lead-related liabilities arising from or based upon
business operations prior to the date of the bankruptcy petition.
Following confirmation of the Plan, notices of appeal of the Order were
filed by one general unsecured creditor (the 'Creditor Appellant') and the
Unofficial Committee of Co-Defendants (the 'Co-Defendants'), a group of former
manufacturers and distributors of asbestos-containing products that have been
named as co-defendants with one or more members of the Eagle-Picher Group in
asbestos personal injury lawsuits and have asserted claims against the
Eagle-Picher Group for contribution, indemnity and subrogation. The allowance of
contribution claims against the Eagle-Picher Group is subject to Section 502(e)
of the Bankruptcy Code which states that a claim for contribution asserted by an
entity that is liable with a Chapter 11 debtor shall be disallowed to the extent
such contribution claim is contingent as of the time of allowance or
disallowance of such claim. Neither the Creditor Appellant nor the Co-Defendants
requested that the Order be stayed pending appeal. The Creditor Appellant
withdrew its notice of appeal by a stipulation dated January 24, 1997.
The Co-Defendants appealed the Order directly to the Sixth Circuit (the
'Confirmation Order Appeal'), raising a variety of objections to the Plan and to
the Trust's procedures for processing, allowing and paying the Co-Defendants'
claims. The Co-Defendants also asserted, among other things, that Section 524(g)
of the Bankruptcy Code, which authorizes courts to issue injunctions to channel
asbestos claims away from a reorganized company to a personal injury trust
established by such company (as discussed below), is unconstitutional. The
Co-Defendants did not, however, contend that the Bankruptcy Court and Ohio
District Court lacked jurisdiction to enter the Injunction or that Section
524(g) of the Bankruptcy Code had not been satisfied. The Co-Defendants did not
raise their objections in the bankruptcy case until after the deadline for
filing objections to the Plan.
The Co-Defendants also appealed to the Ohio District Court the Bankruptcy
Court's denial of the Co-Defendants' motion for leave to file their late
objection to the Plan discussed above (the 'Objection Appeal'). The Ohio
District Court affirmed the Bankruptcy Court's denial of the Co-Defendants'
motion to file a late objection to the Plan and the Co-Defendants appealed that
judgment to the Sixth Circuit. The Objection Appeal, which was briefed in early
1998, was consolidated with the Confirmation Order Appeal by the Sixth Circuit.
The Company anticipates that oral argument will be held on the consolidated
appeals by the third quarter of 1998.
The Company has argued to the Sixth Circuit that the Confirmation Order
Appeal is moot in light of (i) the substantial consummation of the Plan, (ii)
the fact that the Co-Defendants did not seek a stay of the Order pending appeal
and (iii) the adverse effects that vacation of the Order would have on creditors
and non-creditor third parties who have acted in reliance on the Order.
Even if the Sixth Circuit were willing to consider the substance of the
Co-Defendants' objections to the confirmation of the Plan, the Co-Defendants
have represented in their court papers that they do not object to the amount of
money that was transferred to the Trust, and that their objections relate to the
internal Trust procedures and the identity of the trustees and members of the
advisory committee for the Trust.
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The Company believes that the Injunction is critical to its ability to
continue to operate its business. Indeed, the Bankruptcy Court and the Ohio
District Court found that the Injunction was 'essential' to the viability of the
business operations of the Company and to the successful implementation of the
Plan. Notwithstanding that the Bankruptcy Court and Ohio District Court
determined that they had authority to issue the Injunction, it is possible that
the Injunction could be dissolved in connection with the Co-Defendants' appeals
discussed above or a later challenge.
The Bankruptcy Court and Ohio District Court entered the Injunction
pursuant to Section 524(g) of the Bankruptcy Code. Section 524(g) of the
Bankruptcy Code was enacted by Congress in 1994 to provide a statutory
safe-harbor for asbestos manufacturing companies faced with numerous asbestos-
related personal injury claims. Section 524(g) grants bankruptcy courts express
statutory authority to issue injunctions that prohibit present and future
asbestos claimants from suing a reorganized debtor; provided that a trust is
established and funded to pay asbestos-related claims through procedures that
reasonably assure that claimants with similar injuries will receive similar
payments and other specific statutory requirements are satisfied.
Under Section 524(g), if the injunction is issued or affirmed by a district
court with jurisdiction over the reorganization, the injunction will be
permanent and not subject to modification by any court once the injunction
becomes final and nonappealable. In confirming the Plan and issuing the
Injunction, the Bankruptcy Court and Ohio District Court determined that the
Trust and the PD Trust each satisfied the requirements of Section 524(g) and
that they had jurisdiction to issue the Injunction under both Section 524(g) of
the Bankruptcy Code and their more general powers under the Bankruptcy Code to
issue orders that are necessary or appropriate in bankruptcy cases. The Order
has not yet become final, however, due to the Co-Defendants' appeal to the Sixth
Circuit discussed above.
While Section 524(g) specifically addresses trusts created to resolve
asbestos-related litigation and injunctions issued in connection therewith, it
does not specifically address whether an injunction directing claims to a trust
that will pay both asbestos-related and non-asbestos-related claims, as in this
case, is protected under Section 524(g). While there is a risk that the
Injunction would not apply to future lead-related claimants because lead-related
claims are not addressed in Section 524(g), the Company believes that the
Injunction would be upheld and enforced against lead-related claimants if
challenged. That belief is based on the fact that the Bankruptcy Court and Ohio
District Court, in confirming the Plan and entering the Injunction, specifically
ruled that Section 524(g) does not prohibit channeling of non-asbestos related
claims along with asbestos-related claims. In the event that Section 524(g) does
not operate to protect the Injunction's channeling of lead-related claims, such
channeling could be upheld as a necessary or appropriate order under Section
105(a) of the Bankruptcy Code. Although the filing of future lead-related
lawsuits cannot be predicted, the Company believes that this risk is limited
because to date, only approximately 125 lead-related claims have been asserted
against the Eagle-Picher Group (as compared to the tens of thousands of
asbestos-related claims asserted against the Eagle-Picher Group).
On and shortly after the Consummation Date, the Eagle-Picher Group made
distributions (the 'Initial Distribution') under the Plan totaling approximately
$800 million in cash, common stock and debt securities (including the
approximately $730 million contributed to the Trust, $3.0 million to the PD
Trust escrow and the remainder in connection with various other allowed claims
including the environmental claims described below). Final distributions under
the Plan will not be made until all remaining unresolved claims (other than
asbestos-related and lead-related claims) are resolved. Approximately twelve
unresolved claims remain (seven of which are subject to the Liberty Mutual
Settlement discussed below, three of which relate to environmental liability
claims discussed below and the others are product liability claims in connection
with products manufactured prior to the filing of the bankruptcy petitions). As
of February 28, 1998, the Company has recorded a reserve on the Company's
balance sheet in the amount of approximately $13.5 million for the payment of
such claims, as well as any other allowed or resolved claims that were not paid
in the Initial Distribution, and administrative expenses (the 'Final
Distribution Reserve'). Although there can be no assurance as to the amount
required to resolve the remaining claims, the Company expects those claims,
together with any other claims not paid in the Initial Distribution, and
administrative expenses, to be resolved for an amount not in excess of the Final
Distribution Reserve.
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On February 12, 1997, the Eagle-Picher Group commenced an adversary
proceeding in the Bankruptcy Court to obtain approval of a settlement agreement
between the Eagle-Picher Group and the Liberty Mutual Insurance Company and
certain of its affiliates (together, 'Liberty Mutual'), a provider of the
Eagle-Picher Group's primary insurance coverage, with respect to disputed
coverage claims that had been asserted by the Eagle-Picher Group against Liberty
Mutual and by Liberty Mutual against the Eagle-Picher Group (the 'Liberty Mutual
Settlement'). The Bankruptcy Court has not yet made any ruling in connection
with the Liberty Mutual Settlement. Pursuant to the Liberty Mutual Settlement,
upon an order of approval of the Bankruptcy Court becoming final, and subject to
certain conditions, including a permanent injunction against all other parties
that might claim an interest in specified Liberty Mutual policies from taking
any action or asserting any claim against such Liberty Mutual policies, Liberty
Mutual would be required to remit to the Company approximately $13.8 million.
The Company believes that the Liberty Mutual Settlement is fair and equitable,
and, together with the other members of the Eagle-Picher Group, intends to move
in the Bankruptcy Court for approval of the Liberty Mutual Settlement.
Although a bankruptcy plan of reorganization generally serves to resolve
all claims that arose prior to the bankruptcy proceedings, courts in a number of
cases have limited the types of environmental obligations that can be discharged
by bankruptcy (concluding, for example, that an order to conduct an
environmental clean-up of a site may not be a 'claim' or that an environmental
claim did not 'arise' before the bankruptcy). The Eagle-Picher Group has entered
into the Environmental Settlement, discussed below, which is intended to relieve
the Eagle-Picher Group of the burden of defending against certain claims
asserted under Environmental Laws relating to conditions occurring prior to the
date of the bankruptcy petition and governs certain environmentally related
claims that may be asserted against the Company or the Eagle-Picher Group after
the Consummation Date relating to conditions occurring prior to the date of the
bankruptcy petition. See ' -- Environmental Matters.' Nevertheless, due to the
limitations on the types of environmental obligations that can be discharged by
bankruptcy, the Eagle-Picher Group may have obligations relating to historical
noncompliance with environmental laws with respect to sites owned by the Company
as of the Confirmation Date that were not asserted in the bankruptcy
proceedings. See ' -- Environmental Matters.'
If, regardless of the settlements, decisions, proceedings and legislation
discussed herein, the Order were to be vacated, modified or restricted in
applicability in a way that permits a substantial number of claims to be
asserted against the Company, the successful assertion of such claims would
materially adversely effect the Company's financial condition, results of
operations or cash flows and could render the Company insolvent.
ENVIRONMENTAL MATTERS
Like companies involved in similar manufacturing businesses, the Company's
operations and properties are subject to extensive Environmental Laws. The Clean
Air Act and Clean Water Act, each as amended, impose stringent standards on air
emissions and water discharges, respectively. Under the Resource Conservation
and Recovery Act, as amended ('RCRA'), a facility that generates hazardous
wastes must manage those wastes in accordance with strict standards, and a
facility that treats, stores or disposes of hazardous waste on-site may be
liable for corrective action costs. A facility that holds a RCRA permit may have
to incur costs relating to the closure of certain 'hazardous' or 'solid' waste
management units. Under CERCLA and similar state laws, an owner or operator of
property at which releases of hazardous substances have occurred, or the
generator of hazardous substances disposed of offsite, may be jointly and
severally liable for costs of investigation and remediation of any resulting
contamination and related natural resource damages, regardless of fault. Failure
to comply with such Environmental Laws, which are frequently amended, can lead
to the imposition of civil or criminal penalties, injunctive relief and denial
or loss of, or imposition of significant restrictions on, environmental permits.
In addition, the Company could be subject to suit by third parties in connection
with violations of or liability under Environmental Laws.
The Company has established a number of programs to facilitate compliance
with Environmental Laws. In addition, from time to time, the Company has
undertaken remedial activities or incurred compliance costs at or around the
Company's operations or former operations, both voluntarily and as a
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result of federal and state agency orders, permit requirements or other notices.
Further, from time to time the Company receives notice of liability or potential
liability under CERCLA or analogous state laws in connection with the disposal
of materials from the Company's operations. It is also possible that there are
areas in which the Company's facilities have not been, are not currently, or may
in the future not be, in compliance with Environmental Laws.
For the last three fiscal years, the Company's average capital expenditures
and operating expenses (including expenses for remedial activities) for
environmental matters were $1.1 million and $7.3 million per year, respectively
(excluding depreciation). Such amounts do not include payments made by the
Company under the Plan to settle or otherwise resolve certain environmental
claims asserted in the bankruptcy proceedings. See ' -- Environmental
Settlement.' The Company estimates that capital expenditures and operating
expenses (including expenses for remedial activities) for environmental matters
will be approximately $1.9 million and $8.3 million, respectively, for fiscal
year 1998 and approximately $1.2 million and $9.2 million, respectively, for
fiscal year 1999. However, because Environmental Laws have historically become
more stringent, costs and expenses relating to environmental control and
compliance may increase in the future. In addition, the Company may have to
incur additional capital expenditures and compliance costs (which it is unable
to estimate at this time) in connection with the remedial activities discussed
below. Accordingly, there can be no assurance that costs of compliance with
existing and future Environmental Laws will not exceed current estimates and
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
The Merger Agreement provides for indemnification for costs and expenses
from certain environmental exposures in connection with the operations of the
Company in excess of agreed upon thresholds for specific properties, which
totals approximately $24 million in the aggregate. The indemnity applies only to
certain environmental claims arising out of the business or operations of the
Company prior to the Closing of which the Trust is notified within three years
after the Closing. The Trust's indemnity obligations are subject to a deductible
of $10.0 million and the Trust is only obligated to pay $50.0 million above the
deductible for all indemnity claims, including those relating to environmental
matters. In addition, indemnification is unavailable in connection with certain
sites specified in the Merger Agreement and, in connection with other sites, may
be asserted only for the amount by which such claim exceeds the Company's
projected remediation or compliance costs. The Company has recorded a reserve as
of November 30, 1997 of approximately $6.1 million in connection with
environmental matters, and believes such reserves to be adequate.
Certain Compliance and Remedial Activities
Joplin, Missouri and Colorado Springs, Colorado. The Company is undertaking
closure and corrective actions under RCRA at two of its permitted hazardous
waste facilities. At the Joplin, Missouri, facility, consistent with the
requirements of its RCRA permit, the Company is investigating the nature and
extent of contamination from two closed hazardous waste impoundments and over
100 former solid waste management units formerly in use during the 130-year
operating history of this property. The Company's investigation has identified
areas of soil and groundwater contamination or suspected contamination, certain
of which likely will require the Company to undertake remedial activities.
Following completion of its investigation, the Company, in conjunction with
federal and state regulators, will determine what, if any, corrective actions
are appropriate at this property. At the Colorado Springs, Colorado, facility,
the closure of four former hazardous waste impoundments is being completed.
Materials formerly stored in the impoundments have contaminated groundwater and
soil at and around the facility. A groundwater remediation system was placed in
service in 1995 and continues in operation. It is anticipated that corrective
actions for soils will be implemented in 1998. The Company does not believe that
it will be assessed any penalty in connection with the remediation of these
sites, although there can be no assurance that one will not be imposed.
Galena, Kansas. The Company owned and operated a lead and zinc smelting
facility, which was dismantled in 1982, on the Galena property. The Galena
property is located within the Tri-State mining district, formerly one of the
largest lead and zinc fields in the world. The Tri-State mining district was
actively worked from the mid-1800s until the 1960s and, as a result, soil,
groundwater and surface waters
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have been significantly and adversely impacted. In the 1980s and early 1990s,
the United States Environmental Protection Agency (the 'US EPA') addressed both
surface contamination (including residential soil contamination) and groundwater
contamination issues in the Tri-State mining district in the immediate vicinity
of the Galena property. Under the Environmental Settlement (as defined below),
while the Company resolved all of its other liability under CERCLA associated
with the Tri-State mining district, it specifically retained liability for the
Galena property. Environmental impacts are likely at the Galena property as a
result of the former smelter operation and from historic materials management
practices on the Galena property. US EPA has not required remediation of the
Galena property and the Company has no current expenses in connection with
remedial activities at this property. However, the Company anticipates that
certain investigations and remediation may be required at some point in the
future. The Company does not believe that it will be assessed any penalty in
connection with the remediation of this site, although there can be no assurance
that one will not be imposed.
The Company is undertaking other remedial actions at a number of its
facilities and properties. The Company does not anticipate that such expenses,
including expenses in connection with the specific sites discussed above, will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. However, there can be no assurance that, in the
future, the Company's expenditures in connection with remedial activities will
not exceed current expenditures and will not have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
In addition, in connection with certain sales of its assets, including the
Plastics and Transicoil divisions sold in 1997, the Company has agreed to
undertake remedial actions and/or to indemnify the respective purchasers of
particular assets for certain liabilities under the Environmental Laws relating
to that asset's operations or activities prior to the sale. The Company believes
that claims under these indemnity provisions will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
Environmental Settlement
During the pendency of the bankruptcy proceedings, the Eagle-Picher Group
entered into a settlement agreement (the 'Environmental Settlement') with the US
EPA, the United States Department of the Interior and the states of Arizona,
Michigan and Oklahoma (together, the 'Settling Parties'), addressing all known
and unknown environmentally-related claims that were or could have been asserted
by those entities against the Eagle-Picher Group in the bankruptcy proceeding.
The Environmental Settlement was approved by the Bankruptcy Court on June 6,
1996, affirmed by the Ohio District Court on July 14, 1997, and became final 30
days later. The Environmental Settlement resolved the majority of the
approximately 1,100 environmental liability-related claims filed against the
Eagle-Picher Group in the bankruptcy proceedings by allowing the Settling
Parties general unsecured claims totaling approximately $43.8 million (pursuant
to the Plan, general unsecured claims are paid at 37% of the allowed amount).
All environmental claims filed in the bankruptcy proceedings not subject to the
Environmental Settlement were either disallowed by the Bankruptcy Court or
resolved as general unsecured claims, with the exception of three claims, none
of which the Company believes is material and all of which will be paid, if at
all, from the Final Distribution Reserve. In addition, the Environmental
Settlement provides that any additional claims by the Settling Parties against
the Eagle-Picher Group in connection with pre-petition activities at any site
not owned by the Company (the 'Additional Sites'), shall be resolved as if they
had been asserted during the bankruptcy proceedings. Accordingly, if any member
of the Eagle-Picher Group is found liable or settles any Additional Site claim,
such member's liability is limited to 37% of the liability or settlement amount.
The Environmental Settlement also provides that any liability, whether
alleged to arise before or after the Consummation Date, relating to a site owned
by the Eagle-Picher Group on or after the Consummation Date (the 'Owned Sites'),
or relating to post-petition conduct by the Eagle-Picher Group, is not
discharged in the bankruptcy proceedings, and will be resolved as if the
Eagle-Picher Group had never filed for reorganization. Accordingly, the
Eagle-Picher Group is responsible for 100% of any liability (including, if
required, the performance of remedial activities) or settlement amount in
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connection with Owned Sites or post-petition conduct. See ' -- Certain
Compliance and Remedial Activities.'
Additional Sites. The Company has received notice from one or more of the
Settling Parties that the Company may have liability in connection with 19
Additional Sites. The Company may be insured for a portion of these claims. The
Company believes that its potential liability at 16 of these Additional Sites is
not material to the Company's financial condition, results of operations or cash
flows. The remaining three Additional Sites may require significant expenditures
by the Company: the Henryetta Smelter Site at Henryetta, Oklahoma, the RSR
Smelter Site at Dallas, Texas, and the Witter Drum Site at Asbury, Missouri. Of
the $6.1 million total reserves recorded by the Company in connection with
environmental matters, $1.2 million is for its anticipated costs in resolving
these three claims:
Henryetta Smelter Site. The Company received a notice from the US EPA
in 1997, alleging liability for remediation expenses at the site of a
former zinc smelting facility owned and operated by the Company at
Henryetta, Oklahoma, and for the removal and disposal from surrounding
residential locations of contaminated soil and gravel that originated from
the facility and from other companies operating in the area. The Company
operated the facility for approximately 50 years, until it was shut down in
1968. The US EPA performed remedial activities at the site at a cost of
approximately $4 million to $5 million. The Company expects to settle this
claim with the US EPA for some portion of that amount.
RSR Smelter Site. The Company received a notice from the US EPA in
1996, alleging that it may be a Potentially Responsible Party ('PRP')
regarding liability for remediation expenses at a secondary lead smelting
facility in Dallas, Texas. The Company allegedly leased the facility, which
was in operation until in or about 1984, for a period of at least one year
in the early 1950s. The US EPA has conducted and continues to conduct
extensive remedial activities at this site, and the US EPA's total expenses
may amount to $60 million or more. The Company is one of more than 1,000
PRPs identified by the US EPA in connection with this site and is not
identified by the US EPA as one of the 14 significant PRPs. However, the
Company believes that it may be required to make some expenditure to
resolve its potential liability for remediation expenses in connection with
this site.
Witter Drum Site. The Company received a notice from the US EPA in
1997, alleging liability in connection with a third-party facility that had
provided drum reclamation services for the Company. The US EPA has
investigated the site and estimates that approximately $400,000 in remedial
activities will be undertaken at this site. The Company expects to settle
this claim with the US EPA for some portion of that amount.
The Company does not expect that its total costs associated with these
sites will have a material adverse effect on the Company's financial condition,
results of operations or cash flows. Because each site is an Additional Site
under the Environmental Settlement, the Company will be required to pay only 37%
of any amount for which it may be found liable or settle the claim.
While the Company does not believe, based on current information and taking
into account reserves established for environmental matters, that costs
associated with compliance with and remediation under Environmental Laws will
have a material adverse effect on its financial condition, results of operations
or cash flows, the Environmental Laws under which the Company's facilities
operate are numerous, complicated and often ambiguous and historically have
become increasingly more stringent. In addition, costs related to remediation of
Company-owned sites may exceed current estimates. Accordingly, there can be no
assurance that future events, such as changes in existing laws, the promulgation
of new laws or the development of new facts or conditions, will not cause the
Company to incur substantial additional expenditures or that any such additional
expenditures will not have a material adverse effect on the Company's financial
condition, results of operations, or cash flows.
LEGAL PROCEEDINGS
On January 25, 1996, Richard Darrell Peoples, a former employee of the
Company, filed a Qui Tam suit under seal in United States District Court for the
Western District of Missouri (the 'Missouri Court'). A Qui Tam suit is a lawsuit
brought by a private individual pursuant to federal statute,
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allegedly on behalf of the U.S. Government. The U.S. Government, which has the
opportunity to intervene in, and take control of, a Qui Tam suit, has declined
to intervene or take control of the Qui Tam suit filed against the Company. The
Company became aware of the suit on October 20, 1997, when it was served on the
Company, after it had been unsealed. The suit involves allegations of
irregularities in expense accounts and testing procedures in connection with
certain U.S. Government contracts. The allegations are substantially the same as
allegations made by the former employee, and investigated by outside counsel for
the Company, prior to the filing of the Qui Tam suit. Outside counsel's
investigation found no evidence to support any of the employee's allegations,
except for some inconsequential expense account mistakes. The Company, which
believes that the U.S. Government did not incur any expense as a result of the
mistakes, reported to the U.S. Government the employee's allegations and the
results of outside counsel's investigation. The employee also initiated a
different action against the Company in 1996 for wrongful termination, in which
he alleged many of the same acts complained of in the Qui Tam suit. That action
was dismissed with prejudice by the Missouri Court in October 1996. The Company
intends to contest this suit vigorously. The Company does not believe that
resolution of this suit will have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
The Company is also involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these other
proceedings will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
EMPLOYEES AND EMPLOYEE RELATIONS
As of November 30, 1997, the Company employed 1,825 salaried employees and
4,871 hourly employees. Following is a breakdown of foreign and United States
employees:
<TABLE>
<CAPTION>
SALARIED NON-SALARIED TOTAL
-------- ------------ -----
<S> <C> <C> <C>
United States employees....................................... 1,581 4,175 5,756
Foreign employees............................................. 244 696 940
Total employees..................................... 1,825 4,871 6,696
</TABLE>
Approximately 20.5% of the Company's non-salaried employees (approximately
14.9% of the Company's total employees) are represented by six different labor
unions under seven separate labor contracts. The International Union of
Operating Engineers Local Union No. 351 represents the largest bargaining unit
with approximately 400 employees. Another significant affiliation is the United
Steelworkers of America, Local No. 812, representing approximately 335 employees
at two facilities. Labor negotiations are conducted on a plant-by-plant basis
with two to three of the outstanding contracts renegotiated in any one year.
In the last five years the Company has had no work stoppages due to
strikes. However, there can be no assurance that there will not be work
stoppages due to strikes in the future, or that the Company would be able to
continue operating at affected facilities in the event of any work stoppage or
union dispute in the future.
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PROPERTIES
The principal fixed assets of the Company consist of its manufacturing,
processing and storage facilities and its transportation and plant vehicles. As
of November 30, 1997, properties, facilities and equipment (net of depreciation)
represented approximately 33% of the Company's total assets, as reflected in its
consolidated balance sheet. The following chart sets forth selected information
regarding the Company's manufacturing and processing facilities:
<TABLE>
<CAPTION>
DESCRIPTION OF
BUSINESS GROUP LOCATION PROPERTY INTEREST
- --------------------------------------- ------------------------------------------------------ -----------------
<S> <C> <C>
AUTOMOTIVE
Domestic Ann Arbor, Michigan leased
Blacksburg, Virginia (2 properties) owned
Brighton, Michigan leased
Hillsdale, Michigan (6 properties)(1) owned
Hamilton, Indiana owned
Inkster, Michigan owned
Jonesville, Michigan owned
Kalkaska, Michigan leased(2)
Leesburg, Florida owned
Manchester, Tennessee leased(2)
Norwich, Connecticut owned
Paris, Illinois owned(3)
Pine Bluff, Arkansas owned
Sidney, Ohio (2 properties) owned
Stratford, Connecticut owned
Vassar, Michigan leased
International Market Harborough, England owned
Ohringen, Germany owned
San Luis Potosi, Mexico owned
Soria, Spain owned
Tamworth, England owned
MACHINERY
Domestic Colorado Springs, Colorado owned
Colorado Springs, Colorado (2 properties) leased
Galena, Kansas owned
Grove, Oklahoma owned
Hamilton, Ohio leased
Harrisonville, Missouri owned
Joplin, Missouri (6 properties) owned
Joplin, Missouri (2 properties) leased
Lenexa, Kansas owned
Lubbock, Texas owned
Seneca, Missouri owned
Sharonville, Ohio owned
Socorro, New Mexico(1) leased
Stella, Missouri owned
International Acuna, Coahuila, Mexico owned
Rothenbach, Germany leased(3)
INDUSTRIAL(4)
Domestic Clark Station, Nevada owned
Lovelock, Nevada owned
Miami, Oklahoma (2 properties) owned
Miami, Oklahoma (3 properties) leased
Quapaw, Oklahoma (2 properties) owned
Vale, Oregon leased(2)
International Kyoto, Japan leased(3)
</TABLE>
- ------------
(1) There is little, if any, activity at this time at the Socorro, New Mexico
property and two of the Hillsdale, Michigan properties.
(2) The Company will become owner of each property upon payment in full of all
existing obligations under the respective IRB Obligations (as defined
herein) in connection with such property. See 'Description of Industrial
Revenue Bonds.'
(3) These properties are owned or leased by certain of the Company's joint
ventures. Accordingly, the Company has a 45% interest in the Paris, Illinois
property through the Eagle-Picher-Boge, L.L.C. joint venture; a 35% interest
in the Kyoto, Japan property though the Yamanaka EP Corporation joint
venture and a 45% interest in the Rothenbach, Germany property through the
Diehl & Eagle-Picher GmbH joint venture.
(4) In addition, the Company's Minerals division has mining locations and
numerous claims in Nevada, Oregon and California (discussed below), leases
office space in Reno, Nevada and leases 14 warehouses in the United States
and Canada.
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The Company owns or leases additional office space, including sales offices
in Europe and Asia, and warehouse space for certain of its operations. The
Company's properties are adequate and suitable for the business of the Company,
and substantially all of its buildings have been well maintained and are in
sound operating condition and regular use.
The Company's corporate headquarters are located in approximately 19,420
square feet of leased office space in the Chiquita Center building in
Cincinnati, Ohio. The office space is leased from YCP Cincinnati, L.P. pursuant
to a six-year lease, with the initial term expiring February 29, 2004. The lease
provides renewal options for two additional periods of five years each. The
Company believes that its existing and planned facilities are adequate for its
current needs.
Mining. The Industrial Group's Minerals division owns and leases
diatomaceous earth and perlite mining locations as well as numerous claims in
Nevada, Oregon and California (collectively, 'mining properties'). The Company's
owned and leased mining properties, including those not currently being mined,
comprise a total of approximately 7,000 acres in Storey, Lyon, Pershing, and
Churchill Counties in Nevada and 3,600 acres in Malheur and Harney Counties in
Oregon, as well as rights on 1,040 acres not currently being mined in Siskiyou
County in California. The Company continually evaluates potential mining
properties, and additional mining properties may be acquired in the future. The
Minerals division extracts diatomaceous earth and perlite through open-pit
mining using bulldozers and wheel tractor scrapers. The extracted materials are
carried by truck to separate processing facilities. A total of approximately
506,000 tons of diatomaceous earth and perlite were extracted from the Company's
mining properties in Nevada and Oregon during Fiscal 1997. On average, the
Company has extracted a total of approximately 402,000 tons of diatomaceous
earth and perlite from its Nevada and Oregon properties each year for the past
three years. As ore deposits are depleted, the Company reclaims the land in
accordance with reclamation plans approved by the relevant federal, state and
local regulators. The following mining properties are of major significance to
the Company's mining operations:
Nevada. The Company's diatomaceous earth mining operations in Nevada
commenced more than 50 years ago in Storey County. The Company commenced
perlite mining operations in Churchill County in 1993. The Company
extracted a total of approximately 380,000 tons of diatomaceous earth and
perlite from its Nevada mining properties in Fiscal 1997 and, on average,
extracted a total of approximately 306,000 tons of diatomaceous earth and
perlite from its Nevada mining properties each year for the past three
years, or approximately 76% of the Company's total diatomaceous earth and
perlite production (and including 100% of its perlite production).
Approximately 265 acres in Storey, where active mining activities commenced
over 50 years ago, and approximately 62 acres in the Lyon/Churchill area
are actively being mined by the Company for diatomaceous earth.
Diatomaceous earth from the Storey, Churchill and Lyon mining properties is
processed at the Clark Station, Nevada facility. The Company believes its
diatomaceous earth reserves in Storey, Churchill and Lyon, including mining
properties not actively being mined, to be in excess of 40 years at current
levels of extraction based upon estimates prepared by its mining and
exploration personnel. Diatomaceous earth extractions from the Pershing
mining properties, which commenced more than 40 years ago, are processed at
the Lovelock, Nevada facility. Approximately 975 acres are actively being
mined for diatomaceous earth in Pershing. The Company believes its
diatomaceous earth reserves in Pershing, including mining properties not
actively being mined, to be in excess of 15 years at the current level of
extraction based upon estimates prepared by its mining and exploration
personnel. Beginning in 1993, the Company has actively mined approximately
25 acres in Churchill for perlite, which is processed at the Lovelock,
Nevada facility. The Company believes its perlite reserves in Churchill,
including mining properties not actively being mined, to be in excess of 50
years at the current level of extraction based upon estimates prepared by
its mining and exploration personnel.
Oregon. The Company commenced mining diatomaceous earth in Oregon
approximately 13 years ago at its mining properties in Harney and Malheur
Counties. Approximately 88 acres and 80 acres, respectively, are actively
being mined in Harney and Malheur; diatomaceous earth extracted from these
mines is processed at the Company's Vale, Oregon facility. The Company
extracted approximately 126,000 tons of diatomaceous earth from the Harney
and Malheur mining properties
71
<PAGE>
<PAGE>
during Fiscal Year 1997 and, on average, has extracted approximately 96,000
tons of diatomaceous earth each year for the past three years from these
mining properties, or approximately 24% of the Company's total diatomaceous
earth production. The Company believes its diatomaceous earth reserves in
Harney and Malheur, including mining properties not actively being mined,
to be in excess of 75 years at the current level of extraction based upon
estimates prepared by its mining and exploration personnel.
Substantially all of the Company's owned properties and assets are pledged
as collateral under the New Credit Agreement. See 'Description of New Credit
Agreement.'
CHANGE IN INDEPENDENT AUDITORS
Following the Company's emergence from bankruptcy in November 1996, the
Company appointed Deloitte & Touche LLP to replace KPMG Peat Marwick LLP as the
independent auditors for the Company. The Company's Board of Directors approved
the dismissal of KPMG Peat Marwick LLP and their replacement with Deloitte &
Touche LLP as the new independent auditors upon recommendation of the Company's
Audit committee. The Company did not consult with Deloitte & Touche LLP
regarding matters of accounting principles, practices or financial statement
disclosure prior to the firm being engaged as auditors. In connection with the
audits of the Company's financial statements for each of the two fiscal years
preceding the change in accountants, there were no disagreements with KPMG Peat
Marwick LLP on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of KPMG Peat Marwick LLP, would have caused KPMG Peat Marwick
LLP to make reference to the matter in their report on the consolidated
financial statements for such years. KPMG Peat Marwick LLP's opinion was
qualified as of and for the year ended November 30, 1995, in that the
consolidated financial statements were prepared assuming the Company would
continue as a going concern. The filing under Chapter 11 of the Bankruptcy Code
and the uncertainty associated with the Company's sale of asbestos products and
certain other litigation, raised substantial doubt about the Company's ability
to continue as a going concern. KPMG Peat Marwick LLP's opinion was unqualified
as of and for the year ended November 30, 1996, except for consistency in the
application of accounting principles as a result of the Company's change in its
method of computing LIFO for certain inventories.
72
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<PAGE>
MANAGEMENT
THE COMPANY
The following table sets forth the name, age and position with the Company
of the directors and executive officers of the Company as of the consummation of
the Acquisition. Directors will hold their positions until the annual meeting of
the stockholders at which their term expires or until their respective
successors are elected and qualified. Executive officers will hold their
positions until the annual meeting of the Board of Directors or until their
respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ----------------------------------------------------------
<S> <C> <C>
Joel P. Wyler....................... 48 Chairman of the Board
Thomas E. Petry..................... 58 Director
Andries Ruijssenaars................ 55 Director, President and Chief Executive Officer
David N. Hall....................... 58 Senior Vice President - Finance
Wayne R. Wickens.................... 51 Senior Vice President - Automotive
</TABLE>
Mr. Wyler became a Director of the Company upon consummation of the
Acquisition. Mr. Wyler has been the Chairman of the Board of Directors of
Granaria Holdings since 1982.
Mr. Petry has been a Director of the Company since 1981. Following
consummation of the Acquisition, Mr. Petry resigned as Chairman of the Board of
Directors, a position he held since 1989, and as Chief Executive Officer, a
position he held since 1982. Mr. Petry was first employed by the Company in 1968
as assistant to the Treasurer and subsequently served as Assistant Treasurer;
Treasurer; Vice President and Treasurer; President of the Akron Standard
Division; and Group Vice President. Mr. Petry was elected a Director, President
and Chief Operating Officer of the Company in 1981, and President and Chief
Executive Officer in 1982. He served as President from 1981-89 and from 1992-94.
Mr. Petry is also a director of Cinergy Corp., Star Banc Corp., Union Central
Life Insurance Co., Insilco Corp. and The Wm. Powell Company.
Upon consummation of the Acquisition, Mr. Ruijssenaars became Chief
Executive Officer and continued as President and a Director of the Company,
positions he has held since 1994. Prior to the Acquisition, Mr. Ruijssenaars was
President and Chief Operating Officer of the Company from December 1994 until
1998 and Senior Vice President of the Company from 1989 until December 1994. Mr.
Ruijssenaars was first employed by the Company in 1980 as General Manager of
Eagle-Picher Industries GmbH in Ohringen, Germany, and has also served as
Executive Vice President and then President of the Company's Ohio Rubber Company
division.
Mr. Hall joined the Company as Treasurer in 1977 and became Vice President
and Treasurer in 1979. He has been Senior Vice President -- Finance since 1987.
Mr. Wickens has been Senior Vice President -- Automotive of the Company
since December 1994. From 1990 until December 1994, he was Division President of
the Company's Hillsdale Tool & Manufacturing Co. Mr. Wickens joined the Company
in 1976 as a management trainee with the Company's former Fabricon Automotive
division, and was promoted to Plant Manager, Vice President and then President
of Fabricon Automotive. Subsequently, Mr. Wickens served as President of the
Wolverine Gasket division and then as Vice President of the Automotive Group.
PARENT
The following table sets forth the name, age and position with Parent of
the directors and executive officers of Parent as of the consummation of the
Acquisition. Directors will hold their positions until the annual meeting of the
stockholders at which time their terms expire or until their respective
successors are elected and qualified. Executive officers will hold their
positions until the annual meeting of the Board of Directors or until their
respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ----------------------------------------------------------
<S> <C> <C>
Joel P. Wyler....................... 48 Chairman of the Board
Thomas E. Petry..................... 58 Director
Andries Ruijssenaars................ 55 Director, President and Chief Executive Officer
David N. Hall....................... 58 Senior Vice President - Finance
Wayne R. Wickens.................... 51 Senior Vice President - Automotive
</TABLE>
73
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the years ended November 30, 1997,
1996 and 1995, of those persons who (i) served during the fiscal year ended
November 30, 1997, as the Chief Executive Officer of the Company and (ii) were,
at November 30, 1997, the other five most highly compensated officers of the
Company who earned more than $100,000 in salary and bonus in fiscal 1997
(collectively, the 'Named Executive Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
YEAR COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) ($)(1) ($)(2)
- ----------------------------------------------- --------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas E. Petry................................ 11/30/97 $ 625,000 $ 278,000 $232,737 $260,103
Chairman and Chief Executive 11/30/96 625,000 239,000 218,919 245,073
Officer 11/30/95 575,000 244,000 255,296 285,611
Andries Ruijssenaars........................... 11/30/97 525,000 205,000 179,244 206,206
President and Chief Operating 11/30/96 425,000 160,000 174,171 200,081
Officer 11/30/95 390,000 145,000 87,298 102,571
David N. Hall.................................. 11/30/97 375,000 126,000 166,629 188,163
Senior Vice President -- Finance 11/30/96 360,000 107,000 146,980 165,986
11/30/95 345,000 110,000 120,284 136,415
Wayne R. Wickens............................... 11/30/97 325,000 109,000 77,942 91,919
Senior Vice President -- Automotive 11/30/96 295,000 72,000 99,564 116,357
11/30/95 280,000 85,000 24,377 31,109
James A. Ralston............................... 11/30/97 240,000 67,000 41,069 49,762
Vice President, General 11/30/96 230,000 86,000 40,106 48,966
Counsel and Secretary 11/30/95 215,000 58,000 11,475 18,292
Carroll D. Curless............................. 11/30/97 240,000 67,000 116,456 132,211
Vice President and Controller 11/30/96 230,000 86,000 78,715 91,470
11/30/95 215,000 56,000 50,616 60,304
</TABLE>
- ------------
(1) This column includes nothing for perquisites since in no case did
perquisites exceed the reporting thresholds (the lesser of 10% of salary
plus bonuses or $50,000), but includes amounts for the payment of taxes on
purchases of annuities under the Supplemental Executive Retirement Plan (as
defined herein).
(2) All other compensation is made up entirely of the cost of annuity under the
Supplemental Executive Retirement Plan and the Company's contributions to
the Eagle-Picher Salaried 401(k) Plan. See ' -- Retirement Benefits.'
EXECUTIVE STOCK OPTIONS
On the Consummation Date, all stock option plans and any unexercised or
unexercisable stock options were terminated. The Company had no other benefit
plans calling for the issuance of stock by the Company. Accordingly, none of the
Named Executive Officers had any unexercised stock options or SARS as of
November 30, 1997. No options were issued by the Company and no options were
exercised by the Named Executive Officers during the fiscal year ended November
30, 1997.
74
<PAGE>
<PAGE>
RETIREMENT BENEFITS
The following table shows the Named Executive Officers' Fiscal 1997
compensation relating to the cost of the annuity under the Supplemental
Executive Retirement Plan and the Company's contributions to the Eagle-Picher
Salaried 401(k) Plan.
<TABLE>
<CAPTION>
COST OF
ANNUITY
UNDER COMPANY
SUPPLEMENTAL CONTRIBUTIONS
FISCAL EXECUTIVE TO EAGLE-PICHER
YEAR RETIREMENT SALARIED 401(K) TOTAL
ENDED PLAN ($) PLAN ($) ($)
--------- ------------ --------------- --------
<S> <C> <C> <C> <C>
Thomas E. Petry................................. 11/30/97 $255,353 $ 4,750 $260,103
11/30/96 240,323 4,750 245,073
11/30/95 280,991 4,620 285,611
Andries Ruijssenaars............................ 11/30/97 201,456 4,750 206,206
11/30/96 195,331 4,750 200,081
11/30/95 97,951 4,620 102,571
David N. Hall................................... 11/30/97 183,413 4,750 188,163
11/30/96 161,236 4,750 165,986
11/30/95 131,795 4,620 136,415
Wayne R. Wickens................................ 11/30/97 87,169 4,750 91,919
11/30/96 111,607 4,750 116,357
11/30/95 26,489 4,620 31,109
James A. Ralston................................ 11/30/97 45,012 4,750 49,762
11/30/96 44,216 4,750 48,966
11/30/95 13,672 4,620 18,292
Carroll D. Curless.............................. 11/30/97 127,461 4,750 132,211
11/30/96 86,720 4,750 91,470
11/30/95 55,684 4,620 60,304
</TABLE>
The following table shows the estimated total combined annual benefits to
the Named Executive Officers upon retirement at age 62 payable under Social
Security, the Salaried Plan (as defined herein), and the Supplemental Executive
Retirement Plan:
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
RENUMERATION 15 20 25 30 35
- ------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 250,000.................................. $ 90,000 $120,000 $150,000 $150,000 $150,000
300,000................................. 108,000 144,000 180,000 180,000 180,000
350,000................................. 126,000 168,000 210,000 210,000 210,000
400,000................................. 144,000 192,000 240,000 240,000 240,000
450,000................................. 162,000 216,000 270,000 270,000 270,000
500,000................................. 180,000 240,000 300,000 300,000 300,000
550,000................................. 198,000 264,000 330,000 330,000 330,000
600,000................................. 216,000 288,000 360,000 360,000 360,000
650,000................................. 234,000 312,000 390,000 390,000 390,000
700,000................................. 252,000 336,000 420,000 420,000 420,000
750,000................................. 270,000 360,000 450,000 450,000 450,000
800,000................................. 288,000 384,000 480,000 480,000 480,000
850,000................................. 306,000 408,000 510,000 510,000 510,000
900,000................................. 324,000 432,000 540,000 540,000 540,000
950,000................................. 342,000 456,000 570,000 570,000 570,000
1,000,000................................. 360,000 480,000 600,000 600,000 600,000
</TABLE>
The Eagle-Picher Salaried Plan (the 'Salaried Plan') is a non-contributory
defined benefit pension plan in which the Named Executive Officers are
participants. The Supplemental Executive Retirement Plan (the 'SERP' and,
together with the Salaried Plan, the 'Retirement Plans'), in which the Named
Executive Officers are also participants, provides retirement benefits in
addition to the benefits available under the Salaried Plan. The Retirement Plans
provide benefits after retirement based on the highest average monthly
compensation during five consecutive years of the last ten years preceding
75
<PAGE>
<PAGE>
retirement. For purposes of the Retirement Plans, compensation includes base
salary, bonuses, commissions, and severance payments; salary and bonus payments
that would be included in the Retirement Plans are as reported in the Summary
Compensation Table, and commissions or severance payments, if there had been
any, would have been included in that Table. The benefits shown by the Pension
Plan Table above include amounts payable under Social Security as well as those
payable under the Salaried Plan and the SERP. Benefits are computed on the basis
of straight-life annuity amounts.
The estimated credited years of service with the Company for the Named
Executive Officers at age 62 will be:
<TABLE>
<S> <C>
Thomas E. Petry................................................................ 33
David N. Hall.................................................................. 24
Andries Ruijssenaars........................................................... 24
Wayne R. Wickens............................................................... 32
James A. Ralston............................................................... 29
Carroll D. Curless............................................................. 36
</TABLE>
COMPENSATION OF DIRECTORS
The Company does not pay director retainers or attendance fees, or
committee retainers or attendance fees, to directors who are also employees of
the Company. During the 1997 Fiscal Year, until April 14, 1997, directors who
were not employees of the Company were paid an annual retainer of $24,000, a fee
of $1,000 for each Board meeting attended and a fee of $1,000 for each Board
committee meeting attended. In addition, Board committee members, other than
committee chairmen, were paid an annual retainer of $3,000 for each committee on
which they served; the chairman of each Board committee was paid an annual
retainer of $5,000. Effective April 14, 1997, directors who are not employees of
the Company are paid an annual retainer of $50,000, with no additional
attendance or committee membership fees. The Company intends to continue these
compensation policies for directors following the Acquisition.
Directors who were not also employees of the Company who retired with ten
or more years of service as members of the Board and who were elected or
appointed members of the Board prior to April 14, 1997, are paid an annual
advisory fee for life in the amount equal to the annual retainer paid to active
directors immediately prior to the time of their retirement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1997 Fiscal Year, until April 14, 1997, Daniel W. LeBlond
(Committee Chairman), Paul W. Christensen, V. Anderson Coombe and Roger L. Howe,
directors of the Company during that time, constituted the Stock
Option/Compensation Committee. Since May 28, 1997, Darius W. Gaskins (Committee
Chairman), Robert B. Steinberg and Will M. Storey, directors of the Company
until the Effective Date, constituted the Compensation Committee. None of the
members of the Compensation Committee or Stock Option/Compensation Committee
have ever been an employee of the Company or any of its subsidiaries.
During the 1997 Fiscal Year, Mr. Petry, Chairman and Chief Executive
Officer of the Company, served as a director and as a member of the compensation
committee of The Wm. Powell Company. During the 1997 Fiscal Year, Mr. Coombe, a
director of the Company until April 14, 1997, was Chairman of the Board of The
Wm. Powell Company.
INDEMNIFICATION PROVISIONS FOR OFFICERS AND DIRECTORS
Pursuant to Article 5 of the Company's Regulations, the Company will
indemnify its officers and directors to the fullest extent permitted by law
against all expenses, liability, loss or costs (including attorneys fees) in
connection with any action, lawsuit or other proceeding brought or threatened
against such officer or director by reason of the fact that he or she is or was
an officer or director of the Company. The Company has purchased directors and
officers liability insurance in favor of the Company and its officers and
directors covering up to $15.0 million in losses, including any indemnity
76
<PAGE>
<PAGE>
payment made by the Company to an officer or director, for a wrongful act of an
officer or director. In addition, under the Merger Agreement, Parent and the
Company have agreed to indemnify all pre-Effective Date officers and directors
of the Company, and to purchase directors and officers liability insurance in
their favor, for a period of six years after the Effective Date.
EMPLOYMENT AGREEMENTS; SEVERANCE
The Company has entered into employment agreements (the 'Employment
Agreements') with each of the Named Executive Officers which became effective on
November 29, 1996 (the Consummation Date of the Company's Consolidated Plan of
Reorganization) and each of which was amended in August 1997. The purpose of the
employment agreements was to provide the Company with continuity of management
following its emergence from bankruptcy. Other than the description of the
duties of each Named Executive Officer, the Employment Agreements are
substantially identical in their terms. The Employment Agreements terminate on
the earlier of (i) the second anniversary of any change of control (as defined
in the Employment Agreements) occurring prior to December 31, 1998 or (ii) May
18, 1999. The consummation of the Acquisition constituted a change of control
under the Employment Agreements.
The Employment Agreements provide that each Named Executive Officer will
maintain his current duties and responsibilities and will not be relocated from
his current geographical location. The Employment Agreements provide for salary
continuation at the Named Executive Officer's then-current rate plus customary
annual increases and bonuses and discretionary bonuses, as determined by the
Board of Directors of the Company (as shown in the Summary Compensation Table,
above). In addition, the Employment Agreements provide that each Named Executive
Officer will participate in the Company's employee and executive benefit and
short-term and long-term incentive plans as may be in effect from time to time
(including retirement or pension plans, health plans, death or disability plans
and the STSP).
If the employment of a Named Executive Officer is terminated by the Company
for good Cause (defined as the Commission of (i) a felony or (ii) a fraud upon
the Company or willful failure to perform job duties in all material respects)
or by such Named Executive Officer without good reason (as defined below), the
Named Executive Officer will receive accrued and unpaid salary, payment in lieu
of unused vacation and accrued benefits, if any (including the right to receive
pension or retirement benefits in accordance with the Company's retirement and
pension benefit plans as set forth in ' -- Retirement Benefits') (all such
payments, including salary, the 'Accrued Benefits'). If the employment of a
Named Executive Officer is terminated due to death or long term disability, such
Named Executive Officer or his dependents or estate will receive, in addition to
the Accrued Benefits, certain continuing health care benefits for a period of 30
months. If the employment of a Named Executive Officer is terminated by the
Company other than for Cause, or by such officer for Good Reason (defined as
material diminution of duties, diminution of salary or benefits, relocation,
substantial increase in travel requirements or material breach by the Company of
such Named Executive Officer's Employment Agreement) such Named Executive
Officer is entitled to receive, in addition to the Accrued Benefits, a lump-sum
severance benefit equivalent to two years' current base salary. Mr. Petry, who
resigned as Chairman of the Board and Chief Executive Officer following
consummation of the Acquisition, received in connection with his resignation a
lump-sum severance benefit of $1,250,000. In addition, Mr. Petry received a
payment in cash pursuant to the SERP of $742,000 in lieu of the Company's
purchase of an annuity; the Company expects to make additional payments for the
benefit of Mr. Petry in the amount of approximately $676,000 for related tax
obligations.
SHORT TERM SALE PROGRAM
The Company adopted a Short Term Sale Program (the 'STSP') pursuant to the
terms of which the Company has made payments to certain members of senior
management (the 'eligible individuals'), in connection with a change in control
of the Company. The consummation of the Acquisition constituted such a change in
control. The STSP provides for (i) a 'stay-put' bonus equal to an eligible
individual's Fiscal 1997 base salary and (ii) a sales incentive bonus based on a
multiple
77
<PAGE>
<PAGE>
(ranging from 50% to 200%) of an eligible individual's Fiscal 1997 base salary
('Sales Incentive'). The stay-put bonus is payable in two equal parts, the first
('First Stay-Put') payable shortly after the change in control, and the second
('Second Stay-Put') payable on the second anniversary of such change in control,
provided that the individual has remained employed by the Company or, if the
individual was terminated by the Company other than for cause, payable upon such
termination. The Sales Incentive is payable only if the present value of the
after-tax proceeds to the Trust in connection with the change in control meets a
threshold amount set forth in the STSP. In the event that the Trust's after-tax
proceeds exceed a specified target amount, the multiple will increase on a
straight line basis. Based upon estimates of the present value of after-tax
proceeds to the Trust in connection with the Acquisition, the Company made
payments under the STSP shortly after consummation of the Acquisition in the
aggregate amount of approximately $7.6 million. The Company expects to make an
additional payment of approximately $2.1 million on the second anniversary of
the Closing Date for the Second Stay-Put. The Company may make additional
payments under the STSP in connection with the Sales Incentive depending on the
final determination of the present value of the after-tax proceeds to the Trust.
The Company does not expect such payment, if any, to exceed $1.3 million. See
'Certain Relationships and Related Transactions.' Payments made pursuant to the
STSP are not included in compensation for purposes of the Salaried Plan and the
SERP. In addition, the STSP provides that any severance protection that an
eligible individual may have will continue for two years following a change in
control.
Upon adoption of the STSP in August 1997, the Company began to accrue an
expense for the First Stay-Put, which, according to its terms, was earned from
the date of adoption of the STSP until the earlier of (i) 30 days after a change
in control of the Company, or (ii) June 30, 1998. The total expense recorded in
1997 was $.7 million. No accrual was made for the Sales Incentive in 1997
because, according to the terms of the STSP, the Sales Incentive was earned from
the date of the Acquisition through 30 days thereafter. As of February 28, 1998,
the Company had recorded (i) the pro rata portion of the First Stay-Put relating
to the period from adoption of the STSP through February 28, 1998, and (ii) the
pro rata portion (i.e. four days out of thirty) of the expense earned pursuant
to the Sales Incentive relating to the period from the date of the Acquisition
to February 28, 1998. The expense related to the Second Stay-Put and the
remainder of the First Stay-Put will be earned and recorded in the second
quarter of 1998. The remainder of the expense related to the Sales Incentive
will be recorded upon the final determination of the present value of the
after-tax proceeds to the Trust. The Company anticipates that it will revise its
estimate of the expense related to the Sales Incentive by recording a $.9
million charge in the second quarter of 1998.
The following table shows the payments to the Named Executive Officers
under the STSP shortly after consummation of the Acquisition:
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER SALES INCENTIVE FIRST STAY-PUT
- ---------------------------------------------------------------------- --------------- --------------
<S> <C> <C>
Thomas E. Petry....................................................... $ 1,000,000 $625,000(A)
Andries Ruijssenaars.................................................. 840,000 262,500
David N. Hall......................................................... 600,000 187,500
Wayne R Wickens....................................................... 520,000 162,500
James A. Ralston...................................................... 192,000 120,000
Carroll D. Curless.................................................... 288,000 120,000
</TABLE>
- ------------
(A) This amount represents 100% of Mr. Petry's stay-put bonus, which he received
at the time of his resignation from the Company.
The Company expects to pay to each of the Named Executive Officers, other
than Mr. Petry, on the second anniversary of the Closing Date the Second
Stay-Put in an amount equal to the First Stay-Put indicated in the above table.
Mr. Petry received 100% of his stay-put bonus at the time of his resignation
from the Company and, accordingly, he will not receive any additional payment in
connection with the stay-put bonus.
78
<PAGE>
<PAGE>
COMPENSATION TO SENIOR MANAGEMENT
Shortly after the Acquisition, the Company paid approximately $10.0 million
to the E-P Management Trust for the benefit of certain members of senior
management of the Company. The $10.0 million payment was used by the E-P
Management Trust to satisfy a loan from Granaria Holdings, the proceeds of which
were used by E-P Management Trust to acquire 16% of the common stock of Granaria
Industries. Pursuant to the Incentive Stock Plan adopted by the Company, the
shares of Granaria Industries held by the E-P Management Trust were allocated to
certain members of senior management of the Company (including certain of the
Named Executive Officers) shortly after the Acquisition, which shares are
subject to periods of vesting up to four years. The receipt of such shares will
be taxable to the holders as income in an amount equal to the value of the
shares at the time of vesting. The Incentive Stock Plan requires the Company to
reimburse the holders of the shares for their tax obligations associated with
the receipt of such shares. The initial amount of such taxes, which the Company
paid shortly after the Acquisition, was approximately $2.9 million. The Company
expects to make additional tax payments over the four years following the
Acquisition in accordance with the applicable vesting periods. The payment by
the Company of the $10.0 million and the tax payments to the holders of the
shares will result in an income tax deduction to the Company.
79
<PAGE>
<PAGE>
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF PARENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock after giving effect to the Offerings of (i) each
person known by the Company to own beneficially 5% or more of the voting Common
Stock, (ii) each anticipated director of the Company, (iii) each executive
officer of the Company and (iv) all current directors and executive officers as
a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENTAGE OF
NAME CLASS A SHARES CLASS A SHARES
- ----------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Granaria Holdings N.V. ................................................ 625,001 100%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(1)
Joel P. Wyler ......................................................... 625,001 100%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(2)
Daniel C. Wyler(1) .................................................... 625,001 100%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(2)
All directors and executive officers as a group ....................... 625,001 100%
(five persons)(3)
</TABLE>
- ------------
(1) Granaria Holdings N.V. is 100% owned by Wijler Holding N.V., a Dutch
Antilles company, 50.1% of which is owned by Joel P. Wyler and 49.9% of
which is owned by Daniel C. Wyler.
(2) Includes shares held by Granaria Holdings B.V.
(3) Shortly after the Acquisition, pursuant to the Incentive Stock Plan certain
members of senior management of the Company received interests in the E-P
Management Trust, which beneficially owns 10% of the equity of Parent. The
trustees of the E-P Management Trust are Andries Ruijssenaars, Thomas E.
Petry and Joel P. Wyler.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the arrangements made prior to the negotiation and execution of
the Merger Agreement, the Company will make bonus payments to certain of its
executive officers in connection
with the consummation of any merger, acquisition, recapitalization or other
transaction resulting in a change of control of the Company. The Acquisition
resulted in such a change of control. The Company made special bonus payments
shortly after consummation of the Acquisition in the aggregate amount of $7.6
million to certain members of senior management of the Company and expects to
make an additional special bonus payment of approximately $2.1 million on the
second anniversary of the Acquisition. Such payments were made pursuant to the
STSP. See 'Executive Compensation -- Short Term Sale Program.'
In connection with the Acquisition, the Company paid a transaction fee of
$7.3 million (approximately 1% of the transaction value) to Granaria Holdings in
consideration for advisory services related to the structuring and financing of
the Acquisition. The Company believes that such transaction fee is on terms no
less favorable to the Company than could have been obtained from an independent
third party.
The Company has entered into an advisory and consulting agreement with
Granaria Holdings pursuant to which the Company will pay an annual management
fee of $1.75 million to Granaria Holdings. The Company believes that such
management agreement is on terms no less favorable to the Company than could
have been obtained from an independent third party.
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DESCRIPTION OF INDUSTRIAL REVENUE BONDS
The Company has incurred obligations under certain tax-exempt industrial
revenue bond financings (the 'IRB Obligations') totaling $18.4 million at
November 30, 1997 for development projects relating to the Company's facilities
at its Vale, Oregon, Manchester, Tennessee and Kalkaska, Michigan facilities.
The IRB Obligations for the Kalkaska, Michigan facility are collateralized by
real property and equipment and bears interest at 6.0%. The industrial revenue
bonds for the Vale, Oregon and Manchester, Tennessee facilities are floating
rate notes that are collateralized by letters of credit. The IRB Obligations
mature at various dates ranging from 2002 to 2012.
DESCRIPTION OF NEW CREDIT AGREEMENT
On the Closing Date, the Company entered into the New Credit Agreement with
ABN AMRO Bank, providing for the establishment of $385 million aggregate
principal amount of new credit facilities (the 'New Credit Facilities'). The
Company drew down approximately $304.1 million on the Closing Date in connection
with the Acquisition, including $225.0 million in term loan facilities and
approximately $79.1 million under the revolving credit facility. In addition,
$28.6 million of the revolving credit facility was used as credit support in the
form of letters of credit on the Closing Date. The New Credit Facilities have
been syndicated among several lenders who are parties thereto (collectively, the
'Lenders'), with ABN AMRO Bank, as Agent and Arranger, and PNC Bank, National
Association, as Documentation Agent (together, the 'Agents'). The following is a
summary description of the principal terms of the New Credit Agreement. The
description set forth below does not purport to be complete and is qualified in
its entirety by reference to the agreements setting forth the principal terms
and conditions of the New Credit Facilities, which have been filed as exhibits
to the Notes Exchange Offer Registration Statement of which this Prospectus
constitutes a part.
New Credit Facilities. The New Credit Agreement provides for (i) a senior
secured revolving credit facility (the 'Revolving Credit Facility') and (ii) a
senior secured term loan facility (the 'Term Loan Facility'). The Revolving
Credit Facility may be borrowed in the aggregate principal amount of up to
$160.0 million (of which up to $50.0 million may be utilized in the form of
commercial and standby letters of credit). In connection with the Revolving
Credit Facility, the Lenders will make available to the Company a swing-line
facility under which the Company may make short-term borrowings up to $10.0
million, each of which reduces the availability under the Revolving Credit
Facility on a dollar-for-dollar basis. The Term Loan Facility, in the aggregate
principal amount of $225.0 million, consists of: (i) Tranche A Term Loan in the
principal amount of $100.0 million (the 'Tranche A Term Loan'), (ii) Tranche B
Term Loan in the principal amount of $50.0 million (the 'Tranche B Term Loan'),
and (iii) Tranche C Term Loan in the principal amount of $75.0 million (the
'Tranche C Term Loan' and together with the Tranche A Term Loan and the Tranche
B Term Loan, the 'Term Loans').
Availability. The entire amount of the Term Loans was required to be drawn
in a single drawing at consummation of the Acquisition. Amounts borrowed under
the Term Loan Facility that are repaid may not be reborrowed. Loans under the
Revolving Credit Facility are available at any time on or after the Closing and
prior to the final maturity date of the Revolving Credit Facility, in principal
amounts to be agreed upon. Amounts repaid under the Revolving Credit Facility
during such availability period may be reborrowed provided no event of default
has occurred and is continuing and the other conditions to borrowing specified
therein have been satisfied.
Guarantees and Security. All obligations under the New Credit Facilities
are guaranteed by Parent and the Subsidiary Guarantors. The Company's
obligations under the New Credit Facilities, and Parent's and the Subsidiary
Guarantors' obligations under their respective Guarantees, are secured by (i)
with respect to the Company, substantially all of its U.S. property and assets
(tangible and intangible), a pledge of all capital stock of its U.S.
subsidiaries and up to 65% of the capital stock of its directly held non-U.S.
subsidiaries, (ii) with respect to Parent, all of the capital stock of the
Company (until the Company's leverage ratio falls below a certain level) and
(iii) with respect to the Subsidiary Guarantors, substantially all of its U.S.
property and assets (tangible and intangible) (collectively, the 'Collateral').
If at any time the Company can pledge more than 65% of the capital stock of a
non-U.S. subsidiary without creating adverse tax consequences to the Company,
the Company is required to pledge such stock.
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Interest. The Senior Indebtedness Facility provides for interest rates, at
the Company's option, equal to the following: (i) Revolving Credit
Facility -- Adjusted LIBOR plus 2.25% or ABR plus 1.25%, (ii) Tranche A Term
Loan -- Adjusted LIBOR plus 2.25% or ABR plus 1.25%, (iii) Tranche B Term
Loan -- Adjusted LIBOR plus 2.625% or ABR plus 1.625%, and (iv) Tranche C Term
Loan -- Adjusted LIBOR plus 2.875% or ABR plus 1.875%. The default interest rate
shall be the applicable rate plus 2% per annum. 'ABR' is the higher of ABN AMRO
Bank's prime rate and the Federal Funds Effective Rate plus 0.5%. 'Adjusted
LIBOR' is the applicable London interbank offered rate adjusted for reserves (if
any).
Maturity, Amortization and Prepayments. The Revolving Credit Facility
matures and shall be due and payable on the last business day of February 2004.
The Term Loan Facility maturity dates are as follows: (i) the Tranche A Term
Loan matures nine months after the fifth anniversary of the Closing, (ii) the
Tranche B Term Loan matures six months after the seventh anniversary of the
Closing, and (iii) the Tranche C Term Loan matures six months after the eighth
anniversary of the Closing. Amortization of the Tranche A Term Loan commences on
the last business day in August 1998 in the following quarterly payment amounts:
in 1998 and 1999, $2.5 million; in 2000, $3.75 million; in 2001, $5.0 million;
in 2002 through maturity, $6.25 million. Amortization of the Tranche B Term Loan
commences on the last business day in November 1998 in the following annual
payment amounts: in 1998, $100,000, in 1999 through 2004, $150,000 and the
remaining amount due at maturity. Amortization of the Tranche C Term Loan
commences on the last business day in November 1998 in the following annual
payment amounts: in 1998, $100,000, in 1999 through 2005, $150,000 and the
remaining amount due at maturity. Borrowings may be prepaid, and voluntary
reductions of the unutilized portion of the Revolving Credit Facility made, at
any time, in certain agreed upon minimum amounts, without premium or penalty,
subject to LIBOR breakage costs. Any voluntary prepayments of the Term Loan
Facility will be applied pro rata to the remaining amortization payments under
the Term Loans. The Company will be required to make mandatory prepayments on
the New Credit Facilities equal to (a) 60% of annual excess cash flow, (b) 100%
of the net proceeds from the sale of assets (including insurance proceeds),
subject to certain reinvestment provisions, (c) 100% of the net proceeds from
the issuance of debt obligations, and (d) 50% of the net proceeds from the
issuance by the Company or its subsidiaries of equity securities. Any Lender of
Tranche B Term Loans or Tranche C Term Loans will have the right to decline to
have such loans prepaid with the amounts set forth above, in which case such
amounts shall instead be applied as a prepayment of the Tranche A Term Loan
(until paid in full), and then to permanently reduce the Revolving Credit
Facility to an amount not less than $100 million. For purposes of the mandatory
prepayments, the term 'excess cash flow' means cash flows from the Company's
operating activities as reduced by (i) certain capital expenditures, (ii)
amounts expended with respect to certain permitted acquisitions, (iii) permanent
principal payments and interest payments of indebtedness for borrowed money of
the Company and its subsidiaries subject to certain exceptions, and (iv) unusual
or non-recurring charges that decrease the Company's working capital.
Certain Covenants. The New Credit Agreement contains covenants restricting
the ability of the Company and its subsidiaries to, among other things, (i)
declare dividends or redeem or repurchase capital stock, (ii) issue stock of a
subsidiary, (iii) incur liens, (iv) make loans and investments, (v) issue
additional debt, (vi) amend or otherwise alter debt agreements, (vii) create
subsidiaries, (viii) engage in mergers, acquisitions and assets sales, (ix)
transact with affiliates and (x) alter the business it conducts. In addition,
the New Credit Agreement provides that the Company cannot make certain payments
including: (i) lending money to any person, (ii) purchasing any stock,
securities of or any other interest in, or making any capital contribution to,
any other person, and (iii) purchasing any futures contract or otherwise
becoming liable for the purchase or sale of currency or other commodities at a
future date; provided that the Company and its subsidiaries may (a) acquire and
hold accounts receivable acquired in the ordinary course of business, (b) hold
certain cash equivalents, (c) make inter-company loans and advances to
wholly-owned subsidiaries for working capital purposes and cash management, (d)
hold stock of its subsidiaries, (e) enter into certain interest rate protection
agreements, (f) own investments received in connection with the bankruptcy or
reorganization of suppliers and customers, and (g) make loans and advances to
employees for certain moving and travel expenses. The New Credit Agreement will
not permit the Company and its subsidiaries to make any capital expenditures
except for such expenditures which do not exceed $40.0 million in any fiscal
year. The Company will also be required to
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comply with the following financial covenants (i) a maximum leverage ratio, (ii)
a minimum interest coverage ratio and (iii) a minimum fixed charge coverage
ratio which ratios are set forth below:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum leverage..................................... 5.60 5.60 4.50 3.50 3.50 3.50 3.50
Interest coverage.................................... 1.85 1.85 2.25 2.50 3.00 3.00 3.00
Fixed charge coverage................................ 1.50 1.50 1.75 1.75 1.75 1.75 1.75
</TABLE>
DESCRIPTION OF THE NOTES
On February 24, 1998, the Company issued $220.0 million aggregate principal
amount of Notes under the Indenture. The Notes represent senior subordinated
unsecured obligations of the Company limited to an aggregate principal amount of
$220 million, subordinated in right of payment to all existing and future Senior
Indebtedness of the Company (including the Company's obligations under the New
Credit Agreement) as described below under ' -- Subordination.' The Notes are
unconditionally guaranteed by each Guarantor on a senior subordinated basis,
with each such guarantee subordinated to the Guarantor's guarantee of the
obligations of the Company under the New Credit Agreement and to all other
Senior Indebtedness of such Guarantor.
The Notes bear interest at the rate of 9 3/8% per annum, payable on March 1
and September 1 of each year, commencing on March 1, 1998, to holders of record
at the close of business on February 15 or August 15, as the case may be,
immediately preceding the relevant interest payment date. The Notes will mature
on March 1, 2008.
SUBORDINATION
The payment by the Company of principal of, and premium (if any) and
interest (including Special Interest) on the Notes, and by each Guarantor of
such amounts under its Note Guarantee (collectively, the 'Note Indebtedness'),
will be subordinated to the prior payment in full in cash when due of the
principal of, and premium, if any, and accrued and unpaid interest on and all
other amounts owing in respect of, all existing and future Senior Indebtedness
of the Company and of each Guarantor, as the case may be. The Company has agreed
in the Indenture that it will not incur, directly or indirectly, any
Indebtedness that is subordinate or junior in ranking in right of payment to its
Senior Indebtedness unless such Indebtedness is pari passu with or is expressly
subordinated in right of payment to the Notes.
GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the 'Note Guarantees') by Parent and by each Subsidiary
Guarantor. Each Note Guarantee will be an unsecured senior subordinated
obligation of the Guarantor providing it, and will rank junior in right of
payment to all existing and future Senior Indebtedness of such Guarantor,
including such Guarantor's guarantee of the Company's obligations under the New
Credit Agreement. The obligations of each Guarantor under its Note Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
law.
OPTIONAL REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to March 1, 2003, but will be
redeemable at the option of the Company, in whole or in part, at any time on or
after March 1, 2003, at the following redemption prices (expressed as
percentages of principal amount), together with accrued and unpaid interest, if
any, thereon to the redemption date, if redeemed during the twelve-month period
beginning March 1:
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<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------- ----------------
<S> <C>
2003....................................................................... 104.688%
2004....................................................................... 103.125%
2005....................................................................... 101.563%
2006 and thereafter........................................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
outstanding on the Closing Date with the net cash proceeds of one or more Equity
Offerings at a redemption price equal to 109.375% of the principal amount
thereof, plus accrued and unpaid interest and Special Interest, if any, to the
redemption date; provided that (a) at least $100 million aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of such
redemption and (b) such redemption occurs within 60 days of the date of the
closing of any such Equity Offering.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require that the Company repurchase such holder's Notes for a
cash price (the 'Change of Control Purchase Price') equal to 101% of the
principal amount of the Notes, plus accrued and unpaid interest and Special
Interest, if any, to the date of repurchase.
CERTAIN COVENANTS
The Indenture contains covenants that, among other things, limit the
ability of the Company, among other things: (a) to incur additional
indebtedness, issue capital stock, or merger or consolidate with any other
Person and (b) to, or permit any of its Restricted Subsidiaries (as defined in
the Exchange Debenture Indenture) to: incur additional indebtedness; issue
capital stock, pay dividends or make certain other distributions; enter into
certain transactions with affiliates; or merge or consolidate with any other
Person or sell all or substantially all of the assets of the Company and its
Restricted Subsidiaries. These covenants are subject to a number of significant
exceptions and qualifications. The Indenture also requires the Company to
deliver certain reports and information to holders of the Notes.
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DESCRIPTION OF THE PREFERRED STOCK
The Series B Preferred Stock will be issued by Parent pursuant to a
Certificate of Designations (the 'Certificate') of Parent, which has been filed
as an exhibit to the Preferred Stock Exchange Offer Registration Statement of
which this Prospectus constitutes a part. The summary contained herein of
certain provisions of the Preferred Stock does not purport to be complete and is
subject to the detailed provisions of, and is qualified in its entirety by
reference to, the Certificate. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Certificate and such
definitions are incorporated herein by reference.
GENERAL
The Certificate of Incorporation of Parent authorizes 50,000 shares of
preferred stock, of which 14,191 shares of Class A Preferred Stock were issued
on February 24, 1998 and are outstanding, and up to 14,191 shares of Class B
Preferred Stock are being issued in the Preferred Stock Exchange Offer in
exchange for an equal number of shares of Series A Preferred Stock. The terms of
the Series B Preferred Stock are identical in all material respects to the terms
of the Series A Preferred Stock, except for certain transfer restrictions and
registration and other rights relating to the exchange of the Series A Preferred
Stock for Series B Preferred Stock. The Trustee will authenticate and deliver
Series B Preferred Stock for original issue only in exchange for an equal number
of shares of Series A Preferred Stock. The Series B Preferred Stock when issued
will be fully paid and non-assessable, and the holders thereof will not have any
subscription or preemptive rights related thereto. Any Series A Preferred Stock
that remains outstanding after the consummation of the Preferred Stock Exchange
Offer, together with the Series B Preferred Stock, will be treated as a single
class of securities under the Certificate.
The liquidation preference of the Series B Preferred Stock will initially
be $5,637.7 per share plus any accretion from February 24, 1998 to the
Expiration Date. Subject to any Special Accretion (as defined below), the
liquidation preference of the Series B Preferred Stock will accrete from the
Expiration Date to March 1, 2003, on a daily basis, at the rate of 11.75% per
annum, compounded semi-annually, to a Liquidation Preference of $10,000 per
share on March 1, 2003, and will be equal to $10,000 per share (or such higher
amount as may result from any Special Accretion) at all times thereafter.
RANKING
The Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of Parent, rank
(i) senior to all classes of common stock of Parent and each other class of
capital stock or series of preferred stock established after the date of this
Prospectus by the Board of Directors of Parent (the 'Board of Directors') the
terms of which do not expressly provide that it ranks on a parity with the
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of Parent and (ii) on a parity with any
class of capital stock or series of preferred stock established after the date
of this Prospectus by the Board of Directors, the terms of which expressly
provide that such class or series will rank on a parity with the Preferred Stock
as to any dividend distributions or distributions upon the liquidation, winding-
up and dissolution of Parent (collectively referred to as 'Parity Securities').
Creditors of Parent will have priority over the Preferred Stock with respect to
claims on the assets of Parent. Parent is providing a guarantee of all
Obligations under each of the New Credit Agreement and the Notes, and is
pledging all of its interest in the capital stock of the Company in support of
its guarantee of the New Credit Agreement. In addition, creditors and
stockholders of Parent's Subsidiaries (including creditors of the Company) will
have priority over the holders of Preferred Stock with respect to claims on the
assets of such Subsidiaries.
DIVIDENDS
No dividends will accrue on the Preferred Stock prior to March 1, 2003.
Holders of Preferred Stock will be entitled to receive, when, as and if declared
by the Board (but in any event not prior to March 1,
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2003), out of funds legally available therefor, dividends on the Preferred Stock
at a rate per annum equal to 11.75% of the Liquidation Preference per share of
Preferred Stock. All dividends will be cumulative, whether or not earned or
declared, on a daily basis from March 1, 2003 and will be payable semi-annually
in arrears on March 1 and September 1 of each year, commencing on September 1,
2003. The terms of certain debt instruments of Parent and the Company, including
the New Credit Facility and the Notes Indenture, will restrict the payment of
cash dividends by Parent and the making of any payments by the Company and its
Subsidiaries, including cash dividends, to Parent, and future agreements may
contain similar restrictions. See 'Risk Factors -- Substantial Leverage;
Restrictive Covenants,' ' -- Holding Company Structure; Dependence Upon Cash
Flow from Subsidiaries' and ' -- Restrictions on Dividends and Repurchases of
Capital Stock' herein and 'Description of Notes -- Certain Covenants' and
'Description of New Credit Facility' in the Notes Prospectus.
No dividends may be paid or set apart for such payment on Junior Securities
(except dividends on Junior Securities in additional shares of Junior
Securities) and no Junior Securities may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
cumulative dividends have not been paid on the Preferred Stock.
OPTIONAL REDEMPTION
The Preferred Stock will be redeemable at the option of Parent, in whole or
in part, at any time (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) on or after March 1,
2003, at the following redemption prices (expressed as percentages of the
Liquidation Preference (excluding any Special Accretion) at the time of such
redemption thereof), together with accrued and unpaid dividends and the amount
of Special Accretion, if any, if redeemed during the 12-month period beginning
on March 1 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------- ----------
<S> <C>
2003......................................................... 105.875%
2004......................................................... 103.917%
2005......................................................... 101.958%
2006 and thereafter.......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 1, 2001, Parent
may redeem up to 35% of the shares of Preferred Stock outstanding on the Issue
Date out of the proceeds of one or more Equity Offerings at a redemption price
equal to 111.75% of the Liquidation Preference (excluding any Special Accretion)
thereof at such time of redemption, together with the amount of any Special
Accretion to the date of redemption; provided, that (a) at least $50 million
aggregate amount of Liquidation Preference remains outstanding after each such
redemption and (b) such redemption occurs within 60 days of the date of the
closing of any such Equity Offering.
No partial optional redemption may be authorized or made unless prior
thereto full unpaid cumulative dividends, if any, shall have been paid or a sum
set apart for such payment on the Preferred Stock.
In the event of partial redemptions of Preferred Stock, the shares to be
redeemed will be determined pro rata or by lot, as determined by Parent, except
that Parent may redeem such shares held by any holders of fewer than 10 shares
(or shares held by holders who would hold less than 10 shares as a result of
such redemption), without regard to any pro rata redemption requirement. The
terms of certain debt instruments of Parent, including the New Credit Agreement
and the Notes Indenture, will restrict, directly or indirectly, the ability of
Parent to redeem the Preferred Stock, and future agreements to which Parent or
its Subsidiaries are parties may contain similar restrictions. See 'Description
of New Credit Agreement' and 'Description of Notes' in the Notes Offering
Memorandum.
MANDATORY REDEMPTION
The Preferred Stock will be mandatorily redeemable by Parent on the earlier
of March 1, 2008 and the making of a Mandatory Redemption Demand (as defined
below) upon the occurrence of a Matured Mandatory Redemption Event. The
Certificate will define a 'Matured Mandatory Redemption Event'
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as (i) failure by Parent to pay dividends on any of the Preferred Stock when
provided to be declared and paid, and the continuance of any such failure for 30
days, regardless of whether Parent shall have funds available for such payment;
(ii) failure by Parent to pay the Liquidation Preference or premium, if any, on
any of the Preferred Stock when provided to be paid, whether at stated
redemption date or upon a mandatory redemption or otherwise, regardless of
whether Parent shall have funds available for such payment; (iii) the occurrence
of any Early Mandatory Redemption Event described below under 'Early Mandatory
Redemption Events -- Mergers and Certain Other Transactions,' or failure by
Parent to comply with its obligations to make a Change of Control Offer or a Net
Proceeds Offer described in 'Change of Control' and 'Early Mandatory Redemption
Events -- Asset Sales,' respectively, regardless of whether Parent shall have
funds available for such payment; (iv) the occurrence of any other Early
Mandatory Redemption Event, or the failure by Parent to comply with any covenant
in the Certificate, and in either case the continuance of such occurrence or
failure for 60 days after notice of such occurrence or failure has been given to
Parent by the Transfer Agent or by the holders of at least 25% of the aggregate
Liquidation Preference of the Preferred Stock then outstanding; (v) failure by
any of Parent, the Company or any of its Restricted Subsidiaries to make any
payment when due at final maturity after the expiration of any applicable grace
period, in respect of any Indebtedness of Parent, the Company or any of such
Restricted Subsidiaries, or the acceleration of the maturity of such
Indebtedness by the holders thereof because of a default, with an aggregate
outstanding principal amount for all such Indebtedness under this clause (v) of
$10.0 million or more (but excluding in any event any such Indebtedness that is
paid when so due after expiration of any applicable grace period, or upon
acceleration of the maturity thereof, pursuant to any letter of credit); (vi)
one or more final, non-appealable judgments or orders that exceed $10.0 million
in the aggregate for the payment of money have been entered by a court or courts
of competent jurisdiction against Parent, the Company or any Subsidiary of the
Company and such judgment or judgments have not been satisfied, stayed, annulled
or rescinded within 60 days of being entered; and (vii) certain events of
bankruptcy, insolvency or reorganization involving Parent, the Company or any
Significant Subsidiary.
If a Matured Mandatory Redemption Event (other than a Matured Mandatory
Redemption Event specified in clause (vii) above involving Parent), shall have
occurred and be continuing under the Certificate, either the Transfer Agent or
the holders of at least 25% of the aggregate Liquidation Preference then
outstanding, by notice in writing to Parent (and to the Transfer Agent if given
by holders of at least 25% of the Liquidation Preference then outstanding) may
require Parent to redeem (subject to the legal availability of funds therefor)
all outstanding shares of Preferred Stock at a price equal to the then effective
Liquidation Preference thereof, plus all accumulated and unpaid dividends, if
any, to the date of redemption (a 'Mandatory Redemption Demand'). If a Matured
Mandatory Redemption Event specified in clause (vii) above relating to Parent
occurs, a Mandatory Redemption Demand shall be deemed to have occurred
automatically without notice to Parent or declaration or other act on the part
of the holders of Preferred Stock or the Transfer Agent, and Parent shall redeem
all outstanding shares of Preferred Stock as provided above.
In certain cases, the holders of a majority of the aggregate Liquidation
Preference of the Preferred Stock then outstanding may rescind any Mandatory
Redemption Demand and its consequences, except a default in the payment of
Liquidation Preference of, premium, if any, and dividends on the Preferred
Stock.
The Transfer Agent may withhold from the holders notice of any continuing
Mandatory Redemption Event (except any default in payment of Liquidation
Preference of, premium, if any, or dividends on the Preferred Stock) if the
Transfer Agent determines that withholding such notice is in the holders'
interest.
The terms of certain debt instruments of Parent and the Company, including
the New Credit Agreement and the Notes Indenture, will restrict, directly or
indirectly, the ability of Parent to redeem the Preferred Stock, or to permit
the Company to make distributions or other payments to provide Parent the
financial resources necessary to make any such redemption, and future agreements
to which Parent, the Company or its Subsidiaries are parties may contain similar
restrictions. There can be no assurance that Parent will have the financial
resources or the legally available funds necessary to redeem the Preferred Stock
on any mandatory redemption date or will be able to obtain such resources from
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any of its Subsidiaries, including the Company. See 'Risk Factors -- Substantial
Leverage; Restrictive Covenants,' ' -- Holding Company Structure; Dependence
Upon Cash Flow from Subsidiaries' and ' -- Restrictions on Dividends and
Repurchases of Capital Stock' herein [and 'Description of Notes -- Certain
Covenants' and 'Description of New Credit Agreement' in the Notes Offering
Memorandum]. If Parent fails to redeem the Preferred Stock upon any Mandatory
Redemption Demand, the holders of the Preferred Stock may be unable to obtain
and enforce a judgment against Parent and is not likely to be recognized as a
creditor of Parent that would have rights to commence an involuntary bankruptcy
proceeding against Parent. The election of directors as described under
'- Voting Rights' may be the sole remedy for the failure to effect the mandatory
redemption described in the foregoing paragraph.
In the case of a Mandatory Redemption Event occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of Parent with
the intention of avoiding payment of the premium that Parent would have had to
pay if Parent then had elected to redeem the Preferred Stock as described under
'Optional Redemption,' an equivalent premium shall also become and be
immediately paid, to the extent permitted by law, upon the mandatory redemption
of the Preferred Stock upon any Mandatory Redemption Demand. If a Mandatory
Redemption occurs prior to March 1, 2003 by reason of any willful action (or
inaction) by or on behalf of Parent with the intention of avoiding the
prohibition on optional redemption of the Preferred Stock by Parent prior to
March 1, 2003, then, upon the mandatory redemption of the Preferred Stock upon
any Mandatory Redemption Demand, an additional premium shall also become due and
be immediately paid, to the extent permitted by law, in an amount equal to 10.0%
of the Liquidation Preference (excluding any Special Accretion) thereof.
The Certificate does not contain any provision requiring funds to be set
aside to protect the liquidation preference of the Preferred Stock, although
such liquidation preference will be substantially in excess of the par value of
such shares of Preferred Stock. In addition, Parent is not aware of any
provision of Delaware law or any controlling decision of the courts of the State
of Delaware (the state of incorporation of Parent) that requires a restriction
upon any surplus of Parent solely because the liquidation preference of the
Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon any surplus of Parent solely because the liquidation preference
of the Preferred Stock will exceed the par value and there will be no remedies
available to holders of the Preferred Stock before or after the payment of any
dividend, other than in connection with the liquidation of Parent, solely by
reason of the fact that such dividend would reduce the surplus of Parent to an
amount less than the difference between the liquidation preference of the
Preferred Stock and its par value.
EARLY MANDATORY REDEMPTION EVENTS
It shall be an 'Early Mandatory Redemption Event' if Parent shall at any
time not act, or not cause the Company or its Subsidiaries to act, in accordance
with the following provisions:
Activities by Parent. Parent shall not, directly or indirectly, (i) enter
into or permit to exist any transaction or agreement (including without
limitation any transaction or agreement with respect to any incurrence or
assumption of Indebtedness, any purchase, sale, lease or exchange of any
property or the rendering of any service or payment of any funds) between itself
and any other Person (including any Affiliate), other than Permitted Parent
Transactions, (ii) issue any Capital Stock other than the Preferred Stock or any
Eligible Junior Securities, or incur or assume any Indebtedness other than
pursuant to Permitted Parent Transactions, (iii) engage in any business or
conduct any activity (including the making of any Investment or payment) or
transfer any of its assets, other than the ownership of the capital stock of the
Company and the performance of Permitted Parent Transactions in accordance with
the terms thereof or (iv) consolidate or merge with or into any other Person.
Parent shall preserve, renew and keep in full force and effect its corporate
existence and any rights, privileges and franchises necessary or desirable in
the conduct of its business, and shall comply in all material respects with all
material applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities, provided that Parent may terminate any such right,
privilege or franchise (other than its corporate existence) if its board of
directors in good faith determines that such termination is in the best
interests of Parent and not materially disadvantageous to the holders of the
Preferred Stock.
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Additional Indebtedness. The Certificate provides that Parent will not
permit the Company or any Restricted Subsidiary, directly or indirectly, to
incur any Indebtedness (including without limitation Acquired Indebtedness);
provided that (i) the Company and its Restricted Subsidiaries may incur
Permitted Indebtedness and (ii) the Company may incur additional Indebtedness
if, after giving effect thereto, the Company's Consolidated Interest Coverage
Ratio on the date thereof would be at least 2.0 to 1, determined on a pro forma
basis as if the incurrence of such additional Indebtedness, and the application
of the net proceeds therefrom, had occurred at the beginning of the four-quarter
period used to calculate the Company's Consolidated Interest Coverage Ratio.
Issuance of Capital Stock of Restricted Subsidiaries. The Certificate
provides that Parent will not permit the Company or any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of its Capital Stock
(including options, warrants or other rights to purchase shares of such Capital
Stock) except (i) to Parent, the Company or a Wholly-Owned Restricted
Subsidiary, (ii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary or
(iii) to the extent such shares represent directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Wholly-Owned Restricted Subsidiary. The proceeds of any sale of Capital Stock
permitted hereunder and referred to in clauses (ii) and (iii) above will be
treated as Net Available Proceeds and must be applied in a manner consistent
with the provisions of the Early Mandatory Redemption Event described under
' -- Asset Sales.'
Restricted Payments. The Certificate provides that Parent will not, and
will not permit the Company or any Restricted Subsidiary, directly or
indirectly, to make any Restricted Payment (except as permitted below) if at the
time of such Restricted Payment:
(i) a Mandatory Redemption Event shall have occurred and be continuing
or shall occur as a consequence thereof;
(ii) the Adjusted Coverage Ratio Incurrence Condition would not be
satisfied; or
(iii) the amount of such Restricted Payment, when added to the
aggregate amount of all other Restricted Payments (except as expressly
provided in the second following paragraph) made after the Issue Date,
exceeds the sum of (A) 50% of Adjusted Consolidated Net Income (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of Parent's most recently ended
fiscal quarter for which financial statements are available at the time of
such Restricted Payment (or, if such aggregate Adjusted Consolidated Net
Income shall be a deficit, minus 100% of such aggregate deficit) plus (B)
the net cash proceeds from the issuance and sale (other than to a
Subsidiary of Parent) after the Issue Date of (1) Eligible Junior
Securities or (2) debt securities of Parent that have been converted into
Eligible Junior Securities that is not held by a Subsidiary of Parent),
plus (C) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (x) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (y) the
initial amount of such Restricted Investment plus (D) the amount of
Restricted Investment outstanding in an Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company in accordance with the definition of 'Unrestricted Subsidiary.'
The foregoing provisions do not prohibit (1) the payment of any dividend by
Parent, the Company or a Restricted Subsidiary within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Certificate; (2) the redemption, repurchase,
retirement or other acquisition of any Capital Stock of Parent in exchange for,
or out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Parent) of Eligible Junior Securities; (3) the defeasance,
redemption, repurchase or other retirement of Subordinated Indebtedness in
exchange for, or out of the proceeds of, the substantially concurrent issue and
sale of Eligible Junior Securities (other than such stock (x) sold to a
Subsidiary of Parent and (y) purchased with the proceeds of loans from Parent or
any of its Subsidiaries); (4) the making of a Related Business Investment in
joint ventures or Unrestricted Subsidiaries out of the proceeds of the
substantially concurrent issue and sale of Eligible Junior Securities (other
than such stock (x) sold to a Subsidiary of Parent and (y) purchased with the
proceeds of loans from Parent or any of its Subsidiaries); (5) Specified
Transaction Payments; (6) payments of up to $1.75 million to Granaria
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Holdings or any of its Affiliates in the aggregate in any fiscal year pursuant
to any Related Party Agreement entered into between Granaria Holdings or any of
its Affiliates and the Company or its Subsidiaries to provide management and
similar services to any such Person or to Parent; (7) payments by Parent to
purchase, redeem, acquire, cancel or otherwise retire for value Capital Stock of
Parent, or payments of dividends or distributions by Parent to its shareholders
solely in amounts and at the times necessary to permit such shareholders to (or
permit subsequent distributions to permit their respective shareholders to)
purchase, redeem, acquire, cancel or otherwise retire for value Capital Stock of
such shareholders, in each case held by officers, directors or employees or
former officers, directors or employees (or their transferees, estates or
beneficiaries under their estates), or a trust established for the benefit of
any of the foregoing of Parent, the Company or its Subsidiaries, upon death,
disability, retirement, severance or termination of employment or service or
pursuant to any agreement under which such Capital Stock or related rights were
issued; provided that the amount of such payments under this clause (7) after
the Issue Date does not exceed in the aggregate $5.0 million; or (8) Restricted
Investments the amount of which, together with the amount of all other
Restricted Investments made pursuant to this clause (8) after the Issue Date,
does not exceed $10.0 million, provided that, in the case of clause (8), no
Mandatory Redemption Event shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payments referred to in clauses (2) through (6)
thereof) shall be included once in calculating whether the conditions of clause
(iii) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments. For purposes of determining the occurrence of an
Early Mandatory Redemption Event pursuant to this 'Restricted Payments'
provision, in the event that transaction meets the criteria of more than one of
the types of Restricted Payments described in the clauses of the immediately
preceding paragraph or of the clauses of the definition of 'Restricted Payment',
Parent, in its sole discretion, shall classify such transaction and only be
required to include the amount and type of such transaction in one of such
clauses. If an issuance of Capital Stock of Parent is applied to make a
Restricted Payment pursuant to clause (2), (3) or (4) above, then, in
calculating whether the conditions of clause (iii) of the second preceding
paragraph have been met with respect to any subsequent Restricted Payments, the
proceeds of any such issuance shall be included under such clause (iii) only to
the extent such proceeds are not applied as so described in this sentence.
Not later than the date of making any Restricted Payment, Parent shall
cause the Company to deliver to the Transfer Agent an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the Early Mandatory Redemption Provision
entitled 'Restricted Payments' were computed, which calculations shall be based
upon Parent's latest available financial statements.
Restrictions on Distributions from Restricted Subsidiaries. The Certificate
provides that Parent will not permit the Company or any Restricted Subsidiary to
create or otherwise cause or suffer to exist or become effective any consensual
Payment Restriction with respect to any of its Restricted Subsidiaries, except
for (a) any such Payment Restriction in effect on the Issue Date under the New
Credit Agreement or the Notes Indenture or any similar Payment Restriction under
any similar credit facility, or any amendment, restatement, renewal, replacement
or refinancing of any of the foregoing, provided that such similar Payment
Restrictions are not, taken as a whole, materially more restrictive than the
Payment Restrictions in effect on the Issue Date under the New Credit Agreement
or the Notes Indenture, as applicable, (b) any such Payment Restriction in
effect on the Issue Date consisting of customary net worth or leverage tests in
effect on the Issue Date under any credit facility of any Foreign Subsidiary, or
any amendment, restatement, renewal, replacement or refinancing of any of the
foregoing (including for purposes of this clause (b), any increase in the
principal amount available thereunder) (a 'Replacement Facility'), provided that
such Payment Restrictions in any such Replacement Facility are not, taken as a
whole, materially more restrictive than the Payment Restrictions in effect on
the Issue Date under the facility amended, restated, renewed, replaced or
refinanced, (c) any such Payment Restriction under any agreement evidencing any
Acquired Indebtedness that was permitted to be incurred pursuant to the
Certificate in effect at the time of such incurrence and not created in
contemplation of such event, provided that such Payment Restriction is not
extended to apply to any of the assets of the entities not previously subject
thereto, (d) any such Payment Restriction arising in
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connection with Refinancing Indebtedness; provided that any such Payment
Restrictions that arise under such Refinancing Indebtedness are not, taken as a
whole, materially more restrictive than those under the agreement creating or
evidencing the Indebtedness being refunded or refinanced and (e) any such
restriction by reason of customary provisions restricting assignments,
subletting or other transfers contained in leases, licenses and similar
agreements entered into in the ordinary course of business.
Transactions with Affiliates. The Certificate provides that Parent will not
permit the Company or any Restricted Subsidiary to, directly or indirectly, in
one transaction or a series of related transactions, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an 'Affiliate Transaction'), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction (or series of related transactions) involving
aggregate payments in excess of $1.0 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and a
Secretary's Certificate which sets forth and authenticates a resolution that has
been adopted by a vote of a majority of the Independent Directors approving such
Affiliate Transaction or, if at the time fewer than three Independent Directors
are then in office, a Secretary's Certificate which sets forth and authenticates
a resolution that has been adopted unanimously by the Company's Board of
Directors and (b) with respect to any Affiliate Transaction (or series of
related transactions) involving aggregate payments of $5.0 million or more, the
certificates described in the preceding clause (a) and an opinion as to the
fairness to the Company or such Subsidiary from a financial point of view issued
by an Independent Financial Advisor; provided, however, that the following shall
not be deemed to be Affiliate Transactions: (i) transactions exclusively between
or among (1) the Company and one or more Restricted Subsidiaries or (2)
Restricted Subsidiaries, provided, in each case, that no Affiliate of the
Company (other than another Restricted Subsidiary) owns Capital Stock of any
such Restricted Subsidiary; (ii) transactions between Parent, the Company or any
Restricted Subsidiary and any qualified employee stock ownership plan
established for the benefit of the Company's and its Restricted Subsidiaries'
employees, or the establishment or maintenance of any such plan; (iii)
reasonable director, officer and employee compensation and other benefit, and
indemnification arrangements approved by a majority of the Independent Directors
on the Board of Directors; (iv) transactions permitted by the 'Restricted
Payments' Early Mandatory Redemption Event; (v) the pledge of Capital Stock of
Unrestricted Subsidiaries to support the Indebtedness thereof; (vi) the entering
into of any Tax Sharing Agreement, and any payment pursuant thereto; (vii) the
payment on behalf of Parent of ministerial administrative and operating fees and
expenses in the ordinary course to Persons other than to Affiliates of Parent or
the Company, provided that the aggregate amount thereof in any fiscal year of
the Company does not exceed $750,000; (viii) arrangements with ABN AMRO Bank
N.V. or any of its Affiliates or their respective successors; (x) under the New
Credit Agreement or the Notes or in connection with either of the foregoing, (y)
in connection with the offering of the Notes or the Preferred Stock or (z)
pursuant to other banking, financing or underwriting activity entered into in
the ordinary course of business; (ix) transactions between the Company or any
Restricted Subsidiary and any Affiliate of the Company or such Restricted
Subsidiary that is a joint venture, provided that no direct or indirect holder
of an equity interest in such joint venture (other than the Company or a
Restricted Subsidiary) is an Affiliate of the Company or such Restricted
Subsidiary; and (x) Specified Transaction Payments.
Asset Sales. (a) The Certificate provides that Parent will not permit the
Company or any Restricted Subsidiary to consummate any Asset Sale unless (i) the
Company or such Restricted Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the assets included in
such Asset Sale (evidenced by the delivery by the Company to the Trustee of an
Officers' Certificate certifying that such Asset Sale complies with this clause
(i)), (ii) immediately before and immediately giving effect to such Asset Sale,
no Mandatory Redemption Event shall have occurred and be continuing, and (iii)
at least 80% of the consideration received by the Company or such Restricted
Subsidiary therefor is in the form of cash paid at the closing thereof. The
amount (without duplication) of any (x) Indebtedness (other than indebtedness
that is subordinated in right of payment to the Notes)
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of the Company or such Restricted Subsidiary that is expressly assumed by the
transferee in such Asset Sale and with respect to which the Company or such
Restricted Subsidiary, as the case may be, is unconditionally released by the
holder of such Indebtedness, and (y) any Cash Equivalents, or other notes,
securities or items of property received from such transferee that are promptly
(but in any event within 15 days) converted by the Company or such Restricted
Subsidiary to cash (to the extent of the cash actually so received), shall be
deemed to be cash for purposes of clause (ii) and, in the case of clause (x)
above, shall also be deemed to constitute a repayment of, and a permanent
reduction in, the amount of such Indebtedness for purposes of the following
paragraph (b). If at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then the date of such conversion or disposition shall be deemed to constitute
the date of an Asset Sale hereunder and the Net Available Proceeds thereof shall
be applied in accordance with the provisions of this 'Asset Sale' section. A
transfer of assets by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to a Restricted Subsidiary will not be deemed to be
an Asset Sale and a transfer of assets that constitutes a Restricted Investment
and that is permitted under ' -- Restricted Payments' will not be deemed to be
an Asset Sale.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
Parent will cause the Company or such Restricted Subsidiary, no later than 360
days after such Asset Sale (or such longer period of time as may be required to
consummate any offer to repurchase any Indebtedness referred to in clause (i)
below in accordance with the terms thereof, if such offer to repurchase is
commenced not later than 30 days after the end of such 360 day period), to (i)
apply all or any of the Net Available Proceeds therefrom to repay amounts
outstanding under Indebtedness of the Company and its Restricted Subsidiaries;
provided, in each case, that the related loan commitment (if any) of any
Indebtedness constituting revolving credit debt is thereby permanently reduced
by the amount of such Indebtedness so repaid and/or (ii) invest all or any part
of the Net Available Proceeds thereof in the purchase of fixed assets to be used
by the Company and its Restricted Subsidiaries in a Related Business (together
with any short-term assets incidental thereto), or the making of a Related
Business Investment. The amount of such Net Available Proceeds not applied or
invested as provided in this paragraph will constitute 'Excess Proceeds.'
(c) When the aggregate amount of Excess Proceeds equals or exceed $5.0
million, Parent will make an offer to purchase, from all holders of the
Preferred Stock, to the extent Parent shall have funds legally available
therefor, an aggregate Liquidation Preference of Preferred Stock equal to the
amount of such Excess Proceeds as follows:
(i) Parent will make an offer to purchase (a 'Net Proceeds Offer')
from all holders of the Preferred Stock in accordance with the procedures
set forth in the Certificate the maximum Liquidation Preference (expressed
as a multiple of the Liquidation Preference of one share of Preferred Stock
as of the date of purchase) of Preferred Stock that may be purchased out of
the amount (the 'Payment Amount') of such Excess Proceeds.
(ii) The offer price for the Preferred Stock will be payable in cash
in an amount equal to 100% of the Liquidation Preference of the Preferred
Stock tendered for redemption pursuant to a Net Proceeds Offer, plus
accrued and unpaid dividends, to the date such Net Proceeds Offer is
consummated (the 'Offered Price'), in accordance with the procedures set
forth in the Certificate. To the extent that the aggregate Offered Price of
Preferred Stock tendered for purchase pursuant to a Net Proceeds Offer is
less than the Payment Amount relating thereto (such shortfall constituting
a 'Net Proceeds Deficiency'), Parent may use such Net Proceeds Deficiency,
or a portion thereof, for general corporate purposes, subject to the
limitations of the Early Mandatory Redemption Event entitled 'Restricted
Payments'.
(iii) If the aggregate Offered Price of Preferred Stock validly
tendered for purchase and not withdrawn by holders thereof exceeds the
Payment Amount, Preferred Stock to be purchased will be selected on a pro
rata basis.
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(iv) Upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Net Proceeds Offer was made shall be deemed to be zero.
Parent will not enter into or suffer to exist any agreement that would place any
restriction of any kind (other than pursuant to law or regulation) on its
ability to make a Net Proceeds Offer following any Asset Sale. Parent will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and Parent is required to purchase Preferred Stock as described above.
Mergers and Certain Other Transactions. The Certificate provides that
Parent will not permit the Company, in a single transaction or a series of
related transactions, to (i) consolidate or merge with or into (other than a
merger with a Wholly-Owned Restricted Subsidiary solely for the purpose of
changing the Company's jurisdiction of incorporation to another State of the
United States), or sell, lease, transfer, convey or otherwise dispose of or
assign all or substantially all of the assets of the Company or the Company and
its Subsidiaries (taken as a whole), or assign any of its obligations under the
Notes and the Certificate, to any Person or (ii) adopt a Plan of Liquidation
unless, in either case: (a) the Person formed by or surviving such consolidation
or merger (if other than the Company) or to which such sale, lease, conveyance
or other disposition or assignment shall be made (or, in the case of a Plan of
Liquidation, any Person to which assets are transferred) (collectively, the
'Successor'), is a corporation organized and existing under the laws of any
State of the United States of America or the District of Columbia; (b)
immediately prior to and immediately after giving effect to such transaction as
set forth in clause (a) above and the incurrence of any Indebtedness to be
incurred in connection therewith, no Mandatory Redemption Event shall have
occurred and be continuing; and (c) immediately after and giving effect to such
transaction set forth in clause (a) above and the incurrence of any Indebtedness
to be incurred in connection therewith, and the use of any net proceeds
therefrom on a pro forma basis, (1) the Consolidated Net Worth of Parent would
be at least equal to the Consolidated Net Worth of Parent immediately prior to
such transaction and (2) the Company or the Successor, as the case may be, could
meet the Coverage Ratio Incurrence Condition. For purposes of this 'Mergers and
Certain Other Transactions' section, any Indebtedness of the Successor which was
not Indebtedness of the Company immediately prior to the transaction shall be
deemed to have been incurred in connection with such transaction.
Reports. Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the 'Commission'), so long as any shares of
Preferred Stock are outstanding, Parent will file with the Commission, to the
extent such filings are accepted by the Commission, and will furnish to the
holders of the Preferred Stock all quarterly and annual reports and other
information, documents and reports that would be required to be filed with the
Commission pursuant to Section 13 of the Exchange Act if Parent were required to
file under such section. In addition, Parent will make such information
available to prospective purchasers of the Preferred Stock, securities analysts
and broker-dealers who request it in writing. Parent has agreed that, for so
long as any shares of Preferred Stock remain outstanding, they will furnish to
the holders and beneficial holders of the Preferred Stock and to prospective
purchasers of Preferred Stock designated by the holders of Transfer Restricted
Securities and to broker dealers, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
PROCEDURES FOR REDEMPTIONS
On and after a redemption date, unless Parent defaults in the payment of
the applicable redemption price, dividends will cease to accrue on shares of
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price, without
interest. Parent will send a written notice of redemption by first class mail to
each holder of record of shares of Preferred Stock, not fewer than 30 days nor
more than 60 days prior to the date fixed for such redemption. Shares of
Preferred Stock issued and reacquired will, upon compliance with the applicable
requirements of Delaware law, have the status of authorized but unissued shares
of preferred stock of Parent undesignated as to series and may with any and all
other authorized but unissued shares of preferred stock of Parent be designated
or redesignated and issued or reissued, as the
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case may be, as part of any series of preferred stock of Parent, except that any
issuance or reissuance of shares of Preferred Stock must be in compliance with
the Certificate.
VOTING RIGHTS
Holders of the Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate. The Certificate provides that if Parent fails to discharge any
redemption or repurchase obligation with respect to the Preferred Stock,
including without limitation upon a Mandatory Redemption Demand (and whether or
not Parent is permitted to do so by the terms of the New Credit Agreement, the
Notes or any other obligation of Parent) (any such event, a 'Voting Rights
Event'), then the number of directors constituting the Board of Directors of
Parent will be increased by that number such that, immediately giving effect to
such increase, the holders of the majority of the then outstanding Preferred
Stock, voting separately as a class, will be entitled to elect a majority of the
directors of such Board. Voting rights arising as a result of a Voting Rights
Event will continue until such time as such Voting Rights Event has been
remedied and is no longer continuing, at which time the term of any directors
elected pursuant to this paragraph shall immediately terminate. Any vacancy
occurring in the office of a director elected by the holders of the Preferred
Stock may be filled by the remaining directors elected by such holders unless
and until such vacancy shall be filled by such holders. Regardless of the number
of Voting Rights Triggering Events, in no event shall the holders of Preferred
Stock have the right to elect and have serve more than a majority of the members
of the Board at any time.
The election of directors as described above will be the sole remedy for
the failure to pay dividends on the Preferred Stock or to effect the redemptions
described herein after a Mandatory Redemption Demand.
The Certificate provides that Parent may not amend the Certificate so as to
affect adversely the specified rights, preferences, privileges or voting rights
of holders of shares of the Preferred Stock, or authorize the issuance of any
additional shares of Preferred Stock (other than the New Shares, as described
under ' -- Registration Rights'), without the affirmative vote or consent of the
holders of a majority of the then outstanding shares of Preferred Stock, voting
or consenting, as the case may be, as one class. The Certificate also provides
that, except as set forth above, (a) the issuance of the New Shares and the
creation, authorization or issuance of any shares of Eligible Junior Securities,
(b) the decrease in the amount of authorized capital stock of any class,
including any Preferred Stock or (c) the increase in the amount of authorized
capital stock of any class of Eligible Junior Securities or New Shares shall not
require the consent of the holders of Preferred Stock and shall not be deemed to
affect adversely the rights, preferences, privileges or voting rights of holders
of shares of Preferred Stock.
Under Delaware law, holders of Preferred Stock will be entitled to vote as
a class upon a proposed amendment to the Certificate, whether or not entitled to
vote thereon by the Certificate, if the amendment would increase or decrease the
par value of the shares of Preferred Stock, or alter or change the powers,
preferences or special rights of the shares of Preferred Stock so as to affect
them adversely.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, to the extent that Parent shall
have funds legally available for such payment each holder of the Preferred Stock
will have the right to require that Parent repurchase such holder's shares of
Preferred Stock for a cash price (the 'Change of Control Purchase Price') equal
to 101% of the Liquidation Preference (excluding any Special Accretion) of the
Preferred Stock, plus all accumulated and unpaid dividends and the amount of
Special Accretion, if any, to the date of repurchase, all in accordance with the
following paragraph.
Within 30 days following any Change of Control, Parent will mail to the
Transfer Agent (who shall mail to each holder) a notice (i) describing the
transaction or transactions that constitute the Change of Control, (ii) offering
to repurchase, pursuant to the procedures required by the Certificate and
described in such notice (a 'Change of Control Offer'), on a date specified in
such notice (which shall be a business day not earlier than 30 days or later
than 60 days from the date such notice is mailed) and
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for the Change of Control Purchase Price, all Preferred Stock properly tendered
by such holder pursuant to such offer to purchase for the Change of Control
Purchase Price and (iii) describing the procedures that holders must follow to
accept the Change of Control Offer. The Change of Control Offer is required to
remain open for at least 20 business days or for such longer period as is
required by law.
The occurrence of the events constituting a Change of Control under the
Certificate may result in an event of default in respect of other Indebtedness
(including the New Credit Agreement and the Notes) of the Company and its
Subsidiaries and, consequently, the lenders thereof may have the right to
require repayment of such Indebtedness in full. The terms of certain debt
instruments of the Company and its Subsidiaries may also restrict the ability of
Parent to make or consummate a Change of Control Offer, and there is no
assurance that Parent will be able to obtain from the relevant lenders the
consents necessary to make or consummate a Change of Control Offer. If a Change
of Control Offer is made, there can also be no assurance that Parent will have
the financial resources or the legally available funds necessary to repurchase
any or all of the Preferred Stock properly tendered by holders thereof or will
be able to obtain such resources from any of its Subsidiaries, including the
Company. See 'Risk Factors -- Substantial Leverage; Restrictive Covenants,'
' -- Holding Company Structure; Dependence Upon Cash Flow from Subsidiaries' and
' -- Restrictions on Dividends and Repurchases of Capital Stock' herein and
'Description of Notes -- Early Mandatory Redemption Events' and 'Description of
New Credit Agreement' in the Notes Prospectus.
Except as expressly provided in the Certificate, the right to require a
mandatory redemption as described under ' -- Mandatory Redemption' and the
election of directors as described under ' -- Voting Rights' will be the sole
remedy for the failure to effect a Change of Control Offer when required by the
provisions described above.
Parent's obligation to make a Change of Control Offer will be satisfied if
a third party makes the Change of Control Offer in the manner and at the times
and otherwise in compliance with the requirements applicable to a Change of
Control Offer made by Parent and purchases all Preferred Stock properly tendered
and not withdrawn under such Change of Control Offer. The definition of Change
of Control includes the sale of 'all or substantially all' of the assets of the
Company or Parent and their Subsidiaries, in either case taken as a whole, the
determination of which depends upon the circumstances of any such sale and is
subject to interpretation under applicable legal precedent.
The Change of Control feature of the Preferred Stock, by requiring a Change
of Control Offer, may in certain circumstances make more difficult or discourage
a sale or takeover of Parent, and, thus, the removal of incumbent management.
The Change of Control feature, however, is not part of a plan by management to
adopt a series of antitakeover provisions. Instead, the Change of Control
feature is a result of negotiations between Parent and the Initial Purchasers.
Subject to the limitations discussed below, Parent could, in the future, enter
into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Certificate, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect Parent's capital structure or credit ratings.
Parent will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder, if applicable, in
connection with the purchase of Preferred Stock pursuant to a Change of Control
Offer.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Parent (each a 'Liquidation Event'), holders of Preferred Stock will be entitled
to be paid, out of the assets of Parent available for distribution, the
Liquidation Preference at the time of such Liquidation Event per share, plus an
amount in cash equal to all accumulated and unpaid dividends thereon to the date
fixed for liquidation, dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the last dividend payment date to the date
fixed for liquidation, dissolution or winding-up), before any distribution is
made on any Junior Securities, including, without limitation, the common stock
of Parent. After payment of the full amount of the liquidation preferences and
accumulated and unpaid
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dividends to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution of assets
of Parent. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of Parent nor the consolidation or
merger of Parent with or into one or more corporations will be deemed to be a
liquidation, dissolution or winding-up of Parent.
The Certificate does not contain any provision requiring funds to be set
aside to protect the liquidation preference of the Preferred Stock, although
such liquidation preference will be substantially in excess of the par value of
such shares of Preferred Stock.
EXCHANGE
Parent may at its option exchange all, but not less than all, of the then
outstanding shares of Preferred Stock into Exchange Debentures on March 1, 2003
or any subsequent dividend payment date; provided that on the date of such
exchange: (a) there are no contractual impediments to such exchange; (b) there
are legally available funds sufficient therefor; (c) (i) a registration
statement relating to the Exchange Debentures shall have been declared effective
under the Securities Act prior to such exchange and shall continue to be in
effect on the date of such exchange or (ii) Parent shall have obtained a written
opinion of counsel that an exemption from the registration requirements of the
Securities Act is available for such exchange and that upon receipt of such
Exchange Debentures pursuant to such exchange made in accordance with such
exemption, the holders thereof (assuming such holder is not an Affiliate of
Parent) will not be subject to any restrictions imposed by the Securities Act
upon the resale thereof and such exemption is relied upon by Parent for such
exchange; (d) the Exchange Debentures Indenture and the trustee thereunder shall
have been qualified under the Trust Indenture Act of 1939, as amended (the
'Trust Indenture Act'); (e) immediately prior to such exchange, no Matured
Mandatory Redemption Event shall be continuing, and immediately after giving
effect to such exchange, no Default or Event of Default (each as defined in the
Exchange Debentures Indenture) would exist under the Exchange Debentures
Indenture; and (f) Parent shall have delivered a written opinion of counsel,
dated the date of exchange, regarding the satisfaction of the conditions set
forth in clauses (a) to (d) above, and an Officers' Certificate, dated the date
of exchange, regarding the satisfaction of the conditions set forth in clause
(e) above. Parent shall send a written notice of exchange by mail to each holder
of record of shares of Preferred Stock, which notice shall state, among other
things, (i) that Parent is exercising its option to exchange the Preferred Stock
for Exchange Debentures pursuant to the Certificate and (ii) the date of
exchange (the 'Exchange Date'), which date shall not be less than 30 days nor
more than 60 days following the date on which such notice is mailed. On the
Exchange Date, holders of outstanding shares of Preferred Stock will be entitled
to receive a principal amount of Exchange Debentures equal to the Liquidation
Preference (excluding any Special Accretion) per share, plus an amount in cash
equal to all accrued and unpaid dividends and the amount of any Special
Accretion (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the Exchange Date).
The Exchange Debentures will be issued in registered form, without coupons.
Exchange Debentures issued in exchange for Preferred Stock will be issued in
principal amounts of $10,000 and integral multiples thereof, and will also be
issued in principal amounts less than $10,000 to the extent necessary to enable
each holder of Preferred Stock to receive certificates representing the entire
amount of Exchange Debentures to which it is entitled; provided that Parent may,
at its option, pay cash in lieu of issuing an Exchange Debenture in a principal
amount less than $10,000. On and after the Exchange Date, dividends will cease
to accrue on the outstanding shares of Preferred Stock, and all rights of the
holders of Preferred Stock (except the right to receive the Exchange Debentures
and any cash in connection therewith) will terminate. The holder of preferred
stock entitled to receive the Exchange Debentures issuable upon such exchange
will be treated for all purposes as the registered holder of such Exchange
Debenture.
Parent intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
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TRANSFER AND EXCHANGE
A holder will be able to register the transfer of or exchange shares of
Preferred Stock only in accordance with the provisions of the Certificate. The
Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Certificate. Without the prior consent of Parent, the
Registrar is not required (i) to register the transfer of or exchange any share
of Preferred Stock selected for redemption, (ii) to register the transfer of or
exchange any share of Preferred Stock for a period of 15 days before a selection
of shares to be redeemed or (iii) to register the transfer or exchange of a
share of Preferred Stock between a record date and the next succeeding interest
payment date. The registered holder of a share of Preferred Stock will be
treated as the owner of such share of Preferred Stock for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Certificate, the Transfer Agency
Agreement and the shares of Preferred Stock may be amended or supplemented with
the consent (which may include consents obtained in connection with a tender
offer or exchange offer for shares of Preferred Stock) of the holders of at
least a majority of the aggregate Liquidation Preference of the Preferred Stock
then outstanding, and any existing Mandatory Redemption Event under, or
compliance with any provision of, the Certificate may be waived (other than any
continuing Mandatory Redemption Event in the payment of the Liquidation
Preference of, premium, if any, or dividends on the Preferred Stock) with the
consent (which may include consents obtained in connection with a tender offer
or exchange offer for Preferred Stock) of the holders of a majority in aggregate
Liquidation Preference of the Preferred Stock then outstanding; provided that:
(A) no such modification or amendment may, without the consent of the
holders of 75% in aggregate Liquidation Preference of the Preferred Stock
then outstanding, (i) amend or modify the obligation of the Company under
the caption 'Change of Control' or the definitions related thereto that
could adversely affect the rights of any holder of the Preferred Stock or
(ii) remove or impair the right of the Preferred Stock holders to elect the
number of members of the Board of Directors as described under 'Voting
Rights' above; and
(B) without the consent of each holder affected, the Company and the
Transfer Agent may not: (i) extend the maturity of the Preferred Stock;
(ii) affect the terms of any scheduled payment of dividends on or
Liquidation Preference of the Preferred Stock (including without limitation
any redemption provisions); (iii) take any action that would adversely
affect the ranking of the Preferred Stock; or (iv) reduce the percentage of
holders necessary to consent to an amendment, supplement or waiver to the
Certificate.
Without the consent of any holder, Parent and the Transfer Agent may amend
or supplement the Certificate, the Transfer Agency Agreement or the Preferred
Stock to cure any ambiguity, defect or inconsistency, to provide for
uncertificated shares of Preferred Stock in addition to or in place of
certificated shares of Preferred Stock, to provide for the assumption of
Parent's obligations to holders in the case of a merger or acquisition, or to
make any change that does not adversely affect the rights of any holder.
CONCERNING THE TRANSFER AGENT
The Bank of New York will be the Transfer Agent under the Certificate and
has been appointed by Parent as Registrar and Paying Agent with regard to the
Preferred Stock.
The holders of a majority in aggregate Liquidation Preference of the then
outstanding Preferred Stock will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Transfer Agent, subject to certain exceptions. The Transfer Agency Agreement
provides that, in case a Mandatory Redemption Event occurs and is not cured, the
Transfer Agent will be required, in the exercise of its power, to use the degree
of care of a prudent person in similar circumstances in the conduct of his own
affairs. Subject to such provisions, the Transfer Agent will be under no
obligation to exercise any of its rights or powers under the Certificate at the
request of any holder.
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BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
The Series A Preferred Stock was initially issued in the form of one or
more global certificates (the 'Old Global Shares'). The Series B Preferred Stock
will initially be issued in the form of one or more global certificates (the
'New Global Shares'). The Old Global Shares were deposited on the Issue Date,
and the New Global Shares will be deposited on the date of closing of the
Preferred Stock Exchange Offer with, or on behalf of, the Depositary and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the 'Global Share Holder').
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the 'Participants'
or the 'Depositary's Participants') and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
'Indirect Participants' or the 'Depositary's Indirect Participants') that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Shares, the Depositary will credit the
accounts of Participants in connection with the Preferred Stock with portions of
the Liquidation Preference of the Global Shares and (ii) ownership of the Shares
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests of
the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer the Shares will be limited to such extent.
So long as the Depositary or its nominee is the registered owner of a
Global Share, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of outstanding Shares represented by such
Global Shares for all purposes under the Certificate or the Preferred Stock.
Except as provided below, owners of Shares will not be entitled to have Shares
registered in their names and will not be considered the owners or holders
thereof under the Certificate for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Transfer Agent
thereunder. Neither Parent nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Shares by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Shares.
Payments in respect of the Liquidation Preference of and dividends on any
Shares registered in the name of a Global Share Holder on the applicable record
date will be payable by Parent to or at the direction of such Global Share
Holder in its capacity as the registered holder under the Certificate. Under the
terms of the Certificate, Parent and the Transfer Agent may treat the persons in
whose names any Shares, including the Global Shares, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, Parent will not have any responsibility
or liability for the payment of such amounts to beneficial owners of Shares.
Parent believes, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Shares will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Subject to certain conditions, any person having a beneficial interest in
the Global Shares may, upon request to the Transfer Agent, exchange such
beneficial interest for Shares in definitive form. Upon any such issuance, the
Transfer Agent is required to register such Shares in the name of, and cause the
same to be delivered to, such persons or persons (or the nominee of any
thereof). Such Shares
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would be issued in fully registered form. In addition, if (i) Parent notifies
the Transfer Agent in writing that the Depositary is no longer willing or able
to act as a depositary and Parent is unable to locate a qualified successor
within 90 days or (ii) Parent, at its option, notifies the Transfer Agent in
writing that it elects to cause the issuance of Shares in definitive form under
the Certificate, then, upon surrender by the relevant Global Share Holder of its
Global Share, Shares in such form will be issued to each person that such Global
Share Holder and the Depositary identifies as being the beneficial owner of the
related Shares.
Neither Parent nor the Transfer Agent will be liable for any delay by the
Global Share Holder or the Depositary in identifying the beneficial owners of
Shares, and Parent and the Transfer Agent may conclusively rely on, and will be
protected in relying on, instructions from the Global Share Holder or the
Depositary for all purposes.
The Certificate requires that payments in respect of the Shares represented
by the Global Shares (including Liquidation Preference and dividends) be made in
same-day funds. The Shares are expected to trade in the Depositary's Same-Day
Funds Settlement System and any permitted secondary market trading activity in
the Shares will, therefore, be required by the Depositary to be settled in
same-day funds.
REGISTRATION RIGHTS
Holders of Series B Preferred Stock are not entitled to any registration
rights with respect to the Series B Preferred Stock. Parent has agreed for a
period of 180 days from the consummation of the Preferred Stock Exchange Offer
to make available a prospectus meeting the requirements of the Securities Act to
any broker-dealer for use in connection with any resale of any Series B
Preferred Stock. The Registration Statement of which this Prospectus is a part
constitutes the registration statement for the Preferred Stock Exchange Offer
which is the subject of the Registration Rights Agreement. Upon the closing of
the Preferred Stock Exchange Offer, subject to certain limited exceptions,
holders of untendered Series A Preferred Stock will not retain any rights under
the Registration Rights Agreement.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Certificate
without charge by contacting Parent at the Chiquita Center, 250 East Fifth
Street, Cincinnati, Ohio 45202, (513) 721-7010.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate. Reference is made to the Certificate for the full definition of all
such terms.
'Acquired Indebtedness' means (a) with respect to any Person that becomes a
Restricted Subsidiary after the date of the Certificate, Indebtedness of such
Person and its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary that was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary and (b) with
respect to the Company or any of its Restricted Subsidiaries, any Indebtedness
of a Person (other than the Company or a Restricted Subsidiary) existing at the
time such Person is merged with or into the Company or a Restricted Subsidiary,
or Indebtedness assumed by the Company or any of its Restricted Subsidiaries in
connection with the acquisition of an asset or assets from another Person, which
Indebtedness was not, in any case, incurred by such other Person in connection
with, or in contemplation of, such merger or acquisition.
'Adjusted Consolidated Interest Coverage Ratio' means, with respect to any
determination date, the Consolidated Interest Coverage Ratio determined with
respect to such date in accordance with the terms thereof, but with the
following adjustments: (i) that all references therein to 'Consolidated Interest
Expense' shall be replaced with 'Adjusted Consolidated Interest Expense' and
(ii) any Special Purpose Acquisition Subsidiary existing as of such date shall
be deemed a Restricted Subsidiary for
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purposes of determining EBITDA, Consolidated Interest Expense and the Adjusted
Consolidated Interest Coverage Ratio for the relevant Reference Period referred
to therein.
'Adjusted Consolidated Interest Expense' means, for any period, (i)
Consolidated Interest Expense for such period plus (ii) to the extent not
otherwise included in determining Consolidated Interest Expense for such period,
Preferred Stock Expense for such period.
'Adjusted Consolidated Net Income' means, for any period, (i) Consolidated
Net Income for such period minus (ii) to the extent not otherwise deducted in
determining Consolidated Net Income for such period, Preferred Stock Expense for
such period.
'Adjusted Coverage Ratio Incurrence Condition' would be met at any
specified time only if the Company (or its Successor, as the case may be) would
be able to incur $1.00 of additional Indebtedness at such specified time
pursuant to the Consolidated Interest Coverage Ratio test set forth in the Early
Mandatory Redemption Event described under ' -- Early Mandatory Redemption
Events Additional Indebtedness,' if such test were applied at such date using
the Adjusted Consolidated Interest Coverage Ratio.
'Affiliate' of any Person means any Person (i) which directly or indirectly
controls or is controlled by, or is under direct or indirect common control
with, the referent Person, (ii) which beneficially owns or holds, directly or
indirectly, 10% or more of any class of the Voting Stock, or more than 20% of
all classes of Capital Stock (other than preferred stock) in the aggregate, of
the referent Person, (iii) of which 10% or more of the Voting Stock, or more
than 20% of all classes of Capital Stock (other than preferred stock) in the
aggregate, is beneficially owned or held, directly or indirectly, by the
referent Person or (iv) with respect to an individual, any immediate family
member of such Person. For purposes of this definition, control of a Person
shall mean the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
'Asset Sale' means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Restricted Subsidiaries (including, without limitation, by means of a Sale
and Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a 'transfer'), directly or indirectly, in one
transaction or a series of related transactions, of (a) any Capital Stock of any
Subsidiary or (b) any other properties or assets of the Company or any of its
Subsidiaries other than transfers of cash, Cash Equivalents, accounts
receivable, inventory or other properties or assets in the ordinary course of
business. For the purposes of this definition, the term 'Asset Sale' shall not
include any of the following: (i) any transfer of properties or assets
(including Capital Stock) that is governed by, and made in accordance with, the
provisions described under 'Early Mandatory Redemption Events -- Mergers and
Certain Other Transactions;' (ii) any transfer of properties or assets to an
Unrestricted Subsidiary, if permitted without causing an Early Mandatory
Redemption Event under the Early Mandatory Redemption Event entitled 'Restricted
Payments;' (iii) sales of damaged, worn-out or obsolete equipment or assets
that, in the Company's reasonable judgment, are either no longer used or useful
in the business of the Company or its Subsidiaries, provided that the proceeds
thereof are used to purchase replacement or similar assets for use in the
business of the Company and its Subsidiaries; and (iv) any transfers that, but
for this clause (iv), would be Asset Sales, if after giving effect to such
transfers, the aggregate Fair Market Value of the properties or assets
transferred in such transaction or any such series of related transactions does
not exceed $500,000.
'Attributable Indebtedness,' when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, property subject
to such Sale and Leaseback Transaction and the present value (discounted at a
rate equivalent to the Company's then-current weighted average cost of funds for
borrowed money as at the time of determination, compounded on a semi-annual
basis) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in any such Sale and Leaseback Transaction.
'Board Resolution' means a duly adopted resolution of the Board of
Directors of the Company.
'Capital Stock' of any Person means (i) any and all shares or other equity
interests (including without limitation common stock, preferred stock and
partnership interests) in such Person and (ii) all
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rights to purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated) such
shares or other interests in such Person.
'Capitalized Lease Obligations' of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
'Cash Equivalents' means (i) marketable obligations with a maturity of 360
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) U.S. dollar denominated time deposits and certificates of deposit
of any financial institution (a) that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than $500
million or (b) whose short-term commercial paper rating or that of its parent
company is at least A-1 or the equivalent thereof from S&P or P-1 or the
equivalent thereof from Moody's (any such bank, an 'Approved Bank'), in each
case with a maturity of 360 days or less from the date of acquisition; (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing no more than 360 days
from the date of acquisition; (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clause
(i) above entered into with any commercial bank meeting the specifications of
clause (ii)(a) above; (v) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (iv) above; and (vi) time deposits and certificates of
deposit of any commercial bank of recognized standing having capital and surplus
in excess of the local currency equivalent of $100,000,000 incorporated in a
country where the Company has one or more locally operating Foreign
Subsidiaries, and that is, as of the Issue Date, providing banking services to
the Company or any of its Foreign Subsidiaries.
'Change of Control' means the occurrence of any of the following: (i) the
consummation of any transaction the result of which is (x) if such transaction
occurs prior to the first sale of Voting Stock of Parent or the Company pursuant
to a registration statement under the Securities Act that results in at least
20% of the then outstanding Voting Stock of Parent or the Company having been
sold to the public, that either (A) Control Group Members beneficially own,
directly or indirectly, less than 51% of the Voting Stock of the Company or
Parent (such percentage determined, for purposes of this definition, as a
percentage of the total voting power of all Voting Stock of the relevant Person)
or (B) any other Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of 51% of the Voting Stock of the
Company or Parent (including in any event through direct or indirect beneficial
ownership of Capital Stock of Control Group Members referred to in clause (ii)
of the definition thereof) and (y) if such transaction occurs thereafter, that
any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than Control Group Members), is or becomes the beneficial owner (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of 40% of
the Voting Stock of the Company or Parent at any time at which Control Group
Members do not beneficially own, directly or indirectly, at least 51% of the
Voting Stock of the Company and Parent, (ii) the Company or Parent consolidates
with, or merges with or into, another Person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
assets of the Company or Parent and their Subsidiaries, in either case taken as
a whole, to any Person, or any Person consolidates with, or merges with or into,
the Company or Parent, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company or Parent, as the case may be, is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the outstanding Voting Stock of the Company or
Parent, as the case may be, is converted into or exchanged for Voting Stock
(other than Disqualified Capital Stock) of the surviving or transferee
corporation and the beneficial owners of the Voting Stock of the Company or
Parent, as the case may be, immediately prior
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to such transaction own, directly or indirectly, not less than a majority of the
Voting Stock of the surviving or transferee corporation immediately after such
transaction, or (iii) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the Company
or Parent (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company or
Parent, as the case may be, was approved by either (i) a vote of a majority of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved or (ii) a Control Group Member) cease for any reason (other than the
election of directors by the Preferred Stock holders pursuant to 'Voting Rights'
above) to constitute a majority of the Board of Directors of the Company or
Parent, as the case may be, then in office.
'Consolidated Amortization Expense' for any period means the amortization
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Depreciation Expense' for any period means the depreciation
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Income Tax Expense' for any period means the provision for
taxes based on income and profits of the Company and its Restricted Subsidiaries
to the extent such income or profits were included in computing Consolidated Net
Income for such period.
'Consolidated Interest Coverage Ratio' means, with respect to any
determination date, the ratio of (a) EBITDA for the four full fiscal quarters
immediately preceding the determination date (for any determination, the
'Reference Period') to (b) Consolidated Interest Expense for such Reference
Period. In making such computations, (i) EBITDA and Consolidated Interest
Expense shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred or the Disqualified Capital Stock to be issued (and
all other Indebtedness incurred or Disqualified Capital Stock issued after the
first day of such Reference Period referred to in the Early Mandatory Redemption
Event described under ' -- Early Mandatory Redemption Events -- Additional
Indebtedness' through and including the date of determination), and (if
applicable) the application of the net proceeds therefrom (and from any other
such Indebtedness or Disqualified Capital Stock), including the refinancing of
other Indebtedness, had been incurred on the first day of such Reference Period
and, in the case of Acquired Indebtedness, on the assumption that the related
transaction (whether by means of purchase, merger or otherwise) also had
occurred on such date with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation and (B) any acquisition
or disposition by the Company or any Restricted Subsidiary of any properties or
assets outside the ordinary course of business or any repayment of any principal
amount of any Indebtedness of the Company or any Restricted Subsidiary prior to
the stated maturity thereof, in either case since the first day of such
Reference Period through and including the date of determination, had been
consummated on such first day of such Reference Period; (ii) the Consolidated
Interest Expense attributable to interest on any Indebtedness required to be
computed on a pro forma basis in accordance with the Early Mandatory Redemption
Event described under ' -- Early Mandatory Redemption Events -- Additional
Indebtedness' and (A) bearing a floating interest rate shall be computed as if
the rate in effect on the date of computation had been the applicable rate for
the entire period and (B) which was not outstanding during the period for which
the computation is being made but which bears, at the option of the Company, a
fixed or floating rate of interest, shall be computed by applying, at the option
of the Company, either the fixed or floating rate; (iii) the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in accordance with
the provisions set forth under ' -- Early Mandatory Redemption Events --
Additional Indebtedness' shall be computed based upon the average daily balance
of such Indebtedness during the applicable period, provided that such average
daily balance shall be reduced by the amount of any repayment of Indebtedness
under a revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility; (iv) notwithstanding the foregoing clauses (ii) and (iii),
interest on Indebtedness determined on a floating rate basis, to the extent such
interest is covered by agreements relating to
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Hedging Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements; and (v) if
after the first day of the applicable Reference Period and before the date of
determination, the Company has permanently retired any Indebtedness out of the
net proceeds of the issuance and sale of shares of Capital Stock (other than
Disqualified Capital Stock) of the Company within 60 days of such issuance and
sale, Consolidated Interest Expense shall be calculated on a pro forma basis as
if such Indebtedness had been retired on the first day of such period.
'Consolidated Interest Expense' for any period means the sum, without
duplication, of the total interest expense of the Company and its consolidated
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP and including, without limitation (i) imputed interest on
Capitalized Lease Obligations and Attributable Indebtedness, (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit
securing financial obligations and bankers' acceptance financing, (iii) the net
costs associated with Hedging Obligations, (iv) amortization of other financing
fees and expenses, (v) the interest portion of any deferred payment obligations,
(vi) amortization of debt discount or premium, if any, (vii) all other non-cash
interest expense, (viii) capitalized interest, (ix) all cash dividend payments
(and non-cash dividend payments in the case of a Restricted Subsidiary) on any
series of preferred stock of the Company or any Restricted Subsidiary, (x) all
interest payable with respect to discontinued operations, and (xi) all interest
on any Indebtedness of any other Person guaranteed by the Company or any
Restricted Subsidiary.
'Consolidated Net Income' for any period means the net income (or loss) of
the Company and its consolidated Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein), without duplication (i) the net income (or loss) of any Person (other
than a Restricted Subsidiary) in which any Person other than Parent, the Company
or any of its Restricted Subsidiaries has an ownership interest, except to the
extent that any such income has actually been received by Parent, the Company
and its Restricted Subsidiaries in the form of cash dividends during such
period; (ii) except to the extent includible in the consolidated net income of
Parent pursuant to the foregoing clause (i), the net income (or loss) of any
Person that accrued prior to the date that (a) such Person becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any Restricted
Subsidiary or (b) the assets of such Person are acquired by the Company or any
Restricted Subsidiary; (iii) the net income of any Restricted Subsidiary during
such period to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of that income (a) is not
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary during such period or (b) would be subject to any taxes payable
on such dividend or distribution; (iv) any gain (or, only in the case of a
determination of Consolidated Net Income as used in EBITDA, any loss), together
with any related provisions for taxes on any such gain (or, if applicable, the
tax effects of such loss), realized during such period by the Company or any
Restricted Subsidiary upon (a) the acquisition of any securities, or the
extinguishment of any Indebtedness, of the Company or any Restricted Subsidiary
or (b) any Asset Sale by the Company or any of its Restricted Subsidiary, (v)
any extraordinary gain (or, only in the case of a determination of Consolidated
Net Income as used in EBITDA, any extraordinary loss), together with any related
provision for taxes on any such extraordinary gain (or, if applicable, the tax
effects of such extraordinary loss), realized by Parent, the Company or any
Restricted Subsidiary during such period; (vi) any non-cash loss during Fiscal
Year 1998 reflecting the decrease in deferred tax assets resulting from the
Acquisition and transactions consummated in connection therewith and (vii) in
the case of a successor to the Company by consolidation, merger or transfer of
its assets, any earnings of the successor prior to such merger, consolidation or
transfer of assets; and provided, further, that (A) any gain referred to in
clauses (iv) and (v) above that relates to a Restricted Investment and which is
received in cash by the Company or a Restricted Subsidiary during such period
shall be included in the consolidated net income of the Company, (B) to the
extent deducted in determining consolidated net income for such period and not
otherwise added back pursuant to the foregoing clauses of this definition, the
amount of expenses in respect of Specified Transaction Payments attributable to
such period shall be added back in determining Consolidated Net Income for such
period, and (C) to the extent not otherwise deducted in
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determining such consolidated net income for any period, all payments made to
Parent pursuant to any Tax Sharing Agreement or otherwise in respect of taxes
for such period shall be deducted from the consolidated net income of the
Company.
'Consolidated Net Worth' means, with respect to any Person as of any date,
the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date, less all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the date of the Certificate in the
book value of any asset owned by such Person or a Subsidiary of such Person.
'Control Group Members' means (i) the natural person or persons who are the
ultimate beneficial owners of Granaria Holdings N.V. on the Issue Date, as
disclosed under 'Security Ownership and Certain Beneficial Owners and Management
of Parent' and members of their immediate families and any spouse, parent or
descendant of any such person, or a trust the beneficiaries of which include
only any of the foregoing, and any corporation or other entity all of the
Capital Stock of which (other than directors' qualifying shares) is owned by any
of the foregoing or (ii) any corporation or other entity at least 51% of the
Voting Stock of which is owned by any of the Persons referred to in clause (i).
'Coverage Ratio Incurrence Condition' would be met at any specified time
only if the Company (or its Successor, as the case may be) would be able to
incur $1.00 of additional Indebtedness at such specified time pursuant to the
Consolidated Interest Coverage Ratio test set forth in the Early Mandatory
Redemption Event described under ' -- Early Mandatory Redemption
Events -- Additional Indebtedness'.
'Disqualified Capital Stock' means any Capital Stock of such Person or any
of its Subsidiaries that, by its terms, by the terms of any agreement related
thereto or by the terms of any security into which it is convertible, puttable
or exchangeable, is, or upon the happening of any event or the passage of time
would be, required to be redeemed or repurchased by such Person or any of its
Subsidiaries, whether or not at the option of the holder thereof, or matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to March 1, 2008; provided, however, that any
class of Capital Stock of such Person that, by its terms, authorizes such Person
to satisfy in full its obligations with respect to the payment of dividends or
upon maturity, redemption (pursuant to a sinking fund or otherwise) or
repurchase thereof or otherwise by the delivery of Capital Stock that is not
Disqualified Capital Stock, and that is not convertible, puttable or
exchangeable for Disqualified Capital Stock or Indebtedness, shall not be deemed
to be Disqualified Capital Stock so long as such Person satisfies its
obligations with respect thereto solely by the delivery of Capital Stock that is
not Disqualified Capital Stock.
'Early Mandatory Redemption Event' has the meaning set forth in 'Early
Mandatory Redemption Events' above.
'EBITDA' for any period mean without duplication, the sum of the amounts
for such period of (i) Consolidated Net Income plus (ii) in each case to the
extent deducted in determining Consolidated Net Income for such period (and
without duplication), (A) Consolidated Income Tax Expense, (B) Consolidated
Amortization Expense (but only to the extent not included in Consolidated
Interest Expense), (C) Consolidated Depreciation Expense, (D) Consolidated
Interest Expense and (E) all other non-cash items reducing the Consolidated Net
Income (excluding any such non-cash charge that results in an accrual of a
reserve for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP and minus (iii) the
aggregate amount of all non-cash items, determined on a consolidated basis, to
the extent such items increased Consolidated Net Income for such Period.
'Eligible Junior Securities' means common stock of Parent, and any
preferred stock of Parent that (i) has a maturity date or mandatory redemption
date not earlier than March 1, 2009, (ii) has no remedies for missed dividends
other than accrual on a cumulative basis and appointment of not more than two
directors to the Board of Directors of Parent, (iii) is not convertible,
puttable or exchangeable into any other security of Parent other than common
stock, (iv) is not, by its terms, by the terms of any agreement related thereto
or by the terms of any security into which it is convertible, puttable or
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exchangeable, and upon the happening of any event or the passage of time would
not be, required to be redeemed or repurchased by such Person or any of its
Subsidiaries, whether or not at the option of the holder thereof, or matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to March 1, 2009 and (v) constitutes Junior
Securities.
'Equity Offering' means an underwritten primary offering of Eligible Junior
Securities of Parent pursuant to a registration statement filed with the
Commission in accordance with the Securities Act, or pursuant to a private
placement pursuant to an available exemption from registration and, in the case
of any such private placement, a majority of such placement of which is sold to
Persons that are not then and were not at the Issue Date Affiliates of Granaria
Holdings.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Existing Indebtedness' means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
'Fair Market Value' of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a Board Resolution.
'Foreign Subsidiary' means any Subsidiary of the Company that is not
incorporated or organized in the United States or in any State thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
'Granaria Holdings' means Granaria Holdings NV, a Dutch corporation, and
its successors.
'Guarantors' means each of the Subsidiary Guarantors and Parent, and
'Guarantor' means any one of the foregoing.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to (i) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement designed to protect such Person
against fluctuations in interest rates, (ii) agreements or arrangements designed
to protect such Person against fluctuations in foreign currency exchange rates
in the conduct of its operations, or (iii) any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in commodity prices, in
each case, entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
'Immaterial Subsidiary' means (i) any Subsidiary of the Company which does
not own assets in excess of $50,000, (ii) any Name Holder Subsidiary, and (iii)
Eagle-Picher Inc., a Virgin Islands foreign sales corporation.
'incur' means, with respect to any Indebtedness or Obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
Obligation; provided that (i) the Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary shall be deemed to have been incurred
by such Restricted Subsidiary and (ii) neither the accrual of interest nor the
accretion of accreted value shall be deemed to be an incurrence of Indebtedness.
'Indebtedness' of any Person at any date means, without duplication: (i)
all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services, which payable is not overdue by more than 60 days
according to the original terms of sale unless such payable is being contested
in good faith; (v) the maximum fixed redemption or repurchase price of all
Disqualified Capital Stock of such
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Person; (vi) all Capitalized Lease Obligations of such Person; (vii) all
Indebtedness of others secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person; (viii) all Indebtedness of
others guaranteed by such Person to the extent of such guarantee; provided that
Indebtedness of the Company or its Subsidiaries that is guaranteed by the
Company or the Company's Subsidiaries shall only be counted once in the
calculation of the amount of Indebtedness of the Company and its Subsidiaries on
a consolidated basis; (ix) all Attributable Indebtedness; and (x) to the extent
not otherwise included in this definition, Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above, the
maximum liability of such Person for any such contingent obligations at such
date and, in the case of clause (vii), the lesser of (A) the Fair Market Value
of any asset subject to a Lien securing the Indebtedness of others on the date
that the Lien attaches and (B) the amount of the Indebtedness secured. For
purposes of the preceding sentence, the 'maximum fixed redemption or repurchase
price' of any Disqualified Capital Stock that does not have a fixed redemption
or repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
or redeemed on any date on which Indebtedness shall be required to be determined
pursuant to the Certificate, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock (or any equity security
for which it may be exchanged or converted), such fair market value shall be
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution.
'Independent Director' means a director of the Company who has not and
whose Affiliates have not, at any time during the twelve months prior to the
taking of any action hereunder, directly or indirectly, received, or entered
into any understanding or agreement to receive, any compensation, payment or
other benefit, of any type or form, from the Company or any of its Affiliates,
other than customary directors fees for serving on the Board of Directors of the
Company or any Affiliate and reimbursement of out-of-pocket expenses for
attendance at the Company's or Affiliate's board and board committee meetings.
'Independent Financial Advisor' means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
'Investments' of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business) or similar credit extensions constituting
Indebtedness of such Person, and any guarantee of Indebtedness of any other
Person, (ii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iii) all other items that would be classified as investments (including
without limitation purchases of assets outside the ordinary course of business)
on a balance sheet of such Person prepared in accordance with GAAP.
'Issue Date' means the date the Preferred Stock is initially issued.
'Junior Securities' means all equity securities of Parent which are not
ranked senior to or on a parity with the Preferred Stock in any respect (whether
with respect to dividends or upon liquidation, winding-up, dissolution or
otherwise).
'Lien' means, with respect to any asset or property, any mortgage, deed of
trust, lien (statutory or other), pledge, lease, easement, restriction,
covenant, charge, security interest or other encumbrance of any kind or nature
in respect of such asset or property, whether or not filed, recorded or
otherwise perfected under applicable law, including without limitation any
conditional sale or other title retention agreement, and any lease in the nature
thereof, any option or other agreement to sell, and any filing of, or agreement
to give, any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction (other than cautionary filings in
respect of operating leases).
'Mandatory Redemption Demand' has the meaning set forth in 'Mandatory
Redemption' above.
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'Mandatory Redemption Event' means any of (i) a Matured Mandatory
Redemption Event or (ii) any Early Mandatory Redemption Event or any other
event, act or condition that is, or after notice or the passage of time or both
would be, a Matured Mandatory Redemption Event.
'Matured Mandatory Redemption Event' has the meaning set forth in
'Mandatory Redemption' above.
'Moody's' means Moody's Investors Service, Inc., and its successors.
'Name Holder Subsidiary' means any Subsidiary of the Company incorporated
and existing solely for the purpose of reserving the corporate name of such
Subsidiary and which does not conduct any business or hold any assets other than
shares of another Name Holder Subsidiary.
'Net Available Proceeds' means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the
properties or assets subject to the Asset Sale or having a Lien therein and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pensions and other postemployment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Transfer Agent; provided, however,
that any amounts remaining after adjustments, revaluations or liquidations of
such reserves shall constitute Net Available Proceeds.
'New Credit Agreement' means the Credit Agreement dated as of February 24,
1998 by and among ABN AMRO Bank N.V., as agent, the banks party thereto, the
Company and the Guarantors, together with any additional guarantees by the
Guarantors and security agreements, as any of the foregoing may be subsequently
amended, restated, refinanced, or replaced from time to time, and shall include
agreements in respect of Hedging Obligations designed to protect against
fluctuations in interest rates and entered into with respect to loans
thereunder.
'Non-Recourse Purchase Money Indebtedness' means Indebtedness of the
Company or any of its Subsidiaries incurred (a) to finance the purchase of any
assets of the Company or any of its Subsidiaries within 90 days of such
purchase, (b) to the extent the amount of Indebtedness thereunder does not
exceed 100% of the purchase cost of such assets, (c) to the extent the purchase
cost of such assets is or should be included in 'additions to property, plant
and equipment' in accordance with GAAP, and (d) to the extent that such
Indebtedness is non-recourse to the Company or any of its Subsidiaries or any of
their respective assets other than the assets so purchased.
'Notes' means the 9 3/8% Senior Subordinated Notes due 2008 of the Company,
as they may be amended, restated, refinanced or replaced from time to time.
'Notes Guarantees' means, collectively, the guarantee of the payment
obligations under the Notes by Parent and each Subsidiary Guarantor.
'Notes Indenture' means the Indenture dated as of February 24, 1998 among
the Company, the Guarantors and the Trustee.
'Obligation' means any principal, interest, penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
'Officer' means any of the following of the Parent or the Company, as the
context may require: the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary.
'Officers' Certificate' means a certificate signed by any two Officers.
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'Payment Restriction' with respect to a Subsidiary of any Person, means any
encumbrance, restriction of limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or advances to such Person or
any other Subsidiary or such Person, (c) guarantee any Indebtedness of the
Company or any Restricted Subsidiary or (d) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person (other than
customary restrictions on transfers of property subject to a Lien permitted
under the Certificate) or (ii) such Person or any other Subsidiary of such
Person to receive or retain any such dividends, distributions or payments, loans
or advances, guarantee, or transfer of properties or assets.
'Permitted Indebtedness' means any of the following:
(i) Indebtedness of the Company and any Subsidiary Guarantor under the
New Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed (a) under the Senior Secured Term Loan Facility,
$225 million, less the amount thereof that has been repaid under the Early
Mandatory Redemption Event described under ' -- Asset Sales' and (b) under
the Revolving Loan Facility the greater of (x) $175 million and (y) the sum
of 80% of the book value of the eligible accounts receivable and 50% of
inventory of the Company and its Subsidiaries, calculated on a consolidated
basis and in accordance with GAAP;
(ii) Indebtedness under the Notes, the Note Guarantees and the Notes
Indenture;
(iii) Existing Indebtedness;
(iv) Indebtedness under Hedging Obligations, provided that (1) such
Hedging Obligations are related to payment obligations on Permitted
Indebtedness or Indebtedness otherwise permitted by the 'Additional
Indebtedness' provisions above without comprising an Early Mandatory
Redemption Event, and (2) the notional principal amount of such Hedging
Obligations at the time incurred does not exceed the principal amount of
such Indebtedness to which such Hedging Obligations relate;
(v) Indebtedness of the Company to a Subsidiary Guarantor and
Indebtedness of any Subsidiary Guarantor to the Company or any other
Subsidiary Guarantor; provided, however, that upon either (1) the
subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event which
results in any such Subsidiary Guarantor ceasing to be a Subsidiary
Guarantor or (2) the transfer or other disposition of any such Indebtedness
(except to the Company or a Subsidiary Guarantor), the provisions of this
clause (v) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed, in each case, to be incurred and shall be
treated as an incurrence for purposes of the Early Mandatory Redemption
Event described under 'Additional Indebtedness' at the time the Subsidiary
Guarantor in question ceased to be a Subsidiary Guarantor or the time such
transfer or other disposition occurred;
(vi) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company in the ordinary course of business,
including guarantees or obligations of the Company with respect to letters
of credit supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed);
(vii) Indebtedness in respect of Non-Recourse Purchase Money
Indebtedness incurred by the Company or any Restricted Subsidiary;
(viii) Refinancing Indebtedness; and
(ix) Indebtedness, in addition to Indebtedness incurred pursuant to
the foregoing clauses of this definition, with an aggregate principal face
or stated amount (as applicable) at any time outstanding for all such
Indebtedness incurred pursuant to this clause not in excess of $35.0
million; provided, however, that (A) Indebtedness under letters of credit
and performance bonds issued for the account of a Foreign Subsidiary
pursuant to this clause to finance trade activities or otherwise in the
ordinary course of business, and not to support borrowed money or the
obtaining of
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advances or credit, may not exceed $10.0 million in an aggregate stated or
face amount for all such letters of credit and performance bonds and (B)
the aggregate principal amount at any time outstanding for all other
Indebtedness incurred by all Foreign Subsidiaries pursuant to this clause
may not exceed $25.0 million.
'Permitted Parent Transactions' means (i) the execution, delivery and
performance by Parent of its obligations under, (x) any guarantees by Parent of
Obligations of the Company and/or its Restricted Subsidiaries with respect to
the New Credit Agreement and/or the Notes and the pledge of capital stock of the
Company as collateral for its obligations under any such guarantee, and the
guarantee by Parent of any other Indebtedness of the Company and/or its
Restricted Subsidiaries which such Indebtedness is permitted to be incurred
without causing a Mandatory Redemption Event, (y) any Tax Sharing Agreement and
other transactions expressly permitted pursuant to clause (vi) or (vii) of the
proviso under 'Early Mandatory Redemption Events -- Transactions with
Affiliates', (ii) the establishment of a wholly-owned Subsidiary (other than a
Subsidiary of the Company) for use as a vehicle for the consummation of an
acquisition where all or a substantial part of the consideration thereof is
Eligible Junior Securities of Parent (a 'Special Purpose Acquisition
Subsidiary'), provided that (A) any such Subsidiary shall become a direct or
indirect Wholly-Owned Restricted Subsidiary of the Company within 60 days after
the consummation of such acquisition and, at the time of such acquisition, could
become a Wholly-Owned Restricted Subsidiary of the Company without causing a
Mandatory Redemption Event to occur and (B) immediately after giving effect to
such acquisition, no Mandatory Redemption Event shall have occurred and be
continuing), (iii) any Investment in the Company, (iv) payments with respect to
the Preferred Stock and any Restricted Payment that is permitted in accordance
with the 'Limitations on Restricted Payments' covenant, (v) the performance of
ministerial activities and payment of taxes and administrative fees necessary
for compliance with the last sentence under 'Early Mandatory Redemption
Events -- Activities by Parent' and (vi) the execution and delivery of the
Exchange Debentures Indenture and the Exchange Debentures.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
'Plan of Liquidation' with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
'Preferred Stock' means the Preferred Stock offered in the Preferred Stock
Offering and the New Shares.
'Preferred Stock Expense' means, for any period, (i) the aggregate amount
of all cash and non-cash dividend payments on the Preferred Stock made with
respect to such period plus (ii) the aggregate amount of increase in the
aggregate Liquidation Preference of all Preferred Stock during such period.
'Refinancing Indebtedness' means Indebtedness of the Company or a
Restricted Subsidiary issued in exchange for, or the proceeds from the issuance
and sale or disbursement of which are used substantially concurrently to repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, 'repay'), or constituting an amendment, modification or
supplement to or a deferral or renewal of (collectively, an 'amendment'), any
Indebtedness of the Company or any Restricted Subsidiary (the 'Refinanced
Indebtedness') in a principal amount not in excess of the principal amount of
the Refinanced Indebtedness (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement);
provided that: (i) the Refinancing Indebtedness is the obligation of the same
Person as that of the Refinanced Indebtedness; (ii) if the Refinanced
Indebtedness was subordinated to or pari passu with the Notes, then such
Refinancing Indebtedness, by its terms, is expressly pari passu with (in the
case of Refinanced Indebtedness that was pari passu with)
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the Notes, or subordinate in right of payment to (in the case of Refinanced
Indebtedness that was subordinated to) the Notes at least to the same extent as
the Refinanced Indebtedness; (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the Weighted Average
Life to Maturity of the portion of the Refinanced Indebtedness being repaid that
is scheduled to mature on or prior to the maturity date of the Notes; and (iv)
the Refinancing Indebtedness is secured only to the extent, if at all, and by
the assets (which may include after-acquired assets), that the Refinanced
Indebtedness is secured.
'Related Business' means any business in which the Company and its
Subsidiaries operate on the Issue Date, or that is closely related to or
complements the business of the Company and its Subsidiaries, as such business
exists on the Issue Date.
'Related Business Investment' means any Investment directly by the Company
or its Subsidiaries in any Related Business.
'Related Party Agreement' means any management or advisory agreements or
other arrangements with any Affiliate of the Company or with any other direct or
indirect holder of more than 10% of any class of the Company's or Parents'
capital stock (except, in any such case, Parent, the Company or any Restricted
Subsidiary), but excluding in any event arrangements with ABN AMRO Bank N.V. and
its Affiliates or their respective successors (i) under the New Credit Agreement
or the Notes or in connection therewith, (ii) in connection with the offering of
the Notes or the Preferred Stock or (iii) pursuant to other banking, financing
or underwriting activity entered into in the ordinary course of business.
'Restricted Investment' means any Investment by the Company or any
Restricted Subsidiary (other than investments in Cash Equivalents) in any Person
that is not the Company or a Restricted Subsidiary, including in any
Unrestricted Subsidiary.
'Restricted Payment' means with respect to any Person: (i) the declaration
or payment of any dividend (other than a dividend declared and paid (x) by the
Company to Parent, (y) by a Wholly-Owned Restricted Subsidiary to holders of its
Capital Stock, or (z) by a Subsidiary (other than a Wholly-Owned Restricted
Subsidiary) to its shareholders on a pro rata basis, but only to the extent of
the dividends actually received by Parent, the Company or a Restricted
Subsidiary) or the making of any other payment or distribution of cash,
securities or other property or assets in respect of such Person's Capital Stock
other than the Preferred Stock (except that a dividend payable solely in Capital
Stock (other than Disqualified Capital Stock) of such Person shall not
constitute a Restricted Payment); (ii) any payment on account of the purchase,
redemption, retirement or other acquisition for value of (A) the Capital Stock
of Parent (other than the Preferred Stock) or (B) the Capital Stock of the
Company or any Restricted Subsidiary, or any other payment or distribution made
in respect thereof, either directly or indirectly (other than a payment solely
in Capital Stock that is not Disqualified Capital Stock, and excluding any such
payment to the extent actually received by Parent, the Company or a Restricted
Subsidiary); (iii) any Restricted Investment; or (iv) payments by Parent, the
Company or its Restricted Subsidiaries in respect of any Related Party
Agreement. Notwithstanding the foregoing, 'Restricted Payment' shall in no event
include any payment or declaration on or with respect to the Preferred Stock,
including without limitation any declaration or payment of dividends or
distributions on, or payments with respect to the liquidation preference of, the
Preferred Stock, or purchases, redemptions, retirement for value or repurchases
thereof.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'Revolving Loan Facility' means the revolving loan facility provided under
the New Credit Agreement.
'S&P' means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., and its successors.
'Sale and Leaseback Transactions' means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person of any property or asset of such Person which has been or is
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being sold or transferred by such Person to such lender or investor or to any
Person to whom funds have been or are to be advanced by such lender or investor
on the security of such property or asset.
'Securities Act' means the U.S. Securities Act of 1933, as amended.
'Senior Secured Term Loan Facility' means the term loan facility providing
for the senior secured term loans under the New Credit Agreement.
'Significant Subsidiary' means any Subsidiary of the Company that would be
a 'Significant Subsidiary' as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date, except all references to '10 percent' in such definition shall
be changed to '2 percent'.
'Specified Transaction Payments' means the following payments made to or
for the benefit of present or future officers and employees of the Company and
its Affiliates, or to Granaria Holdings and its Affiliates, in each case in
connection with the Acquisition and on terms (including without limitation the
amount thereof) substantially as described in the Offering Memorandum, but only
to the extent that the aggregate amount thereof does not exceed $43.2 million
for all periods from and after the Issue Date: (i) payments to finance or
refinance the purchase by such officers and employees (or a trust for their
benefit) of capital stock of Parent or its parent company, the grant or vesting
of any award of such capital stock and the payment by such officers and
employees of income taxes in respect thereof, (ii) stay put and other incentive
bonuses, (iii) severance payments and (iv) transaction fees paid to Granaria
Holdings.
'Subsidiary' of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of Voting Stock is owned
by such Person directly or through one or more other Subsidiaries of such Person
and (ii) any entity other than a corporation in which such Person, directly or
indirectly, owns at least a majority of the Voting Stock of such entity
entitling the holder thereof to vote or otherwise participate in the selection
of the governing body, partners, managers or others that control the management
and policies of such entity. Unless otherwise specified, 'Subsidiary' means a
Subsidiary of the Company.
'Subsidiary Guarantor' means each domestic Restricted Subsidiary of the
Company other than an Immaterial Subsidiary and each other Person who is
required to become (or whom the Company otherwise causes to become) a Subsidiary
Guarantor by the terms of the Notes Indenture.
'Tax Sharing Agreement' means any tax sharing agreement or arrangement
entered or to be entered into by Parent, the Company and its Subsidiaries,
providing for payments by or to Parent, the Company and its Subsidiaries that,
in each case, are not in excess of the tax liabilities that would have been
payable by such Person on a stand-alone basis.
'Trustee' means The Bank of New York, as trustee under the Notes Indenture.
'Unrestricted Subsidiary' means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary, and any such
designation shall be deemed to be a Restricted Investment at the time of and
immediately upon such designation by the Company and its Restricted Subsidiaries
in the amount of the Consolidated Net Worth of such designated Subsidiary and
its consolidated Subsidiaries at such time, provided that such designation shall
be permitted only if (A) the Company and its Restricted Subsidiaries would be
able to make the Restricted Investment deemed made pursuant to such designation
at such time, (B) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of such Subsidiary (x) is Guaranteed by the Company or
any Restricted Subsidiary, (y) is recourse to the Company or any Restricted
Subsidiary or (z) subjects any property or asset of the Company or any
Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the
satisfaction thereof and (C) no default or event of default with respect to any
Indebtedness of such Subsidiary would permit any holder of any Indebtedness of
the Company or any Restricted Subsidiary to declare such Indebtedness of the
Company or any restricted Subsidiary due and payable prior to its maturity. The
Board of Directors of the Company may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary, and any such designation shall be deemed to be an
incurrence by the Company and its Subsidiaries of the
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Indebtedness (if any) of such Subsidiary so designated for purposes of the Early
Mandatory Redemption Event described under ' -- Additional Indebtedness' as of
the date of such designation, provided that such designation shall be permitted
only if immediately after giving effect to such designation and the incurrence
of any such additional Indebtedness deemed to have been incurred thereby (x) the
Company would meet the Coverage Ratio Incurrence Condition and (y) no Mandatory
Redemption Event shall be continuing. Any such designation by the Board of
Directors described in the two preceding sentences shall be evidenced to the
Transfer Agent by the filing with the Transfer Agent of a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and
setting forth the underlying calculations of such certificate.
'Voting Stock' with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all times
or only so long as no senior class of stock or other relevant equity interest
has voting power by reason of any contingency) to vote in the election of
members of the board of directors of such Person.
'Weighted Average Life to Maturity', when applied to any Indebtedness at
any date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment by (ii) the then outstanding principal
amount of such Indebtedness.
'Wholly-Owned Restricted Subsidiary' means a Restricted Subsidiary of which
100% of the Capital Stock (except for directors' qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) is owned directly by the Company or through
one or more Wholly-Owned Restricted Subsidiaries.
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DESCRIPTION OF EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued pursuant to an Indenture
(the 'Exchange Debentures Indenture') between Parent and The Bank of New York,
as trustee (the 'Trustee'), a copy of which has been filed as an exhibit to the
Preferred Stock Exchange Offer Registration Statement of which this Prospectus
constitutes a part. The following is a summary of the material terms and
provisions of the Exchange Debentures. The terms of the Exchange Debentures
include those set forth in the Exchange Debentures Indenture and those made part
of the Exchange Debentures Indenture by reference to the Trust Indenture Act.
The Exchange Debentures are subject to all such terms, and prospective
purchasers of the Preferred Stock are referred to the Exchange Debentures
Indenture and the Trust Indenture Act for a statement thereof. The following
summary does not purport to be a complete description of the Exchange Debentures
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Exchange Debentures Indenture. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Exchange Debentures Indenture and such definitions are incorporated herein by
reference.
GENERAL
The Exchange Debentures, if issued, will be general unsecured obligations
of Parent limited in aggregate principal amount to $141.9 million, subordinated
to all existing and future Senior Indebtedness (as defined below), including
Parent's guarantee of the Notes and the borrowings under the New Credit
Agreement. The Exchange Debentures will be issued in fully registered form,
without coupons, in principal amounts of $10,000 and integral multiples thereof
(other than as described in 'Description of Preferred Stock -- Exchange') and
will mature on March 1, 2008. Interest on the Exchange Debentures will accrue at
the rate of 11.75% per annum from the Exchange Date or from the most recent
interest payment date as to which interest has been paid or provided for.
Interest will be payable semi-annually in arrears on March 1 and September 1 of
each year, commencing on the first such date after the Exchange Date, to holders
of record at the close of business on February 15 or August 15, as the case may
be, immediately preceding the relevant interest payment date.
The Exchange Debentures will be payable as to principal, premium, if any,
and interest at the office or agency of Parent maintained for such purpose
within the City and State of New York or, at the option of Parent, by wire
transfer of immediately available funds or, in the case of certificated
securities only, by mailing a check to the registered address of the holder. See
' -- Book Entry, Delivery and Form of Securities.' Until otherwise designated by
Parent, Parent's office or agency in New York will be the office of the Trustee
maintained for such purpose.
SUBORDINATION
The payment by Parent of principal of, and premium (if any) and interest on
the Exchange Debentures will be subordinated to the prior payment in full in
cash when due of the principal of, and premium, if any, and accrued and unpaid
interest on and all other amounts owing in respect of, all existing and future
Senior Indebtedness of Parent. As of February 28, 1998 Parent had approximately
$547.0 million of Indebtedness outstanding, all of which was Senior
Indebtedness. Pursuant to the Exchange Debentures Indenture, Parent may not
incur additional Indebtedness, other than Senior Indebtedness permitted by the
Exchange Debentures Indenture, for so long as the Exchange Debentures remain
outstanding. See ' -- Certain Covenants -- Limitations on Activities by Parent.'
In addition, creditors and stockholders of Parent's subsidiaries (including
creditors of the Company) will have priority over the holders of the Exchange
Debentures with respect to claims on the assets of such Subsidiaries.
The Exchange Debentures Indenture provides that, upon any payment or
distribution to creditors of Parent of the assets of Parent of any kind or
character in a total or partial liquidation or dissolution of Parent or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Parent, whether voluntary or involuntary (including any assignment
for the benefit of creditors and proceedings for marshaling of assets and
liabilities of Parent), the holders of all Senior Indebtedness of Parent then
outstanding will be entitled to payment in full in cash (including interest
accruing
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subsequent to the filing of petition of bankruptcy or insolvency at the rate
specified in the document relating to the applicable Senior Indebtedness,
whether or not such interest is an allowed claim enforceable against Parent
under applicable law) before the holders of Exchange Debentures are entitled to
receive any payment (other than payments made from a trust previously
established pursuant to provisions described under ' -- Satisfaction and
Discharge of Indenture; Defeasance') on or with respect to the Exchange
Debentures and until all Senior Indebtedness receives payment in full in cash,
any distribution to which the holders of Exchange Debentures would be entitled
will be made to holders of Senior Indebtedness.
Upon the occurrence of any default in the payment of any principal of or
interest on or other amounts due on any Designated Senior Indebtedness of Parent
(a 'Payment Default'), no payment of any kind or character shall be made by
Parent (or by any other Person on its behalf) with respect to the Exchange
Debentures unless and until (i) such Payment Default shall have been cured or
waived in accordance with the instruments governing such Indebtedness or shall
have ceased to exist, (ii) such Designated Senior Indebtedness has been
discharged or paid in full in cash in accordance with the instruments governing
such Indebtedness or (iii) the benefits of this sentence have been waived by the
holders of such Designated Senior Indebtedness or their representative,
immediately after which Parent must resume making any and all required payments,
including missed payments, in respect of its obligations under the Exchange
Debentures.
Upon (1) the occurrence and continuance of an event of default (other than
a Payment Default) relating to Designated Senior Indebtedness, as such event of
default is defined therein or in the instrument or agreement under which it is
outstanding, which event of default, pursuant to the instruments governing such
Designated Senior Indebtedness, entitles the holders (or a specified portion of
the holders) of such Designated Senior Indebtedness or their representative to
immediately accelerate without further notice (except such notice as may be
required to effect such acceleration) the maturity of such Designated Senior
Indebtedness (whether or not such acceleration has actually occurred) (a
'Non-payment Default') and (2) the receipt by the Trustee and Parent from the
trustee or other representative of holders of such Designated Senior
Indebtedness of written notice (a 'Payment Blockage Notice') of such occurrence,
no payment is permitted to be made by Parent (or by any other Person on its
behalf) in respect of the Exchange Debentures for a period (a 'Payment Blockage
Period') commencing on the date of receipt by the Trustee of such notice and
ending on the earliest to occur of the following events (subject to any blockage
of payments that may then be in effect due to a Payment Default on Designated
Senior Indebtedness): (w) such Non-payment Default has been cured or waived or
has ceased to exist; (x) a 179-consecutive-day period commencing on the date
such written notice is received by the Trustee has elapsed; (y) such Payment
Blockage Period has been terminated by written notice to the Trustee from the
Trustee or other representative of holders of such Designated Senior
Indebtedness, whether or not such Non-payment Default has been cured or waived
or has ceased to exist; and (z) such Designated Senior Indebtedness has been
discharged or paid in full in cash, immediately after which, in the case of
clause (w), (x), (y) or (z), Parent must resume making any and all required
payments, including missed payments, in respect of its obligations under the
Exchange Debentures. Notwithstanding the foregoing, (a) not more than one
Payment Blockage Period may be commenced in any period of 365 consecutive days
and (b) no default or event of default with respect to the Designated Senior
Indebtedness of Parent that was the subject of a Payment Blockage Notice which
existed or was continuing on the date of the giving of any Payment Blockage
Notice shall be or serve as the basis for the giving of a subsequent Payment
Blockage Notice whether or not within a period of 365 consecutive days unless
such default or event of default shall have been cured or waived for a period of
at least 90 consecutive days after such date. Notwithstanding anything in the
Exchange Debentures Indenture to the contrary, there must be 180 consecutive
days in any 365-day period in which no Payment Blockage Period is in effect.
Notwithstanding the foregoing, holders of Exchange Debentures may receive
and retain Permitted Junior Securities and payment from the money or the
proceeds held in any defeasance trust described under ' -- Satisfaction and
Discharge of Indenture; Defeasance' below, and no such receipt or retention will
be contractually subordinated in right of payment to any Senior Indebtedness or
subject to the restrictions described in this 'Subordination' section.
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In the event that, notwithstanding the foregoing, any payment or
distribution of assets of Parent, whether in cash, property or securities, shall
be received by the Trustee or the holders of Exchange Debentures at a time when
such payment or distribution is prohibited by the foregoing provisions, such
payment or distribution shall be segregated from other funds or assets and held
in trust for the benefit of the holders of Senior Indebtedness of Parent and
shall be paid or delivered by the Trustee or such holders, as the case may be,
to the holders of the Senior Indebtedness of Parent remaining unpaid or
unprovided for or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness of Parent may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of the Senior Indebtedness of
Parent held or represented by each, for application to the payment of all Senior
Indebtedness of Parent remaining unpaid, to the extent necessary to pay or to
provide for the payment in full in cash of all such Senior Indebtedness after
giving effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
If Parent fails to make any payment on the Exchange Debentures when due,
whether or not such failure is on account of the subordination provisions
referred to above, such failure would constitute an Event of Default under the
Exchange Debentures Indenture and would enable the holders of Exchange
Debentures to accelerate the maturity of the Exchange Debentures. See
' -- Events of Default.'
By reason of the subordination provisions contained in the Exchange
Debentures Indenture, in the event of bankruptcy, liquidation, insolvency or
other similar proceedings, creditors of Parent who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Exchange
Debentures, and creditors of Parent who are not holders of Senior Indebtedness
may recover less, ratably, than holders of Senior Indebtedness and may recover
more, ratably, than the holders of the Exchange Debentures.
OPTIONAL REDEMPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be redeemable at the option of
Parent, in whole or in part, at any time (subject to contractual and other
restrictions with respect thereto) on or after March 1, 2003, at the following
redemption prices (expressed as percentages of principal amount at the time of
such redemption thereof), together with accrued and unpaid interest, if any,
thereon to the redemption date, if redeemed during the 12-month period beginning
March 1 of each of the years set forth below:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR YEAR PRICE
- ----------------------------------------------------------------------- ----------
<S> <C>
2003................................................................... 105.875%
2004................................................................... 103.917%
2005................................................................... 101.958%
2006 and thereafter.................................................... 100.000%
</TABLE>
If less than all of the Exchange Debentures are to be redeemed at any time,
selection of the Exchange Debentures to be redeemed will be made by the Trustee
from among the outstanding Exchange Debentures on a pro rata basis, by lot or by
any other method permitted in the Exchange Debentures Indenture. Notice of
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each holder whose Exchange Debentures are to be redeemed at
the registered address of such holder. On and after the redemption date,
interest will cease to accrue on the Exchange Debentures or portions thereof
called for redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Exchange
Debentures will have the right to require that Parent repurchase such holder's
Exchange Debentures for a cash price (the 'Change of Control Purchase Price')
equal to 101% of the principal amount of the Exchange Debentures, plus accrued
and unpaid interest, if any, to the date of repurchase, all in accordance with
the following paragraph.
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Within 30 days following any Change of Control, Parent will mail to the
Trustee (who shall mail to each holder at Parent's expense) a notice (i)
describing the transaction or transactions that constitute the Change of
Control, (ii) offering to repurchase, pursuant to the procedures required by the
Exchange Debentures Indenture and described in such notice (a 'Change of Control
Offer'), on a date specified in such notice (which shall be a business day not
earlier than 30 days or later than 60 days from the date such notice is mailed)
and for the Change of Control Purchase Price, all Exchange Debentures properly
tendered by such holder pursuant to such offer to purchase for the Change of
Control Purchase Price and (iii) describing the procedures that holders must
follow to accept the Change of Control Offer. The Change of Control Offer is
required to remain open for at least 20 business days or for such longer period
as is required by law.
The occurrence of the events constituting a Change of Control under the
Exchange Debentures Indenture may result in an event of default in respect of
other Indebtedness (including the Senior Indebtedness) of Parent and its
Subsidiaries and, consequently, the lenders thereof may have the right to
require repayment of such Indebtedness in full. If a Change of Control Offer is
made, there can be no assurance that Parent will have available funds sufficient
to pay for all or any of the Exchange Debentures that might be delivered by
holders of Exchange Debentures seeking to accept the Change of Control Offer.
There can be no assurance that in the event of a Change of Control, Parent will
be able to obtain the consents necessary to consummate a Change of Control Offer
from the lenders under agreements governing outstanding Indebtedness which may
prohibit such an offer. Parent's obligation to make a Change of Control Offer
will be satisfied if a third party makes the Change of Control Offer in the
manner and at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by Parent and purchases all
Exchange Debentures properly tendered and not withdrawn under such Change of
Control Offer. The definition of Change of Control includes the sale of 'all or
substantially all' of the assets of the Company or Parent and their
Subsidiaries, in either case taken as a whole, the determination of which
depends upon the circumstances of any such sale and is subject to interpretation
under applicable legal precedent.
The Change of Control feature of the Exchange Debentures, by requiring a
Change of Control Offer, may in certain circumstances make more difficult or
discourage a sale or takeover of Parent, and, thus, the removal of incumbent
management. The Change of Control feature, however, is not part of a plan by
management to adopt a series of antitakeover provisions. Instead, the Change of
Control feature is a result of negotiations between Parent and the Initial
Purchasers. Subject to the limitations discussed below, Parent could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Exchange Debentures Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect Parent's capital
structure or credit ratings.
Parent will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder, if applicable, in
connection with the purchase of Exchange Debentures pursuant to a Change of
Control Offer.
CERTAIN COVENANTS
Limitations on Activities by Parent. The Exchange Debentures Indenture
provides that Parent shall not, directly or indirectly, (i) enter into or permit
to exist any transaction or agreement (including without limitation any
transaction or agreement with respect to any incurrence or assumption of
Indebtedness, any purchase, sale, lease or exchange of any property or the
rendering of any service or payment of any funds) between itself and any other
Person (including any Affiliate), other than Permitted Parent Transactions, (ii)
issue any Capital Stock other than the Senior Preferred Stock or any Eligible
Junior Securities, or incur or assume any Indebtedness other than pursuant to
Permitted Parent Transactions, (iii) engage in any business or conduct any
activity (including the making of any Investment or payment) or transfer any of
its assets, other than the ownership of the capital stock of the Company and the
performance of Permitted Parent Transactions in accordance with the terms
thereof or (iv) consolidate or merge with or into any other Person. Parent shall
preserve, renew and keep in full force and effect its corporate existence and
any rights, privileges and franchises necessary or desirable in the conduct of
its business, and shall comply in all material respects with all material
applicable laws,
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ordinances, rules, regulations, and requirements of governmental authorities,
provided that Parent may terminate any such right, privilege or franchise (other
than its corporate existence) if its board of directors in good faith determines
that such termination is in the best interests of Parent and not materially
disadvantageous to the holders of the Exchange Debentures. The foregoing shall
in no event limit or restrict the ability of the Parent to receive payments
(including dividends and distributions) from the Company and its Subsidiaries.
Limitations Additional Indebtedness. The Exchange Debentures Indenture will
provide that Parent will not permit the Company or any Restricted Subsidiary,
directly or indirectly, to incur any Indebtedness (including without limitation
Acquired Indebtedness); provided that (i) the Company and its Restricted
Subsidiaries may incur Permitted Indebtedness and (ii) the Company may incur
additional Indebtedness if, after giving effect thereto, the Company's
Consolidated Interest Coverage Ratio on the date thereof would be at least 2.0
to 1, determined on a pro forma basis as if the incurrence of such additional
Indebtedness, and the application of the net proceeds therefrom, had occurred at
the beginning of the four-quarter period used to calculate the Company's
Consolidated Interest Coverage Ratio.
Limitations on Issuance of Capital Stock of Restricted Subsidiaries. The
Exchange Debentures Indenture will provide that Parent will not permit the
Company or any Restricted Subsidiary, directly or indirectly, to issue or sell
any shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to Parent, the Company or a
Wholly-Owned Restricted Subsidiary, (ii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary or (iii) to the extent such shares represent directors'
qualifying shares or shares required by applicable law to be held by a Person
other than the Company or a Wholly-Owned Restricted Subsidiary. The proceeds of
any sale of Capital Stock permitted hereunder and referred to in clauses (ii)
and (iii) above will be treated as Net Available Proceeds and must be applied in
a manner consistent with the provisions of the covenant described under
' -- Limitations on Asset Sales'.
Limitations on Restricted Payments. The Exchange Debentures Indenture will
provide that Parent will not, and will not permit the Company or any Restricted
Subsidiary, directly or indirectly, to make any Restricted Payment (except as
permitted below) if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) the Adjusted Coverage Ratio Incurrence Condition would not be
satisfied; or
(iii) the amount of such Restricted Payment, when added to the
aggregate amount of all other Restricted Payments (except as expressly
provided in the second following paragraph) made after the Issue Date,
exceeds the sum of (A) 50% of Adjusted Consolidated Net Income (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of Parent's most recently ended
fiscal quarter for which financial statements are available at the time of
such Restricted Payment (or, if such aggregate Adjusted Consolidated Net
Income shall be a deficit, minus 100% of such aggregate deficit) plus (B)
the net cash proceeds from the issuance and sale (other than to a
Subsidiary of Parent) after the Issue Date of (1) Eligible Junior
Securities or (2) debt securities of Parent that have been converted into
Eligible Junior Securities that is not held by a Subsidiary of Parent, plus
(C) to the extent that any Restricted Investment that was made after the
Issue Date is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (x) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (y) the initial
amount of such Restricted Investment plus (D) the amount of Restricted
Investment outstanding in an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company in accordance with the definition of 'Unrestricted Subsidiary'.
The foregoing provisions will not prohibit (1) the payment of any dividend
by Parent, the Company or a Restricted Subsidiary within 60 days after the date
of declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Exchange Debentures Indenture; (2) the
redemption, repurchase, retirement or other acquisition of any Capital Stock of
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Parent in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of Parent) of Eligible Junior Securities; (3)
the defeasance, redemption, repurchase or other retirement of Subordinated
Indebtedness in exchange for, or out of the proceeds of, the substantially
concurrent issue and sale of Eligible Junior Securities (other than such stock
(x) sold to a Subsidiary of Parent and (y) purchased with the proceeds of loans
from Parent or any of its Subsidiaries); (4) the making of a Related Business
Investment in joint ventures or Unrestricted Subsidiaries out of the proceeds of
the substantially concurrent issue and sale of Eligible Junior Securities (other
than such stock (x) sold to a Subsidiary of Parent and (y) purchased with the
proceeds of loans from Parent or any of its Subsidiaries); (5) Specified
Transaction Payments; (6) payments of up to $1.75 million to Granaria Holdings
or any of its Affiliates in the aggregate in any fiscal year pursuant to any
Related Party Agreement entered into between Granaria Holdings or any of its
Affiliates and the Company or its Subsidiaries to provide management and similar
services to any such Person or to Parent; (7) payments by Parent to purchase,
redeem, acquire, cancel or otherwise retire for value Capital Stock of Parent,
or payments of dividends or distributions by Parent to its shareholders solely
in amounts and at the times necessary to permit such shareholders to (or permit
subsequent distributions to permit their respective shareholders to) purchase,
redeem, acquire, cancel or otherwise retire for value Capital Stock of such
shareholders in each case held by officers, directors or employees or former
officers, directors or employees (or their transferees, estates or beneficiaries
under their estates) or a trust established for the benefit of any of the
foregoing of Parent, the Company or its Subsidiaries, upon death, disability,
retirement, severance or termination of employment or service or pursuant to any
agreement under which such Capital Stock or related rights were issued; provided
that the amount of such payments under this clause (7) after the Issue Date does
not exceed in the aggregate $5.0 million; or (8) Restricted Investments the
amount of which, together with the amount of all other Restricted Investments
made pursuant to this clause (8) after the Issue Date, does not exceed $10.0
million, provided that, in the case of clause (8), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payments referred to in clauses (2) through (6)
thereof) shall be included once in calculating whether the conditions of clause
(iii) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments. For purposes of determining compliance with this
'Limitations on Restricted Payments' covenant, in the event that transaction
meets the criteria of more than one of the types of Restricted Payments
described in the clauses of the immediately preceding paragraph or of the
clauses of the definition of 'Restricted Payment', Parent, in its sole
discretion, shall classify such transaction and only be required to include the
amount and type of such transaction in one of such clauses. If an issuance of
Capital Stock of Parent is applied to make a Restricted Payment pursuant to
clause (2), (3) or (4) above, then, in calculating whether the conditions of
clause (iii) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments, the proceeds of any such issuance shall be
included under such clause (iii) only to the extent such proceeds are not
applied as so described in this sentence.
Not later than the date of making any Restricted Payment, Parent shall
cause the Company to deliver to the Transfer Agent an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the 'Limitations on Restricted Payments'
covenant were computed, which calculations shall be based upon Parent's latest
available financial statements.
Limitations on Restrictions on Distributions from Restricted Subsidiaries.
The Exchange Debentures Indenture provides that Parent will not permit the
Company or any Restricted Subsidiary to create or otherwise cause or suffer to
exist or become effective any consensual Payment Restriction with respect to any
of its Restricted Subsidiaries, except for (a) any such Payment Restriction in
effect on the Issue Date under the New Credit Agreement or the Notes Indenture
or any similar Payment Restriction under any similar credit facility, or any
amendment, restatement, renewal, replacement or refinancing of any of the
foregoing, provided that such similar Payment Restrictions are not, taken as a
whole, materially more restrictive than the Payment Restrictions in effect on
the Issue Date under the New Credit Agreement or the Notes Indenture, as
applicable, (b) any such Payment Restriction in effect on the Issue Date
consisting of customary net worth or leverage tests in effect on the Issue Date
under any
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credit facility of any Foreign Subsidiary, or any amendment, restatement,
renewal, replacement or refinancing of any of the foregoing (including for
purposes of this clause (b), any increase in the principal amount available
thereunder) (a 'Replacement Facility'), provided that such Payment Restrictions
in any such Replacement Facility are not, taken as a whole, materially more
restrictive than the Payment Restrictions in effect on the Issue Date under the
facility amended, restated, renewed, replaced or refinanced, (c) any such
Payment Restriction under any agreement evidencing any Acquired Indebtedness
that was permitted to be incurred pursuant to the Exchange Debentures Indenture
in effect at the time of such incurrence and not created in contemplation of
such event, provided that such Payment Restriction is not extended to apply to
any of the assets of the entities not previously subject thereto, (d) any such
Payment Restriction arising in connection with Refinancing Indebtedness;
provided that any such Payment Restrictions that arise under such Refinancing
Indebtedness are not, taken as a whole, materially more restrictive than those
under the agreement creating or evidencing the Indebtedness being refunded or
refinanced and (e) any such restriction by reason of customary provisions
restricting assignments, subletting or other transfers contained in leases,
licenses and similar agreements entered into in the ordinary course of business.
Limitations on Transactions with Affiliates. The Exchange Debentures
Indenture provides that Parent will not permit the Company or any Restricted
Subsidiary to, directly or indirectly, in one transaction or a series of related
transactions, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an 'Affiliate
Transaction'), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction (or series of related
transactions) involving aggregate payments in excess of $1.0 million, an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and a Secretary's Certificate which sets forth and
authenticates a resolution that has been adopted by a vote of a majority of the
Independent Directors approving such Affiliate Transaction or, if at the time
fewer than three Independent Directors are then in office, a Secretary's
Certificate which sets forth and authenticates a resolution that has been
adopted unanimously by the Company's Board of Directors and (b) with respect to
any Affiliate Transaction (or series of related transactions) involving
aggregate payments of $5.0 million or more, the certificates described in the
preceding clause (a) and an opinion as to the fairness to the Company or such
Subsidiary from a financial point of view issued by an Independent Financial
Advisor; provided, however, that the following shall not be deemed to be
Affiliate Transactions: (i) transactions exclusively between or among (1) the
Company and one or more Restricted Subsidiaries or (2) Restricted Subsidiaries,
provided, in each case, that no Affiliate of the Company (other than another
Restricted Subsidiary) owns Capital Stock of any such Restricted Subsidiary;
(ii) transactions between Parent, the Company or any Restricted Subsidiary and
any qualified employee stock ownership plan established for the benefit of the
Company's or its Restricted Subsidiaries' employees, or the establishment or
maintenance of any such plan; (iii) reasonable director, officer and employee
compensation and other benefit, and indemnification arrangements approved by a
majority of the Independent Directors on the Board of Directors; (iv)
transactions permitted by the 'Limitations on Restricted Payments' covenant; (v)
the pledge of Capital Stock of Unrestricted Subsidiaries to support the
Indebtedness thereof; (vi) the entering into of any Tax Sharing Agreement and
any payment pursuant thereto; (vii) the payment on behalf of Parent of
ministerial administrative and operating fees and expenses in the ordinary
course to Persons other than to Affiliates of Parent or the Company, provided
that the aggregate amount thereof in any fiscal year of the Company does not
exceed $750,000; (viii) arrangements with ABN AMRO Bank N.V. or any of its
Affiliates or their respective successors (x) under the New Credit Agreement or
the Notes or in connection with either of the foregoing, (y) in connection with
the offering of the Notes or the Series A Preferred Stock or (z) pursuant to
other banking, financing or underwriting activity entered into in the ordinary
course of business; (ix) transactions between the Company or any Restricted
Subsidiary and any Affiliate of the Company or such Restricted Subsidiary that
is a joint venture, provided that no direct or indirect holder
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of an equity interest in such joint venture (other than the Company or a
Restricted Subsidiary) is an Affiliate of the Company or such Restricted
Subsidiary; and (x) Specified Transaction Payments.
Limitations on Asset Sales. (a) The Exchange Debentures Indenture provides
that Parent will not permit the Company or any Restricted Subsidiary to
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets included in such Asset Sale (evidenced by the
delivery by the Company to the Trustee of an Officers' Certificate certifying
that such Asset Sale complies with this clause (i)), (ii) immediately before and
immediately giving effect to such Asset Sale, no Default or Event of Default
shall have occurred and be continuing, and (iii) at least 80% of the
consideration received by the Company or such Restricted Subsidiary therefor is
in the form of cash paid at the closing thereof. The amount (without
duplication) of any (x) Indebtedness (other than indebtedness that is
subordinated in right of payment to the Notes) of the Company or such Restricted
Subsidiary that is expressly assumed by the transferee in such Asset Sale and
with respect to which the Company or such Restricted Subsidiary, as the case may
be, is unconditionally released by the holder of such Indebtedness, and (y) any
Cash Equivalents, or other notes, securities or items of property received from
such transferee that are promptly (but in any event within 15 days) converted by
the Company or such Restricted Subsidiary to cash (to the extent of the cash
actually so received), shall be deemed to be cash for purposes of clause (ii)
and, in the case of clause (x) above, shall also be deemed to constitute a
repayment of, and a permanent reduction in, the amount of such Indebtedness for
purposes of the following paragraph (b). If at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then the date of such conversion or
disposition shall be deemed to constitute the date of an Asset Sale hereunder
and the Net Available Proceeds thereof shall be applied in accordance with this
covenant. A transfer of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to a Restricted Subsidiary will not be
deemed to be an Asset Sale and a transfer of assets that constitutes a
Restricted Investment and that is permitted under ' -- Limitations on Restricted
Payments' will not be deemed to be an Asset Sale.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
Parent will cause the Company or such Restricted Subsidiary, no later than 360
days after such Asset Sale (or such longer period of time as may be required to
consummate any offer to repurchase any Indebtedness referred to in clause (i)
below in accordance with the terms thereof, if such offer to repurchase is
commenced not later than 30 days after the end of such 360 day period), to (i)
apply all or any of the Net Available Proceeds therefrom to repay amounts
outstanding under Indebtedness of the Company and its Restricted Subsidiaries;
provided, in each case, that the related loan commitment (if any) of any
Indebtedness constituting revolving credit debt is thereby permanently reduced
by the amount of such Indebtedness so repaid and/or (ii) invest all or any part
of the Net Available Proceeds thereof in the purchase of fixed assets to be used
by the Company and its Restricted Subsidiaries in a Related Business (together
with any short-term assets incidental thereto), or the making of a Related
Business Investment. The amount of such Net Available Proceeds not applied or
invested as provided in this paragraph will constitute 'Excess Proceeds.'
(c) When the aggregate amount of Excess Proceeds equals or exceed $5.0
million, Parent shall make an offer to redeem, from all holders of the Exchange
Debentures, an aggregate principal amount of Exchange Debentures equal to the
amount of such Excess Proceeds as follows:
(i) Parent shall make an offer to purchase (a 'Net Proceeds Offer')
from all holders of the Exchange Debentures in accordance with the
procedures set forth in the Exchange Debentures Indenture the maximum
principal amount (expressed as a multiple of $10,000) of Exchange
Debentures that may be redeemed out of the amount (the 'Payment Amount') of
such Excess Proceeds.
(ii) The offer price for the Exchange Debentures will be payable in
cash in an amount equal to 100% of the principal amount of the Exchange
Debentures tendered for redemption pursuant to a Net Proceeds Offer, plus
accrued and unpaid interest, to the date such Net Proceeds Offer is
consummated (the 'Offered Price'), in accordance with the procedures set
forth in the Exchange
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Debentures Indenture. To the extent that the aggregate Offered Price of
Exchange Debentures tendered for redemption pursuant to a Net Proceeds
Offer is less than the Payment Amount relating thereto (such shortfall
constituting a 'Net Proceeds Deficiency'), Parent may use such Net Proceeds
Deficiency, or a portion thereof, for general corporate purposes, subject
to the limitations of the 'Limitations on Restricted Payments' covenant.
(iii) If the aggregate Offered Price of Exchange Debentures validly
tendered for redemption and not withdrawn by holders thereof exceeds the
Payment Amount, Exchange Debentures to be redeemed will be selected on a
pro rata basis.
(iv) Upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Net Proceeds Offer was made shall be deemed to be zero.
Parent will not enter into or suffer to exist any agreement that would
place any restriction of any kind (other than pursuant to law or regulation) on
its ability to make a Net Proceeds Offer following any Asset Sale. Parent will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and the Parent is required to redeem Exchange Debentures as described above.
Limitations on Mergers and Certain Other Transactions. The Exchange
Debentures Indenture provides that Parent will not permit the Company, in a
single transaction or a series of related transactions, to (i) consolidate or
merge with or into (other than a merger with a Wholly-Owned Restricted
Subsidiary solely for the purpose of changing the Company's jurisdiction of
incorporation to another State of the United States), or sell, lease, transfer,
convey or otherwise dispose of or assign all or substantially all of the assets
of the Company or the Company and its Subsidiaries (taken as a whole), or assign
any of its obligations under the Notes and the Notes Indenture, to any Person or
(ii) adopt a Plan of Liquidation unless, in either case: (a) the Person formed
by or surviving such consolidation or merger (if other than the Company) or to
which such sale, lease, conveyance or other disposition or assignment shall be
made (or, in the case of a Plan of Liquidation, any Person to which assets are
transferred) (collectively, the 'Successor'), is a corporation organized and
existing under the laws of any State of the United States of America or the
District of Columbia, and the Successor assumes by supplemental indenture in a
form satisfactory to the Trustee all of the obligations of the Company under the
Notes and the Notes Indenture; (b) immediately prior to and immediately after
giving effect to such transaction and the assumption of the obligations as set
forth in clause (a) above and the incurrence of any Indebtedness to be incurred
in connection therewith, no Default or Event of Default shall have occurred and
be continuing; and (c) immediately after and giving effect to such transaction
and the assumption of the obligations set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and the
use of any net proceeds therefrom on a pro forma basis, (1) the Consolidated Net
Worth of Parent would be at least equal to the Consolidated Net Worth of Parent
immediately prior to such transaction and (2) the Company or the Successor, as
the case may be, could meet the Coverage Ratio Incurrence Condition. For
purposes of this 'Limitations on Mergers and Certain Other Transactions'
covenant, any Indebtedness of the Successor which was not Indebtedness of the
Company immediately prior to the transaction shall be deemed to have been
incurred in connection with such transaction.
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Debentures are outstanding, Parent will file
with the Commission, to the extent such filings are accepted by the Commission,
and will furnish (within 15 days after such filing) to the Trustee and to the
holders of Exchange Debentures all quarterly and annual reports and other
information, documents and reports that would be required to be filed with the
Commission pursuant to Section 13 of the Exchange Act if Parent were required to
file under such section. In addition, Parent will make such information
available to prospective purchasers of the Exchange Debentures, securities
analysts and broker-dealers who request it in writing.
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EVENTS OF DEFAULT
An 'Event of Default' is defined in the Exchange Debentures Indenture as
(i) failure by Parent to pay interest on any of the Exchange Debentures when it
becomes due and payable and the continuance of any such failure for 30 days;
(ii) failure by Parent to pay the principal or premium, if any, on any of the
Exchange Debentures when it becomes due and payable, whether at stated maturity,
upon redemption, upon acceleration or otherwise; (iii) failure by Parent to
comply with any of its agreements or covenants described above under 'Certain
Covenants -- Limitations on Mergers and Certain Other Transactions', or in
respect of its obligations to make a Change of Control Offer or a Net Proceeds
Offer described in 'Change of Control' and 'Certain Covenants -- Limitations on
Asset Sales', respectively; (iv) failure by Parent to comply with any other
covenant in the Exchange Debentures Indenture and continuance of such failure
for 60 days after notice of such failure has been given to Parent by the Trustee
or by the holders of at least 25% of the aggregate principal amount of the
Exchange Debentures then outstanding; (v) failure by any of Parent, the Company
or any of its Restricted Subsidiaries to make any payment when due at final
maturity after the expiration of any applicable grace period, in respect of any
Indebtedness of Parent, the Company or any of such Restricted Subsidiaries, or
the acceleration of the maturity of such Indebtedness by the holders thereof
because of a default, with an aggregate outstanding principal amount for all
such Indebtedness under this clause (v) of $10.0 million or more (but excluding
in any event any such Indebtedness that is paid when so due after expiration of
any applicable grace period, or upon acceleration of the maturity thereof,
pursuant to any letter of credit); (vi) one or more final, non-appealable
judgments or orders that exceed $10.0 million in the aggregate for the payment
of money have been entered by a court or courts of competent jurisdiction
against Parent or any Subsidiary of Parent and such judgment or judgments have
not been satisfied, stayed, annulled or rescinded within 60 days of being
entered; and (vii) certain events of bankruptcy, insolvency or reorganization
involving Parent, the Company or any Significant Subsidiary.
In the case of an Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of Parent with the
intention of avoiding payment of the premium that Parent would have had to pay
if Parent then had elected to redeem the Exchange Debentures, an equivalent
premium shall also become and be immediately due and payable, to the extent
permitted by law, upon the acceleration of the Exchange Debentures.
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to Parent), shall have occurred and be continuing under
the Exchange Debentures Indenture, the Trustee, by written notice to Parent, or
the holders of at least 25% in aggregate principal amount of the Exchange
Debentures then outstanding by written notice to Parent and the Trustee may
declare all amounts owing under the Exchange Debentures to be due and payable
immediately. Upon such declaration of acceleration, the aggregate principal of,
premium, if any, and interest on the outstanding Exchange Debentures shall
immediately become due and payable. If an Event of Default results from
bankruptcy, insolvency or reorganization with respect to Parent, all outstanding
Exchange Debentures shall become due and payable without any further action or
notice. In certain cases, the holders of a majority in aggregate principal
amount of the Exchange Debentures then outstanding may waive an existing Default
or Event of Default and its consequences, except a default in the payment of
principal of, premium, if any, and interest on the Exchange Debentures.
The holders may not enforce the provisions of the Exchange Debentures
Indenture or the Exchange Debentures except as provided in the Exchange
Debentures Indenture. Subject to certain limitations, holders of a majority in
principal amount of the Exchange Debentures then outstanding may direct the
Trustee in its exercise of any trust or power; provided however, that such
direction does not conflict with the terms of the Exchange Debentures Indenture.
The Trustee may withhold from the holders notice of any continuing Default or
Event of Default (except any Default or Event of Default in payment of principal
of, premium, if any, or interest on the Exchange Debentures) if the Trustee
determines that withholding such notice is in the holders' interest.
Parent is required to deliver to the Trustee annually a statement regarding
compliance with the Exchange Debentures Indenture and, upon any Officer of
Parent becoming aware of any Default or
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Event of Default, a statement specifying such Default or Event of Default and
what action Parent is taking or proposes to take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
Parent may terminate its obligations under the Exchange Debentures
Indenture at any time by delivering all outstanding Exchange Debentures to the
Trustee for cancellation and paying all sums payable by it thereunder. Parent,
at its option, (i) will be discharged from any and all obligations with respect
to the Exchange Debentures (except for certain obligations of Parent to register
the transfer or exchange of such Exchange Debentures, replace stolen, lost or
mutilated Exchange Debentures, maintain paying agencies and hold moneys for
payment in trust) or (ii) need not comply with certain of the restrictive
covenants with respect to the Exchange Debentures Indenture, if Parent deposits
with the Trustee, in trust, U.S. Legal Tender or U.S. Government Obligations or
a combination thereof that, through the payment of interest and premium thereon
and principal amount at maturity in respect thereof in accordance with their
terms, will be sufficient to pay all the principal amount at maturity of and
interest and premium on the Exchange Debentures on the dates such payments are
due in accordance with the terms of such Exchange Debentures as well as the
Trustee's fees and expenses. To exercise either such option, Parent is required
to deliver to the Trustee (A) an Opinion of Counsel and, in connection with a
discharge pursuant to clause (i) above, confirmation of such counsel that (I)
Parent has received from, or there has been published by, the Internal Revenue
Service a ruling or (II) since the date of the Exchange Debentures Indenture
there has been a change in the applicable federal income tax law, in either case
to the effect that the holders of the Exchange Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of the deposit
and related defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such option had not been exercised, (B) subject to certain qualifications, an
Opinion of Counsel to the effect that funds so deposited will not violate the
Investment Company Act of 1940 and will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York Debtor
and Creditor Law and (C) an Officers' Certificate and an Opinion of Counsel to
the effect that Parent has complied with all conditions precedent to the
defeasance.
TRANSFER AND EXCHANGE
A holder will be able to register the transfer of or exchange Exchange
Debentures only in accordance with the provisions of the Exchange Debentures
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Exchange Debentures Indenture. Without the
prior consent of Parent, the Registrar is not required (i) to register the
transfer of or exchange any Exchange Debentures selected for redemption, (ii) to
register the transfer of or exchange any Exchange Debentures for a period of 15
days before the mailing of a notice of redemption and ending on the date of such
mailing or (iii) to register the transfer or exchange of a Exchange Debenture
between a record date and the next succeeding interest payment date. The
registered holder of a Exchange Debenture will be treated as the owner of such
Exchange Debenture for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Exchange Debentures Indenture or the
Exchange Debentures may be amended or supplemented with the consent (which may
include consents obtained in connection with a tender offer or exchange offer
for Exchange Debentures) of the holders of at least a majority in principal
amount of the Exchange Debentures then outstanding, and any existing Default
under, or compliance with any provision of, the Exchange Debentures Indenture
may be waived (other than any continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Exchange
Debentures) with the consent (which may include consents obtained in connection
with a tender offer or exchange offer for Exchange Debentures) of the holders of
a majority in principal amount of the Exchange Debentures then outstanding;
provided that:
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(A) no such modification or amendment may, without the consent of the
holders of 75% in aggregate principal amount of Exchange Debentures then
outstanding, amend or modify the obligation of Parent under the caption
'Change of Control' or the definitions related thereto that could adversely
affect the rights of any holder of the Exchange Debentures; and
(B) without the consent of each holder affected, Parent and the
Trustee may not: (i) extend the maturity of any Exchange Debenture; (ii)
affect the terms of any scheduled payment of interest on or principal of
the Exchange Debentures (including without limitation any redemption
provisions); (iii) take any action that would subordinate the Exchange
Debentures to any other Indebtedness of Parent (except as provided under
'Subordination' above), or otherwise affect the ranking of the Exchange
Debentures; or (iv) reduce the percentage of holders necessary to consent
to an amendment, supplement or waiver to the Exchange Debentures Indenture.
Without the consent of any holder, Parent and the Trustee may amend or
supplement the Exchange Debentures Indenture or the Exchange Debentures to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Exchange
Debentures in addition to or in place of certificated Exchange Debentures, to
provide for the assumption of Parent's obligations to holders in the case of a
merger or acquisition, or to make any change that does not adversely affect the
rights of any holder.
CONCERNING THE TRUSTEE
The Exchange Debentures Indenture contains certain limitations on the
rights of the Trustee, should it become a creditor of Parent, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined in the Exchange Debentures Indenture), it must
eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Exchange Debentures Indenture provides that,
in case an Event of Default occurs and is not cured, the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
person in similar circumstances in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Exchange Debentures Indenture at the request of any
holder, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to the Trustee.
GOVERNING LAW
Each of the Exchange Debentures Indenture and the Exchange Debentures
provides that it will be governed by, and construed in accordance with, the laws
of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
The Exchange Debentures, if issued, would be subject to arrangements
regarding book-entry, delivery and form that are substantially the same as those
with respect to the Preferred Stock set forth under 'Description of Preferred
Stock -- Book-Entry, Delivery and Form of Securities.'
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Exchange Debentures Indenture without charge by contacting Parent at 250 East
Fifth Street, Suite 500, Cincinnati, Ohio 45202, (513) 721-7010.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Exchange Debentures Indenture. Reference is made to the Exchange Debentures
Indenture for the full definition of all such terms.
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'Acquired Indebtedness' means (a) with respect to any Person that becomes a
Restricted Subsidiary after the date of the Exchange Debentures Indenture,
Indebtedness of such Person and its Subsidiaries existing at the time such
Person becomes a Restricted Subsidiary that was not incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary and (b)
with respect to the Company or any of its Restricted Subsidiaries, any
Indebtedness of a Person (other than the Company or a Restricted Subsidiary)
existing at the time such Person is merged with or into the Company or a
Restricted Subsidiary, or Indebtedness assumed by the Company or any of its
Restricted Subsidiaries in connection with the acquisition of an asset or assets
from another Person, which Indebtedness was not, in any case, incurred by such
other Person in connection with, or in contemplation of, such merger or
acquisition.
'Adjusted Consolidated Interest Coverage Ratio' means, with respect to any
determination date, the Consolidated Interest Coverage Ratio determined with
respect to such date in accordance with the terms thereof, but with the
adjustment that all references therein to 'Consolidated Interest Expense' shall
be replaced with 'Adjusted Consolidated Interest Expense' and (ii) any Special
Purpose Acquisition Subsidiary existing as of such date shall be deemed a
Restricted Subsidiary for purposes of determining EBITDA, Consolidated Interest
Expense and the Adjusted Consolidated Interest Coverage Ratio for the relevant
Reference Period referred to therein.
'Adjusted Consolidated Interest Expense' means, for any period, (i)
Consolidated Interest Expense for such period plus (ii) to the extent not
otherwise included in determining Consolidated Interest Expense for such period,
Exchange Debentures Expense for such period.
'Adjusted Consolidated Net Income' means, for any period, (i) Consolidated
Net Income for such period minus (ii) to the extent not otherwise deducted in
determining Consolidated Net Income for such period, Exchange Debentures Expense
for such period.
'Adjusted Coverage Ratio Incurrence Condition' would be met at any
specified time only if the Company (or its Successor, as the case may be) would
be able to incur $1.00 of additional Indebtedness at such specified time
pursuant to the Consolidated Interest Coverage Ratio test set forth in the
'Limitations on Additional Indebtedness' covenant, if such test were applied at
such date using the Adjusted Consolidated Interest Coverage Ratio.
'Affiliate' of any Person means any Person (i) which directly or indirectly
controls or is controlled by, or is under direct or indirect common control
with, the referent Person, (ii) which beneficially owns or holds, directly or
indirectly, 10% or more of any class of the Voting Stock, or more than 20% of
all classes of Capital Stock (other than preferred stock) in the aggregate, of
the referent Person, (iii) of which 10% or more of the Voting Stock, or more
than 20% of all classes of Capital Stock (other than preferred stock) in the
aggregate, is beneficially owned or held, directly or indirectly, by the
referent Person or (iv) with respect to an individual, any immediate family
member of such Person. For purposes of this definition, control of a Person
shall mean the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
'Asset Sale' means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Restricted Subsidiaries (including, without limitation, by means of a Sale
and Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a 'transfer'), directly or indirectly, in one
transaction or a series of related transactions, of (a) any Capital Stock of any
Subsidiary or (b) any other properties or assets of the Company or any of its
Subsidiaries other than transfers of cash, Cash Equivalents, accounts
receivable, inventory or other properties or assets in the ordinary course of
business. For the purposes of this definition, the term 'Asset Sale' shall not
include any of the following: (i) any transfer of properties or assets
(including Capital Stock) that is governed by, and made in accordance with, the
provisions described under 'Certain Covenants -- Limitations on Mergers and
Certain Other Transactions'; (ii) any transfer of properties or assets to an
Unrestricted Subsidiary, if permitted under the 'Limitations on Restricted
Payments' covenant; (iii) sales of damaged, worn-out or obsolete equipment or
assets that, in the Company's reasonable judgment, are either no longer used or
useful in the business of the Company or its Subsidiaries, provided that the
proceeds thereof are used to purchase replacement or similar assets for use in
the business of the Company and its Subsidiaries; and (iv) any transfers that,
but
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for this clause (iv), would be Asset Sales, if after giving effect to such
transfers, the aggregate Fair Market Value of the properties or assets
transferred in such transaction or any such series of related transactions does
not exceed $500,000.
'Attributable Indebtedness,' when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, property subject
to such Sale and Leaseback Transaction and the present value (discounted at a
rate equivalent to the Company's then-current weighted average cost of funds for
borrowed money as at the time of determination, compounded on a semi-annual
basis) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in any such Sale and Leaseback Transaction.
'Board of Directors' of any Person means the board of directors of such
Person. Unless otherwise specified, 'Board of Directors' means the Board of
Directors of Parent.
'Board Resolution' means a duly adopted resolution of the Board of
Directors.
'Capital Stock' of any Person means (i) any and all shares or other equity
interests (including without limitation common stock, preferred stock and
partnership interests) in such Person and (ii) all rights to purchase, warrants
or options (whether or not currently exercisable), participations or other
equivalents of or interests in (however designated) such shares or other
interests in such Person.
'Capitalized Lease Obligations' of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
'Cash Equivalents' means (i) marketable obligations with a maturity of 360
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) U.S. dollar denominated time deposits and certificates of deposit
of any financial institution (a) that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than $500
million or (b) whose short-term commercial paper rating or that of its parent
company is at least A-1 or the equivalent thereof from S&P or P-1 or the
equivalent thereof from Moody's (any such bank, an 'Approved Bank'), in each
case with a maturity of 360 days or less from the date of acquisition; (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing no more than 360 days
from the date of acquisition; (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clause
(i) above entered into with any commercial bank meeting the specifications of
clause (ii)(a) above; (v) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (iv) above; and (vi) time deposits and certificates of
deposit of any commercial bank of recognized standing having capital and surplus
in excess of the local currency equivalent of $100,000,000 incorporated in a
country where the Company has one or more locally operating Foreign
Subsidiaries, and that is, as of the Issue Date, providing banking services to
the Company or any of its Foreign Subsidiaries.
'Change of Control' means the occurrence of any of the following: (i) the
consummation of any transaction the result of which is (x) if such transaction
occurs prior to the first sale of Voting Stock of Parent or the Company pursuant
to a registration statement under the Securities Act that results in at least
20% of the then outstanding Voting Stock of Parent or the Company having been
sold to the public, that either (A) Control Group Members beneficially own,
directly or indirectly, less than 51% of the Voting Stock of the Company or
Parent (such percentage determined, for purposes of this definition, as a
percentage of the total voting power of all Voting Stock of the relevant Person)
or (B) any other Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) is or becomes the beneficial owner, (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of 51% of
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the Voting Stock of the Company or Parent (including in any event through direct
or indirect beneficial ownership of Capital Stock of Control Group Members
referred to in clause (ii) of the definition thereof) and (y) if such
transaction occurs thereafter, that any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) (other than Control Group Members), is or
becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of 40% of the Voting Stock of the Company or Parent at
any time at which Control Group Members do not beneficially own, directly or
indirectly, at least 51% of the Voting Stock of the Company and Parent, (ii) the
Company or Parent consolidates with, or merges with or into, another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company or Parent and their Subsidiaries,
in either case taken as a whole, to any Person, or any Person consolidates with,
or merges with or into, the Company or Parent, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company or Parent, as
the case may be, is converted into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Stock of
the Company or Parent, as the case may be, is converted into or exchanged for
Voting Stock (other than Disqualified Capital Stock) of the surviving or
transferee corporation and the beneficial owners of the Voting Stock of the
Company or Parent, as the case may be, immediately prior to such transaction
own, directly or indirectly, not less than a majority of the Voting Stock of the
surviving or transferee corporation immediately after such transaction, or (iii)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company or Parent (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company or Parent, as the
case may be, was approved by either (i) a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved or (ii)
a Control Group Member) cease for any reason to constitute a majority of the
Board of Directors of the Company or Parent, as the case may be, then in office.
'Consolidated Amortization Expense' for any period means the amortization
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Depreciation Expense' for any period means the depreciation
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Income Tax Expense' for any period means the provision for
taxes based on income and profits of the Company and its Restricted Subsidiaries
to the extent such income or profits were included in computing Consolidated Net
Income for such period.
'Consolidated Interest Coverage Ratio' means, with respect to any
determination date, the ratio of (a) EBITDA for the four full fiscal quarters
immediately preceding the determination date (for any determination, the
'Reference Period') to (b) Consolidated Interest Expense for such Reference
Period. In making such computations, (i) EBITDA and Consolidated Interest
Expense shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred or the Disqualified Capital Stock to be issued (and
all other Indebtedness incurred or Disqualified Capital Stock issued after the
first day of such Reference Period referred to in the covenant described under
' -- Certain Covenants -- Limitations on Additional Indebtedness' through and
including the date of determination), and (if applicable) the application of the
net proceeds therefrom (and from any other such Indebtedness or Disqualified
Capital Stock), including the refinancing of other Indebtedness, had been
incurred on the first day of such Reference Period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation and (B) any acquisition or disposition by the Company or
any Restricted Subsidiary of any properties or assets outside the ordinary
course of business or any repayment of any principal amount of any Indebtedness
of the Company or any Restricted Subsidiary prior to the stated maturity
thereof, in either case since the first day of such Reference Period through and
including the date of determination, had been consummated on such first day of
such Reference Period; (ii) the Consolidated Interest Expense attributable to
interest on any Indebtedness required to be computed on
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a pro forma basis in accordance with the covenant described under ' -- Certain
Covenants -- Limitations on Additional Indebtedness' and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate; (iii) the Consolidated Interest Expense attributable to interest
on any Indebtedness under a revolving credit facility required to be computed on
a pro forma basis in accordance with the covenant described under ' -- Certain
Covenants -- Limitations on Additional Indebtedness' shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be reduced by the amount
of any repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility; (iv) notwithstanding the
foregoing clauses (ii) and (iii), interest on Indebtedness determined on a
floating rate basis, to the extent such interest is covered by agreements
relating to Hedging Obligations, shall be deemed to have accrued at the rate per
annum resulting after giving effect to the operation of such agreements; and (v)
if after the first day of the applicable Reference Period and before the date of
determination, the Company has permanently retired any Indebtedness out of the
net proceeds of the issuance and sale of shares of Capital Stock (other than
Disqualified Capital Stock) of the Company within 60 days of such issuance and
sale, Consolidated Interest Expense shall be calculated on a pro forma basis as
if such Indebtedness had been retired on the first day of such period.
'Consolidated Interest Expense' for any period means the sum, without
duplication, of the total interest expense of the Company and its consolidated
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP and including, without limitation (i) imputed interest on
Capitalized Lease Obligations and Attributable Indebtedness, (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit
securing financial obligations and bankers' acceptance financing, (iii) the net
costs associated with Hedging Obligations, (iv) amortization of other financing
fees and expenses, (v) the interest portion of any deferred payment obligations,
(vi) amortization of debt discount or premium, if any, (vii) all other non-cash
interest expense, (viii) capitalized interest, (ix) all cash dividend payments
(and non-cash dividend payments in the case of a Restricted Subsidiary) on any
series of preferred stock of the Company or any Restricted Subsidiary, (x) all
interest payable with respect to discontinued operations, and (xi) all interest
on any Indebtedness of any other Person guaranteed by the Company or any
Restricted Subsidiary.
'Consolidated Net Income' for any period means the net income (or loss) of
the Company and its consolidated Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein), without duplication (i) the net income (or loss) of any Person (other
than a Restricted Subsidiary) in which any Person other than Parent, the Company
or any of its Restricted Subsidiaries has an ownership interest, except to the
extent that any such income has actually been received by Parent, the Company
and its Restricted Subsidiaries in the form of cash dividends during such
period; (ii) except to the extent includible in the consolidated net income of
Parent pursuant to the foregoing clause (i), the net income (or loss) of any
Person that accrued prior to the date that (a) such Person becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any Restricted
Subsidiary or (b) the assets of such Person are acquired by the Company or any
Restricted Subsidiary; (iii) the net income of any Restricted Subsidiary during
such period to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of that income (a) is not
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary during such period or (b) would be subject to any taxes payable
on such dividend or distribution; (iv) any gain (or, only in the case of a
determination of Consolidated Net Income as used in EBITDA, any loss), together
with any related provisions for taxes on any such gain (or, if applicable, the
tax effects of such loss), realized during such period by the Company or any
Restricted Subsidiary upon (a) the acquisition of any securities, or the
extinguishment of any Indebtedness, of the Company or any Restricted Subsidiary
or (b) any Asset Sale by the Company or any of its Restricted Subsidiary, (v)
any
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extraordinary gain (or, only in the case of a determination of Consolidated Net
Income as used in EBITDA, any extraordinary loss), together with any related
provision for taxes on any such extraordinary gain (or, if applicable, the tax
effects of such extraordinary loss), realized by Parent, the Company or any
Restricted Subsidiary during such period; (vi) any non-cash loss during Fiscal
Year 1998 reflecting the decrease in deferred tax assets resulting from the
Acquisition and transactions consummated in connection therewith and (vii) in
the case of a successor to the Company by consolidation, merger or transfer of
its assets, any earnings of the successor prior to such merger, consolidation or
transfer of assets; and provided, further, that (A) any gain referred to in
clauses (iv) and (v) above that relates to a Restricted Investment and which is
received in cash by the Company or a Restricted Subsidiary during such period
shall be included in the consolidated net income of the Company, (B) to the
extent deducted in determining consolidated net income for such period and not
otherwise added back pursuant to the foregoing clauses of this definition, the
amount of expenses in respect of Specified Transaction Payments attributable to
such period shall be added back in determining Consolidated Net Income for such
period, and (C) to the extent not otherwise deducted in determining such
consolidated net income for any period, all payments made to Parent pursuant to
any Tax Sharing Agreement or otherwise in respect of taxes for such period shall
be deducted from the consolidated net income of the Company.
'Consolidated Net Worth' means, with respect to any Person as of any date,
the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date, less all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the Issue Date in the book value of
any asset owned by such Person or a Subsidiary of such Person.
'Control Group Members' means (i) the natural person or persons who are the
ultimate beneficial owners of Granaria Holdings N.V. on the Issue Date as
disclosed under 'Security Ownership and Certain Beneficial Owners and Management
of Parent' and members of their immediate families and any spouse, parent or
descendant of any such person, or a trust the beneficiaries of which include
only any of the foregoing and any corporation or other entity all of the Capital
Stock of which (other than directors' qualifying shares) is owned by any of the
foregoing or (ii) any corporation or other entity at least 51% of the Voting
Stock of which is owned by any of the Persons referred to in clause (i).
'Coverage Ratio Incurrence Condition' would be met at any specified time
only if the Company (or its Successor, as the case may be) would be able to
incur $1.00 of additional Indebtedness at such specified time pursuant to the
Consolidated Interest Coverage Ratio test set forth in the covenant described
under ' -- Certain Covenants -- Limitations on Additional Indebtedness'.
'Default' means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
'Designated Senior Indebtedness' means (i) Parent's guarantee of the
Indebtedness under the New Credit Agreement (whether incurred pursuant to the
definition of Permitted Indebtedness or pursuant to the covenant described under
' -- Limitations on Additional Indebtedness' covenant) and (ii) Parent's
guarantee of the Notes.
'Disqualified Capital Stock' means any Capital Stock of such Person or any
of its Subsidiaries that, by its terms, by the terms of any agreement related
thereto or by the terms of any security into which it is convertible, puttable
or exchangeable, is, or upon the happening of any event or the passage of time
would be, required to be redeemed or repurchased by such Person or any of its
Subsidiaries, whether or not at the option of the holder thereof, or matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to March 1, 2008; provided, however, that any
class of Capital Stock of such Person that, by its terms, authorizes such Person
to satisfy in full its obligations with respect to the payment of dividends or
upon maturity, redemption (pursuant to a sinking fund or otherwise) or
repurchase thereof or otherwise by the delivery of Capital Stock that is not
Disqualified Capital Stock, and that is not convertible, puttable or
exchangeable for Disqualified Capital Stock or Indebtedness, shall not be deemed
to be Disqualified Capital Stock so long as such Person satisfies its
obligations with respect thereto solely by the delivery of Capital Stock that is
not Disqualified Capital Stock.
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'EBITDA' for any period mean without duplication, the sum of the amounts
for such period of (i) Consolidated Net Income plus (ii) in each case to the
extent deducted in determining Consolidated Net Income for such period (and
without duplication), (A) Consolidated Income Tax Expense, (B) Consolidated
Amortization Expense (but only to the extent not included in Consolidated
Interest Expense), (C) Consolidated Depreciation Expense, (D) Consolidated
Interest Expense and (E) all other non-cash items reducing the Consolidated Net
Income (excluding any such non-cash charge that results in an accrual of a
reserve for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP and minus (iii) the
aggregate amount of all non-cash items, determined on a consolidated basis, to
the extent such items increased Consolidated Net Income for such Period.
'Eligible Junior Securities' means (a) the common stock of Parent and (b)
any preferred stock of Parent that (i) has a maturity date or mandatory
redemption date not earlier than March 1, 2009, (ii) has no remedies for missed
dividends other than accrual on a cumulative basis and appointment of not more
than two directors to the Board of Directors of Parent, (iii) is not
convertible, puttable or exchangeable into any other security of Parent other
than common stock, and (iv) is not, by its terms, by the terms of any agreement
related thereto or by the terms of any security into which it is convertible,
puttable or exchangeable, and upon the happening of any event or the passage of
time would not be, required to be redeemed or repurchased by such Person or any
of its Subsidiaries, whether or not at the option of the holder thereof, or
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to March 1, 2009.
'Equity Offering' means an underwritten primary offering of Eligible Junior
Securities of Parent pursuant to a registration statement filed with the
Commission in accordance with the Securities Act, or pursuant to a private
placement pursuant to an available exemption from registration and, in the case
of any such private placement, a majority of such placement of which is sold to
Persons that are not then and were not at the Issue Date Affiliates of Granaria
Holdings.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Exchange Debentures Expense' means, for any period, the aggregate amount
of all cash and non-cash interest payments on the Exchange Debentures made with
respect to such period.
'Existing Indebtedness' means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
'Fair Market Value' of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a Board Resolution.
'Foreign Subsidiary' means any Subsidiary of the Company that is not
incorporated or organized in the United States or in any State thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
'Granaria Holdings' means Granaria Holdings NV, a Dutch corporation, and
its successors.
'Guarantors' means each of the Subsidiary Guarantors and Parent, and
'Guarantor' means any one of the foregoing.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to (i) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement designed to protect such Person
against fluctuations in interest rates, (ii) agreements or arrangements designed
to protect such Person against fluctuations in foreign currency exchange rates
in the conduct of its operations, or (iii) any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in commodity prices, in
each case, entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
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'Immaterial Subsidiary' means (i) any Subsidiary of the Company which does
not own assets in excess of $50,000, (ii) any Name Holder Subsidiary, and (iii)
Eagle-Picher Inc., a Virgin Islands foreign sales corporation.
'incur' means, with respect to any Indebtedness or Obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
Obligation; provided that (i) the Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary shall be deemed to have been incurred
by such Restricted Subsidiary and (ii) neither the accrual of interest nor the
accretion of accreted value shall be deemed to be an incurrence of Indebtedness.
'Indebtedness' of any Person at any date means, without duplication: (i)
all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services, which payable is not overdue by more than 60 days
according to the original terms of sale unless such payable is being contested
in good faith; (v) the maximum fixed redemption or repurchase price of all
Disqualified Capital Stock of such Person; (vi) all Capitalized Lease
Obligations of such Person; (vii) all Indebtedness of others secured by a Lien
on any asset of such Person, whether or not such Indebtedness is assumed by such
Person; (viii) all Indebtedness of others guaranteed by such Person to the
extent of such guarantee; provided that Indebtedness of the Company or its
Subsidiaries that is guaranteed by the Company or the Company's Subsidiaries
shall only be counted once in the calculation of the amount of Indebtedness of
the Company and its Subsidiaries on a consolidated basis; (ix) all Attributable
Indebtedness; and (x) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above, the maximum liability of such Person for any
such contingent obligations at such date and, in the case of clause (vii), the
lesser of (A) the Fair Market Value of any asset subject to a Lien securing the
Indebtedness of others on the date that the Lien attaches and (B) the amount of
the Indebtedness secured. For purposes of the preceding sentence, the 'maximum
fixed redemption or repurchase price' of any Disqualified Capital Stock that
does not have a fixed redemption or repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased or redeemed on any date on which
Indebtedness shall be required to be determined pursuant to the Exchange
Debentures Indenture, and if such price is based upon, or measured by, the fair
market value of such Disqualified Capital Stock (or any equity security for
which it may be exchanged or converted), such fair market value shall be
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution.
'Independent Director' means a director of the Company who has not and
whose Affiliates have not, at any time during the twelve months prior to the
taking of any action hereunder, directly or indirectly, received, or entered
into any understanding or agreement to receive, any compensation, payment or
other benefit, of any type or form, from the Company or any of its Affiliates,
other than customary directors fees for serving on the Board of Directors of the
Company or any Affiliate and reimbursement of out-of-pocket expenses for
attendance at the Company's or Affiliate's board and board committee meetings.
'Independent Financial Advisor' means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
'Investments' of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business) or similar credit extensions constituting
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Indebtedness of such Person, and any guarantee of Indebtedness of any other
Person, (ii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iii) all other items that would be classified as investments (including
without limitation purchases of assets outside the ordinary course of business)
on a balance sheet of such Person prepared in accordance with GAAP.
'Issue Date' means the date the Series A Senior Preferred Stock is
initially issued.
'Lien' means, with respect to any asset or property, any mortgage, deed of
trust, lien (statutory or other), pledge, lease, easement, restriction,
covenant, charge, security interest or other encumbrance of any kind or nature
in respect of such asset or property, whether or not filed, recorded or
otherwise perfected under applicable law, including without limitation any
conditional sale or other title retention agreement, and any lease in the nature
thereof, any option or other agreement to sell, and any filing of, or agreement
to give, any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction (other than cautionary filings in
respect of operating leases).
'Moody's' means Moody's Investors Service, Inc., and its successors.
'Name Holder Subsidiary' means any Subsidiary of the Company incorporated
and existing solely for the purpose of reserving the corporate name of such
Subsidiary and which does not conduct any business or hold any assets other than
shares of another Name Holder Subsidiary.
'Net Available Proceeds' means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the
properties or assets subject to the Asset Sale or having a Lien therein and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pensions and other postemployment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee; provided, however, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Available Proceeds.
'New Credit Agreement' means the Credit Agreement dated as of February 24,
1998 by and among ABN AMRO Bank N.V., as agent, PNC Bank, National Association,
as documentation agent, the banks party thereto, the Company and the Guarantors,
together with any additional guarantees by the Guarantors and security
agreements, as any of the foregoing may be subsequently amended, restated,
refinanced, or replaced from time to time, and shall include agreements in
respect of Hedging Obligations designed to protect against fluctuations in
interest rates and entered into with respect to loans thereunder.
'Non-Recourse Purchase Money Indebtedness' means Indebtedness of the
Company or any of its Subsidiaries incurred (a) to finance the purchase of any
assets of the Company or any of its Subsidiaries within 90 days of such
purchase, (b) to the extent the amount of Indebtedness thereunder does not
exceed 100% of the purchase cost of such assets, (c) to the extent the purchase
cost of such assets is or should be included in 'additions to property, plant
and equipment' in accordance with GAAP, and (d) to the extent that such
Indebtedness is non-recourse to the Company or any of its Subsidiaries or any of
their respective assets other than the assets so purchased.
'Notes' means the 9 3/8% Senior Subordinated Notes due 2008 of the Company,
as they may be amended, restated, refinanced or replaced from time to time.
'Note Guarantees' means, collectively, the guarantee of the payment
obligations under the Notes by Parent and each Subsidiary Guarantor.
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'Notes Indenture' means the Indenture dated as of February 24, 1998 among
the Company, the Guarantors and the Notes Trustee.
'Notes Trustee' means the Bank of New York, as trustee under the Notes
Indenture.
'Obligation' means any principal, interest (including, in the case of
Senior Indebtedness, interest accruing subsequent to the filing of a petition in
bankruptcy or insolvency at the rate specified in the document relating to such
Indebtedness, whether or not such interest is an allowed claim permitted to be
enforced against the obligor under applicable law), penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
'Officer' means any of the following of the Parent or, where the context
requires, the Company: the Chairman of the Board, the Chief Executive Officer,
the Chief Financial Officer, the President, any Vice President, the Treasurer or
the Secretary.
'Officers' Certificate' means a certificate signed by any two Officers.
'Opinion of Counsel' means a written opinion from legal counsel (such
counsel may be an employee of or counsel to Parent or the Trustee) that complies
with the requirements of this Indenture.
'Payment Restriction' with respect to a Subsidiary of any Person, means any
encumbrance, restriction of limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or advances to such Person or
any other Subsidiary or such Person, (c) guarantee any Indebtedness of the
Company or any Restricted Subsidiary or (d) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person (other than
customary restrictions on transfers of property subject to a Lien permitted
under the Exchange Debentures Indenture) or (ii) such Person or any other
Subsidiary of such Person to receive or retain any such dividends, distributions
or payments, loans or advances, guarantee, or transfer of properties or assets.
'Permitted Indebtedness' means any of the following:
(i) Indebtedness of the Company and any Subsidiary Guarantor under the
New Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed (a) under the Senior Secured Term Loan Facility,
$225 million, less the amount thereof that has been repaid under the
covenant described under ' -- Certain Covenants -- Limitations on Asset
Sales' and (b) under the Revolving Loan Facility the greater of (x) $175
million and (y) the sum of 80% of the book value of the eligible accounts
receivable and 50% of inventory of the Company and its Subsidiaries,
calculated on a consolidated basis and in accordance with GAAP;
(ii) Indebtedness under the Notes, the Note Guarantees and the Notes
Indenture;
(iii) Existing Indebtedness;
(iv) Indebtedness under Hedging Obligations, provided that (1) such
Hedging Obligations are related to payment obligations on Permitted
Indebtedness or Indebtedness otherwise permitted by the 'Limitations on
Additional Indebtedness' covenant, and (2) the notional principal amount of
such Hedging Obligations at the time incurred does not exceed the principal
amount of such Indebtedness to which such Hedging Obligations relate;
(v) Indebtedness of the Company to a Subsidiary Guarantor and
Indebtedness of any Subsidiary Guarantor to the Company or any other
Subsidiary Guarantor; provided, however, that upon either (1) the
subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event which
results in any such Subsidiary Guarantor ceasing to be a Subsidiary
Guarantor or (2) the transfer or other disposition of any such Indebtedness
(except to the Company or a Subsidiary Guarantor), the provisions of this
clause (v) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed, in each case, to be incurred and shall be
treated as an incurrence for purposes of the 'Limitations on Additional
Indebtedness' covenant at the time the Subsidiary Guarantor in question
ceased to be a Subsidiary Guarantor or the time such transfer or other
disposition occurred;
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(vi) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company in the ordinary course of business,
including guarantees or obligations of the Company with respect to letters
of credit supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed);
(vii) Indebtedness in respect of Non-Recourse Purchase Money
Indebtedness incurred by the Company or any Restricted Subsidiary;
(viii) Refinancing Indebtedness; and
(ix) Indebtedness, in addition to Indebtedness incurred pursuant to
the foregoing clauses of this definition, with an aggregate principal face
or stated amount (as applicable) at any time outstanding for all such
Indebtedness incurred pursuant to this clause not in excess of $35.0
million; provided, however, that (A) Indebtedness under letters of credit
and performance bonds issued for the account of a Foreign Subsidiary
pursuant to this clause to finance trade activities or otherwise in the
ordinary course of business, and not to support borrowed money or the
obtaining of advances or credit, may not exceed $10.0 million in an
aggregate stated or face amount for all such letters of credit and
performance bonds and (B) the aggregate principal amount at any time
outstanding for all other Indebtedness incurred by all Foreign Subsidiaries
pursuant to this clause may not exceed $25.0 million.
'Permitted Junior Securities' means any securities of Parent provided for
by a plan of reorganization or readjustment that are subordinated in right of
payment to all Senior Indebtedness that may at the time be outstanding to
substantially the same extent as, or to a greater extent than, the Exchange
Debentures are subordinated to Senior Indebtedness.
'Permitted Parent Transactions' means (i) the execution, delivery and
performance by Parent of its obligations under, (x) any guarantees by Parent of
Obligations of the Company and/or its Restricted Subsidiaries with respect to
the New Credit Agreement and/or the Notes and the pledge of capital stock of the
Company as collateral for its obligations under any such guarantee, and the
guarantee by Parent of any other Indebtedness of the Company and/or its
Restricted Subsidiaries which such Indebtedness is permitted to be incurred
without causing a Default or Event of Default, (y) any Tax Sharing Agreement and
other transactions expressly permitted pursuant to clause (vi) or (vii) of the
'Transactions with Affiliates' covenant, (ii) the establishment of a
wholly-owned Subsidiary (other than a Subsidiary of the Company) for use as a
vehicle for the consummation of an acquisition where all or a substantial part
of the consideration therefor consists of Eligible Junior Securities of Parent
(a 'Special Purpose Acquisition Subsidiary'), provided that (A) any such
Subsidiary shall become a direct or indirect Wholly-Owned Restricted Subsidiary
of the Company within 60 days after the consummation of such acquisition and, at
the time of such acquisition, could become a Wholly-Owned Restricted Subsidiary
of the Company without causing an Event of Default to occur and (B) immediately
after giving effect to such acquisition, no Default or Event of Default shall
have occurred and be continuing) (iii) any Investment in the Company, (iv)
payments with respect to the Exchange Debentures and any Restricted Payment that
is permitted in accordance with the 'Limitations on Restricted Payments'
covenant, (v) the performance of ministerial activities and payment of taxes and
administrative fees necessary for compliance with the last sentence under the
'Limitations on Activities by Parent' covenant and (vi) the execution and
delivery of the Exchange Debentures Indenture and the Exchange Debentures.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
'Plan of Liquidation' with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
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'Refinancing Indebtedness' means Indebtedness of the Company or a
Restricted Subsidiary issued in exchange for, or the proceeds from the issuance
and sale or disbursement of which are used substantially concurrently to repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, 'repay'), or constituting an amendment, modification or
supplement to or a deferral or renewal of (collectively, an 'amendment'), any
Indebtedness of the Company or any Restricted Subsidiary (the 'Refinanced
Indebtedness') in a principal amount not in excess of the principal amount of
the Refinanced Indebtedness (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement);
provided that: (i) the Refinancing Indebtedness is the obligation of the same
Person as that of the Refinanced Indebtedness, (ii) if the Refinanced
Indebtedness was subordinated to or pari passu with the Notes, then such
Refinancing Indebtedness, by its terms, is expressly pari passu with (in the
case of Refinanced Indebtedness that was pari passu with) the Notes, or
subordinate in right of payment to (in the case of Refinanced Indebtedness that
was subordinated to) the Notes at least to the same extent as the Refinanced
Indebtedness; (iii) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a Weighted
Average Life to Maturity at the time such Refinancing Indebtedness is incurred
that is equal to or greater than the Weighted Average Life to Maturity of the
portion of the Refinanced Indebtedness being repaid that is scheduled to mature
on or prior to the maturity date of the Notes; and (iv) the Refinancing
Indebtedness is secured only to the extent, if at all, and by the assets (which
may include after-acquired assets), that the Refinanced Indebtedness is secured.
'Related Business' means any business in which the Company and its
Subsidiaries operate on the Issue Date, or that is closely related to or
complements the business of the Company and its Subsidiaries, as such business
exists on the Issue Date.
'Related Business Investment' means any Investment directly by the Company
or its Subsidiaries in any Related Business.
'Related Party Agreement' means any management or advisory agreements or
other arrangements with any Affiliate of the Company or with any other direct or
indirect holder of more than 10% of any class of the Company's or Parents'
capital stock (except, in any such case, Parent, the Company or any Restricted
Subsidiary), but excluding in any event arrangements with ABN AMRO Bank N.V. and
its Affiliates or their respective successors (i) under the New Credit Agreement
or the Notes or in connection therewith, (ii) in connection with the offering of
the Notes and the Series A Senior Preferred Stock or (iii) pursuant to other
banking, financing or underwriting activity entered into in the ordinary course
of business.
'Restricted Debt Payment' means any purchase, redemption, defeasance
(including without limitation in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, prior to the
scheduled maturity or prior to any scheduled repayment of principal or sinking
fund payment, as the case may be, in respect of Subordinated Indebtedness.
'Restricted Investment' means any Investment by the Company or any
Restricted Subsidiary (other than investments in Cash Equivalents) in any Person
that is not the Company or a Restricted Subsidiary, including in any
Unrestricted Subsidiary.
'Restricted Payment' means with respect to any Person: (i) the declaration
or payment of any dividend (other than a dividend declared and paid (x) by the
Company to Parent, (y) by a Wholly-Owned Restricted Subsidiary to holders of its
Capital Stock, or (z) by a Subsidiary (other than a Wholly-Owned Restricted
Subsidiary) to its shareholders on a pro rata basis, but only to the extent of
the dividends actually received by Parent, the Company or a Restricted
Subsidiary) or the making of any other payment or distribution of cash,
securities or other property or assets in respect of such Person's Capital Stock
(except that a dividend payable solely in Capital Stock (other than Disqualified
Capital Stock) of such Person shall not constitute a Restricted Payment); (ii)
any payment on account of the purchase, redemption, retirement or other
acquisition for value of (A) the Capital Stock of Parent or (B) the Capital
Stock of the Company or any Restricted Subsidiary, or any other payment or
distribution made in respect thereof, either directly or indirectly (other than
a payment solely in Capital Stock that is not Disqualified Capital Stock, and
excluding any such payment to the extent actually
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received by Parent, the Company or a Restricted Subsidiary); (iii) any
Restricted Investment; (iv) any Restricted Debt Payment; or (v) payments by
Parent, the Company or its Restricted Subsidiaries in respect of any Related
Party Agreement. Notwithstanding the foregoing, 'Restricted Payment' shall in no
event include any payment on or with respect to the Exchange Debentures,
including without limitation any payment of principal, premium or interest on
the Exchange Debentures, or purchases, redemptions, retirement for value or
repurchases thereof.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'Revolving Loan Facility' means the revolving loan facility provided under
the New Credit Agreement.
'S&P' means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., and its successors.
'Sale and Leaseback Transactions' means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person of any property or asset of such Person which has been or is being sold
or transferred by such Person to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
'Securities Act' means the U.S. Securities Act of 1933, as amended.
'Senior Indebtedness' means any Designated Senior Indebtedness.
'Senior Preferred Stock' means, collectively, the Series A Senior Preferred
Stock and the Series B Senior Preferred Stock.
'Senior Secured Term Loan Facility' means the term loan facility providing
for the senior secured Tranche A, Tranche B and Tranche C term loans.
'Series A Senior Preferred Stock' means the 11 3/4% Series A Cumulative
Redeemable Exchangeable Preferred Stock of Parent.
'Series B Senior Preferred Stock' means the 11 3/4% Series B Cumulative
Redeemable Exchangeable Preferred Stock of Parent.
'Significant Subsidiary' means any Subsidiary of the Company that would be
a 'Significant Subsidiary' as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date, except all references to '10 percent' in such definition shall
be changed to '2 percent'.
'Specified Transaction Payments' means the following payments made to or
for the benefit of present or future officers and employees of the Company and
its Affiliates, or to Granaria Holdings and its Affiliates, in each case in
connection with the Acquisition and on terms (including without limitation the
amount thereof) substantially as described in the Offering Memorandum, but only
to the extent that the aggregate amount thereof does not exceed $43.2 million
for all periods from and after the Issue Date: (i) payments to finance or
refinance the purchase by such officers and employees (or a trust for their
benefit) of capital stock of Parent or its parent company, the grant or vesting
of any award of such capital stock and the payment by such officers and
employees of income taxes in respect thereof, (ii) stay put and other incentive
bonuses, (iii) severance payments and (iv) transaction fees paid to Granaria
Holdings.
'Subordinated Indebtedness' means Indebtedness of Parent that is
subordinated in right of payment to the Exchange Debentures.
'Subsidiary' of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of Voting Stock is owned
by such Person directly or through one or more other Subsidiaries of such Person
and (ii) any entity other than a corporation in which such Person, directly or
indirectly, owns at least a majority of the Voting Stock of such entity
entitling the holder thereof to vote or otherwise participate in the selection
of the governing body, partners, managers or others that control the management
and policies of such entity. Unless otherwise specified, 'Subsidiary' means a
Subsidiary of the Company.
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'Subsidiary Guarantors' means each domestic Restricted Subsidiary of the
Company (other than an Immaterial Subsidiary) and each other person who is
required to become (or whom the Company otherwise causes to become) a Subsidiary
Guarantor by the terms of the Notes Indenture.
'Tax Sharing Agreement' means any tax sharing agreement or arrangement
entered or to be entered into by Parent, the Company and its Subsidiaries,
providing for payments by or to Parent, the Company and its Subsidiaries that,
in each case, are not in excess of the tax liabilities that would have been
payable by such Person on a stand-alone basis.
'Unrestricted Subsidiary' means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary, and any such
designation shall be deemed to be a Restricted Investment at the time of and
immediately upon such designation by the Company and its Restricted Subsidiaries
in the amount of the Consolidated Net Worth of such designated Subsidiary and
its consolidated Subsidiaries at such time, provided that such designation shall
be permitted only if (A) the Company and its Restricted Subsidiaries would be
able to make the Restricted Investment deemed made pursuant to such designation
at such time, (B) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of such Subsidiary (x) is Guaranteed by the Company or
any Restricted Subsidiary, (y) is recourse to the Company or any Restricted
Subsidiary or (z) subjects any property or asset of the Company or any
Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the
satisfaction thereof and (C) no default or event of default with respect to any
Indebtedness of such Subsidiary would permit any holder of any Indebtedness of
the Company or any Restricted Subsidiary to declare such Indebtedness of the
Company or any restricted Subsidiary due and payable prior to its maturity. The
Board of Directors of the Company may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary, and any such designation shall be deemed to be an
incurrence by the Company and its Subsidiaries of the Indebtedness (if any) of
such Subsidiary so designated for purposes of the 'Limitations on Additional
Indebtedness' covenant as of the date of such designation, provided that such
designation shall be permitted only if immediately after giving effect to such
designation and the incurrence of any such additional Indebtedness deemed to
have been incurred thereby (x) the Company would meet the Coverage Ratio
Incurrence Condition and (y) no Default or Event of Default shall be continuing.
Any such designation by the Board of Directors described in the two preceding
sentences shall be evidenced to the Trustee by the filing with the Trustee of a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and setting forth the underlying calculations of such
certificate.
'Voting Stock' with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all times
or only so long as no senior class of stock or other relevant equity interest
has voting power by reason of any contingency) to vote in the election of
members of the board of directors of such Person.
'Weighted Average Life to Maturity', when applied to any Indebtedness at
any date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment by (ii) the then outstanding principal
amount of such Indebtedness.
'Wholly-Owned Restricted Subsidiary' means a Restricted Subsidiary of which
100% of the Capital Stock (except for directors' qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) is owned directly by the Company or through
one or more Wholly-Owned Restricted Subsidiaries.
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PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Preferred Stock Exchange Offer
will be required to represent, among other things, that (i) it is not an
'affiliate' (as defined in Rule 405 of the Securities Act) of Parent (ii) it is
not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Series B
Preferred Stock and (iii) it is acquiring the Series B Preferred Stock in the
ordinary course of its business (a Holder unable to make the foregoing
representation is referred to as a 'Restricted Holder'). A Restricted Holder
will not be able to participate in the Preferred Stock Exchange Offer and may
only sell its Series A Preferred Stock pursuant to a registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K under the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives Series B
Preferred Stock for its own account pursuant to the Preferred Stock Exchange
Offer (a 'Participating Broker-Dealer') must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Series B Preferred Stock. Based upon interpretations by the staff of the
Commission, Parent believes that Series B Preferred Stock issued pursuant to the
Preferred Stock Exchange Offer to Participating Broker-Dealers may be offered
for resale, resold, and otherwise transferred by a participating Broker-Dealer
upon compliance with the prospectus delivery requirements of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Broker-Dealer in connection with resales of Series B Preferred Stock
received in exchange for Series A Preferred Stock where such Series A Preferred
Stock was acquired as a result of market-making activities or other trading
activities. Parent has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale. If Parent is not so notified by any Participating Broker-Dealers that
they may be subject to such requirements or if it is later notified by all such
Participating Broker-Dealers that they are no longer subject to such
requirements, Parent will not be required to maintain the effectiveness of the
Preferred Stock Exchange Offer Registration Statement or to amend or supplement
this Prospectus following the consummation of the Preferred Stock Exchange Offer
or following such date of notification, as the case may be. Parent believes that
during such period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market-making or other trading
activities.
Based on interpretations by the staff of the Commission, Parent believes
that Series B Preferred Stock issued pursuant to the Preferred Stock Exchange
Offer may be offered for resale, resold, and other transferred by a Holder
thereof (other than a Restricted Holder or a Participating Broker-Dealer)
without compliance with the registration and prospectus delivery requirements of
the Securities Act.
Neither Parent nor the Company will receive any proceeds from any sale of
Series B Preferred Stock by broker-dealers (including Participating
Broker-Dealers). Series B Preferred Stock received by Participating
Broker-Dealers for their own accounts pursuant to the Preferred Stock Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Series B Preferred Stock or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Series B Preferred
Stock. Any Participating Broker-Dealer that resells Series B Preferred Stock may
be deemed to be an 'underwriter' within the meaning of the Securities Act and
any profit on any such resale of Series B Preferred Stock and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Preferred
Stock Exchange Offer other than commissions and concessions of any brokers or
dealers and will indemnify Holders of the
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Preferred Stock (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act, as set forth in the Registration
Rights Agreement.
By acceptance of the Preferred Stock Exchange Offer, each Participating
Broker-Dealer that receives Series B Preferred Stock pursuant to the Preferred
Stock Exchange Offer hereby agrees to notify Parent prior to using the
Prospectus in connection with the sale or transfer of Series B Preferred Stock,
and acknowledges and agrees that, upon receipt of notice from Parent of the
happening of any event that makes any statement in the Prospectus untrue in any
material respect or which requires the making of any changes in the Prospectus
in order to make the statements therein not misleading (which notice Parent
agrees to deliver promptly to such Participating Broker-Dealer), such
Participating Broker-Dealer will suspend use of the Prospectus until Parent has
amended or supplemented the Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented prospectus to such
Participating Broker-Dealer.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to the exchange of Class A Preferred Stock
for Class B Preferred Stock and the ownership and disposition of Preferred
Stock. The federal income tax considerations set forth below are based upon
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the 'Code'), applicable Treasury Regulations ('Treasury Regulations'), judicial
authority, and current administrative rulings and pronouncements of the Internal
Revenue Service (the 'IRS'). There can be no assurance that the IRS will not
take a contrary view, and no ruling from the IRS has been, or will be, sought on
the issues discussed herein. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences discussed below. This
discussion applies only to a beneficial owner of the Class B Preferred Stock
that for U.S. federal income tax purposes is (i) an individual citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income tax regardless of source, (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust, or (v) any other person whose
income or gain in respect of the Preferred Stock is effectively connected with
the conduct of a United States trade or business (or, if applicable,
attributable to a permanent establishment situated in the United States) (a
'Holder').
This summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax effect
that any of the matters described herein will have on particular Holders, and
does not address foreign, state, local or other tax consequences. This summary
does not address the federal income tax consequences to (a) special classes of
taxpayers (such as S corporations, mutual funds, insurance companies, financial
institutions, small business investment companies, foreign companies,
nonresident alien individuals, regulated investment companies, real estate
investment trusts, dealers in securities or currencies, broker-dealers and
tax-exempt organizations) who are subject to special treatment under the federal
income tax laws, (b) Holders that hold the Class B Preferred Stock and the
Exchange Debentures that may be issued in redemption of the Class B Preferred
Stock as part of a position in a 'straddle,' or as part of a 'hedging,'
'conversion,' or other integrated investment transaction for federal income tax
purposes, (c) Holders that do not hold the Class B Preferred Stock and the
Exchange Debentures as capital assets within the meaning of Section 1221 of the
Code or (d) Holders whose functional currency is not the U.S. dollar.
Furthermore, estate and gift tax consequences are not discussed herein.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF
THE CLASS B PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW) AFFECTING
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THE PURCHASE, HOLDING AND DISPOSITION OF THE CLASS B PREFERRED STOCK OR THE
EXCHANGE DEBENTURES.
As used in this summary, 'Preferred Stock' means either Class A Preferred
Stock or Class B Preferred Stock and, where the context so requires, 'the
Preferred Stock' or 'such Preferred Stock' includes, Preferred Stock for which
the relevant Preferred Stock was exchanged pursuant to the Preferred Stock
Exchange Offer.
PREFERRED STOCK EXCHANGE OFFER
The exchange of Class A Preferred Stock for Class B Preferred Stock
pursuant to the Preferred Stock Exchange Offer should not be a taxable event for
U.S. federal income tax purposes. As a result, there should be no U.S. federal
income tax consequences to Holders exchanging Class A Preferred Stock for Class
B Preferred Stock pursuant to the Preferred Stock Exchange Offer and immediately
after the Expiration Date Holders should have the same tax basis and holding
period in the Class B Preferred Stock as in the Class A Preferred Stock
exchanged therefor.
DISPOSITION OF THE CLASS B PREFERRED STOCK
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by Parent and including an exchange for the
Exchange Debentures) or other disposition of Preferred Stock will be a taxable
event for U.S. federal income tax purposes. In such event and subject to
dividend treatment described in ' -- Redemption of Preferred Stock,' below, a
Holder of Preferred Stock will generally recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of property
or the issue price of the Exchange Debentures, if any, received and (ii) the
Holder's tax basis in the Preferred Stock. Any such gain or loss will generally
be capital gain or loss. The issue price of the Exchange Debentures would be
determined in the manner described below for purposes of computing OID (if any)
on the Exchange Debentures. See ' -- Interest on the Exchange Debentures.'
Recently enacted legislation includes substantial changes to the federal
taxation of capital gains recognized by individuals, including a 20% maximum tax
rate for certain gains from the sale of capital assets held for more than 18
months. The deduction for capital losses is subject to certain limitations.
Prospective investors should consult their tax advisors regarding the treatment
of capital gains and losses.
DIVIDENDS ON THE PREFERRED STOCK
Dividends paid on the Preferred Stock will be taxable as ordinary income to
the extent of Parent's current or accumulated earnings and profits (as
determined for federal income tax purposes). To the extent that the amount of
distributions paid on the Preferred Stock exceeds Parent's current or
accumulated earnings and profits, the distributions will be treated first as a
return of capital, thus reducing the Holder's adjusted tax basis in such
Preferred Stock and increasing the amount of gain (or reducing the amount of
loss) that may be realized by such Holder upon a sale or exchange of the
Preferred Stock and the amount which exceeds the Holder's adjusted basis in the
Preferred Stock will be taxed as capital gain, and, in the case of a Holder who
is an individual, will be subject to a 20% maximum tax rate if the Holder's
holding period for such Preferred Stock exceeds eighteen months and subject to a
28% maximum tax rate if the Holder's holding period for such Preferred Stock
exceeds twelve months but is less than eighteen months. See 'Disposition of the
Preferred Stock' regarding certain rules applicable to such gain or loss. For
purposes of the remainder of this discussion, the term 'dividend' refers to a
distribution paid out of Parent's allocable earnings and profits, unless the
context indicates otherwise.
Dividends Received Deduction. Dividends paid to a corporate Holder who owns
less than 20% of the stock of Parent (by vote or value) will be eligible for the
70% dividends-received deduction under Section 243 of the Code, subject to the
limitations contained in Sections 246 and 246A of the Code. In general, the
dividends-received deduction is available only if the stock in respect of which
the dividend is paid is held for at least 46 days during the 90-day period that
begins 45 days before the stock becomes ex-dividend with respect to the dividend
(91 days during the 180-day period that begins 90 days before
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the stock becomes ex-dividend with respect to a dividend in the case of a
dividend attributable to a period or periods aggregating more than 366 days).
Under section 246(c) of the Code, a taxpayer's holding period for these purposes
is reduced by periods during which the taxpayer's risk of loss with respect to
the stock is considered diminished by reason of the existence of options,
contracts to sell and similar transactions. The dividends-received deduction
will also not be available if the taxpayer is under an obligation to make
related payments with respect to positions in substantially similar or related
property. The dividends-received deduction is limited to specified percentages
of a corporate Holder's taxable income and may be reduced or eliminated if the
corporate Holder has indebtedness 'directly attributable' to its investment in
the stock. Prospective corporate purchasers of the Preferred Stock should
consult their own tax advisors to determine whether these limitations might
apply to them.
For purposes of computing its alternative minimum tax, dividends eligible
for the 70 percent dividends received deduction are included in a corporate
Holder's 'adjusted current earnings.' If such adjusted current earnings exceed
the corporate Holder's alternative minimum taxable income (determined without
regard to the adjustments for adjusted current earnings or the alternative tax
net operating loss deduction), 75% of the excess is added to the Holder's
alternative minimum taxable income.
Extraordinary Dividend. Under Section 1059 of the Code, if a corporate
Holder receives an 'extraordinary dividend' from Parent with respect to
Preferred Stock which it has not held for more than two years on the dividend
announcement date, the basis of the Preferred Stock will be reduced (but not
below zero) by the non-taxed portion of the dividend. The reduction in basis is
treated as occurring at the beginning of the ex-dividend date of the
extraordinary dividend to which the reduction relates. If, because of the
limitation on reducing basis below zero, any amount of the non-taxed portion of
an extraordinary dividend has not been applied to reduce basis, such amount will
be treated as gain from the sale or exchange of the Preferred Stock in the year
in which the extraordinary dividend is received. Generally, the non-taxed
portion of an extraordinary dividend is the amount excluded from income under
section 243 of the Code (relating to the dividends-received deduction). An
extraordinary dividend on the Preferred Stock generally would include any
dividend that (i) equals or exceeds 5% of the Holder's adjusted tax basis in the
Preferred Stock, treating all dividends having ex-dividend dates within an
85-day period as one dividend or (ii) exceeds 20% of the Holder's adjusted tax
basis in the Preferred Stock, treating all dividends having ex-dividend dates
within a 365-day period as one dividend. In determining whether a dividend paid
on the Preferred Stock is an extraordinary dividend, a Holder may elect to use
the fair market value of such stock rather than its adjusted tax basis for
purposes of determining the applicable percentage limitation if the Holder is
able to establish to the satisfaction of the IRS the fair market value of the
Preferred Stock as of the day before the ex-dividend date. An extraordinary
dividend would also include any amount treated as a dividend in the case of a
redemption of the Preferred Stock that is either non-pro rata as to all holders
of Parent stock or part of a partial liquidation, without regard to the period
the Holder held the stock. Corporate Holders should see 'Redemption of the
Preferred Stock' for a discussion of when a redemption of the Preferred Stock
will constitute an extraordinary dividend.
Certain 'qualified preferred dividends,' however, are not considered
extraordinary dividends. A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in arrears
as to dividends when acquired, provided, however, that the actual rate of return
(as determined under Section 1059(e)(3) of the Code) on such stock does not
exceed 15%. If a qualified preferred dividend announced within two years of the
date of acquisition of the preferred stock exceeds the 5% (or 20%) threshold for
extraordinary dividend status described above, (i) section 1059(a) will not
apply (and no reduction in basis will be required) if the Holder holds the stock
for more than five years and (ii) if the Holder disposes of the stock before it
has been held for more than five years, the aggregate reduction in basis under
Section 1059(a) will not exceed the excess of the qualified preferred dividends
paid on such stock during the period held by the Holder over the qualified
preferred dividends that would have been paid during such period on the basis of
the stated rate of return, as determined under Section 1059(e)(3) of the Code.
The length of time that a Holder is deemed to have held stock for purposes of
Section 1059 of the Code is determined under principles similar to those
contained in Section 246(c) of the Code discussed above.
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PREFERRED STOCK DISCOUNT
The Preferred Stock is subject to mandatory redemption on March 1, 2008, or
earlier upon the occurrence of certain events (the 'Mandatory Redemption'). In
addition, on or after March 1, 2003 and subject to certain restrictions, the
Preferred Stock is redeemable at any time at the option of Parent at specified
redemption prices (the 'Optional Redemption'). See 'Description of Preferred
Stock -- Optional Redemption' and 'Mandatory Redemption.' Pursuant to section
305(c) of the Code, Holders of Preferred Stock generally will be required to
treat a portion of the difference between the Preferred Stock's issue price and
its redemption price as constructive distributions of property includible in
income on a periodic basis. For purposes of determining whether such
constructive distribution treatment applies, the Mandatory Redemption and the
Optional Redemption are tested separately. Constructive distribution treatment
is required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the Holders of such preferred stock on an
economic accrual basis. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the 'Redemption Price') exceeds its issue price by more than a de minimis
amount. For this purpose, such excess (the 'Preferred Stock Discount') will be
treated as zero, if it is less than 1/4 of 1% of the Redemption Price multiplied
by the number of complete years from the date of issuance of the stock until the
stock must be redeemed. The Preferred Stock Discount is taxable as a
constructive distribution to the Holder (treated as a dividend to the extent of
Parent's current and accumulated earnings and profits and otherwise subject to
the treatment described above for distributions) over the term of the Preferred
Stock using a constant yield method similar to that employed for accruing
original issue discount pursuant to the Code. See 'Interest on the Exchange
Debentures -- Original Issue Discount.'
The Preferred Stock Discount will arise due to the Optional Redemption
feature only if, based on all of the facts and circumstances as of the date the
Preferred Stock is issued, redemption pursuant to the Optional Redemption is
more likely than not to occur. Even if redemption were more likely than not to
occur, however, constructive distribution treatment would not result if the
redemption premium were solely in the nature of a penalty for premature
redemption. For this purpose, a penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which neither
the issuer nor the Holder has legal or practical control, such as changes in
prevailing dividend rates. The Treasury Regulations provide a safe harbor
pursuant to which constructive distribution treatment will not result from an
issuer call right if (i) the issuer and the Holder are unrelated, (ii) there are
no arrangements that effectively require the issuer to redeem the stock and
(iii) exercise of the option to redeem would not reduce the yield of the stock.
Although the issue is not free from doubt, Parent believes that the Preferred
Stock should not be considered to have been issued with Preferred Stock Discount
by reason of the Optional Redemption feature.
REDEMPTION OF THE PREFERRED STOCK
A redemption of shares of the Preferred Stock for cash or for Exchange
Debentures will be a taxable event. A redemption of shares of the Preferred
Stock for cash will be treated as a dividend to the extent of Parent's current
or accumulated earnings and profits, unless the redemption (i) results in a
'complete termination' of the Holder's stock interest in Parent under Section
302(b)(3) of the Code, (ii) constitutes a 'substantially disproportionate
redemption of stock' under Section 302(b)(2) of the Code or (iii) is 'not
essentially equivalent to a dividend' with respect to the Holder under Section
302(b)(1) of the Code. In determining whether the redemption is treated as a
dividend, the Holder must take into account not only stock he or she actually
owns, but also stock constructively owned within the meaning of Section 318 of
the Code. A distribution to a Holder will be 'not essentially equivalent to a
dividend' if it results in a 'meaningful reduction' in the Holder's stock
interest in Parent. For these purposes, a redemption of Preferred Stock from a
Holder whose actual and constructive ownership interest in Parent common stock
is minimal and who does not have actual or practical control of Parent should
satisfy the 'not essentially equivalent to a dividend' test of Section
302(b)(1).
If the redemption of the Preferred Stock for cash or for Exchange
Debentures is not treated as a distribution taxable as a dividend, the
redemption would result in capital gain or loss equal to the
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difference between the amount of cash (or the issue price of the Exchange
Debentures as described under 'Interest on the Exchange Debentures -- Original
Issue Discount' below) received and the Holder's adjusted tax basis in the
Preferred Stock redeemed. This gain or loss would be capital gain or loss. See
the discussion under 'Disposition of the Preferred Stock,' regarding certain
rules applicable to such gain or loss.
If a redemption of the Preferred Stock is treated as a distribution rather
than a sale or exchange, the amount of the distribution will be measured by the
amount of cash (or the issue price of the Exchange Debentures) received by a
Holder. As described above, the distribution will be taxable as a dividend to
the extent of Parent's earnings and profits. The amount of the distribution in
excess of Parent's earnings and profits will reduce the Holder's basis in the
redeemed Preferred Stock, and, to the extent the amount of the distribution
exceeds such basis, will result in capital gain. If a Holder is left with basis
in the redeemed Preferred Stock, such basis will be transferred to any remaining
stock holdings in Parent.
Under Section 1059 of the Code, as discussed above, the term extraordinary
dividend includes any non-liquidating redemption of stock that is treated as a
dividend that is (i) non-pro rata as to all holders of the stock of Parent or
(ii) which would not be treated as a dividend if options had not been taken into
account, in both cases, irrespective of the holding period. Consequently, to the
extent an exchange of the Preferred Stock constitutes a dividend, it will
constitute an extraordinary dividend to a corporate Holder.
INTEREST ON THE EXCHANGE DEBENTURES
Interest on the Exchange Debentures will be taxable to a Holder as ordinary
interest income at the time such amounts are accrued or received, in accordance
with the Holder's method of accounting for U.S. federal income tax purposes.
Original Issue Discount. The Exchange Debentures may be treated as having
OID. In such case, a Holder (including a cash basis Holder) generally will be
required to include the interest on the Exchange Debentures in income for U.S.
federal income tax purposes under the accrual method on a constant yield basis,
potentially resulting in the inclusion of interest in income in advance of the
receipt of cash attributable to that income.
In general, the amount of OID, if any, on a debt instrument is the excess
of its 'stated redemption price at maturity' over its 'issue price,' subject to
a statutorily defined de minimis exception. The 'issue price' of an Exchange
Debenture issued for publicly traded stock is equal to the fair market value of
such stock unless, such Exchange Debenture is traded on an established
securities market within 30 days of its issue date, in which case the issue
price is its fair market value. If an Exchange Debenture is not issued for
publicly traded stock, its 'issue price' is its stated principal amount or, in
the event an Exchange Debenture does not bear 'adequate stated interest' within
the meaning of Section 1274 of the Code, its 'imputed principal amount,' which
is generally the sum of the present values of all payments due under the
Exchange Debenture, discounted from the date of payment to its issue date at the
appropriate 'applicable federal rate.' The 'stated redemption price at maturity'
of a debt instrument is the sum of its principal amount plus all other payments
required thereunder, other than payments of 'qualified stated interest' (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate that approximately takes into account the length of intervals
between payments).
In general, the amount of OID that a Holder of a debt instrument with OID
must include in gross income for United States federal income tax purposes will
be the sum of the 'daily portions' of OID with respect to such debt instrument
for each day during the taxable year or portion of a taxable year on which such
Holder holds the debt instrument. The daily portion is determined under a
constant yield method by allocating to each day of an accrual period (generally,
a six-month period) a pro rata portion of an amount equal to the 'adjusted issue
price' of the debt instrument at the beginning of the accrual period multiplied
by the yield to maturity of the debt instrument. The yield to maturity of a debt
instrument is the discount rate that, when applied to all payments due under the
debt instrument produces a present value equal to the issue price of the debt
instrument. The 'adjusted issue price' is
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the issue price of the debt instrument increased by the accrued OID for all
prior accrual periods (and decreased by the amount of cash payments made in all
prior accrual periods, other than qualified stated interest payments).
TAX BASIS OF EXCHANGE DEBENTURES
Unless the exchange was treated as a dividend, a Holder's initial tax basis
in the Exchange Debentures will be equal to the Holder's tax basis in the
Preferred Stock exchanged therefor plus the amount of gain, if any, recognized
upon such exchange (i.e., the issue price). The tax basis of the Exchange
Debentures in the hands of each Holder will be increased by the amount of OID,
if any, on such Exchange Debentures that is included in the Holder's gross
income and will be decreased by the amount of any cash payments received with
respect to the debt instrument (other than payments of qualified stated
interest), whether such payments are denominated as principal or interest.
ELECTION
A Holder of Exchange Debentures, subject to certain limitations, may elect
to include all interest and discount on the Exchange Debentures in gross income
under the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount and OID, as adjusted by any amortizable
bond premium.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation exceeds the sum of all
payments remaining on the obligation (other than qualified stated interest),
such excess will constitute amortizable bond premium that the Holder may elect
to amortize under the constant yield method over the period from his or her
acquisition date to the obligation's maturity date. A Holder who elects to
amortize bond premium must reduce the tax basis in the related obligation by the
amount of the aggregate amortization allowable for amortizable bond premium.
Amortizable bond premium will be treated under the Code as an offset to interest
income on the related debt instrument for federal income tax purposes. Under the
regulations generally effective for obligations acquired on or after March 2,
1998 (or certain others by election), if the amortizable bond premium allocable
to an accrual period exceeds the amount of stated interest allocable to such
accrual period, such excess would be allowed as a deduction for such accrual
period, but only to the extent of the Holder's prior interest inclusions on the
Exchange Debentures; any excess is generally carried forward and allocable to
the next accrual period. An election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the Holder and
may be revoked only with the consent of the IRS.
DISPOSITION OF THE EXCHANGE DEBENTURES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by Parent) or other disposition of an Exchange
Debenture, will be a taxable event for U.S. federal income tax purposes. In such
event, in general, a Holder of Exchange Debentures will recognize gain or loss
equal to the difference between (i) the amount of cash plus the fair market
value of property received (except to the extent attributable to accrued
interest on the Exchange Debentures not previously included in income) and (ii)
the Holder's tax basis in the Exchange Debentures (as increased by any OID
previously included in income by the Holder and decreased by any amortizable
bond premium, if any, deducted over the term of the Exchange Debentures).
Subject to the market discount rules, any such gain or loss generally will be
capital gain or loss. See the discussion under 'Disposition of the Preferred
Stock' for rules applicable to such gain or loss. At the time of sale, exchange,
disposition, retirement or redemption, a Holder of the Exchange Debentures must
also include in income any previously accrued but unrecognized OID.
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APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Pursuant to Section 163(e)(5) and (i) of the Code, the 'disqualified
portion' of the OID accruing on certain debt instruments may be treated as a
dividend eligible for the dividends-received deduction. The corporation issuing
such debt instrument would not be entitled to deduct this 'disqualified portion'
of the OID accruing on such debt instrument and would be allowed to deduct the
remainder of the OID only when paid.
This treatment would apply to 'applicable high yield discount obligations'
('AHYDO'), which generally are debt instruments that have a term of more than
five years, have a yield to maturity that equals or exceeds 5 percentage points
over the 'applicable federal rate' for the month in which the obligation is
issued and have 'significant' OID. A debt instrument is treated as having
'significant' OID if the aggregate amount that would be includible in gross
income with respect to such debt instrument for periods before the close of any
accrual period ending five years or more after the date of issue exceeds the sum
of (i) the aggregate amount of interest to be paid in cash under the debt
instrument before the close of such accrual period and (ii) the product of the
initial issue price of such debt instrument and its yield to maturity. For
purposes of determining whether an Exchange Debenture is an AHYDO, Holders are
bound by the issuer's determination of the appropriate accrual period. It is not
possible to determine at the present time whether an Exchange Debenture will be
treated as an AHYDO.
If an Exchange Debenture is treated as an AHYDO, a corporate Holder would
be treated as receiving dividend income (to the extent of Parent's current and
accumulated earnings and profits) solely for purposes of the dividends-received
deduction in an amount equal to the 'dividend equivalent portion' of the OID of
such AHYDO. The 'disqualified portion' of the OID is equal to the lesser of (i)
the amount of the OID or (ii) the portion of the 'total return' (the excess of
all payments to be made with respect to such obligation over its issue price) on
such obligation that bears the same ratio to the obligation's total return as
the 'disqualified yield' (the extent to which the yield exceeds the applicable
federal rate plus 6%) bears to the obligation's yield to maturity. The dividend
equivalent portion of the disqualified portion is the portion of such portion
that would be treated as a dividend if distributed by the issuer with respect to
its stock. Parent's deduction for OID will be substantially deferred with
respect to an Exchange Debenture that is treated as an AHYDO. In addition, such
deduction will be permanently disallowed if and to the extent that the yield on
such AHYDO exceeds the applicable federal rate by more than 6 percentage points.
BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury Regulations, a
noncorporate Holder of the Preferred Stock or the Exchange Debentures may be
subject to backup withholding at the rate of 31% with respect to 'reportable
payments,' which include dividends or interest paid on or the proceeds of a
sale, exchange or redemption of, the Preferred Stock or the Exchange Debentures.
The payor will be required to deduct and withhold the prescribed amounts if (i)
the payee fails to furnish a Taxpayer Identification Number ('TIN') to the payor
in the manner required, (ii) the IRS notifies the payor that the TIN furnished
by the payee is incorrect, (iii) there has been a 'notified payee
underreporting' described in Section 3406(c) of the Code or (iv) there has been
a failure of the payee to certify under penalty of perjury that the payee is not
subject to withholding under Section 3406(a)(1)(C) of the Code. As a result, if
any one of the events listed above occurs, the payor will be required to
withhold an amount equal to 31% from any dividend or interest payment made with
respect to the Preferred Stock or the Exchange Debentures or any payment of
proceeds of a sale, exchange or redemption of the Preferred Stock or the
Exchange Debentures to a noncorporate Holder. Amounts paid as backup withholding
do not constitute an additional tax and will be credited against the Holder's
federal income tax liability, so long as the required information is provided to
the IRS. The payor generally will report to the Holders of the Preferred Stock
and the Exchange Debentures and to the IRS the amount of any 'reportable
payments' for each calendar year and the amount of tax withheld, if any, with
respect to payment on those securities.
145
<PAGE>
<PAGE>
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF PREFERRED STOCK
OR EXCHANGE DEBENTURES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND
INCOME TAX SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY
TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP, AND DISPOSITION OF
PREFERRED STOCK OR EXCHANGE DEBENTURES INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
LEGAL MATTERS
The legality of the Series B Preferred Stock will be passed upon on behalf
of the Company by Howard, Darby & Levin, New York, New York.
EXPERTS
The consolidated financial statements of Eagle-Picher Industries, Inc. as
of and for the year ended November 30, 1997, included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given on their authority as experts in auditing and accounting. The
consolidated financial statements of Eagle-Picher Industries, Inc. as of
November 30, 1996 and for each of the two years in the period ended November 30,
1996, included in this Prospectus, have been audited by KPMG Peat Marwick LLP,
independent auditors, as stated in their report appearing herein, and are given
upon the authority of said firm as experts in auditing and accounting. See
'Business -- Change in Independent Auditors.'
146
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eagle-Picher Industries, Inc.
Condensed Consolidated Statements of Income (Loss) For the Three Months Ended February 28, 1998 and
1997 (Unaudited)..................................................................................... F-2
Condensed Consolidated Balance Sheets as of February 28, 1998 and 1997
(Unaudited)......................................................................................... F-3
Condensed Consolidated Statements of Cash Flows For the Three Months Ended February 28, 1998 and 1997
(Unaudited).......................................................................................... F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................... F-5
Independent Auditors' Reports......................................................................... F-14
Consolidated Statements of Income (Loss) For the Years Ended November 30, 1997, 1996 and 1995......... F-16
Consolidated Balance Sheets as of November 30, 1997 and 1996.......................................... F-17
Consolidated Statements of Cash Flows For the Years Ended November 30, 1997,
1996 and 1995....................................................................................... F-18
Consolidated Statements of Shareholders' Equity (Deficit) For the Years Ended November 30, 1997, 1996
and 1995............................................................................................. F-19
Notes to Consolidated Financial Statements............................................................ F-20
Eagle-Picher Holdings, Inc.
Condensed Consolidated Statements of Income For the Three Months Ended
February 28, 1998 and 1997 (Unaudited).............................................................. F-44
Condensed Consolidated Balance Sheets as of February 28, 1998 and 1997
(Unaudited)......................................................................................... F-45
Condensed Consolidated Statements of Cash Flows For the Three Months Ended February 28, 1998 and 1997
(Unaudited).......................................................................................... F-46
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................... F-47
Independent Auditors' Report.......................................................................... F-50
Balance Sheet and Notes to Balance Sheet as of December 22, 1997...................................... F-51
</TABLE>
F-1
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
--------------------
1998 1997
-------- --------
<S> <C> <C>
NET SALES................................................................................. $205,842 $223,607
OPERATING COSTS AND EXPENSES
Cost of products sold..................................................................... 162,796 180,401
Selling and administrative................................................................ 17,141 19,724
Management compensation expenses.......................................................... 2,056 --
Depreciation.............................................................................. 8,983 10,366
Amortization of intangibles............................................................... 3,839 4,076
-------- --------
199,815 214,567
Operating income.......................................................................... 11,027 9,040
OTHER INCOME (EXPENSE)
Interest expense.......................................................................... (6,940) (8,927)
Other income.............................................................................. 820 1,703
-------- --------
INCOME BEFORE TAXES....................................................................... 4,907 1,816
INCOME TAXES.............................................................................. 4,100 3,036
-------- --------
NET INCOME (LOSS)......................................................................... $ 807 $ (1,220)
-------- --------
-------- --------
Income (loss) per common share............................................................ $.08 $(.12)
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1998 1997
-------- ------------
PREDECESSOR
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 18,967 $ 19,376
Receivables, less allowances....................................................... 135,632 144,805
Income tax refunds receivable...................................................... 2,001 56,814
Inventories:
Raw materials and supplies.................................................... 56,970 51,804
Work in process............................................................... 22,569 35,071
Finished goods................................................................ 15,509 19,245
-------- ------------
95,048 106,120
Prepaid expenses................................................................... 9,499 9,729
Deferred income taxes.............................................................. 19,535 20,575
-------- ------------
Total current assets..................................................... 280,682 357,419
Property, plant and equipment........................................................... 239,337 271,181
Less accumulated depreciation...................................................... -- 10,331
-------- ------------
Net property, plant and equipment............................................. 239,337 260,850
Deferred income taxes................................................................... -- 106,078
Excess of acquired net assets over cost................................................. 255,495 --
Reorganization value in excess of amounts allocable to identifiable assets, net of
accumulated amortization of $4,071.................................................... -- 61,050
Other assets............................................................................ 91,625 46,546
-------- ------------
Total assets............................................................. $867,139 $ 831,943
-------- ------------
-------- ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................... $ 50,899 $ 39,118
Accrued liabilities................................................................ 49,931 50,742
Income taxes....................................................................... 6,746 5,176
Current portion -- long-term debt.................................................. 10,656 54,010
-------- ------------
Total current liabilities................................................ 118,232 149,046
Long-term debt -- less current portion.................................................. 536,340 318,160
Deferred income taxes................................................................... 7,634 --
Other liabilities....................................................................... 24,928 26,095
-------- ------------
Total liabilities........................................................ 687,134 493,301
-------- ------------
Shareholder's equity
Common shares -- authorized 20,000,000 shares, issued and outstanding 100 shares... 180,005 --
Common shares -- authorized 20,000,000 shares, issued and outstanding 10,000,000
shares............................................................................ -- 341,807
Foreign currency translation....................................................... -- (1,945)
Accumulated deficit
Beginning balance............................................................. -- --
Net loss year to date......................................................... -- (1,220)
-------- ------------
Total shareholder's equity............................................... 180,005 338,642
-------- ------------
Total liabilities and shareholder's equity............................... $867,139 $ 831,943
-------- ------------
-------- ------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-3
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ 807 $ (1,220)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization....................................................... 12,822 14,442
Changes in assets and liabilities:
Receivables.................................................................... (4,705) (11,930)
Inventories.................................................................... (2,235) (3,219)
Accounts payable............................................................... (2,787) (1,917)
Accrued liabilities............................................................ (5,488) 2,176
Income tax refunds receivable.................................................. 1,024 16,906
Deferred taxes................................................................. 2,600 1,831
Other.......................................................................... (11,121) 845
--------- --------
Net cash provided by (used in) operating activities................................. (9,083) 17,914
Cash flows from investing activities:
Capital expenditures................................................................ (5,692) (15,857)
Other............................................................................... (1,042) (1,183)
--------- --------
Net cash used in investing activities............................................... (6,734) (17,040)
Cash flows from financing activities:
Issuance of long-term debt.......................................................... 524,100 --
Reduction of long-term debt......................................................... (250,000) (16,703)
Redemption of common stock.......................................................... (446,638) --
Issuance of common stock............................................................ 180,005 --
Debt issue cost..................................................................... (26,062) --
Other............................................................................... (360) 2,480
--------- --------
Net cash used in financing activities............................................... (18,955) (14,223)
Net decrease in cash and cash equivalents................................................ (34,772) (13,349)
--------- --------
Cash and cash equivalents, beginning of period........................................... 53,739 32,725
--------- --------
Cash and cash equivalents, end of period................................................. $ 18,967 $ 19,376
--------- --------
--------- --------
Supplemental cash flow information:
Cash paid during the three month period:
Interest paid.................................................................. $ 6,402 $ 475
Income tax refunds received net of payments.................................... $ (376) $(15,928)
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-4
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included elsewhere in this document for
the fiscal year ended November 30, 1997.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three months ended February 28, 1998 and 1997. Results of operations for interim
periods are not necessarily indicative of results to be expected for an entire
year.
See Note B.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ('Closing Date'), Eagle-Picher Industries, Inc.
('Company') was acquired by a subsidiary of Granaria Industries BV, Eagle-Picher
Holdings, Inc. ('Parent'), from the Eagle-Picher Industries, Inc. Personal
Injury Settlement Trust ('Trust'). The Trust was established pursuant to the
Company's Plan of Reorganization upon its emergence from bankruptcy.
These unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
that result as of February 24, 1998, the Closing Date. Accordingly, the
condensed consolidated statement of income (loss) for the three months ended
February 28, 1998 includes results of operations from (1) December 1, 1997
through February 24, 1998 of the Company prior to the consummation of the
Acquisition (for clarity, sometimes referred to herein as the 'Predecessor
Company') and (2) February 25 through February 28, 1998 of the Company.
Upon closing of the acquisition, the Parent received $100 million equity
investment from Granaria Industries BV and an equity partner. The Parent also
received proceeds approximating $80 million from its offering of preferred
stock. These proceeds were invested in the Company, which issued approximately
$180 million of common stock to the Parent. The Company also borrowed $225
million in term loans and $79.1 million in revolving credit loans under a
syndicated senior secured loan facility, and issued $220 million in senior
subordinated notes ('Subordinated Notes'), the proceeds of which were used to
redeem the Company's 10% Senior Unsecured Sinking Fund Debentures ('Debentures')
and common stock, both held by the Trust. The Company, a wholly-owned subsidiary
of the Parent, is the operating entity. The Parent's results of operations and
cash flows approximate those of the Company.
C. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon net income
(loss) divided by the average number of common shares outstanding, which was
9,555,560 and 10,000,000 in the three months ended February 28, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
----------------------
1998 1997
-------- ----------
<S> <C> <C>
Net income (loss) per share................................ $.08 $ (.12)
-------- ----------
-------- ----------
</TABLE>
F-5
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
D. LONG-TERM DEBT
On the Closing Date, the Company's existing $60 million unsecured committed
revolving credit facility was terminated. It was replaced by a syndicated senior
secured loan facility ('Credit Agreement') which provided $225 million in term
loans ('Term Loans') and a $160 million revolving credit facility ('Facility'),
of which $79.1 million was drawn at the time of closing. Immediately following
the closing, the Company borrowed approximately $28.6 million for use as credit
support in the form of letters of credit, leaving approximately $52.3 million in
available credit.
The Credit Agreement is secured by the capital stock of the Company, up to
65% of the capital stock of foreign subsidiaries and substantially all other
property in the United States. The Credit Agreement contains covenants which
restrict the Company's ability to, among others, declare dividends or redeem
capital stock, issue additional debt or alter existing debt agreements, make
loans, undergo a change in control and engage in mergers, acquisitions and asset
sales. These covenants also limit the annual amount of capital expenditures and
require the Company to meet minimum financial coverages. The Company was in
compliance with all covenants at February 28, 1998.
Long-term debt consisted of:
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------
1998 1997
------ ------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
New Credit Agreement:
Revolving Credit Facility........................................................ $ 79.1 $ --
Term Loans....................................................................... 225.0 --
Senior Subordinated Notes............................................................. 220.0 --
Senior Unsecured Sinking Fund Debentures.............................................. -- 250.0
Divestiture Notes..................................................................... -- 50.0
Tax Refund Notes...................................................................... -- 52.6
Industrial Revenue Bonds.............................................................. 18.4 10.5
Secured Notes......................................................................... -- 6.7
Debt of Foreign Subsidiaries.......................................................... 4.5 2.4
------ ------
547.0 372.2
Less current portion.................................................................. 10.7 54.0
------ ------
Long-term debt, less current portion.................................................. $536.3 $318.2
------ ------
------ ------
</TABLE>
The Facility matures in 2004. It bears interest, at the Company's option,
of an adjusted LIBOR rate plus 2 1/4% or the bank's prime rate plus 1 1/4%.
There is a commitment fee equal to 1/2% per annum on the undrawn portion of the
Facility and fees for letters of credit are equal to 2 1/4% per annum.
The Term Loans mature in 2003, 2005 and 2006 and bear interest, at the
Company's option, of an adjusted LIBOR rate plus spreads varying from 2 1/4% to
2 7/8% or the bank's prime rate plus spreads varying from 1 1/4% to 1 7/8%. In
addition to regularly scheduled payments, the Company is required to make
mandatory prepayments to first the Term Loans then the Facility of 60% of annual
excess cash flow, the net proceeds from the sale of assets (subject to certain
conditions), the net proceeds of new debt issued and 50% of the net proceeds of
any equity securities issued.
To partially hedge its variable interest rate exposure on its Term Loans,
the Company has entered into a three year interest rate swap agreement ('Swap
Agreement'). The Swap Agreement requires the Company to pay a fixed LIBOR rate
(plus the appropriate spreads) on $150 million and receive the floating LIBOR
rate on that same amount, effectively fixing the interest rate on $150 million
of the Term Loans at a weighted rate of 8.35%.
F-6
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
The Subordinated Notes, which are unsecured, bear interest of 9 3/8% and
mature in 2008, however, they are redeemable at the option of the Company, in
whole or in part, any time after February 28, 2003 at set redemption prices. The
Company may also redeem up to 35% of the aggregate principal amount of the
Subordinated Notes prior to March 1, 2001 at a set redemption price provided
certain conditions are met. The Company is also required to offer to purchase
the Subordinated Notes at a set redemption price should there be a change in
control of the Company.
Both the Credit Agreement and the Subordinated Notes are guaranteed on a
full, unconditional, and joint and several basis by certain of the Company's
wholly-owned domestic subsidiaries ('Guarantors'). Management has determined
that full financial statements of the Guarantors would not be material to
investors and such financial statements are not presented. The following
supplemental condensed combining financial statements present information
regarding the Guarantors, the issuer of the debt and the subsidiaries that did
not guarantee the debt.
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NON-GUARANTORS
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Net sales
Customers................................ $61,071 $123,181 $ 21,590 $ -- $205,842
Intercompany............................. 3,381 2,421 1,451 (7,253) --
Operating costs and expenses
Cost of products sold.................... 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative............... 9,673 5,167 2,301 -- 17,141
Management compensation expense.......... 2,056 -- -- -- 2,056
Intercompany charges..................... (2,172) 2,172 -- -- --
Depreciation............................. 2,823 5,220 940 -- 8,983
Amortization of intangibles.............. 765 3,064 10 -- 3,839
------- ---------- -------------- ------------ --------
Total............................... 61,474 118,394 22,023 (7,076) 194,815
Operating income (loss)....................... 2,978 7,208 1,018 (177) 11,027
Other income (expense)
Interest expense......................... (6,844) -- (96) -- (6,940)
Other income (expense)................... 812 333 (325) -- 820
------- ---------- -------------- ------------ --------
Income before taxes........................... (3,054) 7,541 597 (177) 4,907
Income taxes.................................. 1,083 2,486 531 -- 4,100
------- ---------- -------------- ------------ --------
Net income (loss)............................. $(4,137) $ 5,055 $ 66 $ (177) $ 807
------- ---------- -------------- ------------ --------
------- ---------- -------------- ------------ --------
</TABLE>
F-7
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
AS OF FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NON-GUARANTORS
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 12,115 $ 1,145 $ 5,513 $ 194 $ 18,967
Receivables................................... 38,724 78,745 18,163 -- 135,632
Intercompany accounts receivable.............. 3,081 4,012 -- (7,093) --
Income tax refunds receivable................. 2,001 -- -- -- 2,001
Inventories................................... 37,775 44,818 13,830 (1,375) 95,048
Prepaid expenses.............................. 5,527 3,490 482 -- 9,499
Deferred income taxes......................... 19,535 -- -- -- 19,535
--------- ---------- -------------- ------------ --------
Total current assets..................... 118,758 132,210 37,988 (8,274) 280,682
Property, plant and equipment................. 72,085 132,112 35,140 -- 239,337
Investment in subsidiaries.................... 60,908 5,185 -- (66,093) --
Excess of acquired net assets over cost....... 52,059 203,436 -- -- 255,495
Other assets.................................. 73,185 18,187 253 -- 91,625
--------- ---------- -------------- ------------ --------
Total assets............................. $ 376,995 $491,130 $ 73,381 $(74,367) $867,139
--------- ---------- -------------- ------------ --------
--------- ---------- -------------- ------------ --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accounts payable.............................. $ 16,686 $ 25,241 $ 8,972 $ -- $ 50,899
Intercompany accounts payable................. 176 110 6,340 (6,626) --
Accrued liabilities........................... 27,614 19,782 2,535 -- 49,931
Income taxes.................................. 6,658 -- 88 -- 6,746
Long-term debt -- current portion............. 7,780 -- 2,876 -- 10,656
--------- ---------- -------------- ------------ --------
Current liabilities...................... 58,914 45,133 20,811 (6,626) 118,232
Long-term debt -- less current portion........ 534,720 -- 1,620 -- 536,340
Deferred income taxes......................... 7,634 -- -- -- 7,634
Other liabilities............................. 24,928 -- -- -- 24,928
--------- ---------- -------------- ------------ --------
Total liabilities........................ 626,196 45,133 22,431 (6,626) 687,134
Intercompany accounts......................... (429,206) 399,218 21,074 8,914 --
SHAREHOLDERS' EQUITY 180,005 46,779 29,876 (76,655) 180,005
--------- ---------- -------------- ------------ --------
Total liabilities and shareholders'
equity................................. $ 376,995 $491,130 $ 73,381 $(74,367) $867,139
--------- ---------- -------------- ------------ --------
--------- ---------- -------------- ------------ --------
</TABLE>
F-8
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NON-
GUARANTORS
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- ---------- ------------ ------------ ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ (4,137) $ 5,055 $ 66 $ (177) $ 807
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............. 3,588 8,284 950 -- 12,822
Changes in assets and liabilities......... (16,059) (9,247) 2,019 575 (22,712)
--------- ---------- ------------ ------------ ---------
Net cash provided by (used in)
operating activities............... (16,608) 4,092 3,035 398 (9,083)
Cash flows from investing activities:
Capital expenditures...................... (2,300) (1,833) (1,559) -- (5,692)
Other..................................... (956) 65 (846) 695 (1,042)
--------- ---------- ------------ ------------ ---------
Net cash provided by (used in)
investing activities............... (3,256) (1,768) (2,405) 695 (6,734)
Cash flows from financing activities:
Issuance of long-term debt................ 524,100 -- -- -- 524,100
Reduction of long-term debt............... (250,000) -- -- -- (250,000)
Redemption of common stock................ (446,638) -- -- -- (446,638)
Issuance of common stock.................. 180,005 -- -- -- 180,005
Debt issue cost........................... (26,062) -- -- -- (26,062)
Other..................................... -- -- (360) -- (360)
--------- ---------- ------------ ------------ ---------
Net cash provided by (used in)
financing activities............... (18,595) -- (360) -- (18,955)
--------- ---------- ------------ ------------ ---------
Increase (decrease) in cash and cash
equivalents.................................. (38,459) 2,324 270 1,093 (34,772)
Intercompany accounts.......................... 1,740 (1,740) 899 (899) --
Cash and cash equivalents, beginning of
period....................................... 48,834 561 4,344 -- 53,739
--------- ---------- ------------ ------------ ---------
Cash and cash equivalents, end of period....... $ 12,115 $ 1,145 $ 5,513 $ 194 $ 18,967
--------- ---------- ------------ ------------ ---------
--------- ---------- ------------ ------------ ---------
</TABLE>
F-9
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
---------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
------- ---------- -------------- --------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales
Customers..................... $60,310 $114,398 $ 19,645 $ 29,254 $ -- $223,607
Intercompany.................. 3,465 2,599 1,141 37 (7,242) --
Operating costs and expenses
Cost of products sold......... 47,577 95,817 16,853 27,299 (7,145) 180,401
Selling and administrative.... 11,222 4,843 2,021 1,638 -- 19,724
Intercompany charges.......... (3,518) 2,512 -- 1,006 -- --
Depreciation.................. 2,866 5,160 908 1,432 -- 10,366
Amortization of intangibles... 813 3,258 5 -- -- 4,076
------- ---------- -------------- --------- ------------ --------
Total.................... 58,960 111,590 19,787 31,375 (7,145) 214,567
Operating income................... 4,815 5,407 999 (2,084) (97) 9,040
Other income (expense)
Interest expense.............. (8,899) -- (28) -- -- (8,927)
Other income (expense)........ 1,416 212 75 -- -- 1,703
------- ---------- -------------- --------- ------------ --------
Income before taxes................ (2,668) 5,619 1,046 (2,084) (97) 1,816
Income taxes....................... 113 2,040 814 69 -- 3,036
------- ---------- -------------- --------- ------------ --------
Net income (loss).................. $(2,781) $ 3,579 $ 232 $ (2,153) $ (97) $ (1,220)
------- ---------- -------------- --------- ------------ --------
------- ---------- -------------- --------- ------------ --------
</TABLE>
F-10
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
AS OF FEBRUARY 28, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
-------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- ---------- ------------ --------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.............. $ 14,133 $ 443 $ 4,688 $ 112 $ -- $ 19,376
Receivables............................ 37,995 71,568 17,827 17,415 -- 144,805
Intercompany accounts receivable....... 3,538 3,313 -- -- (6,851) --
Income tax refunds receivable.......... 56,814 -- -- -- -- 56,814
Inventories............................ 28,330 52,557 10,551 14,682 -- 106,120
Prepaid expenses....................... 4,476 3,860 332 1,061 -- 9,729
Deferred income taxes.................. 20,575 -- -- -- -- 20,575
--------- ---------- ------------ --------- ------------ --------
Total current assets.............. 165,861 131,741 33,398 33,270 (6,851) 357,419
Property, plant and equipment.......... 74,790 129,929 31,136 24,995 -- 260,850
Investment in subsidiaries............. 58,656 5,132 -- -- (63,788) --
Deferred income taxes.................. 106,078 -- -- -- -- 106,078
Reorganization value in excess of
amounts allocable to identifiable
assets............................... 12,187 48,863 -- -- -- 61,050
Other assets........................... 23,711 14,000 1,154 7,681 -- 46,546
--------- ---------- ------------ --------- ------------ --------
Total assets...................... $ 441,283 $329,665 $ 65,688 $ 65,946 $(70,639) $831,943
--------- ---------- ------------ --------- ------------ --------
--------- ---------- ------------ --------- ------------ --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accounts payable....................... $ 15,927 $ 13,360 $ 4,231 $ 5,600 -- $ 39,118
Intercompany accounts payable.......... -- -- 6,597 -- (6,597) --
Accrued liabilities.................... 30,322 12,479 4,889 3,052 -- 50,742
Income taxes........................... 3,244 -- 1,932 -- -- 5,176
Current portion -- long-term debt...... 54,010 -- -- -- -- 54,010
--------- ---------- ------------ --------- ------------ --------
Current liabilities............... 103,503 25,839 17,649 8,652 (6,597) 149,046
Long-term debt -- less current
portion.............................. 315,726 -- 2,434 -- -- 318,160
Other liabilities...................... 25,515 -- 580 -- -- 26,095
--------- ---------- ------------ --------- ------------ --------
Total liabilities................. 444,744 25,839 20,663 8,652 (6,597) 493,301
Intercompany accounts.................. (342,500) 273,584 15,790 39,360 13,766 --
SHAREHOLDER'S EQUITY 339,039 30,242 29,235 17,934 (77,808) 338,642
--------- ---------- ------------ --------- ------------ --------
Total liabilities and
shareholder's equity............ $ 441,283 $329,665 $ 65,688 $ 65,946 $(70,639) $831,943
--------- ---------- ------------ --------- ------------ --------
--------- ---------- ------------ --------- ------------ --------
</TABLE>
F-11
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
-------------------------
FOREIGN DIVESTED TOTAL
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS -
-------- ---------- ------------ ---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ (2,781) $ 3,579 $ 232 $ (2,153) $ (97) $ (1,220)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization........... 3,679 8,418 913 1,432 -- 14,442
Changes in assets and liabilities:
Income tax refunds...................... 16,906 -- -- -- -- 16,906
Working capital and other............... 3,637 (16,185) (142) 250 226 (12,214)
-------- ---------- ------------ ---------- ------ --------
Net cash provided by (used in)
operating activities............. 21,441 (4,188) 1,003 (471) 129 17,914
Cash flows from investing activities:
Capital expenditures.................... (1,790) (9,630) (4,036) (401) -- (15,857)
Other................................... 98 (162) (704) (5) (410) (1,183)
-------- ---------- ------------ ---------- ------ --------
Net cash provided by (used in)
investing activities............. (1,692) (9,792) (4,740) (406) (410) (17,040)
Cash flows from financing activities:
Reduction of long-term debt............. (16,703) -- -- -- -- (16,703)
Other................................... -- -- 2,480 -- -- 2,480
-------- ---------- ------------ ---------- ------ --------
Net cash provided by (used in)
financing activities............. (16,703) -- 2,480 -- -- (14,223)
-------- ---------- ------------ ---------- ------ --------
Increase (decrease) in cash and cash
equivalents................................ 3,046 (13,980) (1,257) (877) (281) (13,349)
Intercompany accounts........................ (15,002) 13,870 (40) 891 281 --
Cash and cash equivalents, beginning of
period..................................... 26,089 553 5,985 98 -- 32,725
-------- ---------- ------------ ---------- ------ --------
Cash and cash equivalents,
end of period.............................. $ 14,133 $ 443 $ 4,688 $ 112 $-- $ 19,376
-------- ---------- ------------ ---------- ------ --------
-------- ---------- ------------ ---------- ------ --------
</TABLE>
F-12
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
E. INCOME TAXES
The acquisition of the Company has been treated as a sale of its assets for
purposes of income taxes. The deferred tax benefits relating to the Debentures,
which were repaid on the Closing Date, and most of the benefits relating to the
net operating loss carryforwards will be realized to shelter the gain on the
sale of the assets. Any remaining net operating loss carryforwards will be lost.
The Company, however, will be liable for approximately $2.0 in alternative
minimum taxes and $1.6 million in state and local income taxes as a result of
the transaction. These taxes are recognized as part of the Acquisition
adjustments.
F. LEGAL MATTERS
The Company is involved in routine litigation, environmental proceedings
and claims pending with respect to matters arising out of the normal course of
business. In management's opinion, the ultimate liability resulting from all
claims, individually or in the aggregate, will not materially affect the
Company's consolidated financial position, results of operations or cash flows.
G. INTANGIBLE ASSETS
Excess of acquired net assets over cost is being amortized on a
straight-line basis over fifteen years. The recoverability of these assets is
evaluated periodically based on current and estimated future cash flows of each
of the related business units over the remaining amortization period.
F-13
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Eagle-Picher
Industries, Inc. and subsidiaries as of November 30, 1997, and the related
consolidated statements of loss, shareholders' equity, and cash flows for the
year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of November 30,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Notes B and C to the consolidated financial statements,
effective November 29, 1996, the Company emerged from Chapter 11 of the United
States Bankruptcy Code and adopted 'fresh-start' reporting principles in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, 'Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code.' As a result, the consolidated financial statements
for the period subsequent to the adoption of fresh-start reporting are presented
on a different cost basis than that for prior periods and, therefore, are not
comparable.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 15, 1998,
except for the Notes G and M, as to
which the date is February 24, 1998.
F-14
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Eagle-Picher
Industries, Inc. and subsidiaries as of November 30, 1996, and the related
consolidated statements of income (loss), shareholders' equity (deficit), and
cash flows for each of the years in the two-year period ended November 30, 1996.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eagle-Picher
Industries, Inc. and subsidiaries as of November 30, 1996, and the results of
their operations and their cash flows for each of the years in the two-year
period ended November 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Notes B and C to the consolidated financial statements,
effective November 29, 1996, the Company emerged from chapter 11 of the United
States Bankruptcy Code and adopted 'fresh-start' reporting principles in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, 'Financial Reporting by Entities in Reorganization
under the Bankruptcy Code.'
As discussed in Note E to the consolidated financial statements, the
Company changed its method of computing LIFO for inventories of boron, germanium
and other rare metals in 1996.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
February 5, 1997
F-15
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1997 1996 1995
-------- ---------- -----------
<S> <C> <C> <C>
Net sales................................................................ $906,077 $ 891,287 $ 848,548
Operating costs and expenses
Cost of products sold............................................... 725,010 716,926 681,373
Selling and administrative.......................................... 77,109 81,505 75,380
Depreciation........................................................ 39,671 30,338 28,296
Amortization of intangibles......................................... 16,318 412 412
Loss on sale of divisions........................................... 2,411 -- --
-------- ---------- -----------
860,519 829,181 785,461
-------- ---------- -----------
Operating income......................................................... 45,558 62,106 63,087
Adjustment for asbestos litigation....................................... -- 502,197 (1,005,511)
Provision for other claims............................................... -- (4,244) --
Interest expense (contractual interest of $9,889 in 1996 and $8,897 in
1995).................................................................. (31,261) (3,083) (1,926)
Gain on sale of investment............................................... -- -- 11,505
Other income (expense)................................................... (251) 1,345 199
-------- ---------- -----------
Income (loss) before reorganization items, taxes, extraordinary item and
cumulative effect of accounting change................................. 14,046 558,321 (932,646)
Fresh start revaluation.................................................. -- 118,684 --
Reorganization items..................................................... -- (2,349) (2,225)
-------- ---------- -----------
Income (loss) before taxes, extraordinary item and cumulative effect of
accounting change...................................................... 14,046 674,656 (934,871)
Income taxes............................................................. 17,900 52,570 9,300
-------- ---------- -----------
Income (loss) before extraordinary item and cumulative effect of
accounting change...................................................... (3,854) 622,086 (944,171)
Extraordinary item -- gain on discharge of pre-petition liabilities...... -- 1,525,540 --
Cumulative effect of change in accounting for inventories................ -- (1,235) --
-------- ---------- -----------
Net income (loss).............................................. $ (3,854) $2,146,391 $ (944,171)
-------- ---------- -----------
-------- ---------- -----------
Income (loss) per share:
Income (loss) before extraordinary item and cumulative effect of
accounting change................................................. $ (.39) $ 56.34 $ (85.51)
Extraordinary item -- gain on discharge of pre-petition
liabilities....................................................... -- 138.17 --
Cumulative effect of change in accounting for inventories........... -- (.11) --
-------- ---------- -----------
Net income (loss) per share.............................................. $ (.39) $ 194.40 $ (85.51)
-------- ---------- -----------
-------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 53,739 $ 32,725
Receivables, less allowances of $1,614 in 1997 and $2,233 in 1996.................... 130,927 132,875
Income tax refunds receivable........................................................ 3,025 73,720
Inventories.......................................................................... 92,196 102,901
Prepaid expenses..................................................................... 8,290 8,164
Deferred income taxes................................................................ 13,793 26,351
-------- --------
Total current assets............................................................ 301,970 376,736
-------- --------
Property, plant and equipment
Land and land improvements........................................................... 19,832 20,010
Buildings............................................................................ 65,289 67,836
Machinery and equipment.............................................................. 173,909 145,309
Construction in progress............................................................. 20,817 23,196
-------- --------
279,847 256,351
Less accumulated depreciation............................................................. 36,309 --
-------- --------
Net property, plant and equipment......................................................... 243,538 256,351
-------- --------
Deferred income taxes..................................................................... 98,991 102,133
Reorganization value in excess of amounts allocable to identifiable assets, net of
accumulated amortization of $16,284 in 1997............................................. 48,837 65,121
Other assets.............................................................................. 53,545 48,539
-------- --------
Total assets.................................................................... $746,881 $848,880
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 52,886 $ 41,035
Compensation and employee benefits................................................... 22,630 18,127
Long-term debt -- current portion.................................................... 3,403 70,378
Income taxes......................................................................... 2,294 3,649
Reorganization items................................................................. 13,128 13,292
Other accrued liabilities............................................................ 19,661 18,447
-------- --------
Total current liabilities....................................................... 114,002 164,928
-------- --------
Long-term debt, less current portion...................................................... 269,994 316,061
Postretirement benefits other than pensions............................................... 21,681 21,675
Other long-term liabilities............................................................... 5,087 4,409
-------- --------
Total liabilities............................................................... 410,764 507,073
-------- --------
Shareholders' equity
Common stock -- no par value
Authorized 20,000,000 shares; issued and outstanding 10,000,000 shares............. 341,807 341,807
Retained deficit..................................................................... (3,854) --
Foreign currency translation......................................................... (1,836) --
-------- --------
Total shareholders' equity...................................................... 336,117 341,807
-------- --------
Total liabilities and shareholders' equity...................................... $746,881 $848,880
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------
1997 1996 1995
--------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ (3,854) $ 2,146,391 $ (944,171)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Changes due to reorganization activities:
Extraordinary gain on discharge of pre-petition liabilities... -- (1,525,540) --
Fresh start revaluation....................................... -- (118,684) --
Adjustment for asbestos litigation................................. -- (502,197) 1,005,511
Provision for other claims......................................... -- 4,244 --
Cumulative effect of accounting change............................. -- 1,235 --
Depreciation and amortization...................................... 55,989 30,750 28,708
Loss on sale of divisions.......................................... 2,411 -- --
Gain on sale of investment......................................... -- -- (11,505)
Changes in assets and liabilities, net of effects of divestitures:
Receivables................................................... (14,562) (7,664) (17,914)
Income tax refunds receivable................................. 70,695 3,535 (2,156)
Inventories................................................... (3,393) (6,283) (1,665)
Deferred income taxes......................................... 15,700 29,170 (18,900)
Accounts payable.............................................. 16,351 657 (3,373)
Other......................................................... 8,546 17,247 (4,079)
--------- ----------- ----------
Net cash provided by operating activities.......................... 147,883 72,861 30,456
Cash flows from investing activities:
Proceeds from sale of divisions.................................... 39,007 4,248 --
Proceeds from sale of investment................................... -- -- 11,505
Capital expenditures............................................... (51,324) (44,957) (40,558)
Other.............................................................. (1,510) (1,061) 340
--------- ----------- ----------
Net cash used in investing activities......................... (13,827) (41,770) (28,713)
Cash flows from financing activities:
Issuance of long-term debt......................................... 12,997 -- 1,240
Reduction of long-term debt........................................ (126,039) (3,198) (2,259)
--------- ----------- ----------
Net cash used in financing activities......................... (113,042) (3,198) (1,019)
Cash payments on effective date of plan of reorganization............... -- (88,498) --
--------- ----------- ----------
Net increase (decrease) in cash and cash equivalents.................... 21,014 (60,605) 724
--------- ----------- ----------
Cash and cash equivalents, beginning of year............................ 32,725 93,330 92,606
--------- ----------- ----------
Cash and cash equivalents, end of year.................................. $ 53,739 $ 32,725 $ 93,330
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
F-18
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAIN (LOSS)
COMMON PAID-IN RETAINED ON
STOCK CAPITAL DEFICIT INVESTMENTS
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance November 30, 1994............................................. $ 13,906 $ 36,378 $(1,317,118) $--
Cumulative effect of change in accounting for marketable
securities..................................................... -- -- -- 5,377
Net loss......................................................... -- -- (944,171) --
Realized gain on investment...................................... -- -- -- (5,044)
Foreign currency translation..................................... -- -- -- --
-------- ---------- ----------- -----------
Balance November 30, 1995............................................. 13,906 36,378 (2,261,289) 333
Net income....................................................... -- -- 2,146,391 --
Foreign currency translation..................................... -- -- -- --
Unrealized loss on investment.................................... -- -- -- (141)
Cancellation of the former common shares per the Plan of
Reorganization................................................. (13,906) (36,378) 48,371 --
Issuance of the new common shares per the Plan of
Reorganization................................................. 341,807 -- -- --
Fresh-start revaluation.......................................... -- -- 66,527 (192)
-------- ---------- ----------- -----------
Balance November 30, 1996............................................. 341,807 -- -- --
Net loss......................................................... -- -- (3,854) --
Foreign currency translation..................................... -- -- -- --
-------- ---------- ----------- -----------
Balance November 30, 1997............................................. $341,807 $ -- $ (3,854) $--
-------- ---------- ----------- -----------
-------- ---------- ----------- -----------
<CAPTION>
TOTAL
FOREIGN SHAREHOLDERS'
CURRENCY TREASURY EQUITY
TRANSLATION STOCK (DEFICIT)
----------- -------- -------------
<S> <C> <C> <C>
Balance November 30, 1994............................................. $ 2,054 $ (1,913) $ (1,266,693)
Cumulative effect of change in accounting for marketable
securities..................................................... -- -- 5,377
Net loss......................................................... -- -- (944,171)
Realized gain on investment...................................... -- -- (5,044)
Foreign currency translation..................................... (777) -- (777)
----------- -------- -------------
Balance November 30, 1995............................................. 1,277 (1,913) (2,211,308)
Net income....................................................... -- -- 2,146,391
Foreign currency translation..................................... 129 -- 129
Unrealized loss on investment.................................... -- -- (141)
Cancellation of the former common shares per the Plan of
Reorganization................................................. -- 1,913 --
Issuance of the new common shares per the Plan of
Reorganization................................................. -- -- 341,807
Fresh-start revaluation.......................................... (1,406) -- 64,929
----------- -------- -------------
Balance November 30, 1996............................................. -- -- 341,807
Net loss......................................................... -- -- (3,854)
Foreign currency translation..................................... (1,836) -- (1,836)
----------- -------- -------------
Balance November 30, 1997............................................. $(1,836) $ -- $ 336,117
----------- -------- -------------
----------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company's
subsidiaries which are more than 50% owned and controlled. Intercompany accounts
and transactions have been eliminated. Investments in unconsolidated affiliates
which are at least 20% owned and over which the Company exercises significant
influence are accounted for using the equity method.
Revenue Recognition
Sales are recognized primarily upon shipment of products except for a
division of the Company that sells products under contracts and subcontracts
with various United States Government agencies and aerospace and defense
contractors. On cost-reimbursable contracts, sales are recognized as costs are
incurred and include a portion of the total estimated earnings to be realized in
the ratio that costs incurred relate to total estimated costs. On fixed-price
contracts, sales are recognized using the percentage of completion method, when
deliveries are made or upon completion of specified tasks. Contract losses are
provided for in their entirety in the period they become known, without regard
to the percentage-of-completion.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reporting for Reorganization
Eagle-Picher Industries, Inc. (the 'Company') has accounted for all
transactions related to its chapter 11 proceedings and reorganization in
accordance with Statement of Position 90-7 ('SOP 90-7'), 'Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code' (See Note B). The
adjustments to reflect the Company's emergence from bankruptcy have been
reflected in the accompanying consolidated financial statements. Accordingly, a
vertical black line is shown in the consolidated financial statements to
separate post-emergence operations from those prior to November 29, 1996 since
they have not been prepared on a comparable basis.
Cash and Cash Equivalents
Marketable securities with original maturities of three months or less are
considered to be cash equivalents.
Financial Instruments
The Company's financial instruments consist primarily of investments in
cash and cash equivalents, receivables and certain other assets as well as
obligations under accounts payable and long-term debt. The carrying values of
these financial instruments, with the exception of long-term debt, approximate
fair value (See Note G).
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's customer base includes all significant automotive manufacturers
and their first tier suppliers in North America and Europe. Although the Company
is directly affected by the well-being of the automotive industry, management
does not believe significant credit risk existed at November 30, 1997.
F-20
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are valued at the lower of cost or market, which approximates
current replacement cost. A substantial portion of domestic inventories are
valued using the last-in first-out ('LIFO') method while the balance of the
Company's inventories are valued using the first-in first-out method.
Property, Plant and Equipment
The Company records investments in property, plant and equipment at cost.
The Company provides for depreciation of plant and equipment using the
straight-line method over the estimated lives of the assets which are generally
20 to 40 years for buildings and 3 to 10 years for machinery and equipment.
Improvements which extend the useful life of property are capitalized, while
repair and maintenance costs are charged to operations as incurred. In
accordance with fresh-start reporting, property, plant and equipment in service
at November 30, 1996 were stated at fair value, based on independent appraisals,
as of that date.
Intangible Assets
Reorganization value in excess of amounts allocable to identifiable assets
is being amortized on a straight-line basis over four years. The recoverability
of the assets is evaluated periodically based on current and estimated future
cash flows of the Company over the remaining amortization period. Prior to the
Company's emergence from chapter 11, the excess of cost over net assets acquired
was being amortized using the straight-line method primarily over 40 years.
Environmental Remediation Costs
The Company accrues for environmental expenses resulting from existing
conditions relating to past operations when the costs are probable and
reasonably estimable.
Income Taxes
Income taxes are provided based upon income for financial statement
purposes. Deferred tax assets and liabilities are established based on the
difference between the financial statement and income tax bases of assets and
liabilities using existing tax rates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and income and expenses are translated using weighted average
exchange rates. Adjustments resulting from translation of financial statements
stated in local currencies generally are excluded from the results of operations
and accumulated in a separate component of Shareholders' Equity (Deficit). Gains
and losses from foreign currency transactions are included in the determination
of net income (loss) and were immaterial.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year consolidated financial statement presentation.
B. REORGANIZATION AND EMERGENCE FROM CHAPTER 11
On November 18, 1996, the U.S. Bankruptcy Court for the Southern District
of Ohio, Western Division (the 'Bankruptcy Court'), together with the U.S.
District Court for the Southern District of Ohio, Western Division (the
'District Court'), confirmed the Third Amended Consolidated Plan of
F-21
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reorganization (the 'Plan') of the Company and seven of its domestic
subsidiaries. The Company emerged from bankruptcy on November 29, 1996 (the
'Effective Date'). The Plan was filed jointly by the Company, the Injury
Claimants' Committee, which represented approximately 150,000 persons alleging
injury due to exposure to asbestos-containing products manufactured by the
Company from 1934 until 1971, and the Representative for Future Claimants, which
represented future personal injury claimants. The Plan was also supported by the
Unsecured Creditors' Committee. The Company's chapter 11 case commenced January
7, 1991 (the 'Petition Date').
The Plan was based on a settlement of $2.0 billion for the Company's
liability for present and future asbestos-related personal injury claims. As a
result of the settlement, which was reached in the third quarter of 1996, an
adjustment was made to the consolidated financial statements to reduce the
asbestos liability subject to compromise from $2.5 billion, the amount the
Bankruptcy Court had previously estimated as the Company's liability for
asbestos-related personal injury claims. The order confirming the Plan contains
a permanent injunction which precludes holders of present and future asbestos or
lead-related personal injury claims from pursuing their claims against the
reorganized Company. Those claims will be channeled to an independently
administered qualified settlement trust (the 'PI Trust') which has been
established to resolve and satisfy those claims. Asbestos-related property
damage claims will be channeled to and resolved by a separate trust (the 'PD
Trust').
The Plan provided for distributions of $6.5 million in cash to holders of
priority claims, convenience claims, certain secured claims, and administrative
expenses. The PD Trust received $3.0 million in cash under the Plan. At November
30, 1996, the Company retained $15.0 million in cash for operating purposes,
held $4.2 million in escrow from a division sale and set aside $13.5 million for
remaining administrative expenses and unresolved claims. The remaining
consideration was distributed to the holders of other general unsecured claims,
which totaled approximately $152 million, and the PI Trust. The PI Trust and
each holder of a general unsecured claim received a distribution that was
proportionate to the size of its claim to the aggregate amount of unsecured
claims of $2,152 million. Pursuant to the terms of the Plan, the general
unsecured creditors received half of their consideration in cash and half in
three-year notes of the reorganized Company. These notes were repaid in 1997.
The PI Trust received, in the initial distribution, $51.3 million in cash, $18.1
million in such three-year notes, $69.1 million in Tax Refund notes, which were
paid in 1997, $250.0 million in ten-year debentures and all of the outstanding
shares of common stock of the reorganized Company. The Company's then existing
shareholders received no distribution and their shares were canceled.
Following the confirmation of the Plan, one general unsecured creditor and
the Unofficial Asbestos Co-defendants' Committee each filed a notice indicating
its intention to appeal the confirmation order issued by the Bankruptcy Court
and the U.S. District Court. After the end of the Company's fiscal year, the
general unsecured creditor formally withdrew its notice of appeal. The Company
and the Unofficial Asbestos Co-defendants Committee have submitted appellate
briefs to the United States Court of Appeals for the Sixth Circuit with respect
to the appeal of the confirmation order. The Company expects a decision on the
appeal in fiscal 1998. Further, the Company expects that the order confirming
the Plan will be upheld by all appellate courts.
It is anticipated that a final distribution will be made to the PI Trust
and all unsecured claimants, other than those holding convenience claims, when
all claims asserted in the chapter 11 cases (other than those channeled to the
PI Trust and the PD Trust) are resolved. Based on certain assumptions, the
Company anticipates that holders of general unsecured claims will ultimately
receive consideration having a value equal to approximately 37% of their allowed
claims.
The Plan resulted in the discharge of pre-petition liabilities through the
distribution of cash and securities to the PI Trust and the other creditors. The
value of the consideration distributed and expected to be distributed to the PI
Trust and other unsecured creditors was less than the amount of the allowed
claims resulting in an extraordinary gain of approximately $1.5 billion.
F-22
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net expense resulting from the Company's chapter 11 filings was
segregated from expenses related to ordinary operations in the accompanying
Consolidated Statements of Income (Loss) and includes the following:
<TABLE>
<CAPTION>
1996 1995
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Professional fees............................................................ $ 5,298 $ 7,047
Debt financing costs......................................................... 700 --
Other expenses............................................................... 1,711 181
Interest income.............................................................. (5,360) (5,003)
------------- -----------
$ 2,349 $ 2,225
------------- -----------
------------- -----------
</TABLE>
Interest income was attributable to the accumulation of cash and cash
equivalents subsequent to the petition date.
C. FRESH-START REPORTING
The Company adopted fresh-start reporting on the Effective Date in
accordance with SOP 90-7. Fresh-start reporting requires valuation of assets and
liabilities at fair value and valuation of equity based on the appraised
reorganization value of the ongoing business.
The Company's reorganization value was based on consideration of many
factors and several valuation methods, including discounted cash flows and
selected comparable publicly traded company multiples. The discounted cash flow
approach was based on the Company's forecast of unleveraged, after-tax cash
flows calculated for each year over the five-year period from 1997 through 2001.
A growth rate of 3.5% was assumed to capitalize cash flows for years after 2001.
Amounts were discounted to present value at rates ranging from 11.5% to 15%,
which approximate the Company's projected weighted average cost of capital. The
present value of future tax benefits was also considered.
D. SUBSEQUENT EVENT
On December 23, 1997, the PI Trust entered into an agreement (the 'Merger
Agreement') to sell its 100% interest in the common equity of the Company to a
unit of Granaria Holdings BV of The Netherlands. The transaction, which is
subject to certain conditions, is expected to close in February 1998.
E. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and supplies................................................... $51,797 $ 50,026
Work-in-process.............................................................. 25,932 34,250
Finished goods............................................................... 14,840 18,625
------------- -----------
92,569 102,901
Adjustment to state inventory at LIFO value.................................. (373) --
------------- -----------
$92,196 $ 102,901
------------- -----------
------------- -----------
</TABLE>
The percentage of inventories valued using the LIFO method was 81% in 1997
and 74% in 1996. In connection with fresh-start reporting, a new LIFO base layer
was established based on inventory levels at November 30, 1996. The effects of
liquidations of LIFO inventory quantities carried at lower costs prevailing in
prior years were immaterial.
F-23
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective December 1, 1995, the Company changed its method of computing
LIFO inventories of boron, germanium and other rare metals from a
double-extension method to an index method. The Company believes that the index
method results in better matching of revenues and expenses. The cumulative
effect of the change on prior years was $1.2 million on an after tax basis. The
effect of this change was to increase net income $8.1 million in fiscal year
1996.
F. OTHER ASSETS
Other assets consisted of:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Prepaid pension cost -- Note J............................................... $36,621 $34,724
Investments in and receivables from unconsolidated affiliates................ 8,732 3,102
Notes receivable -- Note N................................................... 3,920 2,797
Other........................................................................ 4,272 7,916
------------- -----------
$53,545 $48,539
------------- -----------
------------- -----------
</TABLE>
On June 1, 1997, the Company contributed certain of the assets of the
former Suspension Systems Division totaling $5.1 million to a joint venture,
Eagle-Picher-Boge, L.L.C. ('E-P-Boge'). The Company retained a 45% interest in
E-P-Boge and recorded no gain on this transaction. The Company is accounting for
this investment in accordance with the equity method. The Company also received
a note from E-P-Boge in the amount of $2,827,000. This note is due June 1, 2000,
and bears interest of 7.5%. The note is secured by the accounts receivable of
E-P-Boge. Included in the Consolidated Statements of Income (Loss) are the
following results of the former Suspension Systems Division:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales............................................................ $10,577 $19,606 $18,681
------- ------- -------
------- ------- -------
Operating income (loss).............................................. $ 96 $ (998) $ (506)
------- ------- -------
------- ------- -------
</TABLE>
G. LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Credit Agreements
On the Effective Date, the Company entered a financing agreement which
provides a three-year, $60,000,000 unsecured committed revolving credit facility
(the 'Facility'). The Facility expires November 29, 1999 and is available for
cash borrowings and issuance of letters of credit. The Facility replaced debtor
in possession financing (the 'Debtor in Possession Facility') which provided a
$40,000,000 committed revolving credit facility secured by accounts receivable
and inventories. There were no cash borrowings under either revolving credit
facility at any time during 1997 or 1996. Letters of credit totaling $27,700,000
and $32,200,000 were outstanding at November 30, 1997 and 1996, respectively,
leaving the Company with $32,300,000 and $27,800,000, respectively, of borrowing
capacity.
Fees for letters of credit have declined from 1.5% to 1.25% per annum and
commitment fees on the unused portion have declined from .4% to .3% per annum.
The Facility contains covenants which limit other debt and asset sales (other
than those funding the Divestiture Notes), prohibit dividends and the sale of
Company securities by the PI Trust, and require minimum financial coverages and
bank approval for certain changes in corporate management and control. The
Company was in compliance with the covenants of the Facility at November 30,
1997. It is anticipated, however, that the Facility would be replaced with
another financing agreement upon sale of the Company.
F-24
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Several of the Company's foreign subsidiaries have entered into agreements
with various banks which provide lines of credit totaling approximately
$20,200,000 at November 30, 1997 and $18,100,000 at November 30, 1996. At
November 30, 1997, $5,000,000 of borrowings were outstanding leaving $15,200,000
in borrowing capacity. There were no borrowings outstanding on any of these
agreements at November 30, 1996. These agreements, of which the substantial
majority is committed and unsecured, expire in 1998 and 2001. The annual rates
of interest on these lines of credit range from .75% to 1.5% over the banks'
base rates. Some have no commitment fees; the fees on the others range from .25%
to .65% per annum on the unused portion. These agreements also contain covenants
which include restrictions on dividends and minimum financial requirements. The
Company is in compliance with these covenants at November 30, 1997.
Long-term debt consisted of:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Senior unsecured sinking fund debentures..................................... $ 250,000 $ 250,000
Divestiture notes............................................................ -- 50,000
Tax refund notes............................................................. -- 69,146
Industrial revenue bonds..................................................... 18,400 10,475
Secured notes................................................................ -- 6,818
Debt of foreign subsidiaries................................................. 4,997 --
------------- -----------
273,397 386,439
Less:
Current portion.............................................................. 3,403 70,378
------------- -----------
Long-term debt, less current portion......................................... $ 269,994 $ 316,061
------------- -----------
------------- -----------
</TABLE>
Long-term debt had estimated fair value of approximately $287,000,000 at
November 30, 1997 and the estimated fair value approximated carrying value at
November 30, 1996. The estimated fair value of long-term debt was calculated
using discounted cash flow analysis based on current rates offered for similar
debt issues.
Senior Unsecured Sinking Fund Debentures
The Company issued Senior Sinking Fund Debentures ('Debentures') to the PI
Trust on the Effective Date in the amount of $250 million. The Debentures bear
interest of 10% per annum, payable semi-annually, and mature in ten years. The
Debentures will have a mandatory sinking fund of $20 million annually in the
third through ninth years, with a final payment of $110 million at maturity.
Beginning in the third year, the Company has the option to retire additional
amounts of principal; however, a premium will be due on the amount in excess of
twice the scheduled sinking fund amount. It is anticipated that the Debentures
will be retired in conjunction with the Purchase Agreement and the premium for
pre-payment will be waived.
Divestiture Notes
The Divestiture Notes, which were issued to the PI Trust and other
unsecured creditors on the Effective Date, were unsecured, bore interest of 9%
and were to mature November 29, 1999. These notes were repaid on August 25,
1997, without a penalty.
Tax Refund Notes
The Company issued Tax Refund Notes in the aggregate principal amount of
the expected Federal income tax refund (see Note H), to the PI Trust on the
Effective Date. These notes were repaid in 1997 when the Federal income tax
refund was received.
F-25
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Industrial Revenue Bonds
Certain secured industrial revenue bonds, due in 2002 and 2004, were
reinstated at their original terms during the chapter 11 process. The Company
issued an additional industrial revenue bond in 1997 in the amount of $8 million
which matures in 2012. Generally, the industrial revenue bonds bear interest at
variable rates based on the market for similar issues and are secured by letters
of credit.
Secured Notes
Certain secured notes, which were reissued on the effective date at 10% per
annum, were repaid in 1997.
The Company paid interest of $31,044,000, $2,767,000 and $1,966,000 during
1997, 1996 and 1995, respectively.
Long-term debt is scheduled to mature over the next five years as follows:
$3,403,000 in 1998, $20,080,000 in 1999, $20,080,000 in 2000, $21,754,000 in
2001 and $20,080,000 in 2002.
Lease Commitments
Future minimum rental commitments over the next five years as of November
30, 1997 under noncancellable operating leases, which expire at various dates,
are as follows: $3,450,000 in 1998, $2,930,000 in 1999, $2,460,000 in 2000,
$1,200,000 in 2001 and $530,000 in 2002. Rental expense in 1997, 1996, 1995 was
approximately $4,900,000, $5,000,000 and $4,600,000, respectively.
Acquisition by Granaria
On February 24, 1998 ('Closing Date'), the Company was acquired by a
subsidiary of Granaria Industries BV ('Granaria'), Eagle-Picher Holdings, Inc.
('Parent'), from the PI Trust. Upon closing of the acquisition, the Parent
received a $100 million equity investment from Granaria and an equity partner.
Parent also received proceeds approximating $80 million from a preferred stock
issue. All proceeds were invested in the Company, which issued approximately
$180 million of common stock to the Parent. The Company also borrowed $225
million in term loans and $79.1 million in revolving credit loans under a
syndicated senior loan facility ('New Facility'), and issued $220 million in
senior subordinated notes ('Subordinated Notes'). The Facility was terminated.
The proceeds from the common stock, borrowings under the New Facility and
Subordinated Notes were used to redeem the Debentures and the common stock held
by the Trust.
Both the New Facility and the Subordinated Notes are guaranteed on a full,
unconditional, and joint and several basis by certain of the Company's
wholly-owned domestic subsidiaries ('Guarantors'). Management has determined
that full financial statements of the Guarantors would not be material, and such
financial statements are not presented. The following supplemental condensed
combining financial statements present information regarding the Guarantors, the
issuer of the debt and the subsidiaries that did not guarantee the debt.
F-26
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
-------- ---------- ------------ --------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales
Customers............................. $255,330 $489,304 $ 82,839 $ 78,604 $ -- $906,077
Intercompany.......................... 12,345 9,512 5,775 29 (27,661) --
Operating costs and expenses
Cost of products sold................. 202,259 407,006 71,144 71,688 (27,087) 725,010
Selling and administrative............ 42,766 22,280 7,756 4,624 (317) 77,109
Intercompany charges.................. (11,015) 9,055 -- 1,960 -- --
Depreciation.......................... 11,523 21,001 3,609 3,538 -- 39,671
Amortization of intangibles........... 3,254 13,030 34 -- -- 16,318
Loss on sale of divisions............. 699 1,712 -- -- -- 2,411
-------- ---------- ------------ --------- ------------ --------
Total............................ 249,486 474,084 82,543 81,810 (27,404) 860,519
Operating income (loss).................... 18,189 24,732 6,071 (3,177) (257) 45,558
Other income (expense)
Interest expense...................... (30,932) (131) (202) -- 4 (31,261)
Other income (expense)................ 1,105 147 (231) 113 (1,385) (251)
-------- ---------- ------------ --------- ------------ --------
Income (loss) before taxes................. (11,638) 24,748 5,638 (3,064) (1,638) 14,046
Income taxes............................... 9,659 8,719 (636) 158 -- 17,900
-------- ---------- ------------ --------- ------------ --------
Net income (loss).......................... $(21,297) $ 16,029 $ 6,274 $ (3,222) $ (1,638) $ (3,854)
-------- ---------- ------------ --------- ------------ --------
-------- ---------- ------------ --------- ------------ --------
</TABLE>
F-27
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 48,834 $ 561 $ 4,344 $ -- $ 53,739
Receivables.................................. 36,541 72,992 21,394 -- 130,927
Intercompany accounts receivable............. 2,982 3,295 -- (6,277) --
Income tax refunds receivable................ 3,025 -- -- -- 3,025
Inventories.................................. 32,309 48,830 12,432 (1,375) 92,196
Prepaid expenses............................. 5,618 2,401 271 -- 8,290
Deferred income taxes........................ 13,793 -- -- -- 13,793
-------- ---------- -------------- ------------ --------
Total current assets.................... 143,102 128,079 38,441 (7,652) 301,970
Property, plant and equipment................ 72,630 135,560 35,348 -- 243,538
Investment in subsidiaries................... 59,981 5,186 -- (65,167) --
Deferred income taxes........................ 98,991 -- -- -- 98,991
Reorganization value in excess of amounts
allocable to indentifiable assets.......... 9,746 39,091 -- -- 48,837
Other assets................................. 36,395 16,462 688 -- 53,545
-------- ---------- -------------- ------------ --------
Total assets............................ $420,845 $324,378 $ 74,477 $(72,819) $746,881
-------- ---------- -------------- ------------ --------
-------- ---------- -------------- ------------ --------
LIABILITIES AND
SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................ $ 16,974 $ 28,257 $ 7,655 $ -- $ 52,886
Intercompany accounts payable........... -- -- 6,247 (6,247) --
Accrued liabilities..................... 29,404 22,440 3,713 (138) 55,419
Income taxes............................ 2,284 -- 10 -- 2,294
Long-term debt -- current portion....... 80 -- 3,323 -- 3,403
-------- ---------- -------------- ------------ --------
Current liabilities................ 48,742 50,697 20,948 (6,385) 114,002
Long-term debt -- less current portion....... 268,320 -- 1,674 -- 269,994
Other liabilities............................ 26,768 -- -- -- 26,768
-------- ---------- -------------- ------------ --------
Total liabilities.................. 343,830 50,697 22,622 (6,385) 410,764
Intercompany accounts........................ (240,324) 210,930 16,895 12,499 --
Shareholder's Equity......................... 317,339 62,751 34,960 (78,933) 336,117
-------- ---------- -------------- ------------ --------
Total liabilities and shareholder's
equity........................... $420,845 $324,378 $ 74,477 $(72,819) $746,881
-------- ---------- -------------- ------------ --------
-------- ---------- -------------- ------------ --------
</TABLE>
F-28
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- ---------- ------------ --------- ------------ ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss)...................... $ (21,297) $ 16,029 $ 6,274 $(3,222) $ (1,638) $ (3,854)
Adjustments to reconcile net income loss to
cash provided by (used in) operating
activities:
Depreciation and amortization.......... 14,777 34,031 3,643 3,538 -- 55,989
Loss on sale of divisions.............. 699 1,712 -- -- -- 2,411
Change in assets and liabilities:
Income tax refunds receivable.......... 70,695 -- -- -- -- 70,695
Deferred income taxes.................. 15,700 -- -- -- -- 15,700
Working capital and other items........ (1,684) 9,991 (5,655) 3,051 1,239 6,942
--------- ---------- ------------ --------- ------------ ---------
Net cash provided by (used in)
operating activities............ 78,890 61,763 4,262 3,367 (399) 147,883
Cash Flows From Investing Activities:
Proceeds from sale of divisions........ 30,735 8,272 -- -- -- 39,007
Capital expenditures................... (8,454) (31,396) (10,694) (780) -- (51,324)
Other.................................. (1,670) 50 (1,271) (4) 1,385 (1,510)
--------- ---------- ------------ --------- ------------ ---------
Net cash provided by (used in)
investing activities............ 20,611 (23,074) (11,965) (784) 1,385 (13,827)
Cash Flows From Financing Activities:
Issuance of long-term debt............. 8,000 -- 4,997 -- -- 12,997
Reduction of long-term debt............ (126,039) -- -- -- -- (126,039)
--------- ---------- ------------ --------- ------------ ---------
Net cash provided by (used in)
financing activities............ (118,039) -- 4,997 -- -- (113,042)
--------- ---------- ------------ --------- ------------ ---------
Increase (decrease) in cash and cash
equivalents............................... (18,538) 38,689 (2,706) 2,583 986 21,014
Intercompany accounts....................... 41,283 (38,681) 1,065 (2,681) (986) --
Cash and cash equivalents, beginning of
year...................................... 26,089 553 5,985 98 -- 32,725
--------- ---------- ------------ --------- ------------ ---------
Cash and cash equivalents,
end of year............................... $ 48,834 $ 561 $ 4,344 $ -- $ -- $ 53,739
--------- ---------- ------------ --------- ------------ ---------
--------- ---------- ------------ --------- ------------ ---------
</TABLE>
F-29
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
NON-GUARANTORS
-----------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ---------- ------------ --------- ------------ ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales
Customers............................ $ 242,537 $432,194 $ 78,440 $ 138,116 $ -- $ 891,287
Intercompany......................... 11,944 6,990 5,551 80 (24,565) --
Operating costs and expenses
Cost of products sold................ 196,102 357,062 64,314 122,367 (22,919) 716,926
Selling and administrative........... 42,262 22,616 8,834 9,166 (1,373) 81,505
Intercompany charges................. (10,010) 7,281 -- 2,729 -- --
Depreciation......................... 7,534 14,432 2,603 5,769 -- 30,338
Amortization of intangibles.......... 325 74 -- 13 -- 412
---------- ---------- ------------ --------- ------------ ----------
Total........................... 236,213 401,465 75,751 140,044 (24,292) 829,181
Operating income (loss)................... 18,268 37,719 8,240 (1,848) (273) 62,106
Other income (expense)
Interest expense..................... (2,914) -- (157) -- (12) (3,083)
Other income (expense)............... 574 (206) 939 26 12 1,345
Asbestos litigation and other
claims............................. 497,953 -- -- -- -- 497,953
---------- ---------- ------------ --------- ------------ ----------
Income (loss) before reorganization items,
taxes, extraordinary item and cumulative
effect of accounting change............. 513,881 37,513 9,022 (1,822) (273) 558,321
Reorganization items...................... 116,335 -- -- -- -- 116,335
Income taxes.............................. (46,090) (1,999) (4,326) (155) -- (52,570)
---------- ---------- ------------ --------- ------------ ----------
Income (loss) before extraordinary item
and cumulative effect of accounting
change.................................. 584,126 35,514 4,696 (1,977) (273) 622,086
Extraordinary item -- gain on discharge
of pre-petition liabilities............. 1,525,540 -- -- -- -- 1,525,540
Cumulative effect of change in accounting
for inventories......................... (1,235) -- -- -- -- (1,235)
---------- ---------- ------------ --------- ------------ ----------
Net income (loss)......................... $2,108,431 $ 35,514 $ 4,696 $ (1,977) $ (273) $2,146,391
---------- ---------- ------------ --------- ------------ ----------
---------- ---------- ------------ --------- ------------ ----------
</TABLE>
F-30
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- ---------- ------------ --------- ------------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 26,089 $ 553 $ 5,985 $ 98 $ -- $ 32,725
Receivables.................................. 34,258 64,400 17,436 16,781 -- 132,875
Intercompany accounts receivable............. 2,721 2,915 -- -- (5,636) --
Income tax refunds receivable................ 73,720 -- -- -- -- 73,720
Inventories.................................. 28,139 49,874 10,408 14,480 -- 102,901
Prepaid expenses............................. 3,067 3,449 505 1,143 -- 8,164
Deferred income taxes........................ 26,351 -- -- -- -- 26,351
--------- ---------- ------------ --------- ------------ --------
Total current assets.................... 194,345 121,191 34,334 32,502 (5,636) 376,736
Property, plant and equipment................ 75,865 125,586 28,879 26,021 -- 256,351
Investment in subsidiaries................... 58,743 24,960 -- -- (83,703) --
Deferred income taxes........................ 102,133 -- -- -- -- 102,133
Reorganization value in excess of amounts
allocable to identifiable assets........... 13,000 52,121 -- -- -- 65,121
Other assets................................. 25,561 14,045 630 8,303 -- 48,539
--------- ---------- ------------ --------- ------------ --------
Total assets............................ $ 469,647 $337,903 $ 63,843 $ 66,826 $(89,339) $848,880
--------- ---------- ------------ --------- ------------ --------
--------- ---------- ------------ --------- ------------ --------
LIABLITIES AND
SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................ $ 14,844 $ 16,210 $ 4,959 $ 5,022 $ -- $ 41,035
Intercompany accounts payable........... -- -- 5,608 -- (5,608) --
Accrued liabilities..................... 25,522 15,199 5,897 3,248 -- 49,866
Income taxes............................ 3,038 -- 611 -- -- 3,649
Long-term debt -- current portion....... 70,378 -- -- -- -- 70,378
--------- ---------- ------------ --------- ------------ --------
Current liabilities................ 113,782 31,409 17,075 8,270 (5,608) 164,928
Long-term debt -- less current portion....... 316,061 -- -- -- -- 316,061
Other liabilities............................ 25,495 -- 589 -- -- 26,084
--------- ---------- ------------ --------- ------------ --------
Total liabilities.................. 455,338 31,409 17,664 8,270 (5,608) 507,073
Intercompany accounts........................ (327,498) 259,714 15,830 38,469 13,485 --
Shareholder's Equity......................... 341,807 46,780 30,349 20,087 (97,216) 341,807
--------- ---------- ------------ --------- ------------ --------
Total Liabilities and Shareholder's
Equity........................... $ 469,647 $337,903 $ 63,843 $ 66,826 $(89,339) $848,880
--------- ---------- ------------ --------- ------------ --------
--------- ---------- ------------ --------- ------------ --------
</TABLE>
F-31
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
NON-GUARANTORS
-----------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ---------- ------------ --------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $2,108,431 $ 35,514 $ 4,696 $ (1,977) $ (273) $ 2,146,391
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Non-cash adjustments relating to non-
operating income items..................... (2,140,942) -- -- -- -- (2,140,942)
Depreciation and amortization................ 7,859 14,506 2,603 5,782 -- 30,750
Change in assets and liabilities:
Deferred income taxes................... 29,170 -- -- -- -- 29,170
Working capital and other items......... 17,044 (15,532) 636 6,505 (1,161) 7,492
---------- ---------- ------------ --------- ------------ -----------
Net cash provided by (used in)
operating acitivities............ 21,562 34,488 7,935 10,310 (1,434) 72,861
Cash flows from investing activities:
Proceeds from sale of divisions......... 4,248 -- -- -- -- 4,248
Capital expenditures.................... (9,417) (25,074) (5,602) (4,864) -- (44,957)
Other................................... (661) (1,246) 108 44 694 (1,061)
---------- ---------- ------------ --------- ------------ -----------
Net cash provided by (used in)
investing activities............. (5,830) (26,320) (5,494) (4,820) 694 (41,770)
Cash flows from financing activities......... -- --
Reduction of long-term debt............. (1,520) -- (1,678) -- -- (3,198)
Cash payments on effective date of plan of
reorganization............................. (88,498) -- -- -- -- (88,498)
---------- ---------- ------------ --------- ------------ -----------
Increase (decrease) in cash and cash
equivalents................................ (74,286) 8,168 763 5,490 (740) (60,605)
Intercompany accounts........................ 13,409 (8,676) 196 (5,669) 740 --
Cash and cash equivalents, beginning of
year....................................... 86,966 1,061 5,026 277 -- 93,330
---------- ---------- ------------ --------- ------------ -----------
Cash and cash equivalents,
end of year................................ $ 26,089 $ 553 $ 5,985 $ 98 $ -- $ 32,725
---------- ---------- ------------ --------- ------------ -----------
---------- ---------- ------------ --------- ------------ -----------
</TABLE>
F-32
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
FOREIGN DIVESTED
ISSUER GUARANTOR SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
----------- --------- ------------ --------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales
Customers........................... $ 246,377 $ 381,297 $ 75,141 $ 145,733 $ -- $ 848,548
Intercompany........................ 11,028 6,394 3,143 51 (20,616) --
Operating costs and expenses
Cost of products sold............... 198,632 314,195 62,020 126,450 (19,924) 681,373
Selling and administrative.......... 40,812 20,027 6,657 8,531 (647) 75,380
Intercompany charges................ (9,846) 6,140 -- 3,706 -- --
Depreciation........................ 6,716 13,436 2,391 5,753 -- 28,296
Amortization of intangibles......... 325 74 -- 13 -- 412
----------- --------- ------------ --------- ------------ -----------
Total.......................... 236,639 353,872 71,068 144,453 (20,571) 785,461
Operating income (loss).................. 20,766 33,819 7,216 1,331 (45) 63,087
Other income (expense)
Interest expense.................... (1,770) -- (189) -- 33 (1,926)
Other income (expense).............. 11,379 377 210 (137) (125) 11,704
Adjustment for asbestos
litigation........................ (1,005,511) -- -- -- -- (1,005,511)
----------- --------- ------------ --------- ------------ -----------
Income (loss) before taxes and
reorganization items................... (975,136) 34,196 7,237 1,194 (137) (932,646)
Reorganization items..................... (2,225) -- -- -- -- (2,225)
Income taxes............................. (3,824) (2,011) (3,377) (88) -- (9,300)
----------- --------- ------------ --------- ------------ -----------
Net income (loss)........................ $ (981,185) $ 32,185 $ 3,860 $ 1,106 $ (137) $ (944,171)
----------- --------- ------------ --------- ------------ -----------
----------- --------- ------------ --------- ------------ -----------
</TABLE>
F-33
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- ---------- ------------ --------- ------------ ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $(981,185) $ 32,185 $ 3,860 $ 1,106 $ (137) $(944,171)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Non-cash adjustments relating to
non-operating income items........... 994,006 -- -- -- -- 994,006
Depreciation and amortization.......... 7,041 13,510 2,391 5,766 -- 28,708
Change in assets and liabilities:
Deferred income taxes.................. (18,900) -- -- -- -- (18,900)
Working capital and other items........ (9,738) (9,137) (4,302) (6,095) 85 (29,187)
--------- ---------- ------------ --------- ------ ---------
Net cash provided by (used in)
operating activities............ (8,776) 36,558 1,949 777 (52) 30,456
Cash flows from investing activities:
Proceeds from sale of investment....... 11,505 -- -- -- -- 11,505
Capital expenditures................... (17,582) (11,051) (5,620) (6,305) -- (40,558)
Other.................................. (1,337) (1,518) 2,414 (176) 957 340
--------- ---------- ------------ --------- ------ ---------
Net cash provided by (used in)
investing activities............ (7,414) (12,569) (3,206) (6,481) 957 (28,713)
Cash flows from financing activities:
Issuance of long-term debt............. -- -- 1,240 -- -- 1,240
Reduction of long-term debt............ (1,597) (42) (620) -- -- (2,259)
--------- ---------- ------------ --------- ------ ---------
Net cash provided by (used in)
investing activities............ (1,597) (42) 620 -- -- (1,019)
--------- ---------- ------------ --------- ------ ---------
Increase (decrease) in cash and cash
equivalents............................... (17,787) 23,947 (637) (5,704) 905 724
Intercompany accounts....................... 17,462 (23,300) 1,006 5,737 (905) --
Cash and cash equivalents, beginning of
year...................................... 87,291 414 4,657 244 -- 92,606
--------- ---------- ------------ --------- ------ ---------
Cash and cash equivalents, end of year...... $ 86,966 $ 1,061 $ 5,026 $ 277 $-- $ 93,330
--------- ---------- ------------ --------- ------ ---------
--------- ---------- ------------ --------- ------ ---------
</TABLE>
F-34
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES
The following is a summary of the components of income taxes (benefit) from
operations and fresh start revaluation in 1996:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal......................................................... $ 1,000 $17,200 $20,900
Foreign......................................................... (600) 4,350 3,400
State and local................................................. 1,800 1,850 3,900
------- ------- -------
2,200 23,400 28,200
Deferred:
Federal......................................................... 11,300 29,170 (18,900)
State and local................................................. 4,400 -- --
------- ------- -------
15,700 29,170 (18,900)
------- ------- -------
$17,900 $52,570 $ 9,300
------- ------- -------
------- ------- -------
</TABLE>
Total income tax benefit for the year ended November 30, 1996 of
$117,880,000 consisted of $52,570,000 expense from operations and the
fresh-start revaluation, $169,785,000 tax benefit from the extraordinary gain on
the discharge of pre-petition liabilities, and $665,000 tax benefit from the
cumulative effect of the change in accounting for inventories.
The sources of income (loss) before income tax expense (benefit),
extraordinary gain on discharge of pre-petition liabilities and cumulative
effect of accounting change are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States..................................................... $ 7,873 $665,907 $(941,971)
Foreign........................................................... 6,173 8,749 7,100
------- -------- ---------
$14,046 $674,656 $(934,871)
------- -------- ---------
------- -------- ---------
</TABLE>
The differences between the total income tax expense from operations and
fresh start revaluation in 1996 and the income tax expense computed using the
Federal income tax rate were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income tax expense (benefit) at Federal statutory rate............. $ 4,900 $ 236,130 $(327,200)
Change in valuation allowance...................................... 1,200 (187,950) 332,900
Foreign taxes rate differential.................................... (3,800) 900 600
State and local taxes, net of Federal benefit...................... 3,600 1,200 2,500
Non-deductible amortization of reorganization value in excess of
amounts allocable to identifiable assets......................... 5,700 -- --
Non-deductible fresh start items................................... -- 4,100 --
Expired tax credits................................................ 5,900 -- --
Other.............................................................. 400 (1,810) 500
------- --------- ---------
Total income tax expense................................. $17,900 $ 52,570 $ 9,300
------- --------- ---------
------- --------- ---------
</TABLE>
F-35
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred tax balances as of November 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.............................................. $(46,761) $(58,885)
Prepaid pension............................................................ (12,817) (12,154)
Other...................................................................... (5,735) (6,461)
-------- --------
Total deferred tax liabilities........................................ (65,313) (77,500)
-------- --------
Deferred tax assets:
Notes to former creditors.................................................. 87,500 122,787
Net operating loss carryforwards........................................... 74,142 64,328
Credit carryforwards....................................................... 14,686 20,653
Accrued liabilities........................................................ 14,356 9,851
Postretirement benefit liability........................................... 7,588 7,586
Other...................................................................... 8,067 7,851
-------- --------
Total deferred tax assets............................................. 206,339 233,056
-------- --------
Valuation allowance........................................................ (28,242) (27,072)
-------- --------
Net deferred tax assets............................................... $112,784 $128,484
-------- --------
-------- --------
</TABLE>
At November 30, 1997, undistributed earnings of foreign subsidiaries
totaled $30 million. Deferred tax liabilities have not been recognized for these
undistributed earnings because it is management's intention to reinvest such
undistributed earnings outside the United States. If all undistributed earnings
were remitted to the United States, the amount of incremental United States
Federal and foreign income taxes payable, net of foreign tax credits, would be
approximately $10.5 million.
On the Effective Date, the Company contributed cash, notes and stock to the
PI Trust and distributed cash and notes to other unsecured creditors. The
distribution of cash and stock resulted in a net operating loss for tax purposes
for the fiscal year ended November 30, 1996. A portion of this operating loss
was applied to prior years' taxable income according to carryback rules to
generate a Federal tax refund of $69,146,000 which was received in 1997. The
remainder is carried forward to offset taxable income in future years.
Deductions for the notes distributed are taken as the notes are repaid. Net
operating loss carryforwards of approximately $161 million and $34 million will
expire in 2011 and 2012, respectively.
As a result of the net operating loss carried back to obtain a refund, tax
credits totaling $9,708,000, which had been previously used to reduce tax
liability in the carryback years, were restored and are available to offset tax
liability in future years. These credits are scheduled to expire in the years
1998 through 2012, but are expected to expire unutilized. Therefore, a provision
for these items is included in the valuation allowance. The Company also has
available minimum tax credits of approximately $5,000,000 which may be used
indefinitely to reduce Federal income tax liability.
While the Company was in chapter 11, significant uncertainties existed
relating to the amounts of deferred tax benefits that would be realized.
Accordingly, the valuation allowance reflected these uncertainties. The Company
reversed a significant portion of the valuation allowance upon emergence from
chapter 11 when the Company was able to determine more accurately the amounts of
the deferred tax benefits. Based on its history of prior years' operations and
its expectations for the future, the Company has determined that it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize the deferred tax benefits before they expire,
excluding the tax credits referred to above. Although the Automotive Segment is
susceptible to economic cycles and recessions, the Industrial and Machinery
Segments of the Company consist of certain businesses which are not impacted as
significantly by economic downturns.
F-36
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid income taxes, net of refunds received, of $4,300,000 in
1997 (with the exception of the Federal tax refund received of $69,146,000),
$17,300,000 in 1996 and $28,800,000 in 1995.
I. INCOME (LOSS) PER SHARE
The calculation of net income (loss) per share is based upon the average
number of shares outstanding. The average number of shares used in the
computation of net income (loss) per share was 10,000,000 in 1997 and 11,040,932
in 1996 and 1995.
J. RETIREMENT BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are covered
by various pension or profit sharing retirement plans. The cost of providing
retirement benefits was $1,900,000 in 1997, $2,300,000 in 1996 and $1,900,000 in
1995. Amounts for a supplemental executive retirement plan to provide senior
management with benefits in excess of normal pension benefits are included in
the cost of providing retirement benefits. Under the plan, annuities are
purchased by the Company and distributed to participants on an annual basis. The
cost of these annuities was $1,058,000 in 1997, $1,279,000 in 1996 and $964,000
in 1995.
The Company's funding policy for defined benefit plans is to fund amounts
on an actuarial basis to provide for current and future benefits in accordance
with the funding guidelines of ERISA.
Plan benefits for salaried employees are based primarily on employees'
highest five consecutive years' earnings during the last ten years of
employment. Plan benefits for hourly employees typically are based on a dollar
unit multiplied by the number of service years.
Net periodic pension expense for the Company's defined benefit plans
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost-benefits earned during the period...................... $ 4,848 $ 5,497 $ 4,001
Interest cost on projected benefit obligation....................... 14,276 13,701 12,972
Actual gain on plan assets.......................................... (36,544) (29,296) (40,975)
Net amortization and deferral....................................... 16,669 10,000 24,336
-------- -------- --------
Net periodic pension cost (income).................................. $ (751) $ (98) $ 334
-------- -------- --------
-------- -------- --------
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of
$1,662,000 due to the reduction in active participants in the Company's
retirement plans that resulted primarily from the divestiture of divisions.
The plans' assets consist primarily of listed equity securities and
publicly traded notes and bonds. The actual net return on plan assets was 15.3%
in 1997, 13.5% in 1996 and 21.2% in 1995, and generally reflects the performance
of the equity and bond markets.
F-37
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at November 30:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................................ $(184,123) $(168,896)
--------- ---------
--------- ---------
Accumulated benefit obligation........................................... $(191,148) $(175,191)
--------- ---------
--------- ---------
Projected benefit obligation............................................. $(209,701) $(191,667)
Plan assets at fair value..................................................... 250,036 226,391
--------- ---------
Projected benefit obligation less than plan assets............................ 40,335 34,724
Unrecognized net gain......................................................... (3,761) --
Unrecognized prior service cost............................................... 47 --
--------- ---------
Prepaid pension cost recognized............................................... $ 36,621 $ 34,724
--------- ---------
--------- ---------
</TABLE>
The discount rate and weighted average rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.0% and 4.2%, and 7.5% and 4.2%,
respectively, at November 30, 1997 and 1996, respectively. The expected
long-term rate of return on assets was 9.0% in 1997 and in 1996.
Upon the adoption of fresh start reporting, all unrecognized items as of
November 30, 1996 were recognized and recorded on the Company's Consolidated
Balance Sheet.
K. EMPLOYEE BENEFITS OTHER THAN PENSIONS
In addition to providing pension retirement benefits, the Company makes
health care and life insurance benefits available to certain retired employees
on a limited basis. Generally, the medical plans pay a stated percentage of
medical expenses reduced by deductibles and other coverages. Eligible employees
may elect to be covered by these health and life insurance benefits if they
reach early or normal retirement age while working for the Company. In most
cases, a retiree contribution for health insurance coverage is required. The
Company funds these benefit costs primarily on a pay-as-you-go basis. The net
amounts funded approximate $1,000,000 on an annual basis.
The components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period.......................... $ 554 $ 710 $ 396
Interest cost on accumulated postretirement benefit obligation............. 1,241 1,424 1,202
Amortization of unrecognized net gain...................................... (93) -- (179)
------ ------ ------
Net periodic postretirement benefit cost................................... $1,702 $2,134 $1,419
------ ------ ------
------ ------ ------
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of $564,000
due to the reduction in eligible employees that resulted primarily from the
divestiture of divisions.
F-38
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accumulated postretirement benefit obligation at November 30 consisted
of the following components:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Retirees and dependents........................................................... $10,670 $12,561
Eligible active participants...................................................... 2,074 2,021
Other active participants......................................................... 6,993 7,093
------- -------
Accumulated postretirement benefit obligation..................................... 19,737 21,675
Unrecognized net gain............................................................. 1,944 --
------- -------
Accrued postretirement benefit costs.............................................. $21,681 $21,675
------- -------
------- -------
</TABLE>
Benefit costs were estimated assuming retiree health care costs would
initially increase at an 9% annual rate which decreases to an ultimate rate of
6% in 4 years. If this annual trend rate would increase by 1%, the accumulated
postretirement obligation as of November 30, 1997 would increase by $2,460,000
with a corresponding increase of $323,000 in the postretirement benefit expense
in 1997. The discount rates used in determining the accumulated postretirement
obligation at November 30, 1997 and 1996 were 6.5% and 7.0%, respectively. The
unrecognized net gain as of November 30, 1996 was recognized and recorded in the
Consolidated Balance Sheet per the provisions of fresh-start reporting.
L. ASBESTOS LITIGATION AND CLAIMS
As discussed in Note B, above, the Plan provides that all present and
future asbestos-related personal injury claims will be channeled to and resolved
by the PI Trust. Such claims result from exposure to asbestos-containing
industrial insulation products that the Company manufactured from 1934 to 1971.
The Company expects that the approximately 150,000 such claims that were filed
pursuant to the bar date for such claims, and the tens of thousands of such
claims that will arise for several decades into the future, will be administered
and resolved by such trust. In fact, the Company has learned that the PI Trust
began resolving and paying such claims in fiscal 1997.
Further, the Company expects that the channeling injunction provided by
section 524 of the Bankruptcy Code will prevent any such claimants from
prosecuting such claims against the reorganized Company. The Company is not
aware of any attempt by any asbestos-related personal injury claimant to nullify
the channeling injunction provided by section 524 of the Bankruptcy Code
subsequent to the entry of that injunction by the Bankruptcy Court and the
District Court in November, 1996.
In addition, the Plan also resolved and discharged all asbestos property
damage claims against the Company. The class of holders of such claims voted to
accept a settlement for such claims that was contained in the Plan. Pursuant to
the settlement, the Company has set aside $3 million in cash to fund the PD
Trust to resolve such claims. Certain of the holders of such claims will appoint
trustees to establish and administer such trust. The Company expects that such
trust will be established in due course. Further, the Company expects that an
injunction provided by the Plan, which orders all holders of asbestos property
claims to pursue such claims solely against the PD Trust, will prevent any such
claimants from prosecuting such claims against the reorganized Company.
M. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS
Most of the pre-petition claims against the Company alleging a right to
payment due to environmental and litigation matters were resolved prior to the
Effective Date. The holders of those claims which were allowed have received a
proportionate distribution of the assets of the estate based on the amount of
their claims to the total liabilities of the Company.
F-39
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the items discussed below, the Company is also involved in
routine litigation, environmental proceedings and claims pending with respect to
matters arising out of the normal course of business. As of November 30, 1997,
the Company has reserved $6.1 million associated with environmental remediation
activities at some of its current and former sites. In management's opinion, the
ultimate liability resulting from all claims, individually or in the aggregate,
will not materially affect the Company's consolidated financial position,
results of operations or cash flows.
Environmental
The settlement among the Company, the United States Environmental
Protection Agency, and the United States Department of Interior which resolved
the majority of the 1,102 proofs of claim timely filed alleging a right to
payment because of environmental matters, was approved by the Bankruptcy Court
in June, 1996. Certain parties that may be liable at certain of the sites
resolved by the settlement appealed such approval. In August 1997, the District
Court affirmed the Bankruptcy Court's approval of the settlement. The time
within which such affirmance may be appealed has expired without any further
appeal having been taken. Thus, the settlement has become final and binding on
all parties.
One of the significant features of the settlement is the agreement with
respect to 'Additional Sites.' Additional Sites are those superfund sites for
which the Company's liability allegedly arises as a result of pre-petition waste
disposal or recycling. The Company retains all of its defenses, legal or
factual, at such sites. However, if the Company is found liable at any
Additional Sites or settles any claims for any Additional Sites, the Company is
required to pay as if such claims had been resolved in the reorganization under
chapter 11. Thus, the Company's liability at Additional Sites will be paid at
approximately 37% of any amount due.
In fiscal 1997, the Company received notice that it may have liability
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 at sixteen Additional Sites. The Company believes, after an
investigation of these claims, that it has only de minimis liability at thirteen
of these sites. Three of the sixteen sites may require expenditures above the de
minimis level. The Company has valid legal and factual defenses at these sites
and intends to contest vigorously its liability.
Lead Chemicals
The Plan that was consummated on November 29, 1996 provides that all
lead-related personal injury claims that were pending on the Plan's Effective
Date and all future lead-related personal injury claims, will be channeled to
and resolved by the PI Trust discussed in Notes B and L, above. The Company
expects that the channeling injunction provided by section 524 of the Bankruptcy
Code will prevent any such claimants from prosecuting such claims against the
reorganized Company. The Company is not aware of any attempt by any lead-related
personal injury claimant to nullify the channeling injunction provided by
section 524 of the Bankruptcy Code subsequent to the entry of that injunction by
the Bankruptcy Court and the District Court in November 1996. All claims
asserting liability against the Company based on property damage from lead
chemicals allegedly manufactured and sold by the Company were disallowed during
the reorganization.
Other Litigation Claims
In May 1997, Caradon Doors and Windows, Inc. ('Caradon') filed a suit
against the Company in the U.S. District Court in Atlanta, Georgia alleging
breach of contract and asserting contribution rights against the Company. Prior
to this suit, Caradon had been found liable to Therma-Tru Corporation
('Therma-Tru') in the amount of approximately $8.8 million for infringing a
Therma-Tru patent for plastic door components manufactured by the Company's now
divested Plastics Division. Caradon settled the litigation with Therma-Tru and
was seeking to recover some or all of its liability from the Company. In May
1997, Therma-Tru also attempted to hold the Company liable for patent
infringement
F-40
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for plastic door components that the Plastics Division manufactured and sold to
Pease Industries, Inc. ('Pease'). Further, after the Company divested its
Plastics Division in July 1997, Therma-Tru attempted to hold the purchaser of
the Plastics Division, Cambridge Industries, Inc. ('Cambridge'), liable for
infringement for Cambridge's manufacture of door components for Pease after the
divestiture, but using the prior technology. The Company had agreed to indemnify
Cambridge for those sales. Thus, Therma-Tru's suit against Cambridge might also
be a liability of the Company. The Company estimates that the total damages that
Therma-Tru is seeking to recover, jointly and severally, from the Company and
Pease in these two suits is approximately $11.4 million. The Company asserted,
in a motion filed to dismiss these claims, that all of Caradon's and
Therma-Tru's claims had been discharged in the Company's reorganization under
chapter 11. On December 24, 1997, the Bankruptcy Court decided that all of
Caradon's claim and approximately $9.8 million of Therma-Tru's claim were
discharged and could not be asserted against the Company. The Company believes
that these decisions will be upheld on appeal. Further, the Company believes
that it has valid legal and factual defenses and intends to contest vigorously
all such claims, either on appeal or in any proceeding on the approximately $1.6
million of Therma-Tru's claim that was not held to be discharged by the
Bankruptcy Court's decision.
In December 1997, two distributors of forklift trucks manufactured by the
Company's Construction Equipment Division filed suit against the Company and two
co-defendants in the Superior Court of Maricopa County, Arizona after such
distributors were notified that they would be terminated as distributors. The
suit alleged three causes of action, only two of which were against the Company.
The suit alleged that the Company violated the Arizona Equipment Dealer
Protection Law and breached its implied covenant of good faith and fair dealing.
The suit sought not less than $10 million in damages on each count pled against
the Company and not less than $30 million in punitive damages against all three
defendants. On February 17, 1998, this suit was dismissed after the Company
reversed its decision to terminate the distributors.
N. DIVESTITURES
Pursuant to the Plan, the Company sold its Plastics, Transicoil and
Fabricon Divisions to fund the repayment of the Divestiture Notes. The Company
received net cash proceeds of $39,007,000. The aggregate loss on these
transactions was $2,411,000.
The Company received a note for $3,719,000 from the buyer of the Fabricon
Division, which is included in Other Assets. The note bears interest of 8% per
annum and is secured by accounts receivable and inventory. Payments of $300,000
are required on the first and second anniversaries of the note with the balance
due on October 31, 2000.
The Company remains as guarantor on the lease of the building in which the
former Transicoil Division is located, and is liable should the buyer not
perform on the lease. The remaining lease payments total approximately
$10,100,000 over the lease term which expires in 2005. The Company believes the
likelihood of being liable for the lease to be remote.
Included in the Consolidated Statements of Income (Loss) are the following
results of these divested divisions (excluding net loss on sale of divisions):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales............................................................ $68,028 $118,508 $126,658
------- -------- --------
------- -------- --------
Operating income (loss).............................................. $(1,313) $ 1,732 $ 6,141
------- -------- --------
------- -------- --------
</TABLE>
O. OTHER INCOME
The Company held certain equity investments related to shares of stock in a
Canadian mining concern that the Company received in 1990 in settlement of
certain indebtedness. The Company had
F-41
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
previously deemed the investments to be permanently impaired and had recorded a
loss on the investments in the amount of its full book value. Subsequently, the
value of the stock increased significantly. These investments were sold in June
1995, resulting in realized gain of $11.5 million.
P. INDUSTRY SEGMENT INFORMATION
The Company is a diversified manufacturer serving global markets and many
industries. A general description of the products manufactured and the markets
served by the Company's three industry segments is:
Industrial
Diatomaceous earth products, rubber products, rare metals, fiberglass
reinforced plastic parts and industrial chemicals are produced by the Industrial
Segment operations serving the food and beverage, recreation, nuclear,
telecommunications, electronics, and other industrial markets globally. Sales
and operating income (excluding net loss on sale of divisions), respectively, of
divested operations included in this Segment were $29,534,000 and $1,500,000 in
1997, $39,344,000 and $1,008,000 in 1996 and $36,236,000 and $1,000,000 in 1995.
Machinery
The Machinery Segment serves the commercial aerospace, construction, food
and beverage and other industrial markets. Its products include earth moving
machines, heavy-duty forklift trucks, aerospace and defense batteries and
components, metal cleaning and finishing systems and other industrial machinery.
Divested operations included in this segment had sales and operating income
(excluding net loss on sale of divisions), respectively, of $12,788,000 and
$834,000 in 1997, $18,023,000 and $934,000 in 1996 and $14,766,000 and $715,000
in 1995.
Automotive
The operations in the Automotive Segment provide mechanical, structural,
and trim parts for passenger cars, trucks, vans and sport utility vehicles for
the original equipment manufacturers and replacement markets. Resources are
concentrated in serving the North American, European and Pacific Rim markets.
Sales and operating income (loss) (excluding net loss on sale of
divisions), respectively, of divested operations and operations contributed to
the E-P-Boge joint venture, which are included in the Automotive Segment were
$36,284,000 and $(3,551,000) in 1997, $80,747,000 and $(1,208,000) in 1996 and
$94,337,000 and $3,920,000 in 1995.
Consolidated sales to Ford Motor Company amounted to $170,500,000 in 1997,
$167,700,000 in 1996 and $166,800,000 in 1995. No other customer accounted for
10% or more of consolidated sales.
Other Information
Sales between segments were not material.
Research and development costs are expensed as incurred. In fiscal 1997,
the Company spent approximately $14,800,000 for research and development and
related activities, primarily for the development of new products or the
improvement of existing products. Comparable costs were $18,000,000 and
$17,300,000 for 1996 and 1995, respectively.
United States net sales include export sales to non-affiliated customers of
$113,600,000 in 1997, $108,500,000 in 1996 and $92,500,000 in 1995.
The Company does not derive more than 10% of its revenues from, nor do 10%
of its assets reside in, its foreign operations, which are located primarily in
Europe and Mexico. Intercompany transactions with foreign operations are made at
established transfer prices.
F-42
<PAGE>
<PAGE>
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
INDUSTRY SEGMENT INFORMATION
FOR THE YEARS ENDED NOVEMBER 30
<TABLE>
<CAPTION>
INDUSTRIAL MACHINERY
-------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Sales.............................................................. $200.1 $194.1 $160.6 $270.8 $257.6 $ 254.7
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Operating Income................................................... 15.0 20.6 15.6 20.0 22.5 24.1
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Depreciation and amortization...................................... 14.4 6.9 6.1 10.3 5.0 4.7
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Capital expenditures............................................... 10.6 10.8 4.4 5.9 4.5 7.6
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Identifiable assets................................................ 138.1 146.3 80.6 122.3 136.0 112.0
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
<CAPTION>
AUTOMOTIVE
-----------------------------
1997 1996 1995
------ ------ ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Sales..............................................................$435.2 $439.6 $ 433.2
------ ------ ---------
------ ------ ---------
Operating Income................................................... 29.7 38.5 42.1
------ ------ ---------
------ ------ ---------
Depreciation and amortization...................................... 30.9 18.7 17.6
------ ------ ---------
------ ------ ---------
Capital expenditures............................................... 34.6 29.5 28.3
------ ------ ---------
------ ------ ---------
Identifiable assets................................................ 274.0 292.8 217.1
------ ------ ---------
------ ------ ---------
</TABLE>
<TABLE>
<CAPTION>
SEGMENT TOTAL CORPORATE
-------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Sales.............................................................. $906.1 $891.3 $848.5 $ -- $ -- $ --
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Operating income (loss)............................................ 64.7 81.6 81.8 (19.1) (19.5) (18.7)
------ ------ ------
------ ------ ------
Adjustment for asbestos litigation................................. -- 502.2 (1,005.5)
Interest expenses.................................................. (31.3) (3.1) (1.9)
Other income (expense)............................................. (0.3) (2.9) 11.6
Reorganization items............................................... -- 116.3 (2.2)
------ ------ ---------
------ ------ ---------
Income (loss) before taxes.........................................
Depreciation and amortization...................................... 55.6 30.6 28.4 0.4 0.2 0.3
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Capital expenditures............................................... 51.1 44.8 40.3 0.2 0.2 0.3
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
Indentifiable assets............................................... 534.4 575.1 409.7 212.5 273.8 170.4
------ ------ ------ ------ ------ ---------
------ ------ ------ ------ ------ ---------
<CAPTION>
TOTAL
-----------------------------
1997 1996 1995
------ ------ ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Sales..............................................................$906.1 $891.3 $ 848.5
------ ------ ---------
------ ------ ---------
Operating income (loss)............................................ 45.6 62.1 63.1
Adjustment for asbestos litigation................................. -- 502.2 (1,005.5)
Interest expenses.................................................. (31.3) (3.1) (1.9)
Other income (expense)............................................. (0.3) (2.9) 11.6
Reorganization items............................................... -- 116.3 (2.2)
------ ------ ---------
Income (loss) before taxes......................................... 14.0 674.6(1) (934.9)
------ ------ ---------
------ ------ ---------
Depreciation and amortization...................................... 56.0 30.8 28.7
------ ------ ---------
------ ------ ---------
Capital expenditures............................................... 51.3 45.0 40.6
------ ------ ---------
------ ------ ---------
Indentifiable assets............................................... 746.9 848.9 580.1
------ ------ ---------
------ ------ ---------
</TABLE>
- ------------
(1) Before extraordinary gain and cumulative effect of accounting change.
F-43
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
--------------------
1998 1997
-------- --------
<S> <C> <C>
NET SALES................................................................................. $205,842 $223,607
OPERATING COSTS AND EXPENSES
Cost of products sold..................................................................... 162,796 180,401
Selling and administrative................................................................ 17,141 19,724
Management compensation expenses.......................................................... 2,056 --
Depreciation.............................................................................. 8,983 10,366
Amortization of intangibles............................................................... 3,839 4,076
-------- --------
194,815 214,567
Operating income.......................................................................... 11,027 9,040
OTHER INCOME (EXPENSE)
Interest expense.......................................................................... (6,940) (8,927)
Other income.............................................................................. 820 1,703
-------- --------
INCOME BEFORE TAXES....................................................................... 4,907 1,816
INCOME TAXES.............................................................................. 4,100 3,036
-------- --------
NET INCOME................................................................................ $ 807 $ (1,220)
-------- --------
-------- --------
Income (loss) per common share............................................................ $.08 $(.12)
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1998 1997
-------- ------------
PREDECESSOR
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 18,968 $ 19,376
Receivables, less allowances....................................................... 135,632 144,805
Income tax refund receivable....................................................... 2,001 56,814
Inventories:
Raw materials and supplies.................................................... 56,970 51,804
Work in process............................................................... 22,569 35,071
Finished goods................................................................ 15,509 19,245
-------- ------------
95,048 106,120
Prepaid expenses................................................................... 9,499 9,729
Deferred income taxes.............................................................. 19,535 20,575
-------- ------------
Total current assets.......................................................... 280,683 357,419
Property, plant and equipment........................................................... 239,337 271,181
Less accumulated depreciation...................................................... 10,331
-------- ------------
Net property, plant and equipment............................................. 239,337 260,850
Excess of acquired net assets over cost................................................. 255,495 --
Other assets............................................................................ 91,625 107,596
-------- ------------
Total assets.................................................................. $867,140 $831,943
-------- ------------
-------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 50,899 $ 39,118
Other accrued liabilities.......................................................... 49,931 50,742
Long-term debt -- current portion.................................................. 10,656 54,010
Income taxes....................................................................... 6,746 5,176
-------- ------------
Total current liabilities..................................................... 118,232 149,046
Long-term debt -- less current portion.................................................. 536,340 318,160
Deferred income taxes................................................................... 7,634 --
Other liabilities....................................................................... 24,928 26,095
-------- ------------
Series A 11 3/4% Cumulative Exchangeable Preferred Stock; authorized 50,000 shares;
issued and outstanding 14,191 shares.................................................. 80,005 --
Shareholders' equity
Class A Common stock, authorized 625,001 shares; issued and outstanding 625,001
shares............................................................................ 55,001 --
Class B Common stock, authorized 374,999 shares; issued and outstanding 374,999
shares............................................................................ 45,000 --
Common shares -- authorized 20,000,000 shares, issued and outstanding 10,000,000
shares............................................................................ 341,807
Foreign currency translation....................................................... (1,945)
Accumulated deficit -- net loss year to date....................................... (1,220)
-------- ------------
Total shareholders' equity.................................................... 100,001 338,642
-------- ------------
Total liabilities and shareholders' equity.................................... $867,140 $831,943
-------- ------------
-------- ------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-45
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 807 $ (1,220)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization....................................................... 12,822 14,442
Changes in assets and liabilities:
Receivables.................................................................... (4,705) (11,930)
Inventories.................................................................... (2,235) (3,219)
Accounts payable............................................................... (2,787) (1,917)
Accrued liabilities............................................................ (5,488) 2,176
Income tax refund receivable................................................... 1,024 16,906
Deferred taxes................................................................. 2,600 1,831
Other.......................................................................... (11,121) 845
--------- --------
Net cash used in operating activities............................................... (9,083) 17,914
Cash flows from investing activities:
Capital expenditures................................................................ (5,692) (15,857)
Other............................................................................... (1,042) (1,183)
--------- --------
Net cash used in investing activities............................................... (6,734) (17,040)
Cash flows from financing activities:
Issuance of long-term debt.......................................................... 524,100 --
Reduction of long-term debt......................................................... (250,000) (16,703)
Redemption of common stock.......................................................... (446,638) --
Issuance of common stock............................................................ 100,001 --
Issuance of preferred stock......................................................... 80,005 --
Debt issue cost..................................................................... (26,062) --
Other............................................................................... (360) 2,480
--------- --------
Net cash used in financing activities.......................................... (18,954) (14,223)
Net decrease in cash and cash equivalents................................................ (34,771) (13,349)
--------- --------
Cash and cash equivalents, beginning of period........................................... 53,739 32,725
--------- --------
Cash and cash equivalents, end of period................................................. $ 18,968 $ 19,376
--------- --------
--------- --------
Supplemental cash flow information:
Cash paid during the three month period:
Interest paid.................................................................. $ 6,402 $ 475
Income tax refunds received net of payments.................................... $ (376) $(15,928)
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-46
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included elsewhere in this document for
the fiscal year ended November 30, 1997.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three month periods ended February 28, 1998 and 1997. Results of operations for
interim periods are not necessarily indicative of results to be expected for an
entire year.
See Note B.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ('Closing Date'), Eagle-Picher Industries, Inc.
('Company') was acquired by a subsidiary of Granaria Industries BV, Eagle-Picher
Holdings, Inc. ('Parent'), from the Eagle-Picher Industries, Inc. Personal
Injury Settlement Trust ('Trust'). The Trust was established pursuant to the
Company's Plan of Reorganization upon its emergence from bankruptcy.
These unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
that result as of February 24, 1998, the Closing Date. Accordingly, the
condensed consolidated statement of income (loss) for the three months ended
February 28, 1998 includes results of operations from (1) December 1, 1997
through February 24, 1998 of the Company prior to the consummation of the
Acquisition (for clarity, sometimes referred to herein as the 'Predecessor
Company') and (2) February 25 through February 28, 1998 of the Company. The
effects of the purchase accounting adjustments on the Company's results of
operations for the three months ended February 28, 1998 were immaterial.
Upon closing of the acquisition, the Parent received $100 million equity
investment from Granaria Industries BV and an equity partner. The Parent also
received proceeds approximating $80 million from its offering of preferred
stock. These proceeds were invested in the Company, which issued approximately
$180 million of common stock to the Parent. The Company also borrowed $225
million in term loans and $79.1 million in revolving credit loans under a
syndicated senior secured loan facility, and issued $220 million in senior
subordinated notes ('Subordinated Notes'), the proceeds of which were used to
redeem the Company's 10% Senior Unsecured Sinking Fund Debentures ('Debentures')
and common stock, both held by the Trust. The Company, which is the operating
entity, is a wholly-owned subsidiary of the Parent. The Parent's results of
operations and cash flows approximate those of the Company.
C. EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the net income
(loss) divided by the average number of common shares outstanding, which was
9,600,071 and 10,000,000 in the three months ended February 28, 1998 and 1997,
respectively.
D. LONG-TERM DEBT
On the Closing Date, the Company's existing $60 million unsecured committed
revolving credit facility was terminated. It was replaced by a syndicated senior
secured loan facility ('Credit Agreement') which provided $225 million in term
loans ('Term Loans') and a $160 million revolving
F-47
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
credit facility ('Facility'), of which $79.1 million was drawn at the time of
closing. Immediately following the closing, the Company borrowed approximately
$28.6 million for use as credit support in the form of letters of credit,
leaving approximately $52.3 million in available credit.
The Credit Agreement is secured by the capital stock of the Company, up to
65% of the capital stock of foreign subsidiaries and substantially all other
property in the United States. The Credit Agreement contains covenants which
restrict the Company's ability to, among others, declare dividends or redeem
capital stock, issue additional debt or alter existing debt agreements, make
loans, undergo a change in control and engage in mergers, acquisitions and asset
sales. These covenants also limit the annual amount of capital expenditures and
require the Company to meet minimum financial coverages. The Company was in
compliance with all covenants at February 28, 1998.
Long-term debt consisted of:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------
1998 1997
------ ------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
New Credit Agreement:
Revolving Credit Facility.............................................................. $ 79.1 $ --
Term Loans............................................................................. 225.0 --
Senior Subordinated Notes................................................................... 220.0 --
Senior Unsecured Sinking Fund Debentures.................................................... -- 250.0
Divestiture Notes........................................................................... -- 50.0
Tax Refund Notes............................................................................ -- 52.6
Industrial Revenue Bonds.................................................................... 18.4 10.5
Secured Notes............................................................................... -- 6.7
Debt of Foreign Subsidiaries................................................................ 4.5 2.4
------ ------
547.0 372.2
Less current portion........................................................................ 10.7 54.0
------ ------
Long-term debt, less current portion........................................................ $536.3 $318.2
------ ------
------ ------
</TABLE>
The Facility matures in 2004. It bears interest, at the Company's option,
of an adjusted LIBOR rate plus 2 1/4% or the bank's prime rate plus 1 1/4%.
There is a commitment fee equal to 1/2% per annum on the undrawn portion of the
Facility and fees for letters of credit are equal to 2 1/4% per annum.
The Term Loans mature in 2003, 2005 and 2006 and bear interest, at the
Company's option, of an adjusted LIBOR rate plus spreads varying from 2 1/4% to
2 7/8% or the bank's prime rate plus spreads varying from 1 1/4% to 1 7/8%. In
addition to regularly scheduled payments, the Company is required to make
mandatory prepayments to first the Term Loans then the Facility of 60% of annual
excess cash flow, the net proceeds from the sale of assets (subject to certain
conditions), the net proceeds of new debt issued and 50% of the net proceeds of
any equity securities issued.
To partially hedge its variable interest rate exposure on its Term Loans,
the Company has entered into a three year interest rate swap agreement ('Swap
Agreement'). The Swap Agreement requires the Company to pay a fixed LIBOR rate
(plus the appropriate spreads) on $150 million and receive the floating LIBOR
rate on that same amount, effectively fixing the interest rate on $150 million
of the Term Loans at a weighted rate of 8.35%.
The Subordinated Notes, which are unsecured, bear interest of 9 3/8% and
mature in 2008, however, they are redeemable at the option of the Company, in
whole or in part, any time after February 28, 2003 at set redemption prices. The
Company may also redeem up to 35% of the aggregate principal amount of the
Subordinated Notes prior to March 1, 2001 at a set redemption price provided
certain conditions are met. The Company is also required to offer to purchase
the Subordinated Notes at a set redemption price should there be a change in
control of the Company.
F-48
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Both the Credit Agreement and the Subordinated Notes are guaranteed on a
full, unconditional, and joint and several basis by certain of the Company's
wholly-owned domestic subsidiaries ('Guarantors').
E. PREFERRED STOCK
The liquidation preference of the 14,191 shares of 11 3/4% Cumulative
Redeemable Exchangeable Preferred Stock ('Preferred Stock') will initially be
$5,637.70 per share and will accrete from the Closing Date until March 1, 2003,
at the rate of 11 3/4% per annum, compounded semi-annually, to $10,000.00. No
dividends will accrue on the Preferred Stock prior to March 1, 2003; however,
holders of the Preferred Stock will be entitled to cumulative dividends
subsequent to that date.
The Preferred Stock is mandatorily redeemable by Parent on the earlier of
March 1, 2008 or upon occurrence of a defined mandatory redemption event. The
Preferred Stock is also redeemable at the option of the Parent, in whole or in
part, any time after February 28, 2003 at set redemption prices. Parent may also
redeem up to 35% of the outstanding shares prior to March 1, 2001 at a set
redemption price provided certain conditions are met. Each holder of the
Preferred Stock would have the right to require that Parent repurchase the
Preferred Stock at a set redemption price should there be a change in control of
the Company.
F. INCOME TAXES
The acquisition of the Company has been treated as a sale of its assets for
purposes of income taxes. The deferred tax benefits relating to the Debentures,
which were repaid on the Closing Date, and most of the benefits relating to the
net operating loss carryforwards will be realized to shelter the gain on the
sale of the assets. Any remaining net operating loss carryforwards will be lost.
The Company, however, will be liable for approximately $2.0 in alternative
minimum taxes and $1.6 million in state and local income taxes as a result of
the transaction. These taxes are recognized as part of the Acquisition
adjustments.
G. LEGAL MATTERS
The Company is involved in routine litigation, environmental proceedings
and claims pending with respect to matters arising out of the normal course of
business. In management's opinion, the ultimate liability resulting from all
claims, individually or in the aggregate, will not materially affect the
Company's consolidated financial position, results of operations or cash flows.
H. INTANGIBLE ASSETS
Excess of acquired net assets over cost is being amortized on a
straight-line basis over fifteen years. The recoverability of these assets is
evaluated periodically based on current and estimated future cash flows of each
of the related business units over the remaining amortization period.
F-49
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Eagle-Picher Holdings, Inc.:
We have audited the accompanying balance sheet of Eagle-Picher Holdings,
Inc. as of December 22, 1997. This financial statement is the responsibility of
Eagle-Picher Holdings, Inc. management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company at December 22, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 15, 1998
F-50
<PAGE>
<PAGE>
EAGLE-PICHER HOLDINGS, INC.
BALANCE SHEET
DECEMBER 22, 1997
<TABLE>
<S> <C>
ASSETS
Cash..................................................................................................... $1,000
------
------
SHAREHOLDERS' EQUITY
Common stock -- authorized 1,000 shares of $.01 par value each; 100 shares
issued and outstanding................................................................................. 1
Additional Paid-in-Capital............................................................................... 999
------
Total............................................................................................... $1,000
------
------
</TABLE>
- ------------
NOTES TO BALANCE SHEET
(1) Eagle-Picher Holdings, Inc. ('Holdings'), a Delaware corporation, was
organized on December 22, 1997, and had no operations prior to that date.
(2) On December 23, 1997, Holdings and its wholly-owned subsidiary, E-P
Acquisition, Inc. ('Acquisition'), approved the merger of Acquisition with
and into Eagle-Picher Industries, Inc. In connection with the merger,
Holdings will offer $80,000,000 of cumulative redeemable exchangeable
preferred stock.
F-51
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PARENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF A TIME SUBSEQUENT TO THE DATE HEREOF OR THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF PARENT SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................................................................... 3
Summary.................................................................................................................... 4
Risk Factors............................................................................................................... 17
Company History............................................................................................................ 26
The Acquisition............................................................................................................ 26
Use of Proceeds............................................................................................................ 27
The Preferred Stock Exchange Offer......................................................................................... 28
Capitalization............................................................................................................. 37
Selected Historical Condensed Consolidated Financial Information........................................................... 38
Unaudited Parent Pro Forma Consolidated Statements of Operations........................................................... 41
Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 44
Business................................................................................................................... 52
Industry Overview.......................................................................................................... 54
Description of Businesses.................................................................................................. 56
Management................................................................................................................. 73
Executive Compensation..................................................................................................... 74
Security Ownership and Certain Beneficial Owners and Management of Parent.................................................. 80
Certain Relationships and Related Transactions............................................................................. 80
Description of Industrial Revenue Bonds.................................................................................... 81
Description of New Credit Agreement........................................................................................ 81
Description of the Notes................................................................................................... 83
Description of the Preferred Stock......................................................................................... 85
Description of Exchange Debentures......................................................................................... 113
Plan of Distribution....................................................................................................... 138
Certain U.S. Federal Income Tax Considerations............................................................................. 139
Legal Matters.............................................................................................................. 146
Experts.................................................................................................................... 146
Index to Financial Statements.............................................................................................. F-1
</TABLE>
UNTIL SEPTEMBER 8, 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE PREFERRED STOCK
EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIES B PREFERRED
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING SERIES B PREFERRED STOCK
RECEIVED IN EXCHANGE FOR SERIES A PREFERRED STOCK HELD FOR THEIR OWN ACCOUNT.
SEE "PLAN OF DISTRIBUTION."
EAGLE-PICHER
HOLDINGS, INC.
OFFER TO EXCHANGE ITS
11 3/4% SERIES B CUMULATIVE
REDEEMABLE EXCHANGEABLE
PREFERRED STOCK
FOR ANY AND ALL OF ITS
OUTSTANDING
11 3/4% SERIES A CUMULATIVE
REDEEMABLE EXCHANGEABLE
PREFERRED STOCK
----------------------
PROSPECTUS
----------------------
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending, or completed civil, criminal, administrative,
or investigative action, suit or proceeding by reason of the fact that such
person is or was a director, officer, employee, or agent of the corporation, or
is or was serving as such with respect to another corporation or entity at the
request of the corporation, provided that such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the company and, with respect to any criminal action or proceeding,
without reasonable cause to believe the conduct was unlawful. The Registrant has
provided in its Regulations that its directors and officers will be indemnified
and held harmless against all expenses, liability and loss (including attorneys'
fees, and, in respect of claims not made by or in the right of the Company,
judgments, fines ERISA excise taxes or penalties and amounts paid in settlement)
to the fullest extent provided by the law as it exists or may hereafter be
amended.
Section 145 of the Delaware General Corporation Law and the Regulations
of the Registrant also permit the Registrant to purchase insurance for the
benefit of any person who is or was a director, officer, employee, or agent of
the corporation against any liability incurred by such person, whether or not
the corporation would have the power to indemnify such person against such
liability.
The Registrant has purchased insurance on behalf of its directors and
officers, in such amounts as it deems reasonable, against certain liabilities
that may be asserted against, or incurred by, such persons in their capacities
as directors or officers of Registrant, including liabilities under the federal
and state securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <C>
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher Industries, Inc.*
2.2 -- Exhibits to Third Amended Plan of Reorganization of Eagle-Picher Industries, Inc.*
3.1 -- Articles of Incorporation of Eagle-Picher Industries, Inc., as amended*
3.2 -- Regulations of Eagle-Picher Industries, Inc.*
3.3 -- Amended and Restated Certificate of Incorporation of Registrant*
3.4. -- By-Laws of Registrant*
4.1 -- Indenture, dated as of February 24, 1998, between E-P Acquisition, Inc., Registrant, as a Guarantor,
the Subsidiary Guarantors (Daisy Parts, Inc. Eagle-Picher Development Company, Inc., Eagle-Picher Far
East, Inc., Eagle-Picher Fluid Systems, Inc., Eagle-Picher Minerals, Inc., Eagle-Picher Technologies,
LLC, Hillsdale Tool & Manufacturing Co., Michigan Automotive Research Corporation (together, the
'Subsidiary Guarantors' or the 'Domestic Subsidiaries'), and The Bank of New York as Trustee (the
'Trustee') relating to the 9 3/8% Senior Subordinated Notes of Eagle-Picher Industries, Inc. (the
'Notes')*
4.2 -- Cross Reference Table showing the location in the Indenture of the provisions of Sections 310
through 318(a), inclusive, of the Trust Indenture Act of 1939*
4.3 -- First Supplemental Indenture dated as of February 24, 1998, between Eagle-Picher Industries, Inc.
and the Trustee*
4.4 -- Form of Global Notes (attached as Exhibit A to the Indenture filed as Exhibit 4.1 to the
Registration Statement)*
4.5 -- Certified Copy of the Certificate of Designations, Preferences and Rights of 11 3/4% Series A
Cumulative Redeemable Exchangeable Preferred Stock and 11 3/4% Series B Cumulative Redeemable
Exchangeable Preferred Stock of Registrant*
4.6 -- Form of Certificate and Global Share of 11 3/4% Series A Cumulative Redeemable Exchangeable
Preferred Stock and 11 3/4% Series B Cumulative Redeemable Exchangeable Preferred Stock (attached as
Exhibit A to the Certificate of Designations filed as Exhibit 4.5 to the Registration Statement)*
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4% Exchange Debentures Due 2008 of
Registrant*
</TABLE>
II-1
<PAGE>
<PAGE>
<TABLE>
<S> <C>
4.8 -- Cross Reference Table showing the location in the Exchange Debentures Indenture of the provisions of
Sections 310 through 318(a), inclusive, of the Trust Indenture Act of 1939*
4.9 -- Form of 11 3/4% Exchange Debenture due 2008 (attached as Exhibit A to the Exchange Debentures
Indenture filed as Exhibit 4.7 to the Registration Statement)*
5.1 -- Opinion of Howard, Darby & Levin as to the Legality of the 11 3/4% Series B Cumulative Redeemable
Exchangeable Preferred Stock and the Exchange Debentures*
10.1 -- Merger Agreement, dated as of December 23, 1997, among Eagle-Picher Industries, Inc., the
Eagle-Picher Industries, Inc. Personal Injury Settlement Trust, Eagle-Picher Holdings, Inc. and E-P
Acquisition, Inc.*
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of February 23, 1998, among Eagle-Picher
Industries, Inc., the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust, Eagle-Picher
Holdings, Inc. and E-P Acquisition, Inc.*
10.3 -- Supplemental Executive Retirement Plan of Eagle-Picher Industries, Inc.*
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P Acquisition, Inc., Eagle-Picher
Industries, Inc., Registrant, SBC Warburg Dillon Read and ABN AMRO Incorporated*
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated as of February 24, 1998, between
Eagle-Picher Industries, Inc. and the Subsidiary Guarantors*
10.6 -- Registration Rights Agreement, dated as of February 24, 1998, between E-P Acquisition, SBC Warburg
Dillon Read and ABN AMRO Incorporated relating to the Notes (the 'Notes Registration Rights
Agreement')*
10.7 -- Assumption Agreement for the Notes Registration Rights Agreement, dated as of February 24, 1998, of
Eagle-Picher Industries, Inc.*
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P Acquisition, Inc. (to be merged with and
into Eagle-Picher Industries, Inc.), Various Lenders from time to time party thereto, ABN AMRO Bank
N.V., as Agent (the 'Agent'), PNC Bank, National Association, as Documentation Agent and DLJ Capital
Funding, Inc., as Syndication Agent*
10.9 -- Assumption Agreement dated as of February 24, 1998, between Eagle-Picher Industries, Inc. and the
Agent*
10.10 -- Security Agreement, dated as of February 24, 1998, among Eagle-Picher Industries, Inc., the Agent
and the Domestic Subsidiaries*
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998, between Registrant and the Agent*
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of February 24, 1998, among Eagle-Picher
Industries, Inc., E-P Development, E-P Minerals and the Agent*
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998, by Registrant, accepted and agreed by
the Agent*
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24, 1998, by the Domestic Subsidiaries, accepted
and agreed by the Agent*
10.15 -- Trademark Collateral Agreement, dated February 24, 1998, between Eagle-Picher Industries, Inc. and
the Agent*
10.16 -- Patent Collateral Agreement, dated February 24, 1998, between Eagle-Picher Industries, Inc. and the
Agent*
10.17 -- Copyright Collateral Agreement, dated February 24, 1998, between Eagle-Picher Industries, Inc. and
the Agent*
10.18 -- Subordination Agreement, dated as of February 24, 1998, among E-P Acquisition, Inc., Eagle-Picher
Industries, Inc. and the Domestic Subsidiaries*
10.19 -- Management Agreement dated as of February 24, 1998 between Eagle-Picher Industries, Inc. and
Granaria Holdings B.V.*
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among Granaria Industries B.V. and Thomas E.
Petry, Andries Ruijssenaars and Joel Wyler as trustees (the 'E-P Management Trust')*
10.21 -- Incentive Stock Plan of Eagle-Picher Industries, Inc., effective as of February 25, 1998*
10.22 -- Employment Agreements dated November 29, 1996 between Eagle-Picher Industries, Inc. and each Named
Executive Officer*
10.23 -- Amendments dated August 5, 1997 to Employment Agreements between Eagle-Picher Industries, Inc. and
each of the Named Executive Officers*
10.24 -- Sales Incentive Program of Eagle-Picher Industries, Inc.*
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.25 -- Letter Agreements dated August 5, 1997 between Eagle-Picher Industries, Inc. and each Named
Executive Officer regarding Short Term Sale Program*
10.26 -- Letter Agreement dated September 12, 1997, between Eagle-Picher Industries, Inc. and Carroll D.
Curless regarding Short Term Sale Program*
10.27 -- Letter Agreements dated February 18, 1998 between Eagle-Picher Industries, Inc. and each Named
Executive Officer regarding Short Term Sale Program*
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments to the Short Term Sale Program*
10.29 -- Preferred Stock Purchase Agreement, dated February 19, 1998, between Registrant and the Initial
Purchasers*
10.30 -- Preferred Stock Registration Rights Agreement, dated as of February 24, 1998, between Registrant and
the Initial Purchasers*
10.31 -- Transfer Agency Agreement, dated as of February 24, 1998, between Registrant and The Bank of New
York, as Transfer Agent*
12.1 -- Statement re: Computation of Ratios*
16.1 -- Letter of KPMG Peat Marwick LLP re: Change in Certifying Accountant*
21.1 -- Chart of Subsidiaries of Registrant*
23.1 -- Consent of Deloitte & Touche LLP*
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of Howard, Darby & Levin (included in Exhibit 5.1)*
24.1 -- Power of Attorney of Directors and Officers (set forth on the signature page of this Registration
Statement)*
25.1 -- Statement of Eligibility of Trustee on Form T-1 related to the Notes*
25.2 -- Statement of Eligibility of Trustee on Form T-1 related to the Exchange Debentures*
27.1 -- Financial Data Schedule*
99.1 -- Letter of Transmittal for the Preferred Stock*
99.2 -- Form of Notice of Guaranteed Delivery*
(b) Financial Statement Schedules (filed as Exhibit 27.1)*
</TABLE>
- ------------
* Previously filed.
ITEM 22. UNDERTAKINGS.
The 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;
(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 the 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;
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the 'Securities Act') may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the provisions described under Item 20 or otherwise, the Registrant
has been advised
II-3
<PAGE>
<PAGE>
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants 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 registrants will, unless in the opinion of their counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 5, 1998.
EAGLE-PICHER HOLDINGS, INC.
By: /S/ ANDRIES RUIJSSENAARS
.................................
NAME: ANDRIES RUIJSSENAARS
TITLE: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
/s/ ANDRIES RUIJSSENAARS Director, President and Chief Executive June 5, 1998
......................................... Officer
ANDRIES RUIJSSENAARS
* Senior Vice President - Finance June 5, 1998
.........................................
DAVID N. HALL
* Vice President and Controller June 5, 1998
.........................................
CARROLL D. CURLESS
* Chairman of the Board June 5, 1998
.........................................
JOEL P. WYLER
* Director June 5, 1998
.........................................
THOMAS E. PETRY
*By: /s/ ANDRIES RUIJSSENAARS June 5, 1998
.........................................
ANDRIES RUIJSSENAARS
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------ --------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher Industries, Inc.*
2.2 -- Exhibits to Third Amended Plan of Reorganization of Eagle-Picher Industries, Inc.*
3.1 -- Articles of Incorporation of Eagle-Picher Industries, Inc., as amended*
3.2 -- Regulations of Eagle-Picher Industries, Inc.*
3.3 -- Amended and Restated Certificate of Incorporation of Registrant*
3.4. -- By-Laws of Registrant*
4.1 -- Indenture, dated as of February 24, 1998, between E-P Acquisition, Inc., Registrant,
as a Guarantor, the Subsidiary Guarantors (Daisy Parts, Inc. Eagle-Picher Development
Company, Inc., Eagle-Picher Far East, Inc., Eagle-Picher Fluid Systems, Inc.,
Eagle-Picher Minerals, Inc., Eagle-Picher Technologies, LLC, Hillsdale Tool &
Manufacturing Co., Michigan Automotive Research Corporation (together, the
'Subsidiary Guarantors' or the 'Domestic Subsidiaries'), and The Bank of New York as
Trustee (the 'Trustee') relating to the 9 3/8% Senior Subordinated Notes of Eagle-
Picher Industries, Inc. (the 'Notes')*
4.2 -- Cross Reference Table showing the location in the Indenture of the provisions of
Sections 310 through 318(a), inclusive, of the Trust Indenture Act of 1939*
4.3 -- First Supplemental Indenture dated as of February 24, 1998, between Eagle-Picher
Industries, Inc. and the Trustee*
4.4 -- Form of Global Notes (attached as Exhibit A to the Indenture filed as Exhibit 4.1 to
the Registration Statement)*
4.5 -- Certified Copy of the Certificate of Designations, Preferences and Rights of 11 3/4%
Series A Cumulative Redeemable Exchangeable Preferred Stock and 11 3/4% Series B
Cumulative Redeemable Exchangeable Preferred Stock of Registrant*
4.6 -- Form of Certificate and Global Share of 11 3/4% Series A Cumulative Redeemable
Exchangeable Preferred Stock and 11 3/4% Series B Cumulative Redeemable Exchangeable
Preferred Stock (attached as Exhibit A to the Certificate of Designations filed as
Exhibit 4.5 to the Registration Statement)*
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4% Exchange Debentures Due
2008 of Registrant*
4.8 -- Cross Reference Table showing the location in the Exchange Debentures Indenture of
the provisions of Sections 310 through 318(a), inclusive, of the Trust Indenture Act
of 1939*
4.9 -- Form of 11 3/4% Exchange Debenture due 2008 (attached as Exhibit A to the Exchange
Debentures Indenture filed as Exhibit 4.7 to the Registration Statement)*
5.1 -- Opinion of Howard, Darby & Levin as to the Legality of the 11 3/4% Series B
Cumulative Redeemable Exchangeable Preferred Stock and the Exchange Debentures*
10.1 -- Merger Agreement, dated as of December 23, 1997, among Eagle-Picher Industries,
Inc., the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust,
Eagle-Picher Holdings, Inc. and E-P Acquisition, Inc.*
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of February 23, 1998, among
Eagle-Picher Industries, Inc., the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust, Eagle-Picher Holdings, Inc. and E-P Acquisition, Inc.*
10.3 -- Supplemental Executive Retirement Plan of Eagle-Picher Industries, Inc.*
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P Acquisition, Inc.,
Eagle-Picher Industries, Inc., Registrant, SBC Warburg Dillon Read and ABN AMRO
Incorporated*
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated as of February 24,
1998, between Eagle-Picher Industries, Inc. and the Subsidiary Guarantors*
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
10.6 -- Registration Rights Agreement, dated as of February 24, 1998, between E-P
Acquisition, SBC Warburg Dillon Read and ABN AMRO Incorporated relating to the Notes
(the 'Notes Registration Rights Agreement')*
10.7 -- Assumption Agreement for the Notes Registration Rights Agreement, dated as of
February 24, 1998, of Eagle-Picher Industries, Inc.*
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P Acquisition, Inc. (to be
merged with and into Eagle-Picher Industries, Inc.), Various Lenders from time to
time party thereto, ABN AMRO Bank N.V., as Agent (the 'Agent'), PNC Bank, National
Association, as Documentation Agent and DLJ Capital Funding, Inc., as Syndication
Agent*
10.9 -- Assumption Agreement dated as of February 24, 1998, between Eagle-Picher Industries,
Inc. and the Agent*
10.10 -- Security Agreement, dated as of February 24, 1998, among Eagle-Picher Industries,
Inc., the Agent and the Domestic Subsidiaries*
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998, between Registrant and the
Agent*
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of February 24, 1998, among
Eagle-Picher Industries, Inc., E-P Development, E-P Minerals and the Agent*
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998, by Registrant, accepted
and agreed by the Agent*
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24, 1998, by the Domestic
Subsidiaries, accepted and agreed by the Agent*
10.15 -- Trademark Collateral Agreement, dated February 24, 1998, between Eagle-Picher
Industries, Inc. and the Agent*
10.16 -- Patent Collateral Agreement, dated February 24, 1998, between Eagle-Picher
Industries, Inc. and the Agent*
10.17 -- Copyright Collateral Agreement, dated February 24, 1998, between Eagle-Picher
Industries, Inc. and the Agent*
10.18 -- Subordination Agreement, dated as of February 24, 1998, among E-P Acquisition, Inc.,
Eagle-Picher Industries, Inc. and the Domestic Subsidiaries*
10.19 -- Management Agreement dated as of February 24, 1998 between Eagle-Picher Industries,
Inc. and Granaria Holdings B.V.*
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among Granaria Industries B.V.
and Thomas E. Petry, Andries Ruijssenaars and Joel Wyler as trustees (the 'E-P
Management Trust')*
10.21 -- Incentive Stock Plan of Eagle-Picher Industries, Inc., effective as of February 25,
1998*
10.22 -- Employment Agreements dated November 29, 1996 between Eagle-Picher Industries, Inc.
and each Named Executive Officer*
10.23 -- Amendments dated August 5, 1997 to Employment Agreements between Eagle-Picher
Industries, Inc. and each of the Named Executive Officers*
10.24 -- Sales Incentive Program of Eagle-Picher Industries, Inc.*
10.25 -- Letter Agreements dated August 5, 1997 between Eagle-Picher Industries, Inc. and
each Named Executive Officer regarding Short Term Sale Program*
10.26 -- Letter Agreement dated September 12, 1997, between Eagle-Picher Industries, Inc. and
Carroll D. Curless regarding Short Term Sale Program*
10.27 -- Letter Agreements dated February 18, 1998 between Eagle-Picher Industries, Inc. and
each Named Executive Officer regarding Short Term Sale Program*
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments to the Short Term Sale
Program*
10.29 -- Preferred Stock Purchase Agreement, dated February 19, 1998, between Registrant and
the Initial Purchasers*
10.30 -- Preferred Stock Registration Rights Agreement, dated as of February 24, 1998,
between Registrant and the Initial Purchasers*
10.31 -- Transfer Agency Agreement, dated as of February 24, 1998, between Registrant and The
Bank of New York, as Transfer Agent*
12.1 -- Statement re: Computation of Ratios*
16.1 -- Letter of KPMG Peat Marwick LLP re: Change in Certifying Accountant*
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
21.1 -- Chart of Subsidiaries of Registrant*
23.1 -- Consent of Deloitte & Touche LLP*
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of Howard, Darby & Levin (included in Exhibit 5.1)*
24.1 -- Power of Attorney of Directors and Officers (set forth on the signature page of this
Registration Statement)*
25.1 -- Statement of Eligibility of Trustee on Form T-1 related to the Notes*
25.2 -- Statement of Eligibility of Trustee on Form T-1 related to the Exchange
Debentures*
27.1 -- Financial Data Schedule*
99.1 -- Form of Letter of Transmittal for the Preferred Stock*
99.2 -- Form of Notice of Guaranteed Delivery*
(b) Financial Statement Schedules (filed as Exhibit 27.1)*
</TABLE>
- ------------
* Previously filed.
