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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended November 30, 1998
Commission file number 333-49957-01
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EAGLE-PICHER HOLDINGS, INC.
A Delaware Corporation
I.R.S. Employer Identification
NO. 31-3989553
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250 EAST FIFTH STREET, SUITE 500, P.O. BOX 779, CINCINNATI, OHIO 45201
Registrant's telephone number, including area code:
513-721-7010
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
No voting stock is held by non-affiliates of the registrant.
625,001 shares of Class A voting common Capital stock, $.01 par value each, were
outstanding at February 24, 1999.
374,999 shares of Class B non-voting common capital stock, $.01 par value each,
were outstanding at February 24, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<C> <S> <C>
PART I
1. Business.................................................... 3
2. Properties.................................................. 8
3. Legal Proceedings........................................... 9
4. Submission of Matters to a Vote of Security Holders......... 13
PART II
5. Market for the Registrant's Common Equity and Related 14
Stockholder Matters.........................................
6. Selected Financial Data..................................... 15
7. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations...................................
7a. Quantitative and Qualitative Disclosures About Market 25
Risk........................................................
8. Financial Statements........................................ 27
9. Changes In and Disagreements with Accountants on Accounting 68
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant.......... 69
11. Executive Compensation...................................... 71
12. Security Ownership of Certain Beneficial Owners and 78
Management..................................................
13. Certain Relationships and Related Transactions.............. 79
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 80
8-K.........................................................
Signatures.................................................. 83
Exhibit Index............................................... 84
</TABLE>
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PART I
ITEM 1. BUSINESS.
General Development of Business
Eagle-Picher Holdings, Inc. ("Company") was incorporated in 1997 by
Granaria Industries B.V. under the laws of the State of Delaware as a vehicle to
acquire Eagle-Picher Industries, Inc. ("Subsidiary"), an Ohio corporation, on
February 24, 1998 from the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust ("PI Trust") ("Acquisition") for $702.5 million.
On November 18, 1996, the U.S. Bankruptcy Court together with the U.S.
District Court for the Southern District of Ohio issued an order confirming the
Third Amended Plan of Reorganization ("Plan") of the Subsidiary and seven of its
domestic subsidiaries, which became effective November 29, 1996. The Subsidiary
had filed for protection under chapter 11 of the U.S. Bankruptcy Code in 1991 as
a consequence of a cash shortfall resulting from its inability to satisfy
certain immediate asbestos litigation liabilities. The order confirming the Plan
contains a permanent injunction which precludes holders of present and future
asbestos-related or lead-related personal injury claims from pursuing their
claims against the reorganized Subsidiary and the Subsidiary has no further
liability in connection with such claims. Those claims will be channeled to the
PI Trust, which is an independently administered qualified settlement trust
which was established to resolve and satisfy those claims. Under the terms of
the Plan, all of the then outstanding common stock of the Subsidiary was
canceled and all of the newly issued common stock of the reorganized Subsidiary
was contributed to the PI Trust, together with certain notes and cash.
The Company conducts its business through the Subsidiary, a diversified
manufacturing, mining and technology company. The Subsidiary conducts its
business through both unincorporated divisions and separately incorporated
subsidiaries, both of which are referred to herein as divisions. The Subsidiary
is the Company's only subsidiary, therefore, the Company's results of operations
and cash flow approximate those of the Subsidiary. References herein will be to
the Company, except for instances where it is more appropriate to specifically
refer to the Subsidiary.
Financial Information About Industry Segments.
The Company's major industry segments are:
1. Automotive;
2. Machinery; and
3. Industrial.
Industry Segment Data is included in Item 8 below, the Company's Consolidated
Financial Statements for the nine months ended November 30, 1998, the three
months ended February 28, 1998 and the years ended November 30, 1997 and 1996.
(See Note R.)
Narrative Description of Business
THE AUTOMOTIVE GROUP
The Automotive Group is primarily engaged in the production and sale of
mechanical parts for passenger cars, trucks, vans and sport utility vehicles
primarily to the major automotive manufacturers and their suppliers in North
America, Europe and Asia. The Automotive Group is composed of the following
product groups: Precision Machined Components, Rubber Coated Metal Products and
Other Automotive Products and Services which consists of Fluid Systems Products,
Molded Rubber Products, Aluminum Casting Products and Automotive Services. The
following table sets forth the percentage of the Company's revenue contributed
by each product line:
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<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Precision Machined Components............................... 28.2% 22.7% 20.4%
Rubber Coated Metal Products................................ 9.2 8.9 9.4
Other Automotive Products and Services...................... 10.6 8.9 8.0
Divested Automotive Products................................ 3.0 7.6 11.5
---- ---- ----
Total............................................. 51.0% 48.1% 49.3%
==== ==== ====
</TABLE>
Precision Machined Components. The Hillsdale Tool Division specializes in
the design, manufacture and distribution of precision-machined aluminum and
steel parts. Typical machined parts would include transmission pump assemblies,
vibration dampening devices and a variety of other precision machined castings
and forgings which are designed and engineered for engine, transmission and
driveline applications. These parts are also produced in Mexico and the United
Kingdom. The market for precision machined components tends to have a few strong
and well-positioned competitors, including the original equipment manufacturers
("OEM's") themselves. The Automotive Group competes in this market primarily on
the basis of price, delivery, quality and service.
Rubber Coated Metal Products. The Wolverine Gasket Division coats steel and
aluminum with elastomeric compounds and produces materials that are particularly
suitable for high compression and high temperature applications. These materials
are typically used in sealing and insulating products such as compressor gaskets
for air conditioning units, brake noise insulators and powertrain applications
such as head gaskets. Many of these parts are also manufactured in Germany. The
market for rubber coated metal products is highly fragmented. While the
Automotive Group competes against a variety of different companies in the
geographical areas it supplies, it has no primary competitor in this market.
Other Automotive Products and Services. The Fluid Systems Divisions,
located both in the United States and the United Kingdom, employ the elastomeric
extrusion process to produce multi-layered tubing and hose assemblies for fuel,
emission, brake, clutch and suspension systems. The Company is developing new
products to meet new environmental fuel, fluid and emission requirements.
Customers include some of the world's major OEM's and Tier I suppliers.
The Rubber Molding Division manufactures small precision injection molded
rubber parts used in sealing shock absorbing and noise reduction applications.
Similar parts are manufactured at a plant in Spain. Although the Company is one
of the top three suppliers for many of the seals it produces, the market for
these products is highly fragmented. In niche markets in which the Company
competes, it competes primarily on the basis of quality and cost.
The Ross Aluminum Foundries Division produces aluminum turbocharger
components, primarily for diesel engines, and other engine and specialty
automotive components. The Company believes it is a relatively small participant
in the market for automotive castings in aluminum.
The Michigan Automotive Research Corporation offers vehicle and vehicle
system manufacturers a comprehensive range of testing programs for engines,
power trains and power train components. Its customers include the OEM's, their
suppliers and manufacturers of other types of vehicles.
The Automotive Group distributes its products primarily through internal
sales personnel. The Group also has sales and engineering offices in Japan and
Europe to serve those markets. Generally, competitive conditions for this Group
are characterized by a decreasing amount of competitors, an increasing amount of
foreign competition, an increased emphasis on quality and intense pricing
pressures from major customers.
Consolidated sales to the Ford Motor Company amounted to $121.0 million in
the nine months ended November 30, 1998, $39.8 million in the three months ended
February 28, 1998, $170.5 million in 1997 and $167.7 million in 1996. No other
customer in the Automotive Group or any other Group accounted for 10% or more of
consolidated net sales.
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THE MACHINERY GROUP
The Machinery Group is involved in manufacturing products for various
industrial markets. Its products can be segregated into three product lines:
Special Purpose Batteries, Construction Equipment and Other Machinery Products.
The following table sets forth the percentage of the Company's total net sales
contributed by each product line:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Special Purpose Batteries................................... 15.0% 14.4% 12.2%
Construction Equipment...................................... 12.8 10.7 10.7
Other Machinery Products.................................... 3.4 3.3 4.0
Divested Machinery Products................................. -- 1.4 2.0
---- ---- ----
Total............................................. 31.2% 29.8% 28.9%
==== ==== ====
</TABLE>
Special Purpose Batteries. The Machinery Group designs, manufactures and
tests special purpose batteries for advanced value-added products for
telecommunications, aerospace and defense applications, such as satellites,
launch vehicles and missiles. Major customers for these batteries include the
U.S. Government, satellite builders and aircraft manufacturers. The Company is a
recognized leader in this business. It bids competitively for numerous fixed
price government contracts for special purpose batteries and competes primarily
on the basis of quality, performance and cost. It has a few competitors for some
highly technological products, but many large and small competitors for its
other products such as lead-acid batteries, which are used in toys and emergency
lighting systems.
Construction Equipment. The Construction Equipment Division manufactures
primarily three construction equipment products: wheel tractor scrapers,
heavy-duty industrial forklift trucks and component parts for construction
machinery. The Company is the exclusive source of certain models of wheel
tractor scrapers to Caterpillar, Inc. The Company sells its own branded line of
heavy-duty industrial forklift trucks, which are primarily sold to independent
rental fleets and also to paper and automotive manufacturers. The industrial
forklift market is highly fragmented, however, the Company participates in niche
markets, such as the rough terrain market, where it enjoys significant market
share.
Other Machinery Products. The Cincinnati Industrial Machinery Division
produces high-volume metal cleaning and finishing systems for industrial
applications, including specialized high-volume can washing and coating
machinery for the manufacturers of two-piece cans for the food and beverage
industry. Other products produced by this Group include complex aluminum
castings.
THE INDUSTRIAL GROUP
The Industrial Group produces a variety of products for industrial markets,
principally manufacturers of consumer products. It is composed of Specialty
Materials and Other Industrial Products. The following table sets forth the
percentage of the Company's total net sales contributed by each product line:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Specialty Materials......................................... 9.5% 11.3% 9.9%
Other Industrial Products................................... 8.3 7.5 7.5
Divested Industrial Products................................ -- 3.3 4.4
---- ---- ----
Total............................................. 17.8% 22.1% 21.8%
==== ==== ====
</TABLE>
Specialty Materials. The Company manufactures and tests high-purity
specialty material compounds for a wide range of services and products. The
Company is a major source for high purity isotopically enriched boron compounds
used in nuclear applications. The boron isotope that is produced by the Company
is a material that absorbs neutrons and is used as a moderator in nuclear
reactors. There are few competitors in this market, but there is competition
from products made from alternate materials. This Division also refines rare
metals, such as
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high purity germanium compounds. Germanium is used in satellite applications
such as substrates for solar cells which are used to power satellites. The major
customers for germanium products include satellite builders and other aerospace
companies. The Industrial Group also manufactures bulk pharmaceutical products
and industrial chemicals, and produces a wide range of super-clean containers,
which meet strict EPA protocols, for environmental sampling.
Other Industrial Products. The Minerals Division mines and refines
diatomaceous earth products and perlite filter aid products, which are used in
high purity filtration applications, primarily by the food and beverage
industry, and as industrial absorbents. The Minerals Division is second to the
Allegheny Corporation in the sale of certain filter aid products that are sold
both directly and through distributors to many large and small customers. In the
North American market for industrial absorbents, the Company has a variety of
competitors due to a number of other materials, such as clay, which are also
used for this purpose. The Industrial Group also manufactures injection molded
rubber parts used in plumbing and packaging applications.
DIVESTED DIVISIONS
During the fiscal year ended November 30, 1997, the Company sold a number
of divisions to fund repayment of notes issued during the reorganization
process. These divisions were the Plastics Division, Fabricon Products Division
and the Transicoil Division. The Company received net cash proceeds of $39.0
million and the aggregate loss on these transactions was $2.4 million. In June
1997, the assets of the former Suspension Systems Division were contributed to a
joint venture ("E-P-Boge") with Fichtel & Sachs Industries, Inc. ("F & S"). The
Company maintained a 45% interest in E-P-Boge, however F & S exercised its
option to purchase the Company's interest in E-P-Boge in November 1998 for $5.0
million. At the same time, the Company's $2.8 million note from E-P-Boge was
repaid. The Company sold its Trim Division as of October 31, 1998 for $14.5
million, however the transaction was held in escrow until certain conditions
were met in December 1998.
OTHER INFORMATION
Raw Materials. The prices of raw materials are subject to volatility. The
Company's principal raw materials are rubber, steel, zinc, nickel, germanium,
boron and aluminum. 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.
Intellectual Property. The Company holds more than 50 patents, primarily in
the United States. 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.
Backlog. At November 30, 1998 and 1997, the Company's order backlog was
approximately $200.0 million and $250.0 million, respectively. The decline in
backlog is due primarily to a decline in demand for special purpose batteries
and semiconductor materials due to the completion of a major satellite project.
The Company expects the order backlog outstanding at November 30, 1998 to be
filled within the 1999 fiscal year. As is customary in the automotive industry,
the Company enters into blanket purchase orders with its 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 backlog for the Automotive Group
is not significant.
Government Contracts. The Company's Industrial and Machinery Groups have
contracts with the U.S. Government that have standard termination provisions.
The U.S. Government retains the right to terminate the 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 the termination
relating to authorized work performed to such date. U.S.
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Government contracts are also subject to reduction or modification in the event
of changes in Government requirements or budgetary constraints.
Research and Development. The Company spent approximately $14.1 million on
research and development activities, primarily for the development of new
products or the improvement of existing products in 1998. Comparable costs were
$14.8 million in 1997 and $18.0 million in 1996. Amounts have declined due to
the divestiture of divisions in 1997.
Environmental Regulatory Compliance. The Company had capital expenditures
of $.8 million and operating expenses (excluding depreciation) of approximately
$9.8 million in the year ended November 30, 1998 for environmental matters. The
Company estimates that its capital expenditures and operating expenses,
including expenses for remedial activities, will be approximately $1.5 million
and $13.3 million, respectively, in 1999. As of November 30, 1998, the Company
has reserved $9.5 million in connection with environmental matters, and believes
such reserves to be adequate under the circumstances. See Item 3.(c) for
information with respect to various other environmental proceedings.
Employees. As of November 30, 1998, the Company employed approximately
6,600 persons in its operations, of whom approximately 1,650 were salaried
employees and 4,950 were hourly employees. Approximately 18% of the Company's
hourly employees are represented by one of six labor organizations. The Company
believes that its relations with its employees are generally good.
Financial Information about Foreign and Domestic Operations and Export Sales
Financial information about Foreign and Domestic Operations and Export
Sales is included in Item 8 below, the Company's Consolidated Financial
Statements for the nine months ended November 30, 1998, the three months ended
February 28, 1998 and the years ended November 30, 1997 and 1996. (See Note R.)
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ITEM 2. PROPERTIES.
The principal fixed assets of the Company consist of its manufacturing,
processing and storage facilities and its transportation and plant vehicles.
Substantially all of the Company's owned properties and assets are pledged as
collateral under its syndicated senior loan facility. The following sets forth
selected information regarding the Company's active manufacturing and processing
facilities:
<TABLE>
<CAPTION>
DESCRIPTION OF
BUSINESS GROUP LOCATION PROPERTY INTEREST
- -------------- -------- -----------------
<S> <C> <C>
AUTOMOTIVE
Domestic Ann Arbor, Michigan owned
Blacksburg, Virginia (2 plant locations) owned
Brighton, Michigan leased
Hillsdale, Michigan (4 plant locations) owned
Hamilton, Indiana owned
Inkster, Michigan owned
Jonesville, Michigan owned
Leesburg, Florida owned
Manchester, Tennessee leased(1)
Norwich, Connecticut owned
Pine Bluff, Arkansas leased
Sidney, Ohio (2 plant locations) 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 (2 plant locations) owned & leased
Grove, Oklahoma owned
Joplin, Missouri (5 plant locations) owned & leased
Lubbock, Texas owned
Seneca, Missouri owned
Sharonville, Ohio owned
Stella, Missouri owned
International Acuna, Coahuila, Mexico owned
INDUSTRIAL(2)
Domestic Clark Station, Nevada owned
Galena, Kansas owned
Harrisonville, Missouri owned
Joplin, Missouri owned
Lenexa, Kansas owned
Lovelock, Nevada owned
Miami, Oklahoma (3 plant locations) owned & leased
Quawpaw, Oklahoma (2 plant locations) owned
Vale, Oregon leased(1)
</TABLE>
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(1) The Company will become owner of each property upon payment in full of all
existing industrial revenue bond obligations in connection with such
property.
(2) In addition to the facilities listed, the Company's Minerals Division has
mining locations and numerous claims in Nevada, Oregon and California.
The Company owns or leases additional office space, including its corporate
headquarters in Cincinnati, Ohio and sales offices in Europe and Asia, and
warehouse space for certain of its operations. The Company's properties are
adequate and suitable for its business and generally have capacity for expansion
of existing buildings on owned real estate. Substantially all of its buildings
have been well maintained and are in sound operating condition and regular use.
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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 ("mining properties"). Not all of the mining
properties are currently being mined. 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 transported by truck to separate processing facilities.
As ore deposits are depleted, the Company reclaims the land in accordance with
reclamation plans approved by the relevant federal, state and local regulators.
A total of approximately 321,000 tons of materials were extracted from the
Company's active mining properties in fiscal year 1998. The Company believes its
diatomaceous earth reserves to range from 15 to 75 years and its perlite
reserves to be in excess of 50 years at the current levels of extraction based
on estimates prepared by its mining and exploration personnel.
ITEM 3. LEGAL PROCEEDINGS.
(a) Chapter 11 Proceedings.
On January 7, 1991 ("Petition Date"), the Subsidiary and seven of its
domestic subsidiaries each filed a voluntary petition for relief under chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of Ohio, Western Division, in Cincinnati, Ohio
("Bankruptcy Court"). The subsidiaries that filed chapter 11 petitions are Daisy
Parts, Inc., Transicoil Inc., Michigan Automotive Research Corporation
("MARCO"), EDI, Inc., Eagle-Picher Minerals, Inc., Eagle-Picher Europe, Inc.,
and Hillsdale Tool & Manufacturing Co. On November 30, 1991, substantially all
of the assets of EDI, Inc. were sold pursuant to authority granted by the
Bankruptcy Court. In August 1997, all of the Subsidiary's shares of Transicoil
Inc. were sold. All of the chapter 11 cases were consolidated for procedural
purposes only under the caption: "In re Eagle-Picher Industries, Inc., et al.,"
Consolidated Case No. 1-91-00100, before the Honorable Burton Perlman, United
States Bankruptcy Judge.
In August 1996, the Subsidiary, together with the Injury Claimants'
Committee and the Representative for Future Claimants who was appointed by the
Bankruptcy Court, proposed the Plan. The Bankruptcy Court and the United States
District Court for the Southern District of Ohio (the "Ohio District Court")
jointly issued an order (the "Order") confirming the Plan on November 18, 1996
(the "Confirmation Date"). The Plan became effective and was consummated on
November 29, 1996 (the "Consummation Date"). The major component of the Plan was
a settlement of the Subsidiary's liability for present and future
asbestos-related and lead-related personal injury claims arising out of business
operations prior to the Petition Date. Under the Plan, it was agreed that these
claims had a total value of $2 billion. Pursuant to the Plan, (i) the PI Trust
was established and the Subsidiary contributed assets to the PI Trust valued at
approximately $730 million in the aggregate (representing an approximately 37%
distribution upon the $2 billion allowed claim of the asbestos and lead
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) a trust for the benefit of
property damage claimants ("PD Trust") is to be established with $3 million in
cash, an obligation of the Subsidiary which has been fully funded and is set
aside pending establishment of the PD Trust.
Pursuant to the Plan, the asbestos-related and lead-related claims were
discharged and the Subsidiary has no further liability in connection with such
claims. As a result, the Subsidiary was relieved 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
Subsidiary. In addition, the Order includes an injunction (the "Injunction"),
which prohibits claimants with asbestos-related or lead-related claims from
bringing actions against the Subsidiary, and instead requires these claimants to
assert such claims only against the PI 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 Subsidiary pursuant to the Plan. Under the Plan,
the PI Trust assumed all liability and responsibility for asbestos-related and
lead-related personal injury claims against the Subsidiary, and the PD Trust
will assume all liability and responsibility for asbestos-related property
damage claims. The Subsidiary believes that the Plan, the Injunction and the
Bankruptcy Code together will enjoin any claims against the
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Subsidiary with respect to any past, present, or future asbestos-related or
lead-related liabilities arising from or based upon business operations prior to
the petition date.
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 the Subsidiary in asbestos personal injury lawsuits
and have asserted claims against the Subsidiary for contribution, indemnity and
subrogation. The allowance of contribution claims against the Subsidiary 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 United States Circuit
Court of Appeals for the Sixth Circuit (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 Subsidiary to a personal injury trust
established by such Subsidiary is unconstitutional. The Sixth Circuit, in a
decision and order issued December 21, 1998, affirmed the Order and dismissed
the subject appeal as moot. Although the Co-Defendants could seek a review of
the Sixth Circuit decision by the United States Supreme Court, the Subsidiary
believes the likelihood of such an appeal is remote. As a result, the
Confirmation Order is expected to be final and nonappealable as of March 23,
1999.
The Bankruptcy Court and the 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 the Ohio District Court determined that the
PI 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.
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 theoretical
possibility that the Injunction would not apply to future lead-related claimants
because lead-related claims are not addressed in Section 524(g), the Subsidiary
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 Subsidiary
believes that this risk is limited because to date, only approximately 125
lead-related claims have been asserted against the Subsidiary (as compared to
the tens of thousands of asbestos-related claims asserted against the
Subsidiary).
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On and shortly after the Consummation Date, the Subsidiary 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 PI Trust, $3.0 million set aside
for the PD Trust 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 (the "Final
Distribution"). Two claims asserted during the chapter 11 proceeding remain
unresolved, an environmental claim and a product liability claim. As of November
30, 1998, the Subsidiary recorded a reserve on the Subsidiary's balance sheet in
the amount of approximately $11.1 million for the Final Distribution (the "Final
Distribution Reserve"). Although there can be no assurance as to the amount
required to resolve the remaining claims, the Subsidiary expects those claims,
together with any other claims not paid in the Initial Distribution, to be
resolved, exclusive of administrative expenses, for an amount not in excess of
the Final Distribution Reserve.
Although a bankruptcy plan of reorganization generally serves to resolve
all claims that arose prior to the chapter 11 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 Subsidiary has entered into
the Environmental Settlement, discussed below, which is intended to relieve the
Subsidiary of the burden of defending against certain claims asserted under
Environmental Laws relating to conditions occurring prior to the date of the
bankruptcy petition. The Environmental Settlement also governs certain
environmentally related claims that have been or may yet be asserted against the
Subsidiary 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 Subsidiary may have obligations
relating to historical noncompliance with environmental laws with respect to
sites owned by the Subsidiary as of the Confirmation Date that were not asserted
in the chapter 11 proceedings. See " -- Environmental Matters."
(b) Other.
On January 25, 1996, Richard Darrell Peoples, a former employee of the
Subsidiary, filed a Qui Tam suit under seal in the 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, allegedly
on behalf of the U.S. Government. The U.S. Government, which has the ability to
intervene in, and take control of, a Qui Tam suit, has declined the opportunity
to intervene or take control of this Qui Tam suit. The Subsidiary became aware
of the suit on October 20, 1997, when it was served on the Subsidiary, after it
had been unsealed. The suit involves allegations of irregularities in
accounting, manufacturing and testing procedures in connection with certain U.S.
Government contracts. The allegations are similar to allegations made by the
former employee, and investigated by outside counsel for the Subsidiary, 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 matters. The Company, which believes that the
U.S. Government did not incur any expense as a result of those matters, 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 Subsidiary 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. On June 16, 1998, the Missouri
Court granted the Subsidiary's Motion to Dismiss the Qui Tam suit. The Court,
however, allowed Mr. Peoples to amend his complaint. Mr. Peoples filed an
amended complaint, and the Subsidiary's Motion to Dismiss the Amended Complaint
was denied on January 20, 1999. The Subsidiary intends to contest this suit
vigorously. The Subsidiary does not believe that resolution of this suit will
have a material adverse effect on the Subsidiary's financial condition, results
of operations or cash flows.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Subsidiary in the United States District Court for the Northern
District of Georgia (the "Georgia Court") alleging breach of contract, negligent
misrepresentation, and contributory infringement and seeking contribution and
indemnification in an amount not less than $10 million (the "Caradon suit"). The
Caradon suit arose out of patent infringement litigation between Caradon and
Therma-Tru Corporation extending over the 1989-1996 time period,
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<PAGE> 12
the result of which was for Caradon to be held liable for patent infringement in
amount believed to be almost $10 million. In June 1997, the Subsidiary filed a
Motion with the Bankruptcy Court seeking an order enforcing the Plan and the
Confirmation Order against Caradon, and enjoining the Caradon suit from going
forward. The Bankruptcy Court in a decision entered on December 24, 1997, held
that the Caradon suit did violate the Plan and the Confirmation Order and
enjoined Caradon from pursuing the Caradon suit. Caradon appealed the Bankruptcy
Court's decision to the United States District Court for the Southern District
of Ohio (the "District Court"), and in a decision entered on February 3, 1999,
the District Court reversed and remanded the matter back to the Bankruptcy
Court. The Subsidiary intends to contest this suit vigorously. The Subsidiary
does not believe that resolution of this suit will have a material adverse
effect on the Subsidiary's financial condition, results of operations or cash
flows.
On May 29, 1997, Therma-Tru Corporation ("Therma-Tru") sought leave to file
an amended complaint (the "Amended Complaint") adding the Subsidiary as a
defendant in a suit filed by Therma-Tru in January 1997 (the "Therma-Tru suit")
against Pease Industries, Inc. ("Pease") in the United States District Court for
the Eastern District of Michigan (the "Michigan Court"). The Therma-Tru suit
involves allegations of infringement by Pease for doors manufactured by Pease
using fiber-reinforced plastic exterior skins supplied by the Subsidiary or its
successor. In June 1997, the Subsidiary filed a Motion with the Bankruptcy Court
seeking an order enforcing the Plan and the Confirmation Order against
Therma-Tru, and enjoining the Therma-Tru suit from going forward as against the
Subsidiary. The Bankruptcy Court in a decision entered on December 24, 1997,
held that the Amended Complaint would violate the Confirmation Order only
insofar as the Amended Complaint seeks relief for acts of the Subsidiary
preceding the Confirmation Date. The Bankruptcy Court did not enjoin the
prosecution of the Amended Complaint insofar as it related to acts of the
Subsidiary after the Confirmation Date. Therma-Tru has appealed the Bankruptcy
Court's decision with regard to the Subsidiary's acts prior to the Confirmation
Date. That appeal remains pending. On September 15, 1997, Therma-Tru filed a
separate amended complaint in the Therma-Tru suit adding Cambridge Industries,
Inc. ("Cambridge") as an additional defendant. Cambridge was the purchaser of
the Subsidiary's former Plastics Division and the Subsidiary is obligated to
defend the Therma-Tru suit as it relates to Cambridge pursuant to an indemnity
the Subsidiary gave to Cambridge when the Subsidiary sold its Plastics Division.
That indemnity was for any door skins sold through October 31, 1997, that were
later found to infringe on the Therma-Tru patent. The Subsidiary is vigorously
defending the Therma-Tru suit as it proceeds against both the Subsidiary and
Cambridge for sales of door skins after the Confirmation Date. The Subsidiary
does not believe that resolution of this suit will have a material adverse
effect on the Subsidiary's financial condition results of operations or cash
flows.
The Subsidiary is also involved in various other proceedings incidental to
the ordinary conduct of its business. The Subsidiary believes that none of these
other proceedings will have a material adverse effect on the Subsidiary's
financial condition, results of operations or cash flows.
(c) Environmental Matters.
During the pendency of the chapter 11 proceedings, the Subsidiary entered
into a settlement agreement (the "Environmental Settlement") with the United
States Environmental Protection Agency (the "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
Subsidiary in the bankruptcy proceeding. The Environmental Settlement resolved
the majority of the approximately 1,100 environmental liability-related claims
filed against the Subsidiary in the chapter 11 proceedings. In addition to
resolving those claims filed in the chapter 11 proceedings, the Environmental
Settlement provided that any additional claims by the Settling Parties against
the Subsidiary in connection with pre-petition activities at any site not owned
by the Subsidiary (the "Additional Sites"), shall be resolved as if they had
been asserted during the chapter 11 proceedings. Accordingly, if the Subsidiary
is found liable or settles any Additional Site claim, payment is limited to
approximately 37% of the liability or settlement amount.
Since entering into the Environmental Settlement, the Subsidiary has
received notice from one or more of the Settling Parties that the Subsidiary may
have liability in connection with 21 Additional Sites. The Subsidiary may be
insured for a portion of these claims. The Subsidiary believes that its
potential liability at 19 of these Additional Sites is not material to the
Subsidiary's financial condition, results of operations or cash flows. The
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<PAGE> 13
remaining two Additional Sites may require significant expenditures by the
Subsidiary: the Henryetta Smelter Site at Henryetta, Oklahoma, and the RSR
Smelter Site at Dallas, Texas.
Henryetta Smelter Site. The Subsidiary received a notice from the EPA
in 1997, alleging liability for remediation expenses at the site of a
former zinc smelting facility owned and operated by the Subsidiary 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 Subsidiary
operated the facility for approximately 50 years, until it was shut down in
1968. The EPA performed remedial activities at the site at a cost of
approximately $6.3 million. The Subsidiary expects to settle this claim
with the EPA for some portion of that amount, and has offered to settle
this claim for approximately $3.8 million.
RSR Smelter Site. The Subsidiary received a notice from the 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 Subsidiary allegedly leased the facility,
which was in operation until a date in or about 1984, for a period of at
least one year in the early 1950s. The EPA has conducted and continues to
conduct extensive remedial activities at this site, and the EPA's total
expenses may amount to $60 million or more. The Subsidiary is one of more
than 1,000 PRPs identified by the EPA in connection with this site and is
not identified by the EPA as one of the 14 significant PRPs. The Subsidiary
and the EPA have agreed in principle to settle this claim for $2.1 million.
The Subsidiary does not expect that its total costs associated with
these sites will have a material adverse effect on the Subsidiary's
financial condition, results of operations or cash flows. Because each site
is an Additional Site under the Environmental Settlement, the Subsidiary
will be required to pay only approximately 37% of any amount for which it
may be found liable or settle the claim. The Subsidiary expects that,
pursuant to the terms of the Plan, such payments will be credited against
the Final Distribution.
The Subsidiary is undertaking remedial actions at a number of its current
and former facilities and properties which are not covered under the
Environmental Settlement Agreement. In connection with certain sales of its
assets, including the Plastics and Transicoil Divisions sold in 1997 and the
Bearings Division sold in 1989, the Subsidiary has agreed to undertake remedial
actions 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 Subsidiary believes that neither
these remedial actions nor any claims under these indemnity provisions will have
a material adverse effect on the Subsidiary's financial condition, results of
operations or cash flows.
The Subsidiary is undertaking closure and corrective actions under RCRA at
two of its current permitted hazardous waste facilities. At the Joplin,
Missouri, facility, consistent with the requirements of its RCRA permit, the
Subsidiary 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 Subsidiary's investigation has identified areas of soil and groundwater
contamination or suspected contamination, certain of which likely will require
the Subsidiary to undertake remedial activities. Following completion of its
investigation, the Subsidiary, 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 Subsidiary has
entered into a Compliance Order on Consent with the State of Colorado's
Department of Public Health and Environment effective January 28, 1999 (the
"Consent Order"). Pursuant to the Consent Order, the Subsidiary will complete
the closure of four former hazardous waste impoundments and evaluate appropriate
remedial actions to address contaminated groundwater and soil at and around the
facility. The Subsidiary 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.
The Subsidiary 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
[NOT APPLICABLE]
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30 FEBRUARY 28,
1998 1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B PREDECESSOR B PREDECESSOR B
(UNAUDITED)
IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Net sales (A).................. $ 645,984 $ 205,842 $ 906,077 $ 891,287 $ 848,548 $ 756,741
Operating income (B)........... 15,470 11,027 45,558 62,106 63,087 58,281
Adjustment for asbestos
litigation................... -- -- -- 502,197 (1,005,511) --
Fresh-start revaluation (C).... -- -- -- 118,684 -- --
Interest expense............... (36,313) (6,940) (31,261) (3,083) (1,926) (1,809)
Income (loss) before taxes,
extraordinary items and
accounting changes........... (19,064) 4,907 14,046 674,656 (934,871) 53,749
Income (loss) before
extraordinary items and
accounting changes........... (14,364) 807 (3,854) 622,086 (944,171) 48,749
Extraordinary items and
accounting changes (D)....... -- -- -- 1,524,305 -- --
Net income (loss).............. (14,364) 807 (3,854) 2,146,391 (944,171) 48,749
Preferred stock dividends
accreted..................... (7,382) -- -- -- -- --
EBITDA (E)..................... 87,436 26,969 104,080 94,931 94,193 85,676
Basic earnings (loss)
applicable to common
shareholders:
Income (loss) applicable to
common shareholders before
extraordinary items and
accounting change.......... (21.74) 0.08 (0.39) 56.34 (85.51) 4.42
Extraordinary items and
accounting changes......... -- -- -- 138.06 -- --
Basic earnings (loss)
applicable to common
shareholders............... (21.74) 0.08 (0.39) 194.40 (85.51) 4.42
Weighted average number of
common shares outstanding.... 1,000,000 9,600,071 10,000,000 11,040,932 11,040,932 11,040,932
Dividends per share............ -- -- -- -- -- --
Total assets................... 816,327 N/A 746,881 848,880 580,073 521,107
Total long-term debt and
redeemable preferred stock
(F).......................... 571,743 N/A 273,397 386,439 20,628 21,622
</TABLE>
- ---------------
(A) Includes net sales attributed to Divested Divisions of $18,600 in the nine
months ended November 30, 1998, $7,076 in the three months ended February
28, 1998, $111,294 in 1997, $159,777 in 1996, $166,082 in 1995, and $157,009
in 1994.
(B) Operating income is not indicative of trends as the results for the nine
months ended November 30, 1998 (subsequent to the Acquisition) and those of
both predecessor A and Predecessor B were derived using different bases.
(See Management's Discussion and Analysis Effects of the Acquisition and
Reorganization on Operations and Financial Condition.)
(C) Fresh-start revaluation 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" ("SOP 90-7").
(D) Reflects a gain of $1,525,540 in 1996 related to emergence from bankruptcy
and reorganization in accordance with SOP 90-7 and a loss of $1,235 in 1996
due to an accounting change of the method used for computing LIFO
inventories of boron, germanium and other rare metals.
(E) EBITDA as used herein is defined as earnings before interest expense, income
taxes, depreciation and amortization, certain one-time management
compensation expenses, gain (loss) on sale of divisions, reorganization
items and other non-cash charges. EBITDA is presented because management
believes it is an
15
<PAGE> 16
indicator of a company's ability to service and incur debt. Includes EBITDA
attributable to Divested Divisions of $446 in the nine months ended November
30, 1998, $(185) in the three months ended February 28, 1998, $4,302 in
1997, $5,543 in 1996, $11,252 in 1995 and $12,898 in 1994.
(F) Long-term debt of $62,000 in 1995 and 1994 was included in liabilities
subject to compromise.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Results of Operations
The following table sets forth certain sales and operating data, net of all
inter-segment transactions for the Company's businesses for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS YEAR ENDED NOVEMBER 30,
ENDED ENDED ------------------------------
NOV. 30, 1998 FEBRUARY 28, 1998 1997 1996
----------------- ----------------- ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Net sales by segment:
Automotive.................... $330.6 $103.7 $435.2 $439.6
Machinery..................... 201.8 64.4 270.8 257.6
Industrial.................... 113.6 37.7 200.1 194.1
------ ------ ------ ------
Total...................... $646.0 $205.8 $906.1 $891.3
====== ====== ====== ======
EBITDA(1) by segment:
Automotive.................... $ 49.6 $ 15.4 $ 59.4 $ 57.7
Machinery..................... 29.6 7.7 30.6 28.7
Industrial.................... 23.2 6.7 29.8 27.8
Corporate overhead............ (15.0) (2.8) (15.7) (19.3)
------ ------ ------ ------
Total...................... $ 87.4 $ 27.0 $104.1 $ 94.9
====== ====== ====== ======
</TABLE>
- ---------------
(1) For these purposes, EBITDA is defined as earnings before interest expense,
income taxes, depreciation and amortization, certain one-time management
compensation expenses in 1998, gain (loss) on sale of divisions,
reorganization items in 1996 and certain non-cash charges.
EFFECTS OF THE ACQUISITION AND REORGANIZATION ON OPERATIONS AND FINANCIAL
CONDITION
The Acquisition of Eagle-Picher Industries, Inc. ("Subsidiary") by
Eagle-Picher Holdings, Inc. ("Company") was accounted for as a purchase. The
purchase price has been allocated to the assets and liabilities of the Company
based on their respective fair values as determined primarily by independent
appraisals. The excess of the purchase price over the assessed values of the net
assets acquired was allocated to excess of acquired net assets over cost, which
is being amortized over 15 years. The reorganization value in excess of amounts
allocable to identifiable assets, which was the intangible asset created during
the Subsidiary's emergence from bankruptcy (described below), was assigned no
value. Consequently, the results of operations after the Acquisition are not
comparable to those in the three months ended February 28, 1998 and in 1997
("Predecessor A") primarily due to depreciation being calculated on an increased
asset base and the difference in amortization of the intangible assets.
Upon emergence from bankruptcy on November 29, 1996 ("Reorganization"), the
Subsidiary applied the "fresh-start" provisions of the American Institute of
Certified Public Accountants Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7").
In accordance with SOP 90-7, the assets and liabilities of the Subsidiary 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 and amortized
using a four year life. Consequently, results of operations in 1996
("Predecessor B") and 1997 are not comparable, primarily due to the increased
depreciation on the property plant and equipment and amortization of the
reorganization value in excess of amounts allocable to identifiable assets
resulting from the fresh-start adjustments.
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<PAGE> 17
Interest expense was minimal in 1996 because interest expense was not
recorded on unsecured debt or undersecured debt during the duration of the
bankruptcy proceedings. Interest expense increased by $28.2 million in 1997,
primarily due to the debt issued to the PI Trust and unsecured creditors upon
the Subsidiary's emergence from bankruptcy. Any of the debt that had been issued
when the Subsidiary emerged from bankruptcy that was still outstanding was
repaid at the time of the Acquisition. Interest expense increased substantially
in 1998, after the Acquisition, due to the issuance of debt totaling $524.1
million related to the Acquisition.
Adjusting the assets and liabilities to fair value in the Reorganization
resulted in the fresh-start revaluation gain of $118.7 million in 1996. Other
reorganization items in 1996 were the costs of the reorganization process, net
of the interest income earned on accumulated cash balances.
The plan of reorganization which was approved by the Bankruptcy Court,
included a settlement of $2.0 billion for the Subsidiary's aggregate liability
on account of present and future asbestos-related personal injury claims. An
adjustment of $502.2 million 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 or
lead-related personal injury claims from pursuing their claims against the
reorganized Subsidiary. Those claims will be channeled to the PI Trust, which is
an independently administered qualified settlement trust established to resolve
and satisfy those claims.
The Subsidiary's Reorganization resulted in an extraordinary gain of $1.5
billion on the discharge of pre-petition liabilities, including the asbestos
liability. The value of consideration distributed and expected to be distributed
to the PI Trust and other unsecured creditors is approximately 37% of the amount
of the allowed claims.
In 1997, the Company received Federal tax refunds totaling $69.1 million
resulting from net operating losses ("NOL's") carried back to recover taxes paid
in prior years. The majority of the NOL's were created when the Subsidiary
contributed cash and securities to the PI Trust in the Reorganization. Losses
remaining after the carryback were carried forward to reduce taxable income in
future years and were capitalized at the statutory rates as deferred tax assets.
Other items that were deductible in the future, such as the debt issued in
conjunction with the Subsidiary's Reorganization which was deductible when it
was repaid, were also included in deferred tax assets which totaled $128.5
million at November 30, 1996. These deferred tax benefits were used to reduce
taxable income (and, as a result, income taxes paid) in 1997 and the period in
1998 prior to the Acquisition. They were also used to absorb the tax gain
resulting from the sale of the Subsidiary. Any of the deferred tax benefits that
were not absorbed by Predecessor A in 1997, the period in 1998 prior to the
Acquisition or by the tax gain on the transaction itself were lost and are not
available to reduce taxable income of the Company going forward.
In addition to the effects of the Acquisition and the Reorganization,
another factor affecting comparability of operations is the sale of the
Plastics, Transicoil and Fabricon Products Divisions in 1997. The Company also
contributed the assets of its former Suspension Systems Division to
Eagle-Picher-Boge, L.L.C., a joint venture in which the Company had a 45%
interest, in 1997. In 1998, the majority partner exercised its option to
purchase the Company's interest in the joint venture. The Company also sold its
Trim Division effective October 31, 1998, although the transaction was held in
escrow until certain conditions were met in December 1998. The effects of these
transactions on the results of operations were not material.
1998 COMPARED TO 1997
Net Sales. Sales for the nine months ended November 30, 1998 and the three
months ended February 28, 1998 were $646.0 million and $205.8 million,
respectively, (a total of $851.8 million) compared to $906.1 million for the
year ended November 30, 1997, a decrease of 6.0% for the year. However, sales
for the years ended November 30, 1998 and 1997 were $826.1 million and $794.8
million, respectively, or an increase of 3.9%, after excluding the Divested
Divisions (Plastics, Transicoil, Fabricon Products, Trim, Suspension Systems and
the Orthane divisions). Net sales for the Automotive Group, excluding those of
Divested Divisions, increased 11.6%. The increase in sales is due to a strong
automotive build in North America and increased market penetration of
precision-machined transmission and drive train components and multi-layer fuel
transfer systems, many of which are used in light trucks, vans and sport utility
vehicles, the popularity of which remains strong. Since the 1980's, original
equipment manufacturers ("OEM's") such as the Ford Motor Company and the General
Motors
17
<PAGE> 18
Corporation ("GM") have been outsourcing an increasing percentage of their
production requirements. OEM's 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. In the Machinery Group, net sales
increased 3.2%, excluding net sales of Divested Divisions. Increases in demand
for construction equipment and parts and material handling equipment were
partially offset by declines in demand for special purpose batteries due to the
completion of a major satellite project late last year. In the Industrial Group,
net sales, excluding net sales of Divested Divisions, declined 11.3%. The
decrease in sales is due primarily to the decreased sales of the metal
germanium. Sales of germanium products have been affected by lower market prices
which resulted from increased supplies, the completion of a major satellite
project and the increased use of recycled germanium by the Company's customers.
Customers have increased their recycling of germanium in response to sharp
increases in germanium prices which took place in 1996. Revenues have declined
since the Company has shifted more toward being a toll refiner of germanium
rather than a buyer and seller of the material.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) was $503.0 million for the nine months ended November 30, 1998 and
$162.8 million for the three months ended February 28, 1998 (a total of $665.8
million) compared to $725.0 million in 1997. Excluding the cost of products sold
of Divested Divisions, cost of products sold as a percentage of net sales was
77.8% in 1998 and 78.7% in 1997. Reasons for the decline include improved
performance at certain start-up operations, increased efficiencies and changes
in product mix involving the special purpose batteries.
Since the Company expects strong price pressure to continue across all
product lines, particularly in the Automotive Group, the Company will continue
to pursue productivity improvements and material cost reductions to mitigate
such price pressure.
Selling and Administrative. Selling and administrative expenses were $58.5
million and $17.1 million in the nine months ended November 30, 1998 and the
three months ended February 28, 1998, respectively (a total of $75.6 million),
compared to $77.1 million in 1997. Excluding the Divested Divisions, these
expenses increased 5.1% from $69.4 million in 1997 to $72.9 million in 1998.
Besides a general increase due to activity relating to increased sales volumes,
items contributing to the increase of selling and administrative expenses
include management fees now payable to Granaria Holdings B.V. and a retention
program for mid-level managers.
Management Compensation -- Special. The special management compensation
expenses are one-time items related to the Acquisition. See Executive
Compensation.
Depreciation and Amortization. See comments above regarding the effects of
the Acquisition.
EBITDA. Due to the increased depreciation and amortization resulting from
the Acquisition, a comparison of 1997 and 1998 operating income is not
meaningful. The Company's EBITDA, as defined above, was $87.4 million in the
nine months ended November 30, 1998 and $27.0 million in the three months ended
February 28, 1998 (a total of $114.4 million), compared to $104.1 million for
the year ended November 30,1997, an increase of $10.3 million or 9.9%. However,
EBITDA for the years ended November 30, 1998 and 1997 was $114.1 million and
$99.9 million, respectively, or an increase of 14.2%, after excluding the
Divested Divisions.
The EBITDA of the Automotive Group, excluding Divested Divisions, increased
10.8%. The increased volumes of sales described above resulted in better
absorption of fixed costs and EBITDA increased accordingly. However, these
increases were slightly offset by the impact on divisions in the Automotive
Group of the strike against GM in 1998. The Trim Division, which is one of the
Divested Divisions, was impacted the most significantly of the divisions in the
Automotive Group by the strike. EBITDA for the Machinery Group, excluding
Divested Divisions, increased 27.2% from 1997 to 1998. Although volumes of
special purpose batteries declined in 1998, a shift in product mix contributed
to the increase in EBITDA. Other contributing factors include the increase in
volumes at the operations manufacturing construction and material handling
equipment. The increase in EBITDA of the Industrial Group, excluding results of
Divested Divisions, was 7.2%. Although net sales of germanium products have
declined, margins on these products have remained consistent.
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<PAGE> 19
Interest Expense. Interest expense was $36.3 million in the nine months
ended November 30, 1998 and $6.9 million in the three months ended February 28,
1998 (a total of $43.2 million) as compared to $31.3 million in 1997. The
increase is due to the increased debt related to the Acquisition as discussed
above.
1997 COMPARED TO 1996
Net Sales. The Company's net sales increased $14.8 million, or 1.7%, from
$891.3 million in 1996 to $906.1 million in 1997. Included are sales of the
Divested Divisions which, if excluded for both periods, would reflect an
increase of 8.6%. In 1996 and 1997, the Divested Divisions contributed net sales
of approximately $159.8 million and $111.3 million, respectively.
Net sales for the Automotive Group, excluding Divested Divisions, increased
8.6% in 1997. The sales volume increases were primarily in precision machining
and trim operations. The precision machining operations produce a variety of
parts used on light trucks, vans and sport utility vehicles which have grown in
popularity. Several new programs at the Trim division, which had been delayed by
customers, began to reach satisfactory volumes. The Company was notified by a
major customer of the Automotive Group that such customer was discontinuing
certain lines of business with one of the operations. The first program was
discontinued in December 1997, and other programs are being discontinued at
various times through March 1999. The total amount of annual revenue these
programs have contributed is $19.4 million. This revenue has been replaced by
new programs currently being implemented. In the Machinery Group, sales
increased 7.7%, excluding net sales by Divested Divisions. These increases were
due primarily to increased demand for batteries used in satellite applications.
Net sales for the Industrial Group, excluding those of Divested Divisions,
increased 10.2% primarily due to increased demand for germanium products used in
aerospace applications, such as solar cell substrates for satellites.
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. Excluding the cost of products sold of the Divested
Divisions, cost of products sold as a percentage of net sales remained
consistent at 78.7% in 1997 and 78.6% in 1996.
Selling and Administrative. Selling and administrative expenses decreased
$4.4 million, or 5.4%, from $81.5 million in 1996 to $77.1 million in 1997.
Excluding the expenses of the Divested Divisions, selling and administrative
expenses remained constant from 1996 to 1997.
Depreciation and Amortization. See comments above regarding the effects of
the Reorganization.
Loss on Sale of Divisions. In 1997, the Company sold the Plastics,
Transicoil and Fabricon Products divisions to fund the repayment of certain
notes issued in the reorganization process. The aggregate net cash proceeds from
and loss on the transactions were $39.0 million and $2.4 million, respectively.
The injection molding operations of the Orthane Division were sold in 1996 for
$4.2 million. The effect of this transaction on the results of operations was
not material.
EBITDA. EBITDA increased from $94.9 million in 1996 to $104.1 million in
1997, or 9.7%. If the results of the Divested Divisions are excluded, EBITDA was
$89.4 million in 1996 and $99.9 million in 1997, an increase of 11.7%.
The EBITDA of the Automotive Group, excluding Divested Divisions, increased
4.5%. The increased volumes of sales described above resulted in better
absorption of fixed costs and EBITDA increased accordingly. Currency exchange
differences offset volume gains in the European operations, therefore, results
of these operations appeared relatively flat. The increased sales volumes of
batteries accounted for the majority of the increase in EBITDA, excluding
Divested Divisions, of 8.5% for the Machinery Group. Although sales of
operations manufacturing heavy-duty forklift trucks and construction equipment
were flat, these operations posted operating gains due to increased efficiencies
which also contributed to increased EBITDA. The increase in EBITDA of the
Industrial Group, excluding results of Divested Divisions, was 8.2%, due
primarily to the strength of demand for germanium products. The price of
germanium itself stabilized in 1997 after increasing sharply in 1996. In
addition, the operation that processes diatomaceous earth products had increased
EBITDA due to non-recurring charges taken in 1996.
19
<PAGE> 20
Interest Expense. Interest expense increased by $28.2 million from $3.1
million in fiscal year 1996 to $31.3 million in 1997 for reasons discussed above
related to the effects of the Reorganization on the Company's results.
Financial Condition
OPERATING ACTIVITIES
Cash flows provided by operations in the nine months ended November 30,
1998 were $75.5 million and cash flows used in operations in the three months
ended February 28, 1998 were $9.1 million, for a net total of cash provided from
operations of $66.4 million in 1998. Comparable amounts in 1997 and 1996 were
cash provided by operations of $147.9 million and $72.9 million, respectively.
In 1997, $69.1 million of the $147.9 million resulted from the tax refund due to
NOL carrybacks previously discussed. Cash flows provided by operations in 1997,
excluding the tax refund, were $78.8 million.
EBITDA was $87.4 million in the nine months November 30, 1998, $27.0
million in the three months ended February 28, 1998 (totaling $114.4 million in
1998), $104.1 million in 1997 and $94.9 million in 1996. EBITDA, as defined
above, with certain adjustments, could be used as an approximation of cash flows
provided by operations before interest and taxes. The following table set forth
a reconciliation of EBITDA to cash provided by (used in) operations for the
years ended November 30:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1998 1997 1996
--------------------- ------ ------ -----
<S> <C> <C> <C>
EBITDA per above........................................ $114.4 $104.1 $94.9
Management compensation -- special...................... (28.9) -- --
Interest paid........................................... (35.3) (31.0) (2.8)
Income taxes paid -- net................................ (3.1) (4.3) (17.3)
Proceeds from insurance settlements..................... 14.8 -- --
Working capital and other............................... 4.5 10.0 (1.9)
------ ------ -----
Cash provided by operating activities (net of tax refund
in 1997).............................................. $ 66.4 $ 78.8 $72.9
====== ====== =====
</TABLE>
In 1998, the management compensation is related to the Acquisition and is
non-recurring. (See Executive Compensation.) Interest paid increased in 1997 due
to the Reorganization and in 1998 due to the Acquisition as previously
discussed. Income taxes paid declined in 1997 due to the NOL's resulting from
the Reorganization that were available to reduce taxable income as previously
discussed. These NOL's were available only through the Acquisition date in 1998
and are not available to the Company on a going forward basis. The proceeds from
insurance settlements in 1998 related to pre-Acquisition contingencies. In 1998,
the increase in cash provided by operating activities attributable to working
capital was due primarily to the use of cash in an employee benefits trust to
pay for such benefits, rather than using the Company's cash. This resulted in a
decrease in the use of cash to the Company of approximately $8.0 million. The
difference is attributable to increases in working capital due to growth of the
business. In 1997, the increase in cash provided by operating activities
attributable to working capital was due to certain divisions being able to
negotiate better terms on their accounts payable after emerging from bankruptcy.
INVESTING ACTIVITIES
Capital expenditures totaled $32.0 million in year ended November 30, 1998.
These expenditures included small expansions to plants that manufacture
construction machinery and bulk pharmaceuticals, equipment needed for new
programs in the Automotive Group and maintenance capital. 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 in 1996. In addition to amounts spent on
construction of the facility in Vale, Oregon in 1996 and the addition of a
20
<PAGE> 21
new coating line for the manufacture of gasket materials in 1995, significant
expenditures have been made in recent years to increase machine capacity at
existing facilities or improve processes, particularly in the Automotive Group.
The Company does not have any plans for major expansions to existing facilities
in the short-term.
The Company has signed a letter of intent to acquire the stock of
Charterhouse Automotive Group, Inc., a holding company whose only operating
subsidiary is Carpenter Enterprises, Ltd. ("Carpenter"), a manufacturer of
precision-machined automotive parts, for approximately $41.0 million in cash. It
is expected that Carpenter will have approximately $32.0 million of debt at the
closing, of which $20.0 million will be refinanced from the Company's revolving
credit facility and the remainder will be assumed. The Acquisition will be
accounted for as a purchase. The transaction is expected to be consummated at
the end of the first quarter of 1999, subject to the results of a due diligence
investigation and various conditions including negotiation of a mutually
acceptable stock purchase agreement.
The Company sold its Trim Division as of October 31, 1998, however the
transaction remained in escrow until certain conditions were met in December
1998. At that time, the Company received $12.4 million cash and a $2.1 million
note due in 2000 which is secured by a first mortgage on the real estate. In
1997, The Company contributed the assets of its former Suspension Systems
Division to Eagle-Picher -- Boge, L.L.C., a joint venture in which the Company
had a 45% interest, and received a note from the joint venture in the amount of
$2.8 million. In 1998, the majority partner exercised its option to purchase the
Company's interest in the joint venture. At that time, the note was also repaid
resulting in proceeds totaling $7.9 million. The Company sold the Plastics,
Fabricon Products and the Transicoil 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.
The Company intends to sell its Ross Aluminum Division. The Company
anticipates the transaction would close late in the second quarter of 1999. The
Company does not anticipate a loss on this transaction. No other divestitures
have been announced or committed to at this time.
FINANCING ACTIVITIES
To finance the Acquisition, the Company issued $100.0 million in common
stock and $80.0 million in publicly traded redeemable preferred stock. The
Subsidiary issued $220.0 million of publicly traded senior subordinated notes
and borrowed $225.0 million in term loans and $79.1 million in revolving loans
under a syndicated senior bank loan facility ("Credit Agreement"). At the time
of the Acquisition, the Company repaid the $250.0 million Senior Sinking Fund
Debentures that had been issued to the PI Trust when the Subsidiary emerged from
bankruptcy.
As of November 30, 1998, $5.2 million of the term loans had been repaid. In
1999, scheduled payments of the term loans are $10.3 million, however, the
Credit Agreement requires the Company to make mandatory prepayments of 60% of
annual excess cash flow as defined by the Credit Agreement, the net proceeds
from sales of assets (subject to certain conditions), the net proceeds of new
debt issued and 50% of the net proceeds of any equity securities issued.
Pursuant to these terms, the Company will make additional payments on the term
loans of $8.5 million in the first quarter of 1999. Scheduled payments under the
Credit Agreement for 2000 and 2001 are $15.3 million and $20.3 million,
respectively.
The Company's revolving credit facility ("Facility") under the Credit
Agreement is $160.0 million and is available for both borrowings and the
issuance of letters of credit. At November 30, 1998, the Company had outstanding
borrowings and letters of credit under the Facility of $19.8 million and $26.3
million, respectively, leaving the Company with available borrowing capacity of
$113.9 million. Subsequent to November 30, 1998, all borrowings under the
Facility have been repaid. However, it is anticipated that more than $60.0
million would be drawn to finance the Carpenter acquisition. In addition, in the
first quarter of 1999, it is anticipated the Company will issue approximately
$14.0 million in additional letters of credit associated with existing
environmental remediation that are necessitated by financial assurance
requirements set forth by the United States Environmental Protection Agency.
While these transactions will significantly reduce the available liquidity of
the Company,
21
<PAGE> 22
the Company does not expect to need more borrowing capacity than will be
available to it to fund normal operations.
The Company's European operations also have several lines of credit
totaling $28.7 million at November 30, 1998, of which $6.7 million was borrowed,
leaving $22.0 million in borrowing capacity at that date. These 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.
The Company used the proceeds of the tax refunds totaling $69.1 million
received in 1997 to redeem the $69.1 million Tax Refund Notes which were issued
to the PI Trust in connection with the Reorganization. The $50.0 million of
Divestiture Notes, which were issued to the PI Trust and other unsecured
creditors in connection with the bankruptcy, were also repaid in 1997, primarily
with the proceeds from the divestiture of divisions. 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. The Company
issued an $8.0 million Industrial Revenue Bond to finance the new facility in
Manchester, Tennessee and incurred $5.0 million debt in Europe to finance
expansion activities.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $13.7 million at November 30, 1998 compared
to $53.7 million and $32.7 million at November 30, 1997 and 1996, respectively.
The Company estimates that it needs approximately $10.0 million to $12.0 million
in cash for operations. 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.
Other
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20." If not corrected, many
computer programs could fail or cause erroneous results. Failures of this nature
could cause interruptions to manufacturing processes, business and financial
functions and communications with customers and suppliers.
Due to the diverse nature of the Company's operations, each operating
division has its own discrete computer systems. The Company currently has a Year
2000 program in place which includes a comprehensive review to identify areas of
concern in each of the systems affected by the Year 2000 issue and follows up
with design and implementation of measures to address those issues. The Company
is assessing its information technology systems such as business computing
systems, end user computer systems and technical infrastructure, as well as
embedded systems commonly found in manufacturing and service equipment, testing
equipment and environmental operations. The assessments also include the
Company's products and evaluations of the readiness of its suppliers and service
providers.
The Company's Year 2000 program involves a five step process applied to
each of eight different application areas within each operation, and at the
corporate level. The Company first inventories areas of potential risk based on
a comparison to guidelines published by the Automotive Industry Action Group
("AIAG"). Each component identified in the inventory is then evaluated for its
risk of failure and the impact of potential failure to the Company's operations
and its customers. Once the risks are assessed, remediation is commenced.
Options for remediation may include replacement, modification or continued use
depending on information gathered during the inventory and assessment stages.
The remediated system is then tested and reviewed before the determination is
made as to the readiness of the system. A project committee meets regularly to
review the status of the investigation into and resolution of Year 2000 issues.
22
<PAGE> 23
Most of the Company's divisions have completed the inventory and assessment
phases and are working on remediation and testing. The remaining divisions have
the inventory and assessment phases underway. The Company expects that all
divisions will have completed the inventory and assessment phases by March 31,
1999 and will have implemented initial remediation attempts and testing thereof
by June 30, 1999. The final step of the program is review by the Company's
outside consultant for Year 2000 readiness, a review that is ongoing. The
Company maintains a record of its progress to date for each of its domestic
divisions, and publishes those reports on its web site at www.epcorp.com.
The Company's remaining costs to remediate the Year 2000 problem are not
expected to exceed $3.5 million. Of this amount, approximately $1.0 million will
be spent in the form of capital for systems replacement and approximately $1.5
million will be incremental costs. The remaining costs relate to the
redeployment of the Company's existing resources to assess and remediate the
Year 2000 problem. Projects being deferred by this issue include items such as
system enhancements that would improve performance or functionality. To date,
the Company estimates it has spent approximately $2.5 million in assessing and
remediating the Year 2000 problem, of which $1.0 million was for capital
equipment, $.8 million related to incremental costs and $.7 million related to
the redeployment of the Company's resources.
The Company believes its greatest risk lies within its financial computer
systems and Electronic Data Interchange ("EDI") capabilities with its customers
and suppliers. The Company relies on customer requirements and outside services
for most of its EDI capabilities and therefore is dependent on such parties
addressing Year 2000 issues. If these systems were to fail, the Company would
encounter difficulty performing functions such as compiling financial data,
invoicing customers, accepting electronic customer orders or informing customers
of shipment electronically. While some of these functions could be performed
manually, the Company presently is not certain what the extent of the impact on
operations would be. There is also risk associated with certain suppliers,
including utility companies, over which the Company has little control.
The Company is presently working on contingency plans on a case by case
basis to address issues related to potential failures of critical systems due to
Year 2000 problems identified in the risk assessment phase, and it expects to
have those plans in place by May 31, 1999. The Company believes that the most
likely worst case scenario will be limited to isolated disruptions that will
affect individual business processes, facilities, suppliers or customers for a
relatively short time.
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 not
materially impair the Company's ability to conduct business.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the euro
as their common legal currency and established fixed conversion rates between
their existing local currencies and the euro. During the transition period,
which runs from January 1, 1999 through December 31, 2002, transactions may take
place using either the euro or a local currency. However, conversion rates will
no longer be computed directly from one local currency to another, but be
converted from one local currency into an amount denominated in euro, then be
converted from the euro denominated amount into the second local currency. On
July 1, 2002, the local currencies will no longer be legal tender for any
transactions.
The Company has both operating divisions and domestic export customers
located in Europe. In 1998, combined revenues from these sources were
approximately 15% of total revenues. The Company has operations in Germany, the
Netherlands, France and Spain, which are participating in the euro conversion,
and the United Kingdom, which has elected not to participate at this time. The
affected operations plan to make the euro the functional currency sometime
during the transition period, although certain of the Company's European
operations have already entered into euro-based transactions, such as bank
borrowing and collection of accounts receivable.
It is difficult to assess the competitive impact of the euro conversion on
the Company's operations, both in Europe and in the United States. In markets
where sales are made in U.S. dollars, there may be pressures to
23
<PAGE> 24
denominate sales in the euro, however, exchange risks resulting from these
transactions could be mitigated through hedging. Pressures to price products in
euro may be more urgent for operations located in the United Kingdom,
particularly in the automotive industry, as the European automotive industry is
somewhat dominated by German companies. The currency risk to the operations
located in the United Kingdom could also be hedged, however the risk is greater
on a regional level that the hedging could result in additional costs that could
harm the cost competitiveness of those operations. It is not anticipated that
changes to information technology and other systems which are necessary for the
euro conversion will be material. The Company is currently assessing the impact
the euro conversion may have on items such as taxation and other issues.
RECENTLY ISSUED ACCOUNTING STANDARDS
The following three new accounting standards will be effective for the
fiscal year ended November 30, 1999:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components. This statement requires the Company to
report the components of comprehensive income, a measure of performance that
includes all non-owner sources of changes in equity, such as unrealized gains
and losses on securities available for sale and foreign currency translation
adjustments.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard requires that
companies disclose "operating segments" based on the way management
disaggregates the company for making internal operating decisions, regardless of
how a company defines its operating segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard does not change
the measurement or recognition of those plans, but standardizes disclosure
requirements for such plans.
The Company believes that although these standards may require expanded
disclosure for the Company's consolidated financial statements, the impact of
these standards is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in the fair value of a derivative depends on the its
intended use and the resulting designation. The provisions of this statement are
effective for the first quarter of the fiscal year ending November 30, 2000. The
Company has not yet determined the impact this statement will have on its
financial position or the results of its operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward-looking statements" within
the meaning of Section 21E of the Securities and Exchange Act of 1934. The words
"estimate," "anticipate," "project," "intend," "believe," "expect," and similar
expressions are intended to identify forward-looking statements. 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, the Company. These risks
and uncertainties include, but are not limited to, the ability of the Company to
maintain existing relationships with customers; the ability of the Company to
successfully implement productivity improvements, cost reduction initiatives and
facilities expansion; the ability of the Company to develop, market and sell new
products and the ability of the Company 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 the Company operates. Persons reading this Form 10-K are
cautioned that such forward-looking statements are only predictions and that
actual events or
24
<PAGE> 25
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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk, including changes in interest rates,
currency exchange rates, and commodity prices. To manage the volatility relating
to these exposures, the Company enters into hedging instruments pursuant to the
Company's policies. The financial impacts of these instruments are offset by
corresponding changes in the underlying exposures being hedged. The Company does
not hold or issue derivative financial instruments for trading purposes.
Interest Rate Management
The Company's policy is to manage interest cost using a mix of fixed and
variable rate debt. To manage this mix in a cost-efficient manner, the Company
has entered into an interest rate swap, in which the Company agrees to exchange,
at specified intervals, the difference between fixed and variable interest
amounts calculated by reference to a notional principal amount of $150.0
million. This swap is designed to hedge a majority of the underlying Term Loan
Facility ($219.8 million balance at November 30, 1998). For all interest rate
hedges, the rate differential is reflected in current interest expense over the
life of the swaps.
The remaining $69.8 million of the Term Loan Facility bears interest at the
variable rates described in Note F to the Consolidated Financial Statements. In
addition, the Company has a Revolving Loan Facility with a balance at November
30, 1998 of $19.8 million which also bears interest at the variable rates
described in Note F to the Consolidated Financial Statements. Accordingly, the
combined effect of a 1% increase in an applicable index rate would result in
additional interest expense of approximately $ .9 million per year.
The following table presents information for all dollar-denominated
interest rate instruments. In addition, the Company has several working capital
facilities denominated in deutchmark and pound sterling (see Note F to the
Consolidated Financial Statements). The fair value presented below approximates
the cost to settle the outstanding contract.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------------------ FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
------ ------ ------- ------ ------ ---------- ------- ----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-Term Debt
Variable Rate Debt ($)......... 18.8 15.3 20.3 25.3 21.6 156.3 257.6 257.6
Average Interest Rate........ 6.83% 6.65% 6.50% 6.44% 6.53% 6.99% 6.65%
Fixed Rate ($)................. -- -- -- -- -- 220.0 220.0 206.6
Average Interest Rate........ 9.38% 9.38% 9.38% 9.38% 9.38% 9.38% 9.38%
INTEREST RATE DERIVATIVES
Interest Rate Swaps
Variable to Fixed ($).......... -- -- 150.0 -- -- -- 150.0 (2.5)
Average Pay Rate............. 5.81% 5.81% 5.81% 5.81%
Average Receive Rate......... 5.03% 5.03% 5.03% 5.03%
</TABLE>
Currency Rate Management
The Company manufactures and sells its products in a number of countries
throughout the world and, as a result, is exposed to movements in foreign
currency exchange rates. The major foreign currency exposures involve the
markets in Western Europe. The primary purpose of the Company's foreign currency
hedging activities is to protect against the volatility associated with: (1)
foreign currency purchases of materials and other assets; (2) foreign currency
sales of goods; and (3) intercompany purchase transactions. The Company utilizes
forward exchange contracts with duration of generally less than 12 months.
Gains and losses related to hedges of foreign currency firm commitments or
anticipated transactions are included in the basis of the underlying
transactions. To the extent an anticipated transaction is no longer likely to
occur, the related hedge is closed with gains or losses charged to earnings on a
current basis.
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<PAGE> 26
In the cases of (1) and (2) above, the Company places contracts on a
transaction-by-transaction basis matching foreign currency supply with
requirements. As such, the Company believes these contracts to be perfected
hedges. In the case of (3) above, the Company has several foreign operations
that purchase material from domestic divisions. The Company will place foreign
exchange contracts to cover a portion of anticipated yearly purchase
requirements for these foreign operations. At year end the Company had foreign
currency instruments of this type in notional amounts totaling $9.2 million.
Gains or losses on these instruments were not material.
Credit Risk
Credit risk arising from the inability of a counterparty to meet the terms
of the Company's financial instrument contracts is generally limited to the
amounts, if any, by which the counterparty's obligations exceed the obligations
of the Company. It is the Company's policy to enter into financial instruments
with a diversity of creditworthy counterparties. Therefore, the Company does not
expect to incur material credit losses on its risk management or other financial
instruments.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED YEAR ENDED NOVEMBER 30,
ENDED FEBRUARY 28, -----------------------------
NOVEMBER 30, 1998 1997 1996
1998 PREDECESSOR A PREDECESSOR A PREDECESSOR B
------------ ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales..................................... $645,984 $205,842 $906,077 $ 891,287
-------- -------- -------- ----------
OPERATING COSTS AND EXPENSES
Cost of products sold (exclusive of
depreciation shown separately below)........ 502,973 162,796 725,010 716,926
Selling and administrative.................... 58,460 17,141 77,109 81,505
Management compensation -- special............ 26,808 2,056 -- --
Depreciation.................................. 29,926 8,983 39,671 30,338
Amortization of intangibles................... 12,317 3,839 16,318 412
Loss on sale of divisions or assets........... 30 -- 2,411 --
-------- -------- -------- ----------
630,514 194,815 860,519 829,181
-------- -------- -------- ----------
OPERATING INCOME.............................. 15,470 11,027 45,558 62,106
Adjustment for asbestos litigation............ -- -- -- 502,197
Provision for other claims.................... -- -- -- (4,244)
Interest expense (contractual interest of
$9,889 in 1996)............................. (36,313) (6,940) (31,261) (3,083)
Other income (expense)........................ 1,779 820 (251) 1,345
-------- -------- -------- ----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS,
TAXES, EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE................. (19,064) 4,907 14,046 558,321
Fresh start revaluation....................... -- -- -- 118,684
Reorganization items.......................... -- -- -- (2,349)
-------- -------- -------- ----------
INCOME (LOSS) BEFORE TAXES, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE...................................... (19,064) 4,907 14,046 674,656
INCOME TAXES (BENEFIT)........................ (4,700) 4,100 17,900 52,570
-------- -------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
Cumulative Effect of Accounting Change...... (14,364) 807 (3,854) 622,086
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)........................... (14,364) 807 (3,854) 2,146,391
PREFERRED STOCK DIVIDENDS ACCRETED............ (7,382) -- -- --
-------- -------- -------- ----------
INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS................................ $(21,746) $ 807 $ (3,854) $2,146,391
======== ======== ======== ==========
Basic Earnings (Loss) Applicable to Common
Shareholders:
Income (Loss) Applicable to Common
Shareholders Before Extraordinary Item and
Cumulative Effect of Accounting Change.... $ (21.74) $ .08 $ (.39) $ 56.34
Extraordinary Item -- Gain on Discharge of
Pre-petition Liabilities.................. -- -- -- 138.17
Cumulative Effect of Change in Accounting
For Inventories........................... -- -- (.11) (.11)
-------- -------- -------- ----------
Basic Earnings (Loss) Applicable to Common
Shareholders................................ $ (21.74) $ .08 $ (.39) $ 194.40
======== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
<TABLE>
<CAPTION>
1997
1998 PREDECESSOR A
-------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 13,681 $ 53,739
Receivables, less allowances of $1,529 in 1998 and $1,614 in
1997...................................................... 144,844 133,952
Inventories................................................. 88,873 92,196
Prepaid expenses............................................ 8,338 8,290
Deferred income taxes....................................... 10,851 13,793
-------- --------
Total Current Assets.............................. 266,587 301,970
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements.................................. 18,288 19,832
Buildings................................................... 62,868 65,289
Machinery and equipment..................................... 182,003 173,909
Construction in progress.................................... 15,902 20,817
-------- --------
279,061 279,847
Less accumulated depreciation............................... 30,524 36,309
-------- --------
Net Property, Plant and Equipment................. 248,537 243,538
-------- --------
DEFERRED INCOME TAXES....................................... -- 98,991
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of accumulated
amortization of $12,300................................... 228,910 --
-------- --------
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS, net of accumulated amortization of
$16,284 in 1997........................................... -- 48,837
-------- --------
OTHER ASSETS................................................ 72,293 53,545
-------- --------
TOTAL ASSETS...................................... $816,327 $746,881
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
<TABLE>
<CAPTION>
1997
1998 PREDECESSOR A
-------- -------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................ $ 50,307 $ 52,886
Compensation and employee benefits.......................... 32,761 22,630
Long-term debt -- current portion........................... 25,173 3,403
Income taxes................................................ 6,282 2,294
Reorganization items........................................ 12,480 13,128
Other accrued liabilities................................... 29,019 19,661
-------- --------
Total Current Liabilities......................... 156,022 114,002
-------- --------
LONG-TERM DEBT, less current portion........................ 459,183 269,994
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 17,590 21,681
DEFERRED INCOME TAXES....................................... 8,304 --
OTHER LONG-TERM LIABILITIES................................. 7,229 5,087
-------- --------
TOTAL LIABILITIES................................. 648,328 410,764
-------- --------
11 3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK:
Authorized 50,000 Shares; issued and outstanding 14,191
Shares; mandatorily redeemable @$10,000 per share on March
1, 2008................................................... 87,387 --
-------- --------
SHAREHOLDERS' EQUITY
Class A Common Stock, voting -- $.01 par value each:
authorized 625,001 shares; issued and outstanding 625,001
shares.................................................... 6 --
Class B Common Stock, nonvoting -- $.01 par value each:
authorized 374,999 shares; issued and outstanding 374,999
shares.................................................... 4 --
Common stock -- no par value: authorized 20,000,000 shares;
issued and outstanding 10,000,000 shares.................. -- 341,807
Additional paid-in capital.................................. 99,991 --
Deficit..................................................... (21,746) (3,854)
Foreign currency translation gain (loss).................... 2,357 (1,836)
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 80,612 336,117
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $816,327 $746,881
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED YEAR ENDED NOVEMBER 30,
ENDED FEBRUARY 28, -------------------------------
NOVEMBER 30, 1998 1997 1996
1998 PREDECESSOR A PREDECESSOR A PREDECESSOR B
------------ ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(14,364) $ 807 $ (3,854) $ 2,146,391
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
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)
Provision for other claims........... -- -- -- 4,244
Cumulative effect of accounting
change............................ -- -- -- 1,235
Depreciation and amortization........ 44,309 12,822 55,989 30,750
Proceeds from insurance
settlements....................... 14,784 -- -- --
Loss on sale of divisions............ -- -- 2,411 --
Changes in assets and liabilities,
net of effects of divestitures:
Receivables..................... 2,690 (4,705) (14,562) (7,664)
Income tax refunds receivable... 736 1,024 70,695 3,535
Inventories..................... 4,378 (2,235) (3,393) (6,283)
Deferred income taxes........... (11,900) 2,600 15,700 29,170
Accounts payable................ 1,522 (2,787) 16,351 657
Accrued liabilities............. 25,983 (5,488) 7,698 3,167
Other........................... 7,409 (11,121) 848 14,080
-------- --------- --------- -----------
Net cash provided by (used in)
operating activities......... 75,547 (9,083) 147,883 72,861
-------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions........... 7,872 -- 39,007 4,248
Capital expenditures...................... (26,260) (5,692) (51,324) (44,957)
Other..................................... 1,770 (1,042) (1,510) (1,061)
-------- --------- --------- -----------
Net cash used in investing
activities................... (16,618) (6,734) (13,827) (41,770)
-------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt................ 2,094 445,000 12,997 --
Reduction of long-term debt............... (5,600) (250,360) (126,039) (3,198)
Borrowings (repayments) under revolving
credit agreement....................... (59,275) 79,100 -- --
Redemption of common stock................ -- (446,638) -- --
Issuance of common stock.................. -- 100,001 -- --
Issuance of preferred stock............... -- 80,005 -- --
Debt issuance costs....................... (1,435) (26,062) -- --
-------- --------- --------- -----------
Net cash used in financing
activities................... (64,216) (18,954) (113,042) (3,198)
-------- --------- --------- -----------
CASH PAYMENTS ON EFFECTIVE DATE OF PLAN OF
REORGANIZATION............................ -- -- -- (88,498)
-------- --------- --------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (5,287) (34,771) 21,014 (60,605)
-------- --------- --------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... 18,968 53,739 32,725 93,330
-------- --------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 13,681 $ 18,968 $ 53,739 $ 32,725
======== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED NOVEMBER 30, 1998, THREE MONTHS ENDED FEBRUARY 28, 1998 AND
YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
UNREALIZED FOREIGN
CLASS A CLASS B ADDITIONAL GAIN (LOSS) CURRENCY
COMMON COMMON COMMON PAID-IN ON TRANSLATIONS
STOCK STOCK STOCK CAPITAL DEFICIT INVESTMENTS GAIN (LOSS)
------- ------- --------- ---------- ----------- ----------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE NOVEMBER 30, 1995........... $-- $-- $ 13,906 $36,378 $(2,261,289) $333 $1,277
Net income........................ -- -- -- -- 2,146,391 -- --
Foreign currency translation...... -- -- -- -- -- -- 129
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) (1,406)
--- --- --------- ------- ----------- ---- ------
BALANCE NOVEMBER 30, 1996........... -- -- 341,807 -- -- -- --
Net loss.......................... -- -- -- -- (3,854) -- --
Foreign currency translation...... -- -- -- -- -- -- (1,836)
--- --- --------- ------- ----------- ---- ------
BALANCE NOVEMBER 30, 1997........... -- -- 341,807 -- (3,854) -- (1,836)
Net income........................ -- -- -- -- 807 -- --
Foreign currency translation...... -- -- -- -- -- -- (1,809)
Redemption of common stock........ (341,807) -- (104,831) -- --
Issuance of common stock.......... 6 4 -- 99,991 -- -- --
Revaluation of net assets due to
effects of the Acquisition...... -- -- -- -- 107,878 -- 3,645
--- --- --------- ------- ----------- ---- ------
BALANCE FEBRUARY 28, 1998........... 6 4 -- 99,991 -- -- --
Net loss.......................... -- -- -- -- (14,364) -- --
Preferred stock dividend
accretion....................... -- -- -- -- (7,382) -- --
Foreign currency translation...... -- -- -- -- -- -- 2,357
--- --- --------- ------- ----------- ---- ------
BALANCE NOVEMBER 30, 1998........... $ 6 $ 4 $ -- $99,991 $ (21,746) $ -- $2,357
=== === ========= ======= =========== ==== ======
<CAPTION>
TOTAL
SHAREHOLDERS'
TREASURY EQUITY
STOCK (DEFICIT)
-------- -------------
<S> <C> <C>
BALANCE NOVEMBER 30, 1995........... $(1,913) $(2,211,308)
Net income........................ -- 2,146,391
Foreign currency translation...... -- 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........... -- 64,929
------- -----------
BALANCE NOVEMBER 30, 1996........... -- 341,807
Net loss.......................... -- (3,854)
Foreign currency translation...... -- (1,836)
------- -----------
BALANCE NOVEMBER 30, 1997........... -- 336,117
Net income........................ -- 807
Foreign currency translation...... -- (1,809)
Redemption of common stock........ -- (446,638)
Issuance of common stock.......... -- 100,001
Revaluation of net assets due to
effects of the Acquisition...... -- 111,523
------- -----------
BALANCE FEBRUARY 28, 1998........... -- 100,001
Net loss.......................... -- (14,364)
Preferred stock dividend
accretion....................... -- (7,382)
Foreign currency translation...... -- 2,357
------- -----------
BALANCE NOVEMBER 30, 1998........... $ -- $ 80,612
======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1998, THREE MONTHS ENDED FEBRUARY 28, 1998 AND
YEARS ENDED NOVEMBER 30, 1997 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
A. SIGNIFICANT ACCOUNTING POLICIES
Purchase Accounting
Eagle-Picher Holdings, Inc. ("Company") acquired Eagle-Picher Industries,
Inc. ("Subsidiary") on February 24, 1998 ("Acquisition") (See Note B). The
Subsidiary, which is the operating entity, is a wholly-owned subsidiary of the
Company, which was formed as an acquisition vehicle. The Company's results of
operations and cash flows approximate those of the Subsidiary. References will
be to the Company, except for instances where it is more appropriate to
specifically refer to the Subsidiary.
The Acquisition was accounted for as a purchase. The purchase price has
been allocated to the assets and liabilities of the Company based on their
respective fair values as determined primarily by independent appraisals. The
excess of the purchase price over the assessed values of the net assets was
allocated to Excess of Acquired Net Assets Over Cost and is being amortized over
15 years. If it becomes apparent that additional purchase price allocations are
necessary, such adjustments would be made before February 24, 1999. It is not
expected that additional adjustments would be material. A vertical black line is
shown in the consolidated financial statements to separate operations after the
Acquisition from those prior to the Acquisition since such financial statements
have not been prepared on a comparable basis. Periods prior to the Acquisition
are labeled with certain "Predecessor" designations, as described below.
Reporting for Reorganization
The Subsidiary 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 C). The Subsidiary emerged from reorganization
November 29, 1996 ("Effective Date") and, in accordance with SOP 90-7, adopted
fresh-start reporting. 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, which resulted in a fresh-start
revaluation gain of $118,684 in 1996. The adjustments to reflect the
Subsidiary's emergence from bankruptcy and fresh-start reporting 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.
The consolidated financial statements for the periods prior to the
Acquisition but subsequent to the Effective Date are labeled "Predecessor A" to
indicate they were prepared after adopting fresh-start reporting. The
consolidated financial statements for the year ended November 30, 1996 are
labeled "Predecessor B."
Principles of Consolidation
The consolidated financial statements of the Company 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
32
<PAGE> 33
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, long-term debt and preferred stock. The
carrying values of these financial instruments, with the exception of long-term
debt and preferred stock, approximate fair value (See Notes F and H).
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents
and 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, 1998.
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 its investment 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 purchase accounting, property, plant and equipment in service at
February 24, 1998 were stated at fair value, based on independent appraisals, as
of that date.
Intangible Assets
The excess of acquired net assets over cost is being amortized on a
straight-line basis over 15 years. The recoverability of the asset is evaluated
periodically as events or circumstances indicate a possible inability to recover
its carrying amount. The reorganization value in excess of amounts allocable to
identifiable assets was being amortized using the straight-line method over four
years.
33
<PAGE> 34
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when
impairment indicators are present and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying value of such assets.
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. The estimated liabilities are not discounted or reduced
for possible recoveries from insurance carriers.
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. Gains and
losses from foreign currency transactions are included in the determination of
net income (loss) and were not material.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1998
consolidated financial statement presentation.
New Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Adoption of SFAS No. 128, which revised
the manner in which earnings per share is calculated, did not impact the
Company's previously reported earnings per share.
The following three new accounting standards will be effective for the
fiscal year ended November 30, 1999:
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which established standards for
reporting and display of comprehensive income and its components. This statement
requires the Company to report, for each period presented, the components of
comprehensive income, a measure of performance that includes all non-owner
sources of changes in equity. In addition to net income, comprehensive income
would include unrealized gains and losses on securities available for sale and
foreign currency translation adjustments.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard requires that
companies disclose "operating segments" based on the way management
disaggregates the company for making internal operating decisions, regardless of
how a company defines its operating segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard does not change
the measurement or recognition of those plans, but standardizes disclosure
requirements for such plans.
34
<PAGE> 35
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes that although these standards may require expanded
disclosure for the Company's consolidated financial statements, the impact of
these standards is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for changes in the
fair value of a derivative (that is gains and losses) depends on the intended
use of the derivative and the resulting designation. The provisions of this
statement are effective for the first quarter of the fiscal year ending November
30, 2000. The Company has not yet determined the effects this standard will have
on its financial position or the results of its operations.
B. ACQUISITION OF EAGLE-PICHER INDUSTRIES, INC.
On February 24, 1998 ("Closing Date"), the Company, which is a
majority-owned subsidiary of Granaria Industries B.V. ("Granaria Industries"),
acquired the Subsidiary from the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust ("PI Trust"). The PI Trust was established pursuant to the
Subsidiary's Plan of Reorganization upon its emergence from bankruptcy (See Note
C).
The PI Trust was paid $702,500 in consideration, of which $255,900 was for
repayment of the Senior Sinking Fund Debentures ("Debentures"), held by the PI
Trust, with interest. The Acquisition was funded with the issuance of 625,001
shares of Class A Common Stock and 374,999 shares of Class B Common Stock to
Granaria Industries and its equity partner, the proceeds of which totaled
$100,000. The Company also issued 14,191 shares of 11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock ("Preferred Stock"), the total proceeds of which
were $80,000 (See Note H). The Subsidiary issued $220,000 of 9 3/8% Senior
Subordinated Notes ("Subordinated Notes") and borrowed $225,000 in term loans
and $79,100 in revolving loans under a syndicated senior loan facility (See Note
F).
Fees and expenses related to the Acquisition and the related financing
transactions were approximately $27,500, including fees paid to Granaria
Holdings B.V. ("Granaria Holdings"), which owns a majority of the outstanding
common stock of Granaria Industries (See Note Q). Shortly after the Acquisition,
the Company also funded a trust established for the benefit of certain members
of Senior Management (See Note K).
The consolidated financial statements as of and for the three months ended
February 28, 1998 include the effects of the Acquisition as of February 24,
1998. Accordingly, the 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 Subsidiary prior to the consummation of
the Acquisition (for clarity, sometimes referred to herein as the "Predecessor
Company A") and (2) the four days ended February 28, 1998 of the Company, which
have been reflected as Predecessor Company A due to their immaterial impact of
the results of operations and cash flows.
The following pro forma information for the years ended November 30, 1998
and 1997 gives effect to the Acquisition as if it had been consummated on
December 1, 1997 and 1996, respectively. This information is not 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.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net Sales................................................... $ 851,826 $ 906,077
Net income (loss)........................................... $ (16,637) $ (26,931)
Net income (loss) per share................................. $ (16.64) $ (26.93)
Average number of shares outstanding........................ 1,000,000 1,000,000
</TABLE>
35
<PAGE> 36
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. REORGANIZATION AND EMERGENCE FROM CHAPTER 11
On November 18, 1996, the U.S. Bankruptcy Court for the Southern District
of Ohio, Western Division ("Bankruptcy Court"), together with the U.S. District
Court for the Southern District of Ohio, Western Division issued an order
("Confirmation Order") confirming the Third Amended Consolidated Plan of
Reorganization ("Plan") of the Subsidiary and seven of its domestic
subsidiaries, which became effective on November 29, 1996 ("Effective Date").
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 Subsidiary. Those claims will
be channeled to the PI Trust, which is an independently administered qualified
settlement trust which was established to resolve and satisfy those claims.
The Plan was based on a settlement of $2,000,000 for the Subsidiary'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 $2,502,197, the amount the
Bankruptcy Court had previously estimated as the Subsidiary's liability for
asbestos-related personal injury 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
Subsidiary's then-existing shareholders received no distribution and their
shares were canceled. 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 $1,525,540.
It is anticipated that a final distribution will be made to the PI Trust
and all unsecured claimants, other than those holding convenience claims ("Final
Distribution"), when all claims asserted in the chapter 11 cases prior to the
Confirmation Order (other than those channeled to the PI Trust and a separate
trust to be established to resolve property damage claims) 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 Unofficial Asbestos Co-Defendants' Committee filed an appeal with
respect to the Confirmation Order. On December 22, 1998, the United States Court
of Appeals for the Sixth Circuit affirmed the Confirmation Order.
D. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------------
PREDECESSOR A
<S> <C> <C>
Raw materials and supplies............................. $52,657 $51,797
Work-in-process...................................... 20,839 25,932
Finished goods....................................... 15,873 14,840
------- -------
89,369 92,569
Adjustment to state inventory at
LIFO value........................................ (496) (373)
------- -------
$88,873 $92,196
======= =======
</TABLE>
The percentage of inventories valued using the LIFO method was 81% in 1998
and 1997. In conjunction with purchase accounting and fresh-start reporting, new
LIFO base layers were established based on inventory levels at both March 1,
1998 and December 1, 1996, respectively. The effects of liquidations of LIFO
inventory quantities carried at lower costs prevailing in prior years were not
material.
36
<PAGE> 37
EAGLE-PICHER HOLDINGS, 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 $1,200 on an after tax basis. The effect
of this change was to increase net income $8,100 in fiscal year 1996.
E. OTHER ASSETS
Other assets consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------------
PREDECESSOR A
<S> <C> <C>
Prepaid pension cost -- Note L.............................. $42,813 $36,621
Debt issuance costs, net of accumulated amortization of
$2,066.................................................... 22,430 --
Investments in and receivables from unconsolidated
affiliates................................................ 461 8,732
Notes receivable -- Note P.................................. 3,601 3,920
Other....................................................... 2,988 4,272
------- -------
$72,293 $53,545
======= =======
</TABLE>
The debt issuance costs are being amortized on a straight-line basis over
the term of the related debt.
On June 1, 1997, the Company contributed certain of the assets of the
former Suspension Systems Division totaling $5,100 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 or loss on this transaction. The Company accounted
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. On November 30, 1998, the
note was repaid and the majority partner exercised its option to purchase the
Company's interest in E-P-Boge. The impact of this transaction on the
consolidated net loss was not material. Included in the Consolidated Statements
of Income (Loss) are the following results of the former Suspension Systems
Division:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C>
Net Sales................................................. $10,577 $19,606
======= =======
Operating Income (Loss)................................... $ 96 $ (998)
======= =======
</TABLE>
F. LONG-TERM DEBT, SHORT TERM BORROWINGS AND LEASE COMMITMENTS
On the Closing Date, the Subsidiary's existing $60,000 unsecured committed
revolving credit facility was terminated. It was replaced by a syndicated senior
secured loan facility ("Credit Agreement") which provided $225,000 in term loans
("Term Loans") and a $160,000 revolving credit facility ("Facility"), of which
$79,100 was drawn at the time of closing. The Facility is also available for
issuance of letters of credit. At November 30, 1998, letters of credit totaling
$26,300 were outstanding, which together with borrowings of $19,800, left the
Company with $113,900 of borrowing capacity.
The Credit Agreement is guaranteed by the Company and the United States
subsidiaries of the Subsidiary. It is secured by the capital stock of the
Subsidiary and the United States subsidiaries of the Subsidiary, up to 65% of
the capital stock of foreign subsidiaries and substantially all other property
of the Subsidiary and its United States subsidiaries. The Credit Agreement
contains covenants which restrict or limit the Subsidiary's ability to declare
dividends or redeem capital stock, incur additional debt or liens, alter
existing debt agreements, make loans or investments, form joint ventures,
undergo a change in control or engage in mergers, acquisitions or asset sales.
37
<PAGE> 38
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These covenants also limit the annual amount of capital expenditures and require
the Company to meet certain minimum financial coverages. The Company was in
compliance with all covenants at November 30, 1998.
Long-term debt consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- -------------
PREDECESSOR A
<S> <C> <C>
New Credit Agreement:
Revolving Credit Facility................................. $ 19,825 $ --
7.28%, due 2004
Term Loans:
Traunche A............................................. 95,000 --
7.28%, due 2003
Traunche B............................................. 49,900 --
7.66%, due 2005
Traunche C............................................. 74,900 --
7.91%, due 2006
Senior Subordinated Notes................................... 220,000 --
9 3/8%, due 2008
Senior Unsecured Sinking Fund Debentures.................... -- 250,000
10%, due 2006
Industrial Revenue Bonds.................................... 18,000 18,400
3.6 % to 5.0 %, due 2005 and 2012
Debt of Foreign Subsidiaries................................ 6,731 4,997
-------- --------
484,356 273,397
Less current portion........................................ 25,173 3,403
-------- --------
Long-term debt, less current portion........................ $459,183 $269,994
======== ========
</TABLE>
The Facility 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. If the Company meets certain
financial benchmarks, the interest rate spreads and commitment fees may be
reduced.
The Term Loans 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%. If the Company meets certain financial
benchmarks, the interest rate spreads may be reduced. In addition to regularly
scheduled payments, the Company is required to make mandatory prepayments, which
are applied on a pro rata basis to the Term Loans, of 60% of annual excess cash
flow as defined in the Credit Agreement, 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. For the year ended
November 30, 1998, the excess cash flow payment, which will be applied in the
first quarter of 1999, was calculated to be $8,477.
To manage its variable interest rate exposure on the Term Loans, the
Company entered into a three year interest rate swap agreement ("Swap
Agreement"), in which the Company agreed to exchange, at specified intervals,
the difference between fixed and variable interest amounts based on a notional
principal amount of $150,000. The Swap Agreement effectively fixes the interest
rate on $150,000 of the Terms Loans at a weighted rate of 8.35%. The difference
between the amount of interest to be paid and the amount of interest to be
received under the Swap Agreement due to changing interest rates is charged or
credited to interest expense over the life of the agreement. The fair value of
the Swap Agreement, which was determined using discounted cash flow analysis
based on current rates offered for similar issues of debt, is approximately
$(2,550). As interest rates on the
38
<PAGE> 39
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining Term Loans and the outstanding amounts under the Facility are not
fixed, the effect of a one percent increase in the applicable index rate would
result in approximately $900 in additional interest expense annually, based on
balances outstanding at November 30, 1998.
The Subordinated Notes, which are unsecured, 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. The Indenture for the Subordinated Notes
contains covenants which restrict or limit the Subsidiary's ability to declare
or pay dividends, incur additional debt or liens, issue stock, engage in
affiliate transactions, undergo a change in control or sell assets. The
Subordinated Notes are also guaranteed by the Company and the United States
subsidiaries of the Subsidiary.
The Subsidiary issued the Debentures to the PI Trust on the Effective Date
in the amount of $250,000. The Debentures were repaid in conjunction with the
Acquisition.
The Company's industrial revenue bonds bear interest at variable rates
based on the market for similar issues and are secured by letters of credit.
Several of the Company's foreign subsidiaries have entered into agreements
with various banks which provide lines of credit totaling approximately $28,700
at November 30, 1998. At November 30, 1998, $6,700 of borrowings were
outstanding leaving $22,000 in borrowing capacity. These agreements, of which
the substantial majority is unsecured, are either committed lines of credit
expiring in 2001 and 2002 or short-term money market or overdraft facilities,
generally due on demand or within a year. The annual rates of interest on these
lines of credit generally range from .75% to 1.5% over the banks' base rates.
The commitment fees range from .25% to .35% per annum on the unused portion of
the committed facilities. These agreements also contain covenants which include
minimum financial requirements. The Company is in compliance with these
covenants at November 30, 1998.
Long term debt had an estimated fair value of approximately $471,000 and
$287,000 at November 30, 1998 and 1997, respectively. The estimated fair value
of long-term debt was calculated based on market prices for publicly traded
issues and was calculated using discounted cash flow analysis based on current
rates offered for similar issues for all other long-term debt.
The Company paid interest of $28,886 in the nine months ended November 30,
1998 and $6,390, which included the interest paid on the Debentures at the time
of the Acquisition, during the three months ended February 28, 1998, $31,044 in
1997 and $2,767 in 1996.
Long-term debt is scheduled to mature over the next five years as follows:
$25,173 in 1999, $15,300 in 2000, $20,635 in 2001, $25,300 in 2002 and $21,600
in 2003.
SUBSEQUENT EVENT
In the first quarter of 1999, the Company will require an additional
$14,100 in letters of credit over and above the $26,300 that existed at November
30, 1998. The new letters of credit are associated with existing environmental
remediation and are necessitated by financial assurance requirements set forth
by the United States Environmental Protection Agency. These additional letters
of credit will reduce available borrowing capacity.
LEASE COMMITMENTS
Future minimum rental commitments over the next five years as of November
30, 1998 under noncancellable operating leases, which expire at various dates,
are as follows: $3,100 in 1999, $2,500 in 2000, $1,300 in 2001, $600 in 2002 and
$400 in 2003. Rental expense was approximately $3,700 in the nine months ended
39
<PAGE> 40
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 30, 1998, $1,200 in the three months ended February 28, 1998, and
$4,900 and $5,000 in 1997 and 1996, respectively.
G. SUPPLEMENTAL GUARANTOR INFORMATION (UNAUDITED)
Both the Credit Agreement and the Subordinated Notes, which were issued by
the Subsidiary ("Issuer"), are guaranteed on a full, unconditional, and and
joint and several basis by certain of the Subsidiary's wholly-owned domestic
subsidiaries and the Company ("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 unaudited
supplemental condensed combining financial statements present information
regarding the Guarantors, the issuer of the debt and the subsidiaries that did
not guarantee the debt.
40
<PAGE> 41
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- -------------- ------------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Customers................ $195,851 $ -- $374,337 $ 75,796 $ -- $645,984
Intercompany............. 11,183 -- 6,491 5,157 (22,831) --
Operating Costs and
Expenses
Cost of products sold.... 154,001 -- 303,620 68,074 (22,722) 502,973
Selling and
administrative........ 33,481 -- 17,439 7,672 (132) 58,460
Management compensation.. 26,808 -- -- -- -- 26,808
Intercompany charges..... (5,919) -- 5,919 (132) 132 --
Depreciation............. 8,810 -- 18,196 3,142 (222) 29,926
Amortization of
intangibles........... 4,259 -- 7,317 741 -- 12,317
Loss on sale of assets... (25) -- 18 37 -- 30
-------- ----- -------- -------- --------- --------
Total............ 221,415 -- 352,509 79,534 (22,944) 630,514
-------- ----- -------- -------- --------- --------
Operating Income (Loss).... (14,381) -- 28,319 1,419 113 15,470
Other Income (Expense)
Interest expense......... (35,888) -- -- (425) -- (36,313)
Other income (expense)... 978 -- 313 490 (2) 1,779
-------- ----- -------- -------- --------- --------
Income (Loss) Before
Taxes.................... (49,291) -- 28,632 1,484 111 (19,064)
Income Taxes............... (14,353) -- 7,803 1,850 -- (4,700)
-------- ----- -------- -------- --------- --------
Net Income (Loss).......... $(34,938) $ -- $ 20,829 $ (366) $ 111 $(14,364)
======== ===== ======== ======== ========= ========
</TABLE>
41
<PAGE> 42
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ---------- -------------- ------------ -----
(UNAUDITED)
<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............... 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 (Loss) 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>
42
<PAGE> 43
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- -------------- ------------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 7,464 $ 1 $ 712 $ 5,125 $ 379 $ 13,681
Receivables...................... 55,611 -- 74,292 14,941 -- 144,844
Intercompany accounts
receivable..................... -- -- -- 7,442 (7,442) --
Inventories...................... 30,755 -- 43,708 15,785 (1,375) 88,873
Prepaid expenses................. 4,073 -- 3,614 651 -- 8,338
Deferred income taxes............ 10,851 -- -- -- -- 10,851
-------- -------- -------- -------- --------- --------
Total current assets........ 108,754 1 122,326 43,944 (8,438) 266,587
Property, Plant and Equipment.... 66,500 -- 143,872 38,165 -- 248,537
Investment in Subsidiaries....... 87,019 180,005 6,252 -- (273,276) --
Excess of Assets Acquired Over
Cost........................... 78,838 -- 136,253 13,819 -- 228,910
Other Assets..................... 54,187 -- 17,675 431 -- 72,293
-------- -------- -------- -------- --------- --------
Total Assets................ $395,298 $180,006 $426,378 $ 96,359 $(281,714) $816,327
======== ======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Accounts payable................. $ 15,149 $ -- $ 24,664 $ 10,494 $ - $ 50,307
Intercompany accounts payable.... -- -- -- 7,662 (7,662) --
Long-term debt -- current
portion........................ 18,777 -- -- 6,396 -- 25,173
Income taxes..................... 5,296 -- -- 986 -- 6,282
Other current liabilities........ 45,744 -- 24,464 4,052 -- 74,260
-------- -------- -------- -------- --------- --------
Total current liabilities... 84,966 -- 49,128 29,590 (7,662) 156,022
Long-term Debt -- less current
portion........................ 458,848 -- -- 335 -- 459,183
Deferred Income Taxes............ 8,304 -- -- -- -- 8,304
Other Liabilities................ 24,819 -- -- -- -- 24,819
-------- -------- -------- -------- --------- --------
Total liabilities........... 576,937 -- 49,128 29,925 (7,662) 648,328
Intercompany Accounts............ (326,706) -- 309,571 29,768 (12,633) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock... -- 87,387 -- -- -- 87,387
Shareholders' Equity............. 145,067 92,619 67,679 36,666 (261,419) 80,612
-------- -------- -------- -------- --------- --------
Total Liabilities and
Shareholders' Equity...... $395,298 $180,006 $426,378 $ 96,359 $(281,714) $816,327
======== ======== ======== ======== ========= ========
</TABLE>
43
<PAGE> 44
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $(34,938) $ -- $ 20,829 $ (366) $ 111 $(14,364)
Adjustments to reconcile net
income (loss) to cash
provided by (used in)
operating activities:
Depreciation and
amortization.............. 15,135 -- 25,513 3,883 (222) 44,309
Proceeds from insurance
settlement................ 14,784 -- -- -- -- 14,784
Change in assets and
liabilities, net of effect
of divestitures........... 18,960 -- 13,808 (1,263) (687) 30,818
-------- ------- -------- ------- ------- --------
Net cash provided by
(used in) operating
activities........... 13,941 -- 60,150 2,254 (798) 75,547
-------- ------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
divisions................... 7,872 -- -- -- -- 7,872
Capital expenditures.......... (7,793) -- (10,062) (8,405) -- (26,260)
Other......................... (2,793) -- (53) 2,188 2,428 1,770
-------- ------- -------- ------- ------- --------
Net cash provided by
(used in) investing
activities........... (2,714) -- (10,115) (6,217) 2,428 (16,618)
-------- ------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of long-term debt.... -- -- -- 2,094 -- 2,094
Reduction of long-term debt... (5,600) -- -- -- -- (5,600)
Borrowings (repayments) on
revolving credit
agreement................... (59,275) -- -- -- -- (59,275)
Debt issue cost............... (1,435) -- -- -- -- (1,435)
-------- ------- -------- ------- ------- --------
Net cash provided by
(used in) financing
activities........... (66,310) -- -- 2,094 -- (64,216)
-------- ------- -------- ------- ------- --------
Increase (decrease) in cash
and cash equivalents........ (55,083) -- 50,035 (1,869) 1,630 (5,287)
Intercompany accounts......... 50,432 -- (50,468) 1,481 (1,445) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD......... 12,115 1 1,145 5,513 194 18,968
-------- ------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD................... $ 7,464 $ 1 $ 712 $ 5,125 $ 379 $ 13,681
======== ======= ======== ======= ======= ========
</TABLE>
44
<PAGE> 45
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR A
<TABLE>
<CAPTION>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- -------------- ---------- -------------- ------------ ---------
(UNAUDITED)
<S> <C> <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, net of
divestitures.......... (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:
Investment in
Subsidiary.............. -- (180,005) -- -- 180,005 --
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) (180,005) (1,768) (2,405) 180,700 (6,734)
--------- --------- ------ ------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of long-term
debt.................... 445,000 -- -- -- -- 445,000
Reduction of long-term
debt.................... (250,000) -- -- (360) -- (250,360)
Borrowings under revolving
credit agreement........ 79,100 -- -- -- -- 79,100
Redemption of common
stock................... (446,638) -- -- -- -- (446,638)
Issuance of common
stock................... 180,005 100,001 -- -- (180,005) 100,001
Issuance of preferred
sock.................... -- 80,005 -- -- -- 80,005
Debt issue cost........... (26,062) -- -- -- -- (26,062)
--------- --------- ------ ------- --------- ---------
Net cash provided by
(used in) financing
activities.......... (18,595) 180,006 -- (360) (180,005) (18,954)
--------- --------- ------ ------- --------- ---------
Increase (decrease) in
cash and cash
equivalents............. (38,459) 1 2,324 270 1,093 (34,771)
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 $1,145 $ 5,513 $ 194 $ 18,968
========= ========= ====== ======= ========= =========
</TABLE>
45
<PAGE> 46
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
-------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
-------- ---------- ------------ --------- ------------ --------
(UNAUDITED)
<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>
46
<PAGE> 47
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ---------- -------------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...... $ 48,834 $ 561 $ 4,344 $ -- $ 53,739
Receivables.................... 39,566 72,992 21,394 -- 133,952
Intercompany accounts
receivable................... 2,982 3,295 -- (6,277) --
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
Identifiable 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 SHAREHOLDERS'
EQUITY
Accounts payable............... $ 16,974 $ 28,257 $ 7,655 $ -- $ 52,886
Intercompany accounts
payable...................... -- -- 6,247 (6,247) --
Long-term debt -- current
portion...................... 80 -- 3,323 -- 3,403
Income taxes................... 2,284 -- 10 -- 2,294
Other current liabilities...... 29,404 22,440 3,713 (138) 55,419
-------- -------- ------- -------- --------
Total 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 --
Shareholders' Equity........... 317,339 62,751 34,960 (78,933) 336,117
-------- -------- ------- -------- --------
Total Liabilities and
Shareholders' Equity.... $420,845 $324,378 $74,477 $(72,819) $746,881
======== ======== ======= ======== ========
</TABLE>
47
<PAGE> 48
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
------ ---------- ------------ --------- ------------ -----
(UNAUDITED)
<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 net 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
Changes in assets and
liabilities, net of effect
of divestitures:
Income tax refunds
receivable............. 70,695 -- -- -- -- 70,695
Working capital and
other.................. 14,016 9,991 (5,655) 3,051 1,239 22,642
-------- ------- -------- ------- ------- ---------
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 PERIOD............ 26,089 553 5,985 98 -- 32,725
-------- ------- -------- ------- ------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD......................... $ 48,834 $ 561 $ 4,344 $ -- $ -- $ 53,739
======== ======= ======== ======= ======= =========
</TABLE>
48
<PAGE> 49
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
YEAR ENDED NOVEMBER 30, 1996
PREDECESSOR B
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ---------- ------------ --------- ------------ -----
(UNAUDITED)
<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>
49
<PAGE> 50
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1996
PREDECESSOR B
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
----------- ---------- ------------ --------- ------------ -----------
(UNAUDITED)
<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 net 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, net of effect
of divestitures........... 46,214 (15,532) 636 6,505 (1,161) 36,662
----------- -------- ------- ------- ------- -----------
Net cash provided by
(used in) operating
activities........... 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 PERIOD......... 86,966 1,061 5,026 277 -- 93,330
----------- -------- ------- ------- ------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD................... $ 26,089 $ 553 $ 5,985 $ 98 $ -- $ 32,725
=========== ======== ======= ======= ======= ===========
</TABLE>
50
<PAGE> 51
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. 11 3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
In conjunction with the Acquisition, the Company issued 14,191 shares of
11 3/4% Cumulative Redeemable Exchangeable Preferred Stock. The Preferred Stock
had an initial liquidation preference of $5,637.70 per share which accretes
during the first five years after issuance at 11 3/4% per annum, compounded
semiannually, ultimately reaching $10,000 per share on March 1, 2003. No
dividends will accrue prior to March 1, 2003, but will be cumulative at 11 3/4%
per annum thereafter. The Preferred Stock is mandatorily redeemable by the
Company on March 1, 2008 or earlier under certain circumstances, but may be
redeemed at the option of the Company, in whole or in part, at any time after
February 28, 2003 at set redemption prices. At that time, the Company may also
exchange all of the Preferred Stock for 11 3/4% Exchange Debentures with similar
terms. The Company may also redeem up to 35% of the shares of Preferred Stock
outstanding 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
Preferred Stock should there be a change in control of the Company. Holders of
Preferred Stock have no voting rights except in certain circumstances. The terms
of the Preferred Stock contain covenants similar to the covenants in the
Subordinated Notes. The Preferred Stock had an estimated fair value of $71,665
at November 30, 1998. The estimated fair value was calculated based on the
market price as this is a publicly traded issue.
I. INCOME TAXES
The following is a summary of the components of income taxes (benefit) from
operations and, in 1996, fresh start revaluation:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Current:
Federal.................... $ 4,600 $ 500 $ 1,000 $17,200
Foreign.................... 1,900 550 (600) 4,350
State and local............ 700 450 1,800 1,850
-------- ------ ------- -------
7,200 1,500 2,200 23,400
-------- ------ ------- -------
Deferred:
Federal.................... (11,900) 2,300 11,300 29,170
State and local............ -- 300 4,400
-------- ------ ------- -------
(11,900) 2,600 15,700 29,170
-------- ------ ------- -------
$ (4,700) $4,100 $17,900 $52,570
======== ====== ======= =======
</TABLE>
Total net income tax benefit for the year ended November 30, 1996 of
$117,880 consisted of $52,570 tax expense from operations and the fresh-start
revaluation, $169,785 tax benefit from the extraordinary gain on the discharge
of pre-petition liabilities, and $665 tax benefit from the cumulative effect of
the change in accounting for inventories.
51
<PAGE> 52
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
United States................ $(21,822) $4,328 $ 7,873 $665,907
Foreign...................... 2,758 579 6,173 8,749
-------- ------ ------- --------
$(19,064) $4,907 $14,046 $674,656
======== ====== ======= ========
</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>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Income tax expense (benefit) at
Federal statutory rate........... $(6,700) $1,700 $ 4,900 $ 236,130
Change in valuation allowance...... -- -- 1,200 (187,950)
Foreign taxes rate differential.... (200) 300 (3,800) 900
State and local taxes, net of
Federal benefit.................. 500 600 3,600 1,200
Non-deductible amortization of
reorganization value in excess of
amounts allocable to identifiable
assets........................... -- 1,300 5,700 --
Non-deductible amortization and
other items relating to excess of
acquired net assets over cost.... 600 -- -- --
Non-deductible management
compensation..................... 1,300 -- -- --
Non-deductible fresh start items... -- -- -- 4,100
Expired tax credits................ -- -- 5,900 --
Other.............................. (200) 200 400 (1,810)
------- ------ ------- ---------
Total income tax expense
(benefit)........................ $(4,700) $4,100 $17,900 $ 52,570
======= ====== ======= =========
</TABLE>
52
<PAGE> 53
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred tax balances as of November 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------------
PREDECESSOR A
<S> <C> <C>
Current deferred tax assets attributable to:
Accrued liabilities....................................... $ 8,042 $ 12,576
Net operating less carryforwards.......................... -- 2,000
Other..................................................... 2,809 1,948
Valuation allowance....................................... -- (2,731)
-------- --------
Current deferred tax asset............................. 10,851 13,793
-------- --------
Noncurrent deferred tax assets (liabilities) attributable
to:
Property, plant and equipment............................. 2,207 (46,331)
Notes to former creditors................................. -- 87,500
Net operating loss carryforwards.......................... -- 72,142
Credit carryforwards...................................... -- 14,686
Prepaid pension........................................... (14,985) (12,817)
Postretirement benefit liability.......................... 497 7,588
Amortization of intangibles............................... 1,001 --
Other..................................................... 2,976 1,734
Valuation allowance....................................... -- (25,511)
-------- --------
Net noncurrent deferred tax asset (liability).......... ( 8,304) 98,991
-------- --------
Net deferred tax assets................................ $ 2,547 $112,784
======== ========
</TABLE>
A tax election to treat the purchase of stock as a purchase of assets
("Election") was made in connection with the acquisition of the Subsidiary on
February 24, 1998. Accordingly, a deemed final tax return of the Predecessor
Company was filed for the tax period ended on the date of the Acquisition. On
this tax return, the total purchase price, for tax purposes, was allocated to
the assets of the Subsidiary to the extent of each asset's fair market value,
and gain was recognized on each asset as if sold at that price. As a result,
going forward, the assets were assigned the same value for book and tax purposes
as of the date of the Acquisition. The net operating loss carryforward of
$178,147 from Predecessor Company's tax year ended November 30, 1997 and the
deduction resulting from the redemption of the Subordinated Notes were available
to be utilized against the resulting transaction gain.
Any net operating loss carryforwards not absorbed by the gain were lost and
are not available to the Company. Additionally, tax credits which had been
carried forward totaling $9,708 at November 30, 1997 were lost as a result of
the transaction and are not available to the Company. The Company has no net
operating loss or tax credit carryforwards available to offset future taxable
income or tax liability, respectively, at November 30, 1998.
The net operating loss carryforward at November 30, 1997 resulted from the
distribution of cash and stock to the PI Trust and other creditors on the
Effective Date and the redemption of notes, which were also distributed to the
PI Trust and other creditors on the Effective Date, in 1997. A portion of the
net operating loss generated on the Effective Date had been applied to prior
years taxable income to generate a Federal tax refund of $69,146 which was
received in 1997.
As a result of the Acquisition, tax goodwill was established for the amount
by which the purchase price for tax purposes exceeded the fair market value of
the assets at the date of the Acquisition. The tax goodwill, the net amount of
which was $141,100 at November 30, 1998, is being amortized and deducted over
fifteen years, the same period over which the Excess of Acquired Net Assets over
Cost is being amortized in the Consolidated Financial Statements. Certain
liabilities assumed by the Company in the Acquisition, which are contingent for
tax
53
<PAGE> 54
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes, will result in additional tax goodwill as they are paid. This
additional goodwill will also be amortized and deducted over the same period as
the Excess of Acquired Net Assets over Cost. The potential additional tax
goodwill, resulting from these liabilities, totaled $56,100 at November 30,
1998.
In 1997, the Company's valuation allowance resulted from uncertainties
related to the reorganization process and tax credits that were expected to
expire unutilized. These items were related to the Predecessor Company and have
no bearing on deferred tax benefits in 1998. 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
recorded. 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.
The Company paid income taxes (net of refunds received) of $5,400 in the
nine months ended November 30, 1998, $4,300 in 1997 (with the exception of the
Federal tax refund received of $69,146), and $17,300 in 1996. The Company
received refunds (net of taxes paid) of $2,300 in the three months ended
February 28, 1998.
J. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding which was 1,000,000 for the nine months
ended November 30, 1998, 9,600,071 for the three months ended February 28, 1998,
10,000,000 in 1997 and 11,040,932 in 1996. No potential common stock was
outstanding during the three year period ended November 30, 1998.
K. MANAGEMENT COMPENSATION -- SPECIAL
Management compensation expense consisted of the following items:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998
----------------- ------------------
PREDECESSOR A
<S> <C> <C>
Short Term Sale Program.................................. $ 8,110 $2,020
Management Trust -- Restricted Stock Award............... 12,580 --
Severance................................................ 5,989 --
Other.................................................... 129 36
------- ------
Total............................................... $26,808 $2,056
======= ======
</TABLE>
The Subsidiary adopted a Short Term Sale Program ("STSP") pursuant to the
terms of which it would make payments to certain members of senior management
("Eligible Individuals"), in connection with a change in control of the
Subsidiary. The consummation of the Acquisition constituted such a change in
control. The STSP provided for a "stay-put" bonus equal to an eligible
individual's fiscal 1997 base salary and a sales incentive bonus based on a
multiple (ranging from 50% to 200%) of an eligible individual's fiscal 1997 base
salary. The "stay-put" bonus was payable in two equal parts, the first portion
was paid in March 1998, after the Acquisition, and the second is payable on the
second anniversary of such change in control, provided that the individual has
remained an employee of the Subsidiary or, if the individual was terminated by
the Subsidiary other than for cause, payable upon such termination. The Company
has provided a total of $4,066 for the twelve months ended November 30, 1998 in
connection with the "stay put" bonus of which $1,611 remains unpaid. The sales
incentive bonus is payable if the present value of the after-tax proceeds to the
PI Trust in connection with the Acquisition meets a threshold amount set forth
in the STSP. In the event that the after-tax proceeds to the PI Trust exceed a
specified target amount, the multiple will increase on a straight-line basis. A
final determination of the after-tax proceeds to the PI Trust, and the
consequent payment of the balance of the sales incentive bonuses, will be made
54
<PAGE> 55
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upon the final approval by the Congressional Joint Committee on Taxation of an
examination conducted by the Internal Revenue Service of the tax return of the
Subsidiary for the fiscal year ended November 30, 1996. The Company has provided
a total of $6,064 for the twelve months ended November 30, 1998 in 1998 in
connection with the sales incentive bonus of which $981 remains unpaid.
In 1998, the Company paid $10,000 to the Eagle-Picher Management Trust
("E-P Management Trust") for the benefit of certain senior management of the
Company. The $10,000 payment was effectively used by the E-P Management Trust to
acquire certain restricted stock of Granaria Industries. Subsequently, the stock
of Granaria Industries was later exchanged for the common stock of the Company.
The shares of the Company held by the E-P Management Trust were allocated to
certain members of senior management of the Company. The receipt of such shares
was taxable to the holders as income in an amount equal to the value of the
shares at the time of vesting. The Company also reimbursed the holders of the
shares for their tax obligations associated with the receipt of such shares. The
Company has recorded as compensation expense $12,580 for the restricted shares
and related tax reimbursements.
The Subsidiary entered into employment agreements with six executive
officers ("Employment Agreements") which became effective on November 29, 1996.
Each was amended in August 1997. The purpose of the Employment Agreements was to
provide the Subsidiary with continuity of management following its emergence
from bankruptcy. The Employment Agreements terminate on the later of the second
anniversary of any change of control occurring prior to December 31, 1998 or May
18, 1999. The consummation of the Acquisition did constitute a change of control
under the Employment Agreements. Three of the six executive officers of the
Subsidiary have received severance benefits pursuant to the Employment
Agreements. These payments, as well as severance payments to another former
officer, aggregated $5,989.
L. 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, including the net periodic pension cost (income), was $900
for the twelve months ended November 30, 1998, $1,900 in 1997 and $2,300 in
1996. 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 $1,314 for the twelve months ended November 30,
1998, $1,058 in 1997 and $1,279 in 1996.
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.
55
<PAGE> 56
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension expense for the Company's defined benefit plans
included the following components:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NOVEMBER 30,
1998 1997 1996
------------- ------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C>
Service cost -- benefits earned during the period... $ 5,459 $ 4,848 $ 5,497
Interest cost on projected benefit obligations...... 14,618 14,276 13,701
Actual gain on plan assets.......................... (21,959) (36,544) (29,296)
Net amortization and deferral....................... (28) 16,669 10,000
-------- -------- --------
Net Periodic pension cost (income).................. $ (1,910) $ (751) $ (98)
======== ======== ========
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of $1,662
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 8.6%
for the twelve months November 30, 1998, 15.3% in 1997 and 13.5% in 1996, and
generally reflects the performance of the equity and bond markets.
The following table sets forth the plans' funded status on the measurement
dates, November 30, 1998 and 1997, and amounts recognized in the Company's
Consolidated Balance Sheets as of those dates.
<TABLE>
<CAPTION>
1998 1997
------------- -------------
PREDECESSOR A
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation.............................. $(196,668) $ (184,123)
========= ==========
Accumulated benefit obligation......................... $(203,391) $ (191,148)
========= ==========
Projected benefit obligation........................... $(223,920) $ (209,701)
Plan assets at fair value................................... 259,522 250,036
--------- ----------
Projected benefit obligation less than plan assets.......... 35,602 40,335
Unrecognized net (gain) loss................................ 7,211 (3,761)
Unrecognized prior service cost............................. -- 47
--------- ----------
Prepaid pension cost recognized............................. $ 42,813 $ 36,621
========= ==========
</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 6.75% and 4.2%, and 7.0% and 4.2%,
respectively at November 30, 1998 and 1997, respectively. The assumption used
for the long-term rate of return on assets was 9.0% in 1998 and 1997. The effect
of the change in the discount rate was to increase the projected benefit
obligation by $7,183 at November 30, 1998.
Upon the Acquisition, all unrecognized reconciling items as of February 24,
1998 were recognized and recorded on the Company's Consolidated Balance Sheet in
accordance with purchase accounting. The effect of the Acquisition was to
increase the prepaid pension cost recognized by $3,714 at February 24, 1998.
The Company also offers 401(k) savings plans to its employees in the United
States. In most cases, the participants may contribute up to 15% of their
compensation of which 50% of their contribution up to 6% of their compensation
is matched by the Company. The cost of these plans to the Company was $1,641 in
the nine months ended November 30, 1998, $540 in the three months ended February
28, 1998, $2,344 in 1997 and $2,235 in 1996.
56
<PAGE> 57
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M. 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 on an annual basis.
The components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NOVEMBER 30,
1998 1997 1996
------------- ------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C>
Service cost -- benefits earned during the period... $ 534 $ 554 $ 710
Interest cost on accumulated postretirement benefit
obligation........................................ 1,101 1,241 1,424
Amortization of unrecognized net gain............... -- (93) --
------ ------ ------
Net periodic postretirement benefit cost............ $1,635 $1,702 $2,134
====== ====== ======
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of $564 due
to the reduction in eligible employees that resulted primarily from the
divestiture of divisions.
A reconciliation of the accumulated postretirement benefit obligation
measured as of November 30, 1998 and 1997 to amounts recognized in the
Consolidated Balance Sheets at those dates is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
PREDECESSOR A
<S> <C> <C>
Retirees and dependents..................................... $ 8,908 $10,670
Eligible active participants................................ 1,609 2,074
Other active participants................................... 6,442 6,993
------- -------
Accumulated postretirement benefit obligation............... 16,959 19,737
Unrecognized net gain....................................... 631 1,944
------- -------
Accrued postretirement benefit costs........................ $17.590 $21,681
======= =======
</TABLE>
Upon the Acquisition, all unrecognized reconciling items as of February 24,
1998 were recognized and recorded on the Company's Consolidated Balance Sheet in
accordance with purchase accounting. The effect of the Acquisition was to
decrease the accrued postretirement benefit costs by $4,718.
Benefit costs were estimated assuming retiree health care costs would
initially increase at a 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, 1998 would increase by $1,888 with
a corresponding increase of $247 in the postretirement benefit expense in 1998.
The discount rates used in determining the accumulated postretirement obligation
at November 30, 1998 and 1997 were 6.75% and 6.5%, respectively. The effect of
the change in the discount rate was not material to the accumulated
postretirement benefit obligation at November 30, 1998.
In May 1998, the Company adopted a Stock Appreciation Rights Plan ("SAR
Plan") to reward those executives and managers whose individual performance and
effort will have a direct impact on achieving the Company's profit and growth
objectives. Shares of stock are not actually awarded, however participants are
awarded units on which appreciation is calculated based on the Company's equity
position. The units vest over
57
<PAGE> 58
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
five years and are payable any time during the sixth through tenth year
following the date of award. The expense related to the SAR Plan was $640 in the
nine months ended November 30,1998.
N. ASBESTOS LITIGATION CLAIMS
As discussed in Note C, 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 Subsidiary manufactured from 1934 to
1971. The Company expects that the claims that were filed pursuant to the bar
date for such claims, and such claims that will arise for several decades into
the future, will be administered and resolved by the PI 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 Subsidiary. 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 ("property claims") against the Subsidiary. The class of holders
of property claims voted to accept a settlement for such claims that was
contained in the Plan. Pursuant to the settlement, the Company has set aside
$3,000 in cash to fund a trust to resolve property claims. Certain of the
holders of property 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 property claims to pursue those property claims
solely against such trust, will prevent any such claimants from prosecuting
property claims against the reorganized Subsidiary.
O. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS
Most of the pre-petition claims against the Subsidiary 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 Subsidiary.
In addition to the items discussed below, the Company is 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, 1998,
the Company has reserved $9,500 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 agreement among the Subsidiary, the United States
Environmental Protection Agency ("US EPA") and the United States Department of
Interior ("EPA Settlement Agreement") 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 EPA Settlement Agreement is with
respect to "Additional Sites." Additional Sites are those superfund sites, not
owned by the Subsidiary, for which the Subsidiary's liability
58
<PAGE> 59
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allegedly arises as a result of pre-petition waste disposal or recycling. The
Subsidiary retains all of its defenses, legal or factual, at such sites.
However, if the Subsidiary is found liable at any Additional Sites or settles
any claims for any Additional Sites, the Subsidiary is required to pay as if
such claims had been resolved in the reorganization under chapter 11 of the
bankruptcy code. Thus, the Subsidiary's liability at Additional Sites will be
paid at approximately 37% of any amount due.
As of November 30, 1998, the Subsidiary had received notice that it may
have liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 at a number of Additional Sites. The Company believes,
after an investigation of these claims, that it has only de minimis liability at
all but two of these sites described in the following two paragraphs.
The Subsidiary received 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 Subsidiary 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 Subsidiary 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 $5,000 to $6,000. The Subsidiary has offered to settle
this claim for $2,800 (payable at approximately 37%).
The Subsidiary 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
("RSR"). The Subsidiary allegedly leased the facility, which was in operation
until 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, the total expenses of which are estimated at approximately $55,000. The
Subsidiary is one of more that 1,000 PRP's identified by the US EPA in
connection with this site and is not identified by US EPA as one of the 14
significant PRPs. However, the Subsidiary believes that it may be required to
make some expenditure to resolve its potential liability for remediation
expenses in connection with this site. The Subsidiary has offered to settle this
claim for $1,800 (payable at approximately 37%).
The Company believes that the settlements for the RSR and Henryetta sites
will be a deduction from the Final Distribution.
In addition to the Additional Sites described above, the Company is
involved with the following environmental matters not covered by the EPA
Settlement Agreement.
The Company is undertaking corrective actions under the Resource
Conservation and Recovery Act ("RCRA") at its Joplin, Missouri facility.
Consistent with the terms of its RCRA permit, the Company has been investigating
the nature and extent of contamination present as a result of manufacturing
activities during the 130-year operating history of this property. These
investigations have identified areas of soil and groundwater contamination,
certain of which will likely require the Company to undertake remedial
activities. The US EPA has indicated that these actions will likely be required
to take place over the next two years. Based on available information, the
Company anticipates that these actions will cost between $600 and $2,600.
At the Company's Colorado Springs, Colorado facility the closure of four
former hazardous waste surface impoundments is being completed. Materials
formerly stored in these impoundments have contaminated groundwater and soils at
and around the facility. A groundwater remediation system was placed in service
in 1995 and continues in operation. The Company will enter into an Order on
Consent with the State of Colorado in 1999 to evaluate residual groundwater
contamination and soil contamination associated with the site, and to undertake
additional remedial actions as appropriate to remediate the contamination. Based
on available information, the Company anticipates that these actions will cost
approximately $1,800.
In August, 1998, Fibrex, Inc., ("Fibrex") which purchased the Subsidiary's
fibers division in 1982, sent a letter demanding indemnification under the 1982
sale agreement for future environmental remediation costs. The
59
<PAGE> 60
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of such costs cannot be reliably estimated at this time. The Subsidiary
filed a motion in the Bankruptcy Court to enforce the Plan against Fibrex. The
Company believes that any liability it may have had to Fibrex was discharged by
the Plan and the Bankruptcy Court's Confirmation Order and intends to contest
any claim by Fibrex vigorously.
In 1998, the Company received $14,784 from insurance companies in
settlement of certain claims relating primarily to environmental remediation,
with the offset to the Excess of Acquired Net Assets Over Cost because the claim
represented a pre-acquisition contingency.
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 C and N, 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 Subsidiary. 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 Subsidiary based on property damage from
lead chemicals allegedly manufactured and sold by the Subsidiary were disallowed
during the reorganization.
OTHER LITIGATION CLAIMS
In May 1997, Caradon Doors and Windows, Inc. ("Caradon") filed a suit
against the Subsidiary in the U.S. District Court in Atlanta, Georgia alleging
breach of contract and asserting contribution rights against the Subsidiary.
Prior to this suit, Caradon had been found liable to Therma-Tru Corporation
("Therma-Tru") in the amount of approximately $8,800 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 Subsidiary liable for patent infringement
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 Subsidiary 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
Subsidiary and Pease in these two suits is approximately $11,400. The Subsidiary
asserted, in separate motions filed to dismiss these claims, that all of
Caradon's and Therma-Tru's claims had been discharged in the Subsidiary's
reorganization under chapter 11. The Company believes that it has valid legal
and factual defenses and intends to contest vigorously all such claims.
P. ACQUISITIONS AND DIVESTITURES
The Company has signed a letter of intent to acquire the stock of
Charterhouse Automotive Group, Inc., a holding company whose only operating
subsidiary is Carpenter Enterprises, Ltd. ("Carpenter"), a manufacturer of
precision-machined automotive parts, for approximately $41,000 in cash. It is
expected that Carpenter will have approximately $32,000 of debt at the closing,
of which approximately $20,000 will be refinanced from the Facility. The
acquisition will be accounted for as a purchase. The transaction is expected to
be consummated during the first quarter of 1999, subject to the results of a due
diligence investigation and various conditions including negotiation of a
mutually acceptable stock purchase agreement.
60
<PAGE> 61
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sold its Trim Division in November, 1998. The transaction was
held in escrow until certain conditions were met in December 1998, resulting in
a receivable on the Consolidated Balance Sheet of $14,500 at November 30, 1998.
In December 1998, the Company received a $2,100 note due in 2000 which is
secured by a first mortgage on the real estate and the remainder of the proceeds
in cash. The impact of this transaction on net income (loss) was not material.
The Company is guarantor of tooling receivables due from both original equipment
manufacturers and their suppliers. The Company believes the likelihood of
customer default of these receivables to be remote.
Pursuant to the Plan, in 1997, 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. The aggregate loss on these
transactions was $2,411.
The Company received a note for $3,719 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 are
required on the first and second anniversaries of the note with the balance due
on October 31, 2000. The first payment was received in accordance with these
terms.
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 $9,000
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>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
------------ ------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Net sales............................. $18,600 $7,076 $100,717 $140,169
======= ====== ======== ========
Operating Income (Loss)............... $ (744) $ 144 $ (552) $ 326
======= ====== ======== ========
</TABLE>
Q. TRANSACTIONS WITH RELATED PARTIES
In connection with the Acquisition, the Company paid Granaria Holdings a
transaction fee of $7,300 (approximately 1% of the transaction value) in
consideration for advisory services related to structuring and financing the
Acquisition. Granaria Holdings was also reimbursed for other costs incurred
related to the Acquisition, issuance of the Subordinated Notes and Preferred
Stock offering.
R. INDUSTRY SEGMENT INFORMATION
The Company is a diversified manufacturer serving global markets and many
industries.
United States net sales include export sales to non-affiliated customers of
$70,800 in the nine months ended November 30, 1998, $23,600 in the three months
ended February 28, 1998, $113,600 in 1997 and $108,500 in 1996.
61
<PAGE> 62
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A general description of the products manufactured and the markets served
by the Company's three industry segments (listed in order of the magnitude of
net sales) is:
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 were included in the Automotive Segment were
$18,600 and $(744) in the nine months ended November 30, 1998, $7,706 and $144
in the 3 months ended February 28, 1998, $68,973 and $(2,790) in 1997 and
$102,408 and $(2,614) in 1996.
Consolidated sales to Ford Motor Company amounted to $121,100 in the nine
months ended November 30, 1998, $39,800 in the three months ended February 28,
1998, $170,500 in 1997 and $167,700 in 1996. No other customer accounted for 10%
or more of consolidated sales.
MACHINERY
The Machinery Segment serves the commercial aerospace, food and beverage
and other industrial markets globally and the construction market in the United
States. 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 and $834 in 1997 and $18,023 and $934 in
1996.
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 and $1,500 in 1997 and
$39,344 and $1,008 in 1996.
Sales between segments were not material.
62
<PAGE> 63
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's foreign operations are located primarily in Europe and also
in Mexico. Intercompany transactions with foreign operations are made at
established transfer prices. Information regarding the Company's domestic and
foreign sales, operating income and identifiable assets follows:
<TABLE>
<CAPTION>
TRANSFER SALES/
UNITED STATES FOREIGN ELIMINATIONS CONSOLIDATED
------------- ------- --------------- ------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED NOVEMBER 30, 1998
Sales....................................... $585,664 $80,953 $(20,633) $645,984
======== ======= ======== ========
Operating income............................ $ 13,939 $ 1,419 $ 112 $ 15,470
======== ======= ======== ========
Identifiable assets......................... $773,926 $96,359 $(53,958) $816,327
======== ======= ======== ========
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED FEBRUARY 28, 1998
Predecessor A
Sales....................................... $189,305 $23,041 $ (6,504) $205,842
======== ======= ======== ========
Operating income............................ $ 10,186 $ 1,018 $ (177) $ 11,027
======== ======= ======== ========
Identifiable assets......................... N/A N/A N/A N/A
======== ======= ======== ========
Year Ended November 30, 1997
Predecessor A
Sales....................................... $842,195 $88,614 $(24,732) $906,077
======== ======= ======== ========
Operating income............................ 39$,744.... $ 6,071 $ (257) $ 45,558
======== ======= ======== ========
Identifiable................................ $698,444 $74,477 $(26,040) $746,881
======== ======= ======== ========
- --------------------------------------------------------------------------------------------------------
Year Ended November 30, 1996
Predecessor B
Sales....................................... $830,013 $83,991 $(22,717) $891,287
======== ======= ======== ========
Operating income............................ $ 54,139 $ 8,240 $ (273) $ 62,106
======== ======= ======== ========
Identifiable assets......................... $807,508 $63,843 $(22,471) $848,880
======== ======= ======== ========
</TABLE>
63
<PAGE> 64
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
INDUSTRIAL MACHINERY AUTOMOTIVE
----------------------------------------- ----------------------------------------- --------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS
ENDED ENDED ENDED ENDED ENDED
NOV. 30, FEB. 28, NOV. 30, FEB. 28, NOV. 30,
1998 1998 1997 1996 1998 1998 1997 1996 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
PRED A PRED A PRED B PRED A PRED A PRED B
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $113.6 $37.7 $200.1 $194.1 $201.8 $64.4 $270.8 $257.6 $330.6
====== ===== ====== ====== ====== ===== ====== ====== ======
Operating Income..... 12.9 3.2 15.0 20.6 19.5 5.4 20.0 22.5 26.5
====== ===== ====== ====== ====== ===== ====== ====== ======
Depreciation and
amortization....... 9.5 3.4 14.4 6.9 9.9 2.3 10.3 5.0 22.7
====== ===== ====== ====== ====== ===== ====== ====== ======
Capital
expenditures....... 3.8 0.4 10.6 10.8 8.8 1.3 5.9 4.5 13.5
====== ===== ====== ====== ====== ===== ====== ====== ======
Identifiable
Assets............. 159.1 N/A 138.1 146.3 210.0 N/A 122.3 136.0 333.8
====== ===== ====== ====== ====== ===== ====== ====== ======
<CAPTION>
AUTOMOTIVE
------------------------------
3 MONTHS
ENDED
FEB. 28,
1998 1997 1996
-------- -------- --------
PRED A PRED A PRED B
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Sales................ $103.7 $435.2 $439.6
====== ====== ======
Operating Income..... 8.2 29.7 38.5
====== ====== ======
Depreciation and
amortization....... 7.1 30.9 18.7
====== ====== ======
Capital
expenditures....... 3.8 34.6 29.5
====== ====== ======
Identifiable
Assets............. N/A 274.0 292.8
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SEGMENT TOTAL CORPORATE TOTAL
------------------------------------- ---------------------------------------- -------------------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
NOV. 30, FEB. 28, NOV. 30, FEB. 28, NOV. 30, FEB. 28,
1998 1998 1997 1996 1998 1998 1997 1996 1998 1998
-------- -------- ------ ------ -------- -------- -------- ------- -------- --------
PRED A PRED A PRED B PRED A PRED A PRED B PRED A
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $646.0 $205.8 $906.1 $891.3 $ -- $ -- $ -- $ -- $646.0 $205.8
====== ====== ====== ====== ====== ===== ====== ======= ====== ======
Operating Income
(loss)................ 58.9 16.8 64.7 81.6 (43.4) (5.8) (19.1) (19.5) 15.5 11.0
====== ====== ====== ====== ====== ===== ====== ======= ====== ======
Adjustment for asbestos
litigation............ -- -- 502.2 -- --
------ ----- ------ ------- ------ ------
Interest expense........ (36.3) (6.9) (31.3) (3.1) (36.3) (6.9)
Other income
(expense)............. 1.8 .8 (0.3) (2.9) 1.8 .8
Reorganization items.... -- -- -- 116.3 -- --
====== ===== ====== ======= ------ ------
Income (loss) before
taxes................. (19.0) 4.9
====== ======
Depreciation and
amortization.......... 42.1 12.8 55.6 30.6 2.2 -- 0.4 0.2 44.3 12.8
====== ====== ====== ====== ====== ===== ====== ======= ====== ======
Capital expenditures.... 26.1 5.5 51.1 44.8 0.2 0.2 0.2 0.2 26.3 5.7
====== ====== ====== ====== ====== ===== ====== ======= ====== ======
Identifiable assets..... 702.9 N/A 534.4 575.1 113.4 N/A 212.5 273.8 816.3 N/A
====== ====== ====== ====== ====== ===== ====== ======= ====== ======
<CAPTION>
TOTAL
---------------
1997 1996
------ ------
PRED A PRED B
<S> <C> <C>
Sales................... $906.1 $891.3
====== ======
Operating Income
(loss)................ 45.6 62.1
====== ======
Adjustment for asbestos
litigation............ -- 502.2
------ ------
Interest expense........ (31.3) (3.1)
Other income
(expense)............. (0.3) (2.9)
Reorganization items.... -- 116.3
------ ------
Income (loss) before
taxes................. 14.0 674.6(1)
====== ======
Depreciation and
amortization.......... 56.0 30.8
====== ======
Capital expenditures.... 51.3 45.0
====== ======
Identifiable assets..... 746.9 848.9
====== ======
</TABLE>
- ---------------
(1) Before extraordinary gain and cumulative effect of accounting change.
64
<PAGE> 65
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation and
presentation of the consolidated financial statements. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and as such include amounts based on judgements and
estimates made by management.
The Company's system of internal accounting controls is designed to provide
reasonable assurance at reasonable cost that assets are safeguarded from loss or
unauthorized use, and that the financial records may be relied upon for the
preparation of the consolidated financial statements.
The consolidated financial statements have been audited by our independent
auditors, Deloitte and Touche LLP. Their audit is conducted in accordance with
generally accepted auditing standards and provides an independent assessment as
to the fair presentation, in all material respects, of the Company's
consolidated financial statements.
The Audit Committee of the Board of Directors meets periodically with
management and the independent auditors to review internal accounting controls
and the quality of financial reporting. Financial management and the independent
auditors have full and free access to the Audit Committee.
/s/ Andries Ruijssenaars
Andries Ruijssenaars
President and Chief Executive Officer
/s/ Carroll D. Curless
Carroll D. Curless
Vice President and Controller
Cincinnati, Ohio
January 18, 1999
65
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Eagle-Picher
Holdings, Inc. and subsidiaries as of November 30, 1998 (Successor Company
balance sheet), and the related consolidated statements of income (loss),
shareholders' equity, and cash flows for the nine month period ended November
30, 1998 (Successor Company operations). In addition, we have audited the
accompanying consolidated balance sheet of Eagle-Picher Industries, Inc. and
subsidiaries as of November 30, 1997 (Predecessor Company balance sheet under
fresh-start accounting), and the related consolidated statements of income
(loss), shareholders' equity, and cash flows for the year ended November 30,
1997 and the three month period ended February 28, 1998 (Predecessor Company
operations under fresh-start accounting). 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. The Predecessor Company's consolidated
statements of income (loss), shareholder's equity and cash flows for the year
ended November 30, 1996, were audited by other auditors whose report, dated
February 5, 1997, expressed an unqualified opinion on those statements and
included explanatory paragraphs related to the Company emerging from Chapter 11
of the United States Bankruptcy Code, described in Notes A and C to the
consolidated financial statements, and the Predecessor Company's change in
computing LIFO for certain inventories described in Note D to the consolidated
financial statements.
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 Successor Company consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of the Successor Company as of November 30, 1998, and the results of
its operations and its cash flows for the nine month period then ended. Further,
in our opinion, the Predecessor Company consolidated financial statements under
fresh-start accounting referred to above present fairly, in all material
respects, the financial position of the Predecessor Company as of November 30,
1997, and the results of its operations and its cash flows for the year ended
November 30, 1997, and the three months ended February 28, 1998, in conformity
with generally accepted accounting principles.
As discussed in Note A 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.
As discussed in Notes A and B to the consolidated financial statements,
Eagle-Picher Industries, Inc. was acquired on February 24, 1998 by Eagle-Picher
Holdings, Inc., a majority-owned subsidiary of Granaria Industries B.V. As a
result, the consolidated financial statements as of and for the three month
period ended February 28, 1998 include the effects of such acquisition as of
February 24, 1998 and, therefore, are not comparable to consolidated financial
statements prepared subsequent to February 28, 1998.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
January 18, 1999
66
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Holdings, Inc.:
We have audited the accompanying consolidated statements of income (loss),
shareholders equity (deficit), and cash flows of Eagle-Picher Holdings, Inc. and
subsidiaries for the year 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 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, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of
Eagle-Picher Holdings, Inc. and subsidiaries and their cash flows for the year
ended November 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note A 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 D to the consolidated financial statements, the
Company changed its method of computing LIFO for inventories of boron, germanium
and other rare metals in 1996.
/s/ KPMG LLP
Cincinnati, Ohio
February 5, 1997
67
<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
68
<PAGE> 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name, age and position with the Company
of the individuals who serve as directors and executive officers of the Company.
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............................. 49 Director, Chairman of the Board
Daniel C. Wyler........................... 47 Director
Thomas E. Petry........................... 59 Director
Dr. Wendelin Wiedeking.................... 46 Director
Andries Ruijssenaars...................... 56 Director, President and Chief Executive Officer
Wayne R. Wickens.......................... 52 Senior Vice President
Michael E. Aslanian....................... 44 Group Vice President
Carroll D. Curless........................ 60 Vice President and Controller
David G. Krall............................ 37 Vice President, General Counsel and Secretary
</TABLE>
Mr. Joel P. Wyler has been a Director of the Company and Chairman of its
Board since the Company was formed in December 1997. He also has been a Director
and Chairman of the Board of the Subsidiary since the Acquisition. Mr. Wyler has
been the Chairman of the Board of Directors of Granaria Holdings B.V. since
1982.
Mr. Daniel C. Wyler was appointed as a Director of the Company and the
Subsidiary in January 1999. He has been the Chief Executive Officer of Granaria
Holdings B.V. since 1989.
Mr. Petry has been a Director of the Company since the Acquisition and has
been a Director of the Subsidiary since 1981. Upon consummation of the
Acquisition, Mr. Petry resigned as Chairman of the Board of Directors of the
Subsidiary, a position he held since 1989, and as Chief Executive Officer of the
Subsidiary, a position he held since 1982. Mr. Petry is also a director of
Cinergy Corp., Firstar Corp., Union Central Life Insurance Co. and The Wm.
Powell Company.
Mr. Wiedeking was appointed as a Director of the Company and the Subsidiary
in January 1999. He has been the Chairman of the Board of Porsche AG since 1993
where he is also President and Chief Executive Officer.
Mr. Ruijssenaars has been President, Chief Executive Officer and a Director
of the Company since the Acquisition and has been President and a Director of
the Subsidiary since 1994. Upon consummation of the Acquisition, he also became
the Subsidiary's Chief Executive Officer. He was Senior Vice President of the
Subsidiary from 1989 until December 1994. Mr. Ruijssenaars was first employed by
the Subsidiary 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 Subsidiary's Ohio Rubber Company Division.
Mr. Wickens has been Senior Vice President of the Company since the
Acquisition and has been Senior Vice President of the Subsidiary since September
1998. Prior to that time, beginning in December 1994, he was the Subsidiary's
Senior Vice President -- Automotive. From 1990 until December 1994, he was
Division President of the Subsidiary's Hillsdale Tool & Manufacturing Co. Mr.
Wickens joined the Subsidiary in 1976 as a management trainee with the
Subsidiary'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 Subsidiary's Wolverine Gasket Division
and then as Vice President of the Subsidiary's Automotive Group.
69
<PAGE> 70
Mr. Aslanian has been Group Vice President of the Company since the
Acquisition and has been Group Vice President of the Subsidiary since September
1998. From 1994 until September 1998, he was Division President of the
Subsidiary's Hillsdale Tool & Manufacturing Co. Mr. Aslanian joined the
Subsidiary in 1974 with the Subsidiary's former Fabricon Automotive Division
where he was Production Manager, Plant Manager, and ultimately in 1989 Division
Manager of the then newly-formed Trim Division. In 1990, he moved to the
Subsidiary's Hillsdale Tool & Manufacturing Co. as Vice President of
Manufacturing and became President there in 1994.
Mr. Curless has been Vice President and Controller since the Acquisition.
Mr. Curless was first employed by the Subsidiary in 1964. He became the
Subsidiary's Assistant Controller in 1978 and Controller in 1984. He has been
the Subsidiary's Vice President and Controller since 1986. Mr. Curless is also
currently serving as the Company's and the Subsidiary's interim Chief Financial
Officer.
Mr. Krall joined the Company in June 1998. Prior to coming to the Company,
he had been with Taft, Stettinius & Hollister LLP, a legal firm based in
Cincinnati, Ohio, since 1986 and had been a partner there since 1994.
Mr. Joel P. Wyler and Mr. Daniel C. Wyler are brothers.
70
<PAGE> 71
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation for
the last three fiscal years of those persons who served as (i) the Chief
Executive Officer of the Company after the Acquisition during fiscal 1998, (ii)
the Chief Executive Officer of the Subsidiary before the Acquisition during
fiscal 1998, (iii) the Company's four most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers of
the Company at the end of fiscal 1998, and (iv) one additional individual who
was among the Company's four most highly compensated executive officers other
than the Chief Executive Officer, but was not serving as an executive officer of
the Company at the end of fiscal 1998 (collectively, the "Named Executive
Officers"). Joel P. Wyler, who served as President of the Company from its
formation in December, 1997, until consummation of the Acquisition on February
24, 1998, received no compensation or other benefits for this service and,
accordingly, compensation information for Mr. Wyler is not included in this
table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- --------------
OTHER ANNUAL RESTRICTED ALL OTHER
FISCAL YEAR COMPENSATION STOCK AWARD(S) COMPENSATION
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) ($)(1) ($)(2) ($)(3)
- --------------------------- ----------- ---------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andries Ruijssenaars(4).................. 11/30/98 575,000 380,000 1,818,286 1,705,500 1,411,852
President and Chief Executive Officer 11/30/97 525,000 205,000 179,244 -- 208,006
11/30/96 425,000 160,000 174,171 -- 201,233
Thomas E. Petry(5)....................... 11/30/98 208,333 -- 1,032,134 -- 4,049,790
Former Chairman and Chief Executive 11/30/97 625,000 278,000 232,737 -- 261,903
Officer of Subsidiary 11/30/96 625,000 239,000 218,919 -- 246,873
Wayne R. Wickens......................... 11/30/98 360,000 150,000 606,154 568,500 807,044
Senior Vice President 11/30/97 325,000 109,000 77,942 -- 93,311
11/30/96 295,000 72,000 99,564 -- 118,199
Michael E. Aslanian(6)................... 11/30/98 211,750 130,000 312,540 337,500 269,584
Group Vice President 11/30/97 180,000 77,000 8,852 -- 17,049
11/30/96 172,000 61,000 9,228 -- 17,553
Carroll D. Curless....................... 11/30/98 250,000 130,000 321,332 284,250 488,229
Vice President and Controller 11/30/97 240,000 67,000 116,456 -- 134,611
11/30/96 230,000 86,000 78,715 -- 93,870
David G. Krall(7)........................ 11/30/98 85,000 65,000 62,582 67,500 132
Vice President, General Counsel and 11/30/97 -- -- -- -- --
Secretary 11/30/96 -- -- -- -- --
David N. Hall(8)......................... 11/30/98 307,500 -- 932,806 284,250 2,648,334
Former Senior Vice President -- Finance 11/30/97 375,000 126,000 166,629 -- 189,963
11/30/96 360,000 107,000 146,980 -- 167,786
</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 bonus or $50,000). For fiscal 1996 and 1997, the column is comprised
of amounts for the payment of taxes on purchases of annuities under the
Company's Supplemental Executive Retirement Plan (the "SERP") for each of
the Named Officers. In fiscal 1998, the column includes the following:
<TABLE>
<CAPTION>
PAYMENT OF TAXES ON PURCHASES OF PAYMENT OF TAXES ON SHARES AWARDED
NAMED EXECUTIVE OFFICER ANNUITIES UNDER THE SERP ($) UNDER THE INCENTIVE STOCK PLAN ($)
----------------------- -------------------------------- ----------------------------------
<S> <C> <C>
Andries Ruijssenaars......... 272,780 1,545,506
Thomas E. Petry.............. 1,032,134 --
Wayne R. Wickens............. 105,228 500,926
Michael E. Aslanian.......... 13,276 299,264
Carroll D. Curless........... 66,128 255,204
David G. Krall............... -- 62,582
David N. Hall................ 675,362 257,444
</TABLE>
71
<PAGE> 72
(2) The amounts in this column represent the dollar value of restricted stock
awards granted to the Named Executive Officers during fiscal 1998 under the
Company's Incentive Stock Plan (as described below), of shares of Class A
Common Stock of the Company. Such awards were originally subject to periods
of vesting but, pursuant to an amendment to the Incentive Stock Plan, all
of such awards were fully vested on or before November 19, 1998 (see "--
Incentive Stock Plan," below). The amounts in this column, which comprise
the entire aggregate holdings of each of the Named Executive Officers,
represent the following numbers of shares: Mr. Ruijssenaars, 30,000 shares;
Mr. Wickens, 10,000 shares; Mr. Aslanian, 6,250 shares; Mr. Curless, 5,000
shares; Mr. Krall, 1,250 shares; and Mr. Hall, 5,000 shares. The total
aggregate dollar value of all stock awards under the Incentive Stock Plan
is $4,651,500, which represents a total of 83,500 shares, all of which were
fully vested on or before November 19, 1998. The EP Management Trust holds
as of February 24, 1999, 9,250 unawarded shares of the Company's Class A
Common Stock (see Note K to the Company's Consolidated Financial Statements
at Item 8.) Dividends on the restricted stock, if any are declared, would
be payable on the restricted stock. The Company, however, has no obligation
to declare dividends and, pursuant to the terms of the Company's Preferred
Stock, certain restrictions exist on the Company's ability to declare
dividends on the Class A Common Stock.
(3) This column includes the following amounts:
<TABLE>
<CAPTION>
AMOUNTS
PAID
COST OF CONTRIBUTIONS TO VALUE OF PURSUANT TO AMOUNTS PAID IN
FISCAL ANNUITY EAGLE-PICHER PAID LIFE SHORT-TERM CONNECTION WITH
YEAR UNDER SALARIED 401(k) INSURANCE SALE PROGRAM TERMINATION OF
NAMED EXECUTIVE OFFICER ENDED SERP ($) PLAN ($) PREMIUMS ($) ($) EMPLOYMENT ($)
----------------------- -------- ---------- ---------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Andries Ruijssenaars.... 11/30/98 302,552 5,000 1,800 1,102,500 --
11/30/97 201,456 4,750 1,800 -- --
11/30/96 195,331 4,750 1,152 -- --
Thomas E. Petry......... 11/30/98 1,132,002 4,688 600 1,625,000 1,250,000
11/30/97 255,353 4,750 1,800 -- --
11/30/96 240,323 4,750 1,800 -- --
Wayne R. Wickens........ 11/30/98 118,152 5,000 1,392 682,500 --
11/30/97 87,169 4,750 1,392 -- --
11/30/96 111,607 4,750 1,842 -- --
Michael E. Aslanian..... 11/30/98 16,329 5,000 408 234,000 --
11/30/97 11,891 4,750 408 -- --
11/30/96 12,395 4,750 408 -- --
Carroll D. Curless...... 11/30/98 72,829 5,000 2,400 408,000 --
11/30/97 127,461 4,750 2,400 -- --
11/30/96 86,720 4,750 2,400 -- --
David G. Krall.......... 11/30/98 -- -- 132 -- --
11/30/97 -- -- -- -- --
11/30/96 -- -- -- -- --
David N. Hall........... 11/30/98 745,684 5,000 1,350 1,116,300 780,000
11/30/97 183,413 4,750 1,800 -- --
11/30/96 161,236 4,750 1,800 -- --
<CAPTION>
NAMED EXECUTIVE OFFICER TOTAL ($)
----------------------- ---------
<S> <C>
Andries Ruijssenaars.... 1,411,852
208,006
201,233
Thomas E. Petry......... 4,012,290
261,903
246,873
Wayne R. Wickens........ 807,044
93,311
118,199
Michael E. Aslanian..... 255,737
17,049
17,553
Carroll D. Curless...... 488,229
134,611
93,870
David G. Krall.......... 132
--
--
David N. Hall........... 2,648,334
189,963
167,786
</TABLE>
- ---------------
In addition, for fiscal 1998, this column includes $37,500 paid to Mr. Petry
as a director's fee (see "-- Compensation of Directors" below) and $13,847
paid to Mr. Aslanian for relocation expenses.
(4) Mr. Ruijssenaars became Chief Executive Officer upon the Acquisition
effective February 24, 1998. Prior to that time, he was President and Chief
Operating Officer of the Subsidiary.
(5) Mr. Petry resigned as Chairman of the Board and Chief Executive Officer of
the Subsidiary upon the Acquisition effective February 24, 1998. At no time
did he serve as Chairman or Chief Executive Officer of the Company and is
included in the Summary Compensation Table since his total compensation was
included in the consolidated results of operations of the Company. Since
February 24, 1998, Mr. Petry has served as a Director of the Company.
(6) Mr. Aslanian assumed his present position on September 1, 1998; prior to
that time, he was President of Hillsdale Tool & Manufacturing Co., a
wholly-owned subsidiary of the Company.
72
<PAGE> 73
(7) Mr. Krall was first employed by the Company on June 1, 1998, in his present
capacity. The amount shown in the "salary" column for Mr. Krall represents
amounts actually paid to Mr. Krall during fiscal 1998 based upon his annual
salary of $170,000.
(8) Mr. Hall's employment with the Company ended on August 31, 1998.
LONG-TERM INCENTIVE PLAN
The following table sets forth information as to awards to the following
Named Executive Officer during fiscal 1998 under the Company's Share
Appreciation Plan (the "LTIP"), a long-term incentive plan. No other Named
Executive Officer received an award under the LTIP in fiscal 1998.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
PERIOD UNTIL MATURATION PRICE-BASED PLANS
NAME NUMBER OF UNITS (#)(1) OR PAYOUT(2) TARGET ($)(3)
- ---- ---------------------- ----------------------- ------------------------
<S> <C> <C> <C>
David G. Krall..................... 50,000 6/1/2004 250,000
</TABLE>
- ---------------
(1) The Named Executive Officer has been granted units under the LTIP which
represent the right to receive a cash payment from the Company based on a
share of the increase in the Company's "Capitalized Earnings Value" (as
defined in the LTIP) above a baseline. "Capitalized Earnings Value" is a
formula-derived value considering the Subsidiary's EBITDA and cash
position, the debt levels of the Company and Subsidiary and the total
outstanding obligations of the Company with respect to its Preferred Stock,
each at the end of each fiscal year.
(2) The units will vest at a rate of 20% on each of the first five
anniversaries of the award date (except that the units of a participant who
dies or is incapacitated while employed by the Company are immediately 100%
vested, as are the units of a participant who is employed by the Company on
a date in which control of the Company effectively changes). They are
exercisable, if the individual remains employed by the Company, after the
sixth anniversary of the award date but no later than the tenth anniversary
of the award date. Upon termination of employment, all unvested units are
forfeited and vested but unexercised units are deemed to have been
immediately exercised.
(3) The target amount reported is based on the Company's projection of
"Capitalized Earnings Value" assuming a growth rate consistent with
historical trends (without considering periods of either extraordinary
growth or recession or the effect on earnings of events relating to the
Subsidiary's chapter 11 proceedings). The estimated target payment is
provided only for the purposes of this table and is not intended to
forecast actual appreciation, if any, in the "Capitalized Earnings Value"
of the Company. The LTIP does not provide for a minimum (threshold), target
or maximum payout.
RETIREMENT BENEFITS
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 SERP:
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 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
</TABLE>
73
<PAGE> 74
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
1,050,000.......................... 378,000 504,000 630,000 630,000 630,000
1,100,000.......................... 396,000 528,000 660,000 660,000 660,000
1,150,000.......................... 414,000 552,000 690,000 690,000 690,000
</TABLE>
The Eagle-Picher Salaried Plan (the "Salaried Plan" and, together with the
SERP, the "Retirement Plans") is a non-contributory defined benefit pension plan
in which the Named Executive Officers are participants. The SERP, 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
retirement. For purposes of the Retirement Plans, compensation includes base
salary, bonuses, commissions and severance payments; salary, bonus and severance
payments that would be included in the Retirement Plans are as reported in the
Summary Compensation Table, and commissions, if there had been any, would have
been included in that Table. The payments pursuant to the Short Term Sale
Program (discussed below) are not included in such compensation. 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 for the Named Executive Officers at
age 62 will be:
<TABLE>
<S> <C>
Andries Ruijssenaars........................................ 24
Thomas E. Petry............................................. 30(A)
Wayne R. Wickens............................................ 32
Michael E. Aslanian......................................... 41
Carroll D. Curless.......................................... 36
David G. Krall.............................................. 25
David N. Hall............................................... 21(A)
</TABLE>
- ---------------
(A) Represents final credited years of service for purposes of calculating
benefits under the Retirement Plans for Mr. Petry and Mr. Hall.
COMPENSATION OF DIRECTORS
As of February 24, 1999, the outside Directors of the Company are also the
Directors of the Subsidiary. These outside Directors are paid an annual retainer
of $50,000 by the Subsidiary only, payable in calendar quarters, with no
additional fees for attendance or committee membership. The Company does not pay
any director retainers or attendance fees (including committee membership fees)
to directors who are also employees of the Company.
Effective January 1, 1999, the Company adopted an Incentive Stock Plan for
outside Directors. Pursuant to that plan, directors of the Company that are also
directors of the Subsidiary may receive shares of Class A Common Stock of the
Company in lieu of a directors' fee.
74
<PAGE> 75
Joel P. Wyler, as a named Director of the Company and Subsidiary, provides
services on behalf of and pursuant to his employment by Granaria Holdings B.V.
All directors' fees due as a result of Mr. Wyler's services as a named Director
are paid to Granaria Holdings B.V.
Directors of the Subsidiary prior to the Acquisition who were not also
employees of the Subsidiary 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
In fiscal 1998, there was no compensation committee of the Board of the
Directors. Decisions regarding compensation are passed upon by the Board of
Directors as a whole. In fiscal 1998, Joel P. Wyler, Chairman of Granaria
Holdings B.V. and Chairman of the Company and Subsidiary, Mr. Ruijssenaars, the
Chief Executive Officer of the Company and Subsidiary and Mr. Petry, the former
Chief Executive Officer of the Subsidiary, constituted the entire Board of
Directors during the period beginning on February 24, 1998. Prior to February
24, 1998, Mr. Wyler and Peter J. Ph. Kortenhorst, Managing Director of Granaria
Finance B.V., constituted the entire Board of Directors of the 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 which covers the Company and its officers and
directors for up to $15.0 million in losses, including any indemnity 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, the Company and Subsidiary
have agreed, for a period of six years after February 24, 1998, to indemnify all
officers and directors of the Subsidiary who served as such prior to February
24, 1998, and to purchase directors and officers liability insurance in their
favor.
EMPLOYMENT AGREEMENTS; SEVERANCE
The Subsidiary entered into employment agreements, which became effective
on November 29, 1996 (the Consummation Date of the Subsidiary's Consolidated
Plan of Reorganization), with Messrs. Ruijssenaars, Petry, Wickens, Curless and
Hall, as well as with James A. Ralston, the former Vice President, General
Counsel and Secretary. Each of the employment agreements was amended in August
1997. The purpose of the employment agreements was to provide continuity of
management following emergence from bankruptcy. Other than the description of
the duties of each of such officers, the employment agreements are substantially
identical in their terms. The employment agreements terminate on February 24,
2000.
The employment agreements provide that each officer will maintain his
then-current duties and responsibilities and will not be relocated from his
then-current geographical location. The employment agreements provide for salary
continuation at the officer's then-current rate plus customary annual increases
and bonuses and discretionary bonuses, as determined by the Board of Directors
of the Company (and which are shown in the Summary Compensation Table, above).
In addition, the employment agreements provide that each officer 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, the STSP and the Stock
Incentive Plan).
If the employment of any such officer is terminated by the Company for
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 officer without Good Reason (as defined below), such 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
75
<PAGE> 76
"-- Retirement Benefits") (all such payments, including salary, the "Accrued
Benefits"). If the employment of any such officer is terminated due to death or
long term disability, such 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 any such 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 officer's employment agreement) such officer is entitled to receive, in
addition to the Accrued Benefits, a lump-sum severance benefit equivalent to two
years' current base salary.
In fiscal 1998, each of Messrs. Petry, Hall and Ralston received payments
pursuant to their employment agreements in connection with the termination of
their employment with the Company. Mr. Petry, who resigned as Chairman of the
Board and Chief Executive Officer, 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 $741,874 in lieu of the Company's
purchase of an annuity and the Company paid $676,424 for the benefit of Mr.
Petry for related tax obligations. Mr. Hall received a severance payment in the
amount of $780,000. In addition, the Company purchased an annuity for the
benefit of Mr. Hall pursuant to the SERP, the cost of which was $592,062 and
made a payment of $536,227 for the benefit of Mr. Hall for the related tax
obligations. Mr. Ralston received a severance payment in the amount of $480,000.
In addition, Mr. Ralston received a payment in cash pursuant to the SERP of
$281,459 in lieu of the Company's purchase of an annuity and the Company paid
$255,358 for the benefit of Mr. Ralston for related tax obligations.
SHORT TERM SALE PROGRAM
The Subsidiary adopted a Short Term Sale Program (the "STSP") pursuant to
the terms of which the Subsidiary was obligated to make payments to certain
members of senior management (the "eligible individuals"), in connection with
the consummation of the Acquisition. The STSP provided 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 (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") was payable shortly
after the Acquisition, and the second ("Second Stay-Put") is payable on the
second anniversary of the Acquisition, provided that the individual has remained
employed by the Company or, if the individual was terminated by the Company
other than for cause, is payable upon such termination. The Sales Incentive,
which was payable only if the present value of the after-tax proceeds to the
Trust in connection with the Acquisition met a threshold amount set forth in the
STSP, increased on a straight-line basis in the event that the Trust's after-tax
proceeds exceeded a specified target amount. 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 in fiscal 1998 in the aggregate amount of
approximately $8.3 million. The Company expects to make an additional payment of
approximately $1.6 million on the second anniversary of the Closing Date for the
Second Stay-Put. The Company expects to 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 to exceed $1.0 million. 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 Subsidiary 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 Subsidiary, or (ii) June 30, 1998. The total expense recorded
in 1997 was approximately $.7 million, while $4.1 million was recorded in 1998.
The STSP provides that the Sales Incentive was earned from the date of the
Acquisition through 30 days thereafter. Accordingly, no accrual was made for the
Sales Incentive in 1997 and an expense of approximately $6.1 million was
recorded in 1998.
76
<PAGE> 77
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>
Andries Ruijssenaars.................................... $ 840,000 $262,500
Thomas E. Petry......................................... 1,000,000 625,000(A)
Wayne R. Wickens........................................ 520,000 162,500
Michael E. Aslanian..................................... 144,000 90,000
Carroll D. Curless...................................... 288,000 120,000
David G. Krall.......................................... -- --
David N. Hall........................................... 741,300(B) 375,000(A)
</TABLE>
- ---------------
(A) This amount represents 100% of the stay-put bonus of each of Messrs.
Petry and Hall.
(B) This amount represents 100% of the estimated Sales Incentive bonus of
Mr. Hall. Each of the other Named Executive Officers (other than Mr.
Krall, who was not a participant in the STSP) is expected to receive an
additional payment in connection with the Sales Incentive upon the
final determination of the present value of the after-tax proceeds to
the Trust.
The Company expects the Second Stay-Put to be paid to each of the Named
Executive Officers, other than Messrs. Petry, Hall and Krall, on February 24,
2000, 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 and,
accordingly, he will not receive any additional payment in connection with the
stay-put bonus. Mr. Hall received his Second Stay-Put payment at the time his
employment with the Company ended. Mr. Krall was not a participant in the STSP.
INCENTIVE STOCK PLAN
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 B.V., the proceeds of
which were used by the E-P Management Trust to acquire 16% of the Common Stock
of Granaria Industries B.V. The stock of Granaria Industries B.V. was
subsequently exchanged for shares of Class A Common Stock of the Company.
Pursuant to the Incentive Stock Plan, the shares of the Company 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). The Incentive Stock
Plan as originally adopted provided that restricted stock would vest over a
period of years. However, the Plan was amended during 1998 to provide for
immediate vesting such that all shares were fully vested on or before November
19, 1998. The receipt of such shares was taxable to the holders as income in an
amount equal to the value of the shares at the time of vesting. Pursuant to the
Incentive Stock Plan, the Company made payments in the amount of approximately
$4.3 million for the benefit of holders of the shares in connection with their
tax obligations associated with their receipt of such shares. The transfer of
compensatory property to senior management and the tax payments to the holders
of the shares will result in an income tax deduction to the Company in the
amount of approximately $8.9 million.
77
<PAGE> 78
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock as of February 24, 1999, by each
person known by the Company to own beneficially 5% or more of the Class A Common
Stock, the Company's only voting security.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENTAGE OF
NAME CLASS A SHARES CLASS A SHARES
- ---- -------------- --------------
<S> <C> <C>
Granaria Holdings B.V....................................... 615,751 98.5%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(1),(2),(3)
Joel P. Wyler............................................... 625,001 100.0%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(4),(5)
Daniel C. Wyler............................................. 615,751 98.5%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(4)
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of February 24, 1999,
regarding the ownership of the Company's Class A Common Stock, the Company's
only voting security and the only equity security held by the Company's
directors or executive officers. All shares are subject both to a Voting Trust
Agreement that allows all of the shares owned by the Company's management to be
voted by Granaria Holdings B.V. and to a Shareholders Agreement that restricts
their disposition.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENTAGE OF
NAME CLASS A SHARES CLASS A SHARES
- ---- -------------- --------------
<S> <C> <C>
Joel P. Wyler(4),(5)........................................ 625,001 100.0%
Daniel C. Wyler(4).......................................... 615,751 98.5%
Andries Ruijssenaars(5)..................................... 39,250 6.3%
Wayne R. Wickens............................................ 10,000 1.6%
Thomas E. Petry(5).......................................... 9,250 1.5%
Michael E. Aslanian......................................... 6,250 1.0%
Carroll D. Curless.......................................... 5,000 *
David G. Krall.............................................. 1,250 *
David N. Hall............................................... 5,000 *
Dr. Wendelin Wiedeking(6)................................... 2,500 *
All directors and executive officers as a group (seven
persons).................................................. 625,001 100.0%
</TABLE>
- ---------------
(*) Less than 1.0%.
(1) Granaria Holdings B.V. is 100% owned by Wijler Holding B.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.
78
<PAGE> 79
(2) Includes 525,001 shares held by Granaria Industries B.V., which is majority
owned by Granaria Holdings B.V.
(3) Includes 82,750 shares held by Granaria Holdings B.V. as voting trustee for
certain members of management.
(4) Includes shares held by Granaria Holdings B.V.
(5) Includes 9,250 shares held by the E-P Management Trust, of which Messrs.
Joel P. Wyler, Andries Ruijssenaars and Thomas E. Petry are trustees.
(6) Represents shares the Company has agreed to grant Dr. Wiedeking in March
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
In connection with the Acquisition, the Company paid Granaria Holdings B.V.
("Granaria Holdings") a transaction fee of $7.3 million (approximately 1% of the
transaction value) in consideration for advisory services related to structuring
and financing the Acquisition. Granaria Holdings was also paid $1.1 million to
reimburse them for third party costs incurred related to the Acquisition and
issuance of the 9 3/8% Senior Subordinated Notes and the 11 3/4% Cumulative
Redeemable Exchangeable Preferred Stock.
The Company has an advisory and consulting agreement with Granaria Holdings
pursuant to which the Company will pay Granaria Holdings an annual management
fee of $1.75 million annually plus out-of-pocket expenses. Fees and expenses
relating to these services amounted to $1.5 million in the nine months ended
November 30, 1998, of which $.6 million is due Granaria Holdings at November 30,
1998.
The Subsidiary adopted a Short Term Sale Program ("STSP") prior to the
Acquisition which provided for payments to the executive officers and members of
senior management in the event of a change of control. The Acquisition
constituted such a change of control. (See Executive Compensation -- Short Term
Sale Program.) The Company recorded an expense of $10.1 million in the year
ended November 30, 1998 in connection with the STSP, of which $2.6 million
remains unpaid.
In 1998, the Company paid $10.0 million to the Eagle-Picher Management
Trust ("E-P Management Trust") for the benefit of certain executive officers of
the Company. The $10.0 million payment was effectively used to acquire certain
restricted stock of Granaria Industries B.V. which was later exchanged for
common stock of the Company. Certain of the shares of the Company held by the
E-P Management Trust have been allocated to certain members of senior management
of the Company. The Company also reimbursed the holders of the shares for their
tax obligations associated with receipt of such shares. (See Executive
Compensation - Incentive Stock Plan.) The Company has recorded compensation
expense of $12.6 million for the restricted shares and related tax
reimbursements. Granaria Holdings B.V. has elected to purchase the shares of the
Company which were forfeited by former members of management for $.7 million.
This amount is due the Company at November 30, 1998.
The Subsidiary entered into employment agreements with six executive
officers ("Employment Agreements") which became effective November 29, 1996.
Each was amended in August 1997. The purpose of the Employment Agreements was to
provide the Subsidiary with continuity of management following its emergence
from bankruptcy. (See Executive Compensation -- Employment Agreements;
Severance.) Three of the six executive officers of the Company have received
severance benefits pursuant to the Employment Agreements. These payments, as
well as payments to another former officer, aggregated $6.0 million.
79
<PAGE> 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<C> <S> <C>
(a) 1. All Financial Statements:
-- Financial Statements -- Included in Item 8 in this Report
-- Independent Auditors' Report -- Included in Item 8 in this
Report
2. Financial Statement Schedules
-- None
3. Exhibits (numbers keyed to Item 601, Regulation S-K)
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. (the "Subsidiary")(1)
2.2 -- Exhibits to Third Amended Plan of Reorganization of the
Subsidiary(1)
3.1 -- Articles of Incorporation of the Subsidiary, as amended(1)
3.2 -- Regulations of the Subsidiary(1)
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc.(1)
3.4 -- Bylaws of Eagle-Picher Holdings, Inc.(1)
4.1 -- Indenture, dated as of February 24, 1998, between E-P
Acquisition, Inc., Eagle-Picher Holdings, Inc. 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")(1)
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(1)
4.3 -- First Supplemental Indenture dated as of February 24, 1998,
between the Subsidiary and the Trustee(1)
4.4 -- Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)(1)
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(1)
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(1)
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4%
Exchange Debentures Due 2008 of the Company(1)
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(1)
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(1)
9.1 -- Voting Trust Agreement dated November 16, 1998 with owners
of Class A (Voting) Common Stock of the Parent
10.1 -- Merger Agreement, dated as of December 23, 1997, among the
Subsidiary, the Eagle-Picher Industries, Inc. Personal
Injury Settlement Trust, Eagle-Picher Holdings, Inc. and E-P
Acquisition, Inc.(1)
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of
February 23, 1998, among the Subsidiary, the Eagle-Picher
Industries, Inc. Personal Injury Settlement Trust,
Eagle-Picher Holdings, Inc. and E-P Acquisition, Inc.(1)
10.3 -- Supplemental Executive Retirement Plan of the Subsidiary(2)
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc. the Subsidiary, Eagle-Picher Holdings, SBC
Warburg Dillon Read and ABN AMRO Incorporated(1)
</TABLE>
80
<PAGE> 81
<TABLE>
<C> <S> <C>
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between the Subsidiary and the
Subsidiary Guarantors(1)
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, SBC Warburg Dillon Read and
ABN AMRO Incorporated(1)
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of the Subsidiary(1)
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into the Subsidiary),
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(1)
10.9 -- Assumption Agreement dated as of February 24, 1998, between
the Subsidiary and the Agent(1)
10.10 -- Security Agreement, dated as of February 24, 1998, among the
Subsidiary, the Agent and the Domestic Subsidiaries(1)
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between Eagle-Picher Holdings, Inc. and the Agent(1)
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among the Subsidiary, E-P Development,
E-P Minerals and the Agent(1)
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by Eagle-Picher Holdings, Inc., accepted and agreed by the
Agent(1)
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24,
1998, by the Domestic Subsidiaries, accepted and agreed by
the Agent(1)
10.15 -- Trademark Collateral Agreement, dated February 24, 1998,
between the Subsidiary and the Agent(1)
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between the Subsidiary and the Agent(1)
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between the Subsidiary and the Agent(1)
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., the Subsidiary and the Domestic
Subsidiaries(2)
10.19 -- Management Agreement dated as of February 24, 1998 between
the Subsidiary and Granaria Holdings B.V.(1)
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")(2)
10.21 -- Incentive Stock Plan of Eagle-Picher Industries, Inc.,
effective as of February 25, 1998(2)
10.22 -- Employment Agreements dated November 29, 1996 between
Registrant and each Named Executive Officer as defined in
the Subsidiary's Form S-4 filed in 1998, as amended (Messrs.
Petry, Ruijssenaars, Hall, Wickens, Curless and Ralston)(2)
10.23 -- Amendments dated August 5, 1997 to Employment Agreements
between the Subsidiary and each Named Executive Officer as
defined in the Subsidiary's Form S-4(2)
10.24 -- Sales Incentive Program of the Subsidiary(2)
10.25 -- Letter Agreements dated August 5, 1997 between the
Subsidiary and each Named Executive Officer as defined in
the Subsidiary's Form S-4 regarding Short Term Sale
Program(2)
10.26 -- Letter Agreement dated September 12, 1997 between the
Subsidiary and Carroll D. Curless regarding Sale Incentive
Bonus(2)
10.27 -- Letter Agreements dated February 18, 1998 between the
Subsidiary and each Named Executive Officer as defined in
the Subsidiary's Form S-4 regarding Short Term Sale
Program(2)
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments
to the Short Term Sale Program(2)
10.29 -- Preferred Stock Purchase Agreement, dated February 19, 1998,
between the Company and the initial purchasers(1)
10.30 -- Preferred Stock Registration Rights Agreement, dated as of
February 24, 1998, between the Company and the initial
purchasers(1)
10.31 -- Transfer Agency Agreement, dated, dated as of February 24,
1998, between the Company and The Bank of New York, as
Transfer Agent(2)
</TABLE>
81
<PAGE> 82
<TABLE>
<C> <S> <C>
10.32 -- Eagle-Picher Holdings, Inc. Incentive Stock Plan for Outside Directors effective January 1, 1999
10.33 -- Amended and Restated Incentive Stock Plan for Eagle-Picher Industries, Inc. (the "Subsidiary")
10.34 -- Second Amended and Restated Incentive Stock Plan for Eagle-Picher Industries, Inc. (the
"Subsidiary")
10.35 -- Shareholders Agreement dated October 15, 1998 among Granaria Holdings B.V., Granaria Industries
B.V., Eagle-Picher Holdings, Inc. and Eagle-Picher Industries, Inc. (the "Subsidiary")
21.1 -- Subsidiaries of Eagle-Picher Industries, Inc.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of KPMG LLP
27.1 -- Financial Data Schedule (submitted electronically to the SEC for its information)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Form S-4 Registration Statement
No. 333-49957 filed on April 11, 1998.
(2) Incorporated by reference to the Company's Amendment No. 1 to Form S-4
Registration Statement No. 333-49957 filed on May 20, 1998.
(3) Incorporated by reference to the Company's Amendment No. 2 to Form S-4
Registration Statement No. 333-49957 filed on June 5, 1998.
- ---------------
<TABLE>
<C> <S> <C>
(b) 1. Reports on Form 8-K
-- None filed in the Company's fourth quarter for the period
covered by the report.
</TABLE>
82
<PAGE> 83
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER HOLDINGS, INC.
/s/ ANDRIES RUIJSSENAARS
By:
--------------------------------------
Andries Ruijssenaars
President and Chief Executive
Officer
Date: February 25, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ ANDRIES RUIJSSENAARS Date: February 25, 1999
- -----------------------------------------------------------
Andries Ruijssenaars, President,
Chief Executive Officer and Director
/s/ CARROLL D. CURLESS Date: February 25, 1999
- -----------------------------------------------------------
Carroll D. Curless, Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOEL P. WYLER Date: February 25, 1999
- -----------------------------------------------------------
Joel P. Wyler, Director and
Chairman of the Board
/s/ THOMAS E. PETRY Date: March 1, 1999
- -----------------------------------------------------------
Thomas E. Petry, Director
</TABLE>
83
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. (the "Subsidiary")*
2.2 -- Exhibits to Third Amended Plan of Reorganization of the
Subsidiary*
3.1 -- Articles of Incorporation of the Subsidiary, as amended*
3.2 -- Regulations of the Subsidiary*
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc.*
3.4 -- Bylaws of Eagle-Picher Holdings, Inc.*
4.1 -- Indenture, dated as of February 24, 1998, between E-P
Acquisition, Inc., Eagle-Picher Holdings, Inc. 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")*
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 the Subsidiary and the Trustee*
4.4 -- Form of Global Note (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*
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4%
Exchange Debentures Due 2008 of the Company*
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*
9.1 -- Voting Trust Agreement dated November 16, 1998 with owners
of Class A (Voting) Common Stock of the Parent
10.1 -- Merger Agreement, dated as of December 23, 1997, among the
Subsidiary, 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 the Subsidiary, 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 the Subsidiary*
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc. the Subsidiary, Eagle-Picher Holdings, SBC
Warburg Dillon Read and ABN AMRO Incorporated*
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between the Subsidiary and the
Subsidiary Guarantors*
</TABLE>
84
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, SBC Warburg Dillon Read and
ABN AMRO Incorporated*
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of the Subsidiary*
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into the Subsidiary),
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
the Subsidiary and the Agent*
10.10 -- Security Agreement, dated as of February 24, 1998, among the
Subsidiary, the Agent and the Domestic Subsidiaries*
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between Eagle-Picher Holdings, Inc. and the Agent*
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among the Subsidiary, E-P Development,
E-P Minerals and the Agent*
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by Eagle-Picher Holdings, Inc., 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 the Subsidiary and the Agent*
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between the Subsidiary and the Agent*
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between the Subsidiary and the Agent*
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., the Subsidiary and the Domestic
Subsidiaries*
10.19 -- Management Agreement dated as of February 24, 1998 between
the Subsidiary 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
Registrant and each Named Executive Officer as defined in
the Subsidiary's Form S-4 filed in 1998, as amended (Messrs.
Petry, Ruijssenaars, Hall, Wickens, Curless and Ralston)*
10.23 -- Amendments dated August 5, 1997 to Employment Agreements
between the Subsidiary and each Named Executive Officer as
defined in the Subsidiary's Form S-4*
10.24 -- Sales Incentive Program of the Subsidiary*
10.25 -- Letter Agreements dated August 5, 1997 between the
Subsidiary and each Named Executive Officer as defined in
the Subsidiary's Form S-4 regarding Short Term Sale Program*
10.26 -- Letter Agreement dated September 12, 1997 between the
Subsidiary and Carroll D. Curless regarding Sale Incentive
Bonus*
10.27 -- Letter Agreements dated February 18, 1998 between the
Subsidiary and each Named Executive Officer as defined in
the Subsidiary's Form S-4 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 the Company and the initial purchasers*
</TABLE>
85
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
10.30 -- Preferred Stock Registration Rights Agreement, dated as of
February 24, 1998, between the Company and the initial
purchasers*
10.31 -- Transfer Agency Agreement, dated, dated as of February 24,
1998, between the Company and The Bank of New York, as
Transfer Agent*
10.32 -- Eagle-Picher Holdings, Inc. Incentive Stock Plan for Outside
Directors effective January 1, 1999
10.33 -- Amended and Restated Incentive Stock Plan for Eagle-Picher
Industries, Inc. (the "Subsidiary")
10.34 -- Second Amended and Restated Incentive Stock Plan for
Eagle-Picher Industries, Inc. (the "Subsidiary")
10.35 -- Shareholders Agreement dated October 15, 1998 among Granaria
Holdings B.V., Granaria Industries B.V., Eagle-Picher
Holdings, Inc. and Eagle-Picher Industries, Inc. (the
"Subsidiary")
21.1 -- Subsidiaries of Eagle-Picher Industries, Inc.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of KPMG LLP
27.1 -- Financial Data Schedule (submitted electronically to the SEC
for its information)
</TABLE>
- ---------------
* Incorporated by reference. See Item 14 above.
86
<PAGE> 1
EXHIBIT 9.1
VOTING TRUST AGREEMENT, dated as of November 16, 1998, by and
among each of the persons designated as a Shareholder on the
signature pages of this Agreement (each a "Shareholder" and
collectively, the "Shareholders") and Granaria Holdings B.V.,
a Dutch corporation, as trustee (the "Trustee").
The Shareholders are respectively owners of shares of the
Class A (Voting) Common Stock, par value $0.01 per share (the "Common Stock"),
of Eagle-Picher Holdings, Inc., a Delaware corporation (the "Company") in the
amount set forth by their signature below.
With a view to the safe and competent management of the
Company in the interests of the Shareholders, and as contemplated by the
Shareholders' Agreement, dated October 15, 1998 (the "Shareholders' Agreement"),
the Shareholders desire to create this Voting Trust.
The Shareholders agree as follows:
1. TRANSFER OF STOCK TO TRUSTEE. Each of the Shareholders
assigns and delivers to the Trustee any certificate held by such Shareholder
representing shares of Common Stock owned by such Shareholder and shall do all
things necessary for the transfer of shares of Common Stock to the Trustee on
the books of the Company.
2. TRUSTEE TO HOLD SUBJECT TO AGREEMENT. The Trustee shall
hold the said shares of Common Stock so transferred to them for the common
benefit of the Shareholders, under the terms and conditions hereinafter set
forth.
3. ISSUANCE OF STOCK CERTIFICATES TO TRUSTEE. The Trustee
shall surrender to the proper officers of the Company for cancellation of all
certificates of Common Stock which shall be assigned and delivered to it as
hereinafter provided, and in their stead shall procure a new certificate(s)
issued to it as Trustee under this Agreement.
4. VOTING TRUST CERTIFICATES. The Trustee shall issue to each
of the Shareholders a Voting Trust Certificate for the number of shares
represented by the certificates of Common Stock by such Shareholder transferred
to the Trustee. Each such Voting Trust Certificate shall state that it is issued
under the Agreement, and shall set forth the nature and proportional amount of
the beneficial interest thereunder of the person to whom it is issued, and shall
be assignable, subject to the provisions of the Shareholders' Agreement, in the
manner of certificates of stock on books to be kept by the Trustee. The Trustee
shall keep a list of the shares of the Trust transferred to them, and shall also
keep a record of all Voting Trust Certificates issued or transferred on its
books, which records shall contain the names of the Voting Trust Certificate
holders and the number of shares of Common Stock represented by each such
certificate. Such list and record shall be open at all reasonable times to the
inspection upon the books of the Trustee by any Voting Trust Certificate holder.
<PAGE> 2
The Voting Trust Certificate shall be substantially in the
following form:
VOTING TRUST CERTIFICATE
This is to certify that the undersigned Trustee has received a
certificate or certificates issued in the name of _______________________,
evidencing the ownership of _______ shares of Class A Common Stock of
Eagle-Picher Holdings, Inc., a Delaware corporation (the "Company"), and that
such shares are held subject to all the terms and conditions of the Voting Trust
Agreement, dated as of November 16, 1998, by and between Granaria Industries
B.V., as Trustee, and certain shareholders of the Company. During the term of
the voting trust, the Trustee, or its successors, shall, as provided in said
agreement, possess and be entitled to exercise the voting power and otherwise
represent all of the said shares for all purposes, being agreed that no voting
right shall pass to the holder hereof by virtue of the ownership of this
certificate.
Upon the termination of said voting trust, this certificate shall
be surrendered to the Trustee by the holder hereof upon delivery to such holder
of a stock certificate representing a like number of shares.
The undersigned Trustee has executed this certificate as of the ___
day of __________________, ____.
GRANARIA HOLDINGS, B.V., Trustee
By: ________________________________
5. RESTRICTION ON TRANSFER. Each of the beneficiaries agrees
that during the term of this Agreement, the Voting Trust Certificates held by
them will not be sold or transferred except in accordance with the terms and
conditions of the Shareholders' Agreement, so long as such Agreement remains in
effect. The Voting Trust Certificates shall be regarded as stock of the Company,
within the meaning of any provision of the By-laws or other agreement (including
the Shareholders' Agreement) of the Company imposing conditions and restrictions
upon the sale of stock of the Company.
6. VOTING. It shall be the duty of the Trustee, and it shall
have full power and authority, and is hereby fully empowered and authorized, to
represent the holders of such Voting Trust Certificates and the Common Stock
transferred to the Trustee as aforesaid, and to vote upon said stock, as in the
judgment of the Trustee may be for the best interest of the Company, at all
meetings of the Shareholders of the Company, in the election of Directors and
upon any and all matters in question, which may be brought before such meetings,
as fully as any Shareholder might do if personally present.
7. LIABILITY. The Trustee shall use its business judgment in
voting upon the stock transferred to it, but shall not be liable for any vote
cast, or consent given, by it in the absence of gross negligence, bad faith,
self-dealing or willful misconduct.
8. DIVIDENDS. The Trustee shall collect and receive all
dividends that may accrue
2
<PAGE> 3
upon the shares of Common Stock subject to this Trust, and shall divide the same
among the Voting Trust Certificate holders in proportion to the number of shares
respectively represented by their Voting Trust Certificates.
9. INDEMNITY. The Trustee shall be entitled to be indemnified
fully against all costs, charges, expenses and other liabilities properly
incurred by it in the exercise of any power conferred upon it by this Agreement;
and the Shareholders, and each of them hereby covenant with the Trustee that in
the event of the monies and securities in its hands being insufficient for that
purpose, the Shareholders and each of them will in proportion to the amount of
their respective shares and interests hold harmless and keep indemnified the
Trustee of and from all loss or damage which it may sustain or be put to by
reason of anything it may lawfully and in accordance with this Agreement do in
the execution of this Trust.
10. VACANCIES. In the event of the Trustee's resigning or
refusing or becoming unable to act, the Trustee shall appoint a Trustee or
Trustees to fill the vacancy or vacancies, and any person so appointed shall
thereupon be vested with all the duties, powers and authority of a Trustee
hereunder as if originally named herein. Prior to the commencement of its
duties, each original Trustee and each Trustee subsequently appointed shall sign
a copy of the Shareholders' Agreement, relating to the shares of the Company and
shall thus signify his consent to be bound thereby and his agreement to perform
the terms thereof. All of the terms, provisions and conditions of the
Shareholders' Agreement shall apply to all Trustees hereof and hereunder with
the same force and effect as if such Trustee had originally signed said
Shareholders' Agreement.
11. CONTINUANCE AND TERMINATION OF TRUST. The Trust hereby
created shall be continued until the later of Ninety-Nine (99) years from the
date hereof or such other term as the Committee of the Second Amended and
Restated Incentive Stock Plan of Eagle-Picher Industries, Inc., as amended,
shall determine, and shall then terminate, provided that this Voting Trust
Agreement shall terminate upon the occurrence of the events for termination set
forth in the Shareholders' Agreement. Upon termination of the Trust, the Trustee
shall, upon surrender of the Voting Trust Certificates by the respective holders
thereof, assign and transfer to them the number of shares thereby represented.
12. LEGEND. All Voting Trust Certificates issued by the
Trustee hereunder shall have endorsed thereon a statement that they are held in
accordance with and subject to the terms of the Shareholders' Agreement.
13. MISCELLANEOUS. (a) This Voting Trust Agreement is entered
into in accordance with the Shareholders' Agreement. In the event of a conflict
in the provisions of said Shareholders' Agreement, the provisions of said
Shareholders' Agreement shall prevail.
(b) An executed copy of this Agreement shall be filed with the
Secretary of the Company. The Shareholders shall cause the Company to furnish
free of charge to any shareholder thereof a copy of this Agreement upon written
request.
(c) Any and all notices, designations, consents, offers,
acceptances or any other communication provided for herein shall be made by hand
delivery, first-class mail (registered or
3
<PAGE> 4
certified, return receipt requested), or overnight air courier guaranteeing next
day delivery to the address set forth on the signature page hereof. Any
Shareholder may change the address listed in the foregoing sentence by giving
written notice to the Company and the other Shareholders. Except as otherwise
provided in this Agreement, each such notice shall be deemed effective at the
time delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; and the next business day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
(d) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(e) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF OHIO WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
(f) This Agreement shall be binding upon and shall inure to
the benefit of each of the Shareholders and their respective executors,
administrators and personal representatives and heirs and assigns.
IN WITNESS WHEREOF, the Shareholders and the Trustee have duly
executed this Agreement.
TRUSTEE:
--------
Granaria Holdings B.V.
By:
----------------------------------------
Name:
Title:
SHAREHOLDERS:
-------------
--------------------------------------------
(Signature)
Name:
--------------------------------------
Address:
-----------------------------------
-----------------------------------
Shares:
----------------------
4
<PAGE> 1
EXHIBIT 10.32
EAGLE-PICHER HOLDINGS, INC.
INCENTIVE STOCK PLAN FOR
OUTSIDE DIRECTORS
Section 1. Purpose. The Plan is intended to further the attainment of
the profit and growth objectives of Eagle-Picher Holdings, Inc. and to
facilitate the recruiting and retaining of highly qualified directors by
providing stock-based incentive to outside directors. The Plan is not intended
to be an "employee pension benefit plan" within the meaning of Section 3 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Section 2. Definitions. As used herein, the following terms shall have
the following meanings:
(a) "Affiliate" means any entity if, (i) the Company, directly or
indirectly, owns at least 50% of the combined voting power of all classes of
stock of such entity or at least 50% of the ownership interests in such entity,
(ii) such entity, directly or indirectly, owns at least 50% of the combined
voting power of all classes of stock of the Company, or (iii) such entity is at
least 50% owned (directly or indirectly) by one or more entities described in
(i) or (ii) above.
(b) "Agreed Share Price" means a U.S. Dollar cash price per share of
Restricted Stock equal to the quotient of (A the excess of (1) the sum of 6.54
times EBITDA for the Company's and the Company's Subsidiaries most recently
ended fiscal year prior to the closing of a purchase and sale plus cash and cash
equivalents of the Company and the Company's Subsidiaries (but only to the
extent the total of such cash and cash equivalents exceeds $15 million) over (2)
the principal amount of outstanding debt of Holdings and its Subsidiaries owing
to banks, or owing with respect to securities issued by Holdings or by any
Subsidiary of Holdings and the aggregate liquidation preference of all
outstanding preferred stock issued by Holdings, in each case as of the Company's
and the Company's Subsidiaries most recently ended fiscal year prior to the
closing of a purchase and sale, divided by (B) the total number of outstanding
shares of all classes of common stock of Holdings. The calculation of Agreed
Share Price shall be as of the Company's and the Company's Subsidiaries' most
recently ended fiscal year.
(c) "Award Date" of Units is the date the Committee establishes for an
award of Units to a Participant.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the Participant's rights under
the Plan upon the Participant's death, or, if there is no such designation or no
such designated person survives the Participant, then the person, persons, trust
or trusts entitled by will or applicable law to receive such rights or, if no
such person has such right then the Participant's executor or administrator.
(e) "Change of Control Date" shall mean the date as of which (i) any
person who as of February 25, 1998 did not beneficially own, directly or
indirectly, voting stock of the Company shall acquire (including by purchase or
merger) direct or indirect beneficial ownership of more
<PAGE> 2
than 50% of the voting stock of the Company (or any successor of the Company) or
(ii) substantially all of the assets of the Company are sold, disposed of or
liquidated.
(f) "Committee" shall mean the committee described in Section 3.
(g) "Company" shall mean Eagle-Picher Industries, Inc., an Ohio
corporation, or any successor corporation.
(h) "EBITDA" (except to the extent modified according to Section 3(c)
if applicable) shall have the meaning such term has in the Credit Agreement
among E-P Acquisition, Inc., various lenders, and ABN AMRO Bank N.V. as Agent,
dated February 19, 1998.
(i) "Holdings" shall mean Eagle-Picher Holdings, Inc., a Delaware
corporation, or any successor corporation.
(j) "Incapacitated" shall mean permanently and totally disabled within
the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.
(k) "Participant" shall mean any person who holds Units and/or
Restricted Stock under the Plan.
(l) "Plan" shall mean this Incentive Stock Plan for Outside Directors
in its entirety, including any amendments, rules and regulations adopted
pursuant hereto.
(m) "Restricted Stock" means non-voting certificates of beneficial
ownership in a voting trust established under Delaware law for the purpose of
holding shares of Class A common stock of Holdings. A share of Restricted Stock
is an amount of Restricted Stock that represents a beneficial ownership interest
in the voting trust corresponding to one share of Class A common stock of
Holdings.
(n) "Subsidiary" of any person shall mean any entity in which the
person owns, directly or indirectly, at least 50% of the combined voting power
of all classes of stock in such entity or at least 50% of the ownership
interests in such entity.
(o) "Trust" shall mean the Eagle-Picher Management Trust established
under a trust agreement dated February 17, 1998, with Thomas E. Petry, Joel P.
Wyler and Andries Ruijssenaars as Trustees.
(p) "Unit" shall mean a unit representing the right, subject to the
provisions of the Plan, to receive from the Trust one share of Restricted Stock,
which right has been awarded to a Participant by the Committee pursuant to the
Plan.
-2-
<PAGE> 3
Section 3. Administration.
(a) The Committee shall be composed of three individuals each of whom
shall continue to serve until he resigns, dies or is Incapacitated. Initially,
the members of the Committee shall be Thomas E. Petry, Joel P. Wyler and Andries
Ruijssenaars, each of whom shall continue to serve until he resigns, dies or is
Incapacitated. In the event that either Mr. Petry or Mr. Ruijssenaars shall
resign, die or be Incapacitated, the remaining members of the Committee shall
appoint his successor. In the event that Mr. Wyler shall resign, die, or be
Incapacitated, his successor shall be appointed by Granaria Industries B.V.
(b) The Plan shall be administered by and in the sole discretion of the
Committee which, by vote of a majority of the members, but only if Mr. Wyler (or
his successor appointed by Granaria Industries B.V.) is included in the
majority, may establish such rules and regulations as it deems necessary, make
amendments consistent with Section 11(d), make adjustments in the calculation of
EBITDA pursuant to Section 3(c), appoint successor Trustees (except as provided
in the last sentence of paragraph (a)), interpret the Plan and otherwise make
all determinations and take such action in connection with the Plan as it deems
appropriate.
(c) From time to time, the Committee in its sole discretion may make
adjustments in the Company's consolidated earnings derived from operations
before interest, taxes, depreciation and amortization determined in accordance
with GAAP for purposes of calculating EDITDA so that changes in accounting
principles; extraordinary or unusual charges or credits; acquisitions, mergers,
consolidations, and other corporate transactions; and other elements or factors
influencing calculation of EBITDA do not distort or affect the operation of the
Plan in a manner inconsistent with the achievement of its purposes.
(d) The decisions of the Committee shall be final, conclusive, and
binding upon all parties. In administering the Plan, the Committee may employ
accountants and counsel (who may be the independent auditors and outside counsel
for the Company or Holdings) and other persons to assist or render advice to it,
all at the expense of the Company.
Section 4. Eligibility.
The Committee shall designate those persons who shall be Participants
and shall award Units to each Participant.
Section 5. Vesting. The Committee, in its sole discretion, shall
determine the dates on which Units awarded to a Participant shall vest. In the
event that a Participant ceases to be a director of Holdings and the Company for
any reason other than by reason of death or being Incapacitated, any of the
Participant's Units that have not yet vested as of the date of such cessation
shall be immediately forfeited and cancelled without necessity of further action
and the shares of Restricted Stock that would have been delivered with respect
thereto shall be transferred to Granaria Holdings B.V. The Units of a
Participant who dies or is Incapacitated while a director of Holdings and the
Company shall be immediately 100% vested as of the date of death or incapacity.
The Units of a Participant who is a director of Holdings or the Company on any
Change of Control Date shall be immediately 100% vested as of the Change of
Control Date. At
-3-
<PAGE> 4
any time, the Committee may accelerate the vesting schedule applicable to a
particular Participant by notifying the Participant in writing.
Section 6. Number of Units. The total number of Units issued under the
Plan shall be equal to the total number of shares of Class A common stock of
Holdings allocated to the Plan by the Committee of the Second Amended And
Restated Incentive Stock Plan Of Eagle-Picher Industries, Inc.
Section 7. Payout of Units. Upon the earlier of the date as of which a
Participant has become 100% vested in all his or her awarded Units or the date
as of which the Participant forfeited Units pursuant to Section 5, the Trustees
shall transfer to the Participant or, if the Participant has died, to his or her
Beneficiary, a number of shares of Restricted Stock equal to the number of the
Participant's Units that have vested. The right of a Participant to receive
Restricted Stock pursuant to the preceding sentence shall be conditioned on the
Participant's execution of the Shareholders' Agreement attached hereto as
Exhibit A and the Voting Trust Agreement attached hereto as Exhibit B. A
Participant shall be deemed a Senior Manager under the Shareholders' Agreement.
Section 8. Dividends.
(a) In the event that the Trust receives a dividend paid with respect
to Restricted Stock, the Trustees shall pay to each Participant an amount that
bears the same ratio to the aggregate dividend received by the Trust that the
number of vested Units awarded to the Participant bears to the total number of
shares of Restricted Stock held by the Trust on which dividends were paid.
(b) At the time the Trustees transfer Restricted Stock to a Participant
or Beneficiary, the Trustees shall also transfer to the Participant or
Beneficiary cash equal to the aggregate amount of dividends received by the
Trust on such an amount of Restricted Stock less the amount of dividends
previously distributed to the Participant and his Beneficiary pursuant to
paragraph (a).
Section 9. Designation of Beneficiaries.
(a) Each Participant shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon his death. A Participant
may, from time to time, revoke or change his Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt.
(b) If the Committee is in doubt as to the right of any person to
receive such amount, the Committee may retain such amount, without liability for
any interest thereon, until the rights thereon are determined, or the Committee
may pay such amount into any court of appropriate
-4-
<PAGE> 5
jurisdiction and such payment shall be a complete discharge of the liability of
the Plan, Holdings, the Company, the Trustees and the Committee therefor.
Section 10. Miscellaneous.
(a) The Plan, the awarding of Units thereunder, the issuance and
delivery of shares of Restricted Stock with respect to Units and the other
obligations of Holdings, the Company and the Trustees under the Plan, shall be
subject to all applicable federal, state, and local laws, rules and regulations,
and to such approvals by any regulatory or governmental agency as may be
required. The Trustees, in their discretion, may postpone the issuance and
delivery of shares of Restricted Stock with respect to Units until completion of
such stock exchange listing or registration or qualification of such stock or
securities or other required action under any state, federal or Dutch law, rule
or regulation as the Trustees may consider appropriate, and may require any
Participant or Beneficiary to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of stock or securities in compliance with applicable laws, rules and
regulations.
(b) Nothing in the Plan shall confer upon any Participant the right to
continue as a director of Holdings, the Company, or any Affiliate, as the case
may be, or to be entitled to any remuneration or benefits not set forth in the
Plan or to interfere with or limit in any way the right of Holdings, the Company
or any Affiliate to terminate such Participant's directorship.
(c) Holdings, the Company or any Affiliate and the Trustees are
authorized to withhold from any payment of cash or issuance of shares of
Restricted Stock with respect to Units under the Plan, amounts of withholding
and other taxes as may be required to be withheld under applicable laws or
regulations in connection with any transaction under the Plan, and to take such
other action as the Committee may deem advisable to enable Holdings or the
Company to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Unit or shares of Restricted Stock. This
authority shall include authority to withhold or receive shares of Restricted
Stock or other securities or other property and to make cash payments in respect
thereof in satisfaction of a Participant's tax obligations. Each Participant
shall be responsible for any tax liability incurred by him or her as a result of
the award of Units or receipt of Restricted Stock.
(d) The Committee may at any time and from time to time alter, amend,
suspend, or terminate the Plan in whole or in part. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant without such Participant's consent.
(e) Except as provided in Section 4, no person shall have any claim to
Units under the Plan. Except as provided specifically herein, Participants shall
have no rights as a stockholder with respect to any shares of Restricted Stock
until the date of the issuance of certificates to such Participants for such
shares of Restricted Stock. The Plan is for the benefit of the Participants and
their Beneficiaries and not for the benefit of any other person.
-5-
<PAGE> 6
(f) No interest in the Trust or the Units shall be subject in any
manner to anticipation, alienation, pledge, transfer, or assignment, except by
will or by the laws of descent and distribution or with the written consent of
the Trustees and the Committee and any attempt to so anticipate, alienate,
pledge, transfer, or assign shall be void and the interest of the Participant
shall be forfeited.
(g) Awards and payouts of Units or Restricted Stock will not be
considered as compensation for the purpose of computing employee contributions
or benefits under any other Company benefit plan.
(h) In the event that a Participant breaches any fiduciary duty to
Holdings, the Company or any of their Affiliates, then any rights of the
Participant under the Plan shall immediately terminate, any Units of the
Participant, whether or not vested, shall be forfeited and cancelled, and the
Participant shall return to Holdings any cash, Restricted Stock or property
received by him or her under the Plan. The Committee may waive the provisions of
this paragraph (h) if it determines in its sole discretion that such action is
in the best interests of the Company.
(i) Any payment by Holdings that is to be made in cash shall be from
the general funds of Holdings. No special or separate fund shall be established
or other segregation of assets made to assure any cash payment by the Company
under the Plan.
(j) No Participant or other person shall have under any circumstances
any interest whatever in any particular property or assets of Holdings, the
Company or any of their Affiliates.
(k) This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Ohio without giving effect
to the conflicts of law principles thereof.
Section 11. Effective Date. This Plan shall be effective as of January
1, 1999.
END OF DOCUMENT
<PAGE> 1
EXHIBIT 10.33
AMENDED AND RESTATED
INCENTIVE STOCK PLAN OF
EAGLE-PICHER INDUSTRIES, INC.
Section 1. Purpose. The Plan is intended to further the attainment of
the profit and growth objectives of Eagle-Picher Industries, Inc. (the
"Company") by providing incentive to those key executives whose management and
individual performance have a direct impact on achieving those objectives. The
Plan also is expected to encourage the continued employment of the Company's key
executives and to facilitate the recruiting of executive personnel in the
future. The Plan is not intended to be an "employee pension benefit plan" within
the meaning of Section 3 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
Section 2. Definitions. As used herein, the following terms shall have
the following meanings:
(a) "Affiliate" means any entity if, (i) the Company, directly or
indirectly, owns at least 50% of the combined voting power of all classes of
stock of such entity or at least 50% of the ownership interests in such entity,
(ii) such entity, directly or indirectly, owns at least 50% of the combined
voting power of all classes of stock of the Company, or (iii) such entity is at
least 50% owned (directly or indirectly) by one or more entities described in
(i) or (ii) above.
(b) "Agreed Share Price" means a U.S. Dollar cash price per share of
Restricted Stock equal to the quotient of (A) the product of (i) the excess of
(1) the sum of 6.54 times EBITDA for the Company's and the Company's
Subsidiaries most recently ended fiscal year prior to the closing of a purchase
and sale plus cash and cash equivalents of the Company and the Company's
Subsidiaries (but only to the extent the total of such cash and cash equivalents
exceeds $15 million) over (2) the principal amount of outstanding debt of the
Parent and its Subsidiaries owing to banks, or owing with respect to securities
issued by the Parent or by any Subsidiary of the Parent and the aggregate
liquidation preference of all outstanding preferred stock issued by the Parent,
in each case as of the Company's and the Company's Subsidiaries most recently
ended fiscal year prior to the closing of a purchase and sale (or as of February
25, 1998 for fiscal year 1998), and (ii) 10 percent; divided by (B) 1600. The
calculation of Agreed Share Price shall be as of the Company's and the Company's
Subsidiaries' most recently ended fiscal year.
(c) "Award Date" of Units is the date the Committee resolves in writing
to award the Units to a Participant.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the Participant's rights under
the Plan upon the Participant's death, or, if there is no such designation or no
such designated person survives the Participant, then the person, persons, trust
or trusts entitled by will or applicable law to receive such rights or, if no
such person has such right then the Participant's executor or administrator.
<PAGE> 2
(e) "Change of Control Date" shall mean the date as of which (i) any
person who as of February 25, 1998 does not beneficially own, directly or
indirectly, voting stock of the Company shall acquire (including by purchase or
merger) direct or indirect beneficial ownership of more than 50% of the voting
stock of the Company (or any successor of the Company) or (ii) substantially all
of the assets of the Company are sold, disposed of or liquidated.
(f) "Committee" shall mean the committee described in Section 3.
(g) "Company" shall mean Eagle-Picher Industries, Inc., or any
successor corporation.
(h) "EBITDA" (except to the extent modified according to Section 3(c)
if applicable) shall have the meaning such term has in the Credit Agreement
among E-P Acquisition, Inc., various lenders, and ABN AMRO Bank N.V. as Agent,
dated February 19, 1998.
(i) "Incapacitated" shall mean permanently and totally disabled within
the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.
(j) "Issuer" shall mean Granaria Industries B.V., a Dutch corporation.
(k) "Parent" shall mean Eagle-Picher Holdings, Inc.
(l) "Participant" shall mean any person who holds Units and/or
Restricted Stock under the Plan or the Incentive Stock Plan of the Company.
(m) "Plan" shall mean this Amended and Restated Incentive Stock Plan in
its entirety, including any amendments, rules and regulations adopted pursuant
hereto.
(n) "Restricted Stock" means non-voting certificates of beneficial
ownership ("certificaten van aandalen") in a voting trust ("stichting
administratie kantoor") established under Dutch law for the purpose of holding
Class B shares of the Issuer (or a successor voting trust established with
respect to shares received in exchange for Class B Shares of the Issuer). A
share of Restricted Stock is an amount of Restricted Stock that represents a
beneficial ownership interest in the voting trust corresponding to one Class B
share of the Issuer (or shares received in exchange for one Class B Share of the
Issuer).
(o) "Subsidiary" of any person shall mean any entity in which the
person owns, directly or indirectly, at least 50% of the combined voting power
of all classes of stock in such entity or at least 50% of the ownership
interests in such entity.
(p) "Trust" shall mean the Eagle-Picher Management Trust established
under a trust agreement dated February 17, 1998, with Thomas E. Petry, Joel P.
Wyler and Andries Ruijssenaars as Trustees.
(q) "Unit" shall mean a unit representing the right, subject to the
provisions of the Plan, to receive from the Trust one share of Restricted Stock,
which right has been awarded to a Participant by the Committee pursuant to the
Plan.
-2-
<PAGE> 3
Section 3. Administration.
(a) The Committee shall be composed of three individuals each of whom
shall continue to serve until he resigns, dies or is Incapacitated. Initially,
the members of the Committee shall be Thomas E. Petry, Joel P. Wyler and Andries
Ruijssenaars, each of whom shall continue to serve until he resigns, dies or is
Incapacitated. In the event that either Mr. Petry or Mr. Ruijssenaars shall
resign, die or be Incapacitated, the remaining members of the Committee shall
appoint his successor. In the event that Mr. Wyler shall resign, die, or be
Incapacitated, his successor shall be appointed by the Issuer.
(b) The Plan shall be administered by and in the sole discretion of the
Committee which, by vote of a majority of the members, but only if Mr. Wyler (or
his successor appointed by the Issuer) is included in the majority, may
establish such rules and regulations as it deems necessary, make amendments
consistent with Section 11(d), make adjustments in the calculation of EBITDA
pursuant to Section 3(c), appoint successor Trustees (except as provided in the
last sentence of paragraph (a)), interpret the Plan and otherwise make all
determinations and take such action in connection with the Plan as it deems
appropriate. It is intended that the total number of Units awarded under the
Plan shall be not less than 1600; no member of the Committee shall exercise his
power to vote against the awarding of Units for the sole purpose of preventing
the eventual award of a total of 1600 Units.
(c) From time to time, the Committee in its sole discretion may make
adjustments in the Company's consolidated earnings derived from operations
before interest, taxes, depreciation and amortization determined in accordance
with GAAP for purposes of calculating EDITDA so that changes in accounting
principles; extraordinary or unusual charges or credits; acquisitions, mergers,
consolidations, and other corporate transactions; and other elements or factors
influencing calculation of EBITDA do not distort or affect the operation of the
Plan in a manner inconsistent with the achievement of its purposes.
(d) The decisions of the Committee shall be final, conclusive, and
binding upon all parties. In administering the Plan, the Committee may employ
accountants and counsel (who may be the independent auditors and outside counsel
for the Company or Issuer) and other persons to assist or render advice to it,
all at the expense of the Company or Issuer
Section 4. Eligibility.
(a) The Committee shall designate those persons who shall be
Participants and shall award Units to each Participant. Upon designating a
Participant, the Committee shall classify the Participant for purposes of the
Plan as either a Senior Officer or as a Senior Manager.
(b) The Committee shall record the designation and classification of a
Participant and the award of Units, in writing and shall notify the affected
Participant of such designation and award in writing. The Committee may at any
time increase the number of Units awarded to a Participant.
-3-
<PAGE> 4
Section 5. Vesting. One half of a Senior Officer's Units will vest on
each of the 30th day after the Award Date of the Units and October 15, 1998. One
fourth of a Senior Manager's Units will vest on the 30th day after the Award
Date, and three fourths of a Senior Manager's Units will vest on October 15,
1998. In the event that a Participant ceases to be an employee of the Company
and any Affiliate for any reason other than by reason of death or being
Incapacitated, any of the Participant's Units that have not yet vested as of the
date of such termination of his employment shall be forfeited and cancelled. By
written notice to the Participant at the time he is notified of the award, the
Committee may determine to apply a different vesting schedule to the Units
awarded. The Units of a Participant who dies or is Incapacitated while employed
by the Company or any Affiliate shall be immediately 100% vested as of the date
of death or incapacity. The Units of a Participant who is employed by the
Company or any Affiliate on any Change of Control Date shall be immediately 100%
vested as of the Change of Control Date. At any time, the Committee may
accelerate the vesting schedule applicable to a particular Participant by
notifying the Participant in writing. In the event that a Participant is awarded
Units after the Effective Date, the Committee, in its sole discretion, shall
determine the dates on which such Units shall vest.
Section 6. The Trust. The Issuer has established the Trust for the
benefit of the Participants. Upon adoption of this Plan by the Board of
Directors of the Company, the Company shall transfer to the Trust not less than
$10 million to fund the Trust's purchase of Restricted Stock from the Issuer and
the Trust's expenses related to such purchase.
Section 7. Payout of Units. Upon the earlier of the date as of which a
Participant has become 100% vested in all his awarded Units or the date as of
which the Participant forfeited Units pursuant to Section 5, the Trustees shall
transfer to the Participant or, if the Participant has died, to his Beneficiary,
a number of shares of Restricted Stock equal to the number of the Participant's
Units that have vested. The right of a Participant to receive Restricted Stock
pursuant to the preceding sentence shall be conditioned on the Participant's
execution of the Shareholders' Agreement attached hereto as Exhibit A.
Section 8. Dividends.
(a) In the event that the Trust receives a dividend paid with respect
to Restricted Stock, the Trustees shall pay to each Participant an amount that
bears the same ratio to the aggregate dividend received by the Trust that the
number of vested Units awarded to the Participant bears to the total number of
shares of Restricted Stock held by the Trust on which dividends were paid.
(b) At the time the Trustees transfer Restricted Stock to a Participant
or Beneficiary, the Trustees shall also transfer to the Participant or
Beneficiary cash equal to the aggregate amount of dividends received by the
Trust on such an amount of Restricted Stock less the amount of dividends
previously distributed to the Participant and his Beneficiary pursuant to
paragraph (a).
-4-
<PAGE> 5
Section 9. Designation of Beneficiaries.
(a) Each Participant shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon his death. A Participant
may, from time to time, revoke or change his Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt.
(b) If the Committee is in doubt as to the right of any person to
receive such amount, the Committee may retain such amount, without liability for
any interest thereon, until the rights thereon are determined, or the Committee
may pay such amount into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of the Plan, the Company, the
Issuer, the Trustees and the Committee therefor.
Section 10. Tax Reimbursement. At the time any Units awarded to a
Participant become vested, the Company or any Subsidiary shall reimburse the
Participant (in the amount required in the judgment of professional tax advisors
to the Committee) to equal the aggregate income tax liability of the Participant
with respect to the sum of the fair market value of newly vested Units and the
amount of such reimbursement. In their discretion, the Committee or its
professional tax advisors may consult with the Participant or the Participant's
tax advisor. The Company shall indemnify a Participant for any income taxes
imposed on the Participant with respect to both the vesting of Units and any
payment under this Section 10 (including an indemnity payment pursuant to this
sentence). The Company shall make no reimbursement pursuant to this Section 10
either (i) in respect of any income tax liability resulting from a Participant's
election under Section 83(b) of the Internal Revenue Code of 1986, as amended,
or (ii) for taxes resulting from the Participant's transfer of Units or an
interest in Restricted Stock to any person.
Section 11. Miscellaneous.
(a) The Plan, the awarding of Units thereunder, the issuance and
delivery of shares of Restricted Stock with respect to Units and the other
obligations of the Company, the Trustees and the Issuer under the Plan, shall be
subject to all applicable federal, state, and Dutch laws, rules and regulations,
and to such approvals by any regulatory or governmental agency as may be
required. The Trustees, in their discretion, may postpone the issuance and
delivery of shares of Restricted Stock with respect to Units until completion of
such stock exchange listing or registration or qualification of such stock or
securities or other required action under any state, federal or Dutch law, rule
or regulation as the Trustees may consider appropriate, and may require any
Participant or Beneficiary to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of stock or securities in compliance with applicable laws, rules and
regulations.
-5-
<PAGE> 6
(b) Nothing in the Plan shall confer upon any Participant the right to
continue in the employ of, or to continue as a director of the Company, or any
Affiliate, as the case may be, or to be entitled to any remuneration or benefits
not set forth in the Plan or to interfere with or limit in any way the right of
the Company or any Affiliate to terminate such Participant's employment or
directorship.
(c) The Company or any Affiliate and the Trustees are authorized to
withhold from any payment of cash or issuance of shares of Restricted Stock with
respect to Units under the Plan, amounts of withholding and other taxes due in
connection with any transaction under the Plan, and to take such other action as
the Committee may deem advisable to enable the Company and a Participant to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Unit or shares of Restricted Stock. This authority
shall include authority to withhold or receive shares of Restricted Stock or
other securities or other property and to make cash payments in respect thereof
in satisfaction of a Participant's tax obligations.
(d) The Committee may at any time and from time to time alter, amend,
suspend, or terminate the Plan in whole or in part. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant without such Participant's consent. Without limiting the generality
of the foregoing, at any time after of payment of Units pursuant to Section 7,
the Committee may cause the Class B Shares to be exchanged for non-voting shares
of common stock of Parent, provided that such shares in the aggregate represent
the same indirect proportional ownership in the Company as the Class B Shares
represent on the date hereof. In such event, the term "Restricted Stock" shall
refer to non-voting certificates of beneficial ownership in a voting trust
established under Delaware law for the purpose of holding the non-voting common
stock of Parent received in exchange for the Class B Shares.
(e) Except as provided in Section 4, no person shall have any claim to
Units under the Plan. Except as provided specifically herein, Participants shall
have no rights as a stockholder with respect to any shares of Restricted Stock
until the date of the issuance of certificates to such Participants for such
shares of Restricted Stock. The Plan is for the benefit of the Participants and
their Beneficiaries and not for the benefit of any other person.
(f) No interest in the Trust or the Units shall be subject in any
manner to anticipation, alienation, pledge, transfer, or assignment, except by
will or by the laws of descent and distribution or with the written consent of
the Trustees and the Committee and any attempt to so anticipate, alienate,
pledge, transfer, or assign shall be void and the interest of the Participant
shall be forfeited.
(g) Neither the granting of, nor any payout of Restricted Stock with
respect to, any award of Units under the Plan shall limit a Participant's right
to receive, or to be eligible for, any other compensation or benefits from the
Company.
(h) Awards and payouts of Units will not be considered as compensation
for the purpose of computing employee contributions or benefits under the
Company's retirement, pension, thrift, group life insurance or other employee
benefit plan.
-6-
<PAGE> 7
(i) In the event that a Participant violates the terms of any covenant
regarding confidentiality, return of property, soliciting customer accounts,
doing business with customers, non-competition, or soliciting or hiring of
employees of the Company or its Affiliates that is contained in any written
employment agreement as in effect at the time of such violation, then any rights
of the Participant under the Plan shall immediately terminate, any Units of the
Participant, whether or not vested, shall be cancelled, and the Participant
shall return to the Company any cash, Restricted Stock or property received by
him under the Plan. The Committee may waive the provisions of this paragraph (i)
if it determines in its sole discretion that such action is in the best
interests of the Company.
(j) The Company or any Affiliate shall have the right to set off any
amounts owed by a Participant to the Company or any Affiliate against any amount
payable by the Company or any Affiliate to the Participant, including, without
limitation, salary, benefits or other amounts.
(k) Any payment by the Company that is to be made in cash shall be from
the general funds of the Company. No special or separate fund shall be
established or other segregation of assets made to assure any cash payment by
the Company under the Plan.
(l) No Participant or other person shall have under any circumstances
any interest whatever in any particular property or assets of the Company.
(m) This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Ohio without giving effect
to the conflicts of law principles thereof.
(n) This Plan amends and restates the original Incentive Stock Plan of
the Company in its entirety.
Section 12. Effective Date. This Plan shall be effective as of October
15, 1998 and shall amend and restate the Incentive Stock Plan of Eagle-Picher
Industries, Inc. (the "Original Plan") in its entirety, provided that the
Committee may void this Plan (thereby reinstating the Original Plan) if all
participants under the Original Plan do not consent to the adoption of this
Plan.
END OF DOCUMENT
-7-
<PAGE> 1
EXHIBIT 10.34
SECOND AMENDED AND RESTATED
INCENTIVE STOCK PLAN OF
EAGLE-PICHER INDUSTRIES, INC.
Section 1. Purpose. The Plan is intended to further the attainment of
the profit and growth objectives of Eagle-Picher Industries, Inc. (the
"Company") by providing incentive to those key executives whose management and
individual performance have a direct impact on achieving those objectives. The
Plan also is expected to encourage the continued employment of the Company's key
executives and to facilitate the recruiting of executive personnel in the
future. The Plan is not intended to be an "employee pension benefit plan" within
the meaning of Section 3 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
Section 2. Definitions. As used herein, the following terms shall have
the following meanings:
(a) "Affiliate" means any entity if, (i) the Company, directly or
indirectly, owns at least 50% of the combined voting power of all classes of
stock of such entity or at least 50% of the ownership interests in such entity,
(ii) such entity, directly or indirectly, owns at least 50% of the combined
voting power of all classes of stock of the Company, or (iii) such entity is at
least 50% owned (directly or indirectly) by one or more entities described in
(i) or (ii) above.
(b) "Agreed Share Price" means a U.S. Dollar cash price per share of
Restricted Stock equal to the quotient of (A the excess of (1) the sum of 6.54
times EBITDA for the Company's and the Company's Subsidiaries most recently
ended fiscal year prior to the closing of a purchase and sale plus cash and cash
equivalents of the Company and the Company's Subsidiaries (but only to the
extent the total of such cash and cash equivalents exceeds $15 million) over (2)
the principal amount of outstanding debt of the Parent and its Subsidiaries
owing to banks, or owing with respect to securities issued by the Parent or by
any Subsidiary of the Parent and the aggregate liquidation preference of all
outstanding preferred stock issued by the Parent, in each case as of the
Company's and the Company's Subsidiaries most recently ended fiscal year prior
to the closing of a purchase and sale (or as of February 25, 1998 for fiscal
year 1998), divided by (B) the total number of outstanding shares of all classes
of common stock of Eagle-Picher Holdings, Inc., a Delaware corporation. The
calculation of Agreed Share Price shall be as of the Company's and the Company's
Subsidiaries' most recently ended fiscal year.
(c) "Award Date" of Units is the date the Committee resolves in writing
to award the Units to a Participant.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the Participant's rights under
the Plan upon the Participant's death, or, if there is no such designation or no
such designated person survives the Participant, then the person, persons, trust
or trusts entitled by will or applicable law to receive such rights or, if no
such person has such right then the Participant's executor or administrator.
<PAGE> 2
(e) "Change of Control Date" shall mean the date as of which (i) any
person who as of February 25, 1998 does not beneficially own, directly or
indirectly, voting stock of the Company shall acquire (including by purchase or
merger) direct or indirect beneficial ownership of more than 50% of the voting
stock of the Company (or any successor of the Company) or (ii) substantially all
of the assets of the Company are sold, disposed of or liquidated.
(f) "Committee" shall mean the committee described in Section 3.
(g) "Company" shall mean Eagle-Picher Industries, Inc., or any
successor corporation.
(h) "EBITDA" (except to the extent modified according to Section 3(c)
if applicable) shall have the meaning such term has in the Credit Agreement
among E-P Acquisition, Inc., various lenders, and ABN AMRO Bank N.V. as Agent,
dated February 19, 1998.
(i) "Incapacitated" shall mean permanently and totally disabled within
the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.
(j) "Issuer" shall mean Granaria Industries B.V., a Dutch corporation.
(k) "Parent" shall mean Eagle-Picher Holdings, Inc.
(l) "Participant" shall mean any person who holds Units and/or
Restricted Stock under the Plan or the Incentive Stock Plan of the Company.
(m) "Plan" shall mean this Second Amended and Restated Incentive Stock
Plan in its entirety, including any amendments, rules and regulations adopted
pursuant hereto.
(n) "Restricted Stock" means non-voting certificates of beneficial
ownership in a voting trust established under Delaware law for the purpose of
holding shares of Class A common stock of the Parent. A share of Restricted
Stock is an amount of Restricted Stock that represents a beneficial ownership
interest in the voting trust corresponding to one share of Class A common stock
of the Parent.
(o) "Subsidiary" of any person shall mean any entity in which the
person owns, directly or indirectly, at least 50% of the combined voting power
of all classes of stock in such entity or at least 50% of the ownership
interests in such entity.
(p) "Trust" shall mean the Eagle-Picher Management Trust established
under a trust agreement dated February 17, 1998, with Thomas E. Petry, Joel P.
Wyler and Andries Ruijssenaars as Trustees.
(q) "Unit" shall mean a unit representing the right, subject to the
provisions of the Plan, to receive from the Trust one share of Restricted Stock,
which right has been awarded to a Participant by the Committee pursuant to the
Plan.
-2-
<PAGE> 3
Section 3. Administration.
(a) The Committee shall be composed of three individuals each of whom
shall continue to serve until he resigns, dies or is Incapacitated. Initially,
the members of the Committee shall be Thomas E. Petry, Joel P. Wyler and Andries
Ruijssenaars, each of whom shall continue to serve until he resigns, dies or is
Incapacitated. In the event that either Mr. Petry or Mr. Ruijssenaars shall
resign, die or be Incapacitated, the remaining members of the Committee shall
appoint his successor. In the event that Mr. Wyler shall resign, die, or be
Incapacitated, his successor shall be appointed by the Issuer.
(b) The Plan shall be administered by and in the sole discretion of the
Committee which, by vote of a majority of the members, but only if Mr. Wyler (or
his successor appointed by the Issuer) is included in the majority, may
establish such rules and regulations as it deems necessary, make amendments
consistent with Section 11(d), make adjustments in the calculation of EBITDA
pursuant to Section 3(c), appoint successor Trustees (except as provided in the
last sentence of paragraph (a)), interpret the Plan and otherwise make all
determinations and take such action in connection with the Plan as it deems
appropriate. It is intended that the total number of Units awarded under the
Plan shall be not less than 100,000; no member of the Committee shall exercise
his power to vote against the awarding of Units for the sole purpose of
preventing the eventual award of a total of 100,000 Units.
(c) From time to time, the Committee in its sole discretion may make
adjustments in the Company's consolidated earnings derived from operations
before interest, taxes, depreciation and amortization determined in accordance
with GAAP for purposes of calculating EDITDA so that changes in accounting
principles; extraordinary or unusual charges or credits; acquisitions, mergers,
consolidations, and other corporate transactions; and other elements or factors
influencing calculation of EBITDA do not distort or affect the operation of the
Plan in a manner inconsistent with the achievement of its purposes.
(d) The decisions of the Committee shall be final, conclusive, and
binding upon all parties. In administering the Plan, the Committee may employ
accountants and counsel (who may be the independent auditors and outside counsel
for the Company or Issuer) and other persons to assist or render advice to it,
all at the expense of the Company or Issuer
Section 4. Eligibility.
(a) The Committee shall designate those persons who shall be
Participants and shall award Units to each Participant. Upon designating a
Participant, the Committee shall classify the Participant for purposes of the
Plan as either a Senior Officer or as a Senior Manager.
(b) The Committee shall record the designation and classification of a
Participant and the award of Units, in writing and shall notify the affected
Participant of such designation and award in writing. The Committee may at any
time increase the number of Units awarded to a Participant.
-3-
<PAGE> 4
Section 5. Vesting. One half of a Senior Officer's Units will vest on
each of the 30th day after the Award Date of the Units and October 15, 1998. One
fourth of a Senior Manager's Units will vest on the 30th day after the Award
Date, and three fourths of a Senior Manager's Units will vest on October 15,
1998. In the event that a Participant ceases to be an employee of the Company
and any Affiliate for any reason other than by reason of death or being
Incapacitated, any of the Participant's Units that have not yet vested as of the
date of such termination of his employment shall be forfeited and immediately
transferred to Granaria Holdings B.V. By written notice to the Participant at
the time he is notified of the award, the Committee may determine to apply a
different vesting schedule to the Units awarded. The Units of a Participant who
dies or is Incapacitated while employed by the Company or any Affiliate shall be
immediately 100% vested as of the date of death or incapacity. The Units of a
Participant who is employed by the Company or any Affiliate on any Change of
Control Date shall be immediately 100% vested as of the Change of Control Date.
At any time, the Committee may accelerate the vesting schedule applicable to a
particular Participant by notifying the Participant in writing. In the event
that a Participant is awarded Units after the Effective Date, the Committee, in
its sole discretion, shall determine the dates on which such Units shall vest.
Section 6. The Trust. The Issuer has established the Trust for the
benefit of the Participants. Following adoption of this Plan by the Board of
Directors of the Company, the Company transferred to the Trust not less than $10
million to fund the Trust's purchase of Class B shares from the Issuer and the
Trust's expenses related to such purchase. Such Class B shares were subsequently
exchanged for shares of Class A common stock of the Parent.
Section 7. Payout of Units. Upon the earlier of the date as of which a
Participant has become 100% vested in all his awarded Units or the date as of
which the Participant forfeited Units pursuant to Section 5, the Trustees shall
transfer to the Participant or, if the Participant has died, to his Beneficiary,
a number of shares of Restricted Stock equal to the number of the Participant's
Units that have vested. The right of a Participant to receive Restricted Stock
pursuant to the preceding sentence shall be conditioned on the Participant's
execution of the Shareholders' Agreement attached hereto as Exhibit A and the
Voting Trust Agreement attached hereto as Exhibit B.
Section 8. Dividends.
(a) In the event that the Trust receives a dividend paid with respect
to Restricted Stock, the Trustees shall pay to each Participant an amount that
bears the same ratio to the aggregate dividend received by the Trust that the
number of vested Units awarded to the Participant bears to the total number of
shares of Restricted Stock held by the Trust on which dividends were paid.
(b) At the time the Trustees transfer Restricted Stock to a Participant
or Beneficiary, the Trustees shall also transfer to the Participant or
Beneficiary cash equal to the aggregate amount of dividends received by the
Trust on such an amount of Restricted Stock less the amount of dividends
previously distributed to the Participant and his Beneficiary pursuant to
paragraph (a).
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<PAGE> 5
Section 9. Designation of Beneficiaries.
(a) Each Participant shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon his death. A Participant
may, from time to time, revoke or change his Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt.
(b) If the Committee is in doubt as to the right of any person to
receive such amount, the Committee may retain such amount, without liability for
any interest thereon, until the rights thereon are determined, or the Committee
may pay such amount into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of the Plan, the Company, the
Issuer, the Trustees and the Committee therefor.
Section 10. Tax Reimbursement. At the time any Units awarded to a
Participant become vested, the Company or any Subsidiary shall reimburse the
Participant (in the amount required in the judgment of professional tax advisors
to the Committee) to equal the aggregate income tax liability of the Participant
with respect to the sum of the fair market value of newly vested Units and the
amount of such reimbursement. In their discretion, the Committee or its
professional tax advisors may consult with the Participant or the Participant's
tax advisor. The Company shall indemnify a Participant for any income taxes
imposed on the Participant with respect to the vesting of Units, any exchange of
shares of the Issuer for Restricted Stock and any payment under this Section 10
(including an indemnity payment pursuant to this sentence). The Company shall
make no reimbursement pursuant to this Section 10 either (i) in respect of any
income tax liability resulting from a Participant's election under Section 83(b)
of the Internal Revenue Code of 1986, as amended, or (ii) for taxes resulting
from the Participant's transfer of Units or an interest in Restricted Stock to
any person.
Section 11. Miscellaneous.
(a) The Plan, the awarding of Units thereunder, the issuance and
delivery of shares of Restricted Stock with respect to Units and the other
obligations of the Company, the Trustees and the Issuer under the Plan, shall be
subject to all applicable federal, state, and Dutch laws, rules and regulations,
and to such approvals by any regulatory or governmental agency as may be
required. The Trustees, in their discretion, may postpone the issuance and
delivery of shares of Restricted Stock with respect to Units until completion of
such stock exchange listing or registration or qualification of such stock or
securities or other required action under any state, federal or Dutch law, rule
or regulation as the Trustees may consider appropriate, and may require any
Participant or Beneficiary to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of stock or securities in compliance with applicable laws, rules and
regulations.
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<PAGE> 6
(b) Nothing in the Plan shall confer upon any Participant the right to
continue in the employ of, or to continue as a director of the Company, or any
Affiliate, as the case may be, or to be entitled to any remuneration or benefits
not set forth in the Plan or to interfere with or limit in any way the right of
the Company or any Affiliate to terminate such Participant's employment or
directorship.
(c) The Company or any Affiliate and the Trustees are authorized to
withhold from any payment of cash or issuance of shares of Restricted Stock with
respect to Units under the Plan, amounts of withholding and other taxes due in
connection with any transaction under the Plan, and to take such other action as
the Committee may deem advisable to enable the Company and a Participant to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Unit or shares of Restricted Stock. This authority
shall include authority to withhold or receive shares of Restricted Stock or
other securities or other property and to make cash payments in respect thereof
in satisfaction of a Participant's tax obligations.
(d) The Committee may at any time and from time to time alter, amend,
suspend, or terminate the Plan in whole or in part. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant without such Participant's consent.
(e) Except as provided in Section 4, no person shall have any claim to
Units under the Plan. Except as provided specifically herein, Participants shall
have no rights as a stockholder with respect to any shares of Restricted Stock
until the date of the issuance of certificates to such Participants for such
shares of Restricted Stock. The Plan is for the benefit of the Participants and
their Beneficiaries and not for the benefit of any other person.
(f) No interest in the Trust or the Units shall be subject in any
manner to anticipation, alienation, pledge, transfer, or assignment, except by
will or by the laws of descent and distribution or with the written consent of
the Trustees and the Committee and any attempt to so anticipate, alienate,
pledge, transfer, or assign shall be void and the interest of the Participant
shall be forfeited.
(g) Neither the granting of, nor any payout of Restricted Stock with
respect to, any award of Units under the Plan shall limit a Participant's right
to receive, or to be eligible for, any other compensation or benefits from the
Company.
(h) Awards and payouts of Units will not be considered as compensation
for the purpose of computing employee contributions or benefits under the
Company's retirement, pension, thrift, group life insurance or other employee
benefit plan.
(i) In the event that a Participant violates the terms of any covenant
regarding confidentiality, return of property, soliciting customer accounts,
doing business with customers, non-competition, or soliciting or hiring of
employees of the Company or its Affiliates that is contained in any written
employment agreement as in effect at the time of such violation, then any rights
of the Participant under the Plan shall immediately terminate, any Units of the
Participant, whether or not vested, shall be cancelled, and the Participant
shall return to the Company any cash, Restricted Stock or property received by
him under the Plan. The Committee may waive
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<PAGE> 7
the provisions of this paragraph (i) if it determines in its sole discretion
that such action is in the best interests of the Company.
(j) The Company or any Affiliate shall have the right to set off any
amounts owed by a Participant to the Company or any Affiliate against any amount
payable by the Company or any Affiliate to the Participant, including, without
limitation, salary, benefits or other amounts.
(k) Any payment by the Company that is to be made in cash shall be from
the general funds of the Company. No special or separate fund shall be
established or other segregation of assets made to assure any cash payment by
the Company under the Plan.
(l) No Participant or other person shall have under any circumstances
any interest whatever in any particular property or assets of the Company.
(m) This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Ohio without giving effect
to the conflicts of law principles thereof.
(n) This Plan amends and restates the Amended and Restated Incentive
Stock Plan of the Company in its entirety.
Section 12. Effective Date. This Plan shall be effective as of November
15, 1998 and shall amend and restate the Amended and Restated Incentive Stock
Plan of Eagle-Picher Industries, Inc. in its entirety.
END OF DOCUMENT
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<PAGE> 1
EXHIBIT 10.35
SHAREHOLDERS' AGREEMENT, dated as of October 15, 1998 (the
"Agreement"), among Granaria Holdings B.V., a Dutch
corporation ("Holdings"), Granaria Industries B.V., a Dutch
corporation ("Issuer"), Eagle-Picher Holdings, Inc., a
Delaware corporation ("Parent"), Eagle-Picher Industries,
Inc., an Ohio corporation (the "Company"), and each of the
persons designated as a Shareholder on the signature pages of
this Agreement and any subsequent holder of Restricted Stock
of the Issuer who shall become a signatory to this Agreement
(collectively, the "Shareholders").
Introduction
------------
In connection with the acquisition of the Company by the
Issuer, the Company adopted the Incentive Stock Plan of Eagle-Picher Industries,
Inc. (the "Plan").
Pursuant to the Plan, the Company transferred US$10 million to
the Eagle-Picher Management Trust (the "Trust") to fund its purchase of
non-voting certificates of beneficial ownership ("Restricted Stock") in a voting
trust established under Dutch law. Such voting trust was established for the
purpose of holding Class B shares of the Issuer (the "Class B Shares").
In accordance with the Plan, the Committee (as defined in the
Plan) granted units (the "Units") to certain Senior Officers (each, a "Senior
Officer") and Senior Managers (each, a "Senior Manager"). Each Unit represents
the right to receive from the Trust one share of Restricted Stock.
Pursuant to the Plan, each Shareholder will receive a
specified amount of Restricted Stock upon vesting of the Units, provided such
Shareholder enters into this Agreement.
As of the date of this Agreement, the Plan was amended and
restated (the "Amended Plan") to modify, among other things, the vesting of the
Units.
In consideration of the premises and of the mutual covenants
and obligations hereunder set forth, the parties agree as follows:
Section 1. DESIGNATION OF CUSTODIAN. Each Shareholder hereby
designates Granaria Industries to act as custodian of such Shareholder's shares
of Restricted Stock and to take physical possession of shares of Restricted
Stock at the time of the transfer of such shares to a Participant.
Section 2. VOTING TRUST. Each Shareholder hereby acknowledges
that the shares of Restricted Stock are non-voting certificates of beneficial
ownership ("certificaten van aandalen") in a voting trust ("stichting
administratie kantoor") established under Dutch law for purposes of holding
Class B Shares of the Issuer (or a successor voting trust established with
respect to shares received in exchange for Class B shares of the Issuer). Each
Shareholder further
<PAGE> 2
acknowledges that each share of Restricted Stock represents a beneficial
ownership interest in the voting trust corresponding to one Class B Share of the
Issuer (or shares received in exchange for one Class B Share of the Issuer).
Section 3. TRANSFER RESTRICTIONS. (a) Except as otherwise
provided in Sections 3(b), 4, 5, 6, 7 and 8 of this Agreement, no Shareholder
shall transfer, sell, assign, pledge, hypothecate or otherwise dispose (each, a
"Transfer") of any shares of Restricted Stock at any time. No Transfer of shares
in violation hereof shall be made or recorded on the books of the Company and
any such Transfer shall be void and of no effect.
(b) A Shareholder may Transfer his shares of Restricted Stock:
(i) to (A) the spouse, parents, siblings and lineal
descendants of such Shareholder, (B) a trust for the benefit
of any of the foregoing, (C) any corporation (other than the
Company) or partnership controlled by such Shareholder,
members of such Shareholder's immediate family and lineal
descendants or trusts for the benefit of any of the foregoing
and (D) upon the death of the Shareholder, the Shareholder's
estate, executors, administrators and personal
representatives, and heirs, legatees and distributees;
(ii) if such Shareholder has attained the age of 62;
(iii) if such Shareholder is a Senior Manager who has
held the Units and the associated Restricted Stock for an
aggregate period of not less than 10 years from the Award
Date; or
(iv) in the event of an Initial Public Offering.
(c) Any Transfer pursuant to Section 3(b) shall not be
effective until such time as the transferee has agreed in writing to be bound by
and to comply with all provisions of this Agreement.
Section 4. "COME ALONG" OBLIGATION. (a) Each Shareholder
shall, if requested by Holdings at any time, transfer for value a pro rata
portion of such Shareholder's shares of capital stock to any other person (the
"Proposed Buyer") in the manner set forth in this Section 4 in connection with
the transfer by Holdings of any of its shares of capital stock.
(b) If Holdings elects to exercise its rights under this
Section 4, it shall deliver a notice (the "Come Along Notice") to the
Shareholders. The Come Along Notice shall set forth the principal terms of the
proposed transfer insofar as it relates to the Common Stock or Class B Stock, as
the case may be, including the number of shares of capital stock to be
transferred, the transfer price, the form of consideration, the name and address
of the proposed transferee and the other principal terms of the proposed
transaction (the "Come Along Sale").
(c) Each Shareholder shall be bound and obligated to transfer
his or its Class B Shares in the Come Along Sale on the same terms and
conditions, including price per share (on a proportional basis), as Holdings
transfers its capital stock (including an agreement containing customary
representations, warranties and indemnities with respect to their ownership of
the
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<PAGE> 3
shares), provided, however, that if the purchaser is an Affiliate, then the
terms and conditions, including price, shall be at least as favorable as could
be obtained in an arms'-length transaction with an unaffiliated third party. The
amount of capital stock to be transferred by a Shareholder shall be determined
on a pro rata basis according to the proportion which the number of shares which
Holdings intends to transfer in such Come Along Sale bears to the total number
of shares held by such Shareholder. Each Shareholder shall also take such
actions and execute such documents and instruments as shall be necessary or
desirable in order to consummate the Come Along Sale expeditiously and on the
same terms as Holdings transfers its Capital Stock. On or before the date
selected by Holdings for consummation of the proposed Come Along Sale, each
Shareholder shall instruct the custodian to deliver the shares of capital stock
to be transferred by such Shareholder, duly endorsed for transfer with signature
guaranteed, free and clear of any claims, with any stock transfer tax stamps
affixed, against delivery of the applicable purchase price.
(d) If more than 120 days elapse from the giving of the Come
Along Notice without the consummation of the Come Along Sale, the Shareholders
shall be released from their obligation under such Come Along Notice, and it
shall be necessary for a separate Come Along Notice to be furnished, and the
terms and provisions of this Section 4 separately complied with, in order to
consummate a Come Along Sale pursuant to this Section 4.
Section 5. RIGHT OF FIRST REFUSAL. (a) If, at any time, a
Shareholder is able to transfer its shares of Restricted Stock pursuant to this
Agreement and prior to an Initial Public Offering, a Shareholder receives a bona
fide offer (the "Offer") to purchase any or all of his shares of Restricted
Stock from a third party (the "Offeror") which such Shareholder wishes to
accept, the Shareholder shall cause the Offer to be reduced to writing and shall
notify Holdings and the Company in writing of such Shareholder's wish to accept
such Offer. Such notice shall contain an irrevocable offer to sell such shares
of Restricted Stock to the Company (in the manner set forth below) at a purchase
price equal to the price contained in, and on the same terms and conditions of,
the Offer, and shall be accompanied by a true copy of the Offer (which shall
identify the Offeror). During the period 30 days (and, if the Offer includes
consideration other than cash, such additional number of days, if any, necessary
to determine the equivalent all cash price pursuant to clause (ii) below) after
the date of the receipt by Holdings of the Shareholder's notice (the "Option
Period"), Holdings (or any of its designees) shall have the right and option to
purchase, or to arrange for a third party to purchase, all of the shares of
Restricted Stock covered by the Offer either (i) at the same price and on the
same terms and conditions as the Offer or (ii) if the Offer includes any
consideration other than cash, then at the sole option of Holdings, at the
equivalent all cash price (which shall be mutually agreed upon by the parties
pursuant to good faith negotiations between the parties within 10 business days
after the receipt of such notice or, if the parties cannot so agree within such
10 business day period, determined by an investment banking firm of national
reputation mutually and reasonably acceptable to, and promptly selected by, the
parties). If such option to purchase is exercised by Holdings, a certified bank
check or checks in the appropriate amount shall be delivered to the Shareholder
at the principal office of the Company against delivery of certificates or other
instruments representing the shares of Restricted Stock so purchased,
appropriately endorsed by the Shareholder.
(b) If at the end of the Option Period, Holdings has not
tendered the purchase price for such shares in the manner set forth above, the
Shareholder may during the succeeding 90
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<PAGE> 4
day period sell not less than all of the shares of Restricted Stock covered by
the Offer to the Offeror at a price and on terms no less favorable to the
Shareholder than those contained in the Offer. No sale may be made to any
Offeror unless the Offeror agrees in a writing satisfactory to the Company to be
bound by and to comply with the provisions of this Agreement. Promptly after
such sale, the Shareholder shall notify the Company of the consummation thereof
and shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the Company. If,
at the end of 90 days following the expiration of the Option Period, the
Shareholder has not completed the sale of such shares of Restricted Stock as
aforesaid, all the restrictions on sale, transfer or assignment contained in
this Agreement shall again be in effect with respect to such shares of
Restricted Stock.
Section 6. SHAREHOLDERS' PUT RIGHTS. (a) At any time prior to
an Initial Public Offering, each Affected Shareholder shall have the right, in
its sole discretion and on one occasion, to sell to the Company, and the Company
shall be required to purchase (the "Put Right"), from such Affected Shareholder
all or part of the shares of Restricted Stock then held by such Shareholder at a
price per share equal to the Agreed Share Price (as defined in the Amended
Plan). If an Affected Shareholder wishes to exercise its Put Right, such
Shareholder shall send written notice of such exercise to the Company and
Holdings, at least 60 days prior to the proposed closing, which notice shall
contain the number of shares of Restricted Stock which is the subject of such
exercise. During such 60 day period, Holdings, in its sole discretion, shall
have the right to purchase from the Affected Shareholder the number of shares
subject to the Put Right at a price per share equal to the Agreed Share Price.
If Holdings does not purchase such shares, the closing of the Company's purchase
shall take place at the principal office of the Company on the 60th day after
the giving of such notice. Each Put Right shall expire and have no further force
and effect if such right is not exercised by the Affected Shareholder (by
sending a notice as provided above) within 30 days after such Affected
Shareholder receives written notice of its Put Right. An "Affected Shareholder"
shall mean: (i) a Beneficiary or Incapacitated Shareholder, (ii) a Shareholder,
who is or was employed by the Company (or its Affiliates), at the time such
Shareholder attains the age 62 and (iii) a Shareholder whose employment with the
Company (or any Affiliate) is terminated other than for cause.
(b) In addition to the Put Right provided in Section 6(a),
each Senior Manager who has held his Units and the associated Restricted Stock
for an aggregate period of not less than 10 years from the Award Date shall have
the right, in its sole discretion and at any time, to sell to the Company, and
the Company shall be required to purchase (the "Manager Put Right"), from such
Senior Manager all or part of the shares of Restricted Stock then held by such
Shareholder at a price per share equal to the Agreed Share Price (as defined in
the Amended Plan). If a Senior Manager wishes to exercise its Manager Put Right,
such Senior Manager shall send written notice of such exercise to the Company
and Holdings, at least 60 days prior to the proposed closing, which notice shall
contain the number of shares of Restricted Stock which is the subject of such
exercise. During such 60 day period, Holdings, in its sole discretion, shall
have the right to purchase from the Senior Manager the number of shares subject
to the Manager Put Right at a price per share equal to the Agreed Share Price.
If Holdings does not purchase such shares, the closing of the Company's purchase
shall take place at the principal office of the Company on the 60th day after
the giving of such notice. Each Manager Put Right shall expire and have no
further force and effect at the time when the Senior Manager becomes an Affected
Shareholder
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<PAGE> 5
(c) In addition to the Put Right provided in Section 6(a),
each Senior Officer shall have the right following the date upon which the
employee is no longer employed by the Company (the "Trigger Date"), in its sole
discretion, to sell to the Company, and the Company shall be required to
purchase (the "Special Put Right"), (i) on the third anniversary of the Trigger
Date, 50% of the shares of Restricted Stock then held by such officer; and (ii)
on the fifth anniversary of the Trigger Date, 50% of the shares of Restricted
Stock held by such officer as of the third anniversary of the Trigger Date, in
each case, at a price per share equal to the Agreed Share Price calculated at
the time of each purchase. If a Senior Officer wishes to exercise its Special
Put Right, such officer shall send written notice of such exercise to the
Company and Holdings at least 90 days prior to third anniversary and fifth
anniversary of the Trigger Date, as applicable. If a Senior Officer exercises
the Special Put Right, then during the 90 day period prior to the third
anniversary or the fifth anniversary of the Trigger Date, as applicable,
Holdings, in its sole discretion, shall have the right to purchase from the
officer the number of shares subject to the Special Put Right at a price per
share equal to the Agreed Share Price. If Holdings does not purchase such
shares, the closing of the purchase shall take place at the principal office of
the Company on the third anniversary or the fifth anniversary of the Trigger
Date, as applicable. Each Special Put Right shall expire and have no further
force and effect if such right is not exercised by the Senior Officer by sending
a notice as provided above.
Section 7. HOLDINGS' CALL RIGHTS. (a) Immediately following
the expiration of each Put Right pursuant to the terms of Section 6(a) of this
Agreement, Holdings (or its designee) shall have the right, in its sole
discretion (the "Call Right"), to purchase any or all of the shares of
Restricted Stock then held by such Affected Shareholder or its transferees, if
applicable, at a price per share equal to the Agreed Share Price. The Call Right
shall not be exercisable by Holdings if the Affected Shareholder is a Senior
Officer or a Beneficiary of a Senior Officer. If Holdings wishes to exercise its
rights under this Section 7, it shall send written notice (containing the number
of shares of Restricted Stock to be purchased) of such exercise to such Affected
Shareholder within the 30-day period following the expiration of the Affected
Shareholder's Put Right. The closing of such purchase shall occur at the
principal office of the Company 30 days after written notice is provided to the
Affected Shareholder. The Call Right shall expire and have no further force and
effect if such right is not exercised by Holdings or its designees (by sending a
notice as provided above) within the 30-day period following the expiration of
the Affected Shareholder's Put Right.
(b) In the event that a Senior Manager has held his Units and
the associated Restricted Stock for an aggregate period of not less than 10
years from the Award Date, Holdings (or its designee) shall have the right, from
time to time in its sole discretion (the "Manager Call Right"), to purchase any
or all of the shares of Restricted Stock then held by such Senior Manager or its
transferees, if applicable, at a price per share equal to the Agreed Share
Price. If Holdings wishes to exercise its rights under this Section 7, it shall
send written notice (containing the number of shares of Restricted Stock to be
purchased) of such exercise to such Senior Manager. The closing of such purchase
shall occur at the principal office of the Company 30 days after written notice
is provided to the Senior Manager. The Manager Call Right shall expire and have
no further force and effect at the time such Senior Manager becomes an Affected
Shareholder.
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<PAGE> 6
(c) On the fifth anniversary of a Senior Officer's Trigger
Date, Holdings (or its designee) shall have the right, in its sole discretion
(the "Special Call Right"), to purchase any or all of the shares of Restricted
Stock then held by such Senior Officer or its transferees, if applicable, at a
price per share equal to the Agreed Share Price. If Holdings wishes to exercise
its Special Call Right, it shall send written notice (containing the number of
shares of Restricted Stock to be purchased) of such exercise to such Senior
Officer within the 30-day period following the fifth anniversary of such Senior
Officer's Trigger Date. The closing of such purchase shall occur at the
principal office of the Company 30 days after written notice is provided to the
Senior Officer. The Special Call Right shall expire and have no further force
and effect if such right is not exercised by Holdings or its designees (by
sending a notice as provided above) within the 30-day period following the fifth
anniversary of such Senior Officer's Trigger Date.
Section 8. OPTIONAL PUT/CALL RIGHT. (a) Each Shareholder may
elect (the "Election") to have the right, exercisable after December 1, 2003 by
written notice to the Company received on or before January 31, 2004, to sell to
the Company, and the Company shall be required to purchase from such
Shareholder, at the Agreed Share Price (the "Elective Put"), (i) within 60 days
of the exercise of the Elective Put Right, 25% of the shares of Restricted Stock
then held by such Shareholder or Beneficiary, if applicable, and (ii) within 60
days of the one-year anniversary of the exercise of the Elective Put Right, an
additional 25% of the shares of Restricted Stock held by such Shareholder or
Beneficiary, if applicable, on the date of exercise. During such 60 day periods,
Holdings, in its sole discretion, shall have the right to purchase from the
Shareholder the number of shares subject to the Elective Put at a price per
share equal to the Agreed Share Price. If Holdings does not purchase such
shares, the closing of the Company's purchase shall take place at the principal
office of the Company on the 60th day after the receipt of such notice. If a
Shareholder makes an Election, then Holdings (or its designee) shall have the
right to purchase, and the Shareholder shall be required to sell to Holdings (or
its designee), up to 50% of the shares of Restricted Stock then held by such
Shareholder or his Beneficiary, if applicable, at the Agreed Share Price (the
"Elective Call"), exercisable after December 1, 2003 by written notice given on
or before December 31, 2003. If Holdings (or its designee) exercises its
Elective Call, then the Elective Put shall be void. The closing of any Elective
Call shall be at the principal office of the Company on a date selected by
Holdings on or before January 31, 2004.
(b) In order to make an Election, a Shareholder must notify
Holdings and the Company in writing prior to January 31, 1999. Such Election
shall be irrevocable and shall be binding on any transferee who subsequently
receives such Shares. If a Shareholder fails to make an Election within such
time, the Shareholder shall not be entitled to the Elective Put and shall not be
subject to the Elective Call.
Section 9. SECURITIES LAW COMPLIANCE. (a) Each Shareholder
agrees that it will not Transfer any Restricted Stock, other than pursuant to
Sections 4, 5, 6 and 8, except upon furnishing to the Company prior to any such
Transfer: (i) a written opinion of counsel (which counsel and opinion shall be
reasonably satisfactory to the Company) to the effect that the proposed Transfer
may be made without registration under the Securities Act of 1933, as amended
(the "Act"); and (ii) either (x) a written opinion of counsel (which counsel and
opinion shall be reasonably satisfactory to the Company) to the effect that the
proposed Transfer may be made without registration or qualification under
applicable state securities laws or (y) evidence
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<PAGE> 7
satisfactory to the Company that all necessary state securities law filings in
connection with the proposed Transfer have been made.
(b) Each certificate or other instrument evidencing the
securities issued upon the Transfer of any Restricted Stock (and each
certificate or other instrument evidencing any securities retained by the
transferor) shall bear the legend set forth in Section 9.
Section 10. LEGEND ON STOCK CERTIFICATES. Each certificate
representing shares of Restricted Stock shall bear the following legend, until
such time as the shares represented thereby are no longer subject to the
provisions hereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND CANNOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO REGISTRATION UNDER SAID ACT OR
IN COMPLIANCE WITH AN EXEMPTION THEREFROM AND, IN THE CASE OF
A TRANSACTION NOT SUBJECT TO SUCH REGISTRATION REQUIREMENTS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION UNDER THE ACT. ADDITIONALLY, THE SALE,
TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A SHAREHOLDERS' AGREEMENT, DATED AS OF SEPTEMBER
30, 1998, AMONG GRANARIA HOLDINGS, B.V., GRANARIA INDUSTRIES,
B.V., EAGLE-PICHER HOLDINGS, INC., EAGLE-PICHER INDUSTRIES,
INC. (THE "COMPANY") AND THE SHAREHOLDERS NAMED AS PARTIES
THERETO, AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IN CONTRAVENTION OF SUCH AGREEMENT SHALL BE VALID
OR EFFECTIVE. COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE COMPANY."
Section 11. TERMINATION. This Agreement shall terminate, and
the custodian shall distribute all shares of Restricted Stock to the
Shareholders, upon (i) an Initial Public Offering, (ii) a merger or
consolidation involving the Issuer, or (iii) a sale, lease, exchange or other
transfer of all or substantially all of the assets of the Issuer, the Parent or
the Company. In its discretion the Committee may delay distribution of
Restricted Stock for a reasonable period of time following an event described in
this Section 11.
Section 12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire
agreement
-7-
<PAGE> 8
among the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between or among any of the parties hereto.
(b) DEFINITIONS. All defined terms not defined herein
shall have the meanings ascribed to them in the Amended Plan. For purposes of
this Agreement, the following terms shall have the following meanings:
"Affiliate" shall mean any entity if, (i) the
Company, directly or indirectly, owns at least 50% of the combined
voting power of all classes of stock of such entity or at least 50% of
the ownership interests in such entity, (ii) such entity, directly or
indirectly, owns at least 50% of the combined voting power of all
classes of stock of the Company, or (iii) such entity is at least 50%
owned (directly or indirectly) by one or more entities described in (i)
or (ii) above.
"Beneficiary" shall mean the person, persons, trust
or trusts which have been designated by a Shareholder who is or was
employed by the Company (or its Affiliates) in his or her most recent
written beneficiary designation filed with the Committee to receive the
Shareholder's rights under the Amended Plan upon the such Shareholder's
death, or, if there is no such designation or no such designated person
survives the Shareholder, then the person, persons, trust or trusts
entitled by will or applicable law to receive such rights or, if no
such person has such right then the executor or administrator of the
Shareholder who is or was employed by the Company (or its Affiliates).
"Incapacitated Shareholder" shall mean a Shareholder
who is or was employed by the Company (or its Affiliates) and who is
permanently and totally disabled within the meaning of Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended.
"Initial Public Offering" shall mean the sale of (i)
the common stock of the Company or Parent if, at the time of the
offering, the shares of Restricted Stock are convertible into or
exchangeable for shares of Common Stock of the Company or Parent, as
the case may be, or (ii) the Class B Stock of the Issuer, in each case,
to the public pursuant to an effective registration statement under the
Act (or an equivalent regulatory authority) covering the offering and
sale of such shares for the Company, Parent or the Issuer, as
applicable, which shares following the offering will be listed on any
significant international stock exchange.
(c) SEVERABILITY. If any provision of this Agreement
shall be determined to be illegal and unenforceable by any court of law, the
remaining provisions shall be severable and enforceable in accordance with their
terms.
(d) HEADINGS. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(e) NOTICES. All notices or other communications
which are required or permitted hereunder shall be in writing and sufficient if
delivered personally, sent by telecopy (with confirmation of receipt) or sent by
overnight courier or registered or certified mail, postage
-8-
<PAGE> 9
prepaid, return receipt requested, addressed, (i) if to a Shareholder, to such
Shareholder's address set forth on such Shareholder's signature page hereto;
(ii) if to the Company, to Eagle-Picher Industries, Inc., 250 East Fifth Street,
Cincinnati, Ohio 45202, Attention: David G. Krall, Esq., Fax No.: (513)
629-2572; (iii) if to Holdings, to Granaria Holdings B.V., Lange Voorhout 16,
P.O. Box 233, 2501 CE The Hague, The Netherlands, Attention: Peter J. Ph.
Kortenhorst, Fax No.: 011 31 70 312 11 99; or to such other address as the party
to whom notice is to be given may have furnished to the other party in writing
in accordance herewith. If mailed as aforesaid, any such communication shall be
deemed to have been given on the third business day following that on which the
piece of mail containing such communication is posted.
(f) COUNTERPARTS. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement. From time to time additional Shareholders may become parties
to this Agreement by executing a counterpart hereof without necessity of
execution by the other parties.
(g) ASSIGNMENT. This Agreement shall not be
assignable by any party without the written consent of the other parties;
PROVIDED, HOWEVER, that the Company shall have the right to assign any or all of
its rights or obligations to purchase shares of Restricted Stock pursuant to
Sections 3, 4 and 5 hereof. Any purported assignment not permitted hereunder
shall be void.
(h) MODIFICATION. Except as otherwise provided
herein, neither this Agreement nor any provision hereof may be modified,
changed, discharged or terminated except by an instrument in writing signed by
the Holdings, the Issuer, the Company and Shareholders holding 75% or more of
the outstanding Restricted Stock held by all Shareholders. Notwithstanding the
foregoing, the Committee may cause the Class B Shares to be exchanged for
non-voting shares of common stock of Parent, provided that such shares in the
aggregate represent the same indirect proportional ownership in the Company as
the Class B Shares represent on the date hereof. In such event, the term
"Restricted Stock" shall refer to non-voting certificates of beneficial
ownership in a voting trust established under Delaware law for the purpose of
holding the non-voting common stock of Parent received in exchange for the Class
B Shares.
(i) ADDITIONAL ACTIONS. Each Shareholder agrees (i)
that the Board and officers of the Company may take any additional corporate
action necessary to make effective the provisions hereof, including (without
limitation) filing any amendments to the Company's charter and other
constitutive documents, and hereby appoints the Company's Secretary its
attorney-in-fact for the execution of all such documents, consents and approvals
and (ii) that it will vote its shares of Restricted Stock to approve any such
action.
(j) RIGHTS TO NEGOTIATE REPURCHASE PRICE. Nothing in
this Agreement shall be deemed to restrict or prohibit the Company or Holdings
(or its designees) from purchasing shares of Restricted Stock from a
Shareholder, at any time, upon such terms and conditions, and for such price, as
may be mutually agreed upon between the parties, whether or not at the time of
such purchase circumstances exist which specifically grant the Company or
-9-
<PAGE> 10
Holdings (or its designees) the right to purchase, or the Shareholder the right
to sell, shares of Restricted Stock under the terms of this Agreement.
(k) EMPLOYMENT BY THE COMPANY. Nothing contained in
this Agreement or in any other agreement entered into by the Company and the
Shareholder contemporaneously with the execution of this Agreement (i) obligates
the Company or any subsidiary of the Company to employ the Shareholder in any
capacity whatsoever or (ii) prohibits or restricts the Company (or any
subsidiary) from terminating the employment, if any, of the Shareholder at any
time or for any reason whatsoever, with or without cause, and the Shareholder
hereby acknowledges and agrees that neither the Company nor any other person has
made any representations or promises whatsoever to the Shareholder concerning
the Shareholder's employment or continued employment by the Company.
(l) REMEDIES. In the event of a breach or threatened
breach by a Shareholder of the provisions of this Agreement, the Company shall
be entitled to an injunction restraining such Shareholder from such breach or
compelling compliance with such provision. Nothing contained herein shall be
construed as prohibiting the Company or any Shareholder from pursuing any other
remedies available at law or equity for such breach or threatened breach of this
Agreement.
(m) SPECIFIC ENFORCEMENT. Each Shareholder expressly
agrees that such Shareholder and the Company will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
the terms, covenants or conditions of this Agreement by a Shareholder, the other
Shareholders and the Company shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, or a decree for specific performance, in accordance with the provisions
hereof.
(n) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT FOR THOSE MATTERS REQUIRED TO BE
GOVERNED BY THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
(o) CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF FEDERAL AND STATE COURTS OF OHIO FOR PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HERETO AGREES NOT TO
COMMENCE ANY LEGAL PROCEEDING RELATED THERETO EXCEPT IN SUCH COURT. EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING IN ANY SUCH COURT AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
-10-
<PAGE> 11
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(p) SET-OFF. The Company or any Affiliate shall have the right to
set off any amounts owed by a Shareholder to the Company or any Affiliate
against any amounts payable by the Company or any Affiliate to a Shareholder.
(q) TRANSFER DOCUMENTS. In connection with any put or call right
contained herein, a Shareholder shall deliver such instruments and documents as
may be reasonably required by the Company or Holdings or their designee, as
applicable, to transfer good title to any Restricted Shares transferred, free
and clear of any liens or encumbrances whatsoever, and shall warrant the same
and indemnify the purchaser for any breach of such warranty, as a condition to
receipt of payment therefor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written or, if such party has dated its signature, on the
date(s) set forth below.
GRANARIA HOLDINGS, B.V. GRANARIA INDUSTRIES, B.V.
By: By:
-------------------------------- ------------------------------
Name: Name:
Title: Title:
EAGLE-PICHER HOLDINGS, INC. EAGLE-PICHER INDUSTRIES, INC.
By: By:
-------------------------------- ------------------------------
Name: Name:
Title: Title:
SHAREHOLDERS:
- ----------------------------------
Signature
Name:
----------------------------
Please Print
----------------------------
Street Address
----------------------------
City, State, Zip
-11
<PAGE> 1
EXHIBIT 21.1
EAGLE-PICHER HOLDINGS, INC.
SUBSIDIARIES OF EAGLE-PICHER INDUSTRIES, INC. (THE "SUBSIDIARY")
Cincinnati Industrial Machinery Sales Company [Ohio]
Daisy Parts, Inc. [Michigan]
Eagle-Picher Development Company, Inc. [Delaware]
Michigan Automotive Research Corporation (MARCO) [Michigan]
Eagle-Picher Far East, Inc. [Delaware]
Eagle-Picher Fluid Systems, Inc. [Michigan]
Eagle-Picher, Inc. [Virgin Islands]
Eagle-Picher Industries of Canada Limited [Canada]
Eagle-Picher Industries Europe B.V. [Netherlands]
Eagle-Picher Automotive GmbH [Germany]
Eagle-Picher Espana, S.A. [Spain]
Eagle-Picher UK Limited [England and Wales]
Eagle-Picher Fluid Systems Ltd. [England and Wales]
Eagle-Picher Hillsdale Limited [England and Wales]
Eagle-Picher Wolverine GmbH [Germany]
Eagle-Picher Tehnologies GmbH [Germany]
Eagle-Picher Minerals, Inc. [Nevada]
Eagle-Picher Minerals International S.A.R.L. [France]
United Minerals GmbH & Co. KG [Germany]
United Minerals Verwaltungs- und Beteiligungs GmbH [Germany]
Eagle-Picher Technologies, LLC [Delaware]
EPTEC, S.A. de C.V. [Mexico]
Equipos de Acuna, S.A. de C.V. [Mexico]
Hillsdale Tool & Manufacturing Co. [Michigan]
[ ] Brackets indicate state or country of incorporation and do not form
part of corporate name.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-49971 of Eagle-Picher Holdings, Inc. on Form S-4 of our report dated January
18, 1999, appearing in this Annual report on form 10-K of Eagle-Picher Holdings,
Inc. and subsidiaries for the year ended November 30, 1998.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 26, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Eagle-Picher Holdings, Inc.:
We consent to the use of our report included herein.
Our report dated February 5, 197, was unqualified, 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.
/s/ KPMG LLP
Cincinnati, Ohio
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND THE CONDENSED CONSOLIDATED
BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<EXCHANGE-RATE> 1
<CASH> 13,681
<SECURITIES> 0
<RECEIVABLES> 146,373
<ALLOWANCES> 1,529
<INVENTORY> 88,873
<CURRENT-ASSETS> 266,587
<PP&E> 279,061
<DEPRECIATION> 30,524
<TOTAL-ASSETS> 816,327
<CURRENT-LIABILITIES> 156,022
<BONDS> 459,183
87,387
0
<COMMON> 10
<OTHER-SE> 80,602
<TOTAL-LIABILITY-AND-EQUITY> 816,327
<SALES> 645,984
<TOTAL-REVENUES> 645,984
<CGS> 502,973
<TOTAL-COSTS> 502,973
<OTHER-EXPENSES> 127,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,313
<INCOME-PRETAX> (19,064)
<INCOME-TAX> (4,700)
<INCOME-CONTINUING> (14,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,364)
<EPS-PRIMARY> (21.74)
<EPS-DILUTED> (21.74)
</TABLE>
