0000950152-01-504968.txt : 20011019
0000950152-01-504968.hdr.sgml : 20011019
ACCESSION NUMBER: 0000950152-01-504968
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20010831
FILED AS OF DATE: 20011012
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER HOLDINGS INC
CENTRAL INDEX KEY: 0001059364
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711]
IRS NUMBER: 133989553
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49971
FILM NUMBER: 1758466
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: 250 E FIFTH ST
STREET 2: STE 500
CITY: CINCINNATI
STATE: OH
ZIP: 45201-0779
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HILLSDALE TOOL & MANUFACTURING CO
CENTRAL INDEX KEY: 0001059573
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 380946293
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-07
FILM NUMBER: 1758467
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: 250 E FIFTH ST
STREET 2: STE 500
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EPMR CORP
CENTRAL INDEX KEY: 0001059575
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 382185909
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-08
FILM NUMBER: 1758468
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: 250 E FIFTH ST ST
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FORMER COMPANY:
FORMER CONFORMED NAME: MICHIGAN AUTOMOTIVE RESEARCH CORP
DATE OF NAME CHANGE: 19980410
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER TECHNOLOGIES LLC
CENTRAL INDEX KEY: 0001059576
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 311587660
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-09
FILM NUMBER: 1758469
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER MINERALS INC
CENTRAL INDEX KEY: 0001059572
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 311188662
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-06
FILM NUMBER: 1758470
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER INDUSTRIES INC
CENTRAL INDEX KEY: 0000030927
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 310268670
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957
FILM NUMBER: 1758471
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: 250 E FIFTH ST
STREET 2: STE 500
CITY: CINCINNATI
STATE: OH
ZIP: 45201-0779
FORMER COMPANY:
FORMER CONFORMED NAME: EAGLE PICHER CO
DATE OF NAME CHANGE: 19660921
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER DEVELOPMENT CO INC
CENTRAL INDEX KEY: 0001059568
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 311215706
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-03
FILM NUMBER: 1758472
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EAGLE PICHER FAR EAST INC
CENTRAL INDEX KEY: 0001059570
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 311235685
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-04
FILM NUMBER: 1758473
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DAISY PARTS INC
CENTRAL INDEX KEY: 0001059567
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 381406772
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-49957-02
FILM NUMBER: 1758474
BUSINESS ADDRESS:
STREET 1: 250 EAST FIFTH STREET, SUITE 500
STREET 2: C/O EAGLE PICHER INDUSTRIES INC
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 5137217010
MAIL ADDRESS:
STREET 1: C/O EAGLE PICHER INDUSTRIES INC
STREET 2: P O BOX 779
CITY: CINCINNATI
STATE: OH
ZIP: 45202
10-Q
1
l90728ae10-q.txt
EAGLE-PICHER HOLDINGS AND CO-FILERS FORM 10-Q
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 2001 Commission file number 333-49957-01
-------------
EAGLE-PICHER HOLDINGS, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
--------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
-----------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
---------------------------
(Not Applicable)
-----------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
EAGLE-PICHER HOLDINGS, INC. IS FILING THIS RPEORT VOLUNTARILY IN ORDER TO
COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8% SENIOR SUBORDINATED
NOTES AND 11 3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT
REQUIRED TO FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. (See explanatory note immediately above.)
Yes No X
---- ----
Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X No
---- ----
1,000,000 shares of common capital stock, $.01 par value each, were outstanding
at October 13, 2001.
1
2
TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ ------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
EPMR Corporation (f/k/a Michigan
Automotive Research Corp.) Michigan 333-49957-08 38-2185909
2
3
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 4
Condensed Consolidated Statements of Income (Loss)(Unaudited).... 4
Condensed Consolidated Balance Sheets (Unaudited)................ 5
Condensed Consolidated Statements of Cash Flows (Unaudited)...... 7
Notes to Condensed Consolidated Financial Statements (Unaudited). 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 31
Item 6. Exhibits and Reports on Form 8-K............................ 31
Signatures........................................................... 32
Exhibit Index........................................................ 39
3
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
August 31 August 31
--------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $169,520 $176,243 $517,676 $576,359
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 139,673 141,287 417,300 457,546
Selling and administrative 13,054 14,438 37,925 49,387
Depreciation 11,250 9,830 32,882 31,411
Amortization of intangibles 4,135 3,955 12,240 12,163
Proceeds from insurance settlement - - - (16,000)
Divestitures - 2,089 500 (12,220)
Management compensation - special 609 - 2,498 1,560
Other 107 (51) (162) (439)
------- ------- ------- -------
168,828 171,548 503,183 523,408
------- ------- ------- -------
Operating Income 692 4,695 14,493 52,951
Interest expense (9,920) (10,454) (30,170) (33,478)
Other income(expense) 1,600 775 2,439 398
----- ------ ------ ------
Income(Loss)from Continuing Operations
Before Taxes (7,628) (4,984) (13,238) 19,871
Income Taxes (Benefit) (2,525) (1,000) (4,300) 13,900
------ ----- ------ ------
Income (Loss) from Continuing Operations (5,103) (3,984) (8,938) 5,971
Discontinued Operations:
Loss from operations of discontinued
segment, net of income tax benefit of
$ - , $1,150, $900 and $2,300 - (183) (1,657) (970)
Loss on disposal of business segment including provisions of $1,733 and
$4,138 for operating losses during phase-out periods, net of income tax
benefits of $2,000 and $11,800 (5,500) - (23,700) -
------- ------ ------ ------
Net Income (Loss) $(10,603) $(4,167) $(34,295) $ 5,001
====== ===== ====== =====
Loss Applicable to
Common Shareholders $(13,921) $(7,127) $(44,065) $(3,714)
====== ===== ====== =====
Comprehensive Income (Loss) $(12,180) $(4,200) $(36,769) $ 3,532
====== ===== ====== =====
Earnings per Share:
Loss from continuing operations $ (8.58) $ (6.95) $ (19.02) $ (2.74)
Loss from discontinued operations (5.60) (.18) (25.79) (.97)
----- ------ ----- ----
Net Loss $(14.18) $ (7.13) $(44.81) $ (3.71)
===== ====== ===== =====
See accompanying notes to the condensed consolidated financial
statements.
4
5
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31 November 30
ASSETS 2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 14,755 $ 7,467
Receivables, less allowances 111,301 104,875
Inventories:
Raw materials and supplies 29,359 32,664
Work in process 34,155 37,034
Finished goods 17,106 13,821
------- -------
80,620 83,519
Net assets of discontinued operations 7,553 44,080
Prepaid expenses 8,409 7,141
Deferred income taxes 24,326 12,860
------ -------
Total current assets 246,964 259,942
------- -------
PROPERTY, PLANT AND EQUIPMENT 351,954 316,981
Less accumulated depreciation 125,364 90,977
------- -------
Net property, plant and equipment 226,590 226,004
------- -------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $53,667 and
$42,089, respectively 183,626 195,575
------- -------
OTHER ASSETS 87,378 86,178
------ -------
Total Assets $744,558 $767,699
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 70,920 $ 57,865
Long-term debt - current portion 65,163 65,358
Income taxes 2,526 2,682
Other current liabilities 60,418 65,235
------- -------
Total current liabilities 199,027 191,140
LONG-TERM DEBT - less current portion 405,018 392,573
DEFERRED INCOME TAXES 2,302 10,278
OTHER LONG-TERM LIABILITIES 27,672 24,707
------ -------
Total Liabilities 634,019 618,698
------- -------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 119,573 109,804
------- ---------
5
6
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31 November 30
2001 2000
---- ----
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 1,000,000 shares $.01 par
value each; issued and outstanding 1,000,000 shares 10 -
Class A Common stock, authorized 625,001 shares,
$.01 par value each; issued and outstanding
625,001 shares - 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and outstanding
374,999 shares - 4
Additional paid-in capital 99,991 99,991
Deficit (100,205) (56,140)
Other comprehensive loss (4,767) (2,293)
------- -------
(4,971) 41,568
Treasury Stock, at cost: 22,750 and 11,500 shares (4,063) (2,371)
------- -------
Total Shareholders' Equity (Deficit) (9,034) 39,197
------- -------
Total Liabilities and Shareholders' Equity (Deficit) $744,558 $767,699
======= =======
See accompanying notes to the condensed consolidated financial statements.
6
7
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
August 31
------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(34,295) $5,001
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Provision for discontinued operations 23,700 -
Depreciation and amortization 47,611 45,999
Divestitures 500 (12,220)
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables (6,447) 13,038
Inventories 2,899 (5,405)
Accounts payable 13,055 2,529
Accrued liabilities (5,317) (7,821)
Other (9,314) (4,000)
------ ------
Net cash provided by
operating activities 32,392 37,121
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions - 84,833
Acquisitions - (11,796)
Capital expenditures (34,874) (30,193)
Other (966) 1,604
---- ------
Net cash provided by (used in)
investing activities (35,840) 44,448
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (14,322) (19,093)
Net borrowings (repayments) under revolving
credit agreements 26,765 (63,482)
Other (2,734) (902)
------ -------
Net cash provided by (used in)
financing activities 9,709 (83,477)
------ ------
Net cash provided by discontinued operations 1,027 663
----- -----
7
8
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
August 31
---------
2001 2000
---- ----
Net increase (decrease) in cash and cash equivalents 7,288 (1,245)
Cash and cash equivalents, beginning of period 7,467 10,071
------ ------
Cash and cash equivalents, end of period $14,755 $ 8,826
====== ======
Supplemental cash flow information: 2001 2000
---- ----
Cash paid during the three months ended August 31:
Interest paid $ 4,431 $ 5,294
Income taxes paid (refunded) $ 207 $ 3,037
Cash paid during the nine months ended August 31:
Interest paid $23,135 $28,655
Income taxes paid (refunded) $(1,695) $ 6,827
See accompanying notes to the condensed consolidated financial statements.
8
9
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Eagle-Picher Holdings, Inc. (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto for the
fiscal year ended November 30, 2000 presented in the Company's Form 10-K filed
with the SEC on February 28, 2001, as amended on March 8, 2001.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three months and nine months ended August 31, 2001 and August 31, 2000. Results
of operations for interim periods are not necessarily indicative of results to
be expected for an entire year. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
B. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 981,417 in the three months ended
August 31, 2001, 983,361 in the nine months ended August 31, 2001 and 1,000,000
in the three months and nine months ended August 31,2000. The net loss
applicable to common shareholders represents the net income reduced by, or the
net loss increased by, accreted dividends on preferred stock of $3,318 and
$9,770 for the three and nine months ended August 31, 2001, respectively, and
$2,960 and $8,715 for the three and nine months ended August 31, 2000,
respectively. No potential common stock was outstanding during the three months
ended August 31, 2001 or 2000.
C. DISCONTINUED OPERATIONS
The Board of Directors authorized Management to sell the assets and
business of the Construction Equipment Division, which comprises the Machinery
Segment. The Company has entered into a letter of intent to sell the Segment,
which is subject to certain contingencies. The sale is now expected to be
completed by November 30, 2001.
Sales were $18,677 and $21,671 in the Machinery Segment in the three
months ended August 31, 2001 and 2000, respectively, and $50,568 and $64,878 in
the nine months ended August 31, 2001 and 2000, respectively. The Company
recorded provisions of $7,500 and $35,500, net of income tax benefits of $2,000
and $11,800, in the three months and nine months ended August 31, 2001,
respectively. These provisions include estimated losses and costs to be incurred
in connection with the disposition of the Machinery Segment, including an
aggregate of $4,183 of expected losses during the phase-out period from March 1
through November 30, 2001. An operating loss of $1,657, net of tax, was incurred
in the first quarter of 2001. The results of the Machinery Segment's operations
have been reported separately as discontinued operations in the consolidated
statement of income (loss). Prior year amounts have been restated to present the
operations of the Machinery Segment
9
10
as a discontinued operation.
The net assets of the discontinued operations have been recorded at their
estimated net realizable value under the caption "Net assets of discontinued
operations" in the accompanying Condensed Consolidated Balance Sheets at August
31, 2001 and November 30, 2000. At August 31, 2001, total assets of the
Machinery Segment, which consisted primarily of accounts receivable, inventory,
property, plant and equipment and goodwill, were $48,297. Total liabilities of
the Machinery Segment were $40,744 and consisted of accounts payable and accrued
liabilities.
D. LEGAL MATTERS
For other information on legal proceedings, see Item 3 of the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000 and Part
II, Item 1 of the Company's Quarterly Reports on Form 10-Q for the quarters
ended February 28, 2001 and May 31, 2001.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Company's wholly owned subsidiary, Eagle-Picher Industries, Inc.
("EPI") 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, the result of which was for Caradon to
be held liable for patent infringement in an amount believed to be in excess of
$10 million. In June 1997, EPI filed a Motion with the United States Bankruptcy
Court for the Southern District of Ohio, Western Division, ("Bankruptcy Court")
seeking an order enforcing EPI's plan of reorganization as confirmed by the
Bankruptcy Court in November 1996 (the "Plan") 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
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 Bankruptcy Court held a hearing on this matter on September 24 and
25, 2001. EPI anticipates a decision on the bankruptcy related issues by the end
of this calendar year. EPI intends to contest this suit vigorously. EPI does not
believe that resolution of this suit will have a material adverse effect on
EPI's financial condition, results of operations or cash flows.
On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the
depleted zinc distribution business (the "DZ Business") of Isonics Corporation
("Isonics") for approximately $8.2 million, payable $6.7 million at closing and
$1.5 million in three installments of $500,000 each payable on the first three
anniversaries of the closing. At the time of the acquisition, a single customer
represented approximately 55% of the DZ Business. Following the completion of
the acquisition, this customer informed EPT that it would no longer be
purchasing depleted zinc from an outside supplier. EPT initiated binding
arbitration against Isonics on March 26, 2001 with the American Arbitration
Association in Dallas, Texas pursuant to contractual dispute resolution
procedures. EPT's arbitration demand is based on breach of representations and
warranties in the purchase and sale agreement for the DZ Business as well as
fraud and negligent misrepresentation, and seeks to recover damages in excess of
$10 million and other remedies. While the Company believes it has a meritorious
claim against Isonics, there can be no assurance that the Company will obtain
any recovery as a result of this claim.
10
11
In connection with the sale of the DZ Business, EPT agreed to sell 200 kg of
isotopically purified silicon-28 to Isonics. Due to various factors, EPT has not
yet delivered any silicon-28 to Isonics. Isonics has asserted a counterclaim
against EPT in the DZ Business arbitration described above for failure to
deliver silicon-28, seeking damages in excess of $10 million. EPT believes that
any obligation to deliver silicon-28 has been excused by, among other things, a
force majeure clause in the purchase and sale agreement for the DZ Business.
Contemporaneously with the purchase and sale of the DZ Business, EPT and Isonics
entered into a supply agreement (the "Supply Agreement") pursuant to which EPT
agreed that, commencing upon delivery of 200 kg of silicon-28, EPT would devote
the capacity of a pilot plant used to produce such material to producing
silicon-28 and sell all silicon-28 produced in such pilot plant and meeting
certain specifications, as well as any silicon-29 or silicon-30 actually
produced as a byproduct, to Isonics for a ten year term. Isonics amended its
counterclaim in the DZ Business arbitration to assert a claim that the Supply
Agreement requires EPT to produce a certain amount of silicon-28, silicon-29 and
silicon-30 and alleging damages of not less than $75 million for anticipatory
breach of such alleged obligation. EPT believes that the terms of the Supply
Agreement and applicable law clearly establish that the Supply Agreement does
not impose any obligation to produce any quantity of silicon-28, silicon-29 or
silicon-30 and that Isonics' claims are without merit. Isonics also amended its
counterclaim to allege that EPT's parent company, Eagle-Picher Industries, Inc.
("EPI") is liable for any damages of EPT under an "alter ego" theory, a claim
which EPI and EPT believe is also without merit.
EPT and EPI intend to assert other defenses as well and to defend this
counterclaim vigorously. EPT continues to explore alternative processes that may
enable it to produce silicon-28, but there is no assurance that such efforts
will be successful.
In addition, the Company is involved in routine litigation, environmental
proceedings and claims pending with respect to matters arising out of the normal
course of business. In management's opinion, the ultimate liability resulting
from all claims, individually or in the aggregate, will not materially affect
the Company's consolidated financial position, results of operations or cash
flows.
E. SEGMENT REPORTING
The Company has the following reportable segments: Automotive,
Technologies, Machinery and Minerals. Please see discussion in Note C regarding
the discontinuance of the Machinery Segment. The method for determining what
information to report is based on the way management organizes the operating
segments within the company for making operational decisions and assessing
performance. The operations in the Automotive Segment provide mechanical and
structural parts and raw materials for passenger cars, vans, trucks and sport
utility vehicles for original equipment manufacturers and replacement markets.
The operations in the Technologies Segment produce a variety of products for the
aerospace, nuclear, telecommunications, electronics, and other industrial
markets. The operations in the Minerals Segment mine and refine diatomaceous
earth products.
The accounting policies used to develop segment information correspond to
those disclosed in the Company's consolidated financial statements for the year
ended November 30, 2000 included in Form 10-K with the exception that interest
is allocated at a higher rate in 2001. Sales between segments are not material.
The Company does not allocate certain corporate expenses to its segments.
Information about reported segment income or loss is as follows for the
three months and nine months ended August 31, 2001 and 2000:
11
12
Three Months Ended Nine Months Ended
August 31 August 31
-------------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----
(In thousands of dollars)
Net Sales
Automotive $104,494 $109,591 $320,032 $347,078
Technologies 48,681 49,477 149,008 138,079
Minerals 16,345 15,590 48,636 48,443
Divested Divisions - 1,585 - 42,759
------- ------- -------- --------
Total $169,520 $176,243 $517,676 $576,359
======= ======= ======= =======
Income (Loss) from Continuing
Operations Before Taxes:
Automotive $(5,367) $ (473) $(7,777) $ 3,593
Technologies (1,348) (927) (1,555) (1,197)
Minerals (155) (170) (587) 372
Divested Divisions - (2,489) (500) 7,288
Corporate (758) (925) (2,819) 9,815
------ ------- ------- -------
$(7,628) $(4,984) $(13,238) $19,871
====== ====== ======= ======
Total
Depreciation and Amortization:
Automotive $ 9,982 $ 8,418 $29,365 $25,510
Technologies 3,803 3,562 11,166 10,520
Minerals 1,466 1,490 4,206 4,467
Divested Divisions - 43 - 2,413
Corporate 134 272 385 664
------- ------- ------ -------
Total $15,385 $13,785 $45,122 $43,574
====== ====== ====== ======
Interest Expense:
Automotive $ 5,311 $ 5,053 $16,167 $14,833
Technologies 3,762 3,086 11,290 9,319
Minerals 1,041 809 3,172 2,402
Divested Divisions - 103 - 2,772
Corporate/Intersegment (194) 1,403 (459) 4,152
------- ------- ------- -------
Total $ 9,920 $10,454 $ 30,170 $33,478
====== ====== ====== ======
The Company sold its Ross Aluminum, MARCO and Fluid Systems Divisions in the
first quarter of 2000. The Rubber Molding Division was sold in the second
quarter of 2000 and the Cincinnati Industrial Machinery Division was sold in the
third quarter of 2000. These divisions are referred to collectively herein as
the "Divested Divisions."
F. FINANCIAL INSTRUMENTS
Effective December 1, 2000, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS
133." Under this guidance, all derivatives,
12
13
including foreign currency exchange contracts and interest rate swaps, are
recognized in the consolidated balance sheet at fair value.
On the date the derivative contract is entered into, the company designates
the derivative as either a hedge of the fair value of a recognized asset or
liability (fair value hedge), a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge) or hedge of a net investment in a foreign
operation (net investment hedge). Changes in the fair value of derivatives that
are designed as fair value hedges are recorded in the consolidated statement of
income along with the loss or gain on the hedged asset or liability. Changes in
the fair value of derivatives that are designated as cash flow hedges are
recorded in other comprehensive income, until the underlying transactions occur.
Changes in the fair value of derivatives that are designated as net investment
hedges are recorded as a component of other comprehensive income. The
ineffective portion of derivatives that are hedges are recorded in the
consolidated statement of income.
Upon initial application of SFAS 133, the Company recorded the fair value of
existing foreign currency exchange contracts and interest rate swaps on the
consolidated balance sheet and a corresponding unrecognized gain of $327, net of
tax, as a cumulative effect adjustment of accumulated other comprehensive
income.
G. CAPITAL STOCK
On August 31, 2001, the Company adopted an amendment to its Amended and
Restated Certificate of Incorporation to change its capital structure. Effective
with this amendment, the total number of shares of common stock which the
Company is authorized to issue is 1,000,000 shares, par value $0.01 per share
(the "Common Stock"). The holders of shares of Common Stock are entitled to one
vote per share on all matters which may be submitted to the holders of Common
Stock of the Company. At the effective time of this amendment, each share of
Class A Common Stock of the Company and each share of Class B Common Stock of
the Company outstanding immediately prior to the effective time changed into and
was reclassified as one share of Common Stock of the Company.
H. SUPPLEMENTAL GUARANTOR INFORMATION
The indebtedness of the Company's wholly-owned subsidiary, EPI, includes a
syndicated secured loan facility ("Credit Agreement") and $220.0 million in
senior subordinated notes ("Subordinated Notes"). Both the Credit Agreement and
the Subordinated Notes are guaranteed on a full, unconditional and joint and
several basis by the Company and certain of EPI'S wholly-owned domestic
subsidiaries ("Subsidiary Guarantors") including Carpenter Enterprises Ltd.,
which was acquired in 1999, and Eagle-Picher Acceptance Corporation, which was
formed in 1999. Management has determined that full financial statements and
other disclosures concerning EPI or the Subsidiary Guarantors would not be
material to investors and such financial statements are not presented. The
following supplemental condensed combining financial statements present
information regarding EPI, the Subsidiary Guarantors and the subsidiaries that
did not guarantee the debt.
EPI and the Subsidiary Guarantors are subject to restrictions on the payment
of dividends under the terms of both the Credit Agreement and the Indenture
supporting the Subordinated Notes, both of which were filed with the Company's
Form S-4 Registration Statement No. 333-49957-01 filed on April 11, 1998 and
amended on May 20, 1998 and June 5, 1998, and both of which were incorporated by
reference to the Company's Form 10-K which was filed on February 28, 2001 and
amended on March 8, 2001.
13
14
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 2001
Guarantors Non-Guarantors
---------------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------------ --------------- --------------- ------------ -------------- ---------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 11,536 $ - $ 137,332 $ 20,652 $ - $ 169,520
Intercompany 4,522 - 3,099 - (7,621) -
Operating Costs and Expenses:
Cost of products sold 9,890 - 120,215 16,981 (7,413) 139,673
Selling & Administrative 5,208 4 5,966 1,965 (89) 13,054
Intercompany charges (1,642) - 1,618 (65) 89 -
Depreciation 950 - 9,427 873 - 11,250
Amortization of intangibles 936 - 2,846 353 - 4,135
Other 630 - 112 (26) - 716
-------- -------- -------- -------- ------- --------
Total 15,972 4 140,184 20,081 (7,413) 168,828
======== ======== ======== ======== ======= ========
Operating Income 86 (4) 247 571 (208) 692
Other Income (Expense)
Interest expense (2,482) - (8,923) (344) 1,829 (9,920)
Other income (expense) 438 - 2,349 73 (1,260) 1,600
Equity in earnings of
consolidated subsidiaries (7,127) (10,599) (390) - 18,116 -
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuting (9,085) (10,603) (6,717) 300 18,477 (7,628)
Operations Before Taxes
Income Taxes (Benefit) (3,275) - 7 743 - (2,525)
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations (5,810) (10,603) (6,724) (443) 18,477 (5,103)
Discontinued Operations (5,500) - - 40 (40) (5,500)
-------- -------- -------- -------- ------- --------
Net Income (Loss) $ (11,310) $ (10,603) $ (6,724) $ (403) $ 18,437 $ (10,603)
======== ======== ======== ======== ======= ========
14
15
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 2001
Guarantors Non-Guarantors
-----------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------------ -------------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 36,320 $ - $ 414,713 $ 66,643 $ - $ 517,676
Intercompany 11,892 - 10,620 1 (22,513) -
Operating Costs and Expenses:
Cost of products sold 28,453 - 357,427 53,933 (22,513) 417,300
Selling & Administrative 16,021 4 16,051 6,113 (264) 37,925
Intercompany charges (4,963) - 4,861 (162) 264 -
Depreciation 3,105 - 27,120 2,657 - 32,882
Amortization of intangibles 2,800 - 8,372 1,068 - 12,240
Other 2,867 - 12 (43) - 2,836
--------- --------- -------- ------- -------- ----------
Total 48,283 4 413,843 63,566 (22,513) 503,183
--------- --------- -------- ------- -------- ----------
Operating Income (71) (4) 11,490 3,078 - 14,493
Other Income (Expense)
Interest expense (7,442) - (27,104) (1,375) 5,751 (30,170)
Other income (expense) 1,343 - 5,835 1,012 (5,751) 2,439
Equity in earnings of
consolidated subsidiaries (8,944) (34,291) 311 - 42,924 -
--------- --------- -------- ------- -------- ----------
Income (Loss) from Continuting (15,114) (34,295) (9,468) 2,715 42,924 (13,238)
Operations Before Taxes
Income Taxes (Benefit) (6,558) - (8) 2,266 - (4,300)
--------- --------- -------- ------- -------- ----------
Income (Loss) from Continuing
Operations (8,556) (34,295) (9,460) 449 42,924 (8,938)
Discontinued Operations (25,357) - - 67 (67) (25,357)
--------- --------- -------- ------- -------- ----------
Net Income (Loss) $ (33,913) $ (34,295) $ (9,460) $ 516 $ 42,857 $ (34,295)
========= ========= ======== ======= ======== =========
15
16
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF AUGUST 31, 2001
Guarantors Non-Guarantors
------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ ------------------------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Assets
Cash and cash equivalents $ 8,040 $ 1 $ 540 $ 6,103 $ 71 $ 14,755
Receivables, net (12,750) - 109,066 14,985 - 111,301
Intercompany accounts receivable 5,616 - 2,996 448 (9,060) -
Inventories 4,267 - 64,570 13,018 (1,235) 80,620
Net assets of discontinued operations 7,720 - - 6,143 (6,310) 7,553
Prepaid expenses 1,275 - 4,027 3,837 (730) 8,409
Deferred income taxes 24,660 - - - (334) 24,326
--------- --------- --------- --------- --------- ---------
Total current assets 38,828 1 181,199 44,534 (17,598) 246,964
Property, Plant & Equipment, net 25,125 - 170,533 30,971 (39) 226,590
Investment in Subsidiaries 82,462 120,266 15,038 11,616 (229,382) -
Excess of Acquired Net Assets Over Cost, net 42,873 - 123,636 20,257 (3,140) 183,626
Other Assets 93,957 - 15,731 538 (22,848) 87,378
--------- --------- --------- --------- --------- ---------
Total Assets $ 283,245 $ 120,267 $ 506,137 $ 107,916 $(273,007) $ 744,558
========= ========= ========= ========= ========= =========
Liabilities and Shareholders' Equity
Accounts payable $ 8,010 $ - $ 51,322 $ 11,588 $ - $ 70,920
Intercompany accounts payable 540 - 17 8,476 (9,033) -
Long-term debt - current portion 24,375 - 40,750 5,784 (5,746) 65,163
Income taxes 1,587 - - 939 - 2,526
Other current liabilities 38,449 - 18,902 3,067 - 60,418
--------- --------- --------- --------- --------- ---------
Total current liabilities 72,961 - 110,991 29,854 (14,779) 199,027
Long-term Debt - less current portion 402,837 - 23,222 2,181 (23,222) 405,018
Deferred Income Taxes 5,175 - - - (2,873) 2,302
Other Long-Term Liabilities 25,465 18 1,000 1,189 - 27,672
--------- --------- --------- --------- --------- ---------
Total Liabilities 506,438 18 135,213 33,224 (40,874) 634,019
Intercompany Accounts (322,291) - 290,276 37,386 (5,371) -
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock - 119,573 - - - 119,573
Shareholders' Equity 99,098 676 80,648 37,306 (226,762) (9,034)
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 283,245 $ 120,267 $ 506,137 $ 107,916 $(273,007) $ 744,558
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 2001
Guarantors Non-Guarantors
--------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ (33,913) $ (34,295) $ (9,460) $ 516 $ 42,857 $ (34,295)
Equity in earnings of consolidated subsidiaries 8,944 34,291 (311) - (42,924) -
Depreciation and amortization 8,070 - 35,816 3,725 - 47,611
Provision for discontinued operations 23,700 - - - - 23,700
Divestitures 500 500
Adjustments to reconcile net income
(loss) to cash provided by operating activities:
Working capital and other (1,595) 4 (13,789) 4,608 5,648 (5,124)
--------- --------- -------- ----- -------- ---------
Net cash provided by
operating activities 5,706 - 12,256 8,849 5,581 32,392
Cash Flows From Investing Activities:
Capital expenditures (7,013) - (16,602) (11,259) - (34,874)
Other 1,578 - - (2,544) - (966)
--------- --------- -------- ----- -------- ---------
Net cash provided by (used in)
investing activities (5,435) - (16,602) (13,803) - (35,840)
Cash Flows From Financing Activities:
Reduction of long-term debt (14,322) - - - - (14,322)
Borrowings (repayments) on revolving
credit agreement 30,340 - (2,000) (1,575) - 26,765
Other (2,541) - - (193) - (2,734)
--------- --------- -------- ----- -------- ---------
Net cash provided by (used in)
financing activities 13,477 - (2,000) (1,768) - 9,709
--------- --------- -------- ----- -------- ---------
Net cash provided by
discontinued operations 1,027 - - - - 1,027
Increase (decrease) in cash & cash equivalents 14,775 - (6,346) (6,722) 5,581 7,288
Intercompany accounts (8,032) - 6,347 8,512 (6,827) -
Cash & cash equivalents,
beginning of period 1,297 1 539 4,313 1,317 7,467
--------- --------- -------- ----- -------- ---------
Cash & cash equivalents, end of period $ 8,040 $ 1 $ 540 $ 6,103 $ 71 $ 14,755
========= ========= ======== ======== ======== =========
17
18
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 14,964 $ -- $ 140,508 $ 20,771 $ -- $ 176,243
Intercompany 4,676 -- 2,973 2,476 (10,125) --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 13,181 -- 118,854 19,377 (10,125) 141,287
Selling and administrative 7,260 1 5,254 1,990 (67) 14,438
Intercompany charges (3,221) -- 3,221 (67) 67 --
Depreciation 1,055 -- 7,923 852 -- 9,830
Amortization of intangibles 935 -- 2,780 240 -- 3,955
Loss on sales of divisions 2,043 -- -- 46 -- 2,089
Gain on sales of assets (3) -- (48) -- -- (51)
--------- --------- --------- --------- --------- ---------
Total 21,250 1 137,984 22,438 (10,125) 171,548
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (1,610) (1) 5,497 809 -- 4,695
Other Income (Expense)
Interest expense (2,945) -- (7,101) (753) 345 (10,454)
Other income (expense) 123 -- 692 305 (345) 775
Equity in earnings of
consolidated subsidiaries (177) (2,566) 754 -- 1,989 --
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Taxes (4,609) (2,567) (158) 361 1,989 (4,984)
Income Taxes (Benefit) (1,380) -- 13 367 -- (1,000)
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations (3,229) (2,567) (171) (6) 1,989 (3,984)
Discontinued Operations (183) -- -- -- -- (183)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (3,412) $ (2,567) $ (171) $ (6) $ 1,989 $ (4,167)
========= ========= ========= ========= ========= =========
18
19
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 61,903 $ -- $ 435,547 $ 78,909 $ -- $ 576,359
Intercompany 12,804 -- 10,021 7,635 (30,460) --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 51,123 -- 362,919 73,886 (30,382) 457,546
Selling and administrative 25,084 8 16,926 7,474 (105) 49,387
Management compensation - special 1,560 -- -- -- -- 1,560
Intercompany charges (9,913) -- 9,912 (104) 105 --
Depreciation 3,928 -- 24,245 3,238 -- 31,411
Amortization of intangibles 3,141 -- 8,302 720 -- 12,163
Proceeds from insurance settlement (16,000) -- -- -- -- (16,000)
(Gain) loss on sales of divisions 3,303 -- (3,976) (11,547) -- (12,220)
(Gain) loss on sales of assets (37) -- (442) 7 33 (439)
--------- --------- --------- --------- --------- ---------
Total 62,189 8 417,886 73,674 (30,349) 523,408
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) 12,518 (8) 27,682 12,870 (111) 52,951
Other Income (Expense)
Interest expense (9,933) -- (21,601) (3,392) 1,448 (33,478)
Other income (expense) 526 -- 1,750 (430) (1,448) 398
Equity in earnings of
consolidated subsidiaries 12,437 6,609 1,524 -- (20,570) --
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Taxes 15,548 6,601 9,355 9,048 (20,681) 19,871
Income Taxes 7,934 -- 5,478 488 -- 13,900
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations 7,614 6,601 3,877 8,560 (20,681) 5,971
Discontinued Operations (970) -- -- -- -- (970)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 6,644 $ 6,601 $ 3,877 $ 8,560 $ (20,681) $ 5,001
========= ========= ========= ========= ========= =========
19
20
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Assets
Cash and cash equivalents $ 1,297 $ 1 $ 539 $ 4,313 $ 1,317 $ 7,467
Receivables, net 3,140 -- 84,004 17,731 -- 104,875
Intercompany accounts receivable 22,266 -- 9,768 980 (33,014) --
Inventories 4,919 -- 67,299 12,630 (1,329) 83,519
Net assets of discontinued operations 43,793 -- -- 6,256 (5,969) 44,080
Prepaid expenses 906 -- 4,999 1,503 (267) 7,141
Deferred income taxes 12,860 -- -- -- -- 12,860
--------- --------- --------- --------- --------- ---------
Total current assets 89,181 1 166,609 43,413 (39,262) 259,942
Property, Plant & Equipment, net 22,191 -- 181,898 21,958 (43) 226,004
Investment in Subsidiaries 118,526 151,302 12,377 -- (282,205) --
Excess of Acquired Net Assets Over Cost, net 45,673 -- 131,637 21,404 (3,139) 195,575
Other Assets 70,021 -- 17,799 8,472 (10,114) 86,178
--------- --------- --------- --------- --------- ---------
Total Assets $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699
--------- --------- --------- --------- --------- ---------
Liabilities and Shareholders' Equity
Accounts payable $ 10,987 $ -- $ 42,119 $ 4,759 $ -- $ 57,865
Intercompany accounts payable 92 -- -- 9,327 (9,419) --
Long-term debt - current portion 20,795 -- 42,750 1,813 -- 65,358
Income taxes 2,162 -- -- 520 -- 2,682
Other current liabilities 41,092 -- 22,046 2,364 (267) 65,235
--------- --------- --------- --------- --------- ---------
Total current liabilities 75,128 -- 106,915 18,783 (9,686) 191,140
Long-Term Debt - less current portion 390,398 -- 22,266 2,175 (22,266) 392,573
Deferred Income Taxes 11,512 -- -- -- (1,234) 10,278
Other Long-Term Liabilities 22,075 14 1,000 1,618 -- 24,707
--------- --------- --------- --------- --------- ---------
Total Liabilities 499,113 14 130,181 22,576 (33,186) 618,698
Intercompany Accounts (290,399) -- 290,081 36,777 (36,459) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 109,804 -- -- -- 109,804
Shareholders' Equity 136,878 41,485 90,058 35,894 (265,118) 39,197
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699
========= ========= ========= ========= ========= =========
20
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ 6,644 $ 6,601 $ 3,877 $ 8,560 $(20,681) $ 5,001
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries (12,437) (6,609) (1,524) -- 20,570 --
Depreciation and amortization 9,185 -- 32,856 3,958 -- 45,999
(Gain) loss on sales of divisions 3,349 -- (3,976) (11,593) -- (12,220)
Changes in assets and liabilities, net of
effect of acquisitions and divestitures 2,685 8 4,724 (14,501) 5,425 (1,659)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 9,426 -- 35,957 (13,576) 5,314 37,121
-------- -------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 46,787 -- 10,430 27,616 -- 84,833
Acquisition of divisions -- -- (11,796) -- -- (11,796)
Capital expenditures (3,534) -- (23,034) (3,625) -- (30,193)
Other 2,113 -- 111 (90) (530) 1,604
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 45,366 -- (24,289) 23,901 (530) 44,448
-------- -------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (19,093) -- -- -- -- (19,093)
Net borrowings(repayments)under revolving
credit agreements (34,700) -- (18,250) (10,532) -- (63,482)
Other (7) -- -- (895) -- (902)
-------- -------- -------- -------- -------- --------
Net cash used in financing activities (53,800) -- (18,250) (11,427) -- (83,477)
-------- -------- -------- -------- -------- --------
Net cash provided by discontinued operations 663 -- -- -- -- 663
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash 1,655 -- (6,582) (1,102) 4,784 (1,245)
Intercompany accounts (4,714) -- 7,143 3,937 (6,366) --
Cash and cash equivalents,
beginning of period 4,064 1 870 5,088 48 10,071
-------- -------- -------- -------- -------- --------
Cash and cash equivalents,
end of period $ 1,005 $ 1 $ 1,431 $ 7,923 $ (1,534) $ 8,826
======== ======== ======== ======== ======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Please refer to Note E. regarding Segment Reporting contained in Item
1. of this report. All references to years or quarters refer to the Company's
fiscal year, which is December 1 to November 30, unless otherwise indicated.
THE AUTOMOTIVE SEGMENT
The general economic slowdown in the United States has continued to
have a negative impact on volumes and operating results throughout 2001. Sales
declined 4.7% from $109.6 million in the third quarter of 2000 to $104.5 million
in the comparable period in 2001. Year-to-date sales in 2001 are 7.8% below last
year's sales. The loss from continuing operations before tax was $(5.4) million
and $(.5) million in the third quarters of 2001 and 2000, respectively. In the
nine months ended August 31, 2000, income from continuing operations before
taxes was $3.6 million compared to a loss of $(7.8) million in the comparable
period of 2001. Besides the negative impact reduced volumes had on results, this
segment also experienced inefficiencies in certain new product launches and
incurred additional expenses in preparation for a potential work stoppage, which
did not occur. Depreciation costs were significantly higher in 2001 than in 2000
due to substantial capital expenditures made in recent years to support the
volume of new business awarded to the Company.
Automotive Segment Outlook
Sales for the Automotive Segment for 2001 are expected to be
approximately $420 million, $10 million less than originally forecast, although
the product mix is different than originally anticipated. While sales of
product to the Company's largest customer, Honda, have remained steady through
2001, production slowdowns at other of the Company's customers in the
automotive industry have been worse than expected. Additionally, contrary to
the Company's earlier estimates, the economy and its effect on production in
the automotive industry have not stabilized or improved during the latter half
of 2001, but instead have worsened. The terrorist attacks that occurred on
September 11, 2001 have also served to exacerbate economic conditions such that
additional production cutbacks were received and are expected throughout the
remainder of 2001. The Company now expects that the combination of these
factors will have an additional adverse impact of approximately $4 million on
the operating income and EBITDA of the Automotive Segment.
THE TECHNOLOGIES SEGMENT
Sales for the third quarter of 2001 were $48.7 million, a decrease of
1.6% from the comparable period of 2000, when they were $49.5 million. Demand
for special-purpose batteries is growing and demand for fiber-optic materials
has been strong, which has resulted in sales increases in these areas in the
third quarter of 2001 compared to the same period of 2000. However, these
increases have been offset by a decline in sales resulting from several factors,
including soft demand for semi-conductor products, a fire in a
bulk-pharmaceutical manufacturing plant and a temporary halt in orders from a
large customer in the commercial battery market while it reduced inventory
levels. Year-to-date sales were $149.0 million and $138.1 million in 2001 and
2000, respectively. The largest increases have been in the special-purpose
battery and fiber-optic markets.
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The loss from continuing operations before tax in the third quarter has
increased from $(.9) million in 2000 to $(1.3) million in 2001. The segment has
experienced an increase in depreciation and amortization and interest expenses
due to the acquisition of Eagle-Picher Energy Products Corp. (formerly BlueStar
Battery Systems Corporation) in June 2000 and other recent capital investments.
Year-to-date, the loss from continuing operations before tax was $(1.6) million
and $(1.2) million in 2001 and 2000, respectively.
As noted above, during the third quarter, the Company had a fire in a
bulk pharmaceutical manufacturing plant. While the fire may have a short term
impact on results of operations, the Company does not expect the fire to have a
material impact on its financial condition or results of operations due to
casualty insurance, including business interruption insurance.
Technologies Segment Outlook
For 2001, sales in the Technologies Segment are expected to be
approximately $202 million, slightly lower than the $210 million anticipated at
the beginning of the year. EBITDA for the Technologies Segment for 2001 is
expected to be relatively flat when compared to 2000.
THE MINERALS SEGMENT
The Minerals Segment experienced a sales increase of 4.8% to $16.3
million in the third quarter of 2001, from $15.6 million in the same quarter of
2000. Although volumes are slightly down this year due to general economic
weakness, revenues have increased as a result of a more favorable product mix,
additional value added with product sold and an energy surcharge that was in
effect for part of the quarter to defray a portion of the increased natural gas
costs experienced nationwide. On a year-to-date basis, sales were relatively
flat, totaling $48.6 million in 2001 compared to $48.4 million in 2000.
The loss from continuing operations before taxes in those quarters was
virtually unchanged at $(.2) million. On a year-to-date basis, the income (loss)
from continuing operations before taxes was $(.6) million and $.4 million for
2001 and 2000, respectively, a decline of $1.0 million, despite an increase in
energy costs of $2.7 million in 2001 from the comparable period in 2000. The
increases in energy costs have been significantly mitigated by cost savings from
production efficiencies, energy surcharges to customers and a reduction of
general and administrative expenses.
Minerals Outlook
As originally anticipated, the Company expects sales for the Minerals
Segment for 2001 to be relatively flat when compared to 2000 at approximately
$65 million. As originally forecast, the Minerals Segment's operating margin
will be slightly lower in 2001 as a result of the substantially higher natural
gas prices experienced earlier in the year.
Summary of the Company
Net Sales. Net sales of the Company decreased 3.8% from $176.2 million
in the third quarter of 2000 to $169.5 million in the third quarter of 2001. The
sales of the Divested Divisions in 2000 accounted for $1.6 million of this
decrease. See discussions of the various segments for further information.
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Cost of Products Sold. Cost of products sold increased as a percentage
of net sales from 80.2% in the third quarter of 2000 to 82.4% in 2001. Increased
energy costs have impacted the margins in operations which are heavy consumers
of natural gas in the Minerals and Automotive Segments. Lower volumes resulting
from the current economic slump and inefficiencies in certain new product
launches also contributed to the increase.
Selling and Administrative. Selling and administrative expenses have
declined from $14.4 million in the third quarter of 2000 to $13.1 million for
the same period in 2001. Of this amount, $.3 million is attributable to the
Divested Division 2000. Other decreases were due to fewer personnel at the
Company's headquarters, a new method of funding the Supplemental Executive
Retirement Plan, and lower consulting fees.
Depreciation and Amortization. Depreciation and amortization expense
was $15.4 million and $13.8 million in the third quarters of 2001 and 2000,
respectively. The increase is largely attributable to recent capital
expenditures made in the Automotive Segment for new business achieved in 2000
and 2001.
Divestitures. In 2000, as part of the Company's previously announced
program to focus management, technical and financial resources on core
businesses, the Company sold several divisions. The Cincinnati Industrial
Machinery Division was sold in the third quarter of 2000, resulting in a loss of
$2.1 million.
Management Compensation - Special. Management compensation expenses of
$.6 million in the third quarter of 2001 relate to compensation to corporate
officers upon their separation from the Company.
Interest Expense. Interest expense declined from $10.5 million in the
third quarter of 2000 to $9.9 million in the comparable period this year.
Although debt levels have been slightly higher during the third quarter of 2001
than in the same period of 2000, interest rates have been lower on variable rate
debt in 2001. The Company has entered into swap agreements to manage its
interest rate risk. The agreement in effect in 2000 fixed the base interest rate
on $150.0 million of debt at 5.805% plus the applicable spread, where the swap
agreement in 2001 fixed $90.0 million of debt at 5.678% plus the applicable
spread. This results in more of the Company's debt being subject to the variable
base rates, which are currently lower than the rates at which the base rates are
fixed per the swap agreements.
Other Income (Expense). Other income was $1.6 million and $.8 million
in the third quarters of 2001 and 2000, respectively. The increase was due to
royalty received on the sale of certain product designs and currency gains as
the euro strengthened compared to the dollar during the third quarter.
Income (Loss) from Continuing Operations Before Tax. The losses from
continuing operations before tax were $(7.6) million and $(5.0) million in the
third quarters of 2001 and 2000, respectively. The difference is primarily due
to the effect of the weak economy on the Automotive Segment and increased
depreciation costs.
Income Taxes (Benefit). Income tax benefits were $(2.5) million and
$(1.0) million in the third quarters of 2001 and 2000, respectively. The
divestitures in 2000 affect comparability of income taxes and the effective tax
rates due to taxable gains resulting from the divestitures.
Discontinued Operations. As previously reported, the Board of Directors
has authorized management to sell the assets and business of the Machinery
Segment. The Company has entered into a letter of intent to sell the Segment,
which is subject to certain contingencies. The Company continues to implement a
plan which focuses on
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improving the efficiency of its operations to achieve a lower cost structure.
This segment has been severely impacted by general economic conditions in 2001.
Sales of the Machinery Segment declined 13.8% from $21.7 million in the three
months ended August 31, 2000 to $18.7 million in the comparable period of 2001.
Sales of fork-lift trucks were down significantly, there was a slight decrease
in sales of wheel-tractor scrapers, and sales of component parts for
construction and agricultural equipment were flat. The lower volumes resulted in
lower margins which were mitigated somewhat through reductions in general and
administrative costs.
The Company estimates the disposition of the Machinery Segment will
take place by November 30, 2001 and has recorded aggregate provisions, net of
tax, of $5.5 million and $23.7 million in the three and nine months ended August
31, 2001, respectively, for estimated losses and costs to be incurred in
connection with the disposition of the Machinery Segment, including expected
losses during the phase-out period.
Net Income (Loss). The net loss for the third quarters of 2001 and 2000
was $(10.6) million and $(4.2) million, respectively. The net loss in 2001 was
significantly impacted by the provision for discontinued operations as well as
other factors discussed above.
Dividends accreted of $3.3 million and $3.0 million in the third
quarters of 2001 and 2000, respectively, on the 11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock ("Preferred Stock") increased the loss applicable
to common shareholders to $(13.9) million and $(7.1) million, respectively.
Company Outlook
The Company was fortunate in that it did not suffer the loss of any of
its employees or property in the recent terrorist attacks on the United States.
The attacks have exacerbated the general economic slow-down that the country had
been experiencing, however, and the Company, especially the Automotive Segment,
is expected to be adversely impacted in the fourth quarter of 2001 and possibly
beyond. On the other hand, the anticipated prolonged military conflict and
increased defense spending is expected to result in increased business in
certain areas of the Technologies Segment.
Excluding sales of the Machinery Segment, which is being treated as a
discontinued operation, the Company expects its sales for 2001 to be
approximately $695 million compared to the $705 million sales estimate
provided by the Company in its fiscal year 2001 annual report on Form 10-K/A.
Most of the decrease in sales is attributable to the Automotive Segment.
Excluding EBITDA of the Machinery Segment, the Company now expects its
EBITDA for the 2001 to be between $85 and $88 million, compared to the $93
million estimate provided by the Company at the beginning of the year.
Substantially all of the decrease in EBITDA is attributable to the Automotive
Segment.
FINANCIAL CONDITION
The following are certain financial data regarding EBITDA, as defined
below, cash flows and earnings to fixed charges and preferred stock dividends
(excluding the Machinery Segment):
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26
Nine Months Ended
August 31
------------------------
2001 2000
---- ----
(In millions of dollars)
EBITDA $65.1 $70.3
Cash provided by operating activities 32.4 37.1
Cash provided by (used in)investing activities (35.8) 44.4
Cash provided by (used in) financing
activities 9.7 (83.5)
Cash provided by discontinued operations 1.0 .7
Preferred stock dividends accreted 9.8 8.7
Earnings/fixed charges and preferred stock dividends
.44X 1.26X
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings before
interest expense, income taxes, depreciation and amortization, certain special
management compensation expenses, insurance proceeds and other non-cash items,
such as gains and losses from divestitures. EBITDA, as defined herein, may not
be comparable to similarly titled measures reported by other companies and
should not be construed as an alternative to operating income or to cash flows
from operating activities, as determined by accounting principles generally
accepted in the United States of America, as a measure of the Company's
operating performance or liquidity, respectively. Funds depicted by EBITDA are
not available for management's discretionary use to the extent they are required
for debt service and other commitments.
The Company's EBITDA for the nine months ended August 31, 2001 and 2000,
excluding the Machinery Segment, was $65.1 million and $70.3 million,
respectively. The decrease in EBITDA occurred primarily in the Automotive
Segment. As stated above, excluding EBITDA of the Machinery Segment EBITDA, for
the Company for 2001 is expected to be between $85 million and $88 million.
Operating Activities
Cash provided by operating activities was $32.4 million and $37.1 million
for the nine months ended August 31, 2001 and 2000, respectively, and consisted
of the following:
NINE MONTHS ENDED
AUGUST 31
-----------------
2001 2000
---- ----
(in millions of dollars)
Income (Loss) from continuing
operations before taxes $(13.2) $19.9
Depreciation and amortization,
excluding amortization of
deferred financing costs 45.1 43.6
Divestitures .5 (12.2)
Excess of interest expense
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over interest paid 7.0 4.8
Income taxes refunded (paid), net 1.7 (6.8)
Working capital and other (8.7) (12.2)
---- -----
$32.4 $37.1
==== ====
See "Results of Operations" for discussions concerning income (loss) before
taxes, depreciation and amortization, divestitures and interest expense.
The excess of interest expense over interest paid results primarily from
three items. First, semi-annual interest was due September 1 on the Company's
Subordinated Notes. Secondly, interest expense includes amortization of deferred
financing costs, which does not affect cash. Finally, the Company's revolving
credit facility consists of numerous notes with varying maturities. In 2001,
certain of the notes matured after May 31, so less interest was paid in the
first six months of 2001 compared to 2000.
The Company received a "quick refund" in the first quarter of 2001 of some
of the income tax payments made in 2000.
The Company has made a concerted effort to improve its working capital
position by monitoring receivables, managing inventory levels and seeking longer
payment terms. However, in the third quarter of 2001, the Company made the final
distribution from EPI's chapter 11 reorganization of approximately $10.6
million, which adversely impacted cash provided by operating activities.
Investing Activities
Capital expenditures were $34.9 million in the nine months ended August
31, 2001. The majority of the capital expenditures were made in the Automotive
Segment. These expenditures related to new product launches for
precision-machined products and a new rubber-to-metal coating line. Investing
activities provided $44.4 million in cash in the comparable period of 2000. The
Company sold the Divested Divisions during the first nine months of 2000, which
resulted in aggregate net proceeds of $84.8 million. Also in the first nine
months of 2000, the Company made capital investments of $30.2 million, primarily
in the Automotive Segment, and acquisitions totaling $11.8 million in the
Technologies Segment.
Financing Activities
The Company had a net increase in borrowing of $12.4 million in the
nine months ended August 31, 2001. This was due in part to large amounts of cash
received on the last day of the month by the Company that we were unable to
apply to debt. The Company had $14.8 million in cash on August 31, which was
$7.3 million more than was held at November 30, 2000. In addition, the Company
spent $34.9 million in capital expenditures, which was $2.5 million more than
was generated by continuing operations. In the comparable period of 2000, the
Company applied the proceeds from the divestitures and the insurance settlement
to debt, reducing the balances on revolving credit facilities by $63.5 million,
in addition to regularly scheduled debt repayments of $11.1 million and
repayment of an industrial revenue bond of $8.0 million.
Earnings to Fixed Charges and Preferred Stock Dividends
The ratio of earnings from continuing operations to fixed charges and preferred
stock dividends for the nine months ended August 31, 2001 and 2000 was .44x and
1.26x,
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respectively. In 2001, earnings were insufficient to cover fixed charges and
preferred stock dividends by $23.0 million. In 2000, the ratio was significantly
impacted by the insurance proceeds of $16.0 million and gains resulting from
divestitures of $12.2 million. If these items were excluded from the calculation
in 2000, the ratio of earnings from continuing operations to fixed charges and
preferred stock dividends would be .60x and earnings would not have been
sufficient to cover fixed charges and preferred stock dividends by $17.1
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations and available credit facilities
are considered adequate to fund both the short-term and long-term capital needs
of the Company. As of August 31, 2001, the company had $45.9 million available
to be drawn under its revolving credit facility and an amount up to $7.3 million
available to be drawn under its Receivables Loan Agreement, based on a formula
of total receivables outstanding as of a certain date. In addition, the
Company's European operations had several unsecured lines of credit on which
$4.7 million was available to draw as of August 31, 2001. The Company was in
compliance with the covenants of its Credit Agreement, Subordinated Notes and
the European credit agreements as of August 31, 2001.
The Company enters into interest rate swap agreements to manage its
variable interest rate exposure. Per the terms of the swap agreement, the
Company exchanges, at specified intervals, the difference between fixed and
variable interest amounts based on a certain notional amount. During the first
quarter of 2001, the Company entered into various swap agreements effectively
fixing the base interest rate (i.e. before the applicable spread) on $90 million
of the Company's debt under the Credit Agreement at a weighted average interest
rate of 5.678%. These swap agreements mature by December 15, 2003.
The second and final bankruptcy distribution from EPI's chapter 11
reorganization of approximately $10.6 million was made June 25, 2001. This was
financed from the Company's revolving credit facility.
The Company's Receivables Loan Agreement, which was renewed through May 15,
2002, has a term of 364 days and it is expected to be renewed for an additional
364 days upon maturity.
NEW ACCOUNTING STANDARDS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("SFAS
140"). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Company would be required to adopt this statement for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for the year ending November 30, 2001.
In June 2001, the FASB issued three additional pronouncements. SFAS No.
141, "Business Combinations," requires that all acquisitions be accounted for
using the purchase method. SFAS No. 142, "Goodwill and Intangible Assets,"
presumes that goodwill and other intangible assets have infinite lives and, as
such, prescribes that these assets will not be amortized, but rather tested at
least annually for impairment. This pronouncement also
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provides specific guidance on testing intangible assets. SFAS No. 143,
"Accounting for Asset Retirement Obligations," requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS 141 is effective for all business combinations
initiated after June 30, 2001. We will be required to adopt SFAS No. 142 and
SFAF No. 143 no later than our fiscal year ending November 30, 2003.
In September 2001, the FASB issued SFAS No. 144, " Accounting for the
Impairment or Disposal of Long-Lived Assets," which superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The primary difference is that goodwill has been removed from
the scope of SFAS No. 144. It also broadens the presentation of discontinued
operations to include a component of an entity rather than a segment of a
business. A component of an entity comprises operations and cash flows that can
clearly be distinguished operationally and for financial accounting purposes
from the rest of the entity. The Company will be required to adopt the
provisions of SFAF No. 144 no later than the first quarter of our fiscal year
ended November 30, 2003.
The Company is currently analyzing these new pronouncements.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
EPI and the Subsidiary Guarantors are subject to restrictions on the
payment of dividends and other forms of payment in both the Credit Agreement and
the Indenture for the Subordinated Notes. Those restrictions generally prohibit
the payment of dividends to the Company either directly by EPI or indirectly
through any Subsidiary Guarantor. Certain limited exceptions are provided
allowing for payments to the Company. Specifically, EPI is authorized to make
payments to the Company in amounts not in excess of any amounts the Company is
required to pay to meet its consolidated income tax obligations. Additional
payments from EPI to the Company are permitted commencing September 1, 2003 in
amounts not in excess of the Company's obligations to make any cash dividend
payments required to be paid under the Company's Preferred Stock and to make any
cash interest payments required to be paid under any debentures issued by the
Company in exchange for the Company's Preferred Stock ("Exchange Debentures").
FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent that they are not
statements of historical fact, constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E
of the Securities Exchange Act of 1934. The words "estimate," "anticipate,"
"project," "intend," "believe," "expect," and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include, but
are not limited to, statements under the headings "Automotive Segment Outlook,"
"Technologies Segment Outlook," "Minerals Segment Outlook," and "Company
Outlook." Such forward-looking information involves risks and uncertainties that
could cause actual results to differ materially from those expressed in any such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
customers, demand for the Company's products, the ability of the Company to
successfully implement productivity improvements and/or cost reduction
initiatives, the ability of the Company to develop, market and sell new
products, the ability of the Company to obtain raw materials, increased
government regulation or changing regulatory policies resulting in higher costs
and/or restricting output, increased price competition, currency fluctuations,
general economic conditions, acquisitions and divestitures, technological
developments and
29
30
changes in the competitive environment in which the Company operates. Persons
reading this report are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into interest rate swap agreements ("Swap Agreements") to
manage interest rate costs and risks associated with changing interest rates.
The differential to be paid or received under these agreements is accrued and
recognized as adjustments to interest expense. During the first quarter ended
February 28, 2001, the Company entered into various interest rate swap
agreements with a commercial bank having a total notional amount of $90 million.
The effective dates of these agreements were March 5, 2001 and March 15, 2001
and they mature December 5, 2003 and December 15, 2003, respectively. These
agreements effectively change the interest rate exposure on $90 million of the
Company's floating debt to a fixed rate of 5.678% plus the applicable spread.
The Company anticipates entering into additional interest rate swap agreements
through the maturity date of the Credit Agreement. Both the revolving and term
loans bear interest at the Company's option, of an adjusted LIBOR rate plus
2-3/4% or the bank's prime rate plus 1-1/2%. There is a commitment fee on the
facility equal to 1/2% per annum on the undrawn portion of the facility and fees
for letters of credit are equal to 2-3/4% per annum. If the Company meets or
fails to meet certain financial benchmarks, the interest rate spreads,
commitment fees and fees for letters of credit may be reduced or increased.
Loans under the Company's accounts receivable loan agreement
("Receivables Agreement") bear interest at a variable rate equal to market rates
on commercial paper having a term similar to the applicable interest period with
fees of 1-1/4% on the maximum amount available. The Company's industrial revenue
bonds ("IRB's") bear interest at variable rates based on the market for similar
issues. Loans under the Receivables Agreement and the IRB's are not covered by
the Swap Agreements.
As of August 31, 2001, $188.5 million of revolving and term loans were
outstanding under the Credit Agreement, of which interest on $90.0 million is
essentially fixed by the Swap Agreements. The interest rate risk on the debt
outstanding under the Receivables Agreement, the foreign debt and the IRB's,
which in the aggregate totals $61.6 million, has not been hedged. Accordingly, a
1% increase in the applicable index rates would result in additional interest
expenses of $1.6 million per year, assuming no change in the level of borrowing.
Based on the fair value of the Swap Agreements held at August 31, 2001, the
Company has recorded a loss of $3.4 million in Other Comprehensive Income.
The Company also enters into various foreign currency forward contracts
to hedge a portion of its forecasted sales, generally within the next 12 months.
The Company manages most of these exposures on a consolidated basis, which
allows for netting certain exposures to take advantage of any natural offsets.
The Company's principal areas of exposure are related to sales denominated in
the currencies of Europe, Mexico and Canada with the majority of this exposure
in European currencies. As of August 31, 2001, the Company had outstanding
foreign exchange forward contracts with aggregate notional amounts of $15.2
million. Based on the fair value of the futures contracts being held as of
August 31, 2001, the Company has recorded a net loss of $.4 million in the nine
months ended August 31, 2001 in Other Comprehensive Income.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note D regarding Legal Matters contained in Item 1 of this
report, which is incorporated by reference in this Part II, as its Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.21 - Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001.
10.59 - Executive Employment Agreement effective July 15, 2001
between EPI and John H. Weber.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements 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/ Albert Iedema
-------------------------------
Albert Iedema
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE October 12, 2001
--------------------------
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SIGNATURES
Pursuant to the requirements 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 INDUSTRIES, INC.
/s/ Albert Iedema
-------------------------------
Albert Iedema
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE October 12, 2001
--------------------------
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SIGNATURES
Pursuant to the requirements 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.
DAISY PARTS, INC.
/s/ Tom B. Scherpenberg
-----------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
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35
SIGNATURES
Pursuant to the requirements 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 DEVELOPMENT COMPANY, INC.
/s/ Tom B. Scherpenberg
--------------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
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36
SIGNATURES
Pursuant to the requirements 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 FAR EAST, INC.
/s/ Tom B. Scherpenberg
-----------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
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SIGNATURES
Pursuant to the requirements 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 MINERALS, INC.
/s/ Tom B. Scherpenberg
------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
37
38
SIGNATURES
Pursuant to the requirements 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 TECHNOLOGIES, LLC
/s/ R. Doug Wright
-------------------------------
R. Doug Wright
Vice President, Controller
and Chief Financial Officer
DATE October 12, 2001
-----------------------
38
39
SIGNATURES
Pursuant to the requirements 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.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Tom B. Scherpenberg
----------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
39
40
SIGNATURES
Pursuant to the requirements 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.
EPMR CORPORATION (F/K/A MICHIGAN
AUTOMOTIVE RESEARCH CORPORATION)
/s/ Tom B. Scherpenberg
----------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE October 12, 2001
-----------------------
40
41
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3.21 Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001.
10.59 Executive Employment Agreement effective July 15, 2001 between
EPI and John H. Weber.
EX-3.21
3
l90728aex3-21.txt
EXHIBIT 3.21
1
Exhibit 3.21
CERTIFICATE OF AMENDMENT
OF
AMENDED RESTATED CERTIFICATE OF INCORPORATION
OF
EAGLE-PICHER HOLDINGS, INC.
Eagle-Picher Holdings, Inc., a corporation duly organized and existing
under the Delaware General Corporation Law (the "Corporation"), does hereby
certify:
FIRST: That Article 4 of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
4. CAPITAL STOCK. The total number of shares of capital stock which the
Corporation is authorized to issue is (i) 1,000,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), and (ii) 50,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred
Stock"), which Preferred Stock the Board of Directors of the
Corporation is hereby expressly authorized to issue from time to time
in one or more series, each series having such voting powers,
dividends, designations, preferences and other rights, qualifications,
limitations and restrictions as designated by the Board of Directors
from time to time. The holders of shares of Common Stock shall be
entitled to one vote per share on all matters which may be submitted to
the holders of Common Stock of the Corporation. At the effective time
of this amendment each share of Class A Common Stock of the
Corporation, par value $0.01 per share, and each share of Class B
Common Stock of the Corporation, par value $0.01 per share, outstanding
immediately prior to the effective time shall be changed into and
reclassified as one share of Common Stock of the Corporation.
SECOND: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by its duly authorized officer this 31st day of August,
2001.
EAGLE-PICHER HOLDINGS, INC.
By:
----------------------------------------
Name: David G. Krall
Title: Senior Vice President
EX-10.59
4
l90728aex10-59.txt
EXHIBIT 10.59
1
EXHIBIT 10.59
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 15, 2001, between EAGLE-PICHER INDUSTRIES,
INC. (the "Company") and JOHN H. WEBER (the "Executive").
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive, and
the Executive accepts employment, effective as of July 15, 2001, as President
and Chief Executive Officer of the Company and of Eagle-Picher Holdings, Inc.,
to perform such duties consistent with his position as may be assigned to him
by the Board of Directors of the Company (the "Board"). The Executive shall
commence his aforementioned duties on September 22, 2001. The Executive shall
report directly to the Board of Directors of the Company and shall be elected
to the Board on September 22, 2001. The Executive shall devote substantially
all of his time during normal business hours to the business and affairs of the
Company except for vacation as provided in Paragraph 2(l) herein, illness or
incapacity. The Executive shall not, during his employment pursuant to the
Agreement, engage in any other business activity or occupation for gain, profit
or other pecuniary advantage without the prior consent of the Board; provided,
however, that such a prohibition shall not prohibit the Executive from
investing or trading for his own benefit in stocks, bonds, securities or other
forms of investment.
2. COMPENSATION; EXPENSES; BENEFITS.
2.a. BASE SALARY. As compensation for his services hereunder in
whatever capacity rendered, the Company shall pay to the Executive a base
salary, payable in equal installments twice a month at such times as is
customary with respect to the Company's executives, at a rate of $600,000 per
year ("Base Salary"). The Executive will not be entitled to any additional
compensation for any position held with an affiliate of the Company or for
representing the Company or its affiliates. The Executive's Base Salary shall
be reviewed annually and subject to increase at the discretion of the Board.
2.b. SIGN-ON BONUS. In lieu of a sign-on bonus, payment of the
Executive's Base Salary as provided for in Paragraph 2(a) shall commence on July
15, 2001.
2.c. EXECUTIVE INCENTIVE BONUS. The Executive shall be entitled to an
annual bonus based on his achievement of annual objectives mutually agreed upon
by the Board and the Executive. Said bonus shall be a percentage of the
Executive's Base Salary, which percentage can range in an amount from zero
percent (0%) up to a maximum of one hundred percent (100%) of Base Salary. The
percentage of the Executive's Base Salary to be paid as an annual bonus shall be
determined by the Executive's achievement of the mutually agreed upon annual
objectives. For the fiscal year ending November 30, 2002, the Executive will
receive a guaranteed bonus of at least forty-five percent (45%) of his Base
Salary. Any bonus earned shall be paid no later than five (5) business days
following approval by the Board of the Company's audited financial statements
for the fiscal year to which the bonus relates. The parties agree that the
Executive's target bonus shall be sixty percent (60%), based upon meeting plans
and objectives mutually agreed to prior to each fiscal year.
2
2.d. PREFERRED STOCK REFINANCING BONUS. If a "Preferred Stock
Refinancing" (as defined in Appendix A hereto) is completed, the Executive shall
be entitled to the Preferred Stock Refinancing Bonus as provided in Appendix A
hereto.
2.e. LONG TERM BONUS PLAN. The Executive shall participate in a
long-term bonus plan pursuant to the terms and conditions set forth in Appendix
B hereto (the "LTB Plan"). The Executive has been asked by the Board to redesign
the Company's existing equity participation programs. If the Board approves any
new equity participation plan or program to replace one or more of those
currently in place, the Executive shall have the right, at his sole discretion,
to exchange his rights under the LTB Plan for the right to participate in such
new plan(s) for the same aggregate value. If the Executive is still employed
when the last grant is made under the LTB Plan, the Company agrees to negotiate
in good faith with the Executive to establish a new long term bonus program
based on realistic market valuations at such time that is at least as favorable
to the Executive as the LTB Plan.
2.f. EMPLOYEE BENEFIT PLANS. The Executive shall be eligible to
participate in all pension, hospitalization, medical, long-term disability, and
life insurance programs and/or other retirement, welfare and fringe benefit
plans, programs or arrangements now or hereafter in effect for executives of the
Company (the "Employee Benefit Plans"), on the same terms as are at any given
time in effect for executives of the Company. The Company has asked the
Executive to redesign the Employee Benefit Plans. If the Company adopts any new
Employee Benefit Plan, whether or not designed by the Executive, the Executive
shall have the option of electing to remain covered by all of the prior plans so
long as the Executive gives notice of such election within three (3) months
following the Board's approval of the new plans. If continuation of the prior
plans is not possible or feasible under applicable law, the Company shall
provide the Executive with the cash or benefits equivalent on an after-tax basis
to the value of those plans that the Executive has lost, i.e., the excess of any
of the value of the prior plans over the value of the new plans.
2.g. AUTOMOBILE. The Company shall provide to the Executive, during
the term of this Agreement, the use of an automobile that is comparable to the
Executive's currently leased vehicle (Jaguar Vanden Plas Supercharged MSRP of
$85,000) for which the Company shall pay the cost of insurance, taxes,
maintenance and business related operating expenses upon presentation by the
Executive of documentation supporting such expenses, plus an additional amount
necessary to pay all federal, state, local and payroll taxes on all payments
related to said automobile.
2.h. CLUB FEES. The Company shall pay the Executive's membership dues
for a private luncheon/country club and for the cost of the Executive's
membership in the Young Presidents Organization. The Company shall reimburse the
Executive for his travel expenses related to any meetings of the Young
Presidents Organization.
2.i. BUSINESS EXPENSES. The Executive shall be entitled to
reimbursement for his ordinary and necessary business expenses incurred in the
performance of his duties hereunder including all office expenses such as rent,
first class travel for all flights of three (3) hours or more, reimbursement for
reasonable upgrade charges and business related entertainment expenses, provided
that his claims therefor are documented in accordance with the
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Company's usual rules and regulations, and are reviewed quarterly by the Board
and reimbursement approved by the Chairman of the Board.
2.j. MOVING EXPENSES. In the event that the Executive relocates for
the Company, the Company will reimburse the Executive for all moving and travel
expenses for him and his family to the headquarters' location in accordance with
Appendix C hereto.
2.k. APARTMENT. The Company shall pay for the cost of an apartment for
the Executive in Cincinnati, Ohio, for a total rental of up to $36,000 per annum
and shall also pay all of the Executive's travel costs from his home to
Cincinnati, Ohio.
2.l. VACATION. The Executive shall be entitled to four (4) weeks
vacation each calendar year.
3. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision of this
Agreement, the Executive's employment may be terminated as follows:
3.a. CAUSE. Cause means any of the following: (i) the Executive's
commission of any crime involving an act or acts of dishonesty that constitute a
felony and result or were intended to result directly or indirectly in gain to
or personal enrichment of the Executive or engages in misconduct that
constitutes a serious felony; or (ii) the Executive's material willful breach of
his duties under this Agreement which breach is not cured by the Executive
within ten (10) days of receipt of written notice of such breach from the Board
to the Executive. The Company shall give the Executive three (3) business days'
written notice of its decision to terminate the Executive under clause (i) above
and shall specify the event relied upon for the termination. In the event the
Executive is terminated for cause pursuant to this Paragraph, the Company's
obligations to pay compensation expenses and benefits described in Paragraph 2
of this Agreement shall cease on the date of termination for cause, except for
unpaid salary or benefits for the period prior to the termination and the
Executive's right to exercise his vested LTBs after such termination as set
forth in Appendix B.
3.b. BY COMPANY WITHOUT CAUSE. By the Company, other than pursuant
Paragraphs 3(a), 3(e) or 3(f), in which event the Executive's employment
hereunder shall be deemed terminated as of the ninetieth (90th) day following
the giving of written notice to the Executive of the Company's decision to
terminate pursuant to this Paragraph. The Company may elect to suspend the
Executive following the giving of notice hereunder up to the date of
termination, subject to the Company's continuing obligation to pay the
Executive's compensation and benefits under Paragraph 2. If the Company
terminates the Executive's employment hereunder, the Executive shall be entitled
to the payments set forth under Paragraph 3(c)(ii) of this Agreement.
3.c. BY EXECUTIVE WITH GOOD REASON.
3.c.i. By the Executive, upon the occurrence of any of the
following events:
3.c.i.(1) Failure to elect or reelect the Executive to, or
removal of the Executive from, the offices referred to in Paragraph 1.
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3.c.i.(2) A significant diminution in the nature or scope of the
essential authorities, powers, functions, duties or responsibilities
attached to the positions referred to in Paragraph 1 or a reduction in
the compensation, expenses or benefits described in Paragraph 2, which in
either event is not remedied within thirty (30) days after receipt by the
Company of written notice from the Executive.
3.c.i.(3) Within two (2) years of a Change in Control, as
defined below, the Executive gives written notice to the Company of his
determination made in his discretion that, as a result of a Change in
Control:
3.c.i.3.(A) he is unable to carry out the authorities,
powers, functions, duties or responsibilities related to the
positions described in Paragraph 1; or
3.c.i.3.(B) his working conditions otherwise have
become unacceptable and, in the discretion of the Executive, the
situation is not remedied to his satisfaction within thirty (30)
days after receipt by the Company of written notice from the
Executive of such determination, outlining the Executive's
objections and proposed solutions that have not been implemented
by the Company.
3.c.i.(4) A breach by the Company of any provisions of this
Agreement not embraced within the foregoing clauses (1), (2) and (3),
which is not remedied within thirty (30) days after receipt by the
Company of written notice from the Executive of the breach.
In any event set forth in this Paragraph, the Executive shall give
written notice to the Board that he has elected to terminate his
employment, which notice shall be given not less than thirty (30) days
prior to the termination. Said written notice will be given within three
(3) calendar months after (A) the Executive's failure to be elected or
reelected, or his removal, or (B) expiration of the thirty-day cure
period, if applicable. The Company may elect to suspend the Executive
following receipt of the Executive's Notice of Termination from the date
of the Company's receipt of said Notice, up to the date of termination,
subject to the Company's continuing obligation to pay the Executive's
compensation and benefits under Paragraph 2 herein. If the Executive
elects to terminate his employment pursuant to Paragraph 3.c.i.3, he
shall not be entitled to any benefit or right resulting from such Change
in Control, except for the benefits and rights provided pursuant to this
Agreement, and he shall reimburse the Company or its successor for any
such benefit or right (other than benefits or rights provided pursuant to
this Agreement) received prior to his election to terminate pursuant to
Paragraph 3.c.i.3.
3.c.ii. In the event that the Executive terminates his employment
pursuant to Paragraph 3(c)(i) or the Company terminates his employment pursuant
to Paragraph 3(b) of this Agreement:
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3.c.ii.(1) The Company shall pay the Executive for eighteen (18)
months (the "Severance Period") an amount equal to the then-existing Base
Salary provided in Paragraph 2(a). At the Company's option, said payment
can be made monthly or in a lump sum.
3.c.ii.(2) The Company shall pay the Executive a pro rata share
of the annual bonus described in Paragraph 2.c for the year in which
termination occurred, which shall be calculated by multiplying the number
of full and partial months of employment for the year of termination
preceding the termination by one-twelfth (1/12) of the Executive's annual
bonus for the contract year preceding the year of termination, which pro
rata bonus shall be paid as described in Paragraph 2.c. In addition, for
the Severance Period, the Executive shall be paid one hundred fifty
percent (150%) of the Executive's annual bonus for the fiscal year
proceeding the year of termination, which shall be paid in a lump sum no
later than five (5) business days after the effective date of termination
or in equal monthly installments during the Severance Period, at the
election of the Company.
3.c.ii.(3) During the Severance Period in addition to payment of
the Base Salary, the Executive shall continue to be entitled to all
benefits and perquisites provided for in Paragraph 2 (f), as if the
Executive had not been terminated, unless expressly prohibited by
applicable law.
3.c.ii.(4) To the extent set forth in Appendix A hereto, the
Executive shall be entitled to a Preferred Stock Refinancing Bonus if a
Preferred Stock Refinancing is completed during the Severance Period.
3.c.ii.(5) The Executive shall have the rights set forth in
Appendix B hereto with respect to the SAR Plan.
3.c.iii. For purposes of this Agreement, a "Change of Control" of the
Company shall be deemed to have occurred as a result of any of the following:
3.c.iii.(1) Granaria Holdings no longer owns, directly or
indirectly, stock possessing at least a majority of the voting power of
the Company;
3.c.iii.(2) The Company's gross sales are less than $500 million
for a period of at least one fiscal year as a result of the sale of the
Company's assets (excluding the sale of CED);
3.c.iii.(3) The Board approves a consolidation or merger of the
Company with another corporation and such consolidation or merger is
consummated, unless such consummation results in Granaria Holdings owning
stock possessing a majority of the voting power, directly or indirectly,
in the surviving entity and the Executive is offered the position of
President, CEO and
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member of the Board of Directors of the surviving entity on terms and
conditions at least as favorable as those set forth herein; or
3.c.iii.(4) A change in the Board occurs with the result that
the members of the Board on the date hereof ("Incumbent Directors") no
longer constitute a majority of such Board; provided, that any person
becoming a director whose election or nomination for election was
supported by a majority of the Incumbent Directors shall be considered an
Incumbent Director for purposes hereof; and provided, further, that any
director whose appointment or nomination occurs and is required and made
by any person other than the Company and its affiliates (including
Granaria Holdings and ABN-AMRO) in connection with an acquisition of
Common Stock of the Company pursuant to a merger, consolidation, purchase
of shares or similar transaction involving the Company shall not be
treated as an Incumbent Director. Upon his election to the Board, the
Executive shall be an Incumbent Director.
3.d. BY EXECUTIVE WITHOUT GOOD REASON. By the Executive, at any time and
for any reason, in which event the Executive's employment hereunder shall be
deemed terminated as of the ninetieth (90th) day following the giving of written
notice to the Company of the Executive's decision to terminate pursuant to this
Paragraph. The Company may elect to suspend the Executive following receipt of
the Executive's Notice of Termination from the date of the Company's receipt of
the Notice, up to the date of the termination, subject to the Company's
continuing obligation to pay the Executive's compensation and benefits under
Paragraph 2 herein. In the event the Executive terminates his employment
pursuant to this Paragraph, the Company's obligations to pay compensation
expenses and benefits described in Paragraph 2 of this Agreement shall cease on
the date of such termination, except for unpaid salary or benefits for the
period prior to the termination and the Executive's right to exercise his vested
LTBs after such termination as set forth in Appendix B, and all entitlements to
the Refinancing Bonus as provided in Appendix A.
3.e. DISABILITY. In case of the Executive's disability, which for this
purpose shall mean that, as a result of illness or injury, the Executive is
unable substantially to perform his duties hereunder for a period of at least
twelve (12) consecutive months, the Company may terminate the Executive's
employment hereunder by giving him at least thirty (30) days' notice of
termination. The Executive agrees that in the event of any dispute under this
Paragraph to submit to a physical examination by a licensed physician selected
by the Company. If the Company terminates the Executive's employment pursuant to
the foregoing, for the duration of his disability, the Executive will be
entitled to receive payments under the Company's long-term disability policy.
Except as specifically provided in Paragraph 1(b) of Appendix A hereto, the
Executive shall not be entitled to a Preferred Stock Refinancing Bonus with
respect to any Preferred Stock Refinancing completed after the date his
employment is terminated for disability. The Executive shall have the rights set
forth in Appendix B hereto with respect to the LTB Plan.
3.f. DEATH. Upon the death of the Executive, the Company shall continue
to make payments under Paragraphs 2(a) ("Base Salary") and 2(f) ("Employee
Benefit Plans") for three (3) months from the date death and proceeds shall
become payable under the
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death benefit plans described in Paragraph 2(f) in accordance with their terms.
Except as specifically provided in Paragraph 1(b) of Appendix A hereto, if the
Executive dies before the completion of a Preferred Stock Refinancing, the
Company shall have no obligation to pay a Preferred Stock Refinancing Bonus with
respect to such refinancing. The Executive's estate shall have the rights set
forth in Appendix B hereto with respect to the LTB Plan.
3.g. EXCISE TAX GROSS UP.
3.g.i. In the event any payment that is either received by the
Executive or paid by the Company on his behalf or any property or any
other benefit provided to him under this Agreement or under any other
plan, arrangement or agreement with the Company or any member of the
Company's affiliated group (as defined in Section 280G(d)(5) of the
Internal Revenue Code (the "Code"))(collectively the "Company Payments"),
will be subject to the tax (the "Excise Tax") imposed by Code Section
4999 or any substantially similar tax that may hereafter be imposed by
any taxing authority, the Company shall pay to the Executive an
additional amount (the "Gross-up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Company Payments and any federal, state, and local income and payroll
taxes upon the Gross-up Payment provided for by this Paragraph before
deduction for any federal, state, and local income and payroll taxes on
the Company Payments, shall be equal to the Company Payments. In no event
shall the Company have any obligation to make any other payment to the
Executive with respect to any federal, state or local income, payroll or
other tax with respect to the Company Payments.
3.g.ii. The determination of whether any of the Company Payments
and the Gross-up Payment (collectively the "Total Payments") will be
subject to the Excise Tax and the amount of such Excise Tax will be made
by the Company's independent certified public accountants appointed prior
to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants or the Company, provided that
such counsel advised the Company with regard to tax matters prior to any
such change in ownership (the "Accountants"). The value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Code Section 280G. Any
determination by the Accountants shall be binding upon the Company and
the Executive. Any Gross-Up Payment will be paid to the Executive within
ten (10) business days of the Accountant's determination of the amount of
such payment. If the Internal Revenue Service makes a claim that would
require the payment of Excise Tax in an amount greater than that
calculated by the Accountants, the provisions of Paragraph 3.g.v. shall
control the determination of the amount of the Excise Tax.
3.g.iii. For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation applicable to the
Executive in the calendar year in which the Gross-up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation applicable to the Executive in the state and locality of the
Executive's residence for the calendar year in which the Company Payment
is to be
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made, net of the maximum reduction in federal income taxes which could be
obtained by the Executive from deduction of such state and local taxes if
paid in such year.
3.g.iv. In the event that the Excise Tax ultimately paid by the
Executive, taking into account any refund amount, is less than the amount
taken into account hereunder at the time the Gross-up Payment is made,
the Executive shall repay to the Company, at the time that the Excise Tax
is paid or the refund is received, as applicable, the portion of the
prior Gross-up Payment attributable to such reduction (plus the portion
of the Gross-up Payment attributable to the Excise Tax and federal, state
and local income tax imposed on the portion of the Gross-up Payment being
repaid by the Executive if such repayment results in a reduction in
Excise Tax or federal, state and local income tax deduction), plus
interest on the amount of such repayment at the rate provided in Code
Section 1274(b)(2)(B).
3.g.v. The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment of any Excise Tax in excess of the amount determined under
Paragraph 3.g.ii. Such notification shall be given as soon as practicable
but no later than five business days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim before the expiration of the 30-day
period following the date on which it gave such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing before the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith to contest
such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim.
The Company shall bear and pay directly all costs and expenses (including
additional interest, deemed interest with respect to interest-free advances and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Paragraph 3.g, the Company shall control all
proceedings taken in connection with such
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contest and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine. If the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder, and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. INDEMNIFICATION. The Company will indemnify the Executive (and his
estate) to the fullest extent permitted by the laws of the State of Ohio that
are in effect at the time of the subject act or omission, or the Restated
Certificate of Incorporation and By-Laws of the Company, as in effect at such
time or on the effective date of this Agreement, whichever affords or afforded
greater protection to the Executive (including payment of expenses in advance of
final disposition of a proceeding). Furthermore, the Executive shall be entitled
to the protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers, against all costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representatives in connection with any action, suit or proceeding to which he
(or his legal representatives or other successors) may be made a party by reason
of his being or having been a director, officer or employee of the Company or
his serving or having served any other enterprise as a director, officer or
employee at the request of the Company.
5. ARBITRATION. In case of any dispute or disagreement arising out of or
in connection with this Agreement, the parties hereto hereby agree to submit
said dispute or disagreement under the National Rules for the Resolution of
Employment Disputes ("Rules") of the American Arbitration Association ("AAA").
The hearings will be held in Cincinnati, Ohio and will be conducted pursuant to
the Rules of the AAA. The dispute will be submitted to a panel of arbitrators
selected in accordance with the Rules of the AAA. The panel or arbitrators'
award shall be issued within one hundred twenty (120) days following submission
of the dispute to the AAA. Any decision or award of said arbitration panel shall
be final and binding on the Company and the Executive.
6. SURVIVAL OF OBLIGATIONS. The obligations under Paragraphs 4
(Indemnification) and 5 (Arbitration) shall survive the termination of this
Agreement for any reason, whether such termination is by the Company, by the
Executive, upon the expiration of this Agreement or otherwise.
7. SEVERABILITY. In case any one or more of the provisions or part of a
provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability
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shall be deemed not to affect any other jurisdiction or any other provision or
part of a provision of this Agreement, but this Agreement shall be reformed and
construed in such jurisdiction as if such provision or part of a provision held
to be invalid or illegal or unenforceable had never been contained herein and
such provision or part reformed so that it would be valid, legal and enforceable
in such jurisdiction to the maximum extent possible.
8. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement between the Company and the Executive with respect to the subject
matter hereof and supersedes all prior written agreements. This Agreement may
not be amended, waived, changed, modified or discharged except by an instrument
in writing executed by or on behalf of the party against whom any amendment,
waiver, change, modification or discharge is sought.
9. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, postage prepaid, first class as follows:
(a) TO THE COMPANY: (b) TO THE EXECUTIVE:
Chairman of the Board 5112 Rockridge Road
Granaria Holding Phoenix, Arizona 85018
P.O. Box 233
2501 CE The Hague
The Netherlands
and/or to such other persons and addresses as either party shall have specified
in writing to the other.
10. NO RAID; NON-COMPETITION. The Executive agrees that he will not, for
a period of eighteen (18) months following his termination of employment, for
any reason whatsoever, do any of the following:
10.a. solicit, entice, persuade, encourage or otherwise induce any
individual or entity (including any subsidiary or affiliate of such individual
or entity and any officer, stockholder, partner, employee or other
representative of such individual or entity) that was a customer of the Company
(whether or not the Executive provided services for such customer) at any time
Executive was an employee of the Company (i) to refrain from purchasing products
manufactured by the Company or using the services of the Company or (ii) to
purchase products and services available from the Company from any person or
entity other than the Company;
10.b. hire or otherwise engage the services of any officer or
employee of the Company or any of its subsidiaries or affiliates;
10.c. solicit, entice, persuade, encourage or otherwise induce any
employee of the Company (including any of its subsidiaries or affiliates) to
terminate such employment or to become employed by any person or entity other
than the Company; or
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10.d. own, manage, control or participate in the ownership,
management or control, or be employed or engaged by or otherwise affiliated or
associated as an employee, consultant, independent contractor, director, agent,
or otherwise with any other corporation, partnership, proprietorship, firm,
association or other business entity in the world that manufactures or sells any
product that competes with or is a substitute for any product manufactured or
sold by the Company on the date of the Executive's termination of employment;
provided, however, that the Executive may own up to one percent (1%) of any
class of publicly traded securities of any such entity. Notwithstanding the
foregoing, the Executive may own, participate in or be employed by any entity
that manufactures or sells any product that competes with or is a substitute for
any product manufactured or sold by the Company on the date of the Executive's
termination of employment if, and only if, the aggregate annual revenue
contributed by all of such competitive or substitute products to such other
entity is not greater than five percent (5%) of such entity's total annual
revenue and the Executive does not have any direct management responsibility for
such competitive as substitute products manufactured or sold by such other
entity. For purposes of this Paragraph 10.d, the term "direct management
responsibility" means that the management of the manufacture or sale of
competitive or substitute products comprises a material part the Executive's
duties
11. CONFIDENTIALITY. The Executive agrees that he will not, following his
termination of employment, for any reason whatsoever; use, disclose, furnish or
make accessible, directly or indirectly, in any manner or for any purpose
unauthorized by the Company, any trade secrets, confidential or proprietary
information or any information, documents or materials owned, developed or
possessed by the Company, whether in tangible or intangible form, pertaining to
the business of the Company, including, without limitation, identities of
clients and prospective clients, identities of individual contacts at business
entitles which are clients or prospective clients, and business relationships
provided, that this Paragraph 11 shall not apply to information generally known
to the public.
12. ASSIGNABILITY. In the event that the Company shall be merged with, or
consolidate into, any other entity, or in the event that it shall sell and
transfer substantially all of its assets to another entity, and if, in the case
of either event, regardless of whether or not the transaction results in a
"Change in Control" under the provisions of this Agreement referred to in
Paragraph 3(c)(iii) (Change in Control), the terms of this Agreement shall inure
to the benefit of, be assumed by, and be binding upon, the entity resulting from
such merger or consolidation, or to which the Company's assets shall be sold and
transferred; provided, however, that in the event that this Agreement is
assigned by the Company, in connection with such a merger, consolidation or sale
or transfer, or otherwise, the Executive and his dependents, beneficiaries,
estate and surviving spouse shall be entitled to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had this Agreement not been assigned. This Agreement shall not be
assignable by the Executive, but it shall be binding upon, and shall inure to
the benefit of, his heirs, executors, administrators and legal representatives.
13. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Ohio.
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14. WAIVER AND FURTHER AGREEMENT. Any waiver of any breach of any terms
or conditions of this Agreement shall not operate as a waiver of any other
breach of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
15. MISCELLANEOUS; TAXES.
15.a. The paragraph headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
15.b. Notwithstanding anything herein to the contrary, except as
otherwise specifically provided in this Agreement (including the Appendices) or
any other written agreement between the Company and the Executive, the Executive
shall be liable for paying all taxes of any kind imposed on him with respect to
the amounts and benefits payable to him hereunder.
Dated: September 4, 2001
EAGLE-PICHER INDUSTRIES, INC.
----------------------------- By
JOHN H. WEBER ------------------------------------
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APPENDIX A
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PREFERRED STOCK REFINANCING BONUS
The Company hereby represents that: As of the date hereof, 51.8% of the
outstanding Preferred Stock of the Company is owned by Dakruiter, a special
purpose vehicle based in Luxembourg (the "SPV"), which is owned by ABN AMRO
("AA") and Granaria Holdings ("GH"). AA and GH have entered into a Shareholders'
Agreement, dated March 23, 2001, the material terms of which have been disclosed
to the Executive (the "Shareholders' Agreement").
1. AMOUNT OF PREFERRED STOCK BONUS.
-------------------------------
1.a. Upon completion of each Preferred Stock Refinancing, (the
"Completion Date"), the Executive shall be entitled to a cash bonus, calculated
as follows:
Completion Date is: Percentage of SPV Profit
Prior to March 31, 2005 5%
Prior to April 30, 2006 4%
After April 30, 2006 3%
1.b. The Executive shall be entitled to receive the cash bonus
described in this Appendix A if he is still employed by the Company on the
Completion Date, provided that, if substantial actions have been put in motion
prior to the Executive's date of termination that result in a Preferred Stock
Refinancing, the Executive (or his estate, if applicable) shall be entitled to
the following percentage of the bonus: (i) 100%, if the Completion Date occurs
within the Severance Period if his employment is terminated by the Company
without cause (pursuant to Paragraph 3(b) of the Employment Agreement) or by the
Executive for good reason (pursuant to Paragraph 3(c) of the Employment
Agreement), or (ii) 50%, if the Completion Date occurs on or before the first
anniversary of the termination of his employment as a result of the Executive's
disability or death (pursuant to Paragraph 3(e) or (f), respectively, of the
Employment Agreement). The Executive shall not be entitled to the cash bonus
described in this Appendix A if the Completion Date occurs after the Executive's
termination for cause (pursuant to Paragraph 3(a) of the Employment Agreement)
or voluntary termination (pursuant to paragraph 3(d) of the Employment
Agreement).
1.c. Notwithstanding Paragraph 1a above, the Executive's Preferred
Stock Bonus shall not be less than $2.5 million (or $2.5 million times the
percentage of Preferred Stock transferred if less than all of the Preferred
Stock of the SPV is transferred) if the Preferred Stock Refinancing is at one
hundred percent (100%) of the present face value of the shares (which is $10,000
each) or the applicable percentage between one hundred percent (100%) and
eighty-three percent (83%) if the Completion Date is prior to March 1, 2003.
1.d. If a Preferred Stock Refinancing occurs, and the Executive and
the Company cannot agree whether the Executive is entitled to a Preferred Stock
Refinancing Bonus
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and/or the amount thereof, the Company shall provide the Executive with a true
and complete copy of the Shareholders' Agreement (including all amendments
thereto) within three days of Executive's request therefor.
2. DEFINITIONS.
-----------
2.a. "SPV Profit" shall be determined in accordance with the
following formula:
Shares Transferred
SPV Profit = Proceeds - Aggregate Cost x ----------------------
Shares Owned
Where:
"Proceeds" means the proceeds of the Preferred Stock Refinancing received by SPV
in cash or other liquid assets plus dividends paid with respect to the Preferred
Stock
"Aggregate Cost" means the aggregate price paid by SPV to acquire the Preferred
Stock plus all brokerage fees and similar costs related to the acquisition and
transfer of the Preferred Stock
"Shares Transferred" means the number of shares of Preferred Stock transferred
by SPV in the Preferred Stock Refinancing
"Shares Owned" means the number of shares of Preferred Stock owned by the SPV at
the time of the Preferred Stock Refinancing
SPV Profit will not be reduced by any interest cost or taxes payable by the SPV.
2.b. "Preferred Stock Refinancing" shall mean any transaction as a
result of which all or any portion of the Preferred Stock owned by the SPV is
transferred to a third party (including the Company but excluding GH, AA and
Residex) in exchange for cash or other liquid assets. The date as of which the
assets received are fully and unconditionally liquid shall determine the date
that such refinancing has been completed.
3. PAYMENT.
3.a. The Company shall pay the Executive a Preferred Stock Refinancing
Bonus in cash within thirty (30) days after the Completion Date; provided,
however, that if the SPV does not receive all of the Proceeds (as defined above)
of the Preferred Stock Refinancing on the Completion Date, the Company shall pay
the Executive a pro rata portion of the Preferred Stock Refinancing Bonus, which
pro rata portion shall be determined by multiplying the amount of the Preferred
Stock Refinancing Bonus by a fraction, the numerator of which is the Proceeds
received by the SPV on the Completion Date and the denominator of which is the
total Proceeds. Thereafter, the Company shall pay the Executive the remainder of
the Preferred Stock Refinancing Bonus or a pro rata portion thereof, as Proceeds
are received by the SPV, within thirty (30) days of the SPV's receipt of such
Proceeds; provided, however, that if any Proceeds are received by the SPV at any
time after the third anniversary of the Executive's
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termination of employment under this Agreement, the Executive shall not be
entitled to any further amount of the Preferred Stock Refinancing Bonus with
respect to such Proceeds and the Company shall have no further obligation to pay
the remainder of the Preferred Stock Refinancing Bonus with respect to such
Proceeds.
3.b. If the exact value of the Preferred Stock Refinancing Bonus
cannot be determined prior to the date for payment, the Company shall make an
interim payment to the Executive based on a good-faith estimate on the date for
payment. Thereafter, within five business days after the amount is determined
(but in no event more than sixty (60) days after the Completion Date), the
Company shall pay the Executive any additional amount due, and the Executive
shall return to the Company any amount paid to him by the Company to which he
was not entitled.
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APPENDIX B
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LONG-TERM BONUS PLAN
1. ANNUAL GRANTS.
-------------
1.a. The Executive shall be granted long-term bonus percentages
("LTBPs") in accordance with the terms and conditions of this Appendix B, as
follows:
GRANT DATE 3-YEAR VESTING 4-YEAR VESTING
September 22, 2001 .625% .6875%
September 22, 2002 .625% .6875%
September 22, 2003 .625% .6875%
September 22, 2004 .625% .6875%
1.b. The Executive shall be entitled to a grant of an LTBP on each of
the Grant Dates if he is still employed on such date or such Grant Date falls
with the Severance Period (as defined in Paragraph 3(c)(ii) of the Employment
Agreement) and the Executive's employment was terminated by the Company without
cause (pursuant to Paragraph 3(b) of the Employment Agreement) or by the
Executive for good reason (pursuant to Paragraph 3(c) of the Employment
Agreement).
2. VESTING DATES.
-------------
2.a. On or before each annual Grant Date, the Executive shall be
entitled to elect whether the LTBP to be granted on such date will be a ".625%
LTBP" subject to "3-Year Vesting," or a ".6875% LTBP" subject to "4-Year
Vesting." Once such a grant is made, such election may not be changed for such
grant, but may be changed for future grants.
2.b. Except as otherwise provided herein or in the attached Employment
Agreement, (i) each .625% LTBP subject to 3-Year Vesting shall vest and become
exercisable in equal tranches on each of the first three anniversaries of the
Grant Date, and (ii) each .685% LTBP subject to 4-Year Vesting shall vest and
become exercisable in equal tranches on each of the first four anniversaries of
the Grant Date.
2.c. Notwithstanding anything herein or in the Employment Agreement
to the contrary, all LTBPs previously granted to the Executive shall immediately
become vested and exercisable, if (i) a change in control (as defined in the
Employment Agreement) occurs, or (ii) the Executive's employment is terminated
by the Company without cause (pursuant to Paragraph 3(b) of the Employment
Agreement), or by the Executive for good reason (pursuant to Paragraph 3(c) of
the Employment Agreement).
2.d. If the Executive's employment is terminated for disability or
as a result of his death (pursuant to Paragraph 3(e) or 3(f) of the Employment
Agreement, respectively), a pro rata portion of each tranche of outstanding
LTBPs that would become vested
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on the next vesting date shall immediately become vested and exercisable based
on the number of days the Executive was employed since the prior vesting date.
3. EXERCISE/TERMINATION DATE.
3.a. Except as otherwise provided herein, the Executive shall be
entitled to exercise any LTBP at any time on or after the date such LTBP (or any
portion thereof) becomes vested and before the Termination Date of such LTBP.
3.b. The "Termination Date" of each LTBP shall be the tenth
anniversary of the Grant Date, subject to earlier termination as provided
herein.
3.c. Notwithstanding anything herein or in the Employment Agreement
to the contrary, all outstanding unvested LTBPs shall terminate immediately if
the Executive's employment is terminated by the Company for cause (pursuant to
Paragraph 3(a) of the Employment Agreement), and all vested LTBP's shall remain
outstanding and exercisable until the earlier of their respective Termination
Dates or the second anniversary of such termination, provided that the Company
may restrict the periods during which such LTBPs may be exercised.
3.d. If the Company terminates the Executive's employment without
cause (pursuant to Paragraph 3(b) of the Employment Agreement) or the Executive
terminates his employment for good reason (pursuant to Paragraph 3(c) of the
Employment Agreement), all outstanding LTBPs (and those granted during the
Severance Period pursuant to Paragraph 1(b) above) shall remain outstanding and
exercisable until the earlier of their respective Termination Dates or the first
anniversary of such termination.
3.e. If the Executive terminates his employment without good reason
(pursuant to Paragraph 3(d) of the Employment Agreement), all unvested LTBPs
shall terminate immediately and all vested LTBPs shall remain outstanding and
exercisable until the earlier of their respective Termination Dates or the
second anniversary of such termination, provided that the Company may restrict
the periods during which such LTBPs may be exercised.
3.f. If the Executive's employment is terminated for disability or
as a result of his death (pursuant to Paragraph 3(e) or 3(f) of the Employment
Agreement, respectively,) all unvested LTBPs shall terminate immediately and all
vested LTBPs shall remain outstanding and exercisable until the earlier of their
respective Termination Dates or the first anniversary of such termination.
4. PAYMENT OF LTBPS.
----------------
4.A. Upon the exercise of an LTBP, the Executive shall be entitled to
receive a cash bonus payment equal to the "Exercise Value" of such LTBP on the
exercise date minus its "Entrance Value."
4.b. "Entrance Value" of each LTBP shall be deemed to be the lower
of (i) $1 or (ii) the Exercise Value that the vested portion of such LTBP would
have had if based on the Company's 2001 financial results.
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4.c. "Exercise Value" of each LTBP for these purposes shall be deemed
to be:
the vested portion of the LTBP
TIMES
(i) the product of 6.54 TIMES the Company's EBITDA for the
fiscal year preceding the year in which the exercise
occurs, MINUS (ii) the sum of the Company's Debt and the
book value of all the then outstanding Preferred Stock,
determined as of the end of such preceding fiscal year.
4.d. "EBITDA" for these purposes shall mean EBITDA for the relevant
fiscal year of the Company as determined by the Company's independent certified
public accountants in accordance with the standard U.S. GAAP rules, as adjusted
pursuant to clause f. below.
4.e. "Debt" for these purposes shall mean the Company's outstanding
interest bearing debt, as adjusted pursuant to clause f. below.
4.f. For purposes of calculating the Entrance Value and the Exit
Value, the following adjustments shall be applied to the EBITDA and Debt figures
included in the Company's U.S. GAAP financial statements:
i. all off-balance sheet financings (such as accounts receivable
securitizations, sales and leasebacks) shall be added back to the net
Debt;
ii. non-recurring or one-time cost and income items shall be
subtracted from EBITDA;
iii. EBITDA of divisions sold or eliminated during a fiscal year
shall be subtracted from EBITDA to the extent that [the proceeds from
such sales are reflected in a reduction in the net Debt for such year].
If the Executive and the Company cannot agree whether an item should be an
adjustment to EBITDA or Debt for these purposes, or either shall propose an
additional adjustment, the issue shall promptly be referred for decision to the
independent certified public accountants who prepared the Company's U.S. GAAP
financial statements for such year. Such decision shall be made within two weeks
of such referral, and shall be binding on all parties.
4.g. The bonus payments provided by this Plan shall be determined
solely by the express terms of this Plan and do not depend on any increase in
the equity value of the Company.
5. PAYMENT.
5.a. The Company shall pay the Executive the cash bonus payment to
which he is entitled upon exercise of any LTBP within thirty (30) days of the
exercise thereof.
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5.b. If the exact cash bonus payment to which Executive is entitled
upon exercise of an LTBP cannot be determined prior to the date for payment
because the Company's financial statements for the prior fiscal year have not
been finalized, the Company shall make an interim payment to the Executive of
the estimated cash bonus payment on the date for payment based on the most
recent available figures. Thereafter, within five business days after the
financial statements have been approved by the Board, the Company shall pay the
Executive any additional cash bonus due, and the Executive shall return to the
Company any cash bonus paid to him by the Company to which he was not entitled.
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APPENDIX C
----------
RELOCATION PROGRAM JOHN WEBER
EELIGIBILITY |X| In accordance with IRS criteria
MISCELLANEOUS ALLOWANCE |X| 2 months' new base salary
|X| cost of new appliances, registering cars in
new state, installation of cost of phones,
TV, drapes, etc
HOMESALE AND MORTGAGE |X| in accordance with EP' existing plan; if
this does not exist, then in accordance with
below:
|X| All costs of sale of old house
|X| All costs of obtaining mortgage on new house
|X| Loss on Sale
- 50% reimbursed by EP
- Maximum of $20,000
DESTINATION ASSISTANCE |X| Househunting Trip for employee and one
additional person
- 1 trip, 7 days
- Travel, lodging, meals, and childcare
TRANSITION |X| Temporary Living
- Up to 30 days for employee and family
|X| Final Move Trip
- Travel, lodging and meals
HOUSEHOLD GOODS |X| Shipment
- Packing, loading and transporting
- Insurance
|X| Vehicle Shipment
|X| Storage - Up to 60 days
TAX ASSISTANCE |X| Tax gross-up provided where applicable
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