Honeywell International: Statement on NARCO Trust

On November 18, 2022, Honeywell entered into a definitive agreement (the “Repurchase Agreement”) with the North American Refractories Asbestos Personal Injury Settlement Trust (the “Trust”) providing for the elimination of Honeywell’s funding obligations to the Trust .

The Trust, with the consent of Honeywell, has filed a petition with the bankruptcy court which, if approved, would allow for the redemption of our obligation to fund the Trust. Honeywell currently has an ongoing obligation to the NARCO Trust to fund asbestos-related claims and operating expenses of the Trust, which obligations currently have no expiry date. If approved by the bankruptcy court, the redemption will extinguish these obligations.

The proposed redemption involves an initial cash payment to the Trust of $1.325 billion (the “Redemption Amount”), subject to certain adjustments, as further explained below, in exchange for the satisfaction of our obligation. continue to fund [1] claims against the Trust, which include liability for Honeywell’s NARCO asbestos-related claims, as well as [2] the Trust’s annual operating expenses, including its legal fees (approximately $21 million in 2021). The closing of the repurchase is subject to the satisfaction of certain conditions, including a final order from the bankruptcy court that (A) approves the repurchase agreement, and (B) declares that the NARCO channeling injunction (which prohibits all present and future individual actions in state or federal courts based on exposure to NARCO asbestos-containing products and requires all such claims to be brought against the Trust) shall remain in full force and effect without modification. The closing of the repurchase is also subject to the adherence of the NARCO Trust Advisory Board and Lawrence Fitzpatrick, in his capacity as representative of future NARCO asbestos claimants, to the repurchase agreement. If the repurchase agreement is approved by the bankruptcy court, the closing of the repurchase would also resolve all litigation currently pending between Honeywell and the Trust.

The Repurchase Agreement provides that the Trust will retain its ownership interest in HarbisonWalker International Holdings, Inc. (“HWI”). The economic rights of the Trust to such interest (including any dividend or sale proceeds) will continue to inure to the benefit of Honeywell. Honeywell will also continue to have the right to collect revenue under its NARCO asbestos-related insurance policies and will therefore continue to accrue such receivables.

If the repurchase agreement is approved by the bankruptcy court, NARCO’s current reserve of $695 million as of September 30, 2022 (which reflects the company’s estimate for the resolution of NARCO’s asbestos-related claims for all years of epidemiological disease projection through 2059, but does not consider potential benefits related to HWIs or insurance recoveries) would be removed from Honeywell’s balance sheet, and Honeywell would recognize an expense associated with the settlement of Honeywell’s obligations under the Repurchase Agreement.

Honeywell hopes the bankruptcy court will approve the buyout so that we can permanently extinguish the liabilities on our books as well as our ongoing obligation to fund the Trust’s expenses each year. There can be no assurance that the bankruptcy court will approve the redemption on terms acceptable to us or that all conditions to the redemption will be satisfied. Honeywell will continue to manage our ongoing litigation and manage our liabilities accordingly if the takeover is not approved.

For more information, please see our current report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2022.

This document contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that address activities, events or developments that management has determined. intends, plans, projects, believes or predicts that it will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ materially from those contemplated by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements, except as required by applicable securities laws. Our forward-looking statements are also subject to risks and uncertainties that may affect our performance in the short and long term. Further, no assurance can be given that any plan, initiative, projection, goal commitment, expectation or outlook set forth in this statement can or will be realized. All forward-looking plans described herein are not final and may be changed or discontinued. We identify key risks and uncertainties that affect our performance in our Forms 10-K, Forms 10-Q and other filings with the Securities and Exchange Commission.

FREQUENTLY ASKED QUESTIONS (FAQ)

How did Honeywell acquire this responsibility?

  • NARCO (North American Refractories Company) manufactured high quality heat resistant refractory products for various industries. Refractory materials are generally used in furnaces, kilns, incinerators and reactors. Honeywell’s predecessor, Allied Corporation, owned NARCO from 1979 to 1986.

  • Allied sold the NARCO business in 1986 and entered into an agreement whereby Allied, then Honeywell, shared liability with NARCO for asbestos-related claims resulting primarily from alleged occupational exposure to refractory bricks and mortars containing asbestos sold or manufactured by NARCO.

  • Honeywell established its original liability for NARCO asbestos claims in 2002.

What is the history of the Trust?

  • NARCO filed for bankruptcy in 2002 and emerged from bankruptcy in April 2013, at which time a federally authorized trust was established to assess and resolve all of NARCO’s existing asbestos claims (the “Trust”). Honeywell is protected by a discharge injunction, which bars all present and future individual actions in state or federal courts and requires that all asbestos-related claims based on exposure to NARCO asbestos-containing products be brought. against the Trust.

  • The NARCO Trust Agreement (“TA”) and NARCO Trust Distribution Procedures (“TDP”) set out the structure and operating rules of the Trust and establish the ongoing funding obligations of Honeywell to fund, among other ,

    • Claims against the Trust; and

    • The annual operating expenses of the Trust, which were $21 million in 2021; this number may vary from year to year depending on the handling of claims, legal and other fees.

Why have we sued the Trust?

  • The TDP’s Operating Rules set out the criteria claimants must meet to establish the validity of their asbestos claims. Once the trust became operational in 2014, it began processing and paying claims. Honeywell identified several issues with the way the trust operated and consistently raised concerns with the trust that the trust was improperly paying claimants who failed to demonstrate the required exposure to asbestos-containing products. NARCO in violation of the TDP.

  • The Trust refused to change its claims payment practices, and in September 2021, Honeywell filed an action against the Trust in bankruptcy court alleging that the Trust had breached its obligations to manage the Trust, including violations of certain provisions of the TA and the TDP. Honeywell’s lawsuit seeks appropriate relief to prevent the Trust from continuing these practices.

  • The bankruptcy court conducted a trial on these issues in May 2022.

  • If the Repurchase Agreement is approved by the Bankruptcy Court, the consummation of the transactions contemplated in the Repurchase Agreement (the “Closing of the Repurchase”) will also resolve all outstanding litigation between Honeywell and the Trust.

  • In the event that bankruptcy court approval is not obtained, Honeywell will continue to preserve all of its available rights.

What will happen if there is no redemption?

  • If the redemption is not consummated, Honeywell will continue to manage our ongoing litigation with the Trust until its conclusion, and will continue to comply with our obligations to fund the Trust pursuant to applicable Trust agreements, to manage the liabilities accordingly and to preserve all of our available rights.

Why does the initial cash payment exceed the existing NARCO reserve?

  • The initial cash payment (the “Redemption Amount”) will exceed our current NARCO reserve. The reserve represents the company’s estimate for the resolution of NARCO’s asbestos claims for all disease epidemiological projection years through 2059, but does not take into account potential benefits related to recoveries from HWI or ‘insurance. The reserve does not include any obligations of Honeywell associated with the Trust’s operating expenses. In addition to its obligations to fund NARCO’s asbestos claims, Honeywell has an ongoing obligation to pay the Trust’s annual operating expenses, including its legal fees (including operating expenses, for reference , amounted to approximately $21 million in 2021). Although this number fluctuates from year to year depending on the Trust’s claims and litigation, it gives a general idea of ​​what has been spent in recent years.

  • The Repurchase Agreement provides that the Trust will retain its interest in HWI, unless and until such interest is sold, and the Trust’s economic rights in such interest (including any dividends or proceeds of sale) will continue to inure to the benefit of Honeywell.

  • Following the closing of the buyout, Honeywell will continue to have the right to collect proceeds related to its NARCO asbestos insurance policies.

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