<PAGE>
As filed with the Securities and Exchange Commission on March 10, 1999
Registration No: 333-72217
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EAGLE PACIFIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 3080 76-0590909
<S> <C> <C>
(State or other
jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
</TABLE>
900 Threadneedle
Houston, Texas 77079-2990
(281) 588-3000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
Mark J. Schneider
President
EAGLE PACIFIC HOLDINGS, INC.
900 Threadneedle
Houston, Texas 77079-2990
(281) 588-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<CAPTION>
Daniel A. Yarano, Esq. Marc H. Folladori, Esq.
<S> <C>
Fredrikson & Byron, P.A. Haynes and Boone, L.L.P.
900 Second Avenue South, Suite 1100 1000 Louisiana Street
Minneapolis, Minnesota 55402-3397 Suite 4300
(612) 347-7000 Houston, Texas 77002
(713) 547-2000
</TABLE>
----------------
Approximate date of commencement of proposed sale of the securities to the
public: Upon consummation of the Merger, as described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
[Eagle letterhead]
March , 1999
Dear Eagle Pacific Industries, Inc. Shareholder:
I am pleased to invite you to attend the Special Meeting of Shareholders of
Eagle Pacific Industries, Inc. ("Eagle"), which will be held on April ,
1999, at [ ] .m., local time, at the Minneapolis Hilton and Towers Hotel,
located at 1001 Marquette Avenue, Minneapolis, Minnesota.
The Board of Directors of Eagle has determined that it is in the best
interest of Eagle and its shareholders to combine Eagle's business with The
Lamson & Sessions Co.'s polyvinyl chloride pipe business and CONDEA Vista
Company's Oklahoma City resin manufacturing business. This combination will be
achieved in three steps: (1) Eagle will purchase substantially all the assets
and assume certain liabilities of Lamson's polyvinyl chloride pipe business;
(2) CONDEA Vista will cause its Oklahoma City resin manufacturing business to
be transferred to a subsidiary of Eagle Pacific Holdings, Inc. ("Holdings"), a
newly-formed holding company, in exchange for 9,829,717 shares of Holdings'
common stock; and (3) Eagle will acquire the Oklahoma City resin manufacturing
business by merging with Holdings' subsidiary.
As a result of the merger, Eagle will become a wholly-owned subsidiary of
Holdings, and you will become a stockholder of Holdings. Shares of Eagle common
stock will be exchanged one for one for shares of Holdings' common stock,
shares of Eagle Series A 7% Convertible Preferred Stock will be exchanged one
for one for shares of Holdings' Series A 7% Convertible Preferred Stock having
substantially identical rights and preferences, and shares of Eagle non-voting
8% Convertible Preferred Stock will be exchanged one for one for shares of
Holdings voting 8% Convertible Preferred Stock having, other than voting
rights, substantially identical rights and preferences. Holdings' common stock
will be traded on the . Four of Eagle's current directors, as a
group, will substantially control the affairs of Holdings, subject to certain
rights of CONDEA Vista.
The Board believes that the transactions will, among other things, diversify
Eagle's product line, increase Eagle's customer base and insure a more reliable
and stable source of raw material for Eagle's products. These benefits should
result in enhanced revenue growth, less volatile manufacturing costs and a
national presence for Eagle. The Board of Directors believes the proposed
merger is fair and in the best interests of Eagle and its shareholders and
recommends approval of the Merger Agreement.
The special meeting has been called to ask Eagle shareholders to approve
Eagle's merger with Holdings' wholly-owned subsidiary. Your approval is not
required in order for Eagle to acquire Lamson & Sessions' polyvinyl chloride
pipe business, but Eagle will not purchase Lamson & Sessions' polyvinyl
chloride pipe business unless Eagle shareholders approve the merger. Approval
of the merger will require the affirmative vote of the holders of a combined
majority of the shares of Eagle common stock and Series A 7% Convertible
Preferred Stock outstanding on the record date and the consent of the holders
of Eagle's 8% Convertible Preferred Stock.
Whether or not you plan to attend the special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you sign,
date and mail your proxy card without indicating how you wish to vote, your
proxy will be counted as a vote in favor of the merger. If you fail to return
your card, the effect will be a vote against the merger. YOUR VOTE IS VERY
IMPORTANT.
Sincerely,
William H. Spell
Chief Executive Officer
<PAGE>
Eagle Pacific Industries, Inc.
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL , 1999
To the Shareholders of Eagle Pacific Industries, Inc.:
A Special Meeting of the shareholders of Eagle Pacific Industries, Inc.
("Eagle") will be held at the Minneapolis Hilton and Towers Hotel located at
1001 Marquette Avenue, Minneapolis, Minnesota, on April , 1999, at [ ]
.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger dated December 11,
1998 (the "Merger Agreement") among Eagle, CONDEA Vista Company ("CONDEA
Vista"), Eagle Pacific Holdings, Inc. ("Holdings"), a wholly owned subsidiary
of CONDEA Vista, and CV Merger Sub, Inc. ("Merger Sub"), a wholly owned
subsidiary of Holdings. Pursuant to the Merger Agreement, Merger Sub will merge
with and into Eagle (the "Merger"), with Eagle being the surviving company in
the Merger and becoming a wholly-owned subsidiary of Holdings. Shares of Eagle
common stock will be exchanged one for one for shares of Holdings common stock.
Shares of Eagle Series A 7% Convertible Preferred Stock will be exchanged one
for one for shares of Holdings' Series A 7% Convertible Preferred Stock having
substantially identical rights and preferences. Shares of Eagle non-voting 8%
Convertible Preferred Stock will be exchanged one for one for shares of
Holdings' voting 8% Convertible Preferred Stock having, other than voting
rights, substantially identical rights and preferences. All outstanding Eagle
options and warrants will be assumed by Holdings. A copy of the Merger
Agreement is included as Appendix A to the Proxy Statement/Prospectus
accompanying this Notice.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Eagle has entered into two acquisition agreements to combine The Lamson &
Sessions Co.'s polyvinyl chloride pipe business and CONDEA Vista's Oklahoma
City resin manufacturing business with Eagle's business. To combine the
businesses, Eagle has entered into (1) an Asset Purchase Agreement with The
Lamson & Sessions Co. ("Lamson") dated December 11, 1998 whereby Eagle agreed
to purchase substantially all the assets and assume certain liabilities of
Lamson's polyvinyl chloride pipe business (the "Asset Purchase") and (2) the
Merger Agreement. While the Asset Purchase does not require approval of Eagle
shareholders, its consummation is conditioned upon the approval of the Merger
Agreement by Eagle shareholders.
With respect to the proposal to approve the Merger Agreement, Eagle common
and preferred shareholders have a right to dissent and obtain payment in cash
for their shares by complying with the terms and procedures of Sections
302A.471 and 302A.473 of the Minnesota Business Corporation Act, copies of
which are included as Appendix C to the Proxy Statement/Prospectus accompanying
this Notice.
Accompanying this Notice of Special Meeting is a Proxy Statement/Prospectus
and a form of Proxy. Only shareholders of record as shown on the books of Eagle
at the close of business on , 1999 are entitled to notice of and to
vote at the Special Meeting or any adjournments thereof. Approval of the Merger
Agreement requires the affirmative vote of the holders of a combined majority
of the shares of Eagle common stock andSeries A 7% Convertible Preferred Stock
outstanding on the record date and the consent of the holders of the 8%
Convertible Preferred Stock. All shareholders are cordially invited to attend
the Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Dobson West
, 1999 Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED PROXY
RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this proxy statement/prospectus is not complete and may be +
+changed. Holdings may not issue its common stock or preferred stock in the +
+merger until the registration statement containing this proxy +
+statement/prospectus is declared effective by the Securities and Exchange +
+Commission. This proxy statement/prospectus is not an offer to sell these +
+securities and it is not a solicitation of an offer to buy these securities +
+in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MARCH 10, 1999.
Eagle Pacific Industries, Eagle Pacific Holdings,
Inc. Inc.
333 So. Seventh St., 2430 900 Threadneedle
Metropolitan Centre Houston, Texas 77079
Minneapolis, Minnesota (281) 588-3487
55402
(612) 305-0339
EAGLE PACIFIC HOLDINGS, INC. PROSPECTUS
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS OF EAGLE PACIFIC INDUSTRIES, INC.
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Eagle Pacific Industries, Inc. ("Eagle") has
determined that it is in the best interests of Eagle and its shareholders to
combine Eagle's business with The Lamson & Sessions Co.'s polyvinyl chloride
pipe business and CONDEA Vista Company's Oklahoma City resin manufacturing
business. This combination will be achieved in three steps: (1) Eagle will
purchase substantially all the assets and assume certain liabilities of
Lamson's polyvinyl chloride pipe business; (2) CONDEA Vista will cause its
Oklahoma City resin manufacturing business to be transferred to a subsidiary of
Eagle Pacific Holdings, Inc. ("Holdings"), a newly-formed holding company, in
exchange for 9,829,717 shares of Holdings' common stock; and (3) Eagle will
acquire the Oklahoma City resin manufacturing business by merging with
Holdings' subsidiary.
As a result of the merger, Eagle will become a wholly-owned subsidiary of
Holdings, and you will become a stockholder of Holdings. Shares of Eagle common
stock will be exchanged one for one for shares of Holdings' common stock,
shares of Eagle Series A 7% Convertible Preferred Stock will be exchanged one
for one for shares of Holdings' Series A 7% Convertible Preferred Stock having
substantially identical rights and preferences, and shares of Eagle non-voting
8% Convertible Preferred Stock will be exchanged one for one for shares of
Holdings voting 8% Convertible Preferred Stock having, other than voting
rights, substantially identical rights and preferences. Holdings' common stock
will be traded on the under the symbol " ". Four of Eagle's
current directors, as a group, will substantially control the affairs of
Holdings, subject to certain rights of CONDEA Vista.
The Board believes that the transactions will, among other things, diversify
Eagle's product line, increase Eagle's customer base and insure a more reliable
and stable source of raw material for Eagle's products. These benefits should
result in enhanced revenue growth, less volatile manufacturing costs and a
national presence for Eagle. The Board of Directors believes the proposed
merger is fair and in the best interests of Eagle and its shareholders and
recommends approval of the Merger Agreement.
The special meeting has been called to ask Eagle shareholders to approve
Eagle's merger with Holdings' wholly owned subsidiary. Your approval is not
required in order for Eagle to acquire Lamson's polyvinyl chloride pipe
business, but Eagle will not purchase Lamson's polyvinyl chloride pipe business
unless Eagle shareholders approve the merger. Approval of the merger requires
the affirmative vote of the holders of a combined majority of the shares of
Eagle common stock and Series A 7% Convertible Preferred Stock outstanding on
the record date and the consent of holders of the 8% Convertible Preferred
Stock.
The date, time and place of the special meeting is: April , 1999; :00
a.m.
The Minneapolis Hilton and Towers Hotel
1001 Marquette Avenue, Minneapolis, Minnesota
This Proxy Statement/Prospectus provides you with detailed information about
the proposed transactions in order for you to make an informed decision
regarding how you should vote on the proposed merger.
See "Risk Factors" commencing on page 15 for a discussion of certain factors
which should be considered in evaluating the merger and the acquisition of the
securities to be issued.
Neither the Securities and Exchange Commission nor any state securities
regulators has approved the Holdings common stock or preferred stock to be
issued in connection with the merger or determined if this Proxy
Statement/Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
This Proxy Statement/Prospectus dated March , 1999 is first being mailed to
you on March , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS............................. 1
SUMMARY.................................................................. 3
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
DATA.................................................................... 8
EAGLE PACIFIC HOLDINGS, INC. SELECTED PRO FORMA CONDENSED COMBINED
HISTORICAL FINANCIAL DATA............................................... 10
EAGLE PACIFIC INDUSTRIES, INC. SELECTED HISTORICAL FINANCIAL DATA........ 11
THE LAMSON POLYVINYL CHLORIDE PIPE BUSINESS SELECTED HISTORICAL FINANCIAL
DATA.................................................................... 12
THE OKLAHOMA CITY RESIN MANUFACTURING BUSINESS SELECTED HISTORICAL
FINANCIAL DATA.......................................................... 13
COMPARATIVE UNAUDITED PER COMMON SHARE DATA.............................. 14
RISK FACTORS RELATING TO HOLDINGS AND EAGLE.............................. 15
GENERAL INFORMATION REGARDING THE SPECIAL MEETING........................ 18
Date, Time and Place................................................... 18
Purpose................................................................ 18
Record Date............................................................ 18
Vote and Consent Required.............................................. 18
Cost of Proxy Solicitation............................................. 18
Revocation of Proxy.................................................... 19
Quorum in Voting....................................................... 19
Proxy Card............................................................. 19
Mailing Address........................................................ 19
THE MERGER AND RELATED TRANSACTIONS...................................... 20
Description of the Merger and Related Transactions..................... 20
Conversion of Eagle Shares in the Merger............................... 20
Treatment of Stock Options and Warrants................................ 21
Effective Time of the Merger........................................... 21
Exchange of Shares of Eagle Stock...................................... 21
Background of the Transactions......................................... 21
Eagle's Reasons for the Transactions; Recommendation of the Eagle Board
of Directors.......................................................... 25
CONDEA Vista's Reasons for the Merger.................................. 27
Opinion of Eagle's Financial Advisor................................... 27
Eagle Management's Projections......................................... 29
Officers and Directors of Holdings and Eagle Following the
Transactions.......................................................... 31
Accounting Treatment of the Transactions............................... 32
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 33
THE MERGER AGREEMENT..................................................... 34
Conduct of Business of Eagle Pending the Merger........................ 34
Conduct of Business of Oklahoma City Resin Business Pending the
Merger................................................................ 34
Limitations on Negotiations............................................ 34
Conditions to Consummation of the Merger............................... 35
Amendment, Termination of the Merger Agreement; Waiver................. 35
Expenses and Fees...................................................... 36
Indemnification........................................................ 37
Related Agreements and Interests of Certain Persons in the Merger...... 37
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Restrictions on Resale of Holdings Stock............................... 39
De-registration of Eagle Common Stock.................................. 39
Certain Federal Income Tax Consequences................................ 39
Regulatory Requirements................................................ 41
Rights of Dissenting Eagle Common and Preferred Shareholders........... 41
COMPARISON OF SHAREHOLDER RIGHTS......................................... 43
General................................................................ 43
Comparison............................................................. 44
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............. 49
OKLAHOMA CITY RESIN BUSINESS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 54
General................................................................ 54
Results of Operations.................................................. 54
Liquidity and Capital Resources........................................ 56
Seasonality............................................................ 56
Year 2000.............................................................. 56
HOLDINGS AND THE OKLAHOMA CITY RESIN BUSINESSES.......................... 57
Holdings............................................................... 57
Oklahoma City Resin Business........................................... 57
General.............................................................. 57
Products............................................................. 57
Competition.......................................................... 57
Raw Materials........................................................ 58
Employees............................................................ 58
Sales to Significant Customers....................................... 58
Environmental, Health and Safety..................................... 58
Properties........................................................... 59
Legal Proceedings.................................................... 59
Dividend Policy...................................................... 59
HOLDINGS' MANAGEMENT..................................................... 60
Directors and Executive Officers....................................... 60
Directors' Compensation................................................ 60
Executive Compensation and Employment Agreements....................... 60
Security Ownership of Certain Beneficial Owners and Management of
Holdings Following the Merger (Pro Forma)............................. 61
Stock Options.......................................................... 63
Certain Relationships and Related Transactions......................... 63
DESCRIPTION OF HOLDINGS' CAPITAL STOCK................................... 65
Common Stock........................................................... 65
Class B Common Stock................................................... 65
Series A 7% Convertible Preferred Stock................................ 66
8% Convertible Preferred Stock......................................... 66
Transfer Agent and Registrar........................................... 68
Quotation of Common Stock.............................................. 68
EAGLE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 69
Results of Operations.................................................. 69
Financial Condition.................................................... 70
Outlook................................................................ 70
Year 2000 Compliance................................................... 71
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
EAGLE'S BUSINESS......................................................... 73
General................................................................ 73
Products............................................................... 73
PVC Pipe............................................................... 73
PE Pipe and Tubing..................................................... 74
Marketing and Customers................................................ 75
Competition............................................................ 75
Manufacturing and Sources of Supplies.................................. 76
Business Seasonality................................................... 76
Backlog................................................................ 76
Employees.............................................................. 76
Properties............................................................. 77
Legal Proceedings...................................................... 77
Recent Developments.................................................... 77
EAGLE'S MANAGEMENT....................................................... 79
Directors and Executive Officers....................................... 79
Executive Compensation................................................. 81
Option/SAR Grants During 1998 Fiscal Year.............................. 82
Option/SAR Exercises in 1998 Fiscal Year and Fiscal Year End Option
Values................................................................ 82
Directors' Compensation................................................ 82
Security Ownership of Certain Beneficial Owners and Management......... 83
Certain Relationships and Related Transactions......................... 84
MARKET FOR EAGLE PACIFIC INDUSTRIES, INC. COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS..................................................... 85
LEGAL MATTERS............................................................ 86
EXPERTS.................................................................. 86
WHERE YOU CAN FIND MORE INFORMATION...................................... 87
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>
APPENDIX A--Agreement and Plan of Merger
APPENDIX B--Fairness Opinion of Dougherty Summit Securities LLC
APPENDIX C--Selected Provisions of the Minnesota Business Corporation Act
Regarding Dissenters' Rights
(iii)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND RELATED TRANSACTIONS
Q: Why is Eagle proposing the merger and related transactions?
A: We believe that combining Eagle's business with Lamson's polyvinyl chloride
pipe business and CONDEA Vista's Oklahoma City resin manufacturing business
will diversify our product line, increase our customer base and insure a
more reliable and stable source of raw material for our products. These
benefits should result in enhanced revenue growth, less volatile
manufacturing costs and a national presence for Eagle.
Q: When is the special meeting?
A: The special meeting will take place on April , 1999. At the special
meeting, Eagle shareholders will be asked to approve the merger and the
related merger agreement.
Q: What do I need to do now?
A: After carefully reading and considering the information contained or
incorporated in this document, please fill out and sign the enclosed proxy
card and mail it in the enclosed return envelope as soon as possible, so
that your shares may be represented at the special meeting. Alternatively,
you may attend the special meeting to vote your shares in person, rather
than signing and mailing the enclosed proxy card.
Q: What do I do if I want to change my vote?
A: Just mail in a later-dated, signed proxy card before the special meeting or
attend the special meeting in person and sign a new proxy card or vote in
person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares ONLY if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: Should I send in my stock certificate now?
A: No. If the merger is approved and completed, we will send you written
instructions for exchanging your Eagle share certificates for Holdings share
certificates.
Q: What will I receive in the merger?
A: If you own shares of Eagle common stock, you will receive one share of
Holdings common stock for each share of Eagle common stock you own. If you
own shares of Eagle Series A 7% Convertible Preferred Stock or non-voting 8%
Convertible Preferred Stock, you will receive one share of Holdings Series A
7% Convertible Preferred Stock for each share of Eagle Series A 7%
Convertible Preferred Stock you own and one share of Holdings voting 8%
Convertible Preferred Stock for each share of Eagle non-voting 8%
Convertible Preferred Stock you own.
Q: Will I owe any federal income tax as a result of the merger?
A: No. The exchange of your Eagle shares for Holdings shares will be tax-free
to you for federal income tax purposes.
1
<PAGE>
Q: Does Holdings intend to pay cash dividends on its common stock in the
foreseeable future?
A: No.
Q: When do you expect the merger to be completed?
A: We are working towards completing the Merger as quickly as possible. In
addition to Eagle getting your approval, Eagle, CONDEA Vista and Lamson must
also obtain the approval of federal antitrust authorities. We hope to
complete the Merger by the end of April 1999.
Q: Whom should I call with questions?
A: If you have any questions about the Merger or Asset Purchase, please call
Eagle at (612) 305-0339.
2
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the transaction fully and for a more complete
description of the legal terms of the transaction, you should read carefully
this entire document and the documents we have referred you to. See "Where You
Can Find More Information" on page 85.
The Companies (page )
Eagle Pacific Industries, Inc.
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
(612) 305-0339
Eagle Pacific Industries, Inc. ("Eagle") manufactures and distributes
polyvinyl chloride pipe and polyethylene pipe and tubing products used for turf
and water irrigation, natural gas, water wells, fiber optic lines, electric and
telephone lines, and commercial and industrial plumbing. Eagle distributes its
products primarily in the upper midwest and plains states, and the mountain and
pacific northwest regions of the United States. Following the merger, Eagle
will amend its Articles of Incorporation to change its name to "Eagle Pacific,
Inc."
Eagle Pacific Holdings, Inc.
900 Threadneedle
Houston, Texas 77079
(281) 588-3000
Eagle Pacific Holdings, Inc. ("Holdings") is a new wholly owned subsidiary of
CONDEA Vista, formed for the purpose of the merger. Prior to the merger, CONDEA
Vista will cause its Oklahoma City resin manufacturing business to be
transferred to Holdings, which will transfer that business to its wholly owned
subsidiary, Merger Sub. Following the merger, Holdings will be the parent
company of Eagle. Holdings will be a non-operating holding company that will
derive all of its revenues from Eagle, its wholly-owned operating subsidiary,
which will include the combined operations of Eagle, CONDEA Vista's Oklahoma
City resin manufacturing business and Lamson's polyvinyl chloride pipe
business. Shares of Holdings' common stock will be listed on the
under the symbol " ". Following the merger, Holdings
will amend its Certificate of Incorporation to change its name to "Eagle
Pacific Industries, Inc."
CV Merger Sub, Inc.
900 Threadneedle
Houston, Texas 77079
(281) 588-3000
CV Merger Sub, Inc. ("Merger Sub") is a wholly owned subsidiary of Holdings.
It was formed for the limited purpose of merging with Eagle and, in connection
with the merger, combining the operations of CONDEA Vista's Oklahoma City resin
manufacturing business with the combined operations of Eagle and Lamson's
polyvinyl chloride pipe business. Merger Sub will disappear when it merges with
Eagle.
CONDEA Vista Company
900 Threadneedle
Houston, Texas 77079
(281) 588-3000
CONDEA Vista Company ("CONDEA Vista") is currently the sole stockholder of
Holdings. CONDEA Vista's Oklahoma City resin manufacturing business produces
polyvinyl chloride resin, the primary raw material for polyvinyl chloride
products. CONDEA Vista is currently Eagle's principal supplier of polyvinyl
chloride resin.
The Lamson & Sessions Co.
25701 Science Park Drive
Cleveland, Ohio 44122
(216) 464-3400
The Lamson & Sessions Co. ("Lamson") polyvinyl chloride pipe business
produces polyvinyl chloride electrical conduit and duct for the construction,
power, communications and wastewater markets, offering polyvinyl chloride pipe
3
<PAGE>
products ranging from 1/2 inch to 54 inches in diameter. The Lamson polyvinyl
chloride pipe business manufactures its products primarily at four production
facilities located in the United States.
The Special Meeting of Shareholders (page )
The Eagle special meeting will be held on , April , 1999 at :00
a.m., local time, at the Minneapolis Hilton and Towers Hotel, 1001 Marquette,
Minneapolis, Minnesota. At the special meeting, you will be asked:
. to approve the merger of Eagle with Merger Sub;
. to act on any other items that may be submitted to a vote at the meeting.
Eagle does not legally need your approval to acquire Lamson's polyvinyl
chloride pipe business; however, that acquisition is contingent on your
approval of the merger.
Record Date; Vote and Consent Required for Approval (page ). You can vote
at the special meeting of Eagle shareholders if you owned Eagle common stock or
Series A 7% Convertible Preferred Stock at the close of business on the record
date, which is , 1999. On the record date, there were 6,635,035 shares
of common stock and 18,750 shares of Series A 7% Convertible Preferred Stock
entitled to vote at the special meeting. Shareholders will have one vote for
each share of common stock and one vote for each share of Series A 7%
Convertible Preferred Stock they own.
Holders of a combined majority of shares of common stock and Series A 7%
Convertible Preferred Stock voting together as a group must vote in favor of
the merger in order for it to proceed. You can vote your shares by attending
the meeting and voting in person or you can mark the enclosed proxy card with
your vote, sign it and mail it in the enclosed return envelope. You can revoke
your proxy as late as the date of the special meeting either by sending in a
new proxy or by attending the meeting and voting in person or by proxy.
As a group, all executive officers and directors of Eagle beneficially own
1,200,665 shares, or 18.1%, of the Eagle common stock outstanding as of the
record date.
The consent of the holders of the Eagle 8% Convertible Preferred Stock is
also required to complete the transactions.
Our Reasons for the Merger and Related Transactions (page ). We believe
that combining Eagle's business with Lamson's polyvinyl chloride pipe business
and CONDEA Vista's Oklahoma City resin manufacturing business will diversify
our product line, increase our customer base and insure a more reliable and
stable source of raw material for our products. These benefits should result in
enhanced revenue growth, less volatile manufacturing costs and a national
presence for Eagle.
To view the reasons for the transactions in greater detail, see pages
through .
Our Recommendation to Shareholders (page ). The Board of Directors of Eagle
believes that the merger is fair to you and in your best interests, and
recommends that you vote "FOR" the proposal to approve the merger.
One current Eagle director has informed Eagle he intends to oppose the merger
(page ).
The Merger and Related Transactions (page )
We've attached the Merger Agreement to this document as Appendix A. Please
read the Agreement. It is the legal document that governs the merger.
The Board of Directors of Eagle has determined that it is in the best
interest of Eagle and its shareholders to combine Eagle's business with the
Lamson polyvinyl chloride pipe business and CONDEA Vista's Oklahoma City resin
manufacturing business. This combination will be achieved in three steps:
Step One:
Acquisition of the Lamson Polyvinyl Chloride Pipe Business (page ).
Immediately prior to the merger, Eagle will acquire substantially all the
assets and assume certain liabilities of the Lamson polyvinyl chloride pipe
business. Eagle has agreed to purchase this business for approximately
$45 million (which amount may be adjusted to account for changes in working
capital) in cash, $6 million in debt and 785,000 shares of Eagle common
4
<PAGE>
stock. Eagle intends to fund the cash portion of the purchase price through a
new senior secured credit facility.
Step Two:
Transfer of CONDEA Vista's Oklahoma City Resin Manufacturing Business to
Holdings Subsidiary (page ). Immediately prior to the merger, CONDEA Vista
will cause the transfer of its Oklahoma City resin manufacturing business
ultimately to Merger Sub in exchange for 9,829,717 shares of Holdings' common
stock.
Step Three:
Merger of Holdings' Subsidiary with Eagle (page ). Immediately following
CONDEA Vista's transfer of the Oklahoma City resin manufacturing business to
Merger Sub, Eagle will acquire the Oklahoma City resin manufacturing business
by merging with Merger Sub. After the merger, Eagle will be an operating
subsidiary of Holdings, and you will be a stockholder of Holdings.
In summary, following completion of these three steps:
. Eagle will be comprised of its present operations as well as CONDEA Vista's
Oklahoma City resin manufacturing business and Lamson's polyvinyl chloride
pipe business.
. Eagle will be a wholly owned subsidiary of Holdings.
. You will be a stockholder of Holdings.
. Holdings' primary asset will be all of the outstanding stock of Eagle.
. Eagle's current directors, William Spell, Harry Spell, Bruce Richard and
Richard Perkins will serve on Holdings' five member board of directors, along
with William Knodel, a director designated by CONDEA Vista, and will
substantially control the affairs of Holdings following the merger, subject
to certain rights of CONDEA Vista.
. CONDEA Vista will be the largest single holder of Holdings common stock.
What You Will Receive in the Merger (page ). If the merger is approved,
holders of Eagle common stock will receive one share of Holdings common stock
for each share of Eagle common stock they hold. Holders of Eagle Series A 7%
Convertible Preferred Stock will receive one share of Holdings Series A 7%
Convertible Preferred Stock having substantially identical rights and
preferences for each share of Eagle Series A 7% Convertible Preferred Stock
they hold, and holders of Eagle non-voting 8% Convertible Preferred Stock will
receive one share of Holdings voting 8% Convertible Preferred Stock having,
other than voting rights, substantially identical rights and preferences for
each share of 8% Convertible Preferred Stock they hold.
Treatment of Options and Warrants (page ). Upon completion of the merger,
each option and warrant to purchase Eagle common stock that is outstanding and
unexercised immediately before completing the merger will become an option or
warrant to purchase the same number of shares of Holdings common stock at the
same exercise price. Options will continue to be governed by the terms of
Eagle's stock option plans.
Ownership of Holdings and Eagle after the Merger (page ). Following the
merger, Holdings will own 100% of the capital stock of Eagle. The former
holders of Eagle common stock will own approximately 38.5%, Lamson will own
approximately 4.5%, and CONDEA Vista will own approximately 57.0% of the
outstanding Holdings common stock immediately after the merger.
Former holders of Eagle Series A 7% Convertible Preferred Stock and 8%
Convertible Preferred Stock will own 100% of Holdings Series A 7% Convertible
Preferred Stock and 8% Convertible Preferred Stock, respectively.
Board of Directors and Management of Holdings and Eagle after the Merger
(page ). Following the merger, Holdings and Eagle will have identical five-
person boards of directors, each consisting of four current Eagle directors,
William Spell, Harry Spell, Bruce Richard and Richard Perkins, and William
Knodel, currently Holdings' sole director.
Following the merger, William Spell, Patrick Mertens and Peter Konen, all
officers of Eagle, will serve as Holdings' Chief Executive Officer, Chief
Financial Officer and Senior Vice President of Operations, respectively, along
with Mark Schneider and Charles Matson who will serve as President and
5
<PAGE>
Senior Vice President of Sales and Marketing, respectively.
Control of Holdings Following the Merger (page ). Simultaneously with the
merger, Holdings, CONDEA Vista, and William Spell, Harry Spell, Bruce Richard
and Richard Perkins (referred to as the "Spell Group") will enter into a
Stockholders' Agreement which will govern, in part, the voting rights of CONDEA
Vista and the members of the Spell Group. The Agreement provides that for a
period of 5 years, CONDEA Vista will vote its shares of Holdings common stock
in favor of the four director nominees designated by the Spell Group, and the
Spell Group will vote its shares in favor of the one director nominee
designated by CONDEA Vista. The Agreement will also require that for any other
matter submitted to the Holdings stockholders for a vote, CONDEA Vista will
either vote its shares as recommended by the Holdings Board of Directors, or in
the same proportion as the votes cast in favor of and against such matter by
the stockholders of Holdings entitled to vote. It is expected that these
provisions will ensure that one representative of CONDEA Vista and the four
representatives of the Spell Group will constitute the Board of Directors of
Holdings following the merger and until the Stockholders' Agreement is
terminated.
As a result of the Stockholders' Agreement, the Spell Group will
substantially control Holdings. However, pursuant to Holdings' Bylaws, certain
corporate actions require the unanimous approval of Holdings' Board of
Directors. These actions include substantially changing the type of business
conducted by Holdings; acquiring an unrelated business for more than $17.5
million; selling less than all or substantially all of Holdings' assets for
more than $17.5 million; establishing any salary, directors' fees or consulting
fees for directors designated by the Spell Group in excess of certain levels;
and, with certain exceptions, any issuance of Holdings' shares or options to
any member of the Spell Group under certain plans. See page for a more
detailed description of the restrictions on Holdings' corporate actions.
Interests of Officers and Directors in the Merger (page ). A number of
directors and executive officers of Eagle have interests in the merger as
employees and/or directors that are different from, or in addition to, your
interests as shareholders.
Conditions to the Merger (page ). We will complete the merger only if a
number of conditions are met, including the following:
(1) approval of the merger by shareholders owning a combined majority of the
Eagle common and Series A 7% Convertible Preferred shares and the consent
to the merger by Eagle 8% Convertible Preferred shareholders;
(2) approval of the merger by federal antitrust authorities;
(3) the absence of any law, injunction or order prohibiting the merger;
(4) approval of the listing of Holdings common stock on Nasdaq or the New York
Stock Exchange;
(5) the completion of Eagle's acquisition of Lamson's polyvinyl chloride pipe
business; and
(6) the exercise of dissenters' rights with respect to the merger by holders of
no more than 5% of the outstanding shares of Eagle common stock.
Where law permits, CONDEA Vista and Eagle could agree to complete the merger
even though one or more of the above conditions has not been met. In addition,
the merger can only be completed if Eagle receives an opinion from its counsel
that the merger will be tax-free; this is a condition Eagle can waive. CONDEA
Vista must also receive an opinion from its counsel that the transaction will
be tax-free; this is a condition CONDEA Vista can waive. We can't be certain
when (or if) the conditions to the merger will be satisfied or waived, or that
the merger will be completed.
Termination of the Merger Agreement; Expenses (page ). Eagle and CONDEA
Vista can agree at any time to terminate the merger agreement without
completing the merger, even if you have approved it. Also, either Eagle or
CONDEA Vista can decide, without the consent of the other, to terminate the
merger agreement if, among other things:
(1) we do not complete the merger by May 31, 1999; however, neither CONDEA
Vista nor Eagle may terminate the agreement if its breach
6
<PAGE>
is the reason the merger has not been completed;
(2) a law or regulation makes the merger illegal or any order or injunction
permanently prohibits the merger;
(3) the other party breaches its representations, warranties or obligations
under the merger agreement and does not timely correct the breach;
(4) you do not approve the merger;
(5) holders of the 8% Convertible Preferred Stock do not consent to the merger;
or
(6) Eagle fails to obtain sufficient financing to fund its acquisition of
Lamson's polyvinyl chloride pipe business.
Regardless of whether the merger is completed, Eagle will pay its own fees
and expenses, and CONDEA Vista will pay its and Holdings' fees and expenses,
except that Eagle and CONDEA Vista will evenly divide the fees and expenses,
other than attorneys' fees, that they've incurred in printing, filing and
mailing this document. However, if Eagle terminates the merger agreement
because CONDEA Vista has breached one of its representations or warranties in
the merger agreement, then CONDEA Vista will pay Eagle's fees and expenses.
Likewise, if CONDEA Vista terminates the merger agreement because Eagle has
breached one of its representation or warranties in the merger agreement, then
Eagle will pay CONDEA Vista's fees and expenses.
Waiver and Amendment (page ). Eagle and CONDEA Vista can agree to amend the
merger agreement, and, where the law allows, each of them can waive their right
to require the other party to comply with the terms and conditions of the
merger agreement. However, we may not amend the agreement to reduce the amount
of stock you will get in the merger after you have approved the merger.
Regulatory Approvals (page ). Eagle and CONDEA Vista are both required to
make filings with or obtain approvals from federal antitrust authorities in
connection with the merger.
Accounting Treatment (page ). The merger will be accounted for as a reverse
acquisition purchase business combination which means Eagle will be viewed as
having purchased CONDEA Vista's Oklahoma City resin manufacturing business.
Opinion of Financial Advisor (page ). In deciding to approve the merger,
Eagle's directors, considered numerous factors including the opinion of Eagle's
financial advisor, Dougherty Summit Securities LLC, that the merger is fair
from a financial point of view to holders of Eagle common stock and preferred
stock. That opinion is attached as Appendix B, and we encourage you to read it.
Federal Income Tax Consequences (page ). We have structured the merger so
that you will not recognize any gain or loss for U.S. federal income tax
purposes when you exchange your shares.
Dissenters' Rights (page ). Eagle shareholders who disapprove of the merger
and properly exercise and perfect dissenters' rights under Minnesota law can
require Eagle to buy back their shares for their fair cash value.
Market Price Data (page ).
Eagle common stock is listed on the Nasdaq Small Cap Market under the symbol
"EPII." On December 11, 1998, the last full trading day before Eagle, CONDEA
Vista, and Lamson announced the merger and asset purchase, the closing price
per share of Eagle common stock was $1.75. On December 14, 1998, the day on
which Eagle, Lamson and CONDEA Vista announced the asset purchase and merger,
the closing price per share of Eagle common stock was $2.00. The exchange ratio
of Eagle common stock and preferred stock for Holdings common stock and
preferred stock will not change based upon any change in the market price of
Eagle common stock prior to completion of the merger. There is no established
trading market for the securities of Holdings.
Forward-looking Statements
May Prove Inaccurate (page ).
Each of Eagle and Holdings have made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking
statements include expectations concerning matters that are not historical
facts. Words such as "projects," "believes," "anticipates," "plans," "expects,"
"intends" or similar words or expressions are intended to identify forward-
looking statements.
7
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
Source of Information
Eagle and Holdings are providing the following financial information to
assist you in your analysis of the merger and related transactions. This
information was derived from the audited and unaudited financial statements of
Eagle, Lamson's polyvinyl chloride pipe business and CONDEA Vista's Oklahoma
City resin manufacturing business.
The selected historical consolidated statement of operations data for
Lamson's polyvinyl chloride pipe business has been derived from the audited
financial statements of Lamson included herein. Lamson has allocated certain
common costs which relate to both Lamson's polyvinyl chloride pipe business and
Lamson's other businesses to Lamson's polyvinyl chloride pipe business. The
basis of the allocations is described in Note C to the historical financial
statements of the Lamson polyvinyl chloride pipe business. Although management
of Lamson believes the basis for such allocations is reasonable, such amounts
may have differed if the Lamson polyvinyl chloride pipe business had been
operated on a stand alone basis or as a part of Eagle.
The selected historical financial statements of CONDEA Vista's Oklahoma City
resin manufacturing business include certain financial amounts that have been
allocated by CONDEA Vista to the Oklahoma City resin manufacturing business in
order to present the financial results of the Oklahoma City resin manufacturing
business on a stand alone basis. Although management believes that the basis
for such allocations is reasonable, the historical financial statements of the
Oklahoma City resin manufacturing business may not necessarily be indicative of
the conditions that would have existed had the Oklahoma City resin
manufacturing business been operating as a company unaffiliated with CONDEA
Vista.
The information is only a summary and you should read it in conjunction with
Eagle's, Lamson's polyvinyl chloride pipe business's and CONDEA Vista's
Oklahoma City resin manufacturing business's historical financial statements
and the related notes contained in the financial statements included in this
Proxy Statement/Prospectus. In addition, you should read the more detailed
unaudited pro forma combined financial information included elsewhere in this
Proxy Statement/Prospectus. See "Where You Can Find More Information" on page
85 and "Unaudited Pro Forma Condensed Combined Financial Statements" on page
47.
How the Unaudited Pro Forma Condensed Combined Financial Statements were
Prepared
Eagle and Holdings expect that the merger will be accounted for as a "reverse
acquisition purchase business combination" because former shareholders of Eagle
will control Holdings upon completion of the merger. For accounting and
financial reporting purposes, the merger is treated as if Eagle is acquiring
Holdings, and Eagle will allocate the purchase price to the fair value of the
Oklahoma City resin manufacturing business assets acquired and liabilities
assumed. Eagle's acquisition of Lamson's polyvinyl chloride pipe business will
be accounted for as a purchase business combination. This means that for
accounting and financial reporting purposes, Eagle will allocate the purchase
price to the fair market value of the assets acquired and liabilities assumed.
For a more detailed description of purchase accounting, see "The Merger and
Related Transactions--Accounting Treatment of the Transactions" on page 29.
The unaudited pro forma condensed combined financial statements are presented
to show you what Eagle, Lamson's polyvinyl chloride pipe business and CONDEA
Vista's Oklahoma City resin manufacturing business might have looked like had
Eagle acquired the assets and assumed the liabilities of Lamson's polyvinyl
chloride pipe business and merged with CONDEA Vista's Oklahoma City resin
manufacturing business on January 1, 1998 for the pro forma statement of
operations and on December 31, 1998 for the pro forma balance sheet. The
companies may have performed differently if they had always been combined. The
pro
8
<PAGE>
forma data does not include any potential cost savings from the merger or any
integration costs that could result from the combination of the companies. You
should not rely on the pro forma combined financial information as being
indicative of the historical results that would have been achieved or the
future results that the combined company will experience after the merger. See
"Unaudited Pro Forma Condensed Combined Financial Statements" on page 47.
Merger-Related Expenses
Eagle and CONDEA Vista estimate that merger-related fees and expenses,
consisting primarily of bank financing fees and transaction costs for fees of
investment bankers, attorneys and accountants and financial printing and other
related charges, will be approximately $450,000 for CONDEA Vista and $2,631,000
for Eagle. CONDEA Vista will record these costs as an expense when incurred.
Eagle will record the bank financing fees as an asset and will record the other
costs as a component of the purchase price paid for Lamson's polyvinyl chloride
pipe business and the Oklahoma City resin manufacturing business.
9
<PAGE>
EAGLE PACIFIC HOLDINGS, INC.
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Statement of Operations Data:
Net sales........................................................ $209,717
Loss before extraordinary loss................................... (7,868)
Basic loss before extraordinary loss per
common share (1)................................................ (0.50)
Diluted loss before extraordinary loss per
common share (1)................................................ (0.50)
Cash dividends declared per common share......................... --
Balance Sheet Data:
Total assets..................................................... $128,946
Long-term obligations............................................ 48,583
Redeemable preferred stock....................................... 10,000
</TABLE>
- --------
(1) Loss before extraordinary loss used in the earnings per share calculations
is comprised of loss before extraordinary loss less preferred stock
dividends.
10
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
SELECTED HISTORICAL FINANCIAL DATA OF EAGLE
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995(1) 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $74,006,623 $71,685,080 $65,280,138 $51,330,127 $34,076,224
Income (loss) before
extraordinary loss.... 1,787,865 930,765 3,479,313 (864,824) 1,400,434
Basic income (loss) be-
fore
extraordinary loss per
common share (2)...... 0.15 0.06 0.62 (0.27) 0.34
Diluted income (loss)
before
extraordinary loss per
common share (2)...... 0.14 0.06 0.49 (0.27) 0.24
Cash dividends declared
per
common share.......... -- -- -- -- --
Balance Sheet Data:
Total assets........... $49,618,798 $43,828,971 $35,426,564 $31,917,782 $19,181,172
Long-term obligations.. 10,582,585 9,672,470 11,008,012 11,743,512 9,426,460
Redeemable preferred
stock................. 10,000,000 10,000,000 -- -- --
</TABLE>
- --------
(1) Includes operations of Pacific Plastics, Inc. from July 1995, the date of
acquisition.
(2) Income (loss) before extraordinary loss used in the earnings per share
calculations is comprised of income (loss) before extraordinary loss less
preferred stock dividends.
11
<PAGE>
THE LAMSON POLYVINYL CHLORIDE PIPE BUSINESS
SELECTED HISTORICAL FINANCIAL DATA**
<TABLE>
<CAPTION>
Fiscal Years
---------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................ $138,569,000 $141,383,000 $165,586,000
Revenues in excess of (less than)
operating expenses.................. 2,190,000 (8,555,000) 2,275,000
Basic income (loss) per common
share............................... * * *
Diluted income (loss) per common
share............................... * * *
Cash dividends declared per common
share............................... * * *
Balance Sheet Data:
Net assets to be acquired............ 32,284,000 * *
Long-term obligations................ * * *
Redeemable preferred stock........... * * *
</TABLE>
- --------
* Not applicable to Lamson's polyvinyl chloride pipe business.
** Information related to 1995 and 1994 is not required.
12
<PAGE>
THE OKLAHOMA CITY RESIN MANUFACTURING BUSINESS
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Six months ended
Years Ended June 30, December 31,
-------------------------------------------------------------- ------------------------
1998 1997 1996 1995 1994 1998 1997
----------- ----------- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $87,760,000 $98,831,000 91,257,000 $105,204,000 $90,167,000 $30,730,000 $47,380,000
Net income (loss) ..... (4,155,000) (4,728,000) (3,236,000) 5,533,000 4,186,000 (1,396,000) (3,893,000)
Basic loss per common
share................. * * * * * * *
Diluted loss per common
share................. * * * * * * *
Cash dividends declared
per common share...... * * * * * * *
Balance Sheet Data:
Total assets........... 39,688,000 47,175,000 46,847,000 46,192,000 28,505,000 36,718,000 43,734,000
Long-term obligations.. 1,097,000 992,000 886,000 791,000 690,000 1,163,000 1,050,000
Redeemable preferred
stock................. * * * * * * *
</TABLE>
- --------
* Not applicable to CONDEA Vista's Oklahoma City resin manufacturing business.
13
<PAGE>
COMPARATIVE UNAUDITED PER COMMON SHARE DATA
The following table sets forth, for each of the periods indicated, book value
per share, cash dividends per share and basic and diluted income (loss) per
share before extraordinary loss for (1) Eagle on a historical basis, (2)
Holdings on a historical basis and (3) Holdings on a pro forma basis (which
gives effect to Eagle's purchase of Lamson's polyvinyl chloride pipe business
and the merger as a reverse acquisition business combination with Eagle being
the acquirer for financial accounting purposes).
<TABLE>
<CAPTION>
Holdings Holdings**
Eagle Common Common Stock Pro Forma
Stock Historical Historical Consolidated
---------------- ------------ ------------
<S> <C> <C> <C>
Book Value Per Share:
December 31, 1998................ $1.18 * $1.71
Cash Dividends Per Share:
Year ended December 31, 1998..... -- * --
Basic Income (Loss) Per Share
Before Extraordinary Loss:
Year ended December 31, 1998..... 0.15 * (0.50)
Diluted Income (Loss) Per Share
Before Extraordinary Loss:
Year ended December 31, 1998..... 0.14 * (0.50)
</TABLE>
- --------
* Not applicable.
** Exchange ratio is one to one and therefore the pro forma equivalent per
share data for Eagle is the same as Holdings.
14
<PAGE>
RISK FACTORS RELATING TO HOLDINGS AND EAGLE
You should carefully consider the following factors, together with other
information contained or incorporated by reference in this document, in
evaluating whether to approve the merger and the related transactions
contemplated thereby.
Integration of Operations. Eagle has entered into the merger and related
transactions with the expectation that they will result in benefits to
Holdings. See "The Merger and Related Transactions--Eagle's Reasons for the
Transactions--Recommendation of the Eagle Board of Directors." Holdings'
ability to achieve these benefits will depend in part upon its ability to
integrate Eagle's business with the Lamson polyvinyl chloride pipe business and
the CONDEA Vista Oklahoma City resin manufacturing business in a cost effective
and seamless fashion, without the loss of any key customers or employees.
Holdings will need to integrate many policies, programs and operations of the
three businesses, including the following:
. marketing and sales personnel and programs;
. purchasing and product distribution systems;
. product lines;
. management personnel;
. management information systems;
. accounting systems and controls; and
. employee benefit policies and programs.
Holdings may encounter difficulties in integrating the three businesses.
These difficulties could arise due to the fact that: (i) both the Lamson
polyvinyl chloride pipe business and the CONDEA Vista Oklahoma City resin
manufacturing business, prior to the merger, were assets owned and operated by
Lamson and CONDEA Vista and were not separate or distinct business operations,
divisions or segments; (ii) the manufacturing facilities of the Lamson
polyvinyl chloride pipe business are located in 4 different states; and (iii)
Eagle will have to relocate two of the extrusion lines of the Lamson polyvinyl
chloride pipe business and develop information systems to manage orders,
billings and other functions related to such business.
No assurance can be given that Holdings will be able to integrate Eagle's and
Lamson's polyvinyl chloride pipe businesses and the Oklahoma City resin
manufacturing business in an efficient and cost effective manner without
encountering difficulties or experiencing the loss of key employees, customers
or suppliers, or that Holdings will ever realize the benefits expected from the
combination of the three businesses.
Leveraged Purchase; Compliance with Loan Agreements. To acquire the Lamson
polyvinyl chloride pipe business, Eagle intends to borrow approximately $46
million from its proposed senior secured credit facility and issue Lamson two
$3 million unsecured promissory notes. As a result, Eagle will be highly
leveraged. If the combined company following the merger does not perform as
anticipated, its cash flow may not be sufficient to pay its debt service
obligations. If Eagle fails to meet its debt service obligations, the holders
of such debt could foreclose on the assets of Eagle.
Eagle's ability to make its scheduled debt obligations will depend on the
combined financial and operating performance of Eagle, the Lamson polyvinyl
chloride pipe business and the CONDEA Vista Oklahoma City resin manufacturing
business. Eagle is subject to prevailing economic and competitive conditions
and to certain financial, business and other factors beyond its control,
including interest rates, raw material cost and supply fluctuations, increased
operating costs and regulatory developments. There is no assurance that Eagle
will maintain a level of cash flow from operations necessary to pay the
required principal, premium, if any, and interest payments on its outstanding
loans and other debt obligations.
Furthermore, Eagle's proposed senior secured credit facility will be governed
by a loan agreement containing certain financial covenants that Eagle must
comply with. If Eagle violates a covenant, the lender
15
<PAGE>
could require Eagle to immediately repay the credit facility in full which
could force Eagle into bankruptcy. In such an event, since Eagle's stock will
be Holdings' sole asset, Holdings would essentially be bankrupt as well.
Although Eagle and Holdings believe that the combined company will be able to
meet the requirements of the proposed loan agreement, there can be no assurance
that it actually will or that the lender will waive a violation. See page
for a description of the secured credit facility.
Raw Material Cost Fluctuations. Historically, the operating results and
financial condition of Eagle and Lamson's polyvinyl chloride pipe business have
been affected by uncontrollable market fluctuations in the availability and
cost of polyvinyl chloride resin, the primary raw material for products
produced by both Eagle and the Lamson polyvinyl chloride pipe business. While
resin is generally readily available, shortages have occurred in the past that
have resulted in rapid and significant increases in prices. Eagle and Lamson
have historically attempted to pass these price increases on to their
customers, but have not always been able to do so without negatively impacting
sales volume.
One of Eagle's reasons for the merger is to manage, to the extent possible,
its raw material costs and supply by controlling the cost and supply of its raw
materials, beginning with vinyl chloride monomer ("VCM"), the primary raw
material used to produce polyvinyl chloride resin. The Oklahoma City resin
manufacturing business will be vertically integrated with Eagle following the
merger, and is expected to supply 100% of Eagle's polyvinyl chloride resin
requirements. In addition, in connection with the merger, Eagle will enter into
a VCM Supply Agreement with CONDEA Vista to purchase 100% of Eagle's VCM
requirements from CONDEA Vista. See "The Merger Agreement--Related Agreements
and Interests of Certain Persons in the Merger." There can be no guarantee that
the acquisition of the Oklahoma City resin manufacturing business and the VCM
Supply Agreement with CONDEA Vista will lessen Eagle's exposure to fluctuations
in resin prices and supply. Further, as a result of the VCM Supply Agreement,
Eagle will be unable to take advantage of declines in the market price of VCM
below certain levels.
Like polyvinyl chloride resin, VCM is also subject to commodity price
pressures and fluctuations. Consequently, VCM prices may fluctuate as a result
of changes in the supply and demand for chlorine and ethylene, VCM's primary
raw materials. These price fluctuations may adversely effect Eagle's costs for
VCM. In addition, Eagle purchases a variety of additives for the manufacture of
polyvinyl chloride resin.
If the cost of VCM, additives or other polyvinyl chloride raw materials
increase substantially, Eagle will attempt to pass on such cost increases to
its customers. However, based on past experience, Eagle believes it will not
always be able to pass on price increases to its customers. If cost increases
of VCM, additives and other raw materials cannot be passed on to customers,
Eagle's profit margin will decrease, and Eagle's profitability may therefore be
materially and adversely impacted.
Competition. The plastic pipe industry is highly competitive due to the large
number of producers and the commodity nature of the industry. Both the raw
materials used to produce plastic pipe and plastic pipe are subject to
commodity pricing pressures. Following the merger, Eagle will continue to
compete with large diversified companies, many of which have greater resources
than Eagle. Eagle will encounter significant competition, and there can be no
assurance that it will be able to compete effectively in the future.
Competition in the industry is based largely on price, and pricing pressure
will continue and could negatively affect Holdings' profit margins.
Dependence of Management. Holdings' success largely depends upon the efforts,
abilities and management skills of its executive officers and other key
employees. None of Holdings' executive officers have experience in managing the
operation of a public company the size and scope of Holdings. There is no
assurance that Holdings' executive officers will be able to successfully manage
Holdings, integrate the three businesses, and produce the maximum shareholder
value that can be achieved from the combined businesses.
Control by the Spell Group. Holdings' affairs will be substantially
controlled by the Spell Group for up to five years following the merger. There
is no assurance that the Spell Group will be able to maximize
16
<PAGE>
shareholder value of Holdings, and its control of Holdings along with its
Stockholders' Agreement with CONDEA Vista may make it more difficult or
discourage mergers, acquisitions, tender offers, proxy contests or other
takeover attempts of Holdings. Limitations on Holdings' exposure to a hostile
or friendly takeover may depress the market value of its common stock. See "The
Merger Agreement--Related Agreements and Interests of Certain Persons in the
Merger."
Compliance with Environmental Regulations. Operation of Eagle's business,
Lamson's polyvinyl chloride pipe business and the Oklahoma City resin
manufacturing business will subject Holdings to various federal, state and
local environmental laws. Under such laws and regulations, Holdings can be held
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose
liability without regard to whether Holdings knew of, or was responsible for,
the presence of such hazardous or toxic substances.
Holdings intends to endeavor to operate Eagle's business, Lamson's polyvinyl
chloride pipe business and the Oklahoma City resin manufacturing business in
compliance with all environmental laws. CONDEA Vista has agreed to indemnify
Holdings against certain liabilities arising from past violations of
environmental laws relating to the Oklahoma City resin manufacturing business
discovered within 90 months following the merger. In addition, Lamson has
agreed to indemnify Eagle against certain liabilities arising from past
violations of environmental laws relating to Lamson's polyvinyl chloride pipe
business discovered within 90 months of Eagle's purchase of the Lamson
facilities. However, no assurance can be given that such indemnities will be
adequate or that Holdings can avoid environmental liability for future
operation of Lamson's polyvinyl chloride pipe business or the Oklahoma City
resin manufacturing business.
The plastics industry, in general, and Eagle's business, Lamson's polyvinyl
chloride pipe business and the Oklahoma City resin manufacturing business, in
particular, also are subject to existing and potential federal, state, local
and foreign legislation designed to reduce solid wastes by requiring, among
other things, plastics to be degradable in landfills, minimum levels of
recycled content, various recycling requirements, disposal fees and limits on
the use of plastic products. In addition, various consumer and special interest
groups have lobbied from time to time for the implementation of these and other
similar measures. Although the legislation promulgated to date and such
initiatives to date have not had a material adverse effect on Eagle's business,
Lamson's polyvinyl chloride pipe business or the Oklahoma City resin
manufacturing business, there can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on Eagle's business, Lamson's polyvinyl chloride pipe
business or the Oklahoma City resin manufacturing business. See "Holdings and
the Oklahoma City Resin Business--Environmental, Health and Safety."
No Anticipated Dividends. Holdings does not anticipate paying cash dividends
on its common stock in the foreseeable future. Holdings intends to retain any
earnings available for dividends on its common stock for use in its business.
Further, the terms of Eagle's proposed senior secured credit facility will
prohibit the payment of cash dividends on Holdings' common stock.
Preemptive Rights and Mandatory Redemption of Preferred Stock. Holders of
Holdings 8% Convertible Preferred Stock have a right to acquire on a
proportional basis additional shares of Holdings' common stock in the event
that Holdings issues additional shares of its common stock in the future. In
addition, Holdings is required to redeem the 8% Convertible Preferred Stock at
its liquidation preference price in May of 2004, or earlier if 50% or more of
Holdings is sold or transferred. See "Description of Holdings' Capital Stock--
8% Convertible Preferred Stock." These provisions may have the effect of
delaying or discouraging Holdings from raising additional equity capital. Also,
the mandatory redemption provisions of the 8% Convertible Preferred Stock may
require Holdings to expend a significant amount of funds to satisfy its
obligation to redeem the 8% Convertible Preferred Stock.
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GENERAL INFORMATION REGARDING THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the shareholders of
Eagle in connection with the solicitation by the Board of Directors of Eagle of
proxies to be voted at the Special Meeting to be held on April , 1999 (the
"Special Meeting"). All information in this Proxy Statement/Prospectus with
respect to Eagle has been furnished by Eagle, and all information with respect
to CONDEA Vista, Holdings, Merger Sub and the Oklahoma City resin manufacturing
business has been furnished by CONDEA Vista.
Date, Time and Place
The Special Meeting will be held on April , 1999, at [ ] .m., local
time, at the Minneapolis Hilton and Towers Hotel, located at 1001 Marquette
Avenue, Minneapolis, Minnesota.
Purpose
At the Special Meeting, Eagle shareholders will be asked to consider and vote
upon the approval of the Merger Agreement and the consummation of the Merger
contemplated thereby and such other matters as may properly come before the
Special Meeting.
Record Date
The Board of Directors of Eagle has fixed the close of business on March ,
1999 as the record date (the "Record Date") for determining shareholders
entitled to vote at the Special Meeting. Persons who are not shareholders on
the Record Date will not be allowed to vote at the Special Meeting. At the
close of business on the Record Date, Eagle has issued and outstanding two
classes of stock entitled to vote at the Special Meeting: (i) 6,635,035 shares
of $.01 par value common stock (the "Common Stock"); and (ii) 18,750 shares of
Series A 7% Convertible Preferred Stock (the "Series A Preferred Stock").
Vote and Consent Required
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Eagle Common Stock and Series A Preferred
Stock voting together as a single class. Each holder of Eagle Common Stock
outstanding as of the Record Date is entitled to one vote for each share held,
and each holder of Series A Preferred Stock is entitled to one vote for each
share held. On the Record Date, there were 6,635,035 shares of Eagle Common
Stock outstanding and 18,750 shares of Series A Preferred Stock outstanding. Of
such shares, 1,200,665 shares of Common Stock (approximately 18.1% of the
outstanding shares of Eagle Common Stock) are beneficially owned by directors
and executive officers of Eagle. THE BOARD OF DIRECTORS OF EAGLE RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER. The Merger has already
been approved by the boards of directors of CONDEA Vista's parent company,
CONDEA Vista, Holdings and Merger Sub. In addition, consummation of the Merger
requires the consent of the holders of Eagle's 8% Convertible Preferred Stock
(the "8% Preferred Stock").
Cost of Proxy Solicitation
The cost of soliciting proxies, assembly, and mailing proxies and soliciting
material, as well as the cost of forwarding such material to the beneficial
owners of Eagle Common Stock and Series A Preferred Stock, will be borne by
Eagle and CONDEA Vista equally. See "The Merger Agreement--Expenses and Fees."
In addition to solicitation by mail, officers, directors and employees of Eagle
may, without compensation other than their regular remuneration, solicit
proxies personally or by telephone. Eagle intends to reimburse brokerage houses
and other custodians, nominees, and fiduciaries for reasonable out-of-pocket
expenses incurred in forwarding copies of solicitation material to beneficial
owners of Eagle Common Stock and Series A Preferred Stock held of record by
such persons.
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Revocation of Proxy
Any shareholder giving a Proxy may revoke it at any time prior to its use at
the Special Meeting by giving written notice of such revocation to the
Secretary or other officer of Eagle or by filing a later dated written Proxy
with an officer of Eagle. Personal attendance at the Special Meeting is not, by
itself, sufficient to revoke a Proxy unless written notice of the revocation or
a later-dated Proxy is delivered to an officer before the revoked or suspended
Proxy is used at the Special Meeting. Proxies not revoked will be voted as
specified by the shareholders.
Quorum and Voting
The presence in person or by proxy of the holders of a combined majority of
the shares of Eagle Common Stock and Series A Preferred Stock entitled to vote
at the Special Meeting shall constitute a quorum for the transaction of
business. If a broker returns a "non-vote" proxy, indicating a lack of voting
instructions by the beneficial holder of the shares and a lack of discretionary
authority on the part of the broker to vote on a particular proposal, then the
shares covered by such non-vote proxy will be deemed to be present at the
Special Meeting for purposes of determining a quorum, but shall not be deemed
to be represented at the Special Meeting for purposes of calculating the vote
required for approval of such proposal. If a shareholder abstains from voting
as to any proposal, then the shares held by such shareholder shall be deemed
present at the Special Meeting for purposes of determining a quorum and for
purposes of calculating the vote with respect to such proposal, but shall not
be deemed to have been voted in favor of such proposal. Abstentions as to any
proposal will therefore have the same effect as votes against the proposal.
Proxies which are signed but which lack any specific instructions with respect
to any proposal will be voted in favor of the proposals set forth in the Notice
of Special Meeting.
Proxy Card
A proxy card is enclosed for use by shareholders. Such shareholders are
requested on behalf of the Board of Directors of Eagle to SIGN AND RETURN THE
PROXY CARD IN THE ACCOMPANYING ENVELOPE. No postage is required if mailed
within the United States. All properly executed Proxies not revoked will be
voted at the Special Meeting in accordance with instructions contained therein.
Proxies containing no instructions will be voted in favor of all proposals
listed in the Notice of Special Meeting. If any other matters are properly
presented for consideration at the Special Meeting, the persons named in the
enclosed form of proxy and acting thereunder shall have discretion to vote on
such matters in accordance with their best judgment.
Mailing Address
Eagle expects that mailing of this Proxy Statement/Prospectus to shareholders
of Eagle will commence on or about March , 1999. Eagle's corporate offices
are located at 2430 Metropolitan Center, 333 South Seventh Street, Minneapolis,
MN 55402, and its telephone number is (612) 305-0339.
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THE MERGER AND RELATED TRANSACTIONS
Set forth below is a brief description of the Merger and related transactions
contemplated by the Asset Purchase Agreement and Merger Agreement. The
descriptions of the terms of the Merger Agreement do not purport to be complete
and are qualified in their entirety by reference to the Merger Agreement (which
is attached hereto as Appendix A) and the other Appendices hereto.
Description of the Merger and Related Transactions
Eagle's Board of Directors has determined that it is in the best interests of
Eagle and its shareholders to combine The Lamson & Sessions Co.'s polyvinyl
chloride ("PVC") pipe business (the "Lamson PVC Pipe Business"), CONDEA Vista's
Oklahoma City resin manufacturing business (the "Oklahoma City Resin Business")
and Eagle's polyvinyl chloride pipe and polyethylene pipe business (the "Eagle
Business"). The Board of Directors of Eagle has approved the two transactions
to combine the three businesses into Eagle. Immediately following completion of
the transactions, Eagle will be a wholly owned subsidiary of Holdings, and
holders of Eagle common stock and preferred stock will be holders of Holdings
common stock and preferred stock, respectively.
First, to combine the Lamson PVC Pipe Business with the Eagle Business, Eagle
entered into an Asset Purchase Agreement dated December 11, 1998 with The
Lamson & Sessions Co. ("Lamson") to purchase substantially all the assets and
assume certain liabilities of the Lamson PVC Pipe Business (the "Asset
Purchase"). The Asset Purchase does NOT require the approval or consent of the
holders of Eagle common stock or preferred stock but is contingent upon such
holders' approval of the Merger.
Second, to combine the Oklahoma City Resin Business with the combined Eagle
Business and Lamson PVC Pipe Business, Eagle entered into a Merger Agreement
dated December 11, 1998 (the "Merger Agreement") by and among Eagle, CONDEA
Vista, Holdings, which is presently a wholly owned subsidiary of CONDEA Vista,
and Merger Sub, a wholly owned subsidiary of Holdings. Pursuant to the Merger
Agreement, Merger Sub, which includes the Oklahoma City Resin Business, will
merge with and into Eagle (the "Merger"), with Eagle being the surviving
company in the Merger and a wholly-owned subsidiary of Holdings. (The "Asset
Purchase" and the "Merger" together are referred to herein as the
"Transactions").
Eagle estimates that, immediately following the Transactions, Eagle
shareholders, CONDEA Vista and Lamson will own approximately 38.5%, 57% and
4.5%, respectively, of Holdings outstanding Common Stock. William Spell, Harry
Spell, Bruce Richard and Richard Perkins will serve on Holdings' five member
Board of Directors, along with William Knodel, a director designated by CONDEA
Vista, and will substantially control the affairs of Holdings, subject to
certain rights of CONDEA Vista, following completion of the Transactions.
Immediately following the Transactions, CONDEA Vista will own the majority of
Holdings' Common Stock, but will be restricted from exercising certain
stockholders' rights with respect to Holdings for up to five years following
the Transactions. See "Holdings' Management--Certain Relationships and Related
Transactions."
Conversion of Eagle Shares in the Merger
At the Effective Time of the Merger, each issued and outstanding share of
Eagle capital stock, except any shares of Eagle capital stock held by holders
who have perfected their dissenters' rights under Minnesota law (see "The
Merger Agreement--Rights of Dissenting Eagle Common and Preferred
Shareholders"), will be automatically converted into the right to receive one
share of the corresponding Holdings capital stock. Thus, each share of Eagle
Common Stock will automatically be converted into the right to receive one
share of Holdings Common Stock and each share of Eagle Series A Preferred Stock
and 8% Preferred Stock will automatically be converted into the right to
receive one share of Holdings Series A Preferred Stock and Holdings 8%
Preferred Stock, respectively.
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Based on the number of shares of Eagle capital stock anticipated to be
outstanding at the Effective Time, it is estimated that Holdings will issue
7,420,035 shares of its Common Stock, 18,750 shares of its Series A Preferred
Stock, and 10,000 shares of its 8% Preferred Stock upon consummation of the
Transactions. Shares of Holdings Common Stock issued to Eagle shareholders will
represent approximately 38.5% of Holdings' Common Stock, and shares of Holdings
Series A Preferred Stock and 8% Preferred Stock issued to holders of Eagle
Preferred stock will represent 100% of Holdings' Series A Preferred Stock and
8% Preferred Stock that will be outstanding immediately after the Merger.
Treatment of Stock Options and Warrants
After consummation of the Transactions, all the options and warrants to
purchase Eagle Common Stock will be assumed by Holdings and be subject to
substantially the same terms and conditions, including the number of shares and
the exercise price per share, except that each stock option and warrant will
become fully exercisable to purchase Holdings Common Stock rather than Eagle
Common Stock. As promptly as practicable after the Effective Time, Holdings
will provide to each holder of an Eagle stock option or warrant a written
statement informing such holder of the assumption by Holdings of such stock
option or warrant. Holdings will also file a registration statement on Form S-8
to register the issuance of the Holdings Common Stock upon exercise of such
stock options.
Effective Time of the Merger
As soon as practicable after the conditions to consummation of the Merger
have been satisfied or waived, and unless the Merger Agreement has been
terminated, articles of merger will be filed with the Secretary of State of the
State of Minnesota and a certificate of merger will be filed with the Secretary
of State of the State of Delaware, at which time the Merger will become
effective (the "Effective Time"). It is presently contemplated that the
Effective Time will be as soon as practicable after approval of the Merger at
the Special Meeting. See "The Merger Agreement--Conditions to Consummation of
the Merger" and "--Amendment, Termination of the Merger Agreement; Waiver."
Exchange of Shares of Eagle Stock
As soon as practicable after the Effective Time, the Exchange Agent will mail
a letter of transmittal to holders of a certificate or certificates that prior
to the Effective Time represented outstanding shares of Eagle capital stock.
The letter of transmittal will include instructions regarding the surrender of
certificates representing shares of Eagle capital stock in exchange for
certificates representing shares of the corresponding Holdings capital stock.
The Exchange Agent will distribute to holders of shares of Eagle capital
stock, upon surrender to the Exchange Agent of one or more certificates for
such shares for cancellation, together with a duly-executed letter of
transmittal, one or more certificates representing the number of whole shares
of the corresponding Holdings capital stock into which the shares represented
by the certificate(s) have been converted. Eagle shareholders are requested not
to surrender their certificates for exchange until they receive the letter of
transmittal and instructions. After the Effective Time, certificates
representing shares of Eagle capital stock converted into Holdings capital
stock in the Merger will be deemed for all purposes to evidence ownership of
the shares of Holdings capital stock into which they were converted.
Background of the Transactions
The terms of the Merger Agreement and Asset Purchase Agreement are a result
of arm's-length negotiations between representatives of Eagle, CONDEA Vista and
Lamson. The following is a brief discussion of the background of these
negotiations.
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Negotiation and Execution of the Agreements. In November 1997, William Spell,
Chief Executive Officer of Eagle, received a Confidential Descriptive
Memorandum of Lamson dated November 1997 from Lincoln Partners LLC ("Lincoln").
The Memorandum was delivered to Mr. Spell to solicit Eagle's interest in
acquiring the Lamson PVC Pipe Business. Following receipt of the Memorandum,
Mr. Spell was contacted by Eric Malchow, Vice President of Lincoln. Mr. Spell
discussed the Lamson PVC Pipe Business with Mr. Malchow and later with Eagle's
Board of Directors and senior management. It was concluded that Eagle was not
in a position to acquire the Lamson PVC Pipe Business at that time because
Eagle did not have the necessary financial resources to purchase the business
or the management to operate the business. Eagle would need to raise additional
equity capital to finance the transaction; however, Eagle's stock price
performance precluded Eagle from raising equity capital at the time. In
addition, Eagle didn't have sufficient management personnel in place to manage
the Lamson PVC Pipe Business.
In February 1998, Mr. Spell was approached at the Plastic Pipe & Fittings
Association Annual Meeting by Mark Schneider and Paul Carrico, Vice President
and Product Manager of CONDEA Vista, respectively. CONDEA Vista is Eagle's
primary supplier of PVC resin, the primary raw material used to manufacture
polyvinyl chloride pipe. Messrs. Schneider and Carrico requested that Mr. Spell
reexamine the Lamson PVC Pipe Business based on CONDEA Vista's interest in
partnering with Eagle to provide Eagle with the capital to purchase the Lamson
PVC Pipe Business and to assist Eagle in recruiting and hiring the management
personnel necessary to operate the business. Mr. Spell agreed to reexamine the
Lamson PVC Pipe Business.
In early March 1998, Mr. Spell called Mr. Malchow to get an update on
Lamson's proposed sale of the Lamson PVC Pipe Business and to express Eagle's
interest in reexamining the transaction. Mr. Malchow stated that Lamson was
presently in discussions with other possible buyers, but Lamson had not entered
into a period of exclusivity with a buyer. Mr. Spell indicated that he was
considering a strategic partnership with a resin producer to assist in
financing the acquisition of the Lamson PVC Pipe Business.
On June 8, 1998, Mr. Carrico of CONDEA Vista met with members of Eagle's
Executive Committee to reiterate CONDEA Vista's interest in partnering with
Eagle in connection with Eagle's possible acquisition of the Lamson PVC Pipe
Business and CONDEA Vista's role in providing the necessary capital and
management personnel to operate the business. Eagle's Executive Committee
concluded that working with CONDEA Vista to acquire and manage the Lamson PVC
Pipe Business may be an attractive means of acquiring the business and could
provide Eagle with an opportunity to vertically integrate its operations to
obtain a more reliable and stable source of resin.
On June 10, 1998, Lawrence Lawson, III, Managing Director of Lincoln, called
Mr. Spell to inquire whether Eagle was still interested in reexamining the
Lamson transaction. On June 12, 1998, Mr. Lawson met with members of Eagle's
Executive Committee (William Spell, Harry Spell, Bruce Richard and Peter Konen)
and Dobson West, legal counsel to Eagle, to update Eagle on the Lamson PVC Pipe
Business and again solicit Eagle's interest in acquiring the Lamson PVC Pipe
Business. There were several key differences in the proposed terms of the sale
made on June 12 by Mr. Lawson that were not included in the original proposed
terms presented to Eagle in November 1997, when Mr. Spell first became
acquainted with the business. First, Lamson proposed that Eagle contract to
manufacture certain products that Lamson would retain after the sale, which
would provide Eagle with additional earnings potential. And, second, Lamson PVC
Pipe Business- related personnel located at Lamson's headquarters would be
available to be hired by Eagle to help support the business. In addition, the
financial performance of Lamson's PVC Pipe Business had improved beyond
Lamson's earlier projections. Eagle and Lamson agreed to continue discussions.
On June 15, 1998, members of Eagle's Executive Committee, Mr. West, Pat
Mertens, Chief Financial Officer of Eagle, and Larry Schnase of Eagle met with
Lamson senior management, including John Schulze, Chairman and Chief Executive
Officer; James Abel, Executive Vice President and Chief Financial Officer; Lori
Spencer, Vice President and Controller; and Ronald Cormier, Vice President of
Lamson Vylon Pipe and Mr. Malchow of Lincoln to hear a presentation regarding
the Lamson PVC Pipe Business and discuss Eagle's possible acquisition of such
business.
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On June 26, 1998, members of Eagle's Executive Committee and Mr. West met
with William Knodel, President of CONDEA Vista and Messrs. Carrico and
Schneider. At the meeting, Eagle management presented Eagle's Business to
CONDEA Vista, and CONDEA Vista discussed the Oklahoma City Resin Business, its
compatibility with Eagle's Business and the benefits and opportunities that the
Oklahoma City Resin Business could provide to Eagle. In addition the parties
discussed the preliminary terms of CONDEA Vista's equity investment in Eagle.
The proposed initial terms provided that CONDEA Vista would purchase for cash
shares of a new series of Eagle convertible preferred stock.
On July 6, 1998, Mr. Spell sent a letter to Lamson expressing Eagle's
interest in acquiring the Lamson PVC Pipe Business and some of the proposed
terms of its acquisition. On July 8, 1998, Messrs. Spell, Richard and West met
with Messrs. Knodel, Carrico and Schneider of CONDEA Vista to formally solicit
CONDEA Vista's commitment in partnering with Eagle to acquire the Lamson PVC
Pipe Business. On July 9, 1988, Eagle received a letter from Lamson outlining
proposed terms of the sale and identifying terms where the parties were not in
agreement. Eagle and Lamson agreed that Eagle would be able to conduct its due
diligence and negotiate final terms of an agreement for an exclusive period
ending August 30, 1998.
From July 16 through August 5 of 1998, Messrs. Spell, Richard, West, Konen,
Schnase and Harry Spell and Pat Mertens conducted a due diligence investigation
of the Lamson PVC Pipe Business and visited the manufacturing facilities of the
Lamson PVC Pipe Business. In addition, Eagle management conducted a due
diligence investigation of CONDEA Vista and visited CONDEA Vista's Oklahoma
City Resin Business manufacturing facility. At one of its CONDEA Vista due
diligence meetings, CONDEA Vista suggested that it contribute its Oklahoma City
Resin Business to Eagle instead of making an equity investment in Eagle.
Members of Eagle's Executive Committee and Mr. West discussed this new proposal
with CONDEA Vista's representatives and the advantages and disadvantages of
CONDEA Vista contributing its Oklahoma City Resin Business to Eagle, instead of
purchasing shares of Eagle convertible preferred stock for cash. CONDEA Vista
suggested that by contributing the Oklahoma City Resin Business, Eagle could
leverage such business's assets to obtain secured financing to purchase the
Lamson PVC Pipe Business and have additional capital to grow the combined
businesses.
On August 19, Eagle's Board of Directors met. At the meeting the Board
discussed the various terms of Eagle's proposed acquisition of the Lamson PVC
Pipe Business's and CONDEA Vista's Oklahoma City Resin Business. The Board
discussed the advantages and disadvantages of partnering with CONDEA Vista, the
results of the Executive Committee's due diligence investigations of Lamson and
CONDEA Vista, the feasibility of Eagle obtaining the necessary financing to
acquire the Lamson PVC Pipe Business without CONDEA Vista, and the operation of
the combined businesses after the Transactions. The Eagle Board authorized
Eagle's management to continue with its negotiations with Lamson and CONDEA
Vista.
On September 8 and 9, Messrs. Spell, West, Mertens, and Messrs. Knodel and
Carrico of CONDEA Vista and Messrs. Schulze and Abel and Ms. Spencer of Lamson
and Lamson's legal counsel met to discuss the terms of the Asset Purchase
Agreement. Following agreement on several items the parties decided to proceed
to negotiate the final terms of the Asset Purchase and of the related
agreements. During the week of September 20, 1998, members of Eagles Executive
Committee and Mr. West and representatives of Lamson and CONDEA Vista met in
Minneapolis, Minnesota to discuss the terms of Eagle's acquisition of the
Lamson PVC Pipe Business.
During the week of October 5, 1998, members of CONDEA Vista's senior
management had a series of meetings with the board of directors of its parent
company to discuss the proposed combination of CONDEA Vista's Oklahoma City
Resin Business with Eagle and Eagle's acquisition of the Lamson PVC Pipe
Business.
On October 7, 1998, Eagle held a special meeting of the Board of Directors for
the purpose of reviewing Eagle's proposed acquisition of the Lamson PVC Pipe
Business and Eagle's proposed merger with Holdings and the related issues
associated with these transactions. A representative of Dougherty Summit
Securities, LLC, an investment banking firm based in Minneapolis, Minnesota
retained by Eagle, discussed in detail the proposed transactions and stated
that, on a preliminary basis, overall the transactions were structured
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fairly and were fair to the Company and its shareholders from a financial point
of view. The Eagle Board of Directors voted to approve the transactions. On
November 11, 1998, the board of directors of CONDEA Vista and its parent
company approved the proposed terms of the Merger Agreement.
On Sunday, December 6, 1998, Eagle held a board of directors meeting. A
representative of Dougherty Summit Securities LLC, who was hired by Eagle to
provide the Eagle board of directors a fairness opinion regarding the Merger,
made a presentation to the Eagle Board of Directors. The representative advised
Eagle that the Merger was fair to Eagle and its shareholders from a financial
point of view. Eagle's directors discussed the Merger and related transactions
and approved Eagle's purchase of the Lamson PVC Pipe Business and the Merger.
During the week of December 7, 1998, Mr. William Spell of Eagle was contacted
by a representative of Lamson who informed Mr. Spell that the Lamson PVC Pipe
Business' performance during 1998 exceeded the parties' expectations and
proposed that, as a result of its improved performance, it was worth additional
consideration. Lamson believed that the additional consideration was warranted,
in part, because Eagle could expect to generate additional cash flows from the
business. Members of Eagle's Executive Committee and Eagle's legal counsel then
conferred with Messrs. Knodel and Carrico of CONDEA Vista to discuss Lamson's
proposal . Following their discussion, they agreed that the Lamson PVC Pipe
Business was worth additional consideration and agreed to pay interest on
Eagle's two $3.0 million notes to Lamson (7.5% on its one year note and 9.0% on
its three year note) and issue an additional 250,000 shares of Eagle common
stock to Lamson.
On December 11, 1998, the Asset Purchase Agreement and Merger Agreement were
signed and on December 14, 1998, press releases from Eagle, CONDEA Vista and
Lamson were issued.
Post-Agreements Matters. Following the execution of the Asset Purchase
Agreement on December 11, 1998, Eagle's management began to prepare for the
integration of the three businesses. Eagle held a series of transition meetings
in Minneapolis, Minnesota in early January 1999. All essential members of
Eagle's senior management and members of the transition team were present at
the meetings, except for Mr. Larry Schnase, who was expected to attend the
meetings. Eagle then sent a letter, dated January 27, 1999, to Mr. Schnase
informing him that his consulting agreement with Eagle would not be renewed.
Mr. Schnase sent Eagle a response letter dated February 5, 1999 requesting,
among other things, that the Board of Directors meet to vote again on the
transactions. On February 8, 1999, Eagle's Board of Directors met to discuss
the results of Eagle's transition meetings and to discuss Mr. Schnase's
request. At this Board of Directors' meeting and in subsequent letters to
Eagle's legal counsel, Mr. Schnase indicated his intention to oppose the
proposed approval of the Merger. Also, at this Board of Directors' meeting and
in one of his letters, Mr. Schnase identified four reasons for his decision to
oppose the Merger. Members of the Board of Directors discussed in detail Mr.
Schnase's reasons for opposing the Merger and their responses to his
statements.
Listed below are the four reasons Mr. Schnase provided to support his
decision to oppose the Merger, and the responses of Eagle's other Board
members:
First, Mr. Schnase indicated that the proposed senior management and
directors of Holdings lack any meaningful experience in the plastic pipe
business. Particularly, Mr. Schnase cited the lack of plastic pipe industry
experience of Mark Schneider and Charles Matson, the President and the Senior
Vice President of Sales and Marketing of Holdings.
Eagle believes that the proposed senior management team and directors of
Holdings possess the qualifications and experience to successfully integrate
and operate Eagle's business, the Lamson PVC Pipe Business and the Oklahoma
City Resin Business. All existing members of Eagle's senior management will
remain employees of Holdings, including Eagle's current President, Peter Konen,
who has over 30 years of experience in the plastic pipe industry. See "Eagle's
Management." All plant managers of the plants acquired from Lamson and CONDEA
Vista will become employees of Holdings. Four members of the current Eagle
Board of Directors will be on the Board of Directors of Holdings. Eagle also
believes that Mark Schneider and Charles Matson, having experience in
management of a large company such as CONDEA Vista, will enhance the management
team of Holdings. See "Holdings' Management."
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Second, Mr. Schnase disapproved of Eagle's decision to move its operational
headquarters to Denver, Colorado. Mr. Schnase stated that Denver is not a
logical site for Holdings' operational headquarters since, following the
transactions, Holdings will not have any manufacturing facilities in Denver and
the move to Denver will "increase the cost, and decrease the efficiency, of the
operating companies."
Eagle chose to move its operational headquarters from Hastings, Nebraska to
Denver, Colorado because Denver: (i) is a central location in proximity to
Holdings' manufacturing and distribution facilities; (ii) has a major airport;
(iii) will assist in attracting key management personnel because its is a large
metropolitan area; and (iv) was a mutually acceptable location to Eagle's and
Holdings' key management employees who will need to relocate to Denver.
Third, Mr. Schnase disapproved of Eagle's decision to increase the
consideration payable to Lamson by agreeing to pay Lamson interest on its $6.0
million notes and to issue additional shares of Eagle common stock for the
Lamson PVC Pipe Business.
Eagle believes that its Board of Directors had sufficiently authorized the
terms and conditions of the final Asset Purchase Agreement with Lamson.
Furthermore, all directors, other than Mr. Schnase, agreed to pay the
additional consideration for the Lamson PVC Pipe Business because: (i) the
Lamson PVC Pipe Business results of operations were better than originally
anticipated; and (ii) Eagle's management and advisors believed that the
additional consideration to be paid was fair in light of the additional cash
flow that is anticipated to be generated from the Lamson PVC Pipe Business
operations following the transactions.
Fourth, Mr. Schnase disapproved of the aggregate compensation and fees that
members of the Spell Group will receive after the Merger.
Eagle believes that the proposed compensation arrangements of Holdings are
fair, appropriate and consistent with Eagle's past practices. The compensation
to be paid to the members of the Spell Group, in the form of outside directors'
fees, consulting fees and employment compensation, were negotiated with and
approved by CONDEA Vista as part of the Merger negotiations. See "Comparison of
Shareholder Rights--Restrictions on Corporation Action." Even though Holdings
will be a substantially larger company than Eagle currently is, the aggregate
compensation which is anticipated to be paid to the Spell Group and nonemployee
directors of Holdings is not materially higher than the aggregate compensation
paid to the Spell Group and the nonemployee directors of Eagle in 1998. See
"Eagle's Management--Directors' Compensation" and "Eagle's Management--
Executive Compensation."
Eagle's Reasons for the Transactions; Recommendation of the Eagle Board of
Directors
The Eagle Board of Directors has approved the Merger Agreement and Asset
Purchase Agreement as being in the best interests of Eagle and its
shareholders, and recommends to Eagle shareholders that they vote FOR approval
of the Merger Agreement and the transactions contemplated thereby. Prior to
making its determination, the Eagle Board of Directors consulted with senior
management with respect to strategic and operational matters and legal counsel
with respect to the legal duties of the Eagle Board of Directors, regulatory
and tax matters, and both senior management and legal counsel with respect to
the Merger Agreement, Asset Purchase Agreement and related issues. In addition,
the board considered the following factors:
(i) the business, earnings, operations, financial condition, and prospects of
Eagle, the Lamson PVC Pipe Business and Oklahoma City Resin Business both
individually and on a combined basis, including, but not limited to, each of
their recent and historic earnings performance;
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(ii) the financial analyses and other information with respect to the Merger
presented to Eagle by Dougherty Summit Securities LLC and its opinion that the
transactions contemplated by the Merger Agreement are fair to Eagle and its
shareholders from a financial point of view as well as the Eagle Board's
knowledge of the Lamson PVC Pipe Business and Oklahoma City Resin Business. See
"The Merger and Related Transactions--Opinion of Eagle's Financial Advisor";
(iii) Eagle's strategic alternatives, including remaining a separate company
and growing internally or through acquisitions, remaining a separate company
for the near term while continuing to explore a future acquisition of Eagle, or
engaging in a merger of equals or joint venture transaction with another party,
including certain risks involved in remaining a separate company, such as the
risks of being unable to meet or exceed projections and growth rates due to
increasing competitive pressures in the markets for its products and raw
material cost fluctuations;
(iv) certain factors influencing the PVC and polyethylene ("PE") pipe
industry, including pricing pressures caused by fluctuations in raw material
costs, the vertical integration of raw material suppliers with PVC pipe
manufacturers, the need to compete by offering the best price and a complete
line of products, consolidation of the PVC pipe business, and the impact of
competitor acquisitions;
(v) the overall strategic fit of the Eagle Business, the Lamson PVC Business
and the Oklahoma City Resin Business in view of their respective product lines,
which together would diversify Eagle's product line, expand its geographical
market, and provide a more stable and reliable source of resin products, and
the potential synergies, efficiencies, and cost savings that could be realized
through a combination of these businesses.
The Eagle Board identified the following reasons in favor of and against the
Merger:
Reasons in favor of the Transactions:
(i) The acquisitions of the Lamson PVC Pipe Business will provide Holdings
with a diversified product line and expand its markets for PVC pipe. Holdings
will immediately acquire a national presence by having manufacturing operations
located throughout the United States that produce products that are distributed
throughout the United States. Eagle believes that it can operate the Lamson PVC
Pipe Business profitably.
(ii) The Merger provides Eagle with additional assets it can leverage to
obtain the capital necessary for Eagle to acquire the Lamson PVC Pipe Business
and the necessary senior management to operate both the combined businesses
after the Transactions are completed. In addition, the Merger will provide
Eagle with a vertically integrated operation by providing Eagle a more reliable
and stable source of resin supply, the primary raw material used by both Eagle
and the Lamson PVC Pipe Business. Historically, the financial results of Eagle
and the Lamson PVC Pipe Business have been adversely affected by fluctuations
in resin prices.
(iii) Following the Transactions, Holdings will be better capitalized to grow
the business. The Transactions provide Holdings with the combined assets of
Eagle, the Lamson PVC Pipe Business and the Oklahoma City Resin Business which
may be leveraged to provide Holdings with the needed capital to grow Holdings'
business internally and through acquisition.
Reasons against the Transactions:
Eagle shareholders will experience substantial dilution. Pursuant to the
Asset Purchase Agreement, Eagle will issue 785,000 shares of Common Stock to
Lamson as partial consideration for the Lamson PVC Pipe Business, and Holdings
will have, before the merger, 9,829,717 shares of Common Stock outstanding.
After the Transactions, Eagle shareholders will own approximately 38.5% of
Holdings' Common Stock.
Eagle will be highly leveraged. To acquire the Lamson PVC Pipe Business,
Eagle intends to borrow approximately $46 million from its proposed senior
secured credit facility and issue Lamson two $3 million unsecured promissory
notes.
BASED UPON ITS CONSIDERATION OF THE FOREGOING MATTERS AND OTHER ADVICE AND
INFORMATION DEEMED RELEVANT, THE EAGLE BOARD OF DIRECTORS UNANIMOUSLY
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RECOMMENDS THAT EAGLE SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
CONDEA Vista's Reasons for the Merger
The Board of Directors of CONDEA Vista has approved the Merger Agreement as a
part of a strategic plan to align its Oklahoma City Resin Business with the
end-customer of that business's product in order to create a vertically
integrated PVC manufacturer. Approximately 35% of the resin produced at the
Oklahoma City plant is currently sold to Eagle and Lamson facilities which are
located in geographic proximity to the Oklahoma City Resin Business. In
addition, the Oklahoma City Resin Business produces only general purpose resin,
which is used primarily in the PVC pipe market. Because the primary competitors
of the Oklahoma City Resin Business currently produce a much wider range of
resins for a variety of applications, CONDEA Vista believes that the combined
operations of Eagle, the Oklahoma City Resin Business and the Lamson PVC Pipe
Business will enable Holdings to offer a wider variety of products, develop
additional target markets and maximize the value of all three separate
businesses.
Opinion of Eagle's Financial Advisor
Eagle retained Dougherty Summit Securities LLC ("DSS") to act as its
financial advisor in connection with Eagle's consideration of the possible
Merger. DSS was selected as the Eagle's financial advisor because of its
previous associations with Eagle, its familiarity with Eagle and its
operations, and its standing as a recognized investment banking firm which is
continually engaged in the valuation of businesses and their securities in
connections with mergers and acquisitions, negotiated underwritings, private
placements, and valuations for estate, corporate and other purposes.
On December 6, 1998, DSS provided the Board of Directors of Eagle its oral
opinion to the effect that the merger is fair to Eagle shareholders from a
financial point of view. DSS subsequently delivered its written opinion to the
Board of Directors of Eagle dated December 30, 1998, to the effect that the
Merger is fair to Eagle shareholders from a financial point of view.
The full text of DSS's opinion is attached hereto as Appendix B and is
incorporated by reference herein. While Eagle believes the description of the
opinion set forth herein is accurate, shareholders are urged to read the
opinion in its entirety.
DSS's opinion is directed to Eagle's Board of Directors and relates solely to
the Merger and does not constitute a recommendation to any shareholder of
Eagle.
In connection with its opinion, DSS (i) reviewed certain publicly available
financial statements and other information of Eagle, (ii) reviewed certain
internal financial statements and other financial and operating data concerning
Eagle, the Lamson PVC Pipe Business and the Oklahoma City Resin Business
prepared by the management of each of the respective companies, (iii) discussed
the past and current operations and financial condition and the prospects of
Eagle, the Lamson PVC Pipe Business and the Oklahoma City Resin Business with
management representatives of each of the respective companies, (iv) reviewed
the reported prices and trading activity for Eagle's Common Stock, (v) reviewed
the Asset Purchase Agreement and the Merger Agreement and (vi) performed such
other analyses as it deemed appropriate. No limitations were imposed by the
Board of Directors upon DSS with respect to the investigations made or
procedures followed by it in rendering its opinion.
The following is a summary of the analyses performed and factors considered
by DSS in connection with rendering its opinion.
Historical Financial Position. In rendering its opinion, DSS reviewed and
analyzed the historical and current financial condition of Eagle which included
among other things: (i) an assessment of recent financial
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statements, (ii) an analysis of revenue growth, margin trends and other
operating performance indicators and (iii) an analysis of capital structure.
Comparative Stock Price Performance. DSS reviewed daily market prices for
Eagle's common stock for the one-year period ended December 4, 1998 and
compared such prices to the price performance of the Nasdaq Industrial Index
during the same period. Such analysis indicated that the Nasdaq Industrial
Index had depreciated by 2.3% during the one-year period ended December 4,
1998, while the Eagle common stock had depreciated by 37.5% during the same
period.
Pro Forma Analysis of the Merger. DSS analyzed certain pro forma effects
resulting from the Merger on Eagle's projected 1998 and 1999 earnings per share
and Eagle's debt to book capital and projected 1998 EBITDA to total debt
ratios. Such analysis was based on an assessment of recent financial statements
and projected financial results as prepared by management of Eagle. DSS noted
that the Merger would be accretive to Eagle's earnings per share in 1998 and
1999 and would reduce Eagle's debt to book capital ratio and raise Eagle's 1998
EBITDA to total debt coverage ratio.
Contribution Analysis. DSS analyzed the relative contributions of Eagle, the
Lamson PVC Pipe Business and the Oklahoma City Resin Business to the post-
merger pro forma entity based on projected EBITDA and net income for 1998 and
1999. Such analysis was based on an assessment of recent financial statements
and projected financial results as prepared by management of Eagle. This
analysis indicated that Eagle would contribute 24.1% and 25.5% of the pro forma
combined entity's EBITDA for 1998 and 1999, respectively. This analysis also
indicated that Eagle would contribute 5.3% and 26.6% of the pro forma combined
entity's net income for 1998 and 1999, respectively. This compares to
approximately 38.5% of the outstanding shares of the combined entity after the
Merger that will be owned by Eagle's current shareholders.
Comparable Public Company Analysis. DSS reviewed the equity value and
enterprise value of Eagle, measured as multiples of selected financial data;
however DSS did not rely on a comparative analysis due to the absence of any
meaningful comparable public companies.
Comparable Merger and Acquisition Transactions. DSS reviewed publicly
available financial information for merger and acquisition transactions
consummated since 1994 involving companies similar to Eagle, the Lamson PVC
Pipe Business and the Oklahoma City Resin Business. Such analysis did not
result in any transactions of similar companies; therefore, DSS did not rely
upon a comparative analysis.
Discounted Cash Flow Analysis. DSS performed a discounted cash flow analysis
of Eagle based upon estimates of projected financial performance for the five-
year period ending December 31, 2003 as prepared by management of Eagle. DSS
calculated a range of implied equity values based upon the discounted present
value of the sum of (i) the projected five-year stream of unleveraged free cash
flow and (ii) the projected terminal value at the year 2003 based upon a range
of unleveraged free cash flow growth rates in perpetuity and then subtracted
the current net debt. In conducting this analysis, DSS applied discount rates
ranging from 13% to 15% and assumed unleveraged free cash flow growth rates, in
perpetuity, ranging from 3.0% to 5.0%. Based on this analysis, DSS derived
implied equity values per share ranging from a low of $2.53 to a high of $5.39,
with a median value of $3.68.
DSS performed a similar discounted cash flow analysis for Holdings on a post-
merger pro forma basis using estimates of projected financial performance as
prepared by management of Eagle. Using the same assumptions regarding terminal
values and discount rates as with the stand-alone projections of Eagle, the
discounted cash flow analysis indicated implied equity values per share ranging
from a low of $3.78 to a high of $7.17, with a median value of $5.14.
This analysis suggested that, based on the projected financial performance
and assumptions utilized, the range of present values for Holdings would be
higher than for Eagle.
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Price to Earnings Valuation Based on Projected Earnings. DSS performed a
price to earnings (P/E) valuation based on projected earnings using the
projected financial information for the pro forma combined entity as prepared
by the management of Eagle. DSS discounted to present value the projected
market capitalization of the business as of December 31, 1999. The projected
market capitalization was based upon a range of P/E ratios of 9 to 12 times
projected 1999 net income. DSS used a discount rate of 20% based on its
assessment of Eagle's business risk and cost of capital. The assumptions
produced present values per share ranging from $4.22 to $5.62.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying DSS's opinion. In arriving at its fairness determination, DSS
considered the results of all such analyses. The analyses were prepared solely
for purposes of DSS providing its opinion to the Eagle's Board of Directors as
to the fairness of the Merger and do not purport to be appraisals or
necessarily reflect the prices at which the Eagle common stock may trade at in
the future. Analyses based upon forecasts of future results are not necessarily
indicative of future results, which may be significantly more or less favorable
than suggested by such analyses. In rendering its opinion, DSS expressed no
view as to the range of values at which the Eagle common stock may trade
following consummation of the Merger.
Pursuant to the terms of a letter agreement dated September 24, 1998, Eagle
will pay DSS $90,000, which amount includes reimbursement of certain of DSS's
reasonable out-of-pocket expenses, and has agreed to indemnify DSS against
certain liabilities incurred in connection with its engagement, including
liabilities under federal securities law; provided, however, Eagle is not
obligated to indemnify DSS for any expense or liability which results from
DSS's gross negligence.
Eagle Management's Projections
[Eagle Management's Projections to be provided in Amendment No. 2]
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[Eagle Management's Projections to be provided in Amendment No. 2]
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[Eagle Management's Projections to be provided in Amendment No. 2]
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Officers and Directors of Holdings and Eagle Following the Transactions
Currently, Mark Schneider is serving as Holdings' President and Chief
Financial Officer, and Charles Matson is serving as Holdings' Senior Vice
President of Sales and Marketing. Following consummation of the Transactions,
William Spell, Patrick Mertens and Peter Konen, all officers of Eagle, will
serve as Holdings' Chief Executive Officer, Chief Financial Officer and Senior
Vice President of Operations, respectively, along with Messrs. Schneider and
Matson who will serve as President and Senior Vice President of Sales and
Marketing, respectively. Such individuals will also serve in the same
capacities for Eagle. Holdings' and Eagle's officers will serve at the pleasure
of their respective Boards of Directors.
Currently, William Knodel is the sole director of Holdings. Upon consummation
of the Transactions, pursuant to the terms of the Merger Agreement, Harry
Spell, William Spell, Bruce Richard and Richard Perkins, all directors of
Eagle, will be appointed directors of Holdings to serve with Mr. Knodel on
Holdings' five member board of directors. Holdings' Bylaws provide for no less
than five but no more than eleven directors, with the exact number to be
determined from time to time by resolution of the Board of Directors. See "The
Merger Agreement--Related Agreements and Interest of Certain Persons in the
Merger, "Holdings Management--Directors and Executive Officers" and "Eagle's
Management--Directors and Executive Officers."
Accounting Treatment of the Transactions
The Merger will be accounted for as a reverse acquisition purchase business
combination, as the former shareholders of Eagle will substantially control
Holdings upon completion of the Merger because of the significant restrictions
on how CONDEA Vista may vote its shares of Holdings Common Stock and because
four of the five directors of Holdings will be designated by four current Eagle
directors. Accordingly, for financial accounting purposes, Holdings is treated
as the acquired company and Eagle is considered to be the accounting acquirer.
The purchase price will be allocated to the assets acquired and liabilities
assumed of Holdings based on their estimated fair market values at the
acquisition date. Under reverse acquisition accounting, the purchase price is
based on the market value of Holdings Common Stock, at the date of acquisition,
that is issued to the former shareholder of Eagle.
The historical financial statements of the combined entities will be the
financial statements of Eagle for all periods prior to the date the Asset
Purchase and Merger are consummated.
The Asset Purchase of the Lamson PVC Pipe Business by Eagle will be accounted
for under the purchase method of accounting. The total consideration paid in
the Asset Purchase will be allocated to the assets acquired and liabilities
assumed of the Lamson PVC Pipe Business based on their estimated fair values at
the acquisition date.
A final determination of required purchase accounting adjustments and of the
fair value of the assets and liabilities of Holdings and the Lamson PVC Pipe
Business has not yet been made. Accordingly, the purchase accounting
adjustments presented in the pro forma financial information elsewhere in this
Proxy Statement/Prospectus are preliminary and subject to change, however,
management of Eagle and Holdings do not expect the final adjustments to differ
materially.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Proxy Statement/Prospectus (including certain written and oral
statements and other information included or incorporated by reference herein)
includes various forward-looking statements made by Eagle and Holdings
regarding Eagle, the Oklahoma City Resin Business, the Lamson PVC Pipe Business
and the combined businesses. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Forward-looking statements include statements that may
predict, forecast, indicate, or imply future results, performance, or
achievements. All such forward-looking statements, whether written or oral, and
whether made on behalf of Holdings or Eagle, are subject to risks and
uncertainties and are qualified by the cautionary statements which may
accompany the forward-looking statement. These risks and uncertainties could
cause the forward-looking statement to not materialize as management
anticipates or plans.
Forward-looking statements include the information concerning projected and
future results of operations of Eagle, the Oklahoma City Resin Business, the
Lamson PVC Pipe Business and Holdings after the Merger and Asset Purchase are
completed as set forth in "Questions and Answers About the Transactions,"
"Summary," "The Merger and Related Transactions--Background of the
Transactions," "--Eagle's Reasons for the Transaction; Recommendation of the
Eagle Board of Directors," "--CONDEA Vista's Reasons for the Merger," "--
Opinion of Eagle's Financial Advisor," "--Eagle Management's Projections" and
those forward looking statements preceded by, followed by or that otherwise
include the words "anticipate," "believe," "estimate," "expect," "intend,"
"may," "could," "possible," "plan," "project," "will," "forecast" and similar
words or expressions. The forward-looking statements relate to Eagle's, the
Oklahoma City Resin Business's, the Lamson PVC Pipe Business's and Holdings'
anticipated or projected future operating results, customer base and markets,
revenue growth and raw material and manufacturing costs. For those forward-
looking statements, Eagle claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995.
Eagle competes, and Holdings will compete, in a highly volatile industry that
is characterized by fierce industry-wide competition. Industry participants
confront aggressive pricing practices, volatile raw material prices, price
conscious consumers and growing competition from vertically integrated, well
capitalized companies. You should consider the forward-looking statements and
understand that such statements involve a variety of risks and uncertainties,
known and unknown, and may be affected by inaccurate or incorrect assumptions.
You should understand that the following important risks and uncertainties, in
addition to those discussed elsewhere in this document, including those in
particular under the captions "Risk Factors Relating to Holdings and Eagle" and
"The Merger and Related Transactions--Eagle Management's Projections," could
affect the future financial results of Eagle and Holdings, and could cause
actual results to differ materially from those expressed in forward-looking
statements contained in this Proxy Statement/Prospectus:
. a highly competitive market consisting of well capitalized vertically
integrated companies, some of whom conduct business around the world;
. difficulties in achieving gross margins due to fluctuations in raw
material costs;
. adverse effects on inventory levels in the event of a drop in demand for
plastic pipe and other plastic products;
. continued depressed levels of demand for plastic pipe worldwide; and
. difficulties in integrating Eagle with the Oklahoma City Resin Business
and the Lamson PVC Pipe Business.
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THE MERGER AGREEMENT
Conduct of Business of Eagle Pending the Merger
Eagle has agreed that, prior to consummation of the Merger, it will conduct
its business only in the ordinary course, it will use its best efforts to
preserve intact its business organization and relationships with third parties
and keep available the services of its present officers and employees, and it
will not: amend its Articles of Incorporation or Bylaws; declare or pay any
dividends or other distributions except as provided in its Articles; issue any
securities (other than the issuance of Eagle Common Stock upon the exercise of
stock options and warrants previously granted); except for the purchase of the
Lamson PVC Business and purchases of inventory in the ordinary course of
business consistent with past practice, acquire or agree to acquire any
business or material amount of assets; make any change in any method of
accounting or accounting practice or policy except as required by GAAP;
intentionally take any action that would prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); take certain actions with respect to
compensation or fringe benefits; or authorize any, or commit or agree to take
any of, the foregoing actions.
Conduct of Business of Oklahoma City Resin Business Pending the Merger
CONDEA Vista, Holdings and Merger Sub have agreed that, prior to consummation
of the Merger, they will conduct the Oklahoma City Resin Business only in the
ordinary course, they will use their best efforts to preserve intact the
Oklahoma City Resin Business's assets, properties, contracts, licenses and
permits, business organization and relationships with third parties and to keep
available the services of the present officers and employees of Holdings and
Merger Sub, and neither Holdings nor Merger Sub will: amend its Certificate of
Incorporation or Bylaws; declare or pay any dividends or other distributions;
except as contemplated by the Merger Agreement, issue any securities; make any
change in any method of accounting or accounting practice or policy except as
required by GAAP; intentionally take any action that would prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code; take certain actions with respect to compensation or fringe benefits;
sell, lease, license, mortgage or otherwise encumber or subject to any lien or
otherwise dispose of, except as contemplated in the Merger Agreement, any of
the assets of the Oklahoma City Resin Business; except in the ordinary course
of business; modify, amend or terminate any material contract, agreement,
license or permit, relating to the Oklahoma City Resin Business or waive,
release or assign any material rights or claims; except for contracts for the
sale of product in excess of internal requirements for a calendar year, enter
into any contracts, agreements, arrangements or understandings relating to the
distribution, sale or marketing by third parties of the Oklahoma City Resin
Business's products or licensed products relating to the operation of the
Oklahoma City Resin Business; acquire or agree to acquire any assets that are
material, individually or in the aggregate, to the Oklahoma City Resin
Business, except purchases of inventory in the ordinary course of business
consistent with past practices; or authorize any, or commit or agree to take
any of, the foregoing actions.
Limitations on Negotiations
The Merger Agreement provides that Eagle, CONDEA Vista, Holdings and Merger
Sub shall not and their respective officers, directors, agents and affiliates
shall not, directly or indirectly, solicit, encourage or authorize any inquiry,
proposals, offer or possible offer from any person relating to any merger,
consolidation, or other combination, acquisition or purchase of all or a
substantial portion of the assets of, or any equity interest in, Eagle,
Holdings or Merger Sub. Eagle, however, may under certain conditions, including
receipt of a written opinion of legal counsel to Eagle stating that Eagle's
Board of Directors has fiduciary obligations to do so, provide any person, who
makes an unsolicited proposal to acquire Eagle, with information or negotiate
with such person an acquisition proposal. Eagle can withdraw or modify its
recommendation following the receipt of a competing acquisition proposal if
Eagle's Board of Directors determines that such action is necessary to comply
with its fiduciary duties to Eagle shareholders. In the event that Eagle's
Board of Directors withholds its recommendation to its shareholders and the
Merger is not consummated, Eagle shall pay CONDEA Vista's
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expenses incurred in connection with the Merger. See "--Amendment, Termination
of the Merger Agreement; Waiver."
Conditions to Consummation of the Merger
The respective obligations of Eagle, CONDEA Vista, Holdings and Merger Sub to
effect the Merger are subject to the satisfaction at or prior to the Merger of
certain conditions, including, among others: (a) the approval by the Eagle
shareholders of the Merger; (b) the expiration or termination of the waiting
periods applicable to the consummation of the Merger under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976 (the "HSR Act"); (c) the absence of
any commencement or threat of proceedings by the SEC relating to this Proxy
Statement/Prospectus; (d) the absence of an order, decree, or injunction by any
federal or state court or other governmental body, agency, or official that
would prevent or materially delay consummation of the Merger; (e) the approval
of the Holdings Common Stock for listing on Nasdaq or the New York Stock
Exchange; and (f) Eagle's consummation of the Asset Purchase of the Lamson PVC
Pipe Business.
In addition, the obligations of CONDEA Vista, Holdings and Merger Sub to
effect the Merger are subject to the satisfaction at or prior to the Merger of
certain conditions, including that: (a) each representation and warranty of
Eagle contained in the Merger Agreement is true in all material respects as of
the Effective Time; (b) Eagle has performed in all material respects its
obligations under the Merger Agreement required to be performed by it; (c) all
necessary consents have been received; (d) no material adverse changes with
respect to the business of Eagle have occurred; (e) no materially burdensome
regulatory condition shall have been imposed upon Eagle; (f) CONDEA Vista has
received an opinion to the effect that the Merger will constitute a "tax-free"
reorganization for federal income tax purposes; (g) dissenters' rights have not
been asserted with respect to more than 5% of the outstanding Eagle shares; (h)
Eagle has made all required payments of dividends on its stock; and (i) CONDEA
Vista has received a legal opinion from Eagle's counsel with respect to certain
corporate matters.
In addition, the obligations of Eagle to effect the Merger are subject to the
satisfaction at or prior to the Merger of certain conditions, including that:
(a) each representation and warranty of CONDEA Vista, Holdings and Merger Sub
contained in the Merger Agreement are true in all material respects as of the
Effective Time; (b) CONDEA Vista, Holdings and Merger Sub have performed in all
material respects their obligations under the Merger Agreement required to be
performed by them; (c) Eagle has received an opinion to the effect that the
Merger will constitute a "tax-free" reorganization for federal income tax
purposes; (d) all necessary consents have been obtained; (e) CONDEA Vista shall
have caused the transfer of the Oklahoma City Resin Business to Merger Sub; (f)
Eagle shall have received an acceptable fairness opinion with respect to the
Merger from Dougherty Summit Securities LLC; (g) Eagle shall have received a
legal opinion from CONDEA Vista's counsel with respect to certain corporate
matters; (h) no material adverse changes shall have occurred with respect to
the Oklahoma City Resin Business; (i) no materially burdensome regulatory
condition shall have been imposed upon Holdings or the Oklahoma City Resin
Business; and (j) the Merger shall have been approved by the shareholders of
CONDEA Vista, Holdings and Merger Sub.
Amendment, Termination of the Merger Agreement; Waiver
Any of the provisions of the Merger Agreement may be amended by written
agreement of the respective parties at any time before or after approval of the
Merger by the Eagle shareholders; however, after such approval, no amendment
may be made to the Merger Agreement which would reduce the amount or change the
type of consideration into which Eagle common stock or preferred stock shall be
converted upon consummation of the Merger.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger, whether before or after approval of
the Merger by the Eagle shareholders, as follows: (a) by mutual consent of each
of CONDEA Vista, Holdings, Merger Sub and Eagle; (b) by either CONDEA Vista,
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Holdings, Merger Sub or Eagle if the Merger has not been effected by April 30,
1999, except that a party cannot terminate the Merger Agreement if its own
breach of the Merger Agreement is the primary cause of, or results in, the
Merger not being effected by such date, and except that if a governmental
authority makes a request for additional information under the HSR Act, such
date shall be extended to the 90th day following compliance with such request,
but in any event not later than June 30, 1999; (c) by either CONDEA Vista,
Holdings, Merger Sub or Eagle if a court or other governmental authority has
issued a final, nonappealable order, decree, or ruling that permanently enjoins
or prohibits the Merger; (d) by CONDEA Vista if Eagle withdraws, modifies or
changes its recommendation of the Merger in a manner adverse to CONDEA Vista,
Holdings or Merger Sub, or if Eagle has received an unsolicited offer to
acquire Eagle and the Eagle Board, within 30 days thereafter, either fails to
terminate discussions with the maker of such proposal, or determines to accept,
or take no position with respect to such proposal, or if a tender or exchange
offer for 45% or more of Eagle Common Stock is commenced and Eagle's Board,
within 10 business days thereafter, fails to recommend against acceptance or
takes no position regarding acceptance of the offer; (e) by Eagle, if Eagle's
Board recommends or resolves to recommend to Eagle's shareholders a competing
transaction under circumstances where a majority of such directors reasonably
determines in good faith, that failure to accept such proposal would be a
breach of the fiduciary duty of such directors; (f) by either CONDEA Vista,
Holdings, Merger Sub or Eagle if the Eagle shareholders do not vote to approve
the Merger; (g) by Eagle, in the event of a breach by CONDEA Vista, Holdings or
Merger Sub of any representation, warranty, covenant or agreement contained in
the Merger Agreement which has not been cured or is not curable by April 30,
1999 (or such later date as provided in (b) above); (h) by CONDEA Vista, in the
event of a material breach by Eagle of any representation, warranty, covenant
or agreement contained in the Merger Agreement which has not been cured or is
not curable by April 30, 1999 (or such later date as provided in (b) above);
(i) by Eagle, if CONDEA Vista's shareholders fail to approve the Agreement and
the Merger; or (j) by CONDEA Vista, if dissenters' rights have been asserted
with respect to more than 5% of the outstanding Eagle shares.
Prior to the Effective Time, a party to the Merger Agreement may extend the
time for the performance of any obligation of another party, waive an
inaccuracy in the representations and warranties and waive compliance with an
agreement or condition contained in the Merger Agreement.
Expenses and Fees
All costs and expenses incurred in connection with the Merger shall be paid
by the party incurring such expenses, whether or not the Merger is consummated
except that CONDEA Vista and Eagle shall share equally all fees and expenses,
other than attorneys' fees, incurred in relation to the printing and filing of
this Proxy Statement/Prospectus and financial statements and exhibits and any
amendments or supplements. However, CONDEA Vista shall pay Eagle's expenses if
Eagle terminates the Merger Agreement because: (a) the Effective Time has not
occurred on or before April 30, 1999 as a result of a breach of, or failure to
fulfill any obligation of the Merger Agreement by CONDEA Vista, Holdings or
Merger Sub; (b) of a willful breach by CONDEA Vista of any covenant, agreement,
representation or warranty contained in the Merger Agreement that is not cured
within the allotted time; or (c) CONDEA Vista's shareholders fail to approve
the Merger Agreement and Merger. Likewise, Eagle shall pay CONDEA Vista's
expenses if CONDEA Vista terminates the Merger Agreement because: (a) the
Effective Time has not occurred on or before April 30, 1999 as a result of a
breach of, or failure to fulfill any obligation of the Merger Agreement by
Eagle; (b) of a willful breach by Eagle of any covenant, agreement,
representation or warranty contained in the Merger Agreement that is not cured
within the allotted time; (c) Eagle withdraws, modifies or changes its
recommendation of the Merger in a manner adverse to CONDEA Vista, Holdings or
Merger Sub, or Eagle has received an unsolicited offer to acquire Eagle and the
Eagle Board, within 30 days thereafter, either fails to terminate discussions
with the maker of such proposal, or determines to accept, or take no position
with respect to such proposal, or a tender or exchange offer for 45% or more of
Eagle Common Stock is commenced and Eagle's Board, within 10 business days
thereafter, fails to recommend against acceptance or takes no position
regarding acceptance of the offer; (d) Eagle's Board recommends or resolves to
recommend to Eagle's shareholders a competing transaction under circumstances
where a majority of such directors reasonably determines in good faith, that
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failure to accept such proposal would be a breach of the fiduciary duty of such
Directors; (e) Eagle shareholders do not vote to approve the Merger; or (f)
dissenters' rights have been asserted with respect to more than 5% of the
outstanding Eagle shares.
Indemnification
Under the Merger Agreement, CONDEA Vista has agreed to indemnify Eagle, its
affiliates, officers, directors, employees and agents from and against all
liabilities that are actually incurred by such parties arising from: (a) any
violation or alleged violation of any environmental law before the Effective
Time involving the Oklahoma City Resin Business and incurred or discovered by
Eagle within 90 months after the Effective Time; (b) CONDEA Vista's, Holdings'
or Merger Sub's operation of and/or transfer of the Oklahoma City Resin
Business prior to the Effective Time; (c) any breach of any covenant,
obligation or agreement of CONDEA Vista, Holdings and Merger Sub contained in
the Merger Agreement; and (d) any breach of any representation or warranty of
CONDEA Vista, Holdings or Merger Sub contained in the Merger Agreement. Any
claim for indemnification by Eagle pursuant to (d) must be made within one year
of the Effective Time.
Likewise, Eagle has agreed to indemnify CONDEA Vista, its affiliates,
officers, directors, stockholders, employees and agents from and against all
liabilities that are actually incurred by such parties arising from: (a) any
violation or alleged violation of any environmental law involving the Oklahoma
City Resin Business and discovered 90 months after the Effective Time; (b)
Eagle's operation of the Oklahoma City Resin Business after the Effective Time;
(c) any breach of any covenant, obligation or agreement of Eagle contained in
the Merger Agreement; and (d) any breach of any representation or warranty of
Eagle contained in the Merger Agreement. Any claim for indemnification by
CONDEA Vista pursuant to (d) must be made within one year of the Effective
Time.
Related Agreements and Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of Eagle with
respect to the Merger Agreement, shareholders of Eagle should be aware that
certain members of the management and Board of Directors of Eagle have certain
interests in the Merger that are in addition to, and may be in conflict with,
the interests of shareholders of Eagle generally.
Stockholders Agreement. In connection with the Merger, Holdings, CONDEA
Vista, and William Spell, Harry Spell, Bruce Richard and Richard Perkins
(collectively, the "Spell Group") will enter into a Stockholders' Agreement
which will govern, in part, the voting rights of CONDEA Vista and the members
of the Spell Group. The Agreement provides that for a period of five years,
CONDEA Vista will vote its shares of Holdings Common Stock in favor of the four
director nominees designated by the Spell Group, and the Spell Group will vote
its shares of Holdings Common Stock in favor of the one director nominee
designated by CONDEA Vista. The Agreement will also require that with respect
to any matter submitted to Holdings' stockholders for a vote, CONDEA Vista will
either vote its shares as recommended by Holdings' Board of Directors, or in
the same proportion as the votes cast in favor of and against such matter by
the stockholders of Holdings entitled to vote. In addition, the Agreement
provides that CONDEA Vista shall return to Holdings a certain number of its
shares of Holdings Common Stock upon termination or expiration of a certain
number of outstanding stock options and warrants. See "Holdings' Management--
Certain Relationships and Related Transactions."
VCM Supply Agreement. In connection with the Merger, CONDEA Vista and Eagle
will enter into a VCM Supply Agreement whereby Eagle will purchase 100% of its
vinyl chloride monomer ("VCM") requirements from CONDEA Vista. See "Holdings'
Management--Certain Relationships and Related Transactions."
Registration Rights Agreement. In connection with the Merger, Holdings will
enter into a Registration Rights Agreement with CONDEA Vista granting CONDEA
Vista certain participatory and demand registration
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rights with respect to the registration of the Holdings Common Stock owned by
CONDEA Vista for public resale. See "Holdings' Management--Certain
Relationships and Related Transactions."
Eagle Officers and Directors to Serve as Officers and Directors of
Holdings. Upon consummation of the Merger, Harry Spell, William Spell, Bruce
Richards and Richard Perkins, directors of Eagle, will become directors of
Holdings. Holdings' outside directors, Harry Spell, Bruce Richard and Richard
Perkins, will be paid an annual retainer of $24,000, plus expenses. William
Spell, Chief Executive Officer of Eagle; Pat Mertens, Chief Financial Officer
of Eagle and Peter Konen, President of Eagle will serve as Chief Executive
Officer, Chief Financial Officer and Senior Vice President of Operations of
Holdings, respectively. See "Holdings' Management--Director's Compensation."
Transaction Bonuses to be Paid to Officers and Directors of Eagle. Upon the
closing of the Transactions, Eagle intends to pay a bonus to each of William
Spell, Peter Konen, Patrick Mertens, Harry Spell and Bruce Richards in the
amount of $120,000, $75,000, $60,000, $50,000 and $50,000, respectively. Such
bonuses are to compensate such individuals for extraordinary time and effort
expended in connection with structuring, negotiating, documenting and
performing due diligence for the Transactions and will not be paid unless the
Transactions close.
Employment Agreements with Eagle Officers. Effective as of January 1, 1999
but contingent upon the closing of the Transactions, Eagle has entered into an
employment agreement with William Spell terminable at will by either party
pursuant to which Mr. Spell will serve as Chief Executive Officer of Eagle and
will receive a base salary of $200,000 per year. Along with his base salary,
Mr. Spell can receive an annual bonus of up to $100,000 if Eagle meets certain
operating profit levels. Further, Mr. Spell will also be given an automobile
allowance of $600 per month. The agreement also provides for a severance
payment of $600,000 in the event Eagle terminates the employment of Mr. Spell
without cause prior to January 1, 2003, and $300,000 in the event Eagle
terminates the employment of Mr. Spell without cause prior to January 1, 2004.
Mr. Spell is not entitled to a severance payment if his employment is
terminated on or after January 1, 2004.
Effective as of January 1, 1999 but contingent upon the closing of the
Transactions, Eagle has entered into an employment agreement with Patrick
Mertens terminable at will pursuant to which Mr. Mertens will serve as Chief
Financial Officer of Eagle and will receive a base salary of $150,000 per year.
Along with his base salary, Mr. Mertens can receive an annual bonus of up to
$52,500 if Eagle meets certain operating profit levels. Further, Mr. Mertens
will also be given an automobile allowance of $400 per month. If Eagle
terminates the employment of Mr. Mertens without cause, he is entitled to an
amount equal to one year's base salary paid over a period of one year following
termination.
Effective as of January 1, 1999 but contingent upon the closing of the
Transactions, Eagle has entered into an employment agreement with Peter Konen
terminable at will pursuant to which Konen will serve as Senior Vice President
of Operations and will receive a base salary of $200,000 per year. Along with
his base salary, Mr. Konen can receive an annual bonus of up to $70,000 if
Eagle meets certain operating profit levels. Further, Mr. Konen will also be
given an automobile allowance of $600 per month. If Eagle terminates the
employment of Mr. Konen without cause, he is entitled to an amount equal to one
year's base salary paid over a period of one year following termination.
Consulting Agreements with Eagle Directors. At the Effective Time, Bruce
Richard and Harry Spell, current directors of Eagle, will each enter into a
Consulting Agreement with Holdings' wholly-owned subsidiary, Eagle. Pursuant to
each director's Consulting Agreement, each will provide consulting services to
Eagle regarding matters related to the management and organization of Eagle for
an initial term of one year and thereafter on a year to year basis until
terminated by either party. Each director will be paid a consulting fee of
$3,833 per month. During the term of the Consulting Agreement, and for a period
of twelve months thereafter, each director agrees not to compete or engage in
any business in competition with Holdings.
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Restrictions on Resale of Holdings Stock
The Holdings Common Stock issuable in connection with the Merger has been
registered under the Securities Act and will be freely transferable by the
recipients, except that the foregoing does not pertain to resales by
shareholders of Eagle who may be deemed to control or be under common control
with Eagle at the time of the Special Meeting ("Affiliates"). Affiliates may
not sell their shares of Holdings Common Stock acquired in connection with the
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with Rule 145 under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Rule 145 under the Securities Act restricts
the sale of Holdings Common Stock received in the merger by Affiliates and
certain of their family members and related parties. Generally, during the one-
year period following the Effective Time of the Merger, Affiliates of Eagle,
provided they are not Affiliates of Holdings, may sell their shares of Holdings
Common Stock received pursuant to the Merger subject to certain limitations,
including the amount of shares that can be sold and the timing of such sales.
Following expiration of the one year period, Affiliates of Eagle who are not
Affiliates of Holdings may sell their shares of Holdings Common Stock without
restrictions so long as there is adequate current public information with
respect to Holdings available. It is expected that Affiliates will be able to
sell such shares without registration and in accordance with the volume, manner
of sale, and other applicable limitations of the Securities Act and the rules
and regulations of the Commission thereunder. See "The Merger Agreement--
Related Agreements and Interests of Certain Persons in the Merger."
The issuance of Holdings Series A Preferred Stock and 8% Preferred Stock in
connection with the Merger will be registered under the Securities Act, but
subsequent transfers of such preferred stock will be subject to restrictions on
transfer imposed by the terms of such preferred stock and the lack of any
organized trading market for such preferred stock.
It is estimated that Affiliates of Eagle will receive a maximum of
approximately 1,182,075 shares of Holdings Common Stock (assuming no exercise
of outstanding Eagle options or warrants held by such Affiliates). Such shares
of Common Stock would constitute approximately 6.9% of the total number of
Holdings shares of Common Stock anticipated to be outstanding immediately after
the Effective Time, after giving effect to the shares issued pursuant to the
Merger.
De-registration of Eagle Common Stock
If the Merger is consummated, Eagle Common Stock will cease to be quoted on
the Nasdaq SmallCap Market, and Holdings will apply to the Commission for the
de-registration of Eagle Common Stock under the Exchange Act.
Certain Federal Income Tax Consequences
The following is a discussion of certain United States federal income tax
considerations in connection with the Merger. This discussion merely summarizes
certain principal United States federal income tax consequences of the Merger
and does not purport to be a complete analysis of all of the potential tax
effects relevant to the Merger. In this regard, this discussion does not deal
with all federal income tax considerations that may be relevant to certain
Eagle shareholders in light of their particular circumstances, such as dealers
in securities, insurance companies, shareholders who do not hold their Eagle
stock as capital assets, foreign persons, tax-exempt entities, or persons who
are subject to the alternative minimum tax provisions of the Code. Furthermore,
it does not address (i) the tax consequences to Eagle shareholders who acquired
their shares in connection with stock options or stock purchase plans or in
other compensatory transactions, or (ii) the assumption by Holdings of
outstanding options to purchase shares of Eagle Common Stock pursuant to the
Merger. See "The Merger and Related Transactions--Treatment of Stock Options
and Warrants" and "The Merger Agreement--Related Agreements and Interests of
Certain Persons in the Merger." Moreover, it does not address the tax
consequences of the Merger under foreign, state, or local tax laws.
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Eagle shareholders are urged to consult their own tax advisors as to the
consequences of the Merger, including the applicable federal, state, local, and
foreign tax consequences to them.
Fredrikson & Byron, P.A., counsel to Eagle, will render at closing an opinion
(the "Tax Opinion") that the Merger constitutes a reorganization under Section
368 of the Code, and that each of Holdings, Merger Sub and Eagle will be a
party to the reorganization. Neither Eagle nor Holdings will request a ruling
from the Internal Revenue Service (the "IRS") with regard to any of the United
States federal income tax consequences of the Merger. The Tax Opinion is based
on and subject to certain assumptions and limitations as well as factual
representations received from Eagle and Holdings, as discussed below. An
opinion of counsel represents only counsel's best legal judgment and has no
binding effect or official status of any kind. No assurance can be given that
contrary positions may not be taken by the IRS or a court considering the
issues.
In accordance with the Tax Opinion, and subject to the assumptions,
limitations and qualifications described in the Tax Opinion and in this
discussion, it is the opinion of Fredrikson & Byron, P.A. that the material
United States federal income tax consequences of the Merger are as follows:
Consequences to Eagle. Eagle will not recognize gain or loss upon Holdings'
issuance of Holdings stock to the Eagle shareholders in the Merger and the
transfer by operation of law of Merger Sub's assets and liabilities to Eagle
upon consummation of the Merger.
Consequences to Eagle's Shareholders. No gain or loss will be recognized by
Eagle's shareholders upon their receipt in the Merger of Holdings stock.
The aggregate tax basis of Holdings stock received by an Eagle shareholder in
the Merger will be the same as the aggregate tax basis of the Eagle stock
surrendered in exchange therefor.
The holding period of each share of Holdings stock received by each of
Eagle's shareholders in the Merger will include the period during which such
Eagle shareholder held his or her Eagle stock surrendered in exchange therefor,
provided that the Eagle stock is held as a capital asset at the time of the
Merger.
An Eagle shareholder who receives solely cash for his or her Eagle stock
pursuant to the exercise of dissenters' rights will be obligated to report (i)
either capital gain or loss equal to the difference between the cash received
by such shareholder and such shareholder's basis in his or her Eagle stock, if
the shareholder held his or her Eagle stock as a capital asset on the date of
the Merger, or (ii) dividend income, depending on whether the deemed redemption
resulting from the exercise of dissenters' rights qualifies for sale or
exchange treatment under the tests set forth in Section 302(b) of the Code.
Under those tests, most Eagle shareholders who exercise their dissenters'
rights should receive capital gain or loss treatment (rather than dividend
treatment), if the deemed redemption of their Eagle stock constitutes a
"complete redemption" of their interests in Eagle (and Holdings, after the
Merger). To the extent that persons related to any such shareholder continue to
hold stock in Holdings after the Merger, the rules of Section 318 of the Code
may require dividend treatment unless Section 302(c) of the Code permits those
rules to be waived in a particular instance.
Limitations on Opinion and Discussion. As noted above, the Tax Opinion is
subject to certain assumptions, including, but not limited to, the truth and
accuracy of certain representations made by Eagle and Holdings, and the
consummation of the Merger in accordance with the terms of the Merger Agreement
and applicable state law. Furthermore, the Tax Opinion will not bind the IRS
and the IRS is, therefore, not precluded from asserting a contrary position.
The Tax Opinion and this discussion are based on currently existing provisions
of the Code, existing and proposed Treasury regulations, and current
administrative rulings and court decisions. There can be no assurance that
future legislative, judicial, or administrative changes or interpretations will
not adversely affect the accuracy of the Tax Opinion or of statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger.
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Regulatory Requirements
Under the HSR Act, certain acquisition transactions, including the Merger and
Asset Purchase, cannot be consummated unless certain information has been
furnished to the Federal Trade Commission ("FTC") and the Antitrust Division of
the United States Department of Justice (the "Antitrust Division") and certain
waiting period requirements have been satisfied. CONDEA Vista, Lamson and Eagle
each furnished such information on , 1999. Pursuant to the HSR
Act, the Merger and Asset Purchase may not be consummated until the expiration
of at least 30 days following the receipt of each filing, unless the waiting
period is earlier terminated by the FTC or the Antitrust Division.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger and Asset Purchase. At
any time before or after the consummation of the Transactions, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Merger or Asset Purchase or seeking the divestiture of
substantial assets of the Eagle Business, the Lamson PVC Pipe Business or the
Oklahoma City Resin Business. Eagle and Holdings believe that the Merger, and
Eagle and Lamson believe that the Asset Purchase, will not violate the
antitrust laws. There can be no assurance, however, that a challenge to the
Merger or Asset Purchase on antitrust grounds will not be made or, if such a
challenge is made, what the results will be.
Other than as described herein, the Merger or Asset Purchase does not require
the approval of any federal, state, or other agency. See "The Merger
Agreement--Conditions to Consummation of the Merger."
Rights of Dissenting Common and Preferred Eagle Shareholders
If the Merger occurs, holders of Eagle Common Stock, Series A Preferred Stock
and 8% Preferred Stock are entitled to dissenters' rights under Sections
302A.471 and 302A.473 of Minnesota Business Corporation Act (the "MBCA") in
connection with the Merger. Neither Holdings nor Holdings shareholders are
entitled to dissenters' rights in connection with the Merger.
The following discussion is not a complete statement of the law pertaining to
dissenters' rights under the MBCA and is qualified in its entirety by reference
to the full text of Sections 302A.471 and 302A.473 of the MBCA, copies of which
are attached to this Proxy Statement/ Prospectus as Appendix C. Any shareholder
of Eagle who wishes to exercise, or to preserve his or her right to exercise
dissenters' rights should review the following discussion and Appendix C
carefully, because failure to timely and properly comply with the specified
procedures will result in the loss of dissenters' rights under the MBCA.
In accordance with Sections 302A.471 and 302A.473 of the MBCA, Eagle
shareholders have the right to dissent with respect to the Merger and, subject
to certain conditions, to be paid in cash the "fair value" of their Eagle
shares. In this context, the term "fair value" means the value of the Eagle
shares immediately before the Effective Time of the Merger. Under Section
302A.473, where a merger is to be submitted for approval at a meeting of
shareholders, the corporation must notify each of its shareholders of the right
to dissent, include in such notice a copy of Sections 302A.471 and 302A.473 and
provide a brief description of the procedures to be followed under these
sections. This Proxy Statement/Prospectus constitutes such notice to the
shareholders of Eagle, and the following discussion describes the procedures to
be followed by a dissenting shareholder.
A shareholder of Eagle wishing to exercise the right to demand the fair value
of his or her shares must:
. Before the vote of shareholders is taken at the Special Meeting, file
with Eagle a written notice of intent to demand the fair value of his or
her shares and, in addition, he or she must not vote in favor of the
Merger. Because a proxy that does not contain voting instructions will,
unless revoked, be voted FOR approval of the Merger, a shareholder of
Eagle who votes by proxy and who wishes to exercise dissenters' rights
must (i) vote AGAINST the approval of the Merger, or (ii) ABSTAIN from
voting on the approval of the Merger. A vote against the Merger in person
or by proxy will not in and
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of itself constitute a written notice of intent to demand the fair value
of a shareholder's Eagle shares satisfying the requirements of the MBCA.
. A demand for fair value must be executed by or for the shareholder of
record as such shareholder's name appears on his or her Eagle stock
certificate or certificates. If the Eagle stock is owned of record in a
fiduciary capacity such as by a trustee, guardian or custodian, such
demand must be executed by the fiduciary. If the stock is owned of record
by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand
for a shareholder of record; however, the agent must identify the record
owner and expressly disclose the fact that, in exercising the demand, he
or she is acting as agent for the record owner.
. A record owner who holds shares of Eagle as a nominee for others, such as
a broker, may demand fair value of the shares held for all, or fewer than
all of the beneficial owners of such shares. In such a case, the written
demand should set forth the number of shares to which it relates. When no
number of shares is expressly mentioned, the demand will be presumed to
cover all shares standing in the name of the record owner. Beneficial
owners of Eagle shares who are not record owners and who intend to
exercise dissenters' rights should submit to Eagle at or before the
assertion of the rights a written consent of the record owner or instruct
the record owner to comply with the statutory requirements with respect
to the exercise of dissenters' rights before the date of the Special
Meeting.
. Eagle shareholders who have previously filed a notice of intent to demand
the fair value of their shares and have not voted in favor of the Merger
may, after shareholder approval of the Merger, elect to exercise
dissenters' rights and demand fair value mailing or delivering their
written demand to: . The written demand
should specify the shareholder's name and mailing address, the number of
shares owned, and that the shareholder is thereby demanding the fair
value of his or her shares.
. After the Effective Time, Eagle, as the surviving corporation, will cause
to be mailed to each shareholder of Eagle who has properly asserted
dissenters' rights a notice that contains (i) the address to which a
demand for payment and stock certificates must be sent in order to
receive payment and the date by which they must be received; (ii) any
restriction on transfer of uncertificated shares that will apply after
the demand for payment is received, (iii) a form to be used to certify
the date on which the shareholder, or the beneficial owner on whose
behalf the shareholder dissents, acquired his or her Eagle shares or an
interest in them and to demand payment; and (iv) another copy of Sections
302A.471 and 302A.473 together with a brief description of these
sections. To receive the fair value of his or her Eagle shares, a
dissenting shareholder must demand payment and deposit his or her
certificates within 30 days after this notice from Eagle is given to
dissenting shareholders.
. After the Effective Time or after Eagle receives a valid demand for
payment, whichever is later, Eagle must remit to each dissenting
shareholder who has complied with the dissenters' rights provisions the
amount Eagle estimates to be the fair value of the shares, plus interest,
along with (i) Eagle's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of
the Merger, together with the latest available interim financial
statements; (ii) an estimate by Eagle of the fair value of the shares and
a brief description of the method used to reach the estimate; and (iii)
another copy of Sections 302A.471 and 302A.473 and a brief description of
the procedure to be followed in demanding supplemental payment. If Eagle
fails to remit payment within 60 days of the deposit of certificates,
Eagle must return all deposited certificates. However, Eagle may again
give notice and require deposit at a later time.
. If a dissenting Eagle shareholder believes that the amount remitted by
Eagle is less than the fair value of his or her shares plus interest,
such dissenting shareholder may give written notice to Eagle of his or
her own estimate of the fair value for the shares plus interest and
demand a supplemental payment for the difference. Any written demand for
supplemental payment must be
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made within 30 days after Eagle mailed its original remittance. Otherwise,
a dissenter is entitled only to the amount remitted by Eagle.
. Within 60 days after receiving a demand for supplemental payment, Eagle,
as the surviving corporation, must either pay the amount of the
supplemental payment demanded (or agreed to between the dissenting
shareholder and Eagle) or file a petition in the state courts of
Minnesota requesting that the court determine the fair value of the
shares plus interest. Any petition so filed must name as parties all
dissenting shareholders who have demanded supplemental payments and who
have been unable to reach an agreement with Eagle concerning the fair
value of their shares. If Eagle files such a petition, it must serve all
parties with a summons and a copy of the petition under the rules of
civil procedure. The court may appoint appraisers, with such power and
authority as the court deems proper, to receive evidence on and recommend
the amount of fair value of the shares. The jurisdiction of the court is
plenary and exclusive, and the fair value as determined by the court is
binding on all shareholders, wherever located. A dissenting shareholder,
if successful, is entitled to a judgment for the amount in cash by which
the fair value of his or her shares as determined by the court exceeds
the amount originally remitted by Eagle, plus interest.
Generally, the costs and expenses associated with a court proceeding to
determine the fair value of the Eagle shares will be borne by Eagle, as the
surviving corporation, unless the court finds that a dissenting shareholder
has demanded supplemental payment in a manner that is arbitrary, vexatious, or
not in good faith. Similar costs and expenses may also be assessed in
instances where Eagle has failed to comply with the procedures in Section
302A.473 of the MBCA pertaining to dissenters' rights discussed above. The
court may, in its discretion, award attorneys' fees to an attorney
representing dissenting shareholders out of any amount awarded to such
dissenters.
Failure to follow the steps required by Section 302A.473 for asserting
dissenters' rights may result in the loss of a shareholder's rights to demand
the fair value of his or her Eagle shares. Shareholders considering seeking
appraisal should realize that the fair value of their shares, as determined
under Section 302A.473 of the MBCA in the manner outlined above, could be more
than, the same as, or less than the amount of value of the shares of Holdings
they would be entitled to receive as a result of the Merger if they did not
seek appraisal of their shares.
COMPARISON OF SHAREHOLDER RIGHTS
General
The rights of Holdings' shareholders are governed by Holdings' Amended and
Restated Certificate of Incorporation ("Holdings' Certificate"), Holdings'
Bylaws and Delaware law. The rights of Eagle shareholders are governed by
Eagle's Articles of Incorporation, as amended ("Eagle's Articles"), Eagle's
Bylaws and Minnesota law. Holdings' Certificate and Bylaws were drafted to
reflect the legal requirements of Delaware corporate law; however, the
substantive provisions of Holdings' Certificate and Bylaws are substantially
identical to Eagle's Articles and Bylaws in all material respects, except as
identified below. Upon consummation of the Merger, shareholders of Eagle will
become stockholders of Holdings, and their rights will thus be governed by
Delaware law, Holdings' Certificate and Holdings' Bylaws. The following is a
summary of the principal differences between the current rights of Eagle
shareholders and those of Holdings stockholders.
The following discussions are not intended to be complete and are qualified
by reference to Delaware law, Minnesota law, Eagle's Articles and Bylaws, and
Holdings' Certificate and Bylaws. Copies of Eagle's Articles and Bylaws and
Holdings' Certificate and Bylaws are incorporated by reference herein and will
be sent to shareholders of Eagle upon request. See "Where You Can Find More
Information."
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Comparison
Capitalization. As discussed above, Holdings was formed in connection with
the Merger to have a capital structure essentially identical to Eagle. The
authorized capital stock of Holdings and a description thereof is set forth
below under "Description of Holdings' Capital Stock."
The authorized capital stock of Eagle consists of 50,000,000 shares, $.01 par
value, of which 30,000,000 are shares of Common Stock, 3,500,000 are shares of
Class B Common Stock, 2,000,000 are shares of Series A Preferred Stock, 10,000
are shares of 8% Preferred Stock and 14,490,000 shares are undesignated.
Voting Rights. Holdings' Certificate provides that on all matters submitted
to Holdings stockholders for a vote each holder of shares of Holdings 8%
Preferred Stock is entitled to one vote per share of Holdings 8% Preferred
Stock then held by such holder. Except as provided in the next paragraph,
holders of Holdings 8% Preferred Stock, Series A Preferred Stock and Common
Stock vote together as a single class. Eagle's Articles provide that, except as
described in the next paragraph or as otherwise required by law, holders of
Eagle 8% Preferred Stock are not entitled to vote on any matter submitted to
Eagle shareholders for a vote.
Holdings' Certificate provides that the holders of its 8% Preferred Stock
also have the right to elect an individual to Holdings' Board of Directors in
the event that Holdings fails to redeem its shares of 8% Preferred Stock as
required by its Certificate. See "Description of Holdings' Capital Stock--8%
Convertible Preferred Stock--Right to Elect Director." Likewise, Eagle's
Articles provide that the holders of its 8% Preferred Stock have a right to
elect an individual to Eagle's Board of Directors in the event that Eagle fails
to redeem its 8% Preferred Stock as required by its Articles. Such right is
substantially identical to that of the holders of Holdings 8% Preferred Stock.
Amendment of Certificate/Articles. Holdings' Certificate provides that any
amendment must be approved by at least 2/3 of the outstanding 8% Preferred
Stock and a majority of the voting power present and entitled to vote at a
meeting of stockholders.
Under Minnesota law, an amendment to the articles of incorporation requires
the affirmative vote of the holders of a majority of the shares present and
entitled to vote at a meeting of shareholders unless a larger affirmative vote
is required by the corporation's articles. Eagle's Articles provide that any
amendment must be approved by at least 2/3 of the outstanding 8% Preferred
Stock. Otherwise, Eagle's Articles do not require a different number for
approval of an amendment.
Amendment of Bylaws. Under Delaware law, the power to adopt, amend or repeal
bylaws resides in the stockholders entitled to vote; however, any corporation
may, in its certificate of incorporation, confer the power to adopt, amend or
repeal bylaws upon the directors. Holdings' certificate has conferred such
power upon the directors, provided that certain actions require, in any event,
the unanimous approval of the directors. See "--Restrictions on Corporate
Action" below.
Minnesota law provides that unless reserved by the articles to the
shareholders, the power to amend the bylaws is vested in the board subject to
the power of the shareholders to amend or repeal such bylaws. Eagle's Bylaws
are consistent with Minnesota law and also provide that Eagle's Board of
Directors shall not make or alter any Bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling
vacancies on the Eagle Board of Directors, or fixing the number of directors or
their classifications, qualifications or terms of office, but the Eagle Board
of Directors may adopt or amend its Bylaws to increase the number of directors.
Meetings of Stockholders. Delaware law provides that meetings of stockholders
may be called only by the directors or by any other person authorized by the
corporation's certificate of incorporation or bylaws. Holdings' Bylaws provide
that special meetings of stockholders may be called by a majority of the Board
of Directors, the Chairman of the Board of Directors and the Chief Executive
Officer, or a stockholder or
44
<PAGE>
stockholders holding 10% or more of the voting power of all shares entitled to
vote on any matter for which the respective special meeting is being called.
Minnesota law provides that meetings of shareholders may be called by: (i)
the chief executive officer; (ii) the chief financial officer; (iii) two or
more directors; (iv) shareholders holding 10% or more of the voting power of
all shares entitled to vote (except that the voting power needed to demand a
meeting to directly or indirectly effect a business combination is 25%); or (v)
any other person authorized in the articles or bylaws. Eagle's Bylaws provide
that meetings of shareholders may be called only by the Chairman of the Board
of Directors or a party listed in items (i) through (iv) above.
Action without a Meeting of Stockholders. Delaware law provides that, unless
otherwise provided in the certificate of incorporation, an action required or
permitted to be taken at a stockholders meeting may be taken without a meeting
if consent in writing, setting forth the action so taken, is signed by the
holders necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Holdings' Certificate
does not provide otherwise.
Minnesota law provides that an action required or permitted to be taken at a
shareholders meeting may be taken without a meeting by written action signed by
all of the shareholders entitled to vote on that action.
Dividends and Repurchases of Stock. Holdings' Board of Directors, under
Delaware law, may, in general, declare and pay dividends out of surplus or out
of net profits for the current and/or preceding fiscal year of Holdings.
Additionally, Holdings may, in general, redeem or repurchase shares of its
stock if its capital is not impaired and such redemption or repurchase will not
impair its capital. The directors of Holdings may be jointly and severally
liable to Holdings for a willful or negligent violation of such provisions of
Delaware law. Holdings' ability to pay dividends or redeem its stock is subject
to limitations imposed upon Holdings by the terms of its preferred stock and
Bylaws, and limitations that may be imposed by any credit agreements.
Eagle's Board of Directors, under Minnesota law, may declare dividends
without shareholder approval so long as the corporation will be able to pay its
debts in the ordinary course of business after making the distribution.
Inspection Rights. Under Delaware law, stockholders, upon the demonstration
of a proper purpose, have the right to inspect a corporation's stock ledger,
stockholder list, and other books and records.
Under Minnesota law, a shareholder has an "absolute right," upon written
demand, to examine the following corporate documents: (i) the share register;
(ii) records of all proceedings of shareholders for the last three years; (iii)
records of all proceedings of the board of directors for the last three years;
(iv) the corporation's articles of incorporation and all amendments currently
in effect; (v) the corporation's bylaws and all amendments currently in effect;
(vi) certain financial statements and the financial statements for the most
recent interim period prepared in the course of the operation of the
corporation for distribution to the shareholders or to a governmental agency as
a matter of public record; (vii) reports made to shareholders generally within
the last three years; (viii) a statement of the names and usual business
addresses of its directors and principal officers; (ix) voting trust
agreements; (x) shareholder control agreements; and (xi) a copy of agreements,
contracts, or other arrangements or portions of them fixing the rights of a
class or series of securities issued by the corporation.
Directors. Holdings' Certificate provides that the Holdings Board of
Directors shall consist of no more than eleven directors and that the initial
Board of Directors following the Merger shall consist of five directors.
Pursuant to the Stockholders' Agreement to be entered into in connection with
the Merger, CONDEA Vista has the right to designate one nominee for election to
the Board of Directors and the Spell Group has the right to designate four
nominees for election to the Board of Directors. See "Holdings' Management--
Certain Relationships and Related Transactions--Stockholders' Agreement."
Holdings' Bylaws provide that directors
45
<PAGE>
hold office until the next annual meeting of the shareholders and until their
successors have been duly elected and qualified or until their earlier death,
resignation, retirement, disqualification or removal.
Eagle's Bylaws provide that the Eagle Board of Directors shall consist of not
less than three nor more than twelve members. Further, directors are divided
into three classes. The members of each class serve for a term of three years.
Election of classes are staggered with one class elected at each annual meeting
of shareholders to serve until their respective successors are duly elected and
qualified. Any increase or decrease in the number of directors is apportioned
among the classes so as to maintain, as nearly as possible, an equal number of
directors in each class. Vacancies on the Eagle Board of Directors are filled
by the affirmative vote of a majority of the remaining members of the Board of
Directors.
Limitation on Liability. Delaware law and Holdings' Certificate provide that
directors will not be personally liable for monetary damages for breach of
fiduciary duties as directors, except liability for (i) any breach of their
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions; or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Eagle's Articles limit the liability of directors for monetary damages for
breach of fiduciary duty to the maximum extent permitted by Minnesota law.
Minnesota law does not allow the limitation of liability for (i) a director's
breach of the duty of loyalty; (ii) transactions resulting in an improper
personal benefit to the director; (iii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iv) illegal
stock repurchase or other distributions; or (v) violations of Minnesota
securities law. Minnesota law provides that a corporation's articles of
incorporation cannot limit the right of a corporation and its shareholders to
enjoin transactions which violate a director's duty of care.
Indemnification. Delaware law permits, but does not require, a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any third party proceeding, by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or at the request of
the corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, as a director,
officer, employee or agent, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reason to believe that
such person's conduct was unlawful. In a derivative action, i.e., one by or in
the right of a corporation, the corporation is permitted to indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of an action or suit if such person
acted in good faith and in a manner that such person reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person is adjudged liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought determines that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Holdings' Certificate provides that Holdings shall indemnify, to the fullest
extent authorized or permitted by law, any person who was or is a party or is
threatened to be made a party to an action, suit or proceeding, by reason of
the fact that such person (i) is or was a director, officer, employee or agent
of Holdings; or (ii) at the request of Holdings, is or was serving any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as a director, officer, employee or agent. Holdings' Certificate
also provides that it shall pay, to the fullest extent permitted by law, the
expenses of such person incurred in defending such action, suit or proceeding.
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<PAGE>
Eagle's Bylaws provide that Eagle shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent, as permitted by Minnesota law. Minnesota law provides for mandatory
indemnification of a person acting in an official capacity on behalf of the
corporation (including a director, officer, employee or agent) if such person
acted in good faith, received no improper personal benefit, acted in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Eagle and
Holdings, Eagle and Holdings have been advised that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities
Act and may be, therefore, unenforceable.
Restrictions on Corporate Action. Holdings' Bylaws provide that the following
actions require the unanimous approval of Holdings Board of Directors: (i) any
substantial change in the type of business conducted by Holdings; (ii) any
acquisition of an unrelated business or entity for an aggregate purchase price
greater than $17,500,000; (iii) any sale of less than all or substantially all
of the assets of Holdings for an aggregate sale price in excess of $17,500,000;
(iv) any establishment or approval of an extraordinary bonus or bonus plan for
directors for significant acquisitions or significant one-time corporate
events; (v) payment of certain severance benefits to William H. Spell; (vi) the
establishment of any salary, directors' fees or consulting fees for persons who
are directors (except for any individual nominee elected to a directorship as a
designee of the CONDEA Vista), which in the aggregate on an annual basis
exceeds 0.25% of Holdings' annual consolidated sales revenues up to
$250,000,000, which percentage shall decrease 0.00028% for each additional
$1,000,000 of annual consolidated sales revenues up to $500,000,000 at which
point the ceiling percentage amount shall be fixed at 0.18%; and (vii) any
grant or issuance of shares or options to acquire shares to any member of the
Spell Group under any stock option, restricted stock or other compensation,
incentive or benefit plan (except that with respect to an acquisition or
similar event which has a material favorable effect on Holdings' operations,
results of operations or financial condition, or a significant increase in the
responsibilities of any Spell Group member, an outside independent compensation
consultant may be engaged to determine the appropriateness of such grant or
issuance). The above unanimous voting requirement terminates on the earlier to
occur of (a) the termination of the Stockholders' Agreement discussed under
"Holdings' Management--Certain Relationships and Related Transactions" and the
holding of the special meeting of Holdings' stockholders as provided for
therein or (b) December 31, 2004.
Eagle's Bylaws do not currently contain any analogous restrictions on
corporate action. However, after consummation of the Merger, Eagle's Bylaws
will be amended to include similar restrictions on corporate action.
Control Share Acquisitions. Eagle is subject to the Minnesota Control Share
Acquisition Act ("MCSAA"). The MCSAA provides that any person (an "acquiring
person") proposing to make a "control share acquisition" must disclose certain
information to the target corporation and the target corporation's shareholders
must thereafter approve the control share acquisition or certain of the shares
acquired in the control share acquisition shall not have voting rights and
shall be subject to redemption by the target corporation for a specified period
of time at the market value of such shares. A "control share acquisition" is an
acquisition of shares of issuing public corporation which results in the
acquiring person having voting power that exceeds one of the following
thresholds: (i) at least 20 percent but less than 33 1/3 percent; (ii) at least
33 1/3 percent but less than or equal to 50 percent; and (iii) over 50 percent.
The definition of a "control shares acquisition" specifically excludes
acquisition of shares from the corporation issuing such shares, and
acquisitions pursuant to plans of merger or exchange which are approved by the
shareholders of the corporation. The MCSAA applies to a control share
acquisition with respect to an issuing public corporation unless otherwise
expressly provided in the issuing public corporation's articles of
incorporation or in bylaws approved by its shareholders. The Eagle Articles do
not provide that the MCSAA will not apply to Eagle. There are no provisions of
Delaware law which are analogous to the MCSAA.
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<PAGE>
Business Combinations. Section 203 of the Delaware General Corporation Law
restricts publicly-held corporations from engaging in any "business
combination" with any "interested stockholder" or affiliate or associate of an
"interested stockholder" for a period of three years, after the date on which
such person becomes an "interested stockholder" unless (i) prior to such date
the board of directors approved the "business combination" or transaction
making the stockholder "interested," or (ii) upon consummation of such
transaction the "interested stockholder" owned at least 85% of the outstanding
voting stock, or (iii) the "business combination" is approved by the board and
by the two-thirds vote of the outstanding shares of voting stock (exclusive of
the shares held by the "interested shareholder") at a meeting of stockholders.
The Minnesota Business Combination Act provides that Eagle may not engage in
any "business combination" with any "interested shareholder" or affiliate or
associate of an interested shareholder for a period of four years after the
interested shareholder's "share acquisition date" unless either the business
combination or the acquisition of shares by the interested shareholder on his
share acquisition date is approved by a disinterested committee of the Eagle
Board before such interested shareholder's share acquisition date.
An "interested shareholder" under Section 203 of the Delaware General
Corporation Law is defined as a beneficial owner of 15% or more of the
outstanding voting stock or who was at any time within the preceding three
years such a holder. For purposes of the Minnesota Business Combination Act, an
"interested shareholder" is a 10% or more beneficial owner of voting shares of
such corporation, or a person who is an associate and an affiliate of the
corporation and who at any time within the four year period preceding the date
in question was a 10% or more beneficial owner of voting shares of such
corporation.
These Delaware and Minnesota business combination provisions apply to any
business combination of a corporation with any interested shareholder unless
otherwise expressly provided in such corporation's articles of incorporation or
bylaws, or other restrictions on applicability exist. Neither the Holdings
Certificate or Eagle Articles nor the Holdings or Eagle Bylaws provide that
such corporation will not be subject to Section 203 of the Delaware General
Corporation Law, or the analagous provisions of the Minnesota Business
Combination Act, respectively.
Rights of Dissenting Shareholders. Under Delaware law, stockholders have the
right, in some circumstances, to dissent from mergers and consolidations by
demanding payment in cash for their shares equal to the fair value (excluding
any appreciation or depreciation as a consequence or in expectation of the
transaction) with interest, as determined by agreement with the corporation or
by a court in an action timely brought by the dissenters. No appraisal rights
exist, however, (a) for shares listed on a national securities exchange or on
an interdealer quotations system, (b) for shares held of record by more than
2,000 shareholders or (c) if the merger did not require the approval of
stockholders, unless the certificate of incorporation provides otherwise or the
stockholders receive anything other than: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities
exchange, designated as a national market system security on an interdealer
quotation system or held of record by more than 2,000 stockholders; (iii) cash
in lieu of fractional shares of the corporation described in the foregoing
clauses (i) and (ii); or (iv) any combination of (i), (ii) or (iii). In the
event all of the stock of a subsidiary to a merger is not owned by the parent
company immediately prior to the merger, stockholders of such subsidiary shall
have appraisal rights.
Under Section 302A.473 of the MBCA, if a corporation calls a shareholder
meeting to approve a merger to which such corporation is a party, the sale of
substantially all of the assets of the corporation, or in certain other
circumstances, the notice of the meeting must inform each shareholder of the
right to dissent from such action and must include a copy of section 302A.471
and section 302A.473 of the MBCA and a brief description of the procedure to be
followed under such sections. A shareholder who wishes to exercise dissenters'
rights in such circumstances is entitled to demand the fair value of the shares
owned by such shareholder.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial information
("Pro Forma Financial Information") is presented as if Eagle's Merger with
Holdings and Eagle's Asset Purchase of the Lamson PVC Pipe Business occurred on
January 1, 1998 for the pro forma statement of operations and related data and
on December 31, 1998 for the pro forma balance sheet.
The Merger of Eagle and Holdings will be accounted for as a reverse
acquisition purchase business combination, as the former shareholders of Eagle
will control Holdings upon completion of the Merger because of the significant
restrictions on how CONDEA Vista may vote its shares of Holdings and because
four of the five directors of Holdings will be nominated by four current Eagle
directors. Accordingly, for accounting purposes, Holdings is treated as the
acquired company and Eagle is considered to be the accounting acquirer. The
purchase price will be allocated to the assets acquired and liabilities assumed
of Holdings based on their estimated fair market values at the acquisition
date. Under reverse acquisition accounting, the purchase price is based on the
market value of Holdings Common Stock, at the date of acquisition, that is
issued to the former shareholder of Holdings. For purposes of this pro forma
information, the fair market value of Holdings' Common Stock is assumed to be
$2.00 per share, which reflects the average daily closing price of Eagle Common
Stock for the three days prior to and the three days subsequent to announcement
of the Transactions. The price of Holdings Common Stock is assumed to be the
price of Eagle Common Stock, since Eagle Common Stock will be exchanged share
per share for Holdings Common Stock. The purchase price includes the issuance
of 9,829,717 shares of Holdings Common Stock.
The Asset Purchase of the Lamson PVC Pipe Business by Eagle will be accounted
for under the purchase method of accounting. The total consideration paid in
the Asset Purchase will be allocated to the assets acquired and liabilities
assumed of the Lamson PVC Pipe Business based on their estimated fair values at
the acquisition date.
The Pro Forma Financial Information has been prepared based upon assumptions
deemed appropriate for the fair presentation of financial information. The
allocation of the purchase price to the assets acquired, including the value of
property, plant and equipment, accounts receivable and liabilities assumed has
been estimated on a preliminary basis. The final allocation will be completed
after the Transactions are consummated and once final appraisals and other
analyses are completed. The final allocation could be different than the
preliminary allocation based on these final appraisals and analyses, however,
management of Eagle and Holdings do not expect the final adjustments to differ
materially.
The Pro Forma Financial Information is intended for informational purposes,
and does not purport to represent what the combined companies' results of
continuing operations or financial position would actually have been had the
transactions in fact occurred at an earlier date, or to project the results for
any future date or period. Upon consummation of these Transactions, the actual
financial position and results of operations of the combined companies will
differ, perhaps significantly, from the pro forma amounts reflected herein due
to a variety of factors, including changes in operating results between the
date of the Pro Forma Financial Information and the date on which the
Transactions are consummated and thereafter, as well as the factors discussed
under "Risk Factors".
The Pro Forma Financial Information does not give effect to any integration
costs that could result from the combination of the companies. Any integration
of the operations of the entities may include certain costs that in turn would
result in a charge to earnings of the combined companies. Such costs, which
cannot now be fully quantified, may be material and would be recognized in the
period in which such costs occur. These costs may include, but are not limited
to, computer systems integration, employee relocation and other similar costs.
The Pro Forma Financial Information does not include any potential cost savings
from the Merger.
Eagle and CONDEA Vista estimate that merger-related fees and expenses,
consisting primarily of bank financing fees and transaction costs for fees of
investment bankers, attorneys, accountants and financial printing
49
<PAGE>
and other related charges, will be approximately $450,000 for CONDEA Vista and
$ 2,631,000 for Eagle. CONDEA Vista will record such cost as an expense when
incurred. Eagle will record the bank financing fees as an asset and will record
the other costs as a component of the purchase price paid for Lamson's PVC Pipe
Business and the Oklahoma City Resin Business.
In presenting the Pro Forma Financial Information, Eagle's information was
derived from Eagle's audited financial statements as of and for the year ended
December 31, 1998, included herein. Information regarding Lamson's PVC Pipe
Business was derived from the audited Combined Statement of Net Assets To Be
Acquired at January 2, 1999 and the audited Combined Statement of Revenue and
Operating Expenses for the year ended January 2, 1999, included herein.
Information regarding the Oklahoma City Resin Business was derived from the
audited June 30, 1998 and unaudited December 31, 1998 financial statements
included herein. The Pro Forma Financial Information should be read in
conjunction with these financial statements and the related notes.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Lamson Pro Forma CONDEA Vista Pro Forma
PVC Pipe Adjustments and Oklahoma City Adjustments and Holdings
Eagle Business Eliminations Resin Business Eliminations Pro Forma
------- -------- --------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $ 3 $ (3)(e)
Accounts receivable.... $ 6,310 $ 2,669 10,455 (10,455)(e) $ 8,979
Inventories............ 12,250 16,092 2,640 (968)(e) 30,014
Other.................. 709 709
------- ------- ------- -------- --------
Total current assets... 19,269 18,761 13,098 (11,426) 39,702
PROPERTY AND EQUIPMENT,
NET.................... 22,635 14,540 $ 13,639 (d) 22,390 1,880 (e) 75,084
GOODWILL................ 3,986 6,049 (d) 10,035
(825)(h)
OTHER ASSETS............ 3,729 1,063 (f) 1,230 (1,072)(e) 4,125
------- ------- --------- ------- -------- --------
Total Assets........... $49,619 $33,301 $ 20,751 $36,718 ($11,443) $128,946
======= ======= ========= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
$ 6,665 (f)
Notes payable.......... $ 9,632 3,000 (d) $ 829 (f) $ 20,126
Accounts payable....... 8,013 $ 1,148 (1,148)(e) 8,013
Accrued expenses....... 1,738 $ 1,017 3,845 (3,845)(e) 2,755
Current maturities of
long-term debt........ 1,850 3,800 (f) 5,650
------- ------- --------- ------- -------- --------
Total current
liabilities........... 21,233 1,017 13,465 4,993 (4,164) 36,544
LONG-TERM DEBT, less
current 3,000 (d)
maturities............. 10,583 35,000 (f) 48,583
(1,324)(h)
DEFERRED INCOME TAXES... 4,869 743 (e) 4,288
OTHER LIABILITIES AND
DEFERRED CREDITS....... 2,155 (2,155)(e)
REDEEMABLE PREFERRED
STOCK.................. 10,000 10,000
499 (h)
1,570 (d) 19,659 (e)
STOCKHOLDERS' EQUITY.... 7,803 32,284 (32,284)(d) 24,701 (24,701)(e) 29,531
------- ------- --------- ------- -------- --------
Total Liabilities and
Stockholders' Equity.. $49,619 $33,301 $ 20,751 $36,718 ($11,443) $128,946
======= ======= ========= ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
51
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Lamson Pro Forma Pro Forma
PVC Pipe Adjustments and Oklahoma City Adjustments and Holdings
Eagle Business Eliminations Resin Business Eliminations Pro Forma
------- -------- --------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$(8,705)(b) $(65,212)(a)
NET SALES............... $74,007 $138,569 (5,411)(c) $71,110 5,359 (j) $209,717
(3,680)(b)
(5,286)(c)
1,364 (d) (63,487)(a)
COST OF GOODS SOLD...... 57,689 120,018 (12,585)(j) 67,795 188 (e) 162,016
------- -------- ------- ------- -------- --------
Gross Profit........... 16,318 18,551 6,071 3,315 3,446 47,701
(3,013)(b)
(828)(c)
302 (d) (544)(a)
OPERATING EXPENSES...... 12,110 16,361 12,585 (j) 5,945 5,359 (j) 48,277
------- -------- ------- ------- -------- --------
OPERATING INCOME
(LOSS)................. 4,208 2,190 (2,975) (2,630) (1,369) (576)
495 (g)
NON OPERATING EXPENSE... 2,266 -- 4,377 (f) 461 (461)(f) 7,138
------- -------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS..... 1,942 2,190 (7,847) (3,091) (908) (7,714)
INCOME TAX EXPENSE
(BENEFIT).............. 154 -- (1,432) 1,432 (i) 154
------- -------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS..... 1,788 2,190 (7,847) (1,659) (2,340) (7,868)
EXTRAORDINARY LOSS ON
DEBT PREPAYMENTS, less
income tax benefit of
$31.................... 656 -- -- -- 656
------- -------- ------- ------- -------- --------
NET INCOME (LOSS)....... 1,132 2,190 (7,847) (1,659) (2,340) (8,524)
PREFERRED STOCK
DIVIDENDS.............. 803 -- -- -- 803
------- -------- ------- ------- -------- --------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCK.................. $ 329 $ 2,190 $(7,847) $(1,659) $ (2,340) $ (9,327)
======= ======== ======= ======= ======== ========
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) before
extraordinary loss.... $0.15 $(0.50)
Extraordinary loss on
debt prepayments...... (0.10) (0.04)
------- --------
Net income (loss) ..... $0.05 $(0.54)
======= ========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE
Income (loss) before
extraordinary loss.... $0.14 $(0.50)
Extraordinary loss on
debt prepayments...... (0.09) (0.04)
------- --------
Net Income (loss)...... $0.05 $(0.54)
======= ========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................. 6,670 17,285
Diluted................ 7,165 17,285
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) To eliminate sales revenues, cost of goods sold and marketing expenses for
PVC resin sold from the Oklahoma City Resin Business to Eagle and the
Lamson PVC Pipe Business. The sales elimination assumes all PVC resin
purchases made by Eagle and the Lamson PVC Pipe Business were purchased
from the Oklahoma City Resin Business. The cost of goods sold elimination
is the cost of PVC resin included in the cost of goods sold of Eagle and
the Lamson PVC Pipe Business. The marketing expense elimination is for
marketing expenses incurred by the Oklahoma City Resin Business associated
with the sales eliminated above.
(b) To adjust the sales, cost of goods sold and selling expenses for products
to be manufactured by Eagle for sale to Lamson pursuant to the terms of the
proposed manufacturing agreement. Included are reductions in sales prices
previously charged to third parties by the Lamson PVC Pipe Business and
reductions in outbound freight, storage and selling expenses associated
with such third party sales.
(c) To eliminate the sales, cost of goods sold and selling expenses related to
certain products of the Lamson PVC Pipe Business that are not to be
acquired by Eagle under the Asset Purchase Agreement.
(d) To adjust the assets and liabilities of the Lamson PVC Pipe Business to
estimated fair value, to reflect the payment of the purchase price
consisting of $43.7 million in cash, $6 million of notes payable, and
785,000 shares of Eagle Common Stock having an estimated market value of
$1,570,000 and to reflect additional depreciation expense due to the
adjustment of property and equipment to fair value. Property and equipment
was adjusted by $13,639,000 to reflect fair value allocations, which will
be depreciated over an average estimated useful life of ten years. In
connection with the acquisition of the Lamson PVC Pipe Business, goodwill
with an estimated value of $6,049,000 is being recognized which will be
amortized over an estimated life of 20 years. The ultimate allocation of
the purchase price to the net assets acquired, goodwill and liabilities
assumed is subject to final determination of their respective fair values,
and as a result, these adjustments could change. However, management of
both Eagle and Holdings does not expect the final allocation to differ
materially.
(e) To adjust the assets and liabilities of the Oklahoma City Resin Business to
reflect only those assets and liabilities subject to the Merger Agreement,
to reflect estimated fair value of the assets and liabilities subject to
the Merger Agreement, to reflect the issuance of 9,829,717 shares of
Holdings Common Stock with an estimated market value of $19,659,000 in
payment of the purchase price and to reflect additional depreciation
expense due to the adjustment of property and equipment to fair value.
Property and equipment was adjusted by $1,880,000 to reflect fair value
allocations, which will be depreciated over an average estimated useful
life of ten years. The ultimate allocation of the purchase price to the net
assets acquired and liabilities assumed is subject to final determination
of their respective fair values, and as a result, these adjustments could
change. However, management of both Eagle and Holdings does not expect the
final allocation to differ materially.
(f) To adjust long-term debt and interest expense for anticipated incremental
borrowings of $46.3 million to finance the cash acquisition payment of
$43.7 million for the asset purchase of the Lamson PVC Pipe Business,
transaction costs and related debt issuance costs. Interest on the proposed
financing is expected to be based on a variable rate (prime rate or LIBOR,
at Eagle's option), plus a margin based on Eagle's interest coverage ratio.
Interest expense has been based on an assumed interest rate of 8.25% per
annum. If actual interest rates are different than the interest rate
assumed, the impact on income is $58,000 for each 1/8 percent change in
rate. Debt issuance costs related to anticipated incremental borrowings of
$1,062,500 are amortized over three years, which is the term of the
agreement. Allocated interest expense of the Oklahoma City Resin Business
has been eliminated.
(g) To adjust interest expense for the $6.0 million of notes payable to be
issued in the acquisition of the Lamson PVC Pipe Business at an average
interest rate of 8.25%.
(h) To adjust the valuation allowance for deferred tax assets related to net
operating losses based on expected reversal of temporary differences, and
to reclass Eagle's non-current deferred tax assets to partially offset the
non-current deferred tax liability established as part of Note (e) above.
(i) To adjust income tax expense based on the earnings (loss) of the combined
entity.
(j) To reclass freight, warehousing and shipping to operating expenses.
53
<PAGE>
OKLAHOMA CITY RESIN BUSINESS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Oklahoma City Resin Business has historically been operated as one of two
manufacturing facilities of CONDEA Vista. The Oklahoma City Resin Business
consumes VCM in the production of PVC. The Oklahoma City Resin Business plant's
principal source of VCM is CONDEA Vista's VCM manufacturing facilities in Lake
Charles, Louisiana. The VCM has been transferred to the Oklahoma City Resin
Business plant at a transfer price equal to an internally-estimated, then-
applicable market price.
The Oklahoma City Resin Business has been provided administrative, marketing,
operational support and research and development services by CONDEA Vista. The
cost of providing these services is charged to the Oklahoma City Resin Business
through allocations based on budgeted manhours, services and other costs
incurred on its behalf. While management of the Oklahoma City Resin Business
believes these allocations are reasonable, the costs allocated may not be
indicative of costs that would have been incurred if the Oklahoma City Resin
Business had operated during the periods presented as a separate, independent
entity.
The information contained below should be read in conjunction with the
audited financial statements of the CONDEA Vista Company Oklahoma City Plant
for each of the three fiscal years ended June 30, 1996, 1997 and 1998, and the
unaudited financial statements of the CONDEA Vista Company Oklahoma City Plant
for the six months ended December 31, 1997 and 1998, including the notes
thereto. In the opinion of management for the Oklahoma City Resin Business, all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included in the unaudited financial statements.
The unaudited quarterly financial results for the six months ended December 31,
1998 are not necessarily indicative of results which may be achieved for the
fiscal year ending June 30, 1999. See "Index to Financial Statements."
Results of Operations
Six Months Ended December 31, 1998 Compared with the Six Months Ended December
31, 1997
The following table sets forth items from the Oklahoma City Resin Business
Statements of Income and Changes in Owner's Investment for the six months ended
December 31, 1998 and 1997, as percentages of net sales:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------
1998 1997
------- -------
<S> <C> <C> <C>
Net Sales............... 100.0% 100.0%
Cost of Sales........... 93.5 103.8
Depreciation &
Amortization........... 4.3 2.7
Selling, General &
Administration
Expenses............... 9.4 6.3
Operating Loss.......... (7.2) (12.8)
Interest Expense........ .9 1.0
Loss Before Income
Taxes.................. (8.1) (13.8)
Income Tax Benefit...... (3.6) (5.6)
Net Loss................ (4.5)% (8.2)%
</TABLE>
Net sales for the six months ended December 31, 1998 declined 35% from the
same period in 1997 primarily reflecting the continuing industry-wide
deterioration of PVC resin pricing. The decline resulted from weaker capacity
utilization along with decreased export sales resulting from the Asian economic
crisis.
54
<PAGE>
Costs of sales for the six months ended December 31, 1998 were down 42% from
the same six months period a year ago as a result of lower VCM feedstock costs.
The loss from operations of approximately $2.2 million represented an
improvement of approximately $3.9 million when compared with the prior year's
six-month period.
Depreciation and amortization expense and selling, general and administrative
expenses for the six months ended December 31, 1998 were essentially flat
compared to the same six-month period of the prior year. The changes from the
prior year's six-month expenses expressed as percentages of sales were due to
the decline in net sales resulting from reduced PVC resin sales prices.
Interest expense represents an allocation of the interest accrued on CONDEA
Vista's intercompany borrowings from an affiliated corporation, and is based on
the amount of accumulated net additions to CONDEA Vista's investment in the
Oklahoma City Resin Business. The interest allocation for the six-month period
ending December 31, 1998 is down from the the same six-month period for 1997,
primarily due to a reduction of investment requirements by CONDEA Vista in the
Oklahoma City Resin Business. The reduction in income tax benefit for the six-
month period ending December 31, 1998 versus the same period in the prior year
is a result of a corresponding reduction in net losses for the Oklahoma City
Resin Business.
Fiscal Year Ended June 30, 1998 Compared with Years Ended June 30, 1997 and
1996
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net Sales............... 100.0% 100.0% 100.0%
Cost of Goods Sold...... 97.5 98.3 95.5
Depreciation &
Amortization........... 3.0 2.8 2.8
Selling, General &
Administration
Expenses............... 6.9 6.0 7.0
Operating Income
(Loss)................. (7.4) (7.1) (5.3)
Interest Expenses....... .8 1.1 .9
Loss Before Income
Taxes.................. (8.2) (8.2) (6.2)
Income Tax Benefit...... (3.5) (3.4) (2.7)
Net Loss................ (4.7)% (4.8)% (3.5)%
</TABLE>
Net sales declined 11% in the fiscal year ended June 30, 1998 compared to net
sales for the year ended June 30, 1997 as a result of a 16% decline in product
prices, partly offset by 6% higher sales volumes. The deterioration in product
prices reflects still-prevailing current competitive conditions in the
industry. CONDEA Vista believes the industry capacity utilization was
approximately 88% in the fiscal year ended June 30, 1998. The Asian financial
situation contributed to a very weak U.S. export market during fiscal 1998,
with domestic prices sliding throughout the year. As a result, producers such
as the Oklahoma City Resin Business were not able to realize any normal
seasonal strengthening of product prices. Fiscal year 1997 net sales increased
approximately 8% from the net sales for the fiscal year ended June 30, 1996
principally as a result of higher sales volumes during fiscal 1997.
The loss from operations for the fiscal year ended June 30, 1998 improved
$500,000 from the previous year. Lower PVC prices were somewhat offset by lower
VCM feedstock costs and higher sales volumes in fiscal 1998. Comparing fiscal
1997 to fiscal 1996, the loss from operations increased by $2.2 million in
fiscal 1997 due to a 24% increase in average VCM feedstock cost that fiscal
year, while PVC pricing for that period was essentially flat.
Interest expense represents an allocation of the interest accrued on CONDEA
Vista's intercompany borrowings from an affiliated corporation. The allocation
is based on the amount of additions to net investments outstanding made by
CONDEA Vista to the Oklahoma City Resin Business. The income tax benefit
attributed to the Oklahoma City Resin Business operations was derived using
CONDEA Vista's federal tax rate and the applicable Oklahoma tax rate, which was
38.7% for each of the fiscal year periods presented.
55
<PAGE>
Liquidity and Capital Resources
The Oklahoma City Resin Business generated a positive cash flow from
operations of $2.1 million in the six months ended December 31, 1998, largely
due to reductions in working capital. Capital expenditures totaled
approximately $798,000 in the six months ended December 31, 1998 principally
due to capacity improvement projects.
The Oklahoma City Resin Business capital and liquidity requirements have
traditionally been provided by CONDEA Vista. The Oklahoma City Resin Business
plant capital expenditures have averaged approximately $1.2 million each year
over the last three fiscal years. The capital expenditures were principally for
equipment purchases in connection with desired productivity improvements.
Capital expenditures for the fiscal year to end June 30, 1999 are expected to
be about $1.8 million.
Additional cash amounts provided by or to CONDEA Vista resulting from
operating and investing activities at the Oklahoma City Resin Business are
reflected as cash flows from financing activities in the statement of cash
flows of the Oklahoma City Resin Business.
The Oklahoma City Resin Business was a net provider of funds in the fiscal
year ended June 30, 1998 due to reductions in working capital and a
sale/leaseback of its owned railcar fleet. See Note 4 of Notes to Financial
Statements--CONDEA Vista Company Oklahoma City Plant.
Seasonality
Sales by the Oklahoma City Resin Business are made primarily to suppliers
serving the construction industry. As a result, sales by the Oklahoma City
Resin Business may be adversely affected by winter weather conditions that
decrease construction activity.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. CONDEA Vista is currently
working to resolve the potential impact of the Year 2000 issue on the
computerized systems used in connection with the Oklahoma City Resin Business.
CONDEA Vista is in the process of evaluating the Year 2000 readiness of the
information technology systems used in the Oklahoma City Resin Businesses'
operations ("IT Systems"), and its non-IT Systems, such as building security,
voice mail and other systems. CONDEA Vista has substantially completed its
assessment of its IT Systems. By the end of May 1999, CONDEA Vista expects to
complete the final phase of its Year 2000 IT System compliance program. CONDEA
Vista commenced replacement of its IT System at the Oklahoma City Resin
Business in 1995. This replacement, which was completed in 1996, was required
in order to meet current and future needs of Oklahoma City Resin Business as
well as to make more efficient various administrative and operating functions.
The Year 2000 compliance program has covered and is expected to cover the
following phases: (i) inventory of all non-tested IT Systems and non-IT
Systems; (ii) assessment of repair or replacement requirements; (iii) planning
and remediation; (iv) testing; and (v) implementation. The Oklahoma City Resin
Business also relies upon various vendors, governmental agencies, utility
companies, telecommunications service companies, delivery service companies and
other service providers, the operations of which are outside of its control.
There is no assurance that such parties will not suffer a Year 2000 business
disruption, which could have a material adverse effect on the Oklahoma City
Resin Business's financial condition and results of operations.
To date, the Oklahoma City Resin Business has not incurred any material
expenditures in connection with identifying, evaluating or remediating Year
2000 compliance issues. CONDEA Vista has not retained an outside consultant to
assist it in its review and assessment of its Year 2000 issues. Most of the
expenditures
56
<PAGE>
have related to the opportunity cost of time spent by employees of the business
in evaluating Year 2000 issues for its IT Systems and its non-IT Systems. While
CONDEA Vista has not yet completed its evaluation of the estimated costs
required to remediate the Year 2000 issues concerning systems at the Oklahoma
City Resin Business (primarily expected to be costs in connection with
replacing systems and modifying software), management currently believes that
these expenditures will not have a material adverse effect on its operations,
results of operations or financial condition. However, no assurances can be
given that until the Oklahoma City Resin Business fully completes its cost
evaluation, the economic effects of these remediation efforts will not have a
material adverse effect on its operations, results of operations or financial
condition. Management of the Oklahoma City Resin Business believes that
internally generated funds or available cash will be sufficient to cover the
projected costs associated with its Year 2000 remediation requirements.
At this time, the Oklahoma City Resin Business does not possess all of the
information necessary to estimate the potential impact of Year 2000 compliance
issues relating to its IT Systems and its non-IT Systems, its vendors and its
customers. Such impact, including the effect of a Year 2000 business
disruption, would not be expected to have a material adverse effect on its
financial condition and results of operations. The Oklahoma City Resin Business
has not yet developed a Year 2000 specific contingency plan, although it
intends to prepare a contingency plan with respect to its financial and
accounting software and its products no later than September 1999. In addition,
if further Year 2000 compliance issues are discovered, it will evaluate the
need for one or more contingency plans relating to those particular issues.
HOLDINGS AND THE OKLAHOMA CITY RESIN BUSINESSES
HOLDINGS
Holdings, a Delaware corporation, was organized in December 1998 to serve as
a holding company for the Oklahoma City Resin Business and to merge with the
combined businesses of Eagle and the Lamson PVC Pipe Business. It is currently
a wholly owned subsidiary of CONDEA Vista and has not engaged in any activities
except in connection with its organization and the Merger. Holdings has one
wholly owned subsidiary, Merger Sub. Prior to the Merger, CONDEA Vista will
transfer its Oklahoma City Resin Business to Holdings in consideration for the
issuance of 9,829,717 shares of Holdings Common Stock. Prior to the Merger,
Holdings will then transfer such business to Merger Sub and Merger Sub will
merge into Eagle. As a result of the Merger, Holdings will be a holding company
for Eagle, and Eagle will be the operating company of the combined businesses
of Eagle, the Oklahoma City Resin Business and the Lamson PVC Pipe Business.
OKLAHOMA CITY RESIN BUSINESS
General
The Oklahoma City Resin Business produces PVC at its plant located in
Oklahoma City, Oklahoma. The Oklahoma City Resin Business sells its resins to
third parties who produce their own compounds for use primarily in larger
volume construction applications, such as PVC pipe manufacturing.
Products
PVC suspension and mass resins, named for the different processes used to
produce them, are powders that cannot be used without the addition of
ingredients to form a vinyl compound. Suspension/mass resins can be further
categorized as general purpose and special purpose resins. The Oklahoma City
Resin Business produces only general purpose resins, which are typically used
in rigid applications, such as pipe and exterior siding.
Competition
The Oklahoma City Resin Business competes with major U.S. chemical
manufacturers and diversified companies, some of which have greater financial
resources than it. Competition in the industry is based upon numerous factors,
the importance of which vary depending on the specific characteristics of the
product and the applicable market, ranging from price and availability to
product performance and customer and technical support.
57
<PAGE>
With respect to its PVC resins, the Oklahoma City Resin Business competes
primarily with seven major North American PVC producers: Borden Chemicals and
Plastics Limited Partnership; The Geon Company; Formosa Plastics Corporation
U.S.A. (a subsidiary of Formosa Plastic Group based in Taipei, Taiwan); Georgia
Gulf Corporation; Occidental Chemical Corporation (a subsidiary of Occidental
Petroleum Corporation), Shintech, Inc. (a subsidiary of Shin Etsu Chemical Co.,
Ltd. Based in Tokyo, Japan) and The Westlake Group. The key competitive factors
with respect to PVC resins are price, product availability and performance.
Holdings believes that in 1998, the eight largest resin producers (which
includes CONDEA Vista) accounted for approximately 92% of the total estimated
resin capacity. Holdings also believes that no single producer had more than
20% of total resin capacity.
Raw Materials
CONDEA Vista produces the majority of the VCM required by the Oklahoma City
Resin Business for the manufacture of resins at CONDEA Vista's plant in Lake
Charles, Louisiana. For the fiscal years ended June 30, 1998, 1997 and 1996,
the cost to the Oklahoma City Resin Business of VCM provided by the Lake
Charles plant was approximately $73.4 million, $82.3 million and $68.5 million,
respectively. In connection with the Merger CONDEA Vista and Eagle will enter
into a VCM Supply Agreement, pursuant to which CONDEA Vista will supply Eagle's
VCM requirements, subject to the terms of such agreement. See "Holdings and the
Oklahoma City Resin Business--Related Party Transactions."
In addition to the VCM used in producing the resins, the Oklahoma City Resin
Business purchases a variety of additives to manufacture its products. These
materials generally have adequate alternative sources of supply and are not
generally purchased under multi-year contracts.
Employees
As of December 31, 1998, the Oklahoma City Resin Business had approximately
56 full-time employees, none of whom are covered by collective bargaining
agreements. The Oklahoma City Resin Business considers its employee relations
to be satisfactory.
Sales to Significant Customers
During the fiscal years ended June 30, 1998, 1997 and 1996, the Oklahoma City
Resin Business' three largest customers together accounted for 61%, 59% and 56%
of its total net sales. See Note 11 of Notes to Financial Statements--CONDEA
Vista Company Oklahoma City Plant. Sales to Lamson accounted for 20%, 24% and
25% of the Oklahoma City Resin Business's total net sales for the fiscal years
ended June 30, 1998, 1997 and 1996, and sales to Eagle accounted for 15%, 14%
and 14% of the Oklahoma City Resin Business's total net sales for the same
periods.
Environmental, Health and Safety
The Oklahoma City Resin Business is subject to various federal, state and
local environmental laws and regulations concerning emissions to the air,
discharges to waterways, the release of materials into the environment, the
generation, handling, storage, transportation, treatment and disposal of waste
materials or otherwise relating to the protection of the environment.
The Oklahoma City Resin Business maintains an environmental and occupational
safety and health compliance program and conducts periodic plant and corporate
regulatory audits at its plant in order to identify and categorize potential
environmental exposures and to ensure compliance with applicable environmental,
health and safety laws and regulations. This is an effort which has required
and may continue to require process or operational modifications and the
installation of pollution control devices.
The Oklahoma City Resin Business also initiates corrective and preventive
environmental projects of its own to promote safe and lawful activities at its
operations. Management believes that compliance with current governmental
regulations will not have a material adverse effect on its capital
expenditures, earnings, cash flow or liquidity. In addition, the Oklahoma City
Resin Business conducts a comprehensive occupational safety and health program.
58
<PAGE>
The risk of additional costs and liabilities is inherent in connection with
certain plant operations and the products produced at the Oklahoma City plant,
as is the case with other companies involved in the PVC industry. There can be
no assurance that these additional costs and liabilities will not be incurred
by the Oklahoma City Resin Business in the future. It is also possible that
other developments, such as increasingly strict environmental, safety and
health laws, regulations and enforcement policies thereunder and claims for
damages to property or persons resulting from plant emissions or products,
could result in additional costs and liabilities to the Oklahoma City Resin
Business.
A number of foreign countries and domestic local communities have enacted, or
have under consideration, laws and regulations relating to the use and disposal
of plastic materials. Widespread adoption of such laws and regulations, or
public perception regarding the use or manufacture of plastic materials, may
have an adverse impact on plastic materials. Although many of the major markets
are in durable, longer-life applications which could reduce the impact of any
such environmental regulation, there is no assurance that possible future
legislation or regulation would not have an adverse effect on the Oklahoma City
Resin Business.
The Oklahoma City Resin Business is not currently aware of any new laws which
will have a material impact on the industry or the Oklahoma City Resin
Business's results of operations, capital expenditures, cash flow or liquidity.
Properties
CONDEA Vista currently owns the real property on which the Oklahoma City
Resin Business is located. This property consists of approximately 88 acres and
contains 13 buildings aggregating 140,000 square feet of warehouse and
production space. This property will be transferred to Holdings' wholly-owned
subsidiary, Merger Sub, and subsequently to Eagle pursuant to the Merger. See
"The Merger and Related Transactions--Description of the Transactions".
Management of the Oklahoma City Resin Business believes that its existing
facilities are adequate for the business' current needs and that additional
space will be available as needed. There can be no assurance, however, that
additional space will be available on acceptable terms or at all.
Legal Proceedings
In addition to the matters regarding the environment described above under
the heading "Environmental, Health and Safety", there are pending or threatened
against CONDEA Vista and the Oklahoma City Resin Business various claims,
lawsuits and administrative proceedings, all arising from the ordinary course
of business with respect to commercial, product liability and environmental
matters, which seek remedies or damages. CONDEA Vista believes that any
liability that may be finally determined should not have a material effect on
the Oklahoma City Resin Business's financial condition or results of
operations.
Dividend Policy
Holdings does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. Holdings intends to retain any earnings otherwise available
for dividends on its Common Stock for use in its business.
59
<PAGE>
HOLDINGS' MANAGEMENT
Directors and Executive Officers
The current directors and executive officers of Holdings are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William C. Knodel........... 60 Director
Mark J. Schneider........... 53 President and Chief Financial Officer
Charles J. Matson........... 52 Senior Vice President of Sales and Marketing
</TABLE>
William C. Knodel is currently the sole director of Holdings and will
continue as a director of Holdings following the Merger. Since August 1994, Mr.
Knodel has served as President of CONDEA Vista. Prior to joining CONDEA Vista,
Mr. Knodel had been employed by Procter & Gamble Co. ("P&G") or one of its
affiliates since 1961. Mr. Knodel served as General Manager--Worldwide
Chemicals for P&G from 1988 to 1994 and as President of Jetco Chemicals, Inc.,
a P&G subsidiary, from 1985 to 1988. Mr. Knodel currently serves as a director
of the Chemical Manufacturers Association and the Soap and Detergent
Association.
Mark J. Schneider is currently the President and Chief Financial Officer of
Holdings and will continue to serve as President of Holdings following the
Merger. Since March 1992 Mr. Schneider has served as Vice President and
Business Manager of Olefin and Vinyl Division of CONDEA Vista Company. Prior to
joining CONDEA Vista, Mr. Schneider held various positions of increasing
responsibility with Conoco, Inc.
Charles J. Matson is currently the Senior Vice President of Sales and
Marketing of Holdings and will continue to serve in such position following the
Merger. Mr. Matson has been employed by CONDEA Vista Company since 1984 and has
served as Manager of Sales since 1991. Prior to joining CONDEA Vista,
Mr. Matson held various positions of increasing responsibility with Conoco,
Inc.
Following consummation of the transactions, Harry Spell, William Spell, Bruce
Richard and Richard Perkins, all directors of Eagle, will be appointed
directors of Holdings. Additionally, William Spell, Patrick Mertens and Peter
Konen, all officers of Eagle, will serve as Holdings' Chief Executive Officer,
Chief Financial Officer and Senior Vice President of Operations, respectively.
See "The Merger and Related Transactions--Officers and Directors of Holdings
and Eagle Following the Transactions."
Directors' Compensation
Holdings has agreed to pay each director, other than Mr. Knodel, who is not
employed by it an annual retainer of $24,000 and to reimburse such person for
all reasonable expenses incurred by him in his capacity as a director.
Executive Compensation and Employment Agreements
Holdings' executive officers will also serve as executive officers of Eagle
following the Merger. Eagle has entered into employment agreements with Mark
Schneider, Charles Matson, Peter Konen and Patrick Mertens that become
effective at the Effective Time of the Merger. Below is a description of the
material terms of such agreements.
Eagle has entered into an employment agreement with Mark Schneider terminable
at will, pursuant to which Mr. Schneider will serve as President of Eagle and
will receive a base salary of $252,000 per year. Along with his base salary,
Mr. Schneider can receive an annual bonus of up to $126,000 if Eagle meets
certain operating profit levels. In addition, Eagle will grant Mr. Schneider
options to purchase up to 132,500 shares of Holdings Common Stock under
Holdings' stock option plan, at an exercise price equal to the fair market
value on the date of grant, vesting 20% at the end of each of his first five
years of employment with Eagle and exercisable for ten years from the date of
grant. Mr. Schneider will also be given an automobile
60
<PAGE>
allowance of $600 per month and is entitled to acquire from Holdings up to
$75,000 of Holdings common stock at a purchase price equal to 85% of the
closing price of such stock on the closing date of the Merger. If Eagle
terminates Mr. Schneider without cause, he is entitled to an amount equal to
one year's base salary paid over a period of one year after termination. Prior
to commencing employment with Eagle, Mr. Schneider will enter into a
confidentiality and non-competition agreement.
Eagle has entered into an employment agreement with Charles Matson terminable
at will pursuant to which Mr. Matson will serve as Senior Vice President--Sales
and Marketing of Eagle and will receive a base salary of $187,500 per year.
Along with his base salary, Mr. Matson can receive an annual bonus of up to
$65,625 if Eagle meets certain operating profit levels. In addition, Holdings
will grant Mr. Matson options to purchase up to 65,000 shares of Holdings
Common Stock under Holdings' stock option plan, at an exercise price equal to
the fair market value on the date of grant, vesting 20% at the end of each of
his first five years of employment with Eagle and exercisable for ten years
from the date of grant. Mr. Matson will also be given an automobile allowance
of $600 per month and is entitled to acquire from Holdings up to $50,000 of
Holdings common stock at a purchase price equal to 85% of the closing price of
such stock on the closing date of the Merger. If Eagle terminates Mr. Matson
without cause, he is entitled to an amount equal to one year's base salary paid
over a period of one year after termination. Prior to commencing employment
with Eagle, Mr. Matson will enter into a confidentiality and non-competition
agreement.
Effective at the Effective Time of the Merger, Eagle has also entered into an
employment agreement with Peter Konen whereby Mr. Konen has agreed to serve as
a Senior Vice President of Operations of Eagle and with Patrick Mertens whereby
Mr. Mertens has agreed to serve as Chief Financial Officer of Eagle. See "The
Merger Agreement--Related Agreements and Interests of Certain Persons in the
Merger" and "Holdings' Management--Directors and Executive Officers."
Security Ownership of Certain Beneficial Owners and Management of Holdings
Following the Merger (Pro Forma)
Currently, CONDEA Vista is the sole stockholder of Holdings' owning 1,000
shares of Holdings Common Stock, which shares represent 100% of the currently
outstanding capital stock of Holdings. The following table provides information
concerning the anticipated beneficial ownership, immediately following
completion of the Transactions, of outstanding Holdings' voting securities by
(i) persons anticipated by Holdings to own more than 5% of any class of
Holdings' voting securities, (ii) each anticipated director and executive
officer of Holdings, and (iii) all such directors and executive officers as a
group. Unless otherwise noted, the person listed as the beneficial owner of the
shares has sole voting and investment power over the shares.
61
<PAGE>
<TABLE>
<CAPTION>
Percent
of Common
Series A Stock and
Common Stock Preferred Stock 8% Preferred Stock Series A
----------------------- ----------------------- ----------------------- and 8%
Shares Shares Shares Preferred
Name and Address of Beneficially Percent of Beneficially Percent of Beneficially Percent of Stock
Beneficial Owner Owned Class (1) Owned Class Owned Class Combined
- ------------------- ------------ ---------- ------------ ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
George Kosmides......... -- -- 12,500 66.7% -- -- *
7103 Amundson Avenue
Edina, MN 55439
Kathryn A. Schuster..... -- -- 6,250 33.3% -- -- *
1748 James Road
Mendota Heights, MN
55118
Massachusetts Mutual
Life Insurance Company
and Affiliates......... -- -- -- -- 10,000 100% *
1295 State Street
Springfield, MA 01111
CONDEA Vista Company 9,829,717 57.0% -- -- -- -- 57.0%
(10)...................
900 Threadneedle
Houston, Texas 77079
William H. Spell 527,963 3.0% -- -- -- -- 3.0%
(2)(3)(4)(10)..........
2430 Metropolitan
Centre
Minneapolis, MN 55402
Harry W. Spell 357,332 2.1% -- -- -- -- 2.1%
(3)(4)(5)(10)..........
2430 Metropolitan
Centre
Minneapolis, MN 55402
Richard W. Perkins 151,942 * -- -- -- -- *
(4)(6)(10).............
730 East Lake Street
Wayzata, MN 55391
G. Peter Konen (7)...... 283,309 1.6% -- -- -- -- 1.6%
146 North Maple
Hastings, NE 68901
Bruce A. Richard 146,597 * -- -- -- -- *
(4)(8)(10).............
2458 Farrington Circle
Roseville, MN 55113
Patrick M. Mertens (9).. 36,800 * -- -- -- -- *
146 North Maple
Hastings, NE 68901
William C. Knodel (11).. -- -- -- -- -- -- --
900 Threadneedle
Houston, TX 77075
Mark J. Schneider....... -- -- -- -- -- -- --
900 Threadneedle
Houston, TX 77075
Charles J. Matson....... -- -- -- -- -- -- --
900 Threadneedle
Houston, TX 77075
Spell Group (10)........ 11,013,551 63.9% -- -- -- -- 63.9%
All Directors and
Officers
as a Group (9 persons)
(12)................... 1,503,943 8.7% -- -- -- -- 8.7%
</TABLE>
- --------
*Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person to acquire them as of December 31, 1998 or within sixty days of
such date are treated as outstanding only when determining the percentage
owned by such individual and when determining the percentage owned by the
group.
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(2) Includes 210,000 shares which may be purchased upon exercise of currently
exercisable options and 21,429 shares held by Mr. Spell's wife.
(3) Includes 30,500 shares held by the Spell Family Foundation. Harry Spell and
William Spell share voting and dispositive power over such shares.
(4) William Spell, Harry Spell, Richard Perkins and Bruce Richard have
individually acquired securities of Eagle from Eagle and in open market
transactions and each of them individually anticipates that he will acquire
additional securities of Holdings in the future. Such persons intend to
enter into an agreement which requires that a majority of them approve any
sale of securities of Holdings by any of them. This agreement is designed
to keep all of such persons interested and focused on the long-term success
of Holdings and recognizes that each of such persons contributes specific
expertise to Holdings through their positions as directors and/or officers.
The agreement will not require that such persons vote their shares in any
specific manner or act in concert in connection with any purchase or sale
of securities of Holdings.
(5) Includes 45,000 shares which may be purchased upon exercise of currently
exercisable options.
(6) Includes 25,000 shares which may be purchased upon exercise of currently
exercisable options and 11,429 shares held by a Profit Sharing Trust for
Mr. Perkins' benefit.
(7) Includes 205,000 shares which may be purchased upon exercise of currently
exercisable options.
(8) Includes 25,000 shares which may be purchased upon exercise of currently
exercisable options.
(9) Includes 22,500 shares which may be purchased upon exercise of currently
exercisable options.
(10) At the Effective Time of the Merger, Holdings, CONDEA Vista and Harry W.
Spell, William H. Spell, Richard W. Perkins and Bruce A. Richard (the
"Spell Group") will enter into a Stockholders' Agreement whereby CONDEA
Vista will agree to vote all of its shares in favor of the four director
nominees designated by the Spell Group and the Spell Group will agree to
vote all of their shares in favor of a director nominee of CONDEA Vista
for the election of directors. Up to 300,000 shares of Holdings Common
Stock owned by CONDEA Vista are subject to return to Holdings. See "--
Certain Relationships and Related Transactions--Stockholders' Agreement"
below and "The Merger Agreement--Related Agreements and Interests of
Certain Person in the Merger."
(11) William Knodel, director of Holdings and President of CONDEA Vista,
disclaims any beneficial ownership of shares of Holdings owned by CONDEA
Vista.
(12) Includes 530,000 shares which may be purchased upon exercise of currently
exercisable options.
Stock Options
On , 1999, the Board of Directors and the sole stockholder of
Holdings adopted the Holdings 1999 Stock Option Plan (the "Plan") in order to
provide for the granting of stock options to employees, directors and officers
of Holdings and its subsidiary. The Plan permits the granting of incentive
stock options meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended, and also nonqualified stock options which do not meet
the requirements of Section 422. Holdings has reserved shares of its
Common Stock for issuance upon exercise of options granted under the Plan.
Certain Relationships and Related Transactions
Stockholders' Agreement. In connection with the Merger, Holdings will enter
into a Stockholders' Agreement with Harry Spell, William Spell, Richard Perkins
and Bruce Richard (collectively, the "Spell Group") and CONDEA Vista. The
Stockholders' Agreement provides that with respect to elections of Holdings'
Board of Directors, CONDEA Vista will vote all of its Holdings shares in favor
of the four individuals designated by the Spell Group, and each member of the
Spell group will vote all of his shares in favor of the individual designated
by CONDEA Vista. The Stockholders' Agreement also provides that such CONDEA
Vista designee will be a member of each committee of the Holdings Board of
Directors. The Stockholders' Agreement further provides that a designee of the
Spell Group can only be removed from the Board of Directors at the Spell
Group's written request and that the designee of CONDEA Vista can only be
removed from the Board of Directors at CONDEA Vista's written request. In the
event that any Spell Group
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designee resigns from the Board of Directors, the Spell Group and CONDEA Vista
will use their best efforts to elect or appoint a representative designated by
the Spell Group to fill such vacancy. Likewise, in the event that the CONDEA
Vista designee resigns from the Board of Directors, the Spell Group and CONDEA
Vista will use their best efforts to elect or appoint a representative
designated by CONDEA Vista to fill such vacancy. Further, with respect to any
matter submitted to the stockholders of Holdings other than the election of
directors, CONDEA Vista must vote its Holdings shares, at its option, either as
recommended by Holdings' Board of Directors or in the same proportion as the
votes cast in favor of and against such matter (abstentions not counted) by
Holdings' stockholders. The Stockholders' Agreement also gives CONDEA Vista the
right to appoint one person to be a non-participating observer at Holdings
Board meetings.
The Stockholders' Agreement further provides that if Holdings' Board of
Directors approves a proposed sale or transfer of control of Holdings to
another entity (the "Proposed Sale"), Holdings will give CONDEA Vista notice of
the Proposed Sale and will promptly enter into good faith negotiations with
CONDEA Vista for CONDEA Vista to be the purchaser in such Proposed Sale. If
Holdings and CONDEA Vista have not reached agreement in principle on the terms
of such acquisition within 20 days or final agreement within 45 days, then
Holdings may enter into a Proposed Sale with another party.
The Stockholders' Agreement terminates on the fifth anniversary of its
effective date unless earlier terminated by mutual consent of the parties.
However, the Spell Group can elect to terminate the Stockholders' Agreement
immediately if CONDEA Vista transfers any of its Holdings shares to ten or more
persons (not including subsidiary or parent entities of CONDEA Vista).
Following termination of the Stockholders' Agreement, Holdings will cause to be
called a special meeting of stockholders to elect new directors.
Finally, the Stockholders' Agreement provides that if any warrants or stock
options to purchase Holdings' Common Stock outstanding as of the Effective Time
(plus an additional 326,000 shares subject to stock options which may be issued
by Holdings) are terminated, extinguished or expire prior to exercise, CONDEA
Vista will return to Holdings 0.82 shares of Holdings Common Stock for each
share of Holdings Common Stock covered by such warrants or options, but not to
exceed an aggregate maximum of 300,000 shares subject to return. Such mandatory
contribution obligation will survive the termination of the Stockholders'
Agreement unless the Stockholders Agreement is terminated at the election of
the Spell Group, as described above, in which case upon termination of the
Stockholders Agreement CONDEA Vista shall return to Holdings 0.82 shares of
Holdings Common Stock for each share of Holdings Common Stock covered by then
outstanding warrants or options to purchase Holdings' Common Stock that were
outstanding at the Effective Time, up to an aggregate maximum of 300,000
shares.
VCM Supply Agreement. In connection with the Merger, CONDEA Vista and Eagle
will enter into a VCM Supply Agreement. The VCM Supply Agreement provides that
Eagle shall purchase at a formula price, which fluctuates with the market, 100%
of its vinyl chloride monomer requirements, estimated to be from 320 to 450
million pounds per year, from CONDEA Vista. The VCM Supply Agreement terminates
five years from its effective date but may be extended for an additional five
years by either CONDEA Vista or Eagle, provided that Eagle may only elect to
extend the agreement if both at the time of such election and at the end of the
initial five year term, one or more of Harry Spell, William Spell, Bruce
Richard or Richard Perkins is a member of Eagle's Board of Directors.
Registration Rights Agreement. In connection with the Merger, Holdings will
enter into a Registration Rights Agreement with CONDEA Vista, granting CONDEA
Vista certain participatory and demand registration rights with respect to the
9,829,717 shares of Holdings Common Stock to be issued to CONDEA Vista (the
"Registerable Shares"). The participatory rights provide that if Holdings at
any time within five years of the Effective Time proposes to register any of
its securities under the Securities Act of 1933, as amended (the "Securities
Act"), it will use its best efforts to cause to be included in such
registration any Registerable Shares CONDEA Vista requests to be registered.
The Registration Rights Agreement generally provides that Holdings will pay all
expenses in connection with such registration except fees and disbursement of
CONDEA
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<PAGE>
Vista's counsel and accountants, underwriting discounts and commissions and
transfer taxes relating to the Registerable Shares.
The demand registration rights provide that on a one-time basis only, no
earlier than five years from the Effective Time, upon request of CONDEA Vista,
Holdings will use its best efforts to take all necessary steps to register or
qualify the offer and sale under the Securities Act and the securities laws of
such states as CONDEA Vista may reasonably request any Registerable Shares
CONDEA Vista requests to be registered. In connection with such demand
registration, CONDEA Vista will pay the reasonable costs of such registration.
However, in the event such costs are estimated to be in excess of $10,000,
Holdings and CONDEA Vista agree to use their best efforts to fairly allocate
such costs.
In connection with an underwritten offering, the above registration rights
are subject to the right of the managing underwriter to determine that
marketing factors require a limitation on the number of Registerable Shares
that can be sold by CONDEA Vista in such offering.
The Registration Rights Agreement provides for reciprocal indemnification and
contribution obligations between Holdings, any seller of Registerable Shares
and their controlling persons against civil liabilities in connection with a
registered offering of the Registerable Shares, including liabilities under the
Securities Act. Insofar as indemnification for liabilities under the Securities
Act may be permitted pursuant to the foregoing provisions, Holdings has been
informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in such Act and may be therefore unenforceable.
Sales and Marketing Agreement. In connection with the merger, CONDEA Vista
and Eagle will enter into a Sales and Marketing Agreement whereby CONDEA Vista
will use its best efforts to market and sell any excess PVC resin produced by
Eagle but not used in its production of PVC products. CONDEA Vista will earn
one-half cent per pound of PVC resin sold.
DESCRIPTION OF HOLDINGS' CAPITAL STOCK
The authorized capital stock of Holdings consists of 75,510,000 shares, $.01
par value, of which 60,000,000 are shares of Common Stock, 3,500,000 are shares
of Class B Common Stock, and 12,010,000 are shares of Preferred Stock. Of the
shares of Preferred Stock, 2,000,000 are shares of Series A Preferred Stock,
10,000 are shares of 8% Preferred Stock, and the remaining 10,000,000 shares of
Preferred Stock are currently undesignated. All of the outstanding shares of
Holdings are, and the Holdings shares issued in the Merger will be, fully paid
and nonassessable. Holders of Holdings capital stock do not have cumulative
voting rights.
Common Stock
As of the date of this Proxy Statement/Prospectus, Holdings had 1,000 shares
of Common Stock outstanding. However, prior to the Merger, Holdings will issue
CONDEA Vista 9,829,717 shares of Common Stock in exchange for CONDEA Vista's
conveyance of the Oklahoma City Resin Business to Holdings. The holders of
Holdings Common Stock: (i) have equal ratable rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors;
(ii) are entitled to share ratably with holders of 8% Preferred Stock in the
assets of Holdings available for distribution upon liquidation, dissolution or
winding up of the affairs of Holdings and after satisfaction of the liquidation
preferences of the 8% Preferred Stock and the Series A Preferred Stock
described below; and (iii) are entitled to one vote per share on all matters
which stockholders may vote on at all meetings of Holdings stockholders. There
are no redemption, sinking fund, conversion or preemptive rights with respect
to the shares of Holdings Common Stock.
Class B Common Stock
As of the date of this Proxy Statement/Prospectus, Holdings has no shares of
Class B Common Stock outstanding. The holders of Class B Common Stock (i) have
equal ratable rights along with holders of the Common Stock to dividends from
funds legally available therefor, when, as and if declared by the Board of
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<PAGE>
Directors; and (ii) are entitled to share ratably with holders of Common Stock
in the assets available for distribution to holders of Holdings Common Stock
upon liquidation, dissolution or winding up of the affairs of Holdings. The
holders of Class B Common Stock are not entitled to vote on matters submitted
to stockholders for a vote unless as otherwise required by law. Currently, only
holders of 8% Preferred Stock are entitled to receive, upon conversion, shares
of Class B Common Stock. Each holder of shares of Class B Common Stock is
entitled to convert such shares at any time into an equal number of shares of
Holdings Common Stock.
Series A 7% Convertible Preferred Stock
As of the date of this Proxy Statement/Prospectus, Holdings has no shares of
Series A 7% Convertible Preferred Stock ("Series A Preferred Stock")
outstanding. Shares of Series A Preferred Stock will be exchanged for shares of
Eagle Series A Stock pursuant to the Merger. The material rights and
preferences of Holdings' Series A Preferred Stock are described below.
Dividends. Holders of Holdings Series A Preferred Stock are entitled to
receive out of funds legally available for the declaration of dividends, when
and as declared by the Board, cumulative cash dividends at the rate of 7% of
the liquidation preference described below per annum per share payable
quarterly. Holdings may not declare a dividend or make a distribution on its
Common Stock or purchase or redeem any of its Common Stock unless all dividends
on its shares of Series A Preferred Stock have been paid or declared and a sum
sufficient for the payment thereof set apart for payment. No payment of
dividends on the Series A Preferred Stock may be made unless all dividends on
the 8% Preferred Stock and all "Common Equivalent Dividends" (as defined in
Holdings' Certificate) have been declared and paid or sums sufficient for the
payment thereof have been set aside.
Liquidation Preference. In the event of the liquidation, dissolution or
winding-up of Holdings, whether voluntary or involuntary, assets or surplus
funds of Holdings, if any, shall be distributed to the holders of Series A
Preferred Stock, before any distribution or payment is made to the holders of
Holdings Common Stock, but only after the payment of the liquidation preference
of the holders of 8% Preferred Stock, in an amount equal to $2.00 per share,
subject to adjustment in the event of any stock dividend, split, distribution
or combination with respect to the Series A Preferred Stock, plus any unpaid
accrued dividends thereon.
Voting Rights. Each holder of shares of Series A Preferred Stock is entitled
to one vote for each share of Common Stock into which such shares may then be
converted. Holders of Holdings Common Stock and Series A Preferred Stock vote
as a single class on all matters submitted to Holdings' stockholders, except as
otherwise required by law.
Optional Conversion. Shares of Holdings Series A Preferred Stock are
convertible, at the option of the holder, at any time into the number of shares
of Common Stock obtained by dividing $2.00 by the then existing conversion
price, initially $2.00. Initially, each share of Holdings Series A Preferred
Stock will be convertible into one share of Holdings Common Stock. However,
such conversion price is generally subject to adjustment in the event Holdings
subdivides or combines its outstanding shares of Common Stock or merges,
consolidates or disposes of substantially all of its assets.
Mandatory Conversion. At any time after Holdings' Common Stock has traded in
a public trading market for 20 consecutive trading days at an average price of
greater than $4.00 per share, the Holdings Board of Directors can cause the
shares of Series A Preferred Stock to be converted into shares of Holdings
Common Stock upon five days' notice. Each holder of Series A Preferred Stock so
converted will be entitled to receive the number of shares of Common Stock into
which such Series A Preferred Stock held by such holder would have been
converted if such holder had exercised such holder's conversion right
immediately prior to the mandatory conversion.
8% Convertible Preferred Stock
As of the date of this Proxy Statement/Prospectus, Holdings had no shares of
8% Convertible Preferred Stock ("8% Preferred Stock") outstanding. Shares of 8%
Preferred Stock will be exchanged for shares of
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Eagle 8% Preferred Stock pursuant to the Merger. The material rights and
preferences of Holdings' 8% Preferred Stock are described below.
Dividends. Holders of Holdings 8% Preferred Stock are entitled to receive out
of funds legally available for the declaration of dividends, when and as
declared by the Board of Directors, cumulative cash dividends at the rate of 8%
per annum of the liquidation preference described below per share, payable
quarterly. If Holdings fails to pay such dividend on its 8% Preferred Stock
when due, the dividend rate shall be increased to 12% per annum until all
accrued dividends on the such shares have been paid in full, and the accrued
but unpaid dividends on such shares, to the extent permitted by applicable law,
will thereafter accrue an additional amount at the rate of 12% per annum.
Holders of Holdings 8% Preferred Stock are also entitled to receive any cash
dividends declared on Holdings Common Stock based on the amount of cash
dividends such holder would have been entitled to if such holder had exercised
such holder's conversion right prior to the dividend declaration date. Holdings
cannot pay or declare a dividend or make a distribution on its Common Stock
unless all dividends due and payable to holders of its 8% Preferred Stock have
been paid or declared and a sum sufficient for the payment thereof set apart
for payment.
Liquidation Preference. In the event of the liquidation, dissolution or
winding-up of Holdings, whether voluntary or involuntary, assets or surplus
funds of Holdings, if any, shall be distributed to the holders of Holdings 8%
Preferred Stock, before any distribution or payment is made to the holders of
Holdings Common Stock or Series A Preferred Stock, in an amount equal to $1,000
per share, subject to adjustment in the event of any stock dividend, split,
distribution or combination with respect to the 8% Preferred Stock, plus any
unpaid accrued dividends thereon. After the liquidation preferences have been
paid to holders of Holdings 8% Preferred Stock and Series A Preferred Stock,
any remaining assets or funds legally available for distribution shall be
distributed ratably among holders of the 8% Preferred Stock and Common Stock in
proportion to the number of shares of Common Stock owned by each such holder
and, in the case of the 8% Preferred Stock, to which such holder would then be
entitled upon conversion of such shares owned by such holder.
Voting Rights. Each holder of shares of 8% Preferred Stock is entitled to one
vote per share of 8% Preferred Stock then held by such holder. Holders of
Holdings Common Stock, Series A Preferred Stock and 8% Preferred Stock vote as
a single class on all matters submitted to Holdings' stockholders, except as
otherwise required by law.
Right to Elect Director. If Holdings fails to redeem its 8% Preferred Stock
as described below, Holdings must, at the request of the holders of two-thirds
of such shares, increase the size of its Board of Directors by one member, and
the holders of Holdings 8% Preferred Stock will have the additional right,
voting separately as a single class, to elect an individual to fill such newly
created directorship. Such right shall continue until such time as all shares
of Holdings 8% Preferred Stock have been redeemed.
Restrictions on Corporate Action. So long as any shares of Holdings 8%
Preferred Stock are outstanding, without the consent of at least two-thirds of
the outstanding 8% Preferred Stock, Holdings cannot (i) amend any provision of
its Certificate or Bylaws; (ii) declare or pay any dividends on its capital
stock other than its 8% Preferred Stock unless such dividend is payable out of
earnings or surplus or in Holdings securities; (iii) create any new class or
series of shares having preferences over or on parity with the 8% Preferred
Stock as to dividend, liquidation, redemption, sinking fund, or assets; (iv)
issue any evidence of indebtedness which is convertible into or exchangeable
for shares of any class or series of Holdings capital stock; or (v) directly or
indirectly make payments to purchase, redeem or retire any Holdings securities
if Holdings has failed to pay any accrued dividends or other amounts on
Holdings 8% Preferred Stock or if the aggregate of such payments made by
Holdings and Eagle during the period commencing January 1, 1997 and ending the
date of the making of such a payment would exceed 8.9% of Eagle's and Holdings'
cumulative EBITDA for such period; (vi) alter or change the specific rights,
preferences, or privileges of any class or series of Holdings preferred stock
so as to have an adverse effect on its 8% Preferred Stock or change any rights
or priorities of its 8% Preferred Stock;
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<PAGE>
or (vii) issue any shares of Holdings Common Stock (except upon conversion of
Series A Preferred Stock or 8% Preferred Stock, pursuant to stock option plans,
warrants and contractual commitments in effect on the Effective Time or
pursuant to Eagle's 1997 Stock Option Plan or other plan approved by the
holders of 8% Preferred Stock (collectively, the "Excluded Shares")) or any
options, warrants or other rights to subscribe for or purchase additional
shares of Holdings Common Stock at a price per share which is less than the
conversion price of the Holdings 8% Preferred Stock.
Optional Conversion. Holdings 8% Preferred Stock is convertible, at the
option of the holder, at any time into the number of shares of Holdings Common
Stock obtained by dividing the liquidation preference of such shares by the
then existing conversion price, which is initially $4.26. However, such
conversion price is generally subject to proportional adjustment in the event
Holdings subdivides or combines its outstanding shares of Common Stock, issues
any shares of Common Stock (except Excluded Shares) for a consideration less
than the market price per share of its Common Stock, issues any options,
warrants or convertible securities with exercise or conversion prices that are
less than the market price per share of its Common Stock or merges,
consolidates or disposes of substantially all of its assets.
Mandatory Conversion. At any time after the second anniversary of the initial
issuance of 8% Preferred Stock, if the 31 business day moving average of the
market price per share of Holdings' Common Stock exceeds 175% of the conversion
price described above then in effect, the Holdings Board of Directors by
resolution can cause all (but not less than all) of the shares of 8% Preferred
Stock to be converted into shares of Holdings Common Stock. Each holder of 8%
Preferred Stock so converted will be entitled to receive the number of shares
of Common Stock into which such 8% Preferred Stock held by such holder would
have been converted if such holder had exercised such holder's conversion right
immediately prior to the mandatory conversion.
Preemptive Rights. If Holdings issues, grants or sells any Holdings Common
Stock (except Excluded Shares) or securities convertible into Holdings Common
Stock, then each holder of Holdings 8% Preferred Stock will be entitled to
acquire, upon the same terms provided in any such grant, or applicable to any
such issuance or sale, such number of securities so as to cause the percentage
of outstanding shares of Common Stock to which such holder would be entitled
upon conversion of the 8% Preferred Stock to remain unchanged.
Mandatory Redemption. In May of 2004, Holdings is required to redeem its 8%
Preferred Stock then outstanding at a price equal to the liquidation preference
of such shares plus any accrued but unpaid dividends thereon. Additionally, in
the event of a "change in ownership" of Holdings (as defined in Holdings'
Certificate), a sale of 50% or more of Holdings' assets, or, with certain
exceptions, a merger of Holdings, holders of a majority of the Holdings 8%
Preferred Stock then outstanding may require Holdings to redeem all or any
portion of such shares at a price per share equal to the liquidation preference
of such shares plus all accrued and unpaid dividends thereon.
Transfer Agent and Registrar
The Transfer Agent and Registrar with respect to Holdings' Common Stock is
Norwest Bank Minnesota, National Association.
Quotation of Common Stock
Holdings has applied for quotation of its Common Stock on the
. It is a condition to the Merger that such application be
approved.
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EAGLE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth items from Eagle's Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of goods sold...................................... 78.0 80.1 76.8
Gross profit............................................ 22.0 19.9 23.2
Operating expenses...................................... 16.3 15.2 15.4
Operating income........................................ 5.7 4.7 7.9
Other expenses.......................................... 3.1 3.6 4.1
Income before income taxes and extraordinary loss....... 2.6 1.1 3.8
Income tax (expense) benefit............................ (0.2) 0.2 1.5
Income before extraordinary loss........................ 2.4 1.3 5.3
Extraordinary loss on debt prepayments.................. 0.9 -- 2.6
Net income.............................................. 1.5% 1.3% 2.7%
</TABLE>
Eagle posted record net sales in 1998, rising 3% from 1997 to 1998 and 10%
from 1996 to 1997. Higher volumes of pipe sold, primarily due to increased
demand and production capacities, were responsible for the 1998 and 1997 growth
in revenues. Pounds sold rose by 13% from 1997 to 1998 and by 13% from 1996 to
1997. These higher volumes were partially offset by lower selling prices, which
decreased 9% from 1997 to 1998 and 3% from 1996 to 1997. The lower selling
prices were caused by increased competition and lower PVC resin prices.
The increase in gross profit, as a percentage of net sales, from 1997 to 1998
is primarily due to a combination of strong demand and falling resin prices in
1998. PVC resin prices decreased due to an oversupply of resin caused by
depressed Asian markets. Strong demand allowed Eagle to retain a portion of the
raw material price decreases. The decrease in gross profit as a percentage of
net sales from 1996 to 1997 is primarily due to a combination of higher resin
prices during the first half of 1997 and lower selling prices during 1997. PVC
resin prices were approximately 3% higher from 1996 to 1997. Much of the PVC
resin price increases were driven by a tight supply of resin during the first
quarter of 1997, caused by various operational problems within many of the
resin producers, not by an increase in demand. Therefore, Eagle was unable to
pass all of the raw material price increases on to its customers during the
first half of 1997. The lower selling prices were due to PVC resin prices
peaking earlier than usual in 1997. Resin prices peaked in May 1997, compared
to the more traditional fall/winter price descent in September of 1996. To
maintain its market share, Eagle was required to lower its prices at the same
rate that raw material prices declined. As higher priced inventory was sold at
lower market prices, gross profits decreased significantly.
The increase in operating expenses, as a percentage of net sales, from 1997
to 1998 is primarily due to additional freight costs from increased sales
volume combined with lower selling prices. Operating expenses as a percentage
of net sales decreased from 1996 to 1997 primarily due to administrative
efficiencies within Eagle which were partially offset by higher freight costs
resulting from expanded geographic markets.
The decrease in other expenses for 1998 and 1997, which consists principally
of interest expense, is primarily due to the issuance of $10.0 million of
redeemable preferred stock in May of 1997. The proceeds from the preferred
stock were used to pay down Eagle's revolving credit line.
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In 1998, income tax expense of $154,000 was recognized, which primarily
relates to state income taxes, as the state credit carryforwards were
substantially utilized in 1997. Due to future expected profits, income tax
benefits of $250,000 and $1,000,000 were recorded in 1997 and 1996,
respectively, representing NOL carryforwards expected to be utilized in the
future.
Financial Condition
Eagle had negative working capital of $1,964,000 on December 31, 1998. The
negative working capital is due to the use of short-term financing during the
construction of the new manufacturing facility in Utah. Eagle currently has a
short-term bridge loan through the revolving credit loan, which will be
replaced by permanent long-term financing in conjunction with the closing of
the pending asset purchase and merger as described in Note 2 of the Eagle
Pacific Industries, Inc. Notes to Financial Statements. At December 31, 1998,
Eagle did not comply with the capital expenditures and net cash flow covenants
of the revolving credit loan and accordingly, received a waiver from its
lender.
Cash generated from operating activities was $5.7 million in 1998, compared
to $820,000 and $5.8 million in 1997 and 1996, respectively. Profits and
depreciation and amortization were the primary sources of net cash provided by
operating activities.
Eagle used $10.6 million, $7.9 million, and $3.5 million for investing
activities in 1998, 1997, and 1996, respectively. The primary uses of cash were
capital expenditures in 1998, 1997 and 1996. Capital expenditures increased
substantially in 1998 and 1997 due to the addition and replacement of
manufacturing equipment and the construction of the new manufacturing facility
in Utah.
Cash provided by financing activities of $5.0 million in 1998 consisted of
borrowings under notes payable and long-term debt, partially offset by
repayments of long-term debt. Cash provided by financing activities of $7.1
million in 1997 primarily consisted of cash from the issuance of redeemable
preferred stock during the second quarter of 1997, partially offset by payments
under the note payable and long-term debt. Cash used for financing activities
of $2.6 million in 1996 was primarily from repayments of long-term debt and the
revolving credit loan.
Eagle had commitments for capital expenditures of $162,000 at December 31,
1998, which will be funded from borrowings under the revolving credit loan.
Additional sources of liquidity, if needed, may include Eagle's revolving
credit line, additional long-term debt financing, and the sale of Eagle equity
securities under either a private or public offering. Eagle believes that it
has the financial resources needed to meet its current and future business
requirements, including capital expenditures for expanding manufacturing
capacity and working capital requirements.
Outlook
The statements contained in this Outlook are based on current expectations.
These statements are forward-looking, and actual results may differ materially
from those anticipated by the statements made herein.
Eagle expects the demand for plastic pipe to grow as acceptance of plastic
pipe over metal pipe continues and the overall economy continues to grow.
Industry growth projections call for annual sales growth rates for plastic pipe
of three percent or greater per year through 2003. Eagle has historically been
able, and expects in the future to be able to grow at rates substantially in
excess of the industry averages due to its emphasis on customer satisfaction,
product quality and differentiation and innovative promotional programs.
Eagle's strategy has been, and continues to be, to concentrate growth
initiatives in higher profit products and geographic regions.
Eagle's gross margin percentage is a sensitive function of PVC and PE raw
material resin prices and capacity levels in the industry. In a rising or
stable resin market, margins and sales volume have historically been higher and
conversely, in falling resin markets, sales volumes and margins have
historically been lower. Gross margins also suffer when capacity increases
outpace demand due to increased competition to utilize
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capacity. Eagle believes that supply and demand in the plastic pipe industry is
currently balanced. Due to the commodity nature of PVC and PE resin and the
dynamic supply and demand factors worldwide, it is very difficult to predict
gross margin percentages or assume that historical trends will continue.
The NOLs are available through 2012; however, the majority expire by 2000.
The amount of available NOLs actually used will be dependent on future profits.
Eagle does not expect to utilize all of its NOLs before they expire.
The foregoing statements contained in this outlook section and those
specifically relating to Eagle's expectation of the plastic pipe and tubing
market and Eagle's performance in relation to such growth, Eagle's ability to
utilize NOLs in the future and its belief that it has the necessary resources
for future success are all forward looking statements that involve a number of
risks and uncertainties. Some of the factors that could cause actual results to
differ materially include, but are not limited to, raw material cost
fluctuations, general economic conditions, competition, availability of working
capital and weather conditions. See "Forward-Looking Statements May Prove
Inaccurate" elsewhere herein.
Eagle has received a commitment letter from Fleet Capital Corporation
("Fleet") whereby Fleet has agreed to act as agent and underwrite $40.0 million
of a $85.0 million senior credit facility. The senior credit facility will be
used to finance Eagle's acquisition of the Lamson PVC Pipe Business and to
provide working capital for Eagle's ongoing operations. The $85.0 million
senior credit facility will consist of a $35.0 million revolving credit
facility and a $50.0 million term loan facility. The term of the senior credit
facility is expected to be three years and the interest rate is expected to be
based on a variable rate (prime rate or LIBOR, at Eagle's option), plus a
margin based on Eagle's interest coverage ratio. See "Eagle's Business--Recent
Developments--Acquisition of the Lamson PVC Pipe Business" and "--Credit
Financing."
Year 2000 (Y2K) Compliance
As with other organizations, Eagle's computer hardware and software were
originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly
with dates from the year 2000 and beyond.
Eagle has completed an assessment of its information systems programs and
completed changes on the majority of these programs to make them Y2K compliant.
The remaining programs are expected to be corrected by the end of the first
quarter of 1999. Eagle is currently assessing, with the assistance of its
equipment vendors, whether any Y2K problems exist in its production and office
equipment. This assessment project along with the remediation of any problems
is expected to be completed by the end of the second quarter of 1999. In
addition, Eagle has inquired of its major customers and suppliers as to their
readiness to the Y2K issue to determine the extent to which Eagle is indirectly
vulnerable to any third-party Y2K issues. Many of Eagle's customers and
suppliers have responded that they believe they are or will be Y2K compliant.
However, there can be no guarantee that the systems of other companies on which
Eagle's systems rely will be timely converted, or that a failure to convert by
another company would not have a material adverse effect on Eagle.
The total cost associated with the modifications to be Y2K compliant are
expected to be below $25,000, of which approximately $10,000 have been expensed
as of December 31, 1998.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could have an adverse affect on Eagle's operations. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
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of the Y2K readiness of Eagle's third-party suppliers and customers, Eagle is
unable to determine at this time whether the consequences of Y2K failures will
have a material impact on Eagle's operations. Eagle believes that the
assessment and remediation steps it is taking will significantly reduce its
exposure to the Y2K problem.
At this time, Eagle believes it has addressed all Y2K issues that may arise;
therefore, no contingency plan has been developed. If during Eagle's in-house
testing or if information is received from an outside source that they would be
unable to be Y2K compliant, Eagle will then develop an appropriate contingency
plan to address Y2K problems that may arise.
Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies
to record derivatives on the balance sheet as assets and liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999, with earlier adoption encouraged.
Management has not yet determined what effect, if any, SFAS No. 133 will have
on its financial position or the results of its operations.
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EAGLE'S BUSINESS
General
Eagle, a Minnesota corporation, manufactures and distributes PVC pipe and PE
pipe and tubing products used for turf and water irrigation, natural gas, water
wells, fiber optic lines, electronic and telephone lines, and commercial and
industrial plumbing. Eagle distributes its products primarily in the Upper
Midwest and Plains states and the Mountain and Pacific Northwest regions of the
United States.
Eagle's principal offices are located in Minneapolis, Minnesota. Eagle has
production facilities in Hastings, Nebraska, Hillsboro, Oregon, and West
Jordan, Utah. Eagle also has a distribution facility in Baker City, Oregon.
Effective December 31, 1997, Eagle merged with its two wholly-owned
subsidiaries, Eagle Plastics, Inc. and Pacific Plastics, Inc., ending the
separate existence of each subsidiary and consolidating Eagle's operations. In
addition, Pacific Plastics, Inc. merged with its wholly-owned subsidiary, Arrow
Pacific Plastics, Inc.
Products
Eagle's products consist of 1/2-inch to 15-inch PVC pipe and 1/2-inch to 6-
inch PE pipe and tubing for applications in the building and construction
industry, turf and water irrigation, natural gas, water wells, fiber optic
lines, and electronic and telephone lines. Although the manufacture and sale of
PVC pipe and PE pipe and tubing is generally viewed as a commodity business
(i.e., price being the only purchasing consideration), Eagle believes it has
created brand name recognition for its products while remaining competitive on
price. To help support the brand name recognition, Eagle seeks to offer the
highest quality PVC pipe and PE pipe and tubing available. Eagle also looks for
niche markets to enter, such as PE pipe and tubing for turf irrigation, when it
believes there is an opportunity to establish itself as the market leader and
command higher profit margins. Eagle also adds features such as quick connect
gaskets and longer pipe lengths that allow for easier installation, as well as
proprietary marking for brand identification.
PVC Pipe
PVC pipe is widely accepted in the building and construction industry. A
number of factors have contributed to its popularity including its low cost,
easy installation, and its lower weight and longer life than metal pipe. As a
result, PVC pipe is replacing metal pipe in many construction situations. Below
are descriptions of Eagle's primary PVC pipe products, broken down between
pressure and non-pressure rated products.
A major use of PVC pipe is transporting water under pressure. Eagle
manufacturers and distributes several PVC pressure pipe products for use at
various points in a water distribution system.
PVC(R) Well Casing. Eagle offers a light-weight PVC pipe to be used as casing
in water wells. The well casing pipe is manufactured out of what Eagle
management considers to be the highest quality PVC and complies with the
American Society for Testing and Materials ("ASTM") and National Sanitation
Foundation International ("NSFI") standards. As a companion to its well casing
pipe, Eagle also offers a threaded drop pipe for hanging submersible pumps.
These heavy duty pipes are made from schedule 80 PVC and weigh approximately
one-seventh of an equivalent metal pipe.
Pressure Pipe. Pressure pipe is used in water service lines, turf irrigation,
agricultural irrigation, water wells, and for transporting crude oil and salt
water. It comes in diameters ranging from 1/2-inch to 15-inches and in lengths
up to 40 feet.
White and Grey Schedule 80. Eagle offers this strong PVC pipe for demanding
industrial applications. Its thick, strong walls stand up to most chemicals,
giving it distinct advantages over conventional metal pipe.
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Gasket Joint Pipe. Gasket joint pipe has a Reiber gasket to assure leak-proof
water mains and sewer pipe. Steel reinforced Reiber gaskets are pre-stressed
and molded in place to offer a tight and dependable seal. Eagle was one of the
first in the industry to develop the capability to mold the Reiber gasket in
place in its PVC pipe, which produces the distinctive bell end on a Gasket
Joint Pipe.
Eagle also manufactures a line of non-pressure rated PVC pipe products.
Although these products are considered lower grade than pressure pipe, Eagle
applies the same quality standards that it incorporates into all its products.
Drain, Waste and Vent Pipe. Drain, waste and vent pipe is used inside the
home in non-pressurized applications. It carries the NSFI approval, and
therefore, has appeal for use as waste drains and vents in the home.
Sewer Drain Pipe. Sewer drain pipe is used for the exterior transportation
and storage of waste water. When waste water leaves the home or industrial
building, it moves through sewer drain pipe into a municipal sewer system or
other reclamation system. The thick-walled sewer drain pipe is building code
approved. For rural and non-building code applications, a thin-walled variety
of sewer drain pipe is available.
Coex Cellular Core. Coex cellular core is a lighter weight drain, waste and
vent pipe for non-pressure applications. Coex cellular core is a co-extruded
pipe, with air-injected PVC sandwiched between two thin layers of solid PVC.
Its lighter weight makes coex cellular core easier to handle and more
affordable than heavier, solid PVC drain, waste and vent pipe. Its insulating
characteristics make coex cellular core pipe particularly desirable for public
buildings.
Electric and Telephone Duct. Electric and telephone duct are used by utility
companies. Electric duct is used for power lines, as well as electrical wiring,
both inside buildings and underground. Telephone duct is used by communications
companies for insulating their telephone communication lines.
PE Pipe and Tubing
The applications and markets for PE pipe and tubing is expanding because of
its flexibility and strength. Eagle offers a wide selection of PE pipe and
tubing products for home, farm, telecommunication, municipal and industrial
use. Eagle backs its PE pipe and tubing with warranties. Below are descriptions
of Eagle's primary PE product lines:
Pure Core(R). Pure Core(R) is Eagle's highest quality PE pipe and tubing. The
walls of this premium pipe are 25 percent thicker than called for by both ASTM
and NSFI standards, and the pipe comes with a 50-year warranty. Its primary
markets and uses include municipal and domestic water service for homes and
office, and transporting potable liquids for the chemical and food processing
industries.
Eagle 3408 and Poly Flo. Eagle 3408 and Poly Flo Pipe are all-black PE pipe
and tubing products which meet the quality standards set by ASTM and NSFI, yet
are offered at a lower price than Pure Core(R) pipe. Eagle 3408 and Poly Flo
Pipe are made from high-density 3408 and medium-density 2406 polyethylene,
respectively. The primary use for this product line is transporting potable
water, with limited applications for foods and chemicals. The Eagle 3408 Pipe
is also used for slab heating systems and closed-loop, ground coupled heat pump
systems.
Green-striped Eagle-Tough Turf Pipe(R). Green-striped Eagle-Tough Turf
Pipe(R) is a popular PE pipe in the lawn irrigation industry. It is co-extruded
with two green stripes to permanently identify it as Tough Turf Pipe. This
distinct, recognizable marking is unique to Tough Turf Pipe. One of its
features is the Tough Lifetime Guarantee against defects in materials and
workmanship covering the replacement cost of the pipe and the related labor
cost. Eagle also serves its customers by providing pipe sizing other than the
traditional 1-inch diameter, all with the Tough Lifetime Guarantee, which is
valid as long as the original purchaser owns the property where Tough Turf Pipe
was originally installed.
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Poly-Flex. Utility-grade Poly-Flex is an economically priced utility-grade PE
pipe and tubing. This product carries a one-year warranty and is suitable for
transporting potable water and for pressure installations. Primary markets and
uses of this product include farm water systems, including transporting water
to outlying areas for livestock, plumbing/waste water and drainage
applications, and irrigation, primarily in home and other low pressure
applications.
Natural Gas Pipe. Eagle Tri-Stripe Natural Gas Pipe is marked with yellow
stripes for quick identification and is available in diameters up to 4 inches.
Eagle Tri-Stripe(R) is an excellent alternative to steel pipe for natural gas
distribution and propane service due to its light weight, ease of installation,
and maintenance-free nature. Eagle has concentrated on marketing Natural Gas
Pipe to the after-market side of the business, serving installers and
contractors, instead of marketing directly to utility companies.
Fiber Optic Pipe. Fiber optic pipe is used for protecting underground fiber
optic cables. Eagle sells this product mainly to large communications companies
such as AT&T, Sprint and MCI, and to railroad companies such as Southern
Pacific, which lay the pipe alongside their railroad tracks and then lease
space on their own fiber optic lines to the communications companies.
Marketing and Customers
Eagle markets its products through a combination of independent sales
representatives, factory salespersons, and inside sales/customer service
representatives. Independent sales representatives are primarily assigned to
geographic territories. Factory salespersons are primarily assigned to specific
product lines and customers. Eagle's core geographic market areas are the Upper
Midwest and Plains states and the Mountain and Pacific Northwest regions of the
United States.
Eagle's marketing strategy focuses on the brand name recognition that its
products have attained, particularly its PE pipe and tubing. To complement its
products, Eagle strives to provide quality customer service and short delivery
times.
Eagle offers a wide variety of warranty programs on its products. These
warranties cover failures in pipe or tubing due to defects in material or
workmanship. Generally, warranties are for one year. However, the Pure Core(R)
product has a fifty-year warranty and Eagle Tough Turf Pipe(R) has its own
unique lifetime warranty, which is valid as long as the original purchaser owns
the property where Eagle Tough Turf Pipe(R) was originally installed. These
warranties extend in scope from replacement of the defective pipe to payment of
all costs of replacing the defective pipe, including labor costs. Eagle
maintains product liability insurance to cover such warranty claims, and to
date, warranty reserves have been sufficient to cover warranty claims.
In addition to the warranty programs, Eagle offers many of the industry-
standard promotional sales programs, such as volume rebates and discounts.
Eagle also offers a frequent-buyer program, which Eagle believes is unique to
the industry. The frequent-buyer program allows customers to select products
from a catalogue based on points earned from pipe and tubing purchases.
Eagle's customers consist primarily of wholesalers and distributors. Eagle
has a broad and diverse group of customers. No customer accounted for more than
10% of total net sales in 1998, 1997, or 1996.
Competition
The plastic pipe industry is highly competitive due to the large number of
producers and the commodity nature of the industry. According to Plastics News,
the plastic pipe market is approximately $4.0 billion in annual sales. Eagle is
the 17th largest extruder of plastic pipe, according to Plastic News. However,
many of the pipe manufacturers that ranked higher than Eagle produce types of
pipe which Eagle does not produce. Within its primary markets, Eagle believes
it is one of the largest producers of PVC pipe and PE pipe and tubing. Because
of shipping costs, competition is usually regional, instead of national, in
scope. Finally, although Eagle
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believes it has reduced the commodity nature of its business through its high
quality and brand names, pricing pressure will continue to affect Eagle's
margins in the future.
Manufacturing and Sources of Supplies
All of Eagle's manufacturing is performed at its facilities in Hastings,
Nebraska, Hillsboro, Oregon and West Jordan, Utah. Eagle believes it uses high
quality raw materials, and manufacturing techniques and machinery that
incorporate many of the newest extrusion technologies.
All three of Eagle's manufacturing facilities have compound centers for PVC
resin where the PVC resin is precisely mixed with various waxes, colorants, UV
protectants and lubricants to create the appropriate compound resin for each
extrusion application. By performing its own PVC compounding, Eagle has been
able to reduce its raw material costs. PE material used by Eagle is purchased
in compounded form, ready for direct use in the extruder. Because of the
different properties of PE plastic, it is not cost-effective to acquire the
technology to perform Eagle's own PE compounding. Compounded PVC resin and PE
resin are automatically transported from storage silos to the extrusion
equipment by a vacuum feeding system.
Extrusion is a common manufacturing process used in the production of plastic
products. During production, PVC compounded resin or PE resin is placed in an
extrusion machine, where the PVC or PE material is heated into molten plastic
and pulled through a sizing apparatus to produce pipe or tubing of the desired
diameter. The newly extruded pipe or tubing is moved through a water cooling
trough, marked to indicate the identity of the pipe or tubing and cut to
length. Multiple warehousing and outdoor storage facilities are used to store
finished product. Inventory is shipped from storage to customers by common
carrier or by Eagle's vehicles for orders close to a manufacturing facility.
At each phase of the manufacturing process, Eagle pays great attention to
quality and production of a consistent product. Every PVC and PE product is
thoroughly examined for compliance with ASTM standards. Eagle has a quality
control department which has its own testing lab for both resin and finished
goods quality assurance.
Eagle acquires its PVC and PE resins in bulk, mainly by rail car. Eagle
acquires raw materials from various sources. During the years ended December
31, 1998, 1997 and 1996, purchases of raw materials from two vendors totaled
54%, 64% and 62% of total material purchases, respectively. Eagle maintains
strong relationships with its key raw material vendors to ensure the quality
and availability of raw material.
Business Seasonality
Due to general weather constraints in the geographic markets in which Eagle
operates, the demand for its products tends to be seasonal. In an effort to
reduce the fluctuations in operating results caused by the seasonality of
Eagle's products, Eagle offers extended terms to its customers during the
winter months in order to stabilize production. Notwithstanding extended terms,
Eagle experiences fluctuations in sales, accounts receivable and inventory
levels during the year.
Backlog
Eagle strives to keep delivery lead times to a minimum in order to meet
customer needs. However, due to the seasonality of the business, lead times can
occasionally approach 30 days. Eagle's backlog on February 26, 1999, was
12,050,000 pounds of plastic pipe compared to 7,340,000 pounds on February 27,
1998.
Employees
Eagle currently employs 384 employees, of which 24 are in administration, 46
in sales and shipping and 314 in manufacturing. None of Eagle's employees are
represented by a labor union and Eagle has never experienced any work
stoppages.
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Properties
Eagle's executive offices are located in leased office space in Minneapolis,
Minnesota, which is adequate for the operation of Eagle's business. Eagle's
manufacturing and warehouse facilities are located in Hastings, Nebraska;
Hillsboro, Oregon; West Jordan, Utah; and Baker City, Oregon. Eagle both owns
and leases portions of its facilities in Hastings, Nebraska, while the
facilities in Hillsboro, Oregon, West Jordan, Utah and Baker City, Oregon are
owned.
Eagle believes that the production capacity of its facilities is sufficient
to meet its current and future needs. The manufacturing facilities, as
currently equipped, are operating at approximately 85% of capacity.
Legal Proceedings
Eagle is not aware of any material legal proceedings pending or threatened
against it.
Recent Developments
Acquisition of the Lamson PVC Pipe Business
Immediately prior to the Merger, Eagle will acquire substantially all the
assets and assume certain liabilities of the Lamson PVC Pipe Business. The
Lamson PVC Pipe Business includes the manufacturing and sale of PVC pipe,
electrical conduit and duct for the construction, power, communications and
wastewater markets, offering products with diameters ranging from 1/2 inch to
54 inches. In 1998, the Lamson PVC Pipe Business contributed approximately
$138.6 million in net sales to Lamson. The Lamson PVC Pipe Business is composed
of three distinct product areas: electrical conduit, communications duct and
large diameter wastewater pipe. All three of these product lines are national
in scope and have leading market share positions.
Pursuant to the Asset Purchase, Eagle will acquire four production facilities
and two additional extrusion lines used to manufacture the Lamson PVC Pipe
Business products. The location and approximate square footage of these
facilities are as follows: Nazareth, Pennsylvania, 53,000 square feet; High
Springs, Florida, 113,000 square feet; Oklahoma City, Oklahoma, 166,000 square
feet; and Woodland, California, 70,000 square feet. The Lamson employees at the
Nazareth, Pennsylvania plant are covered by a collective bargaining agreement
expiring in November 2000. The Lamson employees at the High Springs, Florida
plant are covered by a collective bargaining agreement expiring in October 2001
and the employees at the Oklahoma City facility are covered by a collective
bargaining agreement expiring in May 2001.
The Lamson PVC Pipe Business, based on its current product mix, has the
capacity to consume approximately 250 million pounds of resin annually.
Moreover, the Lamson PVC Pipe Business has a total capacity, based on its
current product mix, to blend approximately 180 million pounds and extrude
approximately 350 million pounds of electrical conduit, communications duct,
and wastewater pipe material.
Pursuant to the Asset Purchase Agreement by and between Lamson and Eagle
dated December 11, 1998 (the "Asset Purchase Agreement"), Eagle has agreed to
acquire the Lamson PVC Pipe Business in exchange for approximately $45 million
(subject to adjustment for fluctuations in working capital) in cash and issue
$6 million in unsecured debt and 785,000 newly issued shares of Eagle Common
Stock. In connection with this acquisition, Eagle has agreed to assume certain
liabilities relating to the Lamson PVC Pipe Business including certain
contracts, leases, taxes, and product and environmental liability claims.
The obligation of Eagle to consummate the Asset Purchase is contingent upon
Eagle shareholders approving the Merger and is subject to other customary
conditions precedent including the truth and accuracy in all material respects
of Lamson's representations and warranties in the Asset Purchase Agreement, the
performance by Lamson of certain covenants and agreements, and the expiration
or termination of the waiting period under the HSR Act. Likewise, the
obligation of Lamson to consummate the Asset Purchase is subject to customary
conditions precedent including the truth and accuracy in all material respects
of Eagle's
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representations and warranties in the Asset Purchase Agreement, the performance
by Eagle of certain covenants and agreements, and expiration or termination of
the waiting period under the HSR Act.
Eagle and Lamson will also enter into a Manufacturing Agreement pursuant to
the Asset Purchase, under the terms of which Eagle will exclusively produce for
Lamson certain pipe products and fittings, and Lamson will purchase all of its
requirements for those products from Eagle. The products subject to the
Manufacturing Agreement are products which are, as of the date of this Proxy
Statement/Prospectus, manufactured by Lamson at the PVC Pipe Facilities and
covered by patents and trademarks owned by Lamson. Lamson will grant Eagle a
royalty-free license to manufacture these products for Lamson. This Agreement
will last for an initial term of 10 years, which may thereafter be renewed
annually.
Also pursuant to the Asset Purchase, Lamson and Eagle will enter into
agreements under the terms of which the parties will engage in transitional
services for one year following the effective date of the Asset Purchase. The
parties may, at their option, elect to continue providing these services beyond
the transition services period, under the same terms and conditions.
With respect to Lamson's Carlon(R) pipe products, Eagle and Lamson will then
enter into a License Agreement, pursuant to which Lamson will grant Eagle a
non-exclusive, fully paid-up license to use the Carlon(R) trademark as a suffix
to a variation to Eagle's name. This license applies only to products in
connection with Lamson's PVC Pipe Business, and terminates in three years.
Credit Financing
Eagle has received a commitment letter from Fleet Capital Corporation whereby
Fleet has agreed to act as Agent and underwrite $40.0 million of the $85.0
million senior credit facility. The senior credit facility will be used to
finance Eagle's acquisition of the Lamson PVC Pipe Business and to provide
working capital for Eagle's ongoing operations. The $85.0 million Senior Credit
Facility will consist of a $35.0 million revolving credit facility and a $50.0
million term loan facility. The term of the senior credit facility is expected
to be three years and the interest rate is expected to be based on a variable
rate (prime rate or LIBOR, at Eagle's option), plus a margin based on Eagle's
interest coverage ratio.
The foregoing description of the senior credit facility is based upon a
commitment letter negotiated with the lender. There is no guarantee that Eagle
will enter into any final agreement containing the terms described, or at all.
Other Investments and Acquisitions
Eagle has historically been, and continues to be, actively engaged in
exploring business opportunities through investments and acquisitions. As such,
at any particular time, in addition to investments and acquisitions for which
definitive agreements have been executed and publicly announced, Eagle is
routinely reviewing several other investment or acquisition opportunities of
varying magnitude and significance or negotiating the terms of such potential
investments or acquisitions prior to the execution of a definitive agreements
and public announcements thereof. No such investments or acquisitions are
currently pending, and no definitive agreement has been entered into regarding
any such investment or acquisition.
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EAGLE'S MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages and positions of the directors
and executive officers of Eagle as of December 31, 1998. A summary of the
background and experience of these individuals is set forth after the table.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harry W. Spell(1)(2).......... 75 Chairman of the Board
William H. Spell(2)........... 41 Chief Executive Office and Director
Bruce A. Richard(1)(3)........ 69 Vice Chairman of the Board
G. Peter Konen................ 49 President and Director
Patrick M. Mertens............ 34 Chief Financial Officer and Treasurer
David P. Schnase.............. 38 Senior Vice President-Sales and Marketing
George R. Long(3)............. 68 Director
Richard W. Perkins(1)(2)...... 68 Director
Larry D. Schnase(2)........... 66 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
Harry W. Spell has been Chairman of the Board of Eagle since January 1992 and
served as Chief Executive Officer from January 1992 to January 1997. In
addition, Mr. Spell is Chief Financial Manager and Chairman of the Board of
Spell Capital Partners, LLC, which is a private investment equity firm which
focuses on leveraged acquisitions of established businesses in the Upper
Midwest. Mr. Spell has been involved in private equity investing since 1988. He
was employed by Northern States Power, a Fortune 500 company, from 1949 until
August 1988, where he served as Senior Vice President and Chief Financial
Officer. Mr. Spell currently serves as a director of Appliance Recycling
Centers of America, Inc., as well as several private organizations.
William H. Spell has been a director of Eagle since January 1992 and Chief
Executive Officer since January 1997, and served as Eagle's President from
January 1992 to January 1997. In addition, Mr. Spell is the President of Spell
Capital Partners, LLC, which is a private investment equity firm which focuses
on leveraged acquisitions of established businesses in the Upper Midwest. Mr.
Spell has been involved in private equity investing since 1988. From 1981
through 1988, Mr. Spell was vice president and director of corporate finance at
John G. Kinnard and Company, Incorporated, a regional investment banking firm
located in Minneapolis, Minnesota. Mr. Spell has a B.S. and an M.B.A. degree
from the University of Minnesota.
Bruce A. Richard has been a director of Eagle since March 1992 and Vice
Chairman since February 1996. He also served as Secretary of Eagle from mid-
1993 to August 1998, as Chief Financial Officer from mid-1993 to February 1996
and as Treasurer from mid-1993 to March 1998. In addition, Mr. Richard is
affiliated with Spell Capital Partners, LLC, which is a private investment
equity firm which focuses on leveraged acquisitions of established businesses
in the Upper Midwest. Mr. Richard has been involved in private equity investing
since 1988. He retired as President and Chief Operating Officer of Northern
States Power Company, a Fortune 500 company, in July of 1986. He is a former
member of the Board of Regents of St. John's University and is actively
involved in other philanthropic organizations.
G. Peter Konen has been a director of Eagle since December 1993 and President
of Eagle since January 1997. In addition, he served as President of Eagle's
former subsidiary, Eagle Plastics, Inc. ("Eagle Plastics") from February 1996
until December 1997, when it was merged into Eagle. He was Executive Vice
President and Chief Operating Officer of Eagle Plastics from 1984 to February
1996. Prior to 1984, he was Plant
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Manager with Western Plastics, a PVC pipe and PE tubing manufacturer. Mr. Konen
has over 30 years of experience in the manufacturing and sales of plastic pipe.
Patrick M. Mertens, who joined Eagle in May 1995 as Controller was promoted
to Chief Financial Officer of Eagle in February 1996 and Treasurer in March
1998. From 1986 to May of 1991, he was a senior auditor, specializing in
manufacturing clients, for Baird, Kurtz & Dobson, CPAs. During his tenure at
Baird, Kurtz & Dobson, Mr. Mertens was in charge of the annual audit for Eagle
Plastics for three years. From 1991 to May of 1995 he was Assistant Controller
of ISCO, Inc., a public company that manufactures scientific and environmental
instruments. Mr. Mertens has a B.S. degree from Peru, Nebraska State College
and an M.B.A. degree from the University of Nebraska.
David P. Schnase was elected Senior Vice President-Sales and Marketing of
Eagle in January 1998. He joined Eagle Plastics in April 1985 and served as
Senior Vice President-Sales and Marketing of Eagle Plastics and of Eagle's
other subsidiaries from February 1996 until December 1997, when such
subsidiaries were merged into Eagle.
George R. Long has been a director of Eagle since 1986. He has served as
Chairman of the Board of Directors of the Mayfield Corporation, a financial
advisory firm, since 1973. For over five years, he has been a private investor.
Mr. Long also is a director of the IAI Series of Mutual Funds, Minneapolis,
Minnesota.
Richard W. Perkins has been a director of Eagle since January 1992. Mr.
Perkins has been President of Perkins Capital Management, Inc., a registered
investment adviser, since 1984 and has had 40 years experience in the
investment business. Prior to establishing Perkins Capital Management, Inc.,
Mr. Perkins was a Senior Vice President at Piper Jaffray Inc. where he was
involved in corporate finance and venture capital activities, as well as
rendering investment advice to domestic and international investment managers.
Mr. Perkins is also affiliated with Spell Capital Partners, LLC, which is a
private investment equity firm which focuses on leveraged acquisitions of
established businesses in the Upper Midwest. Mr. Perkins is a director of
various public companies, including: Bio-Vascular, Inc., Lifecore Biomedical,
Inc., Children's Broadcasting Corporation, CNS, Inc., Quantech Ltd., Nortech
Systems, Inc., Vital Images, Inc. and Harmony Holdings, Inc.
Larry D. Schnase has been a director of Eagle since December 1993. He was
Chief Executive Officer of Eagle Plastics from its inception in 1984 until his
retirement in January 1997, and served as President of Eagle Plastics from 1984
to February 1996. Prior to founding Eagle Plastics, Mr. Schnase served as Vice
President of Sales for Western Plastics, a PVC pipe and PE tubing manufacturer.
Mr. Schnase has over 35 years of experience in the business of manufacturing
and sales of plastic pipe.
Harry W. Spell is William H. Spell's father. Larry D. Schnase is David P.
Schnase's father.
80
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid by
Eagle and its former subsidiary, Eagle Plastics, as well as certain other
compensation paid or accrued, during the last three fiscal years to the Chief
Executive Officer of Eagle and the executive officers of Eagle who received
more than $100,000 during fiscal 1998:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------- ---------------------
Name and Principal Fiscal Other Annual Securities Underlying All Other
Position Year Salary Bonus Compensation Options and SARs Compensation
------------------ ------ -------- ------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Spell, 1998 $115,000(1) $51,000 $7,200 120,000 $ 0
Chief Executive 1997 $108,000 $12,750 $7,200 100,000 $ 0
Officer 1996 $ 89,188 $55,000 $7,200 -- $ 0
G. Peter Konen, 1998 $182,000(2) $81,000 $7,200 -- $ 0
President 1997 $175,000 $20,250 $7,200 -- $ 0
1996 $145,000 $75,000 $6,000 -- $ 0
David P. Schnase, 1998 $130,000(3) $35,000 $6,000 -- $ 0
Sr. Vice President 1997 $125,000 $ 8,750 $6,000 -- $ 0
1996 $ 87,500(5) $12,500 $ -- -- $ 0
Patrick M. Mertens, 1998 $ 94,000 $21,000 $ -- -- $ 0
Chief Financial Officer 1997 $ 90,000 $ 5,250 $ -- -- $ 0
1996 $ 68,000 $24,000 $ -- -- $ 0
</TABLE>
- --------
(1) William H. Spell, Chief Executive Officer of Eagle, entered into a restated
employment contract with Eagle for a three year term beginning January 1,
1997. Under such contract, Mr. Spell will receive an annual base salary
(currently $115,000) and a $600 per month car allowance. Along with this
base salary, he can receive a bonus up to $51,000 per year if Eagle meets
certain operating profit levels. Such employment agreement has a
confidentiality provision, a two year noncompetition clause and provides
for a severance payment equal to Mr. Spell's base salary in the event of
his termination other than for cause.
(2) G. Peter Konen, President, entered into a restated employment contract for
a three year term beginning January 1, 1997. Under such contact, Mr. Konen
will receive an annual base salary (currently $182,000) and a $600 per
month car allowance. Along with his base salary, Mr. Konen can receive an
annual bonus up to $81,000 if Eagle meets certain operating profit levels.
Such employment agreement has a confidentiality provision, a two year
noncompetition clause and provides for a severance payment equal to Mr.
Konen's base salary in the event of his termination other than for cause.
(3) David P. Schnase, Senior Vice President-Sales, entered into an employment
contract for a three year term beginning January 1, 1997. Under such
contract, Mr. Schnase will receive an annual base salary (currently
$135,000). Along with his base salary, Mr. Schnase can receive an annual
bonus up to $35,000 if Eagle meets certain operating profit levels. Such
employment agreement has a confidentiality provision, a two-year
noncompetition clause and provides for a severance payment equal to his
then annual base salary in the event of his termination other than for
cause. The final 1996 salary figure shown for Mr. Schnase includes
commissions of $50,297.
(4) Patrick M. Mertens, Chief Financial Officer, entered into an employment
contract for a three year term beginning January 1, 1997. Under such
contract, Mr. Mertens will receive an annual base salary (currently
$94,000). Along with his base salary, Mr. Mertens can receive an annual
bonus up to $21,000 if Eagle meets certain operating profit levels. Such
employment agreement has a confidentiality provision, a one-year
noncompetition clause and provides for a severance payment equal to his
then annual base salary in the event of his termination other than for
cause.
81
<PAGE>
Option/SAR Grants During 1998 Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------- ------------------------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ ---------------- ----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William H. Spell........ 120,000(1) 43.0% $ 1.50 8/31/08 $113,201 $286,874
G. Peter Konen.......... 75,000(1) 26.9% $ 1.50 8/31/08 $ 70,751 $179,296
David P. Schnase........ 0 0 -- -- -- --
Patrick M. Mertens...... 5,000(2) 1.8% $2.375 1/6/08 $ 7,468 $ 18,926
51,000(1) 18.3% $1.50 8/31/08 $ 48,110 $121,921
</TABLE>
- --------
(1) Option was granted on September 1, 1998 and vests at a rate of 34% on March
2, 1999 and 33% on September 1, 2000 and September 1, 2001.
(2) Option was granted on January 7, 1998 and vests at a rate of 25% on July 8,
1998 and on each January 7 thereafter.
Option/SAR Exercises in 1998 Fiscal Year and Fiscal Year End Option Values
The following table sets forth information as to individual exercises of
options, number of options and value of options at December 31, 1998 with
respect to the named executive officers:
<TABLE>
<CAPTION>
Number of
Unexercised Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs Options/SARs
Shares at FY-End(#)(2) at FY-End($)(1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
---- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
William H. Spell........... 140,000 $211,851 210,000/120,000 $125,000/60,000
G. Peter Konen............. 45,000 $ 28,125 165,000/75,000 $100,000/37,500
David P. Schnase........... 45,000 $ 28,125 74,500/0 $ 51,125/0
Patrick M. Mertens......... 0 N/A 16,250/59,750 $ 0/25,500
</TABLE>
- --------
(1) Based on the difference between the closing price of Eagle's Common Stock
as reported by Nasdaq at fiscal year end and the option exercise price.
Directors' Compensation
In 1998, Harry W. Spell, Chairman of the Board, and Bruce A. Richard, Vice
Chairman of the Board, were each compensated for their services in such
capacities at the annual rate of $30,000. George R. Long and Richard W. Perkins
received fees of $12,000 and $21,000, respectively, for their roles as non-
employee directors. In addition, during 1998 nonemployee directors received
ten-year options under Eagle's 1997 Stock Option Plan as follows: On March 27,
1998 Bruce Richard received an option to purchase 10,000 shares at $2.13 per
share, vesting at the rate of 25% per year commencing September 27, 1998; and
on September 1, 1998 Messrs. George Long, Larry Schnase and Richard Perkins
each received an option to purchase 21,000 shares and Messrs. Harry Spell and
Bruce Richard each received an option to purchase 84,000 shares at $1.50 per
share, vesting at the rate of 34% on March 2, 1999, 33% on September 1, 2000
and 33% on September 1, 2001.
82
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table provides information as of December 31, 1998, concerning
the beneficial ownership of Eagle's voting securities by persons who are known
to own five percent or more of a class of voting stock of Eagle, by each
executive officer named in the Summary Compensation Table, by each director,
and by all directors and executive officers (including the named individuals)
of Eagle as a group. Unless otherwise noted, the person listed as the
beneficial owner of the shares has sole voting and investment power over the
shares.
<TABLE>
<CAPTION>
Percent
Series A Preferred of Common
Common Stock Stock Stock and
------------------------------ ----------------------- Series A
Shares Shares Preferred
Name and Address of Beneficially Percent of Beneficially Percent of Stock
Beneficial Owner Owned Class(1) Owned Class(1) Combined
------------------- ------------ ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
George Kosmides........ -- -- 12,500 66.7% *
7103 Amundson Avenue
Edina, MN 55439
Kathryn A. Schuster.... -- -- 6,250 33.3% *
1748 James Road
Mendota Heights, MN
55118
William Blair
Mezzanine............. 435,000 6.4% -- -- 6.4%
Capital Fund, L.P.
222 West Adams Street
Chicago, IL 60606
Okabena Partnership K.. 425,000 6.4% -- -- 6.4%
5140 Norwest Center
Minneapolis, MN 55402
William H. Spell....... 527,963(2)(3)(4) 7.4% -- -- 7.4%
2430 Metropolitan
Centre
Minneapolis, MN 55402
Harry W. Spell......... 357,332(3)(4)(5) 5.3% -- -- 5.3%
2430 Metropolitan
Centre
Minneapolis, MN 55402
Richard W. Perkins..... 151,942(4)(6) 2.3% -- -- 2.3%
730 East Lake Street
Wayzata, MN 55391
George R. Long......... 236,807(7) 3.4% -- -- 3.4%
29 Las Brisas Way
Naples, FL 33963
Larry D. Schnase....... 590,153(8) 8.4% -- -- 8.4%
146 North Maple
Hastings, NE 68901
G. Peter Konen......... 243,309(9) 4.1% -- -- 4.1%
146 North Maple
Hastings, NE 68901
Bruce A. Richard....... 149,097(4)(10) 2.1% -- -- 2.1%
2458 Farrington Circle
Roseville, MN 55113
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
Percent
Series A Preferred of Common
Common Stock Stock Stock and
-------------------------- ----------------------- Series A
Shares Shares Preferred
Name and Address of Beneficially Percent of Beneficially Percent of Stock
Beneficial Owner Owned Class(1) Owned Class(1) Combined
------------------- ------------ ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
David P. Schnase........ 102,262(11) 1.9% -- -- 1.9%
146 North Maple
Hastings, NE 68901
Patrick M. Mertens...... 30,550(12) * -- -- *
146 North Maple
Hastings, NE 68901
All Directors and Offi-
cers as a Group (9 per-
sons).................. 2,358,915(13) 31.2% -- -- 31.2%
</TABLE>
- --------
* Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person to acquire them as of December 31, 1998 or within sixty days of
such date are treated as outstanding only when determining the percent
owned by such individual and when determining the percent owned by the
group.
(2) Includes 210,000 shares which may be purchased upon exercise of currently
exercisable options and 21,429 shares held by Mr. Spell's wife.
(3) Includes 30,500 shares held by the Spell Family Foundation. Messrs. Harry
Spell and William Spell share voting and dispositive power over such
shares.
(4) Messrs. William Spell, Harry Spell, Richard Perkins and Bruce Richard have
individually acquired securities of Eagle from Eagle and in open market
transactions and each of them individually anticipates that he will acquire
additional securities of Eagle in the future. Such persons have entered
into an agreement which requires that a majority of them approve any sale
of securities of Eagle by any of them. This agreement is designed to keep
all of such persons interested and focused on the long-term success of
Eagle and recognizes that each of such persons contributes specific
expertise to Eagle through their positions as directors and/or officers.
The agreement does not require that such persons vote their shares in any
specific manner or act in concert in connection with any purchase or sale
of securities of Eagle.
(5) Includes 45,000 shares which may be purchased upon exercise of currently
exercisable options.
(6) Includes 25,000 shares which may be purchased upon exercise of currently
exercisable options and 11,429 shares held by a Profit Sharing Trust for
Mr. Perkins' benefit.
(7) Includes 30,000 shares which may be purchased upon exercise of currently
exercisable options.
(8) Includes 565,000 shares which may be purchased upon exercise of currently
exercisable options.
(9) Includes 165,000 shares which may be purchased upon exercise of currently
exercisable options.
(10) Includes 27,500 shares which may be purchased upon exercise of currently
exercisable options.
(11) Includes 74,500 shares which may be purchased upon exercise of currently
exercisable options.
(12) Includes 16,250 shares which may be purchased upon exercise of currently
exercisable options.
(13) Includes 1,158,250 shares which may be purchased upon exercise of
currently exercisable options.
Certain Relationships and Related Transactions
Office Sharing. Eagle has an office sharing arrangement with Spell Capital
Partners, LLC pursuant to which Eagle pays $10,500 per month for space and
administrative support. William H. Spell and Harry W. Spell are both members of
Spell Capital Partners, LLC.
Employment and Consulting Agreements. Eagle has entered into Employment
Agreements with William H. Spell, G. Peter Konen, David P. Schnase and Patrick
M. Mertens, all as more specifically described herein in the notes to the
Summary Compensation Table.
84
<PAGE>
Eagle has entered into new Employment Agreements with William Spell and
Messrs. Konen and Mertens effective as of January 1, 1999 but contingent upon
the closing of the Transactions and, at the Effective Time of the Merger, will
enter into Consulting Agreements with Bruce Richard and Harry Spell, current
directors of Eagle. See "The Merger Agreement--Employment Agreements with Eagle
Officers" and "--Consulting Agreements with Eagle Directors."
Effective January 1, 1997, Larry Schnase, former Chief Executive Officer of
Eagle Plastics, entered into a two year Consulting Agreement and Release with
Eagle. Under such agreement, Mr. Schnase resigned as an officer and employee of
Eagle and its subsidiaries. Mr. Schnase received monthly compensation of $8,333
per month during 1998, and was assigned Eagle's interest in two insurance
policies on his life. Along with this compensation, Mr. Schnase was entitled to
receive an annual bonus of up to $30,000, if Eagle met certain operating profit
levels. Such consulting agreement has a confidentiality provision and a five
year noncompetition clause. The Consulting Agreement has terminated. See
"Merger--Background of the Transactions."
MARKET FOR EAGLE PACIFIC INDUSTRIES, INC. COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Eagle's Common Stock is currently traded on the Nasdaq Small Cap Market under
the symbol "EPII." Eagle's Series A Preferred Stock and 8% Preferred Stock do
not trade on any exchange or Nasdaq. The following table sets forth the high
and low bid prices of a share of Common Stock for the first fiscal quarter of
1999 and each fiscal quarter in 1998 and 1997.
<TABLE>
<CAPTION>
High Low
-------- ------
First quarter 1999 (through , 1999)
<S> <C> <C>
Year ended December 31, 1998:
First quarter............................................. $2 1/2 $1 5/8
Second quarter............................................ 2 1/8 1 3/8
Third quarter............................................. 2 3/8 1 3/8
Fourth quarter............................................ 2 / 1/2 1 1/2
Year ended December 31, 1997:
First quarter............................................. $4 $2 5/8
Second quarter............................................ 3 13/16 2 5/8
Third quarter............................................. 3 2 1/2
Fourth quarter............................................ 3 1/32 2 1/4
</TABLE>
The bid quotations represent inter-dealer prices and do not include retail
mark-ups, mark-downs, or commissions and may not necessarily represent actual
transactions. At February 26, 1999, Eagle had approximately 1,970 shareholders
of record and approximately 1,600 shareholders in street name.
Eagle has never paid a cash dividend on its Common Stock. Payment of Common
Stock dividends is at the discretion of the board of directors, subject to
Eagle's lending arrangements. The board of directors plans to retain earnings,
if any, for operations and does not intend to pay Common Stock dividends in the
near future. However, dividends are paid by Eagle on its Series A Preferred
Stock and 8% Preferred Stock.
85
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of Holdings Common
Stock, Series A Preferred Stock and 8% Convertible Preferred Stock to be issued
in the Merger will be passed upon for Holdings by Haynes and Boone, L.L.P.,
Houston, Texas. Certain legal matters for Eagle, including the federal income
tax consequences in connection with the Merger, will be passed upon by
Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements of Eagle Pacific Industries, Inc. as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 included in this Joint Proxy Statement/Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report,
appearing herein and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The Combined Statement of Net Assets To Be Acquired of the PVC Pipe Business
of The Lamson & Sessions Co. at January 2, 1999 and the Combined Statements of
Revenues and Operating Expenses for each of the three fiscal years in the
period then ended, included in the Proxy Statement of Eagle Pacific Industries,
Inc., which is referred to and made a part of this Proxy Statement/Prospectus
and Registration Statement of Eagle Pacific Holdings, Inc., have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The balance sheets of CONDEA Vista Company Oklahoma City Plant as of June 30,
1998 and 1997 and the statements of income and changes in owner's investment
and cash flows for each of the three years in the period ended June 30, 1998
and the balance sheet of Eagle Pacific Holdings, Inc. as of February 4, 1999
included in this Proxy Statement/Prospectus, have been included herein in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
86
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Eagle files annual, quarterly and special reports, proxy statement and other
information with the SEC. You may read and copy any reports, statements or
other information filed by Eagle at the SEC's public reference rooms at 450 5th
Street, N.W., Washington, D.C. 20549, or at 7 World Trade Center, Suite 1300,
New York, New York 10048, or at Citicorp Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Eagle's SEC filings are also
available to the public from commercial document retrieval services and on the
SEC's internet web site at "http://www.sec.gov."
Holdings filed a Registration Statement on Form S-4 to register with the SEC
the Holdings Common Stock, Series A Preferred Stock and 8% Preferred Stock to
be issued to Eagle shareholders in the Merger. This Proxy Statement/Prospectus
is a part of that Registration Statement and constitutes a prospectus of
Holdings in addition to being a proxy statement of Eagle for the Special
Meeting. As allowed by the SEC rules, this Proxy Statement/Prospectus does not
contain all the information you can find in the Registration Statement or the
exhibits to the Registration Statement. The complete Registration Statement,
including exhibits, is available for inspection and copying at the offices of
the SEC set forth above or the SEC's internet web site.
This Proxy Statement/Prospectus describes certain documents that are not
presented herein or delivered herewith. Copies of these documents (other than
exhibits to such documents unless such exhibits are specifically described
herein) are available, without charge, upon oral or written request. Eagle
shareholders may obtain documents relating to Eagle by telephoning or writing
Eagle's Investor Relations Department at Eagle Pacific Industries, Inc., 333
South Seventh Street, 2430 Metropolitan Centre, Minneapolis, Minnesota 55402,
telephone (612) 305-0339. If you would like to request documents from Eagle,
please do so by ten business days prior to [Meeting date], 1999 to receive them
before the Meeting.
We have not authorized anyone to provide you with information that is
different from, or in addition to, what is contained or referred to in this
Proxy Statement/Prospectus. Eagle has supplied all information contained in
this Proxy Statement/Prospectus relating to Eagle, CONDEA Vista has supplied
all information contained in this Proxy Statement/Prospectus relating to CONDEA
Vista and the Oklahoma City Resin Business. You should rely only on the
information contained or incorporated by reference in this Proxy
Statement/Prospectus to vote on the Merger. This Proxy Statement/Prospectus is
dated [ ], 1999. You should not assume that the information contained in
this Proxy Statement/Prospectus is accurate as of any other date, and neither
the mailing of this Proxy Statement/Prospectus to shareholders nor the issuance
of Holdings stock in the Merger shall create any implication to the contrary.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Eagle Pacific Holdings, Inc.
Independent Auditor's Report............................................ F-2
Financial Statements
Consolidated Balance Sheet as of February 4, 1999...................... F-3
Notes to Balance Sheet................................................. F-4
Eagle Pacific Industries, Inc.
Independent Auditors' Report............................................ F-8
Financial Statements
Statements of Operations for the Years Ended December 31, 1998, 1997
and 1996 ............................................................. F-9
Balance Sheets as of December 31, 1998 and 1997........................ F-10
Statements of Stockholders' Equity for the Years Ended December 31,
1998, 1997 and 1996................................................... F-11
Statements of Cash Flow for the Years Ended December 31, 1998, 1997 and
1996.................................................................. F-12
Notes to Financial Statements.......................................... F-13
CONDEA Vista Company Oklahoma City Plant
Report of Independent Accountants....................................... F-24
Financial Statements
Balance Sheets as of December 31, 1998 (unaudited), June 30, 1998 and
1997................................................................... F-25
Statement of Income and Changes in Owners Investment for the Six Months
Ended December 31, 1998 and 1997 (unaudited) and for the Years Ended
June 30, 1998, 1997 and 1996.......................................... F-26
Statement of Cash Flows for the Six Months Ended December 31, 1998 and
1997 (unaudited) and for the Years Ended June 30, 1998, 1997 and
1996.................................................................. F-27
Notes to Financial Statements.......................................... F-28
PVC Pipe Business of The Lamson & Sessions Co.
Report of Independent Auditors.......................................... F-35
Financial Statements
Combined Statement of Net Assets To Be Acquired as of January 2, 1999.. F-36
Combined Statements of Revenues and Operating Expenses for each of the
three Fiscal Years in the Period Ended January 2, 1999................ F-37
Notes to Combined Financial Statements................................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
CONDEA Vista Company:
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of Eagle Pacific Holdings,
Inc. at February 4, 1999 in conformity with generally accepted accounting
principles. This consolidated balance sheet is the responsibility of the
Company's management; our responsibility is to express an opinion on the
consolidated balance sheet based on our audits. We conducted our audit of the
consolidated balance sheet in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers, LLP
February 4, 1999
Houston, Texas
F-2
<PAGE>
EAGLE PACIFIC HOLDINGS, INC.
BALANCE SHEET
at February 4, 1999
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $1,000
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Commitments and contingencies
Redeemable stock
Preferred stock, 8% cumulative dividend; convertible; $1,000
liquidation preference per share; $.01 par value per share;
authorized 10,000 shares; none issued and outstanding................ --
Stockholder's equity:
Series A preferred stock, 7% cumulative dividend; convertible; $2
liquidation preference; $.01 par value per share; authorized
2,000,000 shares; none issued and outstanding........................ --
Undesignated preferred stock; $.01 par value per share; authorized
10,000,000 shares; none issued and outstanding....................... --
Common stock, $.01 par value per share; authorized 60,000,000 shares;
1,000 issued and outstanding shares.................................. 10
Class B common stock, convertible; $.01 par value per share;
authorized 3,500,000 shares; none issued and outstanding............. --
Additional paid-in capital............................................ 990
------
Total stockholder's equity.......................................... $1,000
------
Total liabilities and stockholder's equity.......................... $1,000
======
</TABLE>
F-3
<PAGE>
EAGLE PACIFIC HOLDINGS, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
Eagle Pacific Holdings, Inc. (the "Company" or "Holdings") is a wholly-owned
subsidiary of Condea Vista Company formed in connection with the planned merger
of Condea Vista Company's Oklahoma City resin manufacturing business and Eagle
Pacific Industries, Inc. Under the terms of the proposed merger (the "Merger"),
Condea Vista Company will cause its Oklahoma City resin manufacturing business
to be transferred to a newly formed subsidiary of the Company in exchange for
9,829,717 shares of Company common stock. Eagle Pacific Industries, Inc. will
then acquire the Oklahoma City resin manufacturing business by merging with the
Company's subsidiary.
2. CAPITAL STOCK
The authorized capital stock of Holdings consists of 75,510,000 shares, $.01
par value, of which 60,000,000 are shares of Common Stock, 3,500,000 are shares
of Class B Common Stock, and 12,010,000 are shares of Preferred Stock. Of the
shares of Preferred Stock, 2,000,000 are shares of Series A Preferred Stock,
10,000 are shares of 8% Preferred Stock, and the remaining 10,000,000 shares of
Preferred Stock are currently undesignated. All of the outstanding shares of
Holdings are, and the Holdings shares issued in the Merger will be, fully paid
and nonassessable. Holders of Holdings capital stock do not have cumulative
voting rights.
Common Stock
As of February 4, 1999, Holdings had 1,000 shares of Common Stock
outstanding. However, prior to the Merger, Holdings will issue CONDEA Vista
9,829,717 shares of Common Stock in exchange for CONDEA Vista's conveyance of
the Oklahoma City Resin Business to Holdings. The holders of Holdings Common
Stock: (i) have equal ratable rights to dividends from funds legally available
therefor, when, as and if declared by the Board of Directors; (ii) are entitled
to share ratably with holders of 8% Preferred Stock in the assets of Holdings
available for distribution upon liquidation, dissolution or winding up of the
affairs of Holdings and after satisfaction of the liquidation preferences of
the 8% Preferred Stock and the Series A Preferred Stock described below; and
(iii) are entitled to one vote per share on all matters which stockholders may
vote on at all meetings of Holdings stockholders. There are no redemption,
sinking fund, conversion or preemptive rights with respect to the shares of
Holdings Common Stock.
Class B Common Stock
As of February 4, 1999, Holdings has no shares of Class B Common Stock
outstanding. The holders of Class B Common Stock (i) have equal ratable rights
along with holders of the Common Stock to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors; and
(ii) are entitled to share ratably with holders of Common Stock in the assets
available for distribution to holders of Holdings Common Stock upon
liquidation, dissolution or winding up of the affairs of Holdings. The holders
of Class B Common Stock are not entitled to vote on matters submitted to
stockholders for a vote unless as otherwise required by law. Currently, only
holders of 8% Preferred Stock are entitled to receive, upon conversion, shares
of Class B Common Stock. Each holder of shares of Class B Common Stock is
entitled to convert such shares at any time into an equal number of shares of
Holdings Common Stock.
Series A 7% Convertible Preferred Stock
As of February 4, 1999, Holdings has no shares of Series A 7% Convertible
Preferred Stock ("Series A Preferred Stock") outstanding. Shares of Series A
Preferred Stock will be exchanged for shares of Eagle Series A Stock pursuant
to the Merger. The material rights and preferences of Holdings' Series A
Preferred Stock are described below.
F-4
<PAGE>
Dividends. Holders of Holdings Series A Preferred Stock are entitled to
receive out of funds legally available for the declaration of dividends, when
and as declared by the Board, cumulative cash dividends at the rate of 7% of
the liquidation preference described below per annum per share payable
quarterly. Holdings may not declare a dividend or make a distribution on its
Common Stock or purchase or redeem any of its Common Stock unless all dividends
on its shares of Series A Preferred Stock have been paid or declared and a sum
sufficient for the payment thereof set apart for payment. No payment of
dividends on the Series A Preferred Stock may be made unless all dividends on
the 8% Preferred Stock and all "Common Equivalent Dividends" (as defined in
Holdings' Certificate) have been declared and paid or sums sufficient for the
payment thereof have been set aside.
Liquidation Preference. In the event of the liquidation, dissolution or
winding-up of Holdings, whether voluntary or involuntary, assets or surplus
funds of Holdings, if any, shall be distributed to the holders of Series A
Preferred Stock, before any distribution or payment is made to the holders of
Holdings Common Stock, but only after the payment of the liquidation preference
of the holders of 8% Preferred Stock, in an amount equal to $2.00 per share,
subject to adjustment in the event of any stock dividend, split, distribution
or combination with respect to the Series A Preferred Stock, plus any unpaid
accrued dividends thereon.
Voting Rights. Each holder of shares of Series A Preferred Stock is entitled
to one vote for each share of Common Stock into which such shares may then be
converted. Holders of Holdings Common Stock, Series A Preferred Stock and 8%
Convertible Preferred Stock vote as a single class on all matters submitted to
Holdings' stockholders, except as otherwise required by law or as set forth
below.
Optional Conversion. Shares of Holdings Series A Preferred Stock are
convertible, at the option of the holder, at any time into the number of shares
of Common Stock obtained by dividing $2.00 by the then existing conversion
price, initially $2.00. Initially, each share of Holdings Series A Preferred
Stock will be convertible into one share of Holdings Common Stock. However,
such conversion price is generally subject to adjustment in the event Holdings
subdivides or combines its outstanding shares of Common Stock or merges,
consolidates or disposes of substantially all of its assets.
Mandatory Conversion. At any time after Holdings' Common Stock has traded in
a public trading market for 20 consecutive trading days at an average price of
greater than $4.00 per share, the Holdings Board of Directors can cause the
shares of Series A Preferred Stock to be converted into shares of Holdings
Common Stock upon five days' notice. Each holder of Series A Preferred Stock so
converted will be entitled to receive the number of shares of Common Stock into
which such Series A Preferred Stock held by such holder would have been
converted if such holder had exercised such holder's conversion right
immediately prior to the mandatory conversion.
8% Convertible Preferred Stock
As of February 4, 1999, Holdings had no shares of 8% Convertible Preferred
Stock ("8% Preferred Stock") outstanding. Shares of 8% Preferred Stock will be
exchanged for shares of Eagle 8% Preferred Stock pursuant to the Merger. The
material rights and preferences of Holdings' 8% Preferred Stock are described
below.
Dividends. Holders of Holdings 8% Preferred Stock are entitled to receive out
of funds legally available for the declaration of dividends, when and as
declared by the Board of Directors, cumulative cash dividends at the rate of 8%
per annum of the liquidation preference described below per share, payable
quarterly. If
Holdings fails to pay such dividend on its 8% Preferred Stock when due, the
dividend rate shall be increased to 12% per annum until all accrued dividends
on the such shares have been paid in full, and the accrued but unpaid dividends
on such shares, to the extent permitted by applicable law, will thereafter
accrue an additional amount at the rate of 12% per annum.
F-5
<PAGE>
Holders of Holdings 8% Preferred Stock are also entitled to receive any cash
dividends declared on Holdings Common Stock based on the amount of cash
dividends such holder would have been entitled to if such holder had exercised
such holder's conversion right prior to the dividend declaration date. Holdings
cannot pay or declare a dividend or make a distribution on its Common Stock
unless all dividends due and payable to holders of its 8% Preferred Stock have
been paid or declared and a sum sufficient for the payment thereof set apart
for payment.
Liquidation Preference. In the event of the liquidation, dissolution or
winding-up of Holdings, whether voluntary or involuntary, assets or surplus
funds of Holdings, if any, shall be distributed to the holders of Holdings 8%
Preferred Stock, before any distribution or payment is made to the holders of
Holdings Common Stock or Series A Preferred Stock, in an amount equal to $1,000
per share, subject to adjustment in the event of any stock dividend, split,
distribution or combination with respect to the 8% Preferred Stock, plus any
unpaid accrued dividends thereon. After the liquidation preferences have been
paid to holders of Holdings 8% Preferred Stock and Series A Preferred Stock,
any remaining assets or funds legally available for distribution shall be
distributed ratably among holders of the 8% Preferred Stock and Common Stock in
proportion to the number of shares of Common Stock owned by each such holder
and, in the case of the 8% Preferred Stock, to which such holder would then be
entitled upon conversion of such shares owned by such holder.
Voting Rights. Each holder of shares of 8% Preferred Stock is entitled to one
vote per share of 8% Preferred Stock then held by such holder. Holders of
Holdings Common Stock, Series A Preferred Stock and 8% Preferred Stock vote as
a single class on all matters submitted to Holdings' stockholders, except as
otherwise required by law or described below.
Right to Elect Director. If Holdings fails to redeem its 8% Preferred Stock
as described below, Holdings must, at the request of the holders of two-thirds
of such shares, increase the size of its Board of Directors by one member, and
the holders of Holdings 8% Preferred Stock will have the additional right,
voting separately as a single class, to elect an individual to fill such newly
created directorship. Such right shall continue until such time as all shares
of Holdings 8% Preferred Stock have been redeemed. Other than the voting rights
described in this paragraph, in the immediately preceding paragraph, or
otherwise required by law, the holders of Holdings 8% Preferred Stock are not
entitled to vote on any matter submitted to stockholders for a vote.
Restrictions on Corporate Action. So long as any shares of Holdings 8%
Preferred Stock are outstanding, without the consent of at least two-thirds of
the outstanding 8% Preferred Stock, Holdings cannot (i) amend any provision of
its Certificate or Bylaws; (ii) declare or pay any dividends on its capital
stock other than its 8% Preferred Stock unless such dividend is payable out of
earnings or surplus or in Holdings securities; (iii) create any new class or
series of shares having preferences over or on parity with the 8% Preferred
Stock as to dividend, liquidation, redemption, sinking fund, or assets; (iv)
issue any evidence of indebtedness which is convertible into or exchangeable
for shares of any class or series of Holdings capital stock; or (v) directly or
indirectly make payments to purchase, redeem or retire any Holdings securities
if Holdings has failed to pay any accrued dividends or other amounts on
Holdings 8% Preferred Stock or if the aggregate of such payments made by
Holdings and Eagle during the period commencing January 1, 1997 and ending the
date of the making of such a payment would exceed 8.9% of Eagle's and Holdings'
cumulative EBITDA for such period; (vi) alter or change the specific rights,
preferences, or privileges of any class or series of Holdings preferred stock
so as to have an adverse effect on its 8% Preferred Stock or change any rights
or priorities of its 8% Preferred Stock; or (vii) issue any shares of Holdings
Common Stock (except upon conversion of Series A Preferred Stock or 8%
Preferred Stock, pursuant to stock option plans, warrants and contractual
commitments in effect on the Effective Time or pursuant to Eagle's 1997 Stock
Option Plan or other plan approved by the holders of 8% Preferred Stock
(collectively, the "Excluded Shares")) or any options, warrants or other rights
to subscribe for or purchase additional shares of Holdings Common Stock at a
price per share which is less than the conversion price of the Holdings 8%
Preferred Stock.
Optional Conversion. Holdings 8% Preferred Stock is convertible, at the
option of the holder, at any time into the number of shares of Holdings Common
Stock obtained by dividing the liquidation preference of
F-6
<PAGE>
such shares by the then existing conversion price, which is initially $4.26.
However, such conversion price is generally subject to proportional adjustment
in the event Holdings subdivides or combines its outstanding shares of Common
Stock, issues any shares of Common Stock (except Excluded Shares) for a
consideration less than the market price per share of its Common Stock, issues
any options, warrants or convertible securities with exercise or conversion
prices that are less than the market price per share of its Common Stock or
merges, consolidates or disposes of substantially all of its assets.
Mandatory Conversion. At any time after the second anniversary of the initial
issuance of 8% Preferred Stock, if the 31 business day moving average of the
market price per share of Holdings' Common Stock exceeds 175% of the conversion
price described above then in effect, the Holdings Board of Directors by
resolution can cause all (but not less than all) of the shares of 8% Preferred
Stock to be converted into shares of Holdings Common Stock. Each holder of 8%
Preferred Stock so converted will be entitled to receive the number of shares
of Common Stock into which such 8% Preferred Stock held by such holder would
have been converted if such holder had exercised such holder's conversion right
immediately prior to the mandatory conversion.
Preemptive Rights. If Holdings issues, grants or sells any Holdings Common
Stock (except Excluded Shares) or securities convertible into Holdings Common
Stock, then each holder of Holdings 8% Preferred Stock will be entitled to
acquire, upon the same terms provided in any such grant, or applicable to any
such issuance or sale, such number of securities so as to cause the percentage
of outstanding shares of Common Stock to which such holder would be entitled
upon conversion of the 8% Preferred Stock to remain unchanged.
Mandatory Redemption. In May of 2004, Holdings is required to redeem its 8%
Preferred Stock then outstanding at a price equal to the liquidation preference
of such shares plus any accrued but unpaid dividends thereon. Additionally, in
the event of a "change in ownership" of Holdings (as defined in Holdings'
Certificate), a sale of 50% or more of Holdings' assets, or, with certain
exceptions, a merger of Holdings, holders of a majority of the Holdings 8%
Preferred Stock then outstanding may require Holdings to redeem all or any
portion of such shares at a price per share equal to the liquidation preference
of such shares plus all accrued and unpaid dividends thereon.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of Eagle Pacific Industries, Inc.
We have audited the accompanying balance sheets of Eagle Pacific Industries,
Inc. (the Company) as of December 31, 1998 and 1997, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Eagle Pacific Industries, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
_________________________________
Deloitte & Touche LLP
Minneapolis, Minnesota
March 9, 1999
F-8
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES............................... $74,006,623 $71,685,080 $65,280,138
COST OF GOODS SOLD...................... 57,688,310 57,451,620 50,106,782
----------- ----------- -----------
Gross profit........................... 16,318,313 14,233,460 15,173,356
----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses....................... 9,331,378 8,157,000 7,113,184
General and administrative expenses.... 2,778,725 2,720,964 2,931,266
----------- ----------- -----------
12,110,103 10,877,964 10,044,450
----------- ----------- -----------
OPERATING INCOME........................ 4,208,210 3,355,496 5,128,906
----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Interest expense....................... (2,349,914) (2,636,862) (2,637,341)
Minority interest...................... -- -- (68,470)
Other income........................... 83,569 40,810 46,533
----------- ----------- -----------
(2,266,345) (2,596,052) (2,659,278)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS..................... 1,941,865 759,444 2,469,628
INCOME TAX (EXPENSE) BENEFIT (Note 10).. (154,000) 171,321 1,009,685
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS........ 1,787,865 930,765 3,479,313
EXTRAORDINARY LOSS ON DEBT PREPAYMENTS,
less income tax benefit of $31,000 and
$80,500, respectively (Note 5)......... 656,419 -- 1,728,353
----------- ----------- -----------
NET INCOME.............................. 1,131,446 930,765 1,750,960
PREFERRED STOCK DIVIDENDS............... (802,625) (520,403) (90,791)
----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK... $ 328,821 $ 410,362 $ 1,660,169
=========== =========== ===========
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary loss....... $ .15 $ .06 $ .62
Extraordinary loss on debt
prepayments........................... (.10) -- (.31)
----------- ----------- -----------
Net income............................. $ .05 $ .06 $ .31
=========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary loss....... $ .14 $ .06 $ .49
Extraordinary loss on debt
prepayments........................... (.09) -- (.24)
----------- ----------- -----------
Net income............................. $ .05 $ .06 $ .25
=========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................................. 6,669,784 6,503,426 5,444,683
Diluted................................ 7,165,225 7,426,521 7,120,112
</TABLE>
See notes to financial statements.
F-9
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ -- $ --
Accounts receivable, less allowance for doubtful
accounts and sale discounts of
$199,000 and $203,500, respectively................ 6,310,049 6,528,296
Inventories (Note 3)................................ 12,249,959 13,269,560
Deferred income taxes (Note 10)..................... 425,000 425,000
Other............................................... 284,093 314,822
----------- -----------
Total current assets................................ 19,269,101 20,537,678
PROPERTY AND EQUIPMENT, NET (Note 4)................. 22,634,614 15,787,771
OTHER ASSETS:
Prepaid interest (Note 5)........................... -- 836,998
Land held for sale.................................. 2,490,965 1,066,676
Goodwill, less accumulated amortization of $482,000
and $370,000, respectively......................... 3,985,960 4,097,652
Deferred income taxes (Note 10)..................... 825,000 825,000
Other............................................... 413,158 677,196
----------- -----------
7,715,083 7,503,522
----------- -----------
$49,618,798 $43,828,971
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 5)............................... $ 9,632,105 $ 4,405,976
Accounts payable.................................... 8,013,067 8,892,015
Accrued liabilities................................. 1,738,427 1,276,481
Current maturities of long-term debt (Note 5)....... 1,849,628 1,882,882
----------- -----------
Total current liabilities........................... 21,233,227 16,457,354
LONG-TERM DEBT, less current maturities (Note 5)..... 10,582,585 5,489,900
SUBORDINATED DEBT (Note 5)........................... -- 4,182,570
COMMITMENTS AND CONTINGENCIES (Note 7)............... -- --
REDEEMABLE PREFERRED STOCK, 8% cumulative dividend;
convertible; $1,000 liquidation preference;
$.01 par value; authorized, issued and outstanding
10,000 shares (Note 8).............................. 10,000,000 10,000,000
STOCKHOLDERS' EQUITY (Note 9):
Series A preferred stock, 7% cumulative dividend;
convertible; $2 liquidation preference; no par
value; authorized 2,000,000 shares; issued and
outstanding 18,750 shares.......................... 37,500 37,500
Undesignated stock, $.01 per share; authorized
14,490,000 shares; none issued and outstanding..... -- --
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding
6,635,035, 6,506,174 shares, respectively.......... 66,350 65,062
Class B Common stock, par value $.01 per share;
authorized 3,500,000 shares; none issued and
outstanding........................................ -- --
Additional paid-in capital.......................... 36,480,930 36,707,200
Notes receivable from officers and employees on
Common Stock purchases............................. (434,206) (434,206)
Accumulated deficit................................. (28,347,588) (28,676,409)
----------- -----------
Total stockholders' equity.......................... 7,802,986 7,699,147
----------- -----------
$49,618,798 $43,828,971
=========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Notes Receivable
Series A from Officers and
Preferred Stock Common Stock Additional Unearned Employees on
---------------------- ------------------ Paid-in Compensation on Common Accumulated
Shares Amount Shares Amount Capital Stock Options Stock purchases Deficit
----------- ---------- --------- ------- ----------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
12/31/1995...... 1,383,500 $2,767,000 4,152,940 $41,529 $32,757,381 $(204,232) $ -- $(30,786,603)
Net income...... -- -- -- -- -- -- -- 1,750,960
Dividends on
preferred
stock........... -- -- -- -- -- -- -- (90,791)
Issuance of
common stock
(Note 9)........ -- -- 730,547 7,305 1,604,807 -- -- --
Conversion of
preferred
stock........... (1,364,750) (2,729,500) 1,559,750 15,598 2,713,902 -- -- --
Common stock
options vested
(Note 9)........ -- -- -- -- -- 107,991 -- --
Warrant issued
in debt
refinancing..... -- -- -- -- 135,000 -- -- --
Common stock
purchases (Note
9).............. -- -- -- -- -- -- (66,343) --
----------- ---------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
12/31/1996...... 18,750 37,500 6,443,237 64,432 37,211,090 (96,241) (66,343) (29,126,434)
Net income...... -- -- -- -- -- -- -- 930,765
Dividends on
preferred
stock........... -- -- -- -- -- -- -- (520,403)
Issuance of
common stock
(Note 9)........ -- -- 80,237 803 81,718 -- -- --
Common stock
options vested
(Note 9)........ -- -- -- -- -- 96,241 -- --
Preferred stock
issuance costs.. -- -- -- -- (583,029) -- -- --
Purchase of
minority
interest........ -- -- -- -- 41,536 -- -- 39,663
Common stock
acquired and
retired (Note
9).............. -- -- (17,300) (173) (44,115) -- -- --
Common stock
purchases (Note
9).............. -- -- -- -- -- -- (367,863) --
----------- ---------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
12/31/1997...... 18,750 37,500 6,506,174 65,062 36,707,200 -- (434,206) (28,676,409)
Net loss........ -- -- -- -- -- -- -- 1,131,446
Dividends on
preferred
stock........... -- -- -- -- -- -- -- (802,625)
Issuance of
common stock
(Note 9)........ -- -- 352,552 3,525 206,598 -- -- --
Common stock
acquired and
retired (Note
9).............. -- -- (223,691) (2,237) (432,868) -- -- --
----------- ---------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
12/31/1998...... 18,750 $ 37,500 6,635,035 $66,350 $36,480,930 $ -- $(434,206) $(28,347,588)
=========== ========== ========= ======= =========== ========= ========= ============
<CAPTION>
Total
----------- --- --- ---
<S> <C> <C> <C> <C>
BALANCE AT
12/31/1995...... $4,575,075
Net income...... 1,750,960
Dividends on
preferred
stock........... (90,791)
Issuance of
common stock
(Note 9)........ 1,612,112
Conversion of
preferred
stock........... --
Common stock
options vested
(Note 9)........ 107,991
Warrant issued
in debt
refinancing..... 135,000
Common stock
purchases (Note
9).............. (66,343)
-----------
BALANCE AT
12/31/1996...... 8,024,004
Net income...... 930,765
Dividends on
preferred
stock........... (520,403)
Issuance of
common stock
(Note 9)........ 82,521
Common stock
options vested
(Note 9)........ 96,241
Preferred stock
issuance costs.. (583,029)
Purchase of
minority
interest........ 81,199
Common stock
acquired and
retired (Note
9).............. (44,288)
Common stock
purchases (Note
9).............. (367,863)
-----------
BALANCE AT
12/31/1997...... 7,699,147
Net loss........ 1,131,446
Dividends on
preferred
stock........... (802,625)
Issuance of
common stock
(Note 9)........ 210,123
Common stock
acquired and
retired (Note
9).............. (435,105)
-----------
BALANCE AT
12/31/1998...... $7,802,986
===========
</TABLE>
See notes to financial statements.
F-11
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 1,131,446 $ 930,765 $ 1,750,960
Adjustments to reconcile net income to
net cash provided by operating
activities:
Extraordinary loss on debt
prepayments........................... 656,419 -- 1,728,353
Minority interest...................... -- -- 68,470
Gain on disposal of fixed assets....... (40,162) (4,000) (10,401)
Depreciation and amortization.......... 2,313,568 1,679,278 1,564,684
Loan discount amortization............. 419,930 551,834 329,724
Prepaid interest amortization.......... 295,410 551,690 435,160
Deferred income taxes.................. -- (250,000) (1,000,000)
Change in assets and liabilities:
Accounts receivable.................... 218,247 (927,453) (51,607)
Inventories............................ 1,019,601 (2,990,391) (2,104,212)
Other current assets................... 30,729 654,811 (43,364)
Accounts payable....................... (878,948) 871,647 2,767,685
Accrued liabilities.................... 492,946 (165,699) 313,359
Other.................................. -- (82,599) 8,622
----------- ----------- -----------
Net cash provided by operating
activities........................... 5,659,186 819,883 5,757,433
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (8,995,715) (5,697,754) (3,451,076)
Purchases of and improvements to land
held for sale......................... (1,424,289) (1,066,676) --
Purchases of minority interest......... -- (748,734) (519,749)
Proceeds from restricted cash.......... -- -- 500,000
Proceeds from property and equipment
disposals............................. 40,162 4,000 40,150
Deferred acquisition costs............. (237,297) -- --
Notes receivable from officers and
employees on common stock purchases... -- (367,863) (66,343)
----------- ----------- -----------
Net cash used in investing
activities........................... (10,617,139) (7,877,027) (3,497,018)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable.......... 84,215,027 87,076,262 63,277,663
Payments under note payable............ (78,988,898) (87,319,388) (64,150,066)
Proceeds from long-term debt........... 6,477,800 260,000 8,029,950
Repayment of long-term debt............ (5,718,369) (1,874,531) (10,478,521)
Payment of debt issuance costs......... -- (20,000) (598,256)
Issuance of common stock............... 210,123 82,521 1,446,563
Payment and retirement of common
stock................................. (435,105) (44,288) --
Issuance of preferred stock, net of
offering costs........................ -- 9,416,971 --
Payment of preferred stock dividend.... (802,625) (520,403) (90,791)
----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 4,957,953 7,057,144 (2,563,458)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS............................ -- -- (303,043)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................ -- -- 303,043
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-12
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation--Prior to December 31, 1997, the
financial statements include the accounts of Eagle Pacific Industries, Inc. and
its wholly-owned subsidiaries (the Company), Pacific Plastics, Inc. and its
wholly-owned subsidiary, Arrow Pacific Plastics, Inc. (Pacific), and Eagle
Plastics, Inc. (Eagle). All significant inter-company accounts and transactions
have been eliminated. Effective December 31, 1997, the subsidiaries were merged
into the Company.
Inventories--Inventories are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market.
Land Held for Sale--In conjunction with the development of the West Jordan,
Utah manufacturing facility, the Company was required to purchase and develop
land for an entire industrial park. The Company is currently in the process of
the selling the excess land. Land held for sale is stated at the lower of cost
or net realizable value.
Property and Equipment--Property and equipment are stated at cost and are
depreciated over the estimated useful life of each asset using the straight-
line method. Leasehold improvements are depreciated over the shorter of the
lease term or the estimated useful lives of the improvements. The carrying
value is evaluated for impairment on a regular basis based on historical and
projected undiscounted cash flows.
Goodwill--Goodwill has been recorded for the excess of the purchase price
over the fair value of the net assets acquired in acquisitions and is being
amortized using the straight-line method over 40 years. The carrying value is
evaluated for impairment based on historical and projected undiscounted cash
flows.
Deferred Financing Costs--Deferred financing costs are amortized over the
term of the related indebtedness using the effective interest method.
Fair Value of Financial Instruments--In accordance with the requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", management estimates that the carrying value
of long-term debt approximates fair value. The estimated fair value amounts
have been determined through the use of discounted cash flow analysis using
interest rates currently available to the Company for issuance of debt with
similar terms and remaining maturities. All other financial instruments
approximate fair value because of the short-term nature of these instruments.
Product Warranty--The Company's products are generally under warranty against
defects in material and workmanship for a period of one year; however, one of
the Company's products has a 50-year warranty and another has a lifetime
warranty for as long as the original purchaser owns the property where this
product was originally installed. The Company has established an accrual for
these anticipated future warranty costs.
Sales--Sales are recorded at the time of shipment of the product.
Income Taxes--The Company utilizes the asset and liability method of
accounting for income taxes as set forth in Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and income tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
F-13
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings Per Share--Basic earnings per share (EPS) excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. The difference
between average common shares and average common and common equivalent shares
is the result of outstanding stock options and preferred stock, if dilutive.
Estimates--The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Significant Vendors--The Company acquires raw materials from various sources.
During the years ended December 31, 1998, 1997 and 1996, purchases of such raw
materials from two vendors totaled 54%, 64% and 62%, respectively, of total
material purchases.
Reclassifications--Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation. Such
reclassifications had no effect on net income or stockholders' equity as
previously reported.
New Accounting Pronouncement--In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. Management has not yet determined what effect, if
any, SFAS No. 133 will have on its financial position or the results of
operations.
2. PENDING ASSET PURCHASE AND MERGER
On December 11, 1998, the Company entered into an agreement to acquire the
polyvinyl chloride (PVC) pipe business of the Lamson & Sessions Co. of
Cleveland, Ohio. The Company will pay $45 million in cash (adjusted for changes
in working capital) and issue $6 million of its notes and 785,000 shares of its
common stock to the Lamson & Sessions Co. for the PVC pipe business. The asset
purchase will be accounted for by the purchase method of accounting and is
contingent upon the consummation of the merger agreement described below. Bank
borrowings are expected to be used to finance the cash portion of the purchase
price. The Company has also signed a merger agreement pursuant to which a PVC
resin manufacturing facility owned and operated by CONDEA Vista Company, which
is wholly-owned by RWE-DEA AG of Hamburg, Germany, will be merged into the
Company. CONDEA Vista will transfer the PVC resin manufacturing facility to its
wholly-owned subsidiary, Eagle Pacific Holdings, Inc. ("Holdings") in
consideration for approximately 9.8 million shares of Holdings' common stock
and will have one representative on the Board of Directors of Holdings. The
Company will become a wholly owned subsidiary of Holdings and the Company's
shareholders will receive Holdings' stock in a one-for-one exchange for the
Company's stock. Immediately following the merger, Eagle common stockholders
will own approximately 38.5%, and CONDEA Vista will own approximately 57% of
the outstanding Holdings' common stock. However, pursuant to a Stockholders
Agreement with CONDEA Vista, four Eagle directors will serve on Holdings' five
member board of directors and will be able to control the affairs of Holdings
for up to five years. The merger is subject to shareholder approval and the
closing is anticipated to occur during the Company's second quarter of fiscal
1999. The merger will be accounted for as a reverse acquisition using the
purchase method of accounting and is
F-14
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
contingent upon the consummation of the asset purchase agreement described
above. Lamson & Session's PVC Pipe Business and CONDEA Vista's resin
manufacturing facility sales for their fiscal 1998 were approximately $139
million and $88 million, respectively.
3. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Raw materials.................................... $ 4,519,991 $ 5,033,398
Finished goods................................... 7,729,968 8,236,162
------------ -----------
$ 12,249,959 $13,269,560
============ ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Land............................................... $ 1,080,509 $ 1,038,998
Buildings and leasehold improvements............... 8,192,062 2,874,347
Machinery and equipment............................ 18,429,485 14,738,163
Transportation equipment........................... 554,488 443,254
Furniture and fixtures............................. 520,235 449,742
Construction-in-progress........................... -- 424,346
------------ -----------
28,776,779 19,968,850
Less accumulated depreciation...................... 6,142,165 4,181,079
------------ -----------
$ 22,634,614 $15,787,771
============ ===========
</TABLE>
5. DEBT
At December 31, 1998, the Company had outstanding borrowings of $9,632,105
under the revolving credit loan agreement of $16,500,000, subject to borrowing
base restrictions. The Company may borrow up to 85% of "eligible" accounts
receivable and 55% of "eligible" inventory. At December 31, 1998, the Company
had additional borrowings available of approximately $2,500,000, which is based
on available collateral. The revolving credit loan expires May 9, 2002.
Interest is payable monthly at the bank's national base rate, plus .25% (8.0%
at December 31, 1998). The agreement also includes a commitment fee of .5% of
the unused portion of the credit loan, payable monthly. At December 31, 1997,
the Company had outstanding borrowings of $3,345,645. The revolving credit loan
is secured by substantially all assets of the Company. Until all obligations of
the revolving credit loan and term promissory note A (see below) are paid in
full, the Company must comply with certain covenants outlined in the loan
agreement, including capital expenditures, tangible net worth, net cash flow
and senior interest coverage ratio. At December 31, 1998, the Company did not
comply with the capital expenditures and net cash flow covenants and
accordingly, received a waiver from its lender. The weighted average interest
rate on all short-term borrowings for the years ended December 31, 1998 and
1997, was 8.5% and 8.7%, respectively.
In July 1998, the Company repaid $4.3 million of its subordinated debt, which
generated an extraordinary loss of $656,419, net of income taxes. This loss
consisted of unamortized prepaid interest of $542,000 and deferred financing
costs of $145,000, net of tax benefit of $31,000. In conjunction with the
repayment, the Company obtained an additional $6.5 million of term notes.
In May 1996, the Company repaid $3.0 million of its subordinated debt, which
generated an extraordinary loss of $1,728,353, net of income taxes. This loss
consisted of unamortized prepaid interest of $1.5 million and deferred
financing costs of $228,000. The Company issued a 22-month warrant to purchase
215,000 shares of the Company's Common Stock in connection with the
subordinated debt repayment. The $135,000 value
F-15
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
assigned to the warrant was amortized to interest expense over the term of the
refinanced debt. In conjunction with the repurchase, the Company obtained $1.5
million of new common equity and an additional $3.4 million of term notes, and
the Company repurchased approximately one-half of the remaining Eagle minority
interest. The additional term notes were obtained through a bank refinancing
that consolidated previously outstanding term notes and revolving credit loans
into a $8.0 million term note and a $16.5 million revolving credit loan.
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Term promissory note (A)............................ $ 11,523,500 $6,189,300
Subordinated promissory note (B).................... -- 4,182,570
Various installment notes payable (C)............... 908,713 1,183,482
------------ ----------
12,432,213 11,555,352
Less current maturities............................. 1,849,628 1,882,882
------------ ----------
$ 10,582,585 $9,672,470
============ ==========
</TABLE>
(A) Payable $95,300 monthly, plus interest at the bank's national base rate,
plus .25% (8.0% at December 31, 1998), with remaining principal due May
9, 2002. Secured by substantially all assets of the Company and subject
to the terms and covenants of the revolving credit loan agreement
outlined above.
(B) Paid in full on July 6, 1998.
(C) Due dates ranging from April 1999 through March 2004, initially payable
$26,467 monthly, including interest at 4.25% to 9.38%. Secured by land
and equipment.
These amounts are shown in the balance sheets under the following captions at
December 31:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Current maturities of long-term debt............ $ 1,849,628 $ 1,882,882
Long-term debt, less current maturities......... 10,582,585 5,489,900
Subordinated debt............................... -- 4,182,570
------------ -----------
$ 12,432,213 $11,555,352
============ ===========
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1998, are:
<TABLE>
<CAPTION>
<S> <C>
1999......................................................... $ 1,849,628
2000......................................................... 1,202,218
2001......................................................... 1,195,539
2002......................................................... 8,132,562
2003......................................................... 41,589
Thereafter................................................... 10,677
------------
$ 12,432,213
============
</TABLE>
6. DEFERRED COMPENSATION
The Company previously adopted a plan of deferred compensation for a former
officer of the Company. Under this plan, the officer will receive $50,000 per
year for three years, commencing when the Company's annual net income per share
equals or exceeds $1.00.
The Company also has an unfunded deferred compensation agreement which
provides approximately $75,000 upon retirement. During the year ended December
31, 1997, the officer retired and the compensation will be paid in 1999 at his
request.
F-16
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES
Litigation--The Company is periodically involved in various legal actions
arising in the normal course of business. At December 31, 1998, the Company was
not aware of any material legal proceedings against it.
Leases--The Company has non-cancelable operating leases for certain operating
facilities which expire in 2010. The operating facility leases contain
provisions for increasing the monthly rent for changes in the Consumer Price
Index (CPI).
Future minimum lease payments at December 31, 1998, excluding the CPI
increases, were:
<TABLE>
<CAPTION>
<S> <C>
1999.......................................................... $ 123,336
2000.......................................................... 123,336
2001.......................................................... 123,336
2002.......................................................... 123,336
2003.......................................................... 123,336
Thereafter.................................................... 801,684
-----------
$ 1,418,364
===========
</TABLE>
Rent expense under all operating leases was $305,000, $363,000 and $285,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
8. REDEEMABLE PREFERRED STOCK
During 1997, the Company issued 10,000 shares of redeemable 8% convertible
preferred stock at $1,000 per share. The stock is convertible at the holders
option at $4.26 per share and has a mandatory redemption at the liquidation
preference of $1,000 per share on May 9, 2004. After two years from issuance,
the Company can cause a mandatory conversion if the common stock trades above
$7.45 per share for 30 consecutive days.
9. STOCKHOLDERS' EQUITY
During 1998, the Company issued 352,552 shares of common stock for the
exercise of stock options and purchased and retired 223,691 shares of common
stock. During 1997, the Company issued 80,237 shares of common stock for the
exercise of stock options and purchased and retired 17,300 shares of common
stock. During 1996, the Company issued 600,000, 60,547, 1,559,750, and 70,000
shares of common stock for a new private equity offering, the acquisition of
additional shares of minority ownership of Eagle, the conversion of 1,364,750
shares of preferred stock, and the exercise of stock options, respectively.
The Company issued 1,383,500 shares of Series A convertible preferred stock
at $2.00 per share during the year ended December 31, 1994. During 1996,
1,364,750 shares of preferred stock were converted to common stock. The
preferred stock is convertible, at the option of the holder, to common stock at
a current conversion ratio of one share of common stock for each share of
preferred stock. The Company may force conversion of the preferred stock at any
time after the Company's common stock trades in the public market for 20
consecutive days at an average bid and asked price greater than $4.00 per
share. The preferred stock has voting rights based on the number of shares of
common stock into which the preferred stock is then convertible and has a
liquidation preference to common stock.
The Company has previously granted options to purchase 600,000 shares of its
common stock at $.75 per share, which was $.75 below market value at grant
time. The difference between the exercise price and the
F-17
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
market value was amortized as compensation expense over the vesting period of
the options, which was December 1994 through December 1997.
In 1996, the Company established a leverage equity purchase program (LEPP).
The LEPP provides loans to board members and various members of management to
purchase common stock of the Company. The loans are represented by five-year
promissory notes, bear interest at a rate equal to the average annual rate on
the Company's revolver loan (8.5% for 1998), and are collateralized by the
pledge of the purchased shares of common stock of the Company.
10. INCOME TAXES
Deferred tax assets and liabilities represent temporary differences between
the basis of assets and liabilities for financial reporting purposes and tax
purposes. Deferred tax assets are primarily comprised of reserves which have
been deducted for financial statement purposes, but have not been deducted for
income tax purposes and the tax effect of net operating loss carryforwards. The
Company annually estimates the amount of deferred tax assets which it expects
to realize based on historical averages of taxable income and estimates of
future taxable income. The Company has recorded a valuation allowance to reduce
recorded deferred tax assets to the amount of deferred tax benefit expected to
be realized.
Deferred taxes as of December 31, 1998 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Current deferred taxes:
Warranty reserve................................. $ 16,000 $ 13,000
Allowance for doubtful accounts.................. 72,000 79,000
Accrued expenses................................. 224,000 207,800
Inventory cost capitalization.................... 18,000 14,000
Federal net operating loss carryforwards......... 425,000 425,000
Less valuation allowance......................... (330,000) (313,800)
----------- ------------
Total............................................ $ 425,000 $ 425,000
=========== ============
Long-term deferred taxes:
LIFO inventory recapture......................... $ (248,000) $ (396,000)
Deferred compensation............................ 31,000 31,000
Excess of tax over book depreciation............. (485,000) (729,000)
Non-compete agreement............................ 180,000 190,000
Federal net operating loss carryforwards......... 9,291,000 11,339,000
Tax credit carryforwards......................... 451,000 634,000
AMT credit carryforwards......................... 78,000 78,000
Contribution carryforwards....................... 6,000 22,000
Less valuation allowance......................... (8,479,000) (10,344,000)
----------- ------------
Total............................................ $ 825,000 $ 825,000
=========== ============
</TABLE>
F-18
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income tax expense for the years ended December 31, 1998, 1997 and 1996,
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- -----------
<S> <C> <C> <C>
Current--primarily state................. $154,000 $ 78,679 $ 68,315
Deferred--primarily federal.............. -- (250,000) (1,078,000)
-------- --------- -----------
Income tax expense (benefit) before
extraordinary loss...................... 154,000 (171,321) (1,009,685)
Income tax benefit from extraordinary
loss on debt prepayments................ (31,000) -- (80,500)
-------- --------- -----------
Income tax expense (benefit)............. $123,000 $(171,321) $(1,090,185)
======== ========= ===========
</TABLE>
A reconciliation of the expected federal income taxes, using the effective
statutory federal rate of 35%, with the provision (benefit) for income taxes is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Expected federal expense............ $ 680,000 $ 266,000 $ 864,000
State taxes, net of federal benefit
and tax credit..................... 88,000 56,000 46,000
Expiration of capital loss carry
forward............................ -- -- 366,000
Expiration of net operating loss
carryforward....................... 1,195,000 2,366,000 --
Change in valuation allowance....... (1,848,800) (2,805,600) (2,413,000)
Other............................... 39,800 (53,721) 127,315
----------- ----------- -----------
$ 154,000 $ (171,321) $(1,009,685)
=========== =========== ===========
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards for
federal tax purposes of approximately $28,577,000. Under the Tax Reform Act of
1986, certain future changes in ownership resulting from the sale or issuance
of stock may limit the amount of net operating loss carryforwards which can be
utilized on an annual basis. These carryforwards expire if not utilized to
reduce future taxable income as follows:
<TABLE>
<CAPTION>
<S> <C>
1999............................................................. $11,622,000
2000............................................................. 11,380,000
2001............................................................. 299,000
2002............................................................. 523,000
2003............................................................. 502,000
2004............................................................. 706,000
2005............................................................. 1,607,000
2007............................................................. 296,000
2008............................................................. 907,000
2009............................................................. 14,000
2010............................................................. 703,000
2012............................................................. 18,000
</TABLE>
11. EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding. Diluted earnings per common share assumes
F-19
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
conversion of convertible preferred stock as of the beginning of the year and
the exercise of stock options and warrants using the treasury stock method, if
dilutive. The following table reflects the calculation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary loss............ $1,787,865
Preferred stock dividends................... (802,625)
----------
<CAPTION>
Basic EPS before extraordinary loss
<S> <C> <C> <C>
Income available to common stockholders..... 985,240 6,669,784 $.15
====
<CAPTION>
Effect of dilutive securities
<S> <C> <C> <C>
Options..................................... -- 495,441
---------- ---------
<CAPTION>
Diluted EPS before extraordinary loss
<S> <C> <C> <C>
Income available to common stockholders..... $ 985,240 7,165,225 $.14
========== ========= ====
</TABLE>
Options to purchase 317,355 shares of common stock were outstanding at
December 31, 1998, but were not included in the computation of diluted EPS
because the exercise prices were greater than the average market price of the
common shares. Conversion of the 7% convertible preferred stock and the 8%
redeemable convertible preferred stock was not assumed since the conversion
would have an antidilutive effect on the diluted EPS calculation.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------
Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary loss.............. $930,765
Preferred stock dividends..................... (520,403)
--------
Basic EPS before extraordinary loss
Income available to common stockholders....... 410,362 6,503,426 $ .06
=======
Effect of dilutive securities
Warrants and options.......................... 923,095
-------- ---------
Diluted EPS before extraordinary loss
Income available to common stockholders....... $410,362 7,426,521 $ .06
======== ========= =======
</TABLE>
Options to purchase 30,411 shares of common stock were outstanding at
December 31, 1997, but were not included in the computation of diluted EPS
because the exercise prices were greater than the average market price of the
common shares. Conversion of the 7% convertible preferred stock and the 8%
redeemable convertible preferred stock was not assumed since the conversion
would have an antidilutive effect on the diluted EPS calculation.
F-20
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary loss............ $3,479,313
Preferred stock dividends................... (90,791)
----------
Basic EPS before extraordinary loss
Income available to common stockholders..... 3,388,522 5,444,683 $ .62
========
Effect of dilutive securities
Warrants and options........................ 950,503
7% convertible preferred stock.............. 90,791 724,926
---------- ---------
Diluted EPS before extraordinary loss
Income available to common stockholders..... $3,479,313 7,120,112 $ .49
========== ========= ========
</TABLE>
Options to purchase 61,848 shares of common stock were outstanding at
December 31, 1996, but were not included in the computation of diluted EPS
because the options exercise prices were greater than the average market price
of the common shares.
12. RETIREMENT PLAN
The Company has a 401(k) plan covering substantially all employees. The
Company's discretionary contributions to the plan are determined annually by
the board of directors. The Company is also committed to matching a portion of
employees' voluntary contributions. Participants are 100% vested in their own
contributions and the Company's matching contribution immediately and in the
Company's discretionary contribution at the end of three years. Total amounts
contributed by the Company were $302,546, $235,251 and $243,191 for the years
ended December 31, 1998, 1997 and 1996, respectively.
13. STOCK-BASED COMPENSATION PLANS
The Company's 1991 and 1997 stock option plans (the Plans) provide for the
granting of incentive or non-qualified stock options to key employees.
Generally, options outstanding under the Company's Plans: (i) are granted at
prices equal to the market value of the stock on the date of grant, (ii) vest
ratably over a three- or four-year vesting period, and (iii) expire over a
period not greater than ten years from the date of grant. In addition, the
Company has outstanding stock options issued outside the Company's Plans. The
options issued outside of the Company's Plans contain terms and conditions
similar to those described above.
F-21
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's stock options as of December 31,
1998, 1997 and 1996, and changes during the year ended on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Wgtd Avg Wgtd Avg Wgtd Avg
Shares Exer Price Shares Exer Price Shares Exer Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,040 $1.66 2,126 $1.41 2,169 $1.57
Granted................. 532 1.55 -- -- 30 2.75
Exercised............... (465) 1.03 (80) .82 (70) .34
Canceled................ (40) 2.00 (6) .99 (3) 1.75
----- ----- -----
Outstanding at end of
year................... 2,067 1.76 2,040 1.66 2,126 1.41
===== ===== =====
Options exercisable at
year end............... 1,510 1.82 1,881 1.60 1,773 1.62
===== ===== =====
Options available for
future grant........... 438 970 970
===== ===== =====
Weighted average fair
value of options
granted during the
year................... $1.10 $ -- $1.49
===== ===== =====
</TABLE>
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related Interpretations in accounting for options issued to employees under the
plans. No compensation cost has been recognized for options issued under the
plans when the exercise price of the options granted are at least equal to the
fair value of this common stock on the date of grant. Had compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant date for awards in 1998 and 1996, consistent with the provisions of SFAS
No. 123, the Company's net income would have changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Net income applicable to common stock, as
reported.................................... $328,821 $410,362 $1,660,169
Net income applicable to common stock, pro
forma....................................... 277,795 361,362 1,633,169
Basic earnings per common share
As reported................................ $ .05 $ .06 $ .31
Pro forma.................................. .04 .06 .30
Diluted earnings per common share
As reported................................ $ .05 $ .06 $ .25
Pro forma.................................. .04 .05 .24
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions and
results:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Dividend yield..................................... -- --
Expected volatility................................ 56% 25%
Expected life of option............................ 120 months 120 months
Risk free interest rate............................ 4.94% 6.66%
Fair value of options on grant date................ $ 586,000 $ 45,000
</TABLE>
F-22
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding at
December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -------------------- ---
Wgtd Avg
Range of Remaining Wgtd Avg Wgtd Avg
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
.64 to .75 620 1.9 0.75 620 0.75
1.50 to 2.50 966 6.5 1.78 427 2.05
2.75 to 3.13 481 1.7 3.04 463 3.04
----- -----
2,067 1.76 1,510 1.82
===== =====
</TABLE>
14. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- ----------
<S> <C> <C> <C>
Additional Cash Flow Information:
Interest paid, including capitalized interest
and prepaid interest to extinguish contingent
interest..................................... $1,844,305 $816,308 $1,839,443
Income taxes paid............................. 79,158 29,538 38,656
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
CONDEA Vista Company:
In our opinion, the accompanying balance sheet and the related statements of
income and changes in owner's investment and of cash flows present fairly, in
all material respects, the financial position of the CONDEA Vista Company
Oklahoma City Plant at June 30, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers, LLP
PricewaterhouseCoopers, LLP
October 20, 1998
Houston, Texas
F-24
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
BALANCE SHEET
($ in Thousands)
<TABLE>
<CAPTION>
June 30,
--------------- December 31,
1998 1997 1998
------- ------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 3 $ 3 $ 3
Accounts receivable.............................. 12,506 15,762 10,455
Inventories...................................... 2,994 5,352 2,640
Prepaid insurance................................ 60 63 --
------- ------- -------
Total current assets........................... 15,563 21,180 13,098
Property, plant and equipment, net................. 22,817 24,549 22,390
Prepaid pension.................................... 556 530 561
Intangibles, net................................... 752 916 669
------- ------- -------
Total assets................................... $39,688 $47,175 $36,718
======= ======= =======
LIABILITIES AND OWNER'S INVESTMENT
Current liabilities:
Accounts payable................................. $ 2,335 $ 1,611 $ 1,148
Accrued liabilities.............................. 3,592 2,691 3,845
------- ------- -------
Total current liabilities...................... 5,927 4,302 4,993
Deferred income taxes.............................. 4,120 4,346 4,869
Other liabilities and deferred credits............. 2,244 992 2,155
Commitments and contingencies...................... -- -- --
Owner's investment................................. 27,397 37,535 24,701
------- ------- -------
Total liabilities and owner's investment....... $39,688 $47,175 $36,718
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
STATEMENT OF INCOME AND CHANGES IN OWNER'S INVESTMENT
($ in Thousands)
<TABLE>
<CAPTION>
Six months
ended December
Years ended June 30, 31,
-------------------------- ----------------
1998 1997 1996 1998 1997
------- -------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales....................... $87,760 $ 98,831 $91,257 $30,730 $47,380
Costs and expenses:
Cost of sales................. 85,564 97,195 87,140 28,727 49,193
Depreciation and
amortization................. 2,681 2,748 2,580 1,308 1,292
Selling, general and
administrative............... 6,053 5,938 6,418 2,891 2,999
------- -------- ------- ------- -------
94,298 105,881 96,138 32,926 53,484
------- -------- ------- ------- -------
Loss from operations............ (6,538) (7,050) (4,881) (2,196) (6,104)
Interest expense................ (624) (1,025) (766) (275) (438)
------- -------- ------- ------- -------
Loss before income taxes........ (7,162) (8,075) (5,647) (2,471) (6,542)
Income tax provision (benefit):
Current....................... (2,779) (4,218) (4,494) (1,824) (2,843)
Deferred...................... (228) 871 2,083 749 194
------- -------- ------- ------- -------
(3,007) (3,347) (2,411) (1,075) (2,649)
Net loss........................ (4,155) (4,728) (3,236) (1,396) (3,893)
Net transfers (to) from owners.. (5,983) 4,668 968 (1,300) (2,156)
Owner's investment, beginning of
period......................... 37,535 37,595 39,863 27,397 37,535
------- -------- ------- ------- -------
Owner's investment, end of
period......................... $27,397 $ 37,535 $37,595 $24,701 $31,486
======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
STATEMENT OF CASH FLOWS
($ in Thousands)
<TABLE>
<CAPTION>
Six months ended
Years ended June 30, December 31,
--------------------------- ------------------
1998 1997 1996 1998 1997
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss.................... $(4,155) $ (4,728) $ (3,236) $ (1,396) $ (3,893)
Adjustments to reconcile net
loss to net
cash provided (used) by
operating activities
Depreciation and
amortization............. 2,681 2,748 2,580 1,308 1,292
Gain on disposal of
assets................... (266) -- -- -- (266)
Loss on retirement of
assets................... -- 167 -- -- --
Inventory market value
adjustment............... 415 93 -- 116 --
Deferred income tax....... (226) 871 2,083 749 194
Postretirement benefits
other than
pensions................. 106 107 96 66 58
Decrease (increase) in ac-
counts
receivable............... 3,256 1,013 (2,185) 2,051 1,847
Decrease (increase) in
inventories.............. 1,943 (2,870) 712 238 757
(Decrease) increase in
other assets............. (23) (167) (112) 55 55
Increase (decrease) in ac-
counts
payable and accrued lia-
bilities................. 1,625 (591) 743 (934) 1,049
(Decrease) increase in
other liabilities and de-
ferred credits........... (160) -- -- (155) --
------- -------- -------- -------- --------
Net cash provided (used) by
operating
activities................. $ 5,196 $ (3,357) $ 681 $ 2,098 $ 1,093
Cash flows from investing
activities
Capital expenditures........ (786) (1,311) (1,649) (798) (510)
Proceeds from sale of
assets..................... 1,573 -- -- -- 1,573
------- -------- -------- -------- --------
Net cash provided (used) by
investing
activities................. $ 787 $ (1,311) $ (1,649) $ (798) $ 1,063
Cash flows from financing ac-
tivities
Net transfers (to) from own-
ers.......................... (5,983) 4,668 968 (1,300) (2,156)
------- -------- -------- -------- --------
Net cash (used) provided by
financing
activities................. $(5,983) $ 4,668 $ 968 $ (1,300) $(2,156)
Change in cash................ -- -- -- -- --
Cash at beginning of period... 3 3 3 3 3
------- -------- -------- -------- --------
Cash at end of period......... $ 3 $ 3 $ 3 $ 3 $ 3
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The financial statements, prepared in accordance with U.S. Generally Accepted
Accounting Principles, include the accounts of the Oklahoma City Plant (the
"OKC Plant") of CONDEA Vista Company (the "Parent"). Certain financial amounts
have been allocated by the Parent in order to present the financial results of
the OKC Plant on a stand-alone basis. Management believes such allocations are
reasonable, however, the costs allocated to the OKC Plant may not necessarily
be indicative of the costs that would have been incurred if the OKC Plant had
operated on a stand-alone basis.
The balance sheet as of September 30, 1998, the statements of income and cash
flows for the three months ended September 30, 1997 and 1998, and related
information contained in these notes have been prepared by management of the
Company without audit. In the opinion of management, all accruals (consisting
only of normal recurring accruals) which are necessary for a fair presentation
of financial position and results of operations for such periods have been
made. Results for an interim period should not be considered as indicative of
results for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The OKC Plant engages in the manufacture of Polyvinyl Chloride Resin (PVC
Resin) which is sold to customers mainly in the United States. The raw
materials consumed in the manufacture of PVC Resin are primarily purchased from
the Parent. Revenues are recognized in the period the goods are shipped.
Inventories
Inventories are stated at the lower of cost or market; cost is determined on
the last-in, first-out ("LIFO") basis except for supplies and parts which are
valued at average cost.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major additions are
capitalized while repairs and maintenance costs are charged to operations as
incurred. Property, plant and equipment are depreciated on the straight-line
basis over their estimated useful lives. Upon disposition of an asset, the
accumulated depreciation is deducted from the original cost and any gain or
loss is credited or charged to income.
Intangibles
The cost of licensed technologies is amortized over ten years using the
straight-line method.
Income Taxes
Taxes on income are accounted for using the asset and liability method
wherein deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities using enacted rates. The OKC Plant joins with
the Parent in filing consolidated federal and state income tax returns. Income
and deferred taxes are calculated for the OKC Plant on a stand-alone basis. Tax
payments to or from the Parent are recorded as a reduction or increase in
Owners investment.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported
F-28
<PAGE>
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
3. INVENTORIES
The components of inventory at June 30, 1998 and 1997 and December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31,
1998 1997 1998
------ ------ ------------
(Thousands)
<S> <C> <C> <C>
PVC resin...................................... $1,729 $4,123 $1,412
Supplies and parts............................. 1,265 1,229 1,228
------ ------ ------
$2,994 $5,352 $2,640
====== ====== ======
</TABLE>
The OKC Plant recorded an inventory market value adjustment of approximately
$415,000 and $93,000 in fiscal year 1998 and 1997, respectively. For the six
months ended December 31, 1998, the OKC Plant recorded an inventory market
value adjustment of approximately $116,000.
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at June 30, 1998 and 1997 and
their respective estimated useful lives are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(Thousands)
<S> <C> <C>
Machinery and equipment (10 years)....................... $31,720 $30,935
Buildings (15 years)..................................... 4,007 4,007
Railcars (12 years)...................................... -- 2,596
Land..................................................... 1,000 1,000
------- -------
36,727 38,538
Less accumulated depreciation............................ 13,910 13,989
------- -------
$22,817 $24,549
======= =======
</TABLE>
Repairs and maintenance expense charged to operations was approximately
$2,693,000, $2,881,000 and $3,491,000 for the twelve months ended June 30,
1998, 1997 and 1996, respectively.
In December 1997 the Parent entered into a sale-leaseback agreement. As a
result of the agreement, the owned railcar fleet associated with the OKC Plant
was sold and the fleet is being leased back based on contractual rates and
terms which vary by the type of railcar. The selling price of the OKC Plant
railcars was approximately $1,573,000. Due to the nature of the transaction, as
of June 30, 1998, approximately $1,147,000 of the gain related to the OKC
railcars was deferred and will be amortized commensurate with the terms of the
lease agreement. Amounts related to the sale leaseback transaction as of June
30, 1998 are allocated by the Parent based on the percentage of railcars
identified as being directly associated with the OKC plant.
F-29
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. ACCRUED LIABILITIES
The components of accrued liabilities at June 30, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- ------
(Thousands)
<S> <C> <C>
Employee benefits, payroll and related taxes............. $ 163 $ 246
Accrued rebates.......................................... 2,797 1,858
Accrued freight.......................................... 348 307
Accrued property tax..................................... 278 275
Current portion of accrued post retirement benefit....... 6 5
------- ------
$ 3,592 $2,691
======= ======
</TABLE>
6. INCOME TAXES
An analysis of the OKC Plant's effective tax rate for the twelve months ended
June 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Income tax benefit:
Federal statutory rate................................ 35.00% 35.00% 35.00%
State income tax net of federal benefit............... 3.67 3.67 3.67
Investment tax credit................................. 3.31 2.78 4.03
----- ----- -----
41.98% 41.45% 42.70%
===== ===== =====
</TABLE>
Investment tax credits are accounted for using the flow-through method, which
recognizes the income tax effect in the year the credits are earned.
The deferred income tax assets and liabilities recorded on the balance sheet
as of June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(Thousands)
<S> <C> <C>
Temporary Differences
Assets:
Postretirement benefits.............................. $ 426 $ 385
Inventory............................................ 161 36
------- -------
Total assets........................................... 587 421
------- -------
Liabilities:
Depreciation......................................... (4,460) (4,593)
Pension plan contribution............................ (247) (174)
------- -------
Total liabilities...................................... (4,707) (4,767)
------- -------
Net deferred liability................................. $(4,120) $(4,346)
======= =======
</TABLE>
F-30
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The OKC Plant leases plant and office equipment, storage/transfer facilities
and railcars under long-term and short-term operating leases. Total rental
expense was approximately $1,775,000, $1,571,000 and $996,000 during the twelve
months ended June 30, 1998, 1997 and 1996, respectively.
Future minimum lease commitments for noncancelable operating leases at June
30, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Total
----------- -----------
(Thousands)
<S> <C>
1999.......................................................... $1,753
2000.......................................................... 1,411
2001.......................................................... 786
2002.......................................................... 596
2003.......................................................... 387
2004 and thereafter........................................... 14
------
Total....................................................... $4,947
======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The OKC Plant participates in all employee benefit plans sponsored by the
Parent. The expense associated with the Parent's benefit plans has been
allocated to the OKC Plant based on specific identification of the OKC Plant
employees. Net pension plan assets have been allocated by the Parent in direct
proportion to the projected benefit obligation.
Substantially all full-time employees with one year of service are eligible
to participate in retirement benefits under the Parent's defined benefit
pension plan. The benefits under this plan are based primarily on years of
service and employees' pay near retirement. The Parent's funding policy is
consistent with the funding requirements of federal law and regulations. Plan
assets consist principally of common stocks and bonds.
The OKC Plant's pension expense for the twelve months ended June 30, 1998,
1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Thousands)
<S> <C> <C> <C>
Service cost benefits earned during the period............. $124 $117 $104
Interest cost on projected benefit obligation.............. 152 146 131
Actual return on assets gain............................... (150) (139) (109)
Net amortization and deferral.............................. 39 48 57
---- ---- ----
Net pension expense for the period......................... $165 $172 $183
==== ==== ====
</TABLE>
F-31
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(Continued)
The OKC Plant's funded status of the plan at June 30, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(Thousands)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation............................. $1,543 $1,344
Non-vested benefit obligation......................... 122 112
------ ------
Total accumulated benefit obligation.................... 1,665 1,456
Effect of projected salary increases.................... 542 511
------ ------
Projected benefit obligation............................ 2,207 1,967
Plan assets at fair value............................... 2,178 1,878
------ ------
Excess of projected benefit obligation over plan
assets................................................. (29) (89)
Unrecognized net transition obligation at October 1,
1985................................................... 14 17
Unrecognized net loss and prior service cost............ 571 602
------ ------
Prepaid pension asset................................... $ 556 $ 530
====== ======
</TABLE>
The assumptions used in accounting for the retirement plan for the fiscal
years presented are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate................................ 7.1% 7.3% 7.3%
Rates of compensation increase................................ 4.3% 4.3% 4.3%
Weighted average expected long-term rate of return............ 8.0% 8.0% 9.0%
</TABLE>
The calculation of the OKC Plant's vested benefit obligation is the actuarial
present value of the benefits to which the employee is entitled if the employee
were to separate or retire as of June 30, 1998.
Substantially all full-time employees are eligible to participate in the
Parent's Savings and Investment Plan. Contributions to the Savings and
Investment Plan are at 6% of participating employees' base pay. Total
contributions charged to expense for the OKC Plant were approximately $141,000,
$128,000 and $117,000 in the twelve months ended June 30, 1998, 1997 and 1996,
respectively.
In addition to providing pension benefits, the Parent provides certain health
care and life insurance benefits to retired employees. Substantially all of the
OKC Plant's employees may become eligible for these benefits, which are
provided through self-insurance and through an insurance company whose premiums
are based on benefits paid.
Based on active employees as of June 30, 1998 and 1997 the accrued
postretirement benefit obligations for the OKC Plant was as follows:
<TABLE>
<CAPTION>
1998 1997
------ ----
(Thousands)
<S> <C> <C>
Eligible active plan participants............................ $ 306 $256
Other active plan participants............................... 781 651
------ ----
Total accumulated benefit obligation......................... 1,087 907
Plan assets at fair value.................................... -- --
------ ----
Accumulated benefit obligation in excess of plan assets...... 1,087 907
Unrecognized net gain and prior service cost................. 16 90
------ ----
Accrued postretirement benefit cost.......................... $1,103 $997
====== ====
</TABLE>
F-32
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(Continued)
The OKC Plant's postretirement benefit cost for the twelve months ended June
30, 1998, 1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned............................... $ 48 $ 44 $ 41
Interest cost on accumulated benefits....................... 71 68 60
Net amortization and deferral............................... (7) -- (1)
---- ---- ----
Net periodic cost........................................... $112 $112 $100
==== ==== ====
</TABLE>
The assumptions used in accounting for the postretirement welfare plan for
the fiscal years presented are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate................................ 7.5% 8.0% 8.0%
Current medical trend rate.................................... 5.5% 5.5% 9.1%
Ultimate medical trend rate................................... 5.5% 5.5% 5.5%
</TABLE>
The Parent has adopted a managed care approach to its medical benefit plans.
In addition, plan experience has been generally favorable and medical trends
have slowed nation wide. Therefore, the Parent elected to adopt an ultimate
medical trend rate of 5.5% effective June 30, 1997.
A one percentage-point increase in the assumed health care cost trend rate
for each year would increase the accumulated benefit obligation by
approximately $176,000 and $160,000 for the fiscal years ending June 30, 1998
and 1997, respectively. The corresponding increase in net periodic cost would
be $25,000, $17,000 and $17,000 for the twelve months ended June 30, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
Transactions for the purchase of feedstock, which consists of Vinyl Chloride
Monomer (VCM), are made from the Parent. For the twelve months ended June 30,
1998, 1997 and 1996 the cost of VCM was approximately $73,361,000, $82,254,000
and $68,493,000, respectively.
The OKC Plant has been charged for financial and operational support services
as well as research and development costs provided by the Parent. Research and
development, marketing, business management and customer service/logistics
costs are allocated based on budgeted manhours, services and other costs
incurred on behalf of the OKC Plant. These costs comprise the selling, general
and administrative expenses in the Statements of Income for fiscal years 1998,
1997 and 1996.
For the purpose of providing stand-alone financial statements for the OKC
Plant, interest expense has been based on the accumulated net additions to
Owner's investment using effective interest rates associated with the Parent's
long-term debt.
10. CASH FLOWS
The Parent utilizes a centralized cash management function for all
operations. Cash provided and/or used by activities reflected in the financial
statements of the OKC Plant is transferred to/from the Parent resulting in
reductions and additions to Owner's investment. Additional provisions or
requirements of cash to/from the
F-33
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Parent, resulting from operating and investing activities at the OKC Plant, are
reflected as financing activities on the Statement of Cash Flows. The OKC Plant
maintains a permanent petty cash fund of $3,000.
11. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Sales to the three largest customers represented approximately 61%, 59% and
56% of the total OKC Plant net sales revenue for the twelve months ended June
30, 1998, 1997 and 1996, respectively. As a result, the aforementioned
customers also represented a concentration of the accounts receivable balance
as of June 30, 1998 and 1997. Management does not require collateral for these
or other customers based on their credit worthiness. The OKC Plant has not
experienced any losses resulting from nonpayment.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Lamson & Sessions Co.
We have audited the accompanying Combined Statement of Net Assets To Be
Acquired of the PVC Pipe Business of The Lamson & Sessions Co. as of January 2,
1999 and the related Combined Statements of Revenues and Operating Expenses for
each of the three fiscal years in the period ended January 2, 1999. These
financial statements are the responsibility of the management of The Lamson &
Sessions Co. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the Combined Net Assets To Be Acquired of the
PVC Pipe Business of The Lamson & Sessions Co. at January 2, 1999 and its
Combined Revenues and Operating Expenses for each of the three fiscal years in
the period ended January 2, 1999, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
January 28, 1999
Cleveland, Ohio
F-35
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
COMBINED STATEMENT OF NET ASSETS TO BE ACQUIRED
January 2, 1999
(Dollars in Thousands)
<TABLE>
<S> <C>
Assets to be acquired
Current assets
Accounts receivable, less allowance of $100......................... $ 2,669
Inventory........................................................... 16,092
--------
Total current assets.............................................. 18,761
Property, plant and equipment
Land................................................................ 1,383
Buildings........................................................... 9,448
Machinery and equipment............................................. 30,449
--------
41,280
Less allowances for depreciation and amortization................... (26,740)
--------
14,540
--------
Total assets to be acquired........................................... $ 33,301
========
Liabilities to be assumed
Current liabilities
Certain accrued employee related expenses........................... $ 1,017
--------
Total liabilities to be assumed....................................... 1,017
--------
Net assets to be acquired............................................. $ 32,284
========
</TABLE>
See notes to combined financial statements.
F-36
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
COMBINED STATEMENTS OF REVENUES AND OPERATING EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Sales......................................... $138,569 $141,383 $165,586
Cost of product sold.............................. 120,018 131,938 140,982
-------- -------- --------
Gross profit...................................... 18,551 9,445 24,604
Selling, general and administrative expenses...... 14,799 16,507 20,690
Corporate allocation.............................. 1,562 1,493 1,639
-------- -------- --------
Combined revenues over (under) operating
expenses......................................... $ 2,190 $ (8,555) $ 2,275
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-37
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS
Three Fiscal Years in the Period Ended January 2, 1999
A. Basis of Presentation
The PVC Pipe Business operates within each of The Lamson & Sessions Co.'s
four business units. Three of the business units (Lamson Home Products, Carlon
Telecom Systems and Carlon Electrical Products) have a majority of their sales
outside of the PVC pipe business, however a portion of sales within each of
these three business units are included in the PVC Pipe Business. All of the
sales of Lamson Vylon Products business unit are included in the PVC Pipe
Business. The PVC Pipe Business is a producer of polyvinyl chloride ("PVC")
electrical conduit and duct for the construction, power, communications and
wastewater markets, offering PVC pipe ranging from 1/2 inch to 54 inches in
diameter. The PVC Pipe Business has manufacturing locations in Nazareth,
Pennsylvania, High Springs, Florida, Oklahoma City, Oklahoma and Woodland,
California. In addition there are two pipe extrusion lines producing large
diameter wastewater pipe at a fifth plant in Bowling Green, Ohio and a blend
facility in Pasadena, Texas, which supplies a portion of raw materials to the
manufacturing locations.
On December 11, 1998 The Lamson & Sessions Co. ("L&S" or the "Seller") and
Eagle Pacific Industries, Inc. ("Eagle" or the "Purchaser") entered into
various agreements (collectively referred to as the "Agreements") providing for
the purchase by Eagle of the PVC Pipe Business by acquiring substantially all
of its assets and assuming certain of its liabilities.
The financial statements of the PVC Pipe Business have been derived from the
books and records of L&S which are maintained in accordance with generally
accepted accounting principles. The accounting policies followed in the
preparation of these financial statements are the accounting policies followed
by L&S in the preparation of its consolidated financial statements.
The accompanying Combined Statements of Revenues and Operating Expenses is
limited to the revenues and operating expenses of the PVC Pipe Business and is
not intended to be a complete presentation of the results of operations of the
PVC Pipe Business on a stand alone basis. L&S incurs certain common costs which
relate to both the PVC Pipe Business and L&S's non-PVC pipe businesses.
Accordingly, for purposes of preparing the Combined Statements of Revenues and
Operating Expenses, management of L&S has made certain allocations of costs
(see Note C) incurred on behalf of the PVC Pipe Business. Management believes
that the bases for such allocations are reasonable. However, such amounts could
differ from amounts that would be incurred if the PVC Pipe Business were
operated on a stand alone basis. In addition, interest cost and the impact of
income taxes attributable to the PVC Pipe Business have been excluded because
such amounts are dependent on the consolidated group of which the PVC Pipe
Business is a part. A statement of cash flows has not been presented because
L&S's centralized accounting structure and cash management system would require
arbitrary allocations of cash flow information. As a result, cash flow
information has been limited to disclosing selected cash flow data including
depreciation and capital expenditures.
B. Accounting Policies
Concentration of Credit Risk
Substantially all sales are made within North America. Sales to a single
customer totaled approximately $25,000,000, $21,000,000 and $25,000,000 in
1998, 1997 and 1996, respectively.
Fiscal Year
L&S's fiscal year end is the Saturday closest to December 31.
F-38
<PAGE>
Inventories
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are computed principally by the straight-line method over the
estimated useful lives of the assets.
Research and Development Costs
Research and development costs consist of Company-sponsored activities to
develop new value-added products and are expensed as incurred. R&D expenditures
were $544,000, $682,000 and $655,000 in 1998, 1997 and 1996, respectively.
Advertising Expenditures
Advertising costs are expensed as incurred. Advertising expenditures were
$1,191,000, $2,116,000 and $2,243,000 in 1998, 1997 and 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues are derived from sales to unaffiliated customers and are recognized
when products are shipped.
C. Corporate Charges and Services and Allocations
The following describes the basis for allocating certain costs of L&S to the
PVC Pipe Business:
Return, Allowances, Cash Discounts and Volume Rebates--Returns,
allowances, cash discounts and volume rebates are included in Net Sales in
the Combined Statements of Revenues and Operating Expenses. Returns,
allowances and cash discounts have been allocated to the PVC Pipe Business
based upon the percentage of PVC pipe gross sales to total gross sales for
each of the respective business units. Volume rebates for Lamson Home
Products (LHP), Carlon Telecom Systems (CTS) and Carlon Electrical Products
(CEP) have been allocated to the PVC Pipe Business based upon an estimate
of the actual volume rebates earned related to the net sales attributable
to the PVC Pipe Business for each respective business unit. All of the
returns, allowances, cash discounts and volume rebates of Lamson Vylon
Products (LVP) are included in the PVC Pipe Business net sales.
Cost of Products Sold--Research and development, freight and other costs
are included in cost of products sold on the Combined Statements of
Revenues and Operating Expenses. Research and development costs for LHP,
CTS and CEP have been allocated to the PVC Pipe Business based upon an
estimate of the percentage of time spent on PVC Pipe Business projects,
compared to all projects, for each respective business unit. All LVP
research and development costs have been included in the PVC Pipe Business
cost of products sold. Freight costs for LHP, CTS and CEP have been
allocated to the PVC Pipe Business based upon an estimate of the total PVC
Business costs incurred, by transportation type, for each manufacturing
location within LHP, CTS and CEP. All LVP freight costs have been included
in the PVC Pipe Business cost of products sold. Other costs of products
sold for LHP, CTS and CEP have been allocated to the PVC Pipe Business
based upon the percentage of PVC Pipe Business gross sales to total
F-39
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS--Continued
gross sales for each respective business unit. All LVP other cost of
products sold have been included in the PVC Pipe Business cost of products
sold.
Selling, General and Administrative Expenses--Commissions, selling and
marketing, and general and administrative expenses are included in selling,
general and administrative expenses on the Combined Statements of Revenues
and Operating Expenses. Commission expenses for LHP, CTS and CEP have been
allocated based upon an estimate of PVC Pipe Business commission rates by
product group by business unit multiplied by PVC Pipe Business net sales by
product group by business unit. All LVP commission expenses have been
included in the PVC Pipe Business selling, general and administrative
expenses. Selling and marketing and general and administrative expenses for
LHP, CTS and CEP have been allocated based upon the percentage of the PVC
Pipe Business gross sales to total gross sales for each respective business
unit. All LVP selling and marketing and general and administrative expenses
have been included in the PVC Pipe Business selling, general and
administrative expenses.
Corporate Allocation--Corporate overhead expenses on the Combined
Statements of Revenues and Operating Expenses have been allocated at thirty
percent of total L&S corporate overhead expenses which represents L&S's
estimate of the percentage of costs incurred on behalf of the PVC Pipe
Business.
D. Pension Plans and Other Post-Retirement Benefits
L&S Sponsors defined benefit pension and defined contribution savings plans
covering substantially all employees. L&S also provides health care and life
insurance benefits for certain of its retired employees. Pursuant to the terms
of the Agreements, L&S will retain all obligations through the date of closing
for the defined benefit pension plans, defined contribution savings plans and
the health care and life insurance benefit programs for retired employees.
Pension and other post-retirement benefit expense allocated to the PVC Pipe
Business of L&S was comprised of the following:
<TABLE>
<CAPTION>
Fiscal Years
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Defined benefit plans........................ $(236,126) $(385,904) $354,270
Defined contribution savings plans........... 401,758 373,009 373,511
Post-retirement plans other than pensions.... 239,516 243,120 259,729
--------- --------- --------
$ 405,148 $ 230,225 $987,510
========= ========= ========
</TABLE>
E. Leases
The PVC Pipe Business leases certain facilities, equipment and automobiles
under operating leases. Rental expense was $1,054,000, $1,220,000 and $852,000
in 1998, 1997 and 1996, respectively. Pursuant to the terms of the Agreement,
L&S will retain substantially all of the lease obligations after the date of
closing.
F. Litigation and Environmental Matters
L&S is a party to various claims and matters of litigation incidental to the
normal course of its business. All litigation arising out of operations of the
PVC Pipe Business prior to closing will be retained by the Company.
L&S's operations, including the PVC Pipe Business, are subject to extensive
and evolving federal, state and local environmental laws and regulations. Based
on a review done during due diligence, there are no
F-40
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS--Continued
known environmental conditions currently at any location involved in this
transaction requiring any response or action pursuant to applicable
environmental laws. L&S will retain all liabilities or obligations relating to
any unknown environmental conditions existing as of the closing date for a
period of ninety months.
G. Certain Cash Flow Information
<TABLE>
<CAPTION>
Fiscal Years
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Purchases of property, plant and
equipment, net.......................... $ 968,000 $2,273,000 $2,747,000
Depreciation and amortization............ $2,393,000 $2,284,000 $3,871,000
</TABLE>
F-41
<PAGE>
Appendix A
----------------
AGREEMENT AND PLAN OF MERGER
Among
CONDEA VISTA COMPANY,
EAGLE PACIFIC HOLDINGS, INC.
CV MERGER SUB, INC.
And
EAGLE PACIFIC INDUSTRIES, INC.
Dated: December 11, 1998
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER..................................................... 1
SECTION 1.1 The Merger................................................. 1
SECTION 1.2 Articles of Merger; Effective Time......................... 1
SECTION 1.3 Effect of Merger........................................... 1
SECTION 1.4 Closing.................................................... 1
SECTION 1.5 Articles of Incorporation; By-laws......................... 2
SECTION 1.6 Directors and Officers..................................... 2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES............ 2
SECTION 2.1 Conversion of Securities................................... 2
SECTION 2.2 Dissenting Shares.......................................... 2
SECTION 2.3 Exchange of Eagle Capital Stock............................ 3
SECTION 2.4 Exchange of Merger Sub Common Stock........................ 4
SECTION 2.5 Stock Options and Warrants................................. 4
ARTICLE III TRANSACTIONS PRIOR TO MERGER................................. 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EAGLE....................... 5
SECTION 4.1 Corporate Existence and Power.............................. 6
SECTION 4.2 Corporate Authorization.................................... 6
SECTION 4.3 Governmental Authorization................................. 6
SECTION 4.4 Non-Contravention.......................................... 6
SECTION 4.5 Capitalization............................................. 7
SECTION 4.6 SEC Documents.............................................. 7
SECTION 4.7 Absence of Certain Changes or Events....................... 8
SECTION 4.8 Litigation................................................. 8
SECTION 4.9 Labor Matters.............................................. 8
SECTION 4.10 Books and Records......................................... 8
SECTION 4.11 Title to Assets........................................... 8
SECTION 4.12 Tangible Personal Property................................ 8
SECTION 4.13 Licenses and Permits...................................... 8
SECTION 4.14 Real Property............................................. 8
SECTION 4.15 Trademarks, Patents and Copyrights........................ 9
SECTION 4.16 Contracts and Other Agreements............................ 9
SECTION 4.17 Employee Benefit Plans.................................... 9
SECTION 4.18 Compliance with Laws...................................... 9
SECTION 4.19 Brokers................................................... 10
SECTION 4.20 Vote Required............................................. 10
SECTION 4.21 Tax Matters............................................... 10
SECTION 4.22 Environmental Matters..................................... 10
SECTION 4.23 Disclosure................................................ 11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, EAGLE HOLDINGS AND
MERGER SUB.............................................................. 12
SECTION 5.1 Corporate Existence and Power.............................. 12
SECTION 5.2 Subsidiaries............................................... 12
SECTION 5.3 Corporate Authorization.................................... 12
SECTION 5.4 Governmental Authorization................................. 12
SECTION 5.5 Non-Contravention.......................................... 12
SECTION 5.6 Capitalization............................................. 13
SECTION 5.7 Financial Statements....................................... 14
SECTION 5.8 Absence of Certain Changes or Events....................... 14
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.9 Litigation.................................................. 14
SECTION 5.10 Labor Matters.............................................. 14
SECTION 5.11 Books and Records.......................................... 14
SECTION 5.13 Tangible Personal Property................................. 15
SECTION 5.14 Licenses and Permits....................................... 15
SECTION 5.15 Real Property.............................................. 15
SECTION 5.16 Personal Property.......................................... 15
SECTION 5.17 Trademarks, Patents and Copyrights......................... 15
SECTION 5.18 Contracts and Other Agreements............................. 15
SECTION 5.19 Employee Benefit Plans..................................... 16
SECTION 5.20 Compliance with Laws....................................... 16
SECTION 5.21 Brokers.................................................... 17
SECTION 5.22 Vote Required.............................................. 17
SECTION 5.23 Tax Matters................................................ 17
SECTION 5.24 Conduct of Business........................................ 17
SECTION 5.25 Environmental Matters...................................... 17
SECTION 5.26 Disclosure................................................. 18
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS...................... 18
SECTION 6.1 Conduct of Business by Eagle................................ 18
SECTION 6.2 Conduct of Business by Parent, Eagle Holdings and Merger
Sub.................................................................... 19
SECTION 6.3 Other Action................................................ 20
SECTION 6.4 No Solicitation of Transactions............................. 20
SECTION 6.5 Tax Status.................................................. 21
ARTICLE VII ADDITIONAL AGREEMENTS......................................... 21
SECTION 7.1 Preparation of Registration Statement and the Proxy
Statement; Shareholders'Meeting............................... 21
SECTION 7.2 Information Supplied by Eagle............................... 22
SECTION 7.3 Information Supplied by Parent, Eagle Holdings and Merger
Sub.................................................................... 22
SECTION 7.4 Access to Information....................................... 23
SECTION 7.5 Confidentiality............................................. 23
SECTION 7.6 Public Announcements........................................ 24
SECTION 7.7 Appropriate Action; Consents; Filings....................... 24
SECTION 7.8 State Statutes.............................................. 24
SECTION 7.9 Obligations of Merger Sub................................... 25
SECTION 7.10 Employee Benefits.......................................... 25
SECTION 7.11 Environmental Liabilities.................................. 25
SECTION 7.12 Indemnification............................................ 26
SECTION 7.13 Comfort Letters............................................ 27
SECTION 7.14 Additional Agreements...................................... 28
SECTION 7.15 Assumption of Stock Option Plan............................ 28
SECTION 7.16 Disclosure Letters......................................... 28
SECTION 7.17 Production of Oklahoma Resin Business...................... 28
SECTION 7.18 Stockholders'Agreement..................................... 28
ARTICLE VIII CONDITIONS TO THE MERGER..................................... 28
SECTION 8.1 Conditions of Each Party's Obligation to Effect the Merger.. 28
SECTION 8.2 Conditions of Obligations of Parent, Eagle Holdings and
Merger Sub............................................................. 29
SECTION 8.3 Conditions of Obligation of Eagle........................... 30
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................... 32
SECTION 9.1 Termination.................................................. 32
SECTION 9.2 Effect of Termination........................................ 33
SECTION 9.3 Fees and Expenses............................................ 33
SECTION 9.4 Amendment.................................................... 34
SECTION 9.5 Waiver....................................................... 34
ARTICLE X GENERAL PROVISIONS............................................... 34
SECTION 10.1 Survival or Representations and Warranties.................. 34
SECTION 10.2 Notices..................................................... 34
SECTION 10.3 Definitions................................................. 35
SECTION 10.4 Entire Agreement............................................ 36
SECTION 10.5 Severability................................................ 36
SECTION 10.6 Successors and Assigns...................................... 37
SECTION 10.7 Parties in Interest......................................... 37
SECTION 10.8 Enforcement................................................. 37
SECTION 10.9 Governing Law............................................... 37
SECTION 10.10 Counterparts; Effectiveness................................ 37
SECTION 10.11 Arbitration................................................ 37
</TABLE>
(iii)
<PAGE>
Index of Exhibits
<TABLE>
<C> <S>
1.2 Articles of Merger
1.5(a) Articles of Incorporation of Surviving Corporation
1.5(b) Bylaws of Surviving Corporation
1.6 Directors and Officers of Surviving Corporation
III Oklahoma Resin Assets
7.18 Stockholders' Agreement
8.2(j) Fredrikson & Byron, P.A. Opinion
8.3(g) Haynes and Boone, LLP Opinion
</TABLE>
(iv)
<PAGE>
Schedules
<TABLE>
<C> <S>
4.3 State Take Over Laws
4.4 Eagle Consents
4.5 Capitalization
4.7 Litigation
4.7 Absence of Certain Changes
4.11 Title to Assets
4.12 Tangible Personal Property
4.13 Licenses & Permits
4.14 Real Property
4.15 Trademarks
4.17 Employee Benefit Plans
4.18 Compliance with Laws
4.22 Environmental
5.5 Parent, Eagle Holdings and Merger Sub Consents
5.7 Oklahoma Resin Business Financial Statements
5.8 Absence of Certain Changes
5.10 Labor Matters
5.13 Tangible Personal Property
5.14 Licenses and Permits
5.15 Real Property
5.16 Personal Property
5.17 Trademarks
5.18 Contracts
5.19 Parent Plans
5.20 Compliance with Laws
5.25 Environmental
6.1 Conduct of Business
</TABLE>
(v)
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated December 11, 1998, by and among
CONDEA Vista Company, a Delaware Corporation ("Parent"), Eagle Pacific
Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Parent
("Eagle Holdings"), CV Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of Eagle Holdings ("Merger Sub") and Eagle Pacific Industries,
Inc., a Minnesota corporation ("Eagle").
WHEREAS, the respective Boards of Directors of Eagle, Parent, Eagle Holdings
and Merger Sub have determined that it is in the best interests of Eagle,
Parent, Eagle Holdings and Merger Sub and their respective shareholders to
consummate the merger of Merger Sub with and into Eagle (the "Merger") upon the
terms and subject to the conditions of this Agreement; and
WHEREAS Parent, Eagle Holdings, Merger Sub and Eagle desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and of the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as hereinafter defined), Merger
Sub shall be merged with and into Eagle in accordance with the Minnesota
Business Corporation Act (the "MBCA") and the Delaware General Corporation Law,
as amended (the "DGCL"), whereupon the separate corporate existence of Merger
Sub shall cease, and Eagle shall continue as the surviving corporation (the
"Surviving Corporation"). Certain terms used in this Agreement are defined in
Section 10.3 hereof.
Section 1.2 Articles of Merger; Effective Time. As soon as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all conditions to
the Merger set forth in Article VIII, the parties hereto shall cause the Merger
to be consummated by filing articles or a certificate of merger in the form
attached hereto as Exhibit 1.2 (collectively, the "Articles of Merger") with
the Secretaries of State of the States of Minnesota and Delaware and make all
other filings or recordings required by the MBCA and DBCL in connection with
the Merger and the transactions contemplated by this Agreement. The Merger
shall become effective at such time as the Articles of Merger are duly filed
with the Secretaries of State of the States of Minnesota and Delaware or at
such later time as may be agreed by the parties in writing and specified in the
Articles of Merger (the "Effective Time").
Section 1.3 Effect of Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities and duties
of Eagle and Merger Sub, all as provided under the MBCA and DGCL.
Section 1.4 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article VIII (the "Closing Date"), at the offices of
Fredrikson & Byron, P.A. in Minneapolis, Minnesota, unless another date, time
or place is agreed to in writing by the parties hereto.
A-1
<PAGE>
Section 1.5 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the articles of incorporation attached hereto as
Exhibit 1.5(a) shall be the articles of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such articles of
incorporation.
(b) At the Effective Time, the bylaws attached hereto as Exhibit 1.5(b) shall
be the bylaws of the Surviving Corporation until thereafter amended as provided
by law, the articles of incorporation of the Surviving Corporation and such
bylaws.
Section 1.6 Directors and Officers. The officers and directors of the
Surviving Corporation shall be those individuals specified in Exhibit 1.6
attached hereto, each to hold office until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1 Conversion of Securities. As of the Effective Time, by virtue of
the Merger and without any action on the part of Eagle, Parent or Eagle
Holdings or Merger Sub or their respective stockholders:
(a) Each share of common stock of Eagle, par value $0.01 per share
("Eagle Common Stock"), issued and outstanding immediately prior to the
Effective Time (except for Dissenting Shares, as defined in Section 2.2
hereof and except for shares referred to in Section 2.1(e) below, if any)
shall be converted into the right to receive one share of duly authorized,
validly issued, fully paid and nonassessable common stock of Eagle
Holdings, par value $.01 per share ("Eagle Holdings Common Stock").
(b) Each share of series A 7% convertible preferred stock of Eagle, par
value $.01 per share (the "Eagle Series A Stock") issued and outstanding
immediately prior to the Effective Time (except for Dissenting Shares and
except for shares referred to in Section 2.1(e) below, if any) shall be
converted into the right to receive one share of duly authorized, validly
issued, fully paid and nonassessable series A 7% preferred stock of Eagle
Holdings, par value $.01 per share ("Eagle Holdings Series A Stock").
(c) Each share of 8% convertible preferred stock of Eagle, par value
$.01 per share (the "Eagle Series B Stock"), issued and outstanding
immediately prior to the Effective Time (except for Dissenting Shares and
except for shares referred to in Section 2.1(e) below, if any) shall be
converted into the right to receive one share of duly authorized, validly
issued, fully paid and nonassessable Series B preferred stock of Eagle
Holdings, par value $.01 per share ("Eagle Holdings Series B Stock").
(d) Each share of common stock of Merger Sub, par value $.01 per share
("Merger Sub Common Stock"), issued and outstanding immediately prior to
the Effective Time shall be converted into one share of the common stock of
the Surviving Corporation, par value $.01 per share ("Surviving Corporation
Common Stock").
(e) Each share of Eagle Common Stock issued and outstanding immediately
prior to the Effective Time that is then owned beneficially or of record by
Parent, Eagle Holdings, Merger Sub or any direct or indirect Subsidiary of
Parent or Eagle shall be cancelled without payment of any consideration
therefor and without any conversion thereof.
(f) Each share of any other class of capital stock of Eagle (other than
the Eagle Common Stock, Eagle Series A Stock and Eagle Series B Stock),
shall be cancelled without payment of any consideration therefor and
without any conversion thereof.
Section 2.2 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Eagle Capital Stock (as
defined in Section 4.5 below), the holder of which has demanded and perfected
such holder's right to dissent from the Merger and to be paid the fair value of
such shares in accordance with Sections 302A.471 et seq. of the MBCA and, as of
the Effective Time, has not effectively
A-2
<PAGE>
withdrawn or forfeited such dissenters' rights ("Dissenting Shares"), shall not
be converted into or represent a right to receive the consideration into which
shares of Eagle Capital Stock are converted pursuant to Section 2.1 hereof, but
the holder thereof shall be entitled only to such rights as are granted by the
MBCA. In the event that holders of Dissenting Shares represent more than 5% of
the outstanding shares of Eagle Capital Stock, Parent may, in its sole
discretion, terminate this Agreement pursuant to Section 9.1(i) and receive its
Expenses pursuant to Section 9.3(b). Eagle shall give Parent and Eagle Holdings
(i) prompt written notice of any notice of intent to demand fair value for any
shares of Eagle Capital Stock, withdrawals of such notices, and any other
instruments served pursuant to the MBCA or any other provisions of Minnesota
law and received by Eagle, and (ii) the opportunity to conduct jointly all
negotiations and proceedings with respect to demands for fair value for shares
of Eagle Capital Stock under the MBCA. Eagle shall not, except with the prior
written consent of Eagle Holdings, voluntarily make any payment with respect to
any demands for fair value for shares of Eagle Capital Stock or offer to settle
or settle any such demands.
Section 2.3 Exchange of Eagle Capital Stock.
(a) Promptly after the Effective Time, Eagle Holdings shall cause Eagle
Holdings' stock transfer agent or such other person as Eagle Holdings may
appoint to act as exchange agent (the "Exchange Agent") to mail to each holder
of record of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Eagle Common Stock, Eagle
Series A Stock or Eagle Series B Stock (collectively, the "Eagle
Certificates"), a form letter of transmittal (which shall specify that delivery
shall be effective, and risk of loss and title to the Eagle Certificate(s)
shall pass, only upon delivery of the Eagle Certificate(s) to the Exchange
Agent) and instructions for such holder's use in effecting the surrender of the
Eagle Certificates in exchange for certificates representing shares of Eagle
Holdings Common Stock, Eagle Holdings Series A Stock or Eagle Holdings Series B
Stock as described in Section 2.1 hereof.
(b) As soon as practicable after the Effective Time, the Exchange Agent shall
distribute to holders of shares of Eagle Capital Stock as defined in Section
4.5 below, upon surrender to the Exchange Agent of one or more Eagle
Certificates for cancellation, together with a duly-executed letter of
transmittal, one or more Eagle Holdings certificates representing the number of
whole shares of Eagle Holdings Common Stock, Eagle Holdings Series A Stock and
Eagle Holdings Series B Stock (the Eagle Holdings Common Stock, Eagle Holdings
Series A Stock and Eagle Holdings Series B Stock shall be collectively referred
to herein as "Eagle Holdings Capital Stock") into which the shares represented
by the Eagle Certificate(s) shall have been converted pursuant to Section 2.1.
In the event of a transfer of ownership of Eagle Capital Stock that is not
registered in the transfer records of Eagle, it shall be a condition to the
issuance of shares of Eagle Holdings Stock that the Eagle Certificate(s) so
surrendered shall be properly endorsed or be otherwise in proper form for
transfer and that such transferee shall (i) pay to the Exchange Agent any
transfer or other taxes required or (ii) establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(c) Holders of Eagle Capital Stock will be entitled to any dividends or other
distributions pertaining to the Eagle Holdings Capital Stock received in
exchange therefor that become payable to persons who are holders of record of
Eagle Holdings Capital Stock as of a record date that follows the Effective
Time, but only after they have surrendered their Eagle Certificates for
exchange. Subject to the effect, if any, of applicable law, the Exchange Agent
shall receive, hold, and remit any such dividends or other distributions to
each such record holder entitled thereto, without interest, at the time that
such Eagle Certificates are surrendered to the Exchange Agent for exchange.
Holders of Eagle Capital Stock will not be entitled, however, to dividends or
other distributions that become payable before, on or after the Effective Time
to persons who were holders of record of Eagle Holdings Capital Stock as of a
record date that is prior to the Effective Time. Notwithstanding the foregoing,
no party hereto (or Eagle Holdings' transfer agent) shall be liable to any
former holder of Eagle Capital Stock for any cash, Eagle Holdings Capital Stock
or dividends or distributions thereon delivered to a public official pursuant
to applicable abandoned property, escheat or similar law.
(d) All shares of Eagle Holdings Capital Stock issued upon the surrender for
exchange of Eagle Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares
of Eagle Capital Stock.
A-3
<PAGE>
(e) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Eagle Capital Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Eagle Certificates representing
such shares are presented to the Surviving Corporation, they shall be cancelled
and exchanged as provided in this Article 2. As of the Effective Time, the
holders of Eagle Certificates representing shares of Eagle Capital Stock shall
cease to have any rights as shareholders of Eagle, except such rights, if any,
as they may have pursuant to the MBCA. Except as provided above, until such
Eagle Certificates are surrendered for exchange, each such Eagle Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive the number of whole shares of Eagle Holdings Capital Stock into which
the shares of Eagle Capital Stock shall have been converted pursuant to the
Merger as provided in Section 2.1 hereof.
(f) In the event any Eagle Certificates shall have been lost, stolen, or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen, or
destroyed Eagle Certificates, upon the making of an affidavit of that fact by
the holder thereof, such shares of Eagle Holdings Capital Stock as may be
required pursuant to this Article 2; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Eagle Certificate to deliver a bond in
such sum as Eagle Holdings may direct as indemnity against any claim that may
be made against Eagle Holdings or the Exchange Agent with respect to such Eagle
Certificate alleged to have been lost, stolen or destroyed.
(g) Eagle Holdings shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former holder
of Eagle Capital Stock such amounts as Eagle Holdings (or any affiliate
thereof) is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Eagle Holdings, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the former holder of the Eagle Capital Stock in respect of which such
deduction and withholding was made by Eagle Holdings.
Section 2.4 Exchange of Merger Sub Common Stock. From and after the Effective
Time, each outstanding certificate previously representing shares of Merger Sub
Common Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of Surviving Corporation Common Stock into which
such shares of Merger Sub Common Stock shall have been converted. Promptly
after the Effective Time, the Surviving Corporation shall issue to Eagle
Holdings a stock certificate or certificates representing such shares of
Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Sub Common Stock, which
shall be cancelled.
Section 2.5 Stock Options and Warrants. Each option and warrant to purchase
shares of Eagle Common Stock that is outstanding at the Effective Time and
disclosed in Section 4.5 (an "Eagle Option") shall, by virtue of the Merger and
without any action on the part of the holder thereof, be assumed by Eagle
Holdings in such manner that Eagle Holdings (i) is a corporation "assuming a
stock option in a transaction to which Section 424(a) applies" within the
meaning of Section 424 of the Code and the regulations thereunder or (ii) to
the extent that Section 424 of the Code does not apply to any such Eagle
Option, would be such a corporation were Section 424 of the Code applicable to
such Eagle Option. From and after the Effective Time, all references to Eagle
in the Eagle Options shall be deemed to refer to Eagle Holdings. The Eagle
Options assumed by Eagle Holdings shall be exercisable upon the same terms and
conditions as under the Eagle Options except that (i) such Eagle Options shall
entitle the holder to purchase from Eagle Holdings the number of shares of
Eagle Holdings Common Stock (rounded down to the nearest whole number of such
shares) that equals the number of shares of Eagle Common Stock subject to such
option immediately prior to the Effective Time, and (ii) the option exercise
price per share of Eagle Holdings Common Stock shall be an amount (rounded up
to the nearest full cent) equal to such option exercise price per share in
effect immediately prior to the Effective Time. The Eagle Options assumed by
Eagle Holdings shall not give the optionee additional benefits which such
optionee did not have under the Eagle Option before such assumption and shall
be assumed on the same terms and conditions as the Eagle Option being assumed,
subject to the foregoing. Such
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assumptions of the Eagle Options shall comply with the requirements of Section
424 of the Code and the regulations issued thereunder. As promptly as
practicable after the Effective Time, Eagle Holdings shall issue to each holder
of an Eagle Option a written instrument informing such holder of the assumption
by Eagle Holdings of such Eagle Option. As promptly as practicable after the
Effective Time, Eagle Holdings will file a registration statement on Form S-8
registering the Eagle Holdings Common Stock to be issued upon the exercise of
such options and warrants, and Eagle Holdings shall use its reasonable best
efforts to cause the declaration of effectiveness and maintain the
effectiveness of such registration statement for so long as such options remain
outstanding.
ARTICLE III
Transactions Prior to Merger
Eagle, Parent, Eagle Holdings and Merger Sub agree that the Merger is part of
a reorganization plan to combine The Lamson & Sessions Co.'s polyvinyl chloride
pipe business (the "Lamson PVC Business"), CONDEA Vista's Oklahoma resin
manufacturing business (the "Oklahoma Resin Business") and Eagle's polyvinyl
chloride pipe and polyethylene pipe business (the "Eagle Business"). The plan
contemplates that Eagle will purchase substantially all the assets of the
Lamson PVC Business and immediately thereafter consummate the Merger.
Eagle represents that it has entered into an Asset Purchase Agreement with
The Lamson & Sessions Co. ("Lamson") dated December 11, 1998 (the "Asset
Purchase Agreement") whereby Eagle agreed to purchase the Lamson PVC Business
for cash, two unsecured promissory notes and 785,000 shares of Eagle Common
Stock (this transaction is referred to as the "Asset Purchase"), which Asset
Purchase does not require the approval of either Eagle or Lamson shareholders.
Eagle Holdings and Parent represent that as of the date of this Agreement,
the Oklahoma Resin Business is owned and operated solely by Parent. Prior to
the Effective Time, but subject in all respects to the terms and conditions
hereof, Parent shall assign, transfer, convey and deliver to Eagle Holdings the
assets and personal property of Parent and certain liabilities and obligations
of Parent related to or used in the operation of the Oklahoma Resin Business,
(collectively referred to as the "Oklahoma Resin Assets"), as set forth on
Exhibit III hereto in consideration for 9,921,720 shares of common stock of
Eagle Holdings, $.01 par value per share (the "Eagle Holdings Common Stock")
and promptly thereafter, Eagle Holdings shall assign, transfer, convey and
deliver to Merger Sub the Oklahoma Resin Assets in consideration for one
thousand shares of Merger Sub Common Stock. Immediately prior to the Effective
Time, Merger Sub shall hold good and marketable title to the Oklahoma Resin
Assets, free and clear of all Liens (as defined in Section 4.4 below) except
Permitted Liens. The term "Permitted Liens" means (i) Liens for current taxes
and assessments not yet due or being diligently contested in good faith by
appropriate proceedings, (ii) mechanic's Liens arising under the operation of
law for actions contested in good faith or for which payment arrangements have
been made and (iii) easements, rights of way, encroachments, imperfections of
title, encumbrances or other matters affecting title which do not prevent the
assets from being used for the purpose for which they are currently being used
and which do not, in the aggregate, have a Material Adverse Effect. The
transactions described in this Article III together with the Merger are
referred to in this Agreement as the "Contemplated Transactions."
Following the transfer of the Oklahoma Resin Business from Parent to Merger
Sub, Merger Sub will be merged with and into Eagle as provided in this
Agreement and the reorganization will be completed.
ARTICLE IV
Representations and Warranties of Eagle
Eagle represents and warrants to Parent, Eagle Holdings and Merger Sub as
follows, which representations and warranties relate only to the business of
Eagle as it exists prior to the Asset Purchase and specifically
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exclude all assets and matters with respect to the Lamson PVC Business
(provided that the foregoing shall not be deemed to affect any rights that
Surviving Corporation or any other party related thereto may have pursuant to
the Asset Purchase Agreement).
Section 4.1 Corporate Existence and Power. Eagle is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota, and has all corporate powers required to carry on its business as
now conducted. Eagle is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have a Material Adverse Effect (as defined below) on
Eagle. For purposes of this Agreement, a "Material Adverse Effect" when used
with respect to Eagle means (a) a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition or
results of operations of Eagle, taken as a whole, or on the ability of the
Surviving Corporation following the Merger to continue the business of such
entity and its subsidiaries, if any, taken as a whole, substantially as
currently conducted (without the loss of any material rights), or (b) a
material impairment in the ability of such entity to perform any of its
obligations under this Agreement or to timely consummate the Merger. Eagle does
not own, directly or indirectly, any capital stock or other interest in any
corporation, partnership, joint venture or other entity.
Section 4.2 Corporate Authorization. The execution, delivery and performance
by Eagle of this Agreement and the consummation by Eagle of the transactions
contemplated hereby are within Eagle's corporate powers and, except for any
required approval by Eagle's shareholders in connection with the consummation
of the Merger, have been duly authorized by all necessary corporate action.
This Agreement has been duly and validly executed and delivered by Eagle, and
constitutes a valid and binding agreement of Eagle enforceable in accordance
with its terms.
Section 4.3 Governmental Authorization. The execution, delivery and
performance by Eagle of this Agreement and the consummation of the Merger by
Eagle require no action by or in respect of, or filing with, any federal,
state, local or foreign governmental body, agency, official or authority
(including courts, administrative agencies, commissions, self-regulatory
agencies or authorities or other governmental authority or instrumentality)
(each, a "Governmental Entity") other than (a) the filing of the Articles of
Merger and Certificate of Merger in accordance with the MBCA and DGCL, (b)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (c) compliance with any applicable
requirements of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), (d) compliance with
any applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act"), (e)
compliance with the rules or regulations of National Association of Securities
Dealers, Inc., (f) compliance with the securities laws of various states and
(g) any action or filing, the failure to obtain or make would not, individually
or in the aggregate, have a Material Adverse Effect. Except as disclosed on
Schedule 4.3, no State Take Over Laws (as defined in Section 7.8 below) are
applicable to the Contemplated Transactions.
Section 4.4 Non-Contravention. Except as disclosed in Schedule 4.4 hereto,
the execution, delivery and performance by Eagle of this Agreement does not,
and the consummation by Eagle of the transactions contemplated hereby will not
contravene or conflict with the articles of incorporation or by-laws of Eagle,
(a) assuming compliance with the matters referred to in Section 4.3, contravene
or conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
Eagle, other than such contraventions, conflicts or violations which would not,
individually or in the aggregate, have a Material Adverse Effect, (b)
constitute a breach or violation of, or a default under or give rise to a right
of termination, cancellation or acceleration of any right or obligation of
Eagle or to a loss of any benefit to which Eagle is entitled under any
provision of, any agreement, contract or other instrument binding upon Eagle
(collectively, the "Contracts") or any license, franchise, permit or other
similar authorization held by Eagle, other than such breaches, violations,
defaults, rights or losses which would not, individually or in the
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aggregate, have a Material Adverse Effect, or (c) result in the creation or
imposition of any Lien (as defined below) on any asset of Eagle, other than any
such creation or imposition which would not, individually or in the aggregate,
have a Material Adverse Effect. Schedule 4.4 sets forth a true, complete and
correct list of all consents, approvals and authorizations required to be
obtained by Eagle from any third party (other than as otherwise expressly
contemplated by Section 4.3 of this Agreement) in connection with this
Agreement, the Merger and the transactions contemplated hereby where the
failure of Eagle to obtain such consent, approval or authorization,
individually or in the aggregate, would have a Material Adverse Effect. For
purposes of this Agreement "Lien" shall mean any pledge, claim, lien, charge,
encumbrance or security interest of any nature whatsoever.
Section 4.5 Capitalization. The authorized capital stock of Eagle consists of
30,000,000 shares of Eagle Common Stock, 2,000,000 shares of Eagle Series A
Stock, 10,000 shares of Eagle Series B Stock, 3,500,000 shares of Eagle class B
common stock, par value $.01 per share (the "Eagle Class B Common Stock") and
18,000,000 shares of undesignated stock (the Eagle Common Stock, Eagle Series A
Stock, and Eagle Series B Stock shall be collectively referred to herein as the
"Eagle Capital Stock"). As of the date of this Agreement, there are outstanding
6,612,483 shares of Eagle Common Stock, 18,750 shares of Series A Stock, 10,000
shares of Eagle Series B Stock, and no shares of Eagle Class B Common Stock or
undesignated stock. As of the date of this Agreement, there were outstanding
stock options and warrants to purchase an aggregate of 2,140,351 shares of
Eagle Common Stock for which Eagle has duly reserved for issuance pursuant
thereto 2,654,338 shares of Eagle Common Stock, all as more particularly
described in Schedule 4.5. All outstanding shares of Eagle Capital Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
As of the date of this Agreement, the Eagle Common Stock is registered pursuant
to Section 12(g) of the Exchange Act and is listed on the Nasdaq SmallCap
Market. Except as set forth in this Section or on Schedule 4.5 and except for
changes since the date hereof resulting from the exercise, cancellation or
exchange of currently outstanding options and warrants listed on Schedule 4.5,
there are outstanding (i) no shares of Eagle Capital Stock or other voting
securities of Eagle, (ii) no securities of Eagle convertible into or
exchangeable for shares of capital stock or voting securities of Eagle and
(iii) no options or other rights to acquire from Eagle, and no obligation of
Eagle to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Eagle (the items
in clauses (i), (ii) and (iii) being referred to collectively as the "Eagle
Securities"). There are no outstanding obligations of Eagle to repurchase,
redeem or otherwise acquire any Eagle Securities, except pursuant to their
existing terms.
Section 4.6 SEC Documents. Eagle has filed all required reports, schedules,
forms, statements and other documents with the Securities and Exchange
Commission (the "SEC") since December 31, 1994 (the "Eagle SEC Documents"). As
of their respective dates, Eagle SEC Documents complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Eagle SEC Documents, and except to the extent
that information contained in any Eagle SEC Document has been revised or
superseded by a later-filed Eagle SEC Document filed and publicly available
prior to the date of this Agreement, as of the date of this Agreement, none of
the Eagle SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Eagle included in
Eagle SEC Documents complied as of their respective dates of filing with the
SEC as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by the Exchange Act)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of Eagle as of the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as to the
extent that information contained in any Eagle SEC Document has been revised or
superseded by a later-filed Eagle SEC Document filed and publicly available
prior to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice,
Eagle has no
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liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by generally accepted accounting principles to be set
forth on a consolidated balance sheet of Eagle or in the notes thereto which,
individually or in the aggregate, would have a Material Adverse Effect.
Section 4.7 Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.7, and except as expressly contemplated by this Agreement, since
June 30, 1998, Eagle has conducted its business only in the ordinary course,
and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had a Material Adverse Effect;
(b) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting its business which, individually or in the
aggregate, has had or would reasonably be expected to have a Material
Adverse Effect;
(c) any (i) grant, except pursuant to agreements in effect on the date
of this Agreement, of any severance or termination pay to any officer or
employee of Eagle, (ii) entering into any material employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer or employee of Eagle, (iii) material
increase in benefits payable under any existing severance or termination
pay policies or employment agreements or (iv) other than in the ordinary
course of business consistent with past practices, material increase in
compensation, bonus or other benefits payable to officers or employees of
Eagle; or
(d) any payment of a material obligation or liability (fixed or
contingent), or settlement of any claim or suit pending or threatened
against Eagle or its assets, other than in the ordinary and normal course
of business consistent with past practice.
Section 4.8 Litigation. Except as disclosed in Eagle SEC Documents or
Schedule 4.8, there is no action, suit, investigation or proceeding pending
against or, to the Knowledge of Eagle, threatened against or affecting, Eagle
or any of its properties (other than any such suit, action or proceeding
challenging any provision of this Agreement or seeking to restrain or prohibit
the consummation of the Merger) before any Governmental Entity or by any
Governmental Entity that, if determined or resolved adversely to Eagle,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
Section 4.9 Labor Matters. Eagle is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Eagle.
Section 4.10 Books and Records. The books or account and records (including
customer order files, employment records, licensing records, financial records,
and production and manufacturing records) of Eagle are complete, true and
correct in all material respects.
Section 4.11 Title to Assets. Except as set forth on Schedule 4.11, all the
assets used by Eagle to conduct its business are owned or leased by Eagle, free
and clear of all Liens, except for Permitted Liens.
Section 4.12 Tangible Personal Property. Except as disclosed on Schedule
4.12, all the tangible assets of Eagle are in good repair and operating
condition and will be maintained in good repair and operating condition,
ordinary wear and tear excepted, from the date of this Agreement until the
Effective Time. All warranties applicable to the assets of Eagle, to the extent
practicable under the circumstances, will be maintained to the Effective Time.
Section 4.13 Licenses and Permits. Except as disclosed on Schedule 4.13,
Eagle possesses all permits, licenses, approvals and notifications,
governmental or otherwise, required to operate Eagle, the absence of which
would have a Material Adverse Effect. Except as disclosed on Schedule 4.13, all
of such licenses and permits will continue to be in full force and effect after
the Merger.
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Section 4.14 Real Property. Schedule 4.14 is an accurate and complete list of
all real property owned or leased and used by Eagle. Eagle has not received
notice of the initiation of any condemnation proceeding with respect to such
real property, or offer of a sale in lieu thereof, nor has Eagle breached (or
received any claim that it has breached) any of the terms or conditions of such
leases in any material respect. Except as disclosed on Schedule 4.14, Eagle
owns or leases such real property, free and clear of all Liens, except for
Permitted Liens and mortgages and encumbrances that secure indebtedness
properly reflected on the financial statements in the Eagle SEC Documents filed
prior to the date hereof.
Section 4.15 Trademarks, Patents and Copyrights. Schedule 4.15 contains an
accurate and complete list of all licenses or other valid rights to use, all
patents, patent rights, trademarks, tradenames, tradename rights, copyrights,
service marks, service mark rights, trade secrets, applications to register and
registrations for, the foregoing patents, trademarks, service marks, know-how
and other proprietary rights and information used by Eagle in connection with
its business as currently conducted (the "Eagle Intellectual Property"). Eagle
owns or possesses the Eagle Intellectual Property free and clear of all liens
and restrictions. No assertion or claim has been made challenging the validity
of any of Eagle's rights to such Eagle Intellectual Property. The conduct of
Eagle as currently conducted does not conflict with, or infringe upon any
patent, patent rights, license, trademark, trademark right, tradename,
tradename right, service mark, copyright or other proprietary right of any
other person, and Eagle has not received a claim or threat that any such
conflict exists, and no litigation, claim, suit, action, preceding or complaint
concerning the foregoing has been filed or is ongoing.
Section 4.16 Contracts and Other Agreements. All contracts and agreements
material to Eagle are valid, existing, and in full force and effect, and
binding upon Eagle and to Eagle's Knowledge, binding upon the other parties
thereto in accordance with their terms, and Eagle has paid in full or accrued
all amounts now due from it thereunder and has satisfied in full or provided
for all its liabilities and obligations thereunder which are presently required
to be satisfied or provided for, and is not in default under any of them, nor,
to the Knowledge of Eagle is any other party to any such contract or other
agreement in default thereunder, nor does any condition exist that with notice
or lapse of time or both would constitute a default thereunder relating to
Eagle, except for breaches, violations or defaults that, individually or in the
aggregate, are not having and could not reasonably be expected to have a
Material Adverse Effect.
Section 4.17 Employee Benefit Plans.
(a) Schedule 4.17 sets forth a list of all Eagle employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) which Eagle maintains or to which Eagle contributes (the
"Eagle Plans"). Except for the Eagle Plans, with respect to all employees and
former employees of Eagle and all dependents and beneficiaries of such
employees and former employees, (i) Eagle does not maintain or contribute to
any nonqualified deferred compensation or retirement plans, contracts or
arrangements, (ii) Eagle does not maintain or contribute to any qualified
defined contribution plans (as defined in Section 3(34) ERISA or Section 414(i)
of the Code), (iii) Eagle does not maintain or contribute to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j)
of the Code) and (iv) Eagle does not maintain or contribute to any employee
welfare benefit plans (as defined in Section 3(1) of ERISA) or any voluntary
employees' beneficiary association (as defined in Section 501(c)(9) of the
Code).
(b) To the Knowledge of Eagle, the Eagle Plans comply in all material
respects with the requirements of ERISA and the Code, and are and have been
operated in accordance with their terms, except for such failures to comply
which individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
(c) Eagle does not contribute (and has not ever contributed) to any multi-
employer plan, as defined in Section 3(37) of ERISA. To the Knowledge of Eagle,
Eagle does not have any actual or potential liabilities under Section 4201 of
ERISA for any complete or partial withdrawal from a multi-employer plan. To the
Knowledge of Eagle, Eagle does not have any actual or potential liability for
death or medical benefits after separation from employment, other than (i)
death benefits under the Eagle Plans (whether or not subject to
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ERISA) and (ii) health care continuation benefits described in Section 4980B of
the Code. To the Knowledge of Eagle, Eagle has no liability (i) to the IRS with
respect to any Eagle Plan, including any liability imposed by Chapter 43 of the
Code; (ii) to Pension Benefit Guaranty Corporation with respect to any Eagle
Plan; or (iii) under Sections 502 or 4071 of ERISA.
(d) Except to the extent required under the Eagle Plans, by the Code or by
ERISA, the consummation of the Contemplated Transactions will not result in the
payment, vesting or acceleration of any benefit under any Eagle Plan.
Section 4.18 Compliance with Laws. Except as disclosed in Eagle SEC Documents
or Schedule 4.18, Eagle (a) is not in violation of, nor has it violated in any
material respect, any applicable provisions of any laws, statutes, ordinances
or regulations or (b) has not received any notice from any Governmental Entity
or any other person that Eagle is in violation of, or has violated in any
material respect, any applicable provisions of any laws, statutes, ordinances
or regulations, except in the case of clauses (a) and (b), for violations,
individually or in the aggregate, which have not had and could not reasonably
be expected to have a Material Adverse Effect.
Section 4.19 Brokers. Except for fees and expenses payable to Doherty Summit
Securities LLC, Eagle's financial advisor, no broker, investment banker,
financial advisor or other person, the fees and expenses of which will be paid
by Eagle, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Eagle.
Section 4.20 Vote Required. The affirmative vote of the holders of a combined
majority of the outstanding shares of Eagle Common Stock and Eagle Series A
Stock, voting together and not as a separate class or separate classes, is the
only vote of holders of Eagle Capital Stock required to approve this Agreement,
the Merger and the Contemplated Transactions.
Section 4.21 Tax Matters. Neither Eagle nor, to its Knowledge, any of its
affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken
by Parent or any of its affiliates) would prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Code.
Section 4.22 Environmental Matters. Except as disclosed in Schedule 4.22 or
in Eagle SEC Documents filed prior to the date hereof:
(a) Eagle has obtained all material licenses, permits, authorizations,
approvals and consents ("Eagle Environmental Permits") from all
Governmental Entities that are required in respect of its business or
operations under any applicable Environmental Law (defined below), and each
of such Eagle Environmental Permits is in full force and effect.
(b) Eagle is in compliance with the terms and conditions of all such
Eagle Environmental Permits and with all applicable Environmental Laws,
except for such failures that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(c) (i) No site or facility now or previously owned, operated or leased
by Eagle is listed or proposed for listing on the National Priorities List
or CERCLIS, promulgated pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"),
and the rules and regulations thereunder or on any similar state or local
list of sites requiring investigation or Remedial Action (defined below).
(ii) Since June 30, 1994, Eagle has not received any written notice of any
actual or alleged material violation of any Environmental Law with respect
to any of its facilities. (iii) Eagle is not subject to any material
outstanding agreements with or orders of any Governmental or Regulatory
Authority or other person respecting (A) Environmental Laws, (B) Remedial
Action or (C) any Release of a Hazardous Material (defined below). (iv)
Since June 30, 1994, Eagle has not received any
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written notice or request for information pertaining to a response or
removal action (as defined by CERCLA), with respect to any of its sites or
facilities now or previously owned, operated or leased by it.
(d) No Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by Eagle, other than Liens
that individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
(e) There have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or that are in the
possession of, Eagle in relation to any site or facility owned, operated or
leased by Eagle, except those reports that have been made available to
Parent prior to the execution of this Agreement.
(f) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, to Eagle's Knowledge, since
June 30, 1994, no Hazardous Material has been Released, disposed of or
arranged to be disposed of by Eagle (i) at or about any site or facility
now or previously owned, operated or leased by Eagle, other than Releases
or disposals permitted under Permits and orders issued by any Governmental
Entity; or (ii) at or about any site or facility listed or proposed for
listing on the National Priorities List or CERCLIS or any similar state or
local list of sites requiring investigation or Remedial Action.
(g) As used herein: (i) "Environmental Law" means any federal, state,
and local statutes and ordinances and regulations promulgated thereunder in
effect at the Closing relating to the environment or to emissions,
discharges or Releases of pollutants, contaminants, or chemicals, or
industrial, toxic or hazardous substances or wastes, into the environment
(including structures, ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes; (ii) "Hazardous Material" means
(A) any chemicals or other materials or substances that are defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "pollutants," "contaminants," or words of
similar import under any Environmental Law, including petroleum, friable
asbestos, PCBs and CFCs; and (B) any other chemical, material or substance,
the presence of or exposure to which is prohibited, limited or regulated by
any Governmental or Regulatory Authority under any Environmental Law; (iii)
"Release" means any actual or threatened (as defined under CERCLA) release,
spill, effluent, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the environment or any
structure; and (iv) "Remedial Action" means all actions, including any
capital expenditures, required by a Governmental or Regulatory Authority,
required under any Environmental Law or voluntarily undertaken to (A) clean
up, remediate, remove, treat or in any other way ameliorate or address any
Hazardous Materials Released into the environment; (B) prevent the Release,
or minimize the further Release of any Hazardous Material so it does not
endanger or threaten to endanger public health or the environment; (C)
perform pre-remedial studies and investigations or post-remedial monitoring
and care relating to a Release; or (D) bring the applicable party into
compliance with any Environmental Law.
Section 4.23 Disclosure. To Eagle's Knowledge, no representation or warranty
of Eagle in this Agreement and no statement in the Disclosure Letter (as
defined in Section 7.15 below) omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading. As used herein, Eagle's Knowledge shall mean the
actual knowledge of an officer of Eagle.
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ARTICLE V
Representations and Warranties
of Parent, Eagle Holdings and Merger Sub
Parent, Eagle Holdings and Merger Sub, jointly and severally, represent and
warrant to Eagle as follows:
Section 5.1 Corporate Existence and Power. Each of Parent, Eagle Holdings and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each have all corporate
powers required to carry on its business as now conducted. Each of Parent,
Eagle Holdings and Merger Sub is duly qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not have a Material Adverse Effect (as defined
below). For purposes of this Agreement, a "Material Adverse Effect" when used
with respect to Parent, Eagle Holdings or Merger Sub means (a) a material
adverse effect on Oklahoma Resin Business, its assets (including intangible
assets), liabilities, financial condition or results of operations or the
ability to continue the operations conducted by the Oklahoma Resin Business as
currently conducted, without the loss of any material rights and (b) a material
impairment in the ability of Parent, Eagle Holdings or Merger Sub to perform
any of its obligations under this Agreement or to consummate the Merger.
Section 5.2 Subsidiaries. Eagle Holdings does not own, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity other than Merger Sub. Merger Sub
does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity.
Section 5.3 Corporate Authorization. The execution, delivery and performance
by Parent, Eagle Holdings and Merger Sub of this Agreement and the consummation
by each of Parent, Eagle Holdings and Merger Sub of the transactions
contemplated hereby are within their respective corporate powers and have been
duly authorized by all necessary corporate action on the part of Parent, Eagle
Holdings and Merger Sub and the stockholders of Parent. This Agreement has been
duly and validly executed and delivered by each of Parent, Eagle Holdings and
Merger Sub, and constitutes a valid and binding agreement of each such party
enforceable in accordance with its terms. All corporate action necessary to the
authorization, creation, issuance and delivery of the Eagle Holdings Common
Stock has been taken by Eagle Holdings. The Eagle Holdings Common Stock, when
issued pursuant to the terms of this Agreement, will be duly authorized,
validly issued and delivered, fully paid and nonassessable, free from
preemptive rights and shall be free from any pledge, lien, encumbrance or
restriction.
Section 5.4 Governmental Authorization. The execution, delivery and
performance by Parent, Eagle Holdings and Merger Sub of this Agreement and the
consummation by Parent, Eagle Holdings and Merger Sub of the transactions
contemplated hereby require no action by or in respect of, or filing with, any
federal, state, local or foreign Governmental Entity other than (a) the filing
of Articles and Certificate of Merger in accordance with the MBCA and DGCL, (b)
compliance with any applicable requirements of the HSR Act, (c) compliance with
any applicable requirements of the Securities Act, (d) compliance with any
applicable requirements of the Exchange Act, (e) compliance with the rules or
regulations of Nasdaq, (f) compliance with the securities laws of various
states and (g) any action or filing, the failure to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect. No State Take
Over Laws (as defined in Section 7.8 below) are applicable to the Contemplated
Transactions.
Section 5.5 Non-Contravention. The execution, delivery and performance by
Parent, Eagle Holdings and Merger Sub of this Agreement does not, and the
consummation by Parent, Eagle Holdings and Merger Sub of the transactions
contemplated hereby will not, (a) contravene or conflict with the certificate
of incorporation or by-laws of either Parent, Eagle Holdings or Merger Sub, (b)
assuming compliance with the matters referred to in Section 5.4, contravene or
conflict with or constitute a violation of any provision of any law,
regulation,
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judgment, injunction, order or decree binding upon or applicable to Parent,
Eagle Holdings or Merger Sub, other than such contraventions, conflicts or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect, (c) constitute a breach or violation of, or a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of Parent, Eagle Holdings or Merger Sub or to a loss of any
benefit to which Parent, Eagle Holdings or Merger Sub is entitled under any
provision of, any agreement, contract or other instrument binding upon Parent,
Eagle Holdings or Merger Sub or any license, franchise, permit or other similar
authorization held by Parent, Eagle Holdings or Merger Sub, other than such
breaches, violations, defaults, rights or losses which would not, individually
or in the aggregate, have a Material Adverse Effect, or (d) result in the
creation or imposition of any Lien on any asset of Parent, Eagle Holdings or
Merger Sub, other than any such creation or imposition which would not,
individually or in the aggregate, have a Material Adverse Effect. Schedule 5.5
sets forth a true, complete and correct list of all consents, approvals and
authorizations required to be obtained by Parent, Eagle Holdings and Merger Sub
from any third party (other than as otherwise expressly contemplated by Section
5.4 of this Agreement) in connection with this Agreement, the Merger and the
transactions contemplated hereby.
Section 5.6 Capitalization.
(a) The authorized capital stock of Eagle Holdings consists of 75,510,000
shares, of which 60,000,000 shares of par value of $.01 each are designated
"Common Stock" or "Voting Common Stock," 3,500,000 shares of par value of $.01
each are designated "Class B Common Stock," and 12,010,000 shares of par value
of $.01 each are shares of "Preferred Stock." Of the total shares of Preferred
Stock, 2,000,000 shares of par value of $.01 each are designated "Series A
Preferred Stock," 10,000 shares of par value of $.01 each are designated
"Series B Preferred Stock," and 10,000,000 shares of par value of $.01 each are
currently undesignated shares of Preferred Stock. There are outstanding 1,000
shares of Eagle Holdings Common Stock; no other shares of Eagle Holdings
Capital Stock are issued or outstanding. No shares of Eagle Holdings Common
Stock are currently reserved for issuance upon exercise of outstanding stock
options, warrants or other rights to purchase shares of Eagle Holdings Common
Stock, except as contemplated by this Agreement. All outstanding shares of
Eagle Holdings Capital Stock are beneficially owned by Parent and are duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
liens and were issued in compliance with all applicable federal and state
securities laws. Except as set forth in this Section 5.6(a), or as otherwise
contemplated in this Agreement, there are outstanding (a) no shares of Eagle
Holdings Capital Stock or other voting securities of Eagle Holdings, (b) no
securities of Eagle Holdings convertible into or exchangeable for shares of
capital stock or voting securities of Eagle Holdings and (c) no options or
other rights to acquire from Eagle Holdings, and no obligation of Eagle
Holdings to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Eagle Holdings (the items in clauses (a), (b) and (c) being referred to
collectively as the "Eagle Holdings Securities"). Except as specifically
contemplated by this Agreement, there are no outstanding obligations of Eagle
Holdings to repurchase, redeem or otherwise acquire any Eagle Holdings
Securities.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares, par
value $0.01 per share, which consists of 1,000 shares of Merger Sub Common
Stock. There are outstanding 1,000 shares of Merger Sub Common Stock and no
other shares of Merger Sub capital stock. No shares of Merger Sub Common Stock
are reserved for issuance upon exercise of outstanding stock options, warrants
or other rights to purchase shares of Merger Sub Common Stock. All outstanding
shares of Merger Sub Common Stock are beneficially owned by Eagle Holdings and
are duly authorized, validly issued, fully paid and nonassessable, free and
clear of all Liens and were issued in compliance with all applicable federal
and state securities laws. Except as set forth in this Section 5.6(b) or as
otherwise contemplated in this Agreement, there are outstanding (a) no shares
of Merger Sub capital stock or other voting securities of Merger Sub, (b) no
securities of Merger Sub convertible into or exchangeable for shares of capital
stock or voting securities of Merger Sub and (c) no options or other rights to
acquire from Merger Sub, and no obligation of Merger Sub to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Merger Sub (the items in clauses (a), (b)
and (c) being referred to collectively as the "Merger Sub Securities"). Except
as specifically
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contemplated by this Agreement, there are no outstanding obligations of Merger
Sub to repurchase, redeem or otherwise acquire any Merger Sub Securities.
Section 5.7 Financial Statements. Parent has furnished Eagle true and
complete copies of the CONDEA Vista Company Oklahoma City Plant audited
Financial Statements with Report of Independent Accountants for the fiscal
years ended June 30, 1996, 1997 and 1998 ("Oklahoma Resin Business Financial
Statements"), as provided in Schedule 5.7 hereto. The Oklahoma Resin Business
Financial Statements have been prepared from the books and records kept by
Parent, and fairly present in all material respects the financial condition of
the Oklahoma Resin Business as of the respective dates thereof and the results
of the Oklahoma Resin Business for the periods covered thereby.
Section 5.8 Absence of Certain Changes or Events. Except as disclosed in
Schedule 5.8, and except as expressly contemplated by this Agreement, since the
Balance Sheet Date, Parent, Eagle Holdings and Merger Sub (as may be
applicable) have each conducted the Oklahoma Resin Business only in the
ordinary course, and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had a Material Adverse Effect;
(b) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the Oklahoma Resin Business which,
individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect;
(c) any (i) grant, except pursuant to agreements in effect on the date
of this Agreement, of any severance or termination pay to any officer or
employee of the Oklahoma Resin Business, (ii) entering into any material
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any officer or employee of
the Oklahoma Resin Business, (iii) material increase in benefits payable
under any existing severance or termination pay policies or employment
agreements or (iv) other than in the ordinary course of business consistent
with past practices, material increase in compensation, bonus or other
benefits payable to officers or employees of the Oklahoma Resin Business;
or
(d) any payment of a material obligation or liability (fixed or
contingent), or settlement of any claim or suit pending or threatened
against the Oklahoma Resin Business or its assets, other than in the
ordinary and normal course of business consistent with past practice.
Section 5.9 Litigation. There is no action, suit, investigation or proceeding
pending against or, to their Knowledge, threatened against, affecting or
relating to Parent's, Eagle Holdings' or Merger Sub's operation of the Oklahoma
Resin Business or the Oklahoma Resin Assets before any Governmental Entity or
by any Governmental Entity or any third party that if determined or resolved
adversely to Parent, Eagle Holdings or Merger Sub, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
Section 5.10 Labor Matters. Except as set forth on Schedule 5.10 hereto,
neither Parent, Eagle Holdings nor Merger Sub is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Parent, in connection with Parent's, Eagle Holdings' or Merger
Sub's operation of the Oklahoma Resin Business.
Section 5.11 Books and Records. The books of account and records (including
customer order files, employment records, licensing records, financial records,
and production and manufacturing records) of the Oklahoma Resin Business are
complete, true and correct in all material respects.
Section 5.12 Title to Assets. As of the date of this Agreement, Parent is the
only business organization through which the Oklahoma Resin Business is
conducted and all the Oklahoma Resin Assets used by Parent to conduct the
Oklahoma Resin Business are owned or leased by Parent. Immediately prior to the
Effective Time, Merger Sub will hold good and marketable title to all of the
assets of the Oklahoma Resin Business free and
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clear of all Liens, except as disclosed on Schedule 5.12. Subject to Section
7.17 herein, at the time of Closing, the actual manufacturing capacity of the
Oklahoma Resin Business will be at least 430,000,000 pounds annually.
Section 5.13 Tangible Personal Property. Except as disclosed on Schedule
5.13, all the tangible assets of the Oklahoma Resin Business are in good repair
and operating condition and will be maintained in good repair and operating
condition, ordinary wear and tear excepted, from the date of this Agreement
until the Effective Time. All warranties applicable to the assets of the
Oklahoma Resin Business, to the extent transferable and practicable under the
circumstances, will be maintained to the Effective Time.
Section 5.14 Licenses and Permits. Parent, Eagle Holdings and Merger Sub
possess all permits, licenses, approvals and notifications, governmental or
otherwise, required to operate the Oklahoma Resin Business,(other than those
licenses which will be used by Parent in providing services under the Services
Agreement referred to in Section 8.1(l) below) the absence of which would have
a Material Adverse Effect. Except as disclosed on Schedule 5.14, all of such
licenses and permits are freely assignable and transferable to Eagle at the
Effective Time and will continue to be in full force and effect after the
Merger.
Section 5.15 Real Property. Schedule 5.15 is an accurate and complete list of
all real property owned or leased and used by Parent, Eagle Holdings or Merger
Sub in the Oklahoma Resin Business. Neither Parent, Eagle Holdings nor Merger
Sub has received notice of the initiation of any condemnation proceeding with
respect to such real property, or offer of a sale in lieu thereof, nor has
Parent, Eagle Holdings or Merger Sub breached (or received any claim that it
has breached) any of the terms or conditions of such leases in any material
respect. Except as disclosed on Schedule 5.15, immediately prior to the
Effective Time, Merger Sub shall own or lease such real property, free and
clear of all Liens, except Permitted Liens.
Section 5.16 Personal Property. Schedule 5.16 contains an accurate and
complete list of all material personal property necessary in the operation of
the Oklahoma Resin Business.
Section 5.17 Trademarks, Patents and Copyrights. Schedule 5.17 contains an
accurate and complete list of all licenses or other valid rights to use, all
patents, patent rights, trade secrets, applications to register and
registrations for, the foregoing patents, know-how and other proprietary rights
and information used in connection with the Oklahoma Resin Business as
currently conducted (the "Parent Intellectual Property"). As of the date of
this Agreement, Parent will, and immediately prior to the Effective Time,
Merger Sub will, own, or possess through a nonexclusive, paid-up license with
no right to sublicense, the Parent Intellectual Property, free and clear of all
liens and restrictions, except as contemplated herein. No assertion or claim
has been made challenging the validity of any of Parent's or Merger Sub's
rights to such Parent Intellectual Property. The conduct of the Oklahoma Resin
Business as currently conducted does not conflict with, or infringe upon any
patent, patent rights, license or other proprietary right of any other person,
and neither Parent, Eagle Holdings nor Merger Sub has received a claim or
threat that any such conflict exists, and no litigation, claim, suit, action,
preceding or complaint concerning the foregoing has been filed or is ongoing.
Except as set forth in Schedule 5.17 hereto, Parent, Eagle Holdings and Merger
Sub, as the case may be, have the unencumbered right to sell the products and
services of the Oklahoma Resin Business (whether now offered for sale or under
development) free from any royalty or other obligations to any third parties.
Section 5.18 Contracts and Other Agreements.
(a) All contracts and agreements material to the Oklahoma Resin Business
(except for contracts relating to the sale of PVC) are listed on Schedule 5.18
hereto and are valid, existing, and in full force and effect, and binding upon
Parent, Eagle Holdings or Merger Sub, as the case may be, and to the Knowledge
of Parent, Eagle Holdings or Merger Sub, such contracts and other agreements
are binding upon the other parties thereto in accordance with their terms, and
Parent, Eagle Holdings and Merger Sub have paid in full or accrued all amounts
now due from such parties thereunder and have satisfied in full or provided for
all their liabilities and obligations thereunder which are presently required
to be satisfied or provided for, and are not in default under
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any of them, nor, to the Knowledge of Parent, Eagle Holdings or Merger Sub is
any other party to any such contract or other agreement in default thereunder,
nor does any condition exist that with notice or lapse of time or both would
constitute a default thereunder relating to the Oklahoma Resin Business, except
for breaches, violations or defaults that, individually or in the aggregate, do
not have and could not reasonably be expected to have a Material Adverse
Effect.
(b) True and complete copies of all of the contracts and other agreements set
forth in Schedule 5.18 hereto have been previously provided to Eagle.
Section 5.19 Employee Benefit Plans.
(a) Schedule 5.19 sets forth a list of all Parent, Eagle Holdings and Merger
Sub employee benefit plans (as defined in Section 3(3) of ERISA) which Parent,
Eagle Holdings or Merger Sub maintain or to which Parent, Eagle Holdings or
Merger Sub contribute with respect to all employees and former employees of the
Oklahoma Resin Business (the "Parent Plans"). Except for the Parent Plans, with
respect to all employees and former employees of the Oklahoma Resin Business,
and all dependents and beneficiaries of such employees and former employees,
(i) neither Parent, Eagle Holdings nor Merger Sub maintains or contributes to
any nonqualified deferred compensation or retirement plans, contracts or
arrangements, (ii) neither Parent, Eagle Holdings or Merger Sub maintains or
contributes to any qualified defined contribution plans (as defined in Section
3(34) of ERISA, or Section 414(i) of the Code, (iii) neither Parent, Eagle
Holdings nor Merger Sub maintains or contributes to any qualified defined
benefit plans (as defined in Section 3(35) of ERISA or Section 414(j) of the
Code) and (iv) neither Parent, Eagle Holdings or Merger Sub maintains or
contributes to any employee welfare benefit plans (as defined in Section 3(1)
of ERISA or any voluntary employees' beneficiary association (as defined in
Section 501(c)(9) of the Code).
(b) To the Knowledge of Parent, Eagle Holdings and Merger Sub, all Parent
Plans comply in all material respects with the requirements of ERISA and the
Code, and are and have been operated in accordance with their terms, except for
such failures to comply which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
(c) Neither Parent, Eagle Holdings nor Merger Sub contributes (and none has
ever contributed) to any multi-employer plan, as defined in Section 3(37) of
ERISA. To the Knowledge of Parent, neither Parent, Eagle Holdings or Merger Sub
has any actual or potential liabilities under Section 4201 of ERISA for any
complete or partial withdrawal from a multi-employer plan. To the Knowledge of
Parent, neither Parent, Eagle Holdings or Merger Sub has any actual or
potential liability for death or medical benefits after separation from
employment, other than (i) death benefits under the employee benefit plans or
programs (whether or not subject to ERISA) and (ii) health care continuation
benefits described in Section 4980B of the Code. To the Knowledge of Parent,
Eagle Holdings or Merger Sub, neither Parent, Eagle Holdings nor Merger Sub has
any liability (i) to the IRS with respect to any Parent Plan, including any
liability imposed by Chapter 43 of the Code; (ii) to the Pension Benefit
Guaranty Corporation with respect to any Parent Plan; or (iii) under Sections
502 or 4071 of ERISA.
(d) Except to the extent required under the Parent Plans, by the Code or by
ERISA, the consummation of the Contemplated Transactions will not result in the
payment, vesting or acceleration of any benefit under any Parent Plan.
Section 5.20 Compliance with Laws. Except as disclosed in Schedule 5.20, in
connection with Parent's, Eagle Holdings' or Merger Sub's operation of the
Oklahoma Resin Business and the ownership of the Oklahoma Resin Assets, neither
Parent, Eagle Holdings nor Merger Sub (a) is in violation of, nor has it
violated in any material respect, any applicable provisions of any laws,
statutes, ordinances or regulations or (b) has received any notice from any
Governmental Entity or any other person that it is in violation of, or has
violated in any material respect, any applicable provisions of any laws,
statutes, ordinances or regulations, except in the case of clauses (a) and (b),
for violations, individually or in the aggregate, which have not had
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and could not reasonably be expected to have a Material Adverse Effect. Each of
Parent, Eagle Holdings and Merger Sub has all permits, licenses and franchises
from Governmental Entities required to operate the Oklahoma Resin Business as
now being conducted, as provided in Schedule 5.20, except for such permits,
licenses and franchises the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 5.21 Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent, Eagle Holdings or Merger Sub.
Section 5.22 Vote Required. The affirmative vote of holders of not less than
a majority of the outstanding shares of the Eagle Holdings Common Stock
entitled to vote is the only vote of holders of Eagle Holdings Capital Stock
required to approve this Agreement and the transactions contemplated hereby.
The only approvals required in order for Parent to enter into this Agreement
and consummate the transactions contemplated herein are the approvals of a
majority of the members of the Board of Directors of Parent and the Board of
Directors and Supervisory Board of each of RWE-DEA Aktiengesellschaft (fnr)
Mineraloel und Chemie and RWE Aktiengesellschaft.
Section 5.23 Tax Matters. Neither Parent, Eagle Holdings or Merger Sub, nor,
to their Knowledge, any of Parent's affiliates, has taken or agreed to take any
action, or knows of any circumstances, that (without regard to any action taken
or agreed to be taken by Eagle or any of its affiliates) would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
Section 5.24 Conduct of Business. Eagle Holdings and Merger Sub (i) have been
organized solely for the purpose of effecting the Merger and the transactions
contemplated by this Agreement, (ii) have not conducted any business and will
not, until prior to the Effective Time when Parent transfers the Oklahoma Resin
Business to Eagle Holdings, which subsequently transfers the Oklahoma Resin
Business to Merger Sub as contemplated by Article III herein, conduct any
business other than incident to their formation, the execution and delivery of
this Agreement and the other transactions contemplated by this Agreement.
Immediately prior to the Effective time, Merger Sub will have no liabilities of
any kind (contingent, fixed or otherwise) and will own all the Oklahoma Resin
Assets.
Section 5.25 Environmental Matters. Except as disclosed in Schedule 5.25:
(a) Parent, Eagle Holdings or Merger Sub has obtained all material
licenses, permits, authorizations, approvals and consents (the "Parent
Environmental Permits") from all Governmental Entities that are required in
respect of or for the operation of the Oklahoma Resin Business under any
applicable Environmental Law (as defined in Section 4.22 above), and each
of such Parent Environmental Permits is in full force and effect.
(b) Parent, Eagle Holdings and Merger Sub are in compliance with the
terms and conditions of all such Parent Environmental Permits and with all
applicable Environmental Laws, except for such failures that, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(c) (i) No site or facility now or previously owned, operated or leased
by Parent, Eagle Holdings or Merger Sub and used in the Oklahoma Resin
Business is listed or proposed for listing on the National Priorities List
or CERCLIS, promulgated pursuant to the CERCLA, and the rules and
regulations thereunder or on any similar state or local list of sites
requiring investigation or Remedial Action (defined below). (ii) Since June
30, 1994, neither Parent, Eagle Holdings nor Merger Sub has received any
written notice of any actual or alleged material violation of any
Environmental Law with respect to any of the facilities used in the
Oklahoma Resin Business. (iii) Neither Parent, Eagle Holdings nor Merger
Sub is subject to any material outstanding agreements with or orders of any
Governmental or Regulatory Authority or other person respecting (A)
Environmental Laws, (B) Remedial Action or (C) any Release of
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a Hazardous Material. (iv) Since June 30, 1994, neither Parent, Eagle
Holdings nor Merger Sub has received any written notice or request for
information pertaining to a response or removal action (as defined by
CERCLA), with respect to any of its sites or facilities now or previously
owned, operated or leased by it and used in the Oklahoma Resin Business.
(d) No Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by Parent, Eagle Holdings or
Merger Sub and used in the Oklahoma Resin Business, other than Liens that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
(e) There have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or that are in the
possession of, Parent, Eagle Holdings or Merger Sub in relation to any site
or facility owned, operated or leased by Parent, Eagle Holdings or Merger
Sub and used in the Oklahoma Resin Business, except those reports that have
been made available to Eagle prior to the execution of this Agreement.
(f) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, to Parent, Eagle Holdings or
Merger Sub's Knowledge, since June 30, 1994, no Hazardous Material has been
Released, disposed of or arranged to be disposed of by Parent, Eagle
Holdings or Merger Sub (i) at or about any site or facility now or
previously owned, operated or leased by Parent, Eagle Holdings or Merger
Sub and used in the Oklahoma Resin Business, other than Releases or
disposals permitted under orders issued by any Governmental Entity; or (ii)
at or about any site or facility listed or proposed for listing on the
National Priorities List or CERCLIS or any similar state or local list of
sites requiring investigation or Remedial Action.
Section 5.26 Disclosure. To Parent's, Eagle Holdings' and Merger Sub's
Knowledge, no representation or warranty of Parent, Eagle Holdings and Merger
Sub in this Agreement and no statement in the Disclosure Letter (as defined in
Section 7.15 below) omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading. As used herein, Parent's, Eagle Holdings' and Merger
Sub's Knowledge shall mean the actual knowledge of either William Knodel, Mark
Schneider, Paul Carrico, Steve Christiansen or Robert Whitlow.
ARTICLE VI
Covenants Relating to Conduct of Business
Section 6.1 Conduct of Business by Eagle. Except as contemplated by this
Agreement, and except as disclosed on Schedule 6.1, from the date hereof until
the Effective Time, Eagle shall conduct its business in the ordinary course
consistent with past practice and shall use its best efforts to preserve intact
its business organization and relationships with third parties and to keep
available the services of its present officers and employees. Without limiting
the generality of the foregoing, except as provided in this Agreement, from the
date hereof until the Effective Time, Eagle will not, without the prior written
approval of Parent, which will not be unreasonably withheld:
(a) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents;
(b) except as provided in Eagle's articles of incorporation and the
terms of the Eagle Capital Stock in effect or outstanding as of the date of
this Agreement, (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any
Eagle Capital Stock, (ii) split, combine or reclassify any Eagle Capital
Stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Eagle Capital Stock or
(iii) purchase, redeem or otherwise acquire any shares of Eagle Capital
Stock or any other securities of Eagle or any rights, warrants or options
to acquire any such shares or other securities;
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(c) issue, deliver, sell, pledge or otherwise encumber any shares of
Eagle Capital Stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the
issuance of shares of Eagle Common Stock upon the exercise of Eagle Options
in accordance with their present terms);
(d) except for the purchase of the Lamson PVC Pipe Business, acquire or
agree to acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any portion
of the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (ii) any assets that are material, individually or in
the aggregate, to Eagle, except purchases of inventory in the ordinary
course of business consistent with past practice;
(e) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting
principles;
(f) intentionally take any action that (without regard to any action
taken or agreed to be taken by Parent or any of its affiliates) would
prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a) of the Code;
(g) except as required to comply with applicable law, (i) adopt, enter
into, terminate or amend any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation
or other plan, trust arrangement or fund for the benefit or welfare of any
director (each, an "Eagle Benefit Plan"), (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee (except for normal increases or bonuses in the ordinary
course of business consistent with past practice), (iii) pay any benefit
not currently provided for under any Eagle Benefit Plan, (iv) except as
permitted in clause, (ii) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Eagle Benefit Plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any Eagle Benefit Plans or
agreement or awards made thereunder) or (v) take any action to fund or in
any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Eagle Benefit Plan; or
(h) authorize any of, or commit or agree to take any of, the foregoing
actions.
Section 6.2 Conduct of Business by Parent, Eagle Holdings and Merger
Sub. Except as contemplated by this Agreement, from the date hereof until the
Effective Time, Parent, Eagle Holdings and Merger Sub shall conduct the
Oklahoma Resin Business in the ordinary course consistent with past practice
and shall use their best efforts to preserve intact the Oklahoma Resin
Business' assets, properties, contracts, licenses and permits, business
organization and relationships with third parties and to keep available the
services of the present officers and employees of Eagle Holdings and Merger
Sub. Without limiting the generality of the foregoing, except as provided in
this Agreement, from the date hereof until the Effective Time, Parent, Eagle
Holdings and Merger Sub will not, without the prior written approval of Eagle,
which will not be unreasonably withheld:
(a) amend the certificate of incorporation, by-laws or other comparable
charter or organizational documents of Eagle Holdings or Merger Sub;
(b) set aside or pay any dividends on, or make any other distributions
(whether in cash, stock or property) in respect of, any Eagle Holdings or
Merger Sub Capital Stock, (ii) split, combine or reclassify any Eagle
Holdings or Merger Sub Capital Stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of Eagle Holdings or Merger Sub Capital Stock or (iii) purchase,
redeem or otherwise acquire any shares of Eagle Holdings or Merger Sub
Capital Stock or any other securities of Eagle Holdings or Merger Sub or
any rights, warrants or options to acquire any such shares or other
securities;
(c) except as contemplated in this Agreement, issue, deliver, sell,
pledge or otherwise encumber any shares of Eagle Holdings or Merger Sub
Capital Stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities;
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(d) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting
principles;
(e) intentionally take any action that (without regard to any action
taken or agreed to be taken by Eagle or any of its affiliates) would
prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a) of the Code;
(f) except as required to comply with applicable law or, as contemplated
in this Agreement, (i) adopt, enter into, terminate or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation or other plan, trust arrangement
or fund for the benefit or welfare of any person who will become an
employee of Eagle Holdings or Merger Sub (each, a "Parent Benefit Plan"),
(ii) increase in any manner the compensation or fringe benefits of, or pay
any bonus to, any person who will become an employee of Eagle Holdings or
Merger Sub (except for normal increases or bonuses in the ordinary course
of business consistent with past practice), (iii) pay any benefit not
currently provided for under any Parent Benefit Plan, (iv) except as
permitted in clause (ii), grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Parent Benefit
Plan (including the grant of stock options, stock appreciation rights,
stock based or stock related awards, performance units or restricted stock,
or the removal of existing restrictions in any Parent Benefit Plans or
agreement or awards made thereunder) or (v) take any action to fund or in
any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Parent Benefit Plan;
(g) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of, except as contemplated in this Agreement,
any of the Oklahoma Resin Assets;
(h) except in the ordinary course of business, modify, amend or
terminate any material contract, agreement, license or permit, relating to
the Oklahoma Resin Business or waive, release or assign any material rights
or claims;
(i) except for contracts for the sale of product in excess of Eagle's
internal requirements for calendar year 1999 (estimated to be 330,000,000
pounds), enter into any contracts, agreements, arrangements or
understandings relating to the distribution, sale or marketing by third
parties of Oklahoma Resin Business' products or products licensed by
Parent, Eagle Holdings or Merger Sub relating to Parent's, Eagle Holdings'
or Merger Sub's operation of the Oklahoma Resin Business;
(j) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to the Oklahoma Resin Business, except
purchases of inventory in the ordinary course of business consistent with
past practices; or
(k) authorize any of, or commit or agree to take any of, the foregoing
actions.
Section 6.3 Other Action. Eagle and Parent shall not, and Parent shall not
permit Eagle Holdings or Merger Sub to take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of the representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Merger and consummation of the transactions
contemplated by this Agreement set forth in Article VIII not being satisfied
(subject to Eagle's right to take action specifically permitted by Section
6.4).
Section 6.4 No Solicitation of Transactions. Each of Eagle, Parent, Eagle
Holdings and Merger Sub shall, and shall direct and use its commercially
reasonable efforts to cause their respective officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by them) not to initiate, solicit or
knowingly encourage, directly or indirectly (including by way of furnishing
non-public information or assistance), or take any other action to facilitate
knowingly, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as defined
below), or enter into or continue discussions or negotiations with any
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person or entity in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize any
of their respective officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by
them to take any such action. Eagle, Parent, Eagle Holdings and Merger Sub
shall notify each other of all inquiries or proposals which such party may
receive relating to any of such matters and if such inquiry or proposal is in
writing, such party shall deliver to the other party a copy of such inquiry or
proposal; provided, however, that nothing contained in this Section 6.4 shall
prohibit the Board of Directors of Eagle from (i) furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited, bona fide proposal to acquire Eagle pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer
or other similar transaction or to acquire a substantial portion of the assets
of Eagle if, and only to the extent that (A) the Board of Directors of Eagle
determines in good faith that such action is necessary for the Board of
Directors of Eagle to comply with its fiduciary duties to shareholders under
applicable law and (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such person or entity, Eagle (1)
provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, (2) receives from such person or entity an executed agreement to the
effect that such person or entity will not disclose any confidential
information of Eagle and (3) subject to the terms of any confidentiality
agreement to which Eagle is a party on the date hereof, keeps Parent informed
of the status (but not the terms) of any such discussions or negotiations; (ii)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer; or (iii) failing to make or withdrawing or modifying
a recommendation following the making of a proposal that constitutes, or may
reasonably be expected to lead to, a Competing Transaction if the Board of
Directors of Eagle determines in good faith that such action is necessary for
the Board of Directors of Eagle to comply with its fiduciary duties to
shareholders under applicable law. For purposes of this Agreement, "Competing
Transaction" shall mean (other than the transactions contemplated hereby) any
of the following: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction involving Eagle or the Oklahoma Resin
Business, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of Eagle, or the Oklahoma Resin
Business, taken as a whole, in a single transaction or series of transactions;
(iii) any tender offer or exchange offer for 50% or more of the shares of
Eagle, Parent, Eagle Holdings or Merger Sub Common Stock or the filing of a
registration statement under the Securities Act in connection therewith, (iv)
any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
having been formed which beneficially owns or has the right to acquire
beneficial ownership of, 50% or more of the shares of Eagle, Parent, Eagle
Holdings or Merger Sub Common Stock (other than through arbitrage
transactions); or (v) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
Section 6.5 Tax Status. Each party hereto shall use all reasonable efforts to
cause the Merger to qualify, and shall not take, and shall use all reasonable
efforts to prevent any affiliate of such party from taking, any actions which
could prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code.
ARTICLE VII
Additional Agreements
Section 7.1 Preparation of Registration Statement and the Proxy Statement;
Shareholders' Meeting.
(a) Eagle shall promptly take all action necessary in accordance with
Minnesota law and Eagle's articles of incorporation, as amended, and bylaws to
cause a meeting of Eagle shareholders (the "Shareholders Meeting") to be duly
called and held as soon as reasonably practicable following the date upon which
the Registration Statement (as defined below) becomes effective for the purpose
of voting upon the Merger, and shall use all reasonable efforts to obtain Eagle
shareholder approval of this Agreement and the Merger;
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provided, however, that Eagle may postpone or adjourn any Shareholders Meeting
to a date no later than December 31, 1998 in order to facilitate the
satisfaction of the condition set forth in Section 8.1(a). In accordance
therewith, Eagle shall, with the cooperation of Parent and Eagle Holdings,
prepare and file, as soon as reasonably practicable, a Proxy
Statement/Prospectus included as part of the Registration Statement (such Proxy
Statement/Prospectus together with Notice of Meeting, form of Proxy and any
letter or other materials to the Eagle shareholders included therein are
referred to in this Agreement as the "Proxy Statement/Prospectus"). Eagle shall
use all reasonable efforts to cause the Proxy Statement/Prospectus to be mailed
to the shareholders of Eagle as soon as reasonably practicable following its
effectiveness, with the date of mailing as mutually determined by Eagle and
Eagle Holdings.
(b) Parent and Eagle Holdings shall, with the cooperation of Eagle, prepare
and file, as soon as reasonably practicable, a Registration Statement under the
Securities Act registering the shares of Eagle Holdings Common Stock to be
issued in the Merger (the "Registration Statement"), which Registration
Statement shall include the Proxy Statement/Prospectus. Eagle Holdings will use
all reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly thereafter as practicable. Eagle Holdings shall also take
any action required to be taken under state blue sky or securities laws in
connection with the issuance of Eagle Holdings Common Stock pursuant to the
Merger. Eagle shall furnish to Eagle Holdings all information concerning Eagle
and the holders of its capital stock, and shall take such other action and
otherwise cooperate, as Eagle Holdings may reasonably request in connection
with such action.
(c) Each party shall notify the other parties promptly of the receipt of
comments of the SEC and of any requests by the SEC for amendments or
supplements to the Registration Statement and shall supply the other parties
with copies of all correspondence with the SEC with respect to the Registration
Statement.
(d) If at any time prior to the Shareholders Meeting, any event should occur
relating to Eagle or Eagle's officers or directors that is required to be
described in an amendment or supplement to the Proxy Statement/Prospectus or
the Registration Statement, Eagle shall promptly inform Parent and Eagle
Holdings. If at any time prior to the Shareholders Meeting, any event shall
occur relating to Parent, Eagle Holdings or Merger Subsidiary or their
respective officers or directors that is required to be described in an
amendment or supplement to the Proxy Statement/Prospectus or the Registration
Statement, Parent and Eagle Holdings shall promptly inform Eagle. Whenever any
event that occurs that should be described in an amendment of, or supplement
to, the Proxy Statement/Prospectus or the Registration Statement, Eagle or
Parent and Eagle Holdings, as the case may be, shall, upon learning of such
event, promptly notify the other and consult and cooperate with the other in
connection with the preparation of a mutually acceptable amendment or
supplement. The party shall promptly file such amendment or supplement with the
SEC and mail such amendment or supplement as soon as practicable after it is
cleared by the SEC.
Section 7.2 Information Supplied by Eagle. None of the information supplied
or to be supplied by Eagle specifically for inclusion or incorporation by
reference in the Proxy Statement/Prospectus will, at the date it is first
mailed to Eagle's shareholders and at the time of the Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations thereunder, except that no representation is made by Eagle with
respect to statements made or incorporated by reference therein based on
information supplied by Parent, Eagle Holdings, Merger Sub or Lamson
specifically for inclusion or incorporation by reference in the Registration
Statement or the Proxy Statement/Prospectus.
Section 7.3 Information Supplied by Parent, Eagle Holdings, and Merger
Sub. None of the information supplied or to be supplied by Parent, Eagle
Holdings or Merger Sub specifically for inclusion or incorporation by reference
in the Proxy Statement/Prospectus or the Registration Statement will, at the
time the Registration Statement or Proxy Statement/Prospectus is filed with the
SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit
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to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Registration Statement and Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations thereunder,
except that no representation is made by Parent, Eagle Holdings or Merger Sub
with respect to statements made or incorporated by reference therein based on
information supplied by Eagle or Lamson specifically for inclusion or
incorporation by reference in the Registration Statement or the Proxy
Statement/Prospectus.
Section 7.4 Access to Information. Subject to Section 7.5, from the date
hereof to the Effective Time, Parent, Eagle Holdings and Merger Sub on the one
hand and Eagle on the other hand shall each provide to the other access to all
information and documents which the other may reasonably request regarding the
business, assets, liabilities, employees and other aspects of the other party,
other than the information and documents that in the opinion of such other
party's legal counsel may not be disclosed under applicable law.
Section 7.5 Confidentiality. Neither Eagle on the one hand nor Parent, Eagle
Holdings, Merger Sub or any Parent Affiliate on the other hand shall release,
publish, reveal or disclose, directly or indirectly, any business and/or
technical information of the Other Party (as defined below) or any of its
subsidiaries designated orally or in writing as "Confidential" or "Proprietary"
(or in like words) or of a type typically regarded as confidential or
proprietary, whether or not so designated, including, but not limited to,
systems, processes, formulae, data, functional specifications, computer
programs, blueprints, know-how, improvements, discoveries, developments,
designs, inventions, techniques, new products, marketing and advertising
methods, supplier agreements, customer lists, pricing policies, financial
information, projections, forecasts, strategies, budgets or other information
related to its business or its customers (hereinafter referred to as
"Evaluation Material"), except (a) to such of its directors, officers,
employees, financial advisors, legal counsel, accountants or other agents,
advisors or representatives as shall require access thereto on a need-to-know
basis for the purpose of the transactions contemplated by this Agreement so
long as such persons are informed by the revealing party of the confidential
nature of such information and are directed by it to treat such information
confidentially and (b) with the prior written consent of the Other Party and
then only to the extent specified in such consent. The parties agree to take
all reasonable precautions to safeguard the confidentiality of the Evaluation
Material. Neither Eagle nor Parent or any of their respective subsidiaries
shall make, or permit to be made, except in furtherance of the transactions
contemplated by this Agreement, any copies, abstracts or summaries of the
Evaluation Material of the Other Party and its subsidiaries. In addition, all
such Evaluation Material shall be used solely for the purposes of the
investigations contemplated by Section 7.4, and shall not be otherwise used to
the detriment of the Other Party and its subsidiaries or in competition with
the Other Party and its subsidiaries. The restrictions on disclosure of
information contained in this Section 7.5 do not extend to any item of
information that (i) is publicly known at the time of its disclosure, (ii) is
lawfully received from a third party not bound in a confidential relationship
to the Other Party and its subsidiaries, (iii) is published or otherwise made
known to the public by the Other Party and its subsidiaries, (iv) was generated
independently before its receipt from the Other Party and its subsidiaries, (v)
is required to be disclosed pursuant to the rules and regulations of the
Securities Act, Exchange Act, Nasdaq, HSR Act or the MBCA, DGCL, state
securities laws or otherwise, or (vi) is required to be disclosed pursuant to a
governmental order or decree or other legal requirement to produce or disclose
such item of information, provided that upon receiving notice that any such
order or decree is being sought or that any such legal requirement is
applicable, such corporation shall promptly give the Other Party notice thereof
and such corporation shall cooperate with the Other Party's efforts, if any, to
contest the issuance of such order or decree or the application of such legal
requirement. Upon written request, the parties shall return all writings,
documents and materials containing Evaluation Material. Each of Eagle on the
one hand and Parent and its subsidiaries on the other hand understands that the
Other Party will not have an adequate remedy at law for a breach or threatened
breach by the revealing party or any of its subsidiaries of the terms of this
Section 7.5, and each corporation therefore agrees that if there is any such
breach or threatened breach, the Other Party may, in addition to any other
legal or equitable remedies available to it, obtain an injunction or
restraining order to enjoin the Other Party or any of its subsidiaries from the
breach or threatened breach of this Section 7.5. For purposes of this Section
7.5, (i) when used with
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reference to Parent or any of its subsidiaries, the term "Other Party" shall
mean Eagle and (ii) when used with respect to Eagle, the term "Other Party"
shall mean Parent and any of its subsidiaries.
Section 7.6 Public Announcements. Each party will consult with each other
party before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with any national
securities exchange or Nasdaq, will not issue any such press release or make
any such public statement prior to such consultation and the consent of all
parties hereto. The parties have agreed on the text of a press release by which
Eagle will announce the execution of this Agreement.
Section 7.7 Appropriate Action; Consents; Filings.
(a) Eagle on the one hand and Parent, Eagle Holdings and Merger Sub on the
other hand shall use their best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper
or advisable under applicable law or required to be taken by any Governmental
Entity or otherwise to consummate the Merger and the transactions contemplated
by this Agreement as promptly as practicable, (ii) obtain from any Governmental
Entities any consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by Eagle or Parent, Eagle Holdings or
Merger Sub in connection with the authorization, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act, the Exchange Act and any other applicable federal or state
securities laws, (B) the HSR Act and any related governmental request
thereunder and (C) any other applicable law; provided that Parent, Eagle
Holdings and Merger Sub on the one hand and Eagle on the other hand shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and
its advisors prior to filing and, if requested, to accept all reasonable
additions, deletions or changes suggested in connection therewith. Eagle on the
one hand and Parent, Eagle Holdings and Merger Sub on the other hand shall use
reasonable best efforts to furnish to each other all information required for
any application or other filing to be made pursuant to the rules and
regulations of any applicable law (including all information required to be
included in the Proxy Statement) in connection with the transactions
contemplated by this Agreement.
(b) (i) Each of Eagle and Parent shall give (or Parent shall cause its
subsidiaries to give) any notices to third parties, and use (and Parent shall
cause subsidiaries to use), their reasonable best efforts to obtain any third
party consents, (A) necessary to consummate the Merger and the transactions
contemplated by this Agreement, (B) disclosed or required to be disclosed in
the schedules to this Agreement or (C) required to prevent a Material Adverse
Effect.
(ii) In the event that Parent or Eagle shall fail to obtain any third party
consent described in subsection (b) (i) above, it shall use its reasonable best
efforts, and shall take any such actions reasonably requested by the other
party, to minimize any adverse effect upon Eagle and Parent, their respective
subsidiaries and the Oklahoma Resin Business, or which could reasonably be
expected to result after the Effective Time, from the failure to obtain such
consent.
(c) From the date of this Agreement until the Effective Time, each party
shall promptly notify the other party of any pending or, to the actual
knowledge of the executive officers of the first party, threatened action,
proceeding or investigation by any Governmental Entity or any other person (i)
challenging or seeking material damages in connection with the Merger or the
conversion of Eagle Capital Stock into Eagle Holdings Capital Stock pursuant to
the Merger or (ii) seeking to restrain or prohibit the consummation of the
Merger or otherwise limit the right of Eagle to own or operate all of any
portion of the Oklahoma Resin Business or its assets, which in either case is
reasonably likely to have a Material Adverse Effect.
Section 7.8 State Statutes. If any state "control share acquisition," anti-
takeover" or other similar statutes and regulations (collectively, "State
Takeover Laws") shall become applicable to the transactions
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contemplated by this Agreement, each of Eagle and Parent, Eagle Holdings or
Merger Sub, as the case may be, and their respective Boards of Directors shall
use their reasonable best efforts to grant such approvals and take such actions
as are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such State Takeover Law on
the transactions contemplated by this Agreement. Nothing herein shall limit or
affect Eagle in taking actions specifically permitted by Section 6.4.
Section 7.9 Obligations of Merger Sub. Parent shall take all action necessary
to cause Eagle Holdings and Merger Sub to perform their obligations under this
Agreement, including the transfer of the Oklahoma Resin Business to Merger Sub,
and to consummate the Merger on the terms and subject to conditions set forth
in this Agreement.
Section 7.10 Employee Benefits.
(a) For a period of up to one (1) year commencing at the Effective Time
("Transition Period"), Parent agrees to allow all Oklahoma Resin Business
employees and certain sales/administrative employees who were employed by
Parent immediately prior to the Effective Time and who are not "highly
compensated employees" as defined in the Code Section 414(q) (the "Transferred
Employees"), to continue to participate in and accrue benefits under the
Retirement Plan of CONDEA Vista Company ("Retirement Plan") and the Savings and
Investment Plan of CONDEA Vista Company ("Savings Plan"), the cost of such
benefits to be paid for by Surviving Corporation, and Parent agrees to make any
lawful amendments to the Retirement Plan and Savings Plan or perform any lawful
actions which are necessary to allow for the Transferred Employees' continued
participation in the Retirement Plan and Savings Plan during the Transition
Period. Surviving Corporation agrees to take any lawful actions, necessary to
allow for the Transferred Employees' participation in the Retirement Plan and
Savings Plan during the Transition Period. Surviving Corporation and Parent
agree that the administration of the Retirement Plan and Savings Plan for the
continued participation of the Transferred Employees during the Transition
Period will be conducted in accordance with the Support Services Agreement. On
the last day of the Transition Period, Transferred Employees shall cease
participation in the Retirement Plan and Savings Plan.
(b) In addition, Surviving Corporation shall take such lawful actions as are
necessary so that, during the Transition Period, all Transferred Employees may
participate in and receive benefits under Surviving Corporation's welfare
benefit plans, listed in Schedule 4.17 herein, and may obtain credit for
service with Parent under such welfare benefit plans for all purposes for which
such service was recognized under the benefit plan in question, provided,
however, that the granting of such service shall not result in a duplication of
benefits provided to the Transferred Employees who become employees of the
Surviving Corporation. To the extent any such welfare benefit plans provide
medical or dental benefits after the Effective Time, such benefit plans shall
waive any preexisting conditions, exclusions and waiting periods for plan
participation, and shall provide that any expenses incurred on or before the
Effective Time shall be taken into account under the benefit plans of the
Surviving Corporation for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
(c) Eagle will provide to those "highly compensated employees" (as defined in
Code Section 414(q)) of the Oklahoma Resin Business employee benefits plans and
programs as will provide benefits which in the aggregate are substantially
similar to those provided to such employees as of the Effective Time.
(d) Surviving Corporation shall credit the Transferred Employees, including
highly compensated employees, for service provided to Parent for purposes of
participation, eligibility and vesting under the Eagle Plans maintained by
Surviving Corporation.
Section 7.11 Environmental Liabilities.
(a) For a period of ninety (90) months from the Closing Date, Parent shall
remain liable with respect to all liabilities and obligations arising out of or
relating to any Environmental Law, whether arising under contract,
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by law or otherwise, or any disposal or release or alleged release of any
pollutant occurring in or on the sites or facilities previously owned,
operated, or leased by Parent, Eagle Holdings or Merger Sub and used in the
Oklahoma Resin Business prior to Closing Date, and for such ninety (90) month
period any such obligations and liabilities will be Parent's "Retained
Environmental Liabilities" for all purposes under this Agreement. At the end of
such ninety (90) month period, Eagle will be solely liable for all liabilities
and obligations arising out of or relating to any Environmental Law, whether
arising under contract, by law or otherwise, occurring in or on sites or
facilities previously owned, operated, or leased by Parent, Eagle Holdings or
Merger Sub and used in the Oklahoma Resin Business prior to the Closing Date
which are not disclosed on Schedule 5.25 or discovered during such ninety (90)
month period, and any such liabilities or obligations will thereafter be
Eagle's "Assumed Environmental Liabilities" for all purposes under this
Agreement; provided, however, that Parent shall remain liable for all
liabilities and obligations arising out of or relating to any Environmental Law
occurring in or on the sites or facilities previously owned, operated, or
leased by Parent, Eagle Holdings, or Merger Sub, and used in the Oklahoma Resin
Business prior to the Closing Date which are either discovered during such
ninety (90) month period or disclosed on Schedule 5.25.
(b) Parent shall remain liable for all liabilities and obligations arising
out of or relating to any Environmental Law in or on any real property other
than sites or facilities previously owned, operated, or leased by Parent, Eagle
Holdings, or Merger Sub, and used in the Oklahoma Resin Business prior to the
Closing Date, which liabilities and obligations shall be part of the Parent's
"Retained Environmental Liabilities."
(c) Nothing in this Section 7.11 shall require Eagle or Parent, as the case
may be, to (i) take action relating to, or (ii) indemnify the other party
pursuant to Section 7.12 of this Agreement for any liabilities associated with,
any obligations or liabilities arising out of or relating to any Environmental
Law unless required by any Environmental Law or any Governmental Entity.
(d) Eagle and Parent will consult when necessary regarding whether a
liability or obligation has arisen out of any requirement of Environmental Law
which liability or obligation is Parent's "Retained Environmental Liability"
under Sections 7.11(a) or (b) above. If Parent and Eagle are unable to reach a
consensus about whether any Environmental Law requires any action in regard to
any such liability or obligation, Parent and Eagle will jointly consult with
applicable Governmental Entities to obtain a determination of the requirements
of Environmental Law as well as a procedure in the event any action is required
by Environmental Law.
(e) With input and oversight from Eagle, Parent will take the lead in
performing activities required by any Environmental Law with respect to any
liability or obligation which is Parent's "Retained Environmental Liability,"
and Parent will be given reasonable and appropriate access to the sites and
facilities previously owned, operated or leased by Parent, Eagle Holdings, or
Merger Sub, and used in the Oklahoma Resin Business to accomplish the same and
will use its commercially reasonable efforts to perform such activities. These
activities may include hiring and managing contractors and leading negotiations
with Governmental Entities. Each of Parent and Eagle shall use commercially
reasonable efforts to reach a consensus concerning any actions, to: (i)
participate in contractor selection; (ii) review contractor scopes of work,
data, and deliverables; and (iii) participate in discussions and negotiations
with Governmental Entities.
Section 7.12 Indemnification.
(a) From and after the Closing Date, Parent shall indemnify, defend and hold
Eagle, its affiliates, officers, directors, employees and agents, harmless from
and against any and all liabilities of Merger Sub or Parent that are actually
incurred by Eagle, in connection with the transactions contemplated by this
Agreement to the extent arising from (i) Parent's Retained Environmental
Liabilities under Sections 7.11(a) and (b) above; (ii) Parent's, Eagle
Holdings' or Merger Sub's operation of the Oklahoma Resin Business and/or
transfer of the Oklahoma Resin Assets on or prior to the Closing Date; (iii)
any breach of any covenant, obligation or agreement of Parent, Eagle Holdings
or Merger Sub contained in this Agreement; and (iv) any breach of any
representation or warranty of Parent, Eagle Holdings or Merger Sub contained in
this Agreement.
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(b) From and after the Closing Date, Eagle shall indemnify, defend and hold
Parent, its affiliates, officers, directors, stockholders, employees and
agents, harmless from and against any and all liabilities that are actually
incurred by Parent, Eagle Holdings or Merger Sub, in connection with the
transaction as contemplated by this Agreement to the extent arising from (i)
Eagle's Assumed Environmental Liabilities under Section 7.11(a) above; (ii)
Eagle's operation of the Oklahoma Resin Business after the Closing Date,
including liabilities arising from Environmental Laws after the Closing Date;
(iii) any breach of any covenant, obligation or agreement of Eagle contained in
this Agreement; and (iv) any breach of any representation or warranty of Eagle
contained in this Agreement.
(c) Time Limitation. The right of Eagle or Parent (or their respective
related parties as described in Sections 7.12(a) and (b) above) to
indemnification pursuant to this Section 7.12 shall apply only to those claims
for indemnification, notice of which is given pursuant to this Agreement on or
before the respective dates set forth below:
(i) No time limit shall apply to any right to indemnification for any
claim made by Eagle pursuant to Section 7.12(a)(i), (ii) or (iii) or by
Parent pursuant to Section 7.12(b)(i), (ii) or (iii);
(ii) Any claim for indemnification by Eagle pursuant to Section
7.12(a)(iv) or by Parent pursuant to Section 7.12(b)(iv) shall be made no
later than the date that is one year following the Closing Date.
(d) Notice of Third Party Indemnification Claims. In the event any party
receives written notice (the "Indemnified Party") of the commencement of any
action or proceeding, the assertion of any claim by a third party or the
imposition of any penalty or assessment for which indemnity may be sought
pursuant to this Section 7.12(d) ("Third Party Claim") and seeks indemnity
pursuant to this Section 7.12(d), the Indemnified Party shall promptly provide
the other party from which indemnification is sought (the "Indemnifying Party")
with notice of such Third Party Claim. If the Indemnifying Party agrees in
writing to indemnify the Indemnified Party pursuant to this Article, the
Indemnifying Party shall, upon receipt of such notice, be entitled to
participate in or, at the Indemnifying Party's option, assume the defense,
appeal or settlement of such Third Party Claim with respect to which such
indemnity has been invoked with counsel of its choosing, and the Indemnified
Party will fully cooperate with the Indemnifying Party in connection therewith
provided that the Indemnified Party shall be entitled to participate in
defense, appeal, settlement of such Third Party Claim at the Indemnified
Party's expense. If the Indemnified Party fails to give the Indemnifying Party
notice in a timely manner and the Indemnifying Party is materially prejudiced
in its defense by such failure, the Indemnifying Party's liability in respect
to such claim shall be reduced to the extent of such prejudice. In the event
that the Indemnifying Party fails to assume defense, appeal or settlement of
such Third Party Claim or refuses in writing to indemnify the Indemnified party
pursuant to this Section 7.12 within 30 days after receipt of notice thereof
from the Indemnified Party, the Indemnified Party shall have the right to
undertake the defense or appeal of such Third Party Claim at the Indemnifying
Party's expense, provided that the Indemnified Party shall not settle or
compromise any such Third Party Claim without providing thirty days notice to
the Indemnifying Party and an opportunity, provided the Indemnifying Party
agrees in writing to indemnify the Indemnified Party pursuant to this Section
7.12, to assume the defense, appeal or settlement of such Third Party Claim.
(e) Notice of Other Claims. Any indemnifiable claim that is not a Third Party
Claim shall be asserted by written notice by any party to the party from which
indemnification is sought. If the party from which indemnification is sought
does not respond in writing to such notice within 30 days, it shall have no
further right to contest the validity of such claim.
(f) Manner of Indemnification. All indemnification hereunder shall be
effective by payment of immediately available funds by wire transfer in the
amount of the liability.
Section 7.13 Comfort Letters.
(a) Eagle shall use all reasonable efforts to cause Deloitte & Touche, LLP
and Ernst & Young, its independent auditors, to deliver a letter dated as of
the date of the Proxy Statement, and addressed to itself and
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Parent and their respective Boards of Directors, in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
agreed upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Registration Statement and the Proxy Statement.
(b) Parent shall use all reasonable efforts to cause PricewaterhouseCoopers,
LLP to deliver a letter dated as of the date of the Proxy Statement, and
addressed to itself and Eagle and their respective Boards of Directors, in form
and substance reasonably satisfactory to Eagle and customary in scope and
substance for agreed upon procedures letters delivered by independent public
accounts in connection with registration statements and proxy statements
similar to the Registration Statement and the Proxy Statement.
Section 7.14 Additional Agreements. Eagle and Parent shall enter into a VCM
Supply Agreement in the form agreed upon, and shall negotiate in good faith and
enter into a Marketing Agreement and Services Agreement.
Section 7.15 Assumption of Stock Option Plan. Eagle Holdings shall adopt a
stock option plan in substantially the same form as Eagle's 1997 Stock Option
Plan and reserve sufficient shares of Eagle Holdings Common Stock for the
exercise of all outstanding options and the issuance of an additional 364,000
shares of Eagle Holdings Common Stock through the future grant of options.
Eagle Holdings shall assume at the Effective Time each stock option that
remains unexercised in whole or in part as of the Effective Time under Eagle's
1997 Stock Option Plan and substitute shares of Eagle Holdings Common Stock for
the shares of Eagle Common Stock, purchasable under each such assumed option in
accordance with Section 2.5 hereof.
Section 7.16 Disclosure Letters. Each of Eagle and Parent shall prepare
disclosure letters with regard to their representations and warranties
contained herein (the "Disclosure Letters"). All references herein to Schedules
shall be deemed to be references to the Disclosure Letters. The disclosures in
the Disclosure Letter, and those in any supplement thereto, shall expressly
refer to a Section of this Agreement; provided, however, that disclosures in
the Disclosure Letter expressly referring to a Section of this Agreement may
incorporate by reference the disclosures in any other Section of the Disclosure
Letter by express reference to that other Section. Each party shall deliver to
the other a Supplement to such party's Disclosure Letter promptly after such
party becomes aware of any event which changes any representation or warranty
made by such party in this Agreement or any statement made in such Disclosure
Letter or in any Supplement.
Section 7.17 Production of Oklahoma Resin Business. Parent shall take all
lawful and appropriate steps as necessary to ensure that on or before July 31,
1999, the actual manufacturing capacity of the Oklahoma Resin Business shall be
at least 450,000,000 pounds annually.
Section 7.18 Stockholders' Agreement. Eagle Holdings, Parent and certain
shareholders of Eagle shall enter into the Stockholders' Agreement in the form
agreed upon and attached as Exhibit 7.18 hereto.
ARTICLE VIII
Conditions to the Merger
Section 8.1 Conditions of Each Party's Obligation to Effect the Merger. The
respective obligations of Eagle, Parent, Eagle Holdings, and Merger Sub to
consummate the Merger are subject to the satisfaction upon or prior to the
Closing of the following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
approved by the affirmative vote of the holders of a combined majority of
shares of the outstanding Eagle Common Stock and Eagle Series A Stock,
voting as a single class, in accordance with the MBCA and the articles of
incorporation and bylaws of Eagle.
(b) Governmental Entity Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity
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necessary for the consummation of the transactions contemplated by this
Agreement shall have been filed, expired or been obtained.
(c) Registration Statement. The Registration Statement (as amended or
supplemented) shall have become effective under the Securities Act and
shall not be subject to any "stop order," and no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness or qualification
thereof shall have been initiated and be continuing or have been threatened
and be unresolved. Eagle Holdings shall also have received all state
securities law or blue sky authorizations necessary to carry out the
transactions contemplated hereby.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(e) Statutes. No action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity which would (i)
make the consummation of the Merger illegal or (ii) render Eagle, Parent,
Eagle Holdings or Merger Sub unable to consummate the Merger, except for
any waiting period provisions.
(f) Eagle's Purchase of the Lamson PVC Pipe Business. Eagle shall have
consummated the asset purchase of the Lamson PVC Pipe Business on
substantially the same terms as those contemplated by the Asset Purchase
Agreement.
(g) Listing of Eagle Holdings Common Stock on Nasdaq or New York Stock
Exchange. The Shares of Eagle Holdings Common Stock to be delivered
pursuant to the Merger shall have been duly listed on Nasdaq or the New
York Stock Exchange.
(h) Governmental Entity Requirements. No Governmental Entity shall have
required the sale or other disposition of any of the assets or operations
of Eagle, Eagle Holdings, Parent or Merger Sub in order to effectuate the
Contemplated Transactions and prior to the Closing Date, no proceeding or
lawsuit shall have been commenced and be pending or be threatened which any
party in good faith and acting on the advice of counsel believes is
reasonably likely to result in the foregoing.
(i) Disclosure Letters. Eagle and Parent shall have received the
Disclosure Letters and Comfort Letters referred to in Sections 7.15 and
7.12, respectively.
(j) HSR Act. Eagle, Lamson and Parent shall have fully complied with the
applicable provisions of the HSR Act, and any and all applicable waiting
periods thereunder shall have expired or been terminated.
(k) Stockholders' Agreement. Parent, Eagle Holdings and certain
shareholders of Eagle shall have executed the Stockholders' Agreement.
(l) Additional Agreements. Eagle and Parent shall have entered into a
VCM Supply Agreement in the form agreed upon and shall have negotiated and
entered into a Marketing Agreement and Services Agreement.
Section 8.2 Conditions of Obligations of Parent, Eagle Holdings and Merger
Sub. The obligations of Parent, Eagle Holdings and Merger Sub to effect the
Merger are subject to the satisfaction prior to or upon the Closing of the
following conditions, unless waived by Parent, Eagle Holdings and Merger Sub.
(a) Representations and Warranties. The representations and warranties
of Eagle set forth in this Agreement, without regard to any qualification
or reference to immateriality or "Material Adverse Effect," shall be true
and correct in all respects as of the Closing Date, as though made on and
as of such date (provided that those representations or warranties made as
of a particular date need only be true and correct as of such date), except
for any inaccuracies which, individually or in the aggregate, have not had,
and would not have, a Material Adverse Effect; provided, however, that
there shall be deemed not to be such a Material Adverse Effect to the
extent that such effect is the result of conditions or facts affecting the
economy generally or the industry in which Eagle operates or the result of
the announcement of the Merger or actions taken in contemplation thereof.
Parent shall have received a certificate signed on behalf of Eagle by the
chief executive officer and the chief financial officer of Eagle to such
effect.
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(b) Performance of Obligations of Eagle. Eagle shall have performed in
all material respects all obligations and covenants required to be
performed by it under this Agreement prior to or as of the Closing Date,
and Parent shall have received a certificate signed on behalf of Eagle by
the chief executive officer and the chief financial officer of Eagle to
such effect.
(c) Consents. The consents, approvals and authorizations described in
Schedule 4.4 shall have been obtained in form and in substance reasonably
satisfactory to each of Parent, Eagle Holdings and Merger Sub, except for
such consents, approvals and authorizations with respect to which the
failure to obtain would not have a Material Adverse Effect.
(d) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the current or
future business, financial condition or results of operations of Eagle
having or reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect. Parent shall have received a certificate of the
President and the Chief Financial Officer of Eagle, dated the Closing Date,
to such effect.
(e) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of Parent, to the continuing operation of the
current or future business of Eagle, which imposes any condition or
restriction upon Eagle Holdings or the business or operations of Eagle
which, in the reasonable business judgment of Parent, would be materially
burdensome in the context of the transactions contemplated by this
Agreement.
(f) Tax Opinion. Eagle shall have received prior to the time that the
Registration Statement shall have become effective under the Securities
Act, an opinion in form and substance satisfactory to Eagle of Fredrikson &
Byron, P.A., to the effect that (i) the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, (ii) Merger Sub, Eagle Holdings, and Eagle will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code and (iii) no income, gain or loss will be recognized for Federal
income tax purposes by shareholders of Eagle upon the exchange in the
Merger of Eagle Capital Stock solely for shares of Eagle Holdings Capital
Stock, and such opinion shall not have been withdrawn on or prior to the
Closing Date. In connection with such opinion, counsel shall be entitled to
rely upon certain representations of Eagle, Parent, Eagle Holdings and
Merger Sub.
(g) Dissenting Shares. The Dissenting Shares shall not constitute, in
the aggregate, more than 5% of the outstanding shares of Eagle Capital
Stock, and Eagle shall have taken all action with respect to such
Dissenting Shares required of it pursuant to the MBCA.
(h) Series B Consent. Eagle shall have obtained waivers or consents
satisfactory to Parent from all of the beneficial owners of the Eagle
Series B Stock necessary for the consummation of the Contemplated
Transactions.
(i) Dividends. Eagle shall have made all required payments of dividends
on the Eagle Capital Stock pursuant to the terms of Eagle's articles of
incorporation.
(j) Legal Opinion. Parent shall have received from Fredrikson & Byron,
P.A., counsel for Eagle, an opinion in the form attached hereto as Exhibit
8.2(j).
Section 8.3 Conditions of Obligation of Eagle. The obligation of Eagle to
effect the Merger is subject to the satisfaction prior to or upon the Closing
of the following conditions, unless waived by Eagle:
(a) Representations and Warranties. The representations and warranties
of Parent, Eagle Holdings and Merger Sub set forth in this Agreement,
without regard to any qualification or reference to immateriality or
"Material Adverse Effect," shall be true and correct in all respects as of
the Closing Date, as though made on and as of such date (provided that
those representations or warranties made as of a particular date need only
be true and correct as of such date), except for any inaccuracies which,
individually or in the aggregate, have not had, and would not have, a
Material Adverse Effect; provided,
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however, that there shall be deemed not to be such a Material Adverse
Effect to the extent that such effect is the result of conditions or
factors affecting the economy generally or the industry in which the
Oklahoma Resin Business operates or the result of the announcement of the
Merger or actions taken in contemplation thereof. Eagle shall have received
a certificate signed by the chief executive officers and the chief
financial officers of Parent, Eagle Holdings and Merger Sub to such effect.
(b) Performance of Obligations of Parent, Eagle Holdings and Merger
Sub. Parent, Eagle Holdings and Merger Sub shall have performed in all
material respects all obligations and covenants required to be performed by
them under this Agreement prior to or as of the Closing Date, and Eagle
shall have received a certificate signed by the chief executive officers
and the chief financial officers of Parent, Eagle Holdings and Merger Sub
to such effect.
(c) Tax Opinion. Parent shall have received prior to the time that the
Registration Statement shall have become effective under the Securities
Act, an opinion in form and substance satisfactory to Parent of Haynes and
Boone LLP, to the effect that (i) the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, (ii) Merger Sub, Eagle Holdings, and Eagle will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code and (iii) no income, gain or loss will be recognized for Federal
income tax purposes by Parent upon the exchange in the Merger of Merger Sub
Capital Stock solely for shares of Surviving Corporation Capital Stock, and
such opinion shall not have been withdrawn on or prior to the Closing Date.
In connection with such opinion, counsel shall be entitled to rely upon
certain representations of Eagle, Parent, Eagle Holdings and Merger Sub.
(d) Consents. The consents, approvals and authorizations described in
Schedule 5.5 shall have been obtained in form and substance reasonably
satisfactory to Eagle, except for such consents, approvals and
authorizations with respect to which the failure to obtain would not have a
Material Adverse Effect.
(e) Transfer of the Oklahoma Resin Assets from Parent to Merger
Sub. Parent shall have caused the transfer, assignment, and conveyance of
the Oklahoma Resin Business to Merger Sub, as provided in Article III, and
Merger Sub shall own or lease, or have rights to, all the tangible and
intangible assets or real and personal property, and all other assets,
right and benefits of the Oklahoma Resin Assets.
(f) Fairness Opinion. Eagle shall have received from Doherty Summit
Securities LLC an opinion in form and substance reasonably satisfactory to
Eagle that the Merger and other transactions contemplated by Article III
and this Agreement are fair to the shareholders of Eagle from a financial
point of view.
(g) Legal Opinion. Eagle shall have received from Haynes and Boone, LLP,
counsel for Parent, an opinion in the form attached hereto as Exhibit
8.3(g).
(h) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the current or
future business, financial condition or results of operations of the
Oklahoma Resin Business having or reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect. Eagle shall have received a
certificate of the President and the Chief Financial Officer of Parent,
dated the Closing Date, to such effect.
(i) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of Eagle, to the continuing operation of the
current or future Oklahoma Resin Business, which imposes any condition or
restriction upon Eagle Holdings or the operation of the Oklahoma Resin
Business which, in the reasonable business judgment of Eagle, would be
materially burdensome in the context of the transactions contemplated by
this Agreement.
(j) Software License. Parent shall have obtained consent of European
Vinyl Corporation to the transfer of rights under its software license
relating to the Oklahoma City facility.
(k) Shareholder Approval. This Agreement and the Merger shall have been
approved by the affirmative vote of each of the holders of a combined
majority of shares of outstanding Parent, Eagle
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Holdings and Merger Sub Common Stock, in accordance with the DGCL and the
certificate of incorporation and bylaws of each of the respective
corporations.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval of this Agreement and the Merger by the shareholders of
Eagle:
(a) by mutual written consent of each of Parent, Eagle Holdings, Merger
Sub and Eagle; or
(b) by either Parent, Eagle Holdings, Merger Sub or Eagle if either (i)
the Effective Time shall not have occurred on or before April 30, 1999;
provided, however, that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date, and
provided further, however, that, if a Request for Additional Information is
received from a Governmental Entity pursuant to the HSR Act, such date
shall be extended to the 90th day following acknowledgement by such
Governmental Entity that Parent and Eagle have complied with such Request,
but in any event not later than June 30, 1999 or (ii) there shall be any
law that makes consummation of the Merger illegal or otherwise prohibited
or if any court of competent jurisdiction or Governmental Entity shall have
issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and unappealable; provided
that the party seeking to terminate this Agreement pursuant to this
subsection (b)(ii) shall have complied with its obligations under Section
7.7 of this Agreement; or
(c) by Parent, if (i) the Board of Directors of Eagle withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Parent, Eagle Holdings, or Merger Sub or shall have
resolved to do any of the foregoing or the Board of Directors of Eagle
shall have recommended to the shareholders of Eagle any Competing
Transaction or resolved to do so, (ii) Eagle receives an unsolicited
proposal that constitutes a Competing Transaction and the Board of
Directors of Eagle, within 30 calendar days after such proposal is received
by Eagle, either fails to terminate discussions with the maker of such
proposal and its agents, or determines to accept, or takes no position with
respect to, such proposal, (iii) a tender offer or exchange offer for 45%
or more of the outstanding shares of Eagle Capital Stock is commenced, and
the Board of Directors of Eagle, within 10 business days after such tender
offer or exchange offer is so commenced, either fails to recommend against
acceptance of such tender offer or exchange offer by its shareholders or
takes no position with respect to the acceptance of such tender offer or
exchange offer by its shareholders or (iv) any person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or
any "group" (as such term is defined under Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) shall have been
formed which beneficially owns, or has the right to acquire beneficial
ownership of, 45% or more of the then outstanding shares of Eagle Capital
Stock (excluding for this purpose holdings of shares by persons or groups
as currently reflected in filings with the SEC under Section 13(d)); or
(d) by Eagle, if the Board of Directors of Eagle shall have recommended
or resolved to recommend to the shareholders of Eagle a proposal for a
Competing Transaction under circumstances where a majority of such
Directors reasonably determines in good faith, after consultation with and
based upon the advice of independent legal counsel that failure to accept
such proposal would be a breach of the fiduciary duty of such Directors to
Eagle's stockholders;
(e) by either Parent, Eagle Holdings or Merger Sub or Eagle, if the
Shareholders' Meeting shall have been held and the shareholders of Eagle
shall have failed to approve this Agreement and the Merger at such meeting
(including any adjournment or postponement thereof); or
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(f) by Eagle, in the event of a breach by Parent, Eagle Holdings or
Merger Sub of any representation, warranty, covenant or agreement contained
herein which has not been cured or is not curable by April 30, 1999 (or
such later date as provided in subparagraph (b) above); or
(g) by Parent, in the event of a breach by Eagle of any representation,
warranty, covenant or agreement contained herein which has not been cured
or is not curable by April 30, 1999 (or such later date as provided in
subparagraph (b) above); or
(h) by Eagle, if Parents' shareholders fail to approve this Agreement
and the Merger; or
(i) by Parent, if holders of Dissenting Shares represent more than the
applicable percentage of outstanding shares of Eagle Capital Stock pursuant
to Section 2.2 hereof.
Section 9.2 Effect of Termination. Except as provided in Section 10.1, in the
event of the termination of this Agreement pursuant to Section 9.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Parent, Eagle Holdings, Merger Sub or Eagle or any of
their respective officers or directors and all rights and obligations of any
party hereto shall cease, subject to the sole and exclusive remedies of the
parties set forth in Section 9.3.
Section 9.3 Fees and Expenses.
(a) Parent shall pay Eagle's Expenses (as hereinafter defined), if this
Agreement is terminated pursuant to (i) Section 9.1(b) by Eagle because the
Effective Time has not occurred on or before April 30, 1999 as a result of a
breach of, or failure to fulfill any obligation of this Agreement by Parent,
Eagle Holdings or Merger Sub; (ii) Section 9.1(f) and such termination is the
result of a willful breach of any covenant, agreement, representation or
warranty contained herein; or (iii) Section 9.1(h).
(b) Eagle shall pay Parent's Expenses if this Agreement is terminated
pursuant to (i) Section 9.1(b) by Parent because the Effective Time has not
occurred on or before April 30, 1999, as a result of a breach of, or failure to
fulfill any obligation of this Agreement by Eagle; (ii) Section 9.1(g) and such
termination is the result of a willful breach of any covenant, agreement,
representation or warranty contained herein; or (iii) Section 9.1(c), (d), (e)
or (i).
(c) As used herein, "Expenses" means all reasonable and documented out-of-
pocket expenses and fees incurred by Eagle on the one hand, and Parent on the
other hand, prior to the termination of this Agreement (including, without
limitation, all fees and expenses of counsel, financial advisors, accountants,
environmental and other experts and consultants to Parent or Eagle, and their
affiliates, as the case may be, and all printing and advertising expenses)
actually incurred or accrued by them or on their behalf in connection with the
Merger, and actually incurred or accrued by any of the foregoing persons and
assumed by Parent or Eagle or its affiliates, as the case may be, in connection
with the negotiation, preparation, execution, performance and termination of
this Agreement, the structuring of the Merger and other transactions
contemplated hereby and any agreements relating thereto.
(d) Any payment required to be made pursuant to this Section 9.3 shall be
made as promptly as practicable but not later than five business days after the
final determination by Parent or Eagle, as the case may be, of such amount and
shall be made by wire transfer of immediately available funds to an account
designated by Parent or Eagle, as the case may be.
(e) Except as set forth in this Section, all costs and expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such expenses, whether or not the Merger is consummated; provided,
however, that Parent and Eagle shall share equally (i) all fees and expenses,
other than attorneys' fees, incurred in relation to the print and filing of the
Proxy Statement (including any preliminary materials related thereto) and
financial statements and exhibits and any amendments or supplements thereto.
(f) In the event that Eagle or Parent, as the case may be, shall fail to pay
any Expenses when due, the term "Expenses" shall be deemed to include the costs
and expenses actually incurred or accrued by Parent or
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Eagle, as the case may be, and its affiliates (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of this Section 9.3, together with interest on such unpaid
Expenses, commencing on the date that such Expenses become due, at a rate equal
to the rate of interest publicly announced by US Bank National Association,
from time to time, in the City of Minneapolis, Minnesota, as such bank's "base
rate" plus 2%.
Section 9.4 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that after the approval of
this Agreement and the Merger by the shareholders of Eagle, no amendment may be
made which would reduce the amount or change the type of consideration into
which Eagle Capital Stock shall be converted upon consummation of the Merger.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
Section 9.5 Waiver. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any obligation or other act of
any other party hereto, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in any instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE X
General Provisions
Section 10.1 Survival or Representations and Warranties. Subject to the time
limitations set forth in Section 7.12(c) above, the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive for one year following the Effective Time.
Section 10.2 Notices. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be deemed given if delivered personally, by
facsimile, certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (in each case, providing proof of delivery) to the parties
at the following addresses (or such other address for a party as shall be
specified in like notice):
if to Parent, Eagle Holdings or Merger Sub, to:
CONDEA Vista Company
900 Threadneedle
Houston, Texas 77079-2990
Attention: William Knodel
Telecopy: 281-588-3118
with a copy to:
CONDEA Vista Company
900 Threadneedle
Houston, Texas 77079-2990
Attention: Ralph Burch
Telecopy: 281-588-3118
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if to Eagle, to:
Eagle Pacific Industries, Inc.
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attention: William H. Spell
Telecopy: 612-371-9651
Section 10.3 Definitions. For purposes of this Agreement, the following terms
shall have the meanings ascribed to such terms in the sections referenced
below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Articles of Merger.......................................................1.2
Asset Purchase...................................................Article III
Asset Purchase Agreement.........................................Article III
Assumed Environmental Liabilities....................................7.11(a)
Benefit Plan.............................................................6.2
CERCLA...............................................................4.22(c)
Closing..................................................................1.4
Closing Date.............................................................1.4
Code................................................................Recitals
Competing Transaction....................................................6.4
Confidential.............................................................7.5
Eagle Holdings......................................................Recitals
Eagle Holdings Capital Stock..........................................2.3(b)
Eagle Holdings Class B Common Stock...................................5.6(a)
Eagle Holdings Common Stock...........................................2.1(a)
Eagle Holdings Securities............................................ 5.6(a)
Eagle Holdings Series A Stock.........................................2.1(b)
Eagle Holdings Series B Stock.........................................2.1(c)
Eagle Holdings Series C Stock....................................Article III
DGCL.....................................................................1.1
Disclosure Letters......................................................7.15
Eagle...............................................................Recitals
Eagle Benefit Plan....................................................6.1(g)
Eagle Capital Stock......................................................4.5
Eagle Class B Common Stock...............................................4.5
Eagle Certificates....................................................2.3(a)
Eagle Common Stock....................................................2.1(a)
Eagle Environmental Permits..........................................4.22(a)
Eagle Intellectual Property.............................................4.15
Eagle Option.............................................................2.5
Eagle Plans..........................................................4.17(a)
Eagle SEC Documents......................................................4.6
Eagle Securities.........................................................4.5
Eagle Series A Stock..................................................2.1(b)
Eagle Series B Stock..................................................2.1(c)
Effective Time...........................................................1.2
Environmental Law.......................................................4.22
ERISA................................................................4.17(a)
Evaluation Material......................................................7.5
Exchange Act.............................................................4.3
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Exchange Agent...........................................................2.3(a)
Expenses.................................................................9.3
Governmental Entity......................................................4.3
Hazardous Material......................................................4.22(g)
HSR Act..................................................................4.3
Indemnified Party.......................................................7.11(d)
Indemnifying Party......................................................7.11(d)
Lamson PVC Business..............................................Article III
Lien.....................................................................4.4
Material Adverse Effect..................................................4.1
MBCA.....................................................................1.1
Merger..............................................................Recitals
Merger Sub..........................................................Recitals
Merger Sub Common Stock..................................................2.1(d)
Merger Sub Capital Stock.................................................5.6(b)
Merger Sub Securities....................................................5.6(b)
Merger Sub Undesignated Shares...........................................5.6(b)
Oklahoma Resin Assets............................................Article III
Oklahoma Resin Business..........................................Article III
Other Party..............................................................7.5
Parent..............................................................Recitals
Parent Benefit Plan...................................................6.2(f)
Parent Environmental Permits............................................5.25(a)
Parent Intellectual Property............................................5.17
Parent Plans............................................................5.25(a)
Permitted Liens..................................................Article III
Proprietary..............................................................7.5
Proxy Statement/Prospectus............................................7.1(a)
Registration Statement...................................................7.1(b)
Release.................................................................4.22(g)
Remedial Action.........................................................4.22(g)
Retained Environmental Liabilities......................................7.11(a)
SEC......................................................................4.6
Securities Act...........................................................4.3
Shareholders Meeting.....................................................7.1
State Takeover Laws......................................................7.8
Surviving Corporation....................................................1.1
Transferred Employees...................................................7.10
Transition Period.......................................................7.10
Third Party Claim.......................................................7.11(d)
</TABLE>
Section 10.4 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the other documents referenced herein contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior arrangements and understandings, both written and oral,
with respect thereto.
Section 10.5 Severability. It is the desire and intent of the parties that
the provisions of this Agreement be enforced to the fullest extent permissible
under the law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, in the event that any provision of this
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting
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<PAGE>
the validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn
so as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 10.6 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
Notwithstanding the foregoing, either party may assign its rights and
obligations under this Agreement to its parent or any affiliate, or to the
buyer or successor in interest to its PVC resin, VCM, and/or ethylene
businesses.
Section 10.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 7.11 (which is intended to be for the
benefit of the persons covered by the indemnification provisions contained
therein and may be enforced by such persons).
Section 10.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Minnesota or in a Minnesota state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Minnesota or
any Minnesota state court in the event any dispute arises out of this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other than a federal
court sitting in the State of Minnesota or a Minnesota state court.
Section 10.9 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, without giving effect to
the principles of conflict of laws thereof.
Section 10.10 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
Section 10.11 Arbitration. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota without regard to the
conflicts of laws and rules thereof. All disputes, controversies or differences
arising out of or in connection with this Agreement or the making thereof,
including claims of fraud in the inducement, which cannot be settled by mutual
agreement shall be finally settled by binding arbitration pursuant to the Rules
of Commercial Arbitration of the American Arbitration Association then in
effect, except as specified herein and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. If the
arbitration is demanded by Parent, Eagle Holdings or Merger Sub, the
arbitration hereunder shall be held in Minneapolis, Minnesota. If the
arbitration is demanded by Eagle, the arbitration hereunder shall be held in
Houston, Texas. The arbitration shall be conducted by a single arbitrator
selected by the parties. The arbitrator shall be a retired state or federal
judge or an attorney who has practiced business litigation for at least 10
years. In the event that the parties are unable to
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agree on an arbitrator, the arbitrator shall be selected by the American
Arbitration Association. The hearings shall be conducted on an expedited
schedule. They shall commence no later than 20 days after initiation of
proceedings and shall be completed within 20 days, and the arbitrator shall
make the award within ten days of the close of the hearings. The arbitrator
shall have the authority to award any remedy or relief that a court of the
State of Delaware could order or grant, including, without limitation,
equitable remedies, specific performance of any obligation created under this
Agreement, the awarding of punitive damages, the issuance of an injunction or
the imposition of sanctions for abuse or frustration of the arbitration
process.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
CONDEA VISTA COMPANY
/s/ William C. Knodel
By: _________________________________
Name: William C. Knodel
Title: President
EAGLE PACIFIC HOLDINGS, INC.
/s/ William C. Knodel
By: _________________________________
Name: William C. Knodel
Title: President
CV MERGER SUB, INC.
/s/ William C. Knodel
By: _________________________________
Name: William C. Knodel
Title: President
EAGLE PACIFIC INDUSTRIES, INC.
/s/ William H. Spell
By: _________________________________
Name: William H. Spell
Title: CEO
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<PAGE>
APPENDIX B
FAIRNESS OPINION
December 30, 1998
Board of Directors
Eagle Pacific Industries, Inc.
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Members of the Board:
We understand that Eagle Pacific Industries, Inc. ("Eagle") and Lamson &
Sessions Co. ("Lamson") propose to enter into an Asset Purchase Agreement (the
"Lamson Agreement") whereby Eagle will acquire the polyvinyl chloride pipe
business of Lamson (the "PVC Pipe Business"). Pursuant to the Lamson Agreement,
among other things, Eagle will purchase substantially all of the assets of the
PVC Pipe Business for (i) $45,000,000 in cash; (ii) $6,000,000 in promissory
notes and (iii) 785,000 shares of common stock of Eagle.
We also understand that, upon completion of the Lamson Agreement and in a
separate transaction, Eagle, CONDEA Vista Company ("Parent"), Eagle Pacific
Holdings, Inc. ("Eagle Holdings"), a wholly-owned subsidiary of Parent and CV
Merger Sub, Inc., a wholly owned subsidiary of Eagle Holdings ("Merger Sub"),
propose to enter into an Agreement and Plan of Merger (the "Merger Agreement")
which provides, among other things, for the Merger (the "Merger") of Eagle with
and into Merger Sub. Pursuant to the Merger (i) Parent will transfer its
polyvinyl chloride resin manufacturing business (the "PVC Resin Business") to
Merger Sub in exchange for 9,829,717 shares of common stock of Eagle Holdings
and (ii) Eagle will merge with and into Merger Sub with Eagle surviving the
Merger.
We are aware that as a result of the Merger, Eagle will become wholly-owned
subsidiary of Eagle Holdings and that each outstanding share of common stock of
Eagle will be exchanged for one share of common stock of Eagle Holdings. In
addition, each outstanding share of series A 7% convertible preferred stock and
8% convertible preferred stock of Eagle will be exchanged for one share of
preferred of Eagle Holdings with identical rights and preferences.
You have requested our opinion as to whether the terms of the Merger are fair
from a financial point of view to the common and preferred shareholders of
Eagle.
Dougherty Summit Securities LLC ("DSS"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes.
In developing our opinion, we have, among other things:
1. reviewed certain publicly available financial statements and other
information of Eagle;
2. reviewed certain internal financial statements and other financial and
operating data concerning Eagle, the PVC Pipe Business and the PVC Resin
Business;
3. analyzed certain financial projections prepared by the management of
Eagle;
4. discussed the past and current operations and financial condition and
the prospects of Eagle, the PVC Pipe Business and the PVC Resin Business
with management of each of the respective companies;
5. reviewed the pro forma financial impact of the Lamson Agreement and the
Merger on Eagle;
6. reviewed the reported prices and trading activity for the Eagle common
stock;
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7. compared the market performance of the Eagle common stock with that of a
securities market index;
8. reviewed a draft of the Lamson Agreement and the Merger Agreement and
certain related documents; and
9. performed such other analyses as we deemed appropriate.
In our review and analysis, and in arriving at our opinion, we have relied
upon and assumed the completeness and accuracy of all the factual, historical,
financial and other information and data publicly available or furnished to us
by Eagle, Lamson and CONDEA Vista. We have assumed that the financial
projections provided to us were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of
Eagle. In addition, we have not undertaken an independent evaluation or
appraisal of the assets or liabilities of Eagle, the PVC Pipe Business or the
PVC Resin Business. Our opinion is necessarily based on economic, stock market
and other conditions as they exist and can be evaluated as of the date hereof.
This opinion has been prepared for the use of the Board of Directors of Eagle
and does not constitute a recommendation to any shareholder with respect to
whether to vote in favor of the Merger. We hereby consent, however, to the
inclusion of this opinion as an exhibit to Eagle Holding's Registration
Statement on Form S-4 or to any proxy statement distributed in connection with
the Lamson Agreement and the Merger.
Based on the foregoing, we are of the opinion as of the date hereof that the
terms of the Merger are fair from a financial point of view to the common and
preferred stockholders of Eagle.
Very truly yours,
DOUGHERTY SUMMIT SECURITIES LLC
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<PAGE>
APPENDIX C
MINNESOTA BUSINESS CORPORATION ACT
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially all
of the property and assets of the corporation, but not including a transaction
permitted without shareholder approval in section 302A.661, subdivision 1, or a
disposition in dissolution described in section 302A.725, subdivision 2, or a
disposition pursuant to an order of a court, or a disposition for cash on terms
requiring that all or substantially all of the net proceeds of disposition be
distributed to the shareholders in accordance with their respective interests
within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to vote on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on
whose behalf the shareholder dissents. In that event, the rights of the
dissenter shall be determined as if the shares as to which the shareholder has
dissented and the other shares were registered in the names of different
shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
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Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at
law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was
required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
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(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person
who was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand under
subdivision 6, it shall, within 60 days after receiving the demand, either pay
to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into
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account any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which
the fair value of the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not be liable to
the corporation for the amount, if any, by which the amount, if any, remitted
to the dissenter under subdivision 5 exceeds the fair value of the shares as
determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious,
or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Exculpation. Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL") permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision may not eliminate or limit the
liability of a director for any breach of the director's duty of loyalty to the
corporation or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for the
payment of unlawful dividends, or for any transaction from which the director
derived an improper personal benefit.
Holdings' Certificate of Incorporation limits the personal liability of a
director to Holdings and its stockholders for monetary damages for a breach of
fiduciary duty as a director to the fullest extent permitted by the DGCL.
Indemnification. Section 145 of the DGCL permits a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
third party proceeding, by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or at the request of
the corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, as a director,
officer, employee or agent, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reason to believe that
such person's conduct was unlawful. In a derivative action, i.e., one by or in
the right of a corporation, the corporation is permitted to indemnify a
director, officer, employees or agent of the corporation against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of an action or suit if such person
acted in good faith and in a manner that such person reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person is adjudged liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought determines that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Holdings' Certificate of Incorporation provides that Holdings shall
indemnify, to the fullest extent authorized or permitted by law, any person who
was or is a party or is threatened to be made a party to an action, suit or
proceeding, by reason of the fact that such person (i) is or was a director,
officer, employee or agent of Holdings; or (ii) at the request of Holdings, is
or was serving any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, as a director, officer, employee or
agent. Holdings' Certificate of Incorporation also provides that it shall pay,
to the fullest extent permitted by law, the expenses of such person incurred in
defending such action, suit or proceeding.
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Item 21. Exhibits and Financial Statement Schedules.
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1+ Agreement and Plan of Merger, dated December 11, 1998 by and among
Eagle Pacific Industries, Inc., CONDEA Vista Company, Eagle Pacific
Holdings, Inc. and CV Merger Sub, Inc. (included as Appendix A to the
Proxy Statement/Prospectus contained in this Registration Statement)
3.1+ Amended and Restated Certificate of Incorporation of Eagle Pacific
Holdings, Inc.
3.2+ Bylaws of Eagle Pacific Holdings, Inc.
4.1+ Amended and Restated Certificate of Incorporation of Eagle Pacific
Holdings, Inc. (filed as Exhibit 3.1)
4.2+ Bylaws of Eagle Pacific Holdings, Inc. (filed as Exhibit 3.2)
5.1* Opinion and Consent of Haynes and Boone, L.L.P. regarding legality of
the shares
8.1+ Form of Opinion and Consent of Fredrikson & Byron, P.A. regarding
certain tax matters
10.1* Eagle Pacific Holdings, Inc. 1999 Stock Option Plan, including
specimen of Incentive and Non-qualified Stock Option Agreements
21.1+ Subsidiaries of Eagle Pacific Holdings, Inc.
23.1** Consent of Deloitte & Touche, LLP, independent auditors for Eagle
Pacific Industries, Inc.
23.2** Consent of PricewaterhouseCoopers LLP, independent accountants for
CONDEA Vista Company, Oklahoma City Plant and Eagle Pacific Holdings,
Inc.
23.3** Consent of Ernst & Young LLP, independent auditors for the Lamson PVC
Pipe Business
23.4* Consent of Fredrikson & Byron, P.A. regarding certain tax matters
(included in Exhibit 8.1)
23.5+ Consent of Dougherty Summit Securities LLC (included in Appendix B to
the Proxy Statement/Prospectus contained in this Registration
Statement)
24.1+ Power of Attorney (included on signature page of the Registration
Statement)
99.1+ Form of Proxy to be used by Eagle Pacific Industries, Inc.
shareholders
99.2+ Consent of William H. Spell to be named as a director of Eagle Pacific
Holdings, Inc.
99.3+ Consent of Harry W. Spell to be named as a director of Eagle Pacific
Holdings, Inc.
99.4* Consent of Bruce A. Richard to be named as a director of Eagle Pacific
Holdings, Inc.
99.5* Consent of Richard W. Perkins to be named as a director of Eagle
Pacific Holdings, Inc.
</TABLE>
- --------
+Previously filed.
*To be filed by amendment.
**Filed herewith.
(b)Financial Statement Schedules.
Not applicable.
(c)Reports, Opinions and Appraisals Materially Related to the Transaction.
Opinion of Dougherty Summit Securities LLC is furnished as Appendix B to
the Proxy Statement/Prospectus forming a part of this Registration
Statement.
II-2
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Pre-Effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on March 9, 1999.
EAGLE PACIFIC HOLDINGS, INC.
(Registrant)
*By____/s/ William C. Knode_____l
_______________________________/
Mark J. Schneider
President
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*/s/ William C. Knodel President and Chief March 9, 1999
____________________________________ Financial Officer (principal
Mark J. Schneider executive officer and
principal financial and
accounting officer)
/s/ William C. Knodel Director March 9, 1999
____________________________________
William C. Knodel
</TABLE>
/s/ William C. Knodel
*By__________________________________
William C. Knodel
As Attorney-in-Fact
II-4
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBIT INDEX
TO
FORM S-4 REGISTRATION STATEMENT
----------------
EAGLE PACIFIC HOLDINGS, INC.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1+ Agreement and Plan of Merger, dated December 11, 1998 by and among
Eagle Pacific Industries, Inc., CONDEA Vista Company, Eagle Pacific
Holdings, Inc. and CV Merger Sub, Inc. (included as Appendix A to the
Proxy Statement/Prospectus contained in this Registration Statement)
3.1+ Amended and Restated Certificate of Incorporation of Eagle Pacific
Holdings, Inc.
3.2+ Bylaws of Eagle Pacific Holdings, Inc.
4.1+ Amended and Restated Certificate of Incorporation of Eagle Pacific
Holdings, Inc. (filed as Exhibit 3.1)
4.2+ Bylaws of Eagle Pacific Holdings, Inc. (filed as Exhibit 3.2)
5.1* Opinion and Consent of Haynes and Boone, L.L.P. regarding legality of
the shares
8.1+ Form of Opinion and Consent of Fredrikson & Byron, P.A. regarding
certain tax matters
10.1* Eagle Pacific Holdings, Inc. 1999 Stock Option Plan, including
specimen of Incentive and Non-qualified Stock Option Agreements
21.1+ Subsidiaries of Eagle Pacific Holdings, Inc.
23.1** Consent of Deloitte & Touche, LLP, independent auditors for Eagle
Pacific Industries, Inc.
23.2** Consent of PricewaterhouseCoopers LLP, independent accountants for
CONDEA Vista Company, Oklahoma City Plant and Eagle Pacific Holdings,
Inc.
23.3** Consent of Ernst & Young LLP, independent auditors for the Lamson PVC
Pipe Business
23.4* Consent of Fredrikson & Byron, P.A. regarding certain tax matters
(included in Exhibit 8.1)
23.5+ Consent of Dougherty Summit Securities LLC (included in Appendix B to
the Proxy Statement/Prospectus contained in this Registration
Statement)
24.1+ Power of Attorney (included on signature page of the Registration
Statement)
99.1+ Form of Proxy to be used by Eagle Pacific Industries, Inc.
shareholders
99.2+ Consent of William H. Spell to be named as a director of Eagle Pacific
Holdings, Inc.
99.3+ Consent of Harry W. Spell to be named as a director of Eagle Pacific
Holdings, Inc.
99.4* Consent of Bruce A. Richard to be named as a director of Eagle Pacific
Holdings, Inc.
99.5* Consent of Richard W. Perkins to be named as a director of Eagle
Pacific Holdings, Inc.
</TABLE>
- --------
+Previously filed
*To be filed by amendment
**Filed herewith
II-5
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration
Statement No. 333-72217 of Eagle Pacific Holdings, Inc. on Form S-4 of our
report dated March 9, 1999 on the financial statements of Eagle Pacific
Industries, Inc. at December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998, appearing in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Proxy Statement/Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 9, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(No. 333-72217) of our report dated October 20, 1998, on our audits of the
financial statements of CONDEA Vista Company Oklahoma City Plant as of June 30,
1998 and 1997, and for each of the three years in the period ended June 30,
1998, and our report dated February 4, 1999, on our audit of the consolidated
balance sheet of Eagle Pacific Holdings, Inc. as of February 4, 1999. We also
consent to the reference to our firm under the captions "Experts."
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
March 9, 1999
Houston, Texas
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated January 28, 1999, with respect to the
combined financial statements of the PVC Pipe Business of the Lamson & Sessions
Co., included in the Proxy Statement of Eagle Pacific Industries, Inc. that is
referred to and made a part of Amendment No. 1 to the Registration Statement
(Form S-4 No. 333-72217) and Prospectus of Eagle Pacific Holdings, Inc. for the
registration of its shares of Common Stock, Series A 7% Convertible Preferred
Stock and 8% Convertible Preferred Stock.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 10, 1999
