<PAGE>
As filed with the Securities and Exchange Commission on February 12, 1999
Registration No: 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF
EACH CLASS
OF PROPOSED PROPOSED
SECURITIES MAXIMUM MAXIMUM AMOUNT OF
TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, par
value $.01
per share 9,786,203 shares(1)(2) Not Applicable Not Applicable $3,739(3)
- -------------------------------------------------------------------------------
Series A 7%
Convertible
Preferred
Stock 18,750 shares Not Applicable Not Applicable $10 (4)
- -------------------------------------------------------------------------------
8% Convert-
ible Pre-
ferred
Stock 10,000 shares Not Applicable Not Applicable $2,780(4)
- -------------------------------------------------------------------------------
Class B Com-
mon Stock 2,347,418 shares(5) Not Applicable Not Applicable $0 (5)
- -------------------------------------------------------------------------------
Total $6,529
- -------------------------------------------------------------------------------
</TABLE>
(1) Represents the approximate maximum number of shares of Common Stock
issuable upon consummation of the Merger as described in the Registration
Statement, based upon the anticipated maximum number of outstanding shares
of Eagle Pacific Industries, Inc. Common Stock immediately prior to the
Merger's Effective Time (7,420,035 shares) and the conversion ratio of one
share of Eagle Pacific Holdings, Inc. Common Stock issued for each share of
Eagle Pacific Industries, Inc. Common Stock, and 2,366,168 shares of Common
Stock of Eagle Pacific Holdings, Inc. issuable upon conversion of its
Series A 7% Convertible Preferred Stock and Class B Common Stock, for which
no registration fee is required pursuant to Rule 457(i) of the Securities
Act of 1933, as amended (the "Securities Act").
(2) Pursuant to Rule 416(a) of the Securities Act, also registered hereunder is
an indeterminate number of shares of Common Stock issuable as a result of
the anti-dilution provisions of the Eagle Pacific Holdings, Inc. Series A
7% Convertible Preferred Stock and 8% Convertible Preferred Stock.
(3) The registration fee was calculated pursuant to Section 6 of the Securities
Act and Rules 457(f)(1) and 457(c) thereunder, as 0.000278 multiplied by
the product of (A) 7,420,035, the anticipated maximum number of Eagle
Pacific Industries, Inc. shares that may be exchanged pursuant to the
Merger, multiplied by (B) $1.8125, the average of the high and low sale
prices of Eagle Pacific Industries, Inc. Common Stock as reported by the
Nasdaq SmallCap Market on February 9, 1999, which date was within five
business days prior to the date of this filing.
(4) The registration fee was calculated pursuant to Section 6 of the Securities
Act and Rules 457(f)(2) thereunder, as the book value of such securities as
of February 9, 1999.
(5) Represents the number of shares of Eagle Pacific Holdings, Inc. Class B
Common Stock issuable upon conversion of its 8% Convertible Preferred
Stock. No registration fee is required pursuant to Rule 457(i).
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 FEBRUARY 12, 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.......................................................... 24
CONDEA Vista's Reasons for the Merger.................................. 25
Opinion of Eagle's Financial Advisor................................... 25
Officers and Directors of Holdings and Eagle Following the
Transactions.......................................................... 27
Accounting Treatment of the Transactions............................... 28
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 29
THE MERGER AGREEMENT..................................................... 30
Conduct of Business of Eagle Pending the Merger........................ 30
Conduct of Business of Oklahoma City Resin Business Pending the
Merger................................................................ 30
Limitations on Negotiations............................................ 30
Conditions to Consummation of the Merger............................... 31
Amendment, Termination of the Merger Agreement; Waiver................. 31
Expenses and Fees...................................................... 32
Indemnification........................................................ 33
Related Agreements and Interests of Certain Persons in the Merger...... 33
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Restrictions on Resale of Holdings Stock............................... 34
De-registration of Eagle Common Stock.................................. 35
Certain Federal Income Tax Consequences................................ 35
Regulatory Requirements................................................ 36
Rights of Dissenting Eagle Common and Preferred Shareholders........... 37
COMPARISON OF SHAREHOLDER RIGHTS......................................... 39
General................................................................ 39
Comparison............................................................. 39
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............. 44
OKLAHOMA CITY RESIN BUSINESS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 50
General................................................................ 50
Results of Operations.................................................. 50
Liquidity and Capital Resources........................................ 51
Seasonality............................................................ 52
Year 2000.............................................................. 52
HOLDINGS AND THE OKLAHOMA CITY RESIN BUSINESSES.......................... 53
Holdings............................................................... 53
Oklahoma City Resin Business........................................... 53
General.............................................................. 53
Products............................................................. 53
Competition.......................................................... 53
Raw Materials........................................................ 54
Employees............................................................ 54
Sales to Significant Customers....................................... 54
Environmental, Health and Safety..................................... 54
Properties........................................................... 55
Legal Proceedings.................................................... 55
Dividend Policy...................................................... 55
HOLDINGS' MANAGEMENT..................................................... 56
Directors and Executive Officers....................................... 56
Directors' Compensation................................................ 56
Executive Compensation and Employment Agreements....................... 56
Security Ownership of Certain Beneficial Owners and Management of
Holdings Following the Merger (Pro Forma)............................. 57
Stock Options.......................................................... 59
Certain Relationships and Related Transactions......................... 59
DESCRIPTION OF HOLDINGS' CAPITAL STOCK................................... 61
Common Stock........................................................... 61
Class B Common Stock................................................... 61
Series A 7% Convertible Preferred Stock................................ 62
8% Convertible Preferred Stock......................................... 62
Transfer Agent and Registrar........................................... 64
Quotation of Common Stock.............................................. 64
EAGLE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 65
Results of Operations.................................................. 65
Financial Condition.................................................... 67
Outlook................................................................ 67
Year 2000 Compliance................................................... 68
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
EAGLE'S BUSINESS......................................................... 69
General................................................................ 69
Products............................................................... 69
PVC Pipe............................................................... 69
PE Pipe and Tubing..................................................... 70
Marketing and Customers................................................ 71
Competition............................................................ 71
Manufacturing and Sources of Supplies.................................. 71
Business Seasonality................................................... 72
Backlog................................................................ 72
Employees.............................................................. 72
Properties............................................................. 72
Legal Proceedings...................................................... 73
Recent Developments.................................................... 73
EAGLE'S MANAGEMENT....................................................... 74
Directors and Executive Officers....................................... 74
Executive Compensation................................................. 76
Option/SAR Grants During 1998 Fiscal Year.............................. 77
Option/SAR Exercises in 1998 Fiscal Year and Fiscal Year End Option
Values................................................................ 77
Directors' Compensation................................................ 78
Security Ownership of Certain Beneficial Owners and Management......... 78
Certain Relationships and Related Transactions......................... 80
MARKET FOR EAGLE PACIFIC INDUSTRIES, INC. COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS..................................................... 80
LEGAL MATTERS............................................................ 81
EXPERTS.................................................................. 81
WHERE YOU CAN FIND MORE INFORMATION...................................... 82
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 82.
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.
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 stock.
Eagle intends to fund the cash portion of the purchase price through a new
senior secured credit facility.
4
<PAGE>
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 Senior
Vice President of Sales and Marketing, respectively.
5
<PAGE>
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 is the reason the
merger has not been completed;
6
<PAGE>
(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
82 and "Unaudited Pro Forma Condensed Combined Financial Statements" on page
44.
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 28.
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, 1997 for the pro forma statements of
operations and on September 30, 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 44.
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 $3,076,000
for Eagle. CONDEA Vista will record these costs as an expense when incurred.
Eagle will record these costs as a component of the purchase price paid for 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>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Statement of Operations Data:
Net sales.......................................... $191,641 $269,021
Loss from continuing operations (1)................ (5,472) (27,614)
Basic loss from continuing operations per
common share (2).................................. (0.35) (1.64)
Diluted loss from continuing operations per
common share (2).................................. (0.35) (1.64)
Cash dividends declared per common share........... -- --
Balance Sheet Data:
Total assets....................................... $128,332
Long-term obligations.............................. 58,926
Redeemable preferred stock......................... 10,000
</TABLE>
- --------
(1) Loss from continuing operations is comprised of loss before extraordinary
loss.
(2) Loss from continuing operations 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>
Nine months ended
Years Ended December 31, September 30,
----------------------------------------------------------- -----------------------
1997 1996 1995(1) 1994 1993(2) 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $71,685,080 $65,280,138 $51,330,127 $34,076,224 $ 602,466 $59,664,007 $56,989,941
Income (loss) from con-
tinuing
operations (3)........ 930,765 3,479,313 (864,824) 1,400,434 (682,839) 1,847,033 1,577,186
Basic income (loss)
from
continuing operations
per
common share (4)...... 0.06 0.62 (0.27) 0.34 (0.21) 0.19 0.19
Diluted income (loss)
from
continuing operations
per
common share (4)...... 0.06 0.49 (0.27) 0.24 (0.21) 0.17 0.17
Cash dividends declared
per
common share.......... -- -- -- -- -- -- --
Balance Sheet Data:
Total assets........... $43,828,971 $35,426,564 $31,917,782 $19,181,172 $17,827,025 $49,845,806
Long-term obligations.. 9,672,470 11,008,012 11,743,512 9,426,460 10,094,231 10,926,426
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) Includes operations of Eagle Plastics, Inc. from December 1993, the date of
acquisition.
(3) Income (loss) from continuing operations is comprised of income (loss)
before extraordinary loss.
(4) Income (loss) from continuing operations 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>
Years Ended December 31,
---------------------------------------
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>
Three months ended
Years Ended June 30, September 30,
-------------------------------------------------------------- ------------------------
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 $16,436,000 $24,719,000
Loss from continuing
operations............ (4,155,000) (4,728,000) (3,236,000) 5,533,000 4,186,000 (463,000) (1,738,000)
Basic loss from contin-
uing
operations per common
share................. * * * * * * *
Diluted loss from con-
tinuing operations 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 36,272,000 42,955,000
Long-term obligations.. * * * * * * *
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 from continuing operations 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:
September 30, 1998............... $1.22 * $1.72
December 31, 1997................ 1.18 * *
Cash Dividends Per Share:
Nine months ended September 30,
1998............................ -- * --
Year ended December 31, 1997..... -- * --
Basic Income (Loss) Per Share From
Continuing Operations:
Nine months ended September 30,
1998............................ 0.19 * (0.35)
Year ended December 31, 1997..... 0.06 * (1.64)
Diluted Income (Loss) Per Share
From Continuing Operations:
Nine months ended September 30,
1998............................ 0.17 * (0.35)
Year ended December 31, 1997..... 0.06 * (1.64)
</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
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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 preemptive right to acquire
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. Additionally, 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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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 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, a Minneapolis Minnesota
investment banking firm, who was hired by Eagle to provide
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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.
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.
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;
(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.
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(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
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.
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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 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.
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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.
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.
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'
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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 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" 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 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 under
the caption "Risk Factors," 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; 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 expenses incurred in
connection with the Merger. See "--Amendment, Termination of the Merger
Agreement; Waiver."
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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 Securities and Exchange
Commission ("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,
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
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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
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.
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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 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
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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.
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
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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.
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.
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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.
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
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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 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
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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 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.
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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."
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.
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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 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
40
<PAGE>
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 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
41
<PAGE>
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.
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
42
<PAGE>
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.
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.
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<PAGE>
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.
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, 1997 for the pro forma statements of operations and related data and
on September 30, 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
44
<PAGE>
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 and other
related charges, will be approximately $450,000 for CONDEA Vista and $
3,076,000 for Eagle. CONDEA Vista will record such cost as an expense when
incurred. Eagle will record such costs as a component of the purchase price
paid for Holdings.
In presenting the Pro Forma Financial Information, Eagle's information was
derived from Eagle's 1997 Form 10-K and Eagle's Form 10-Q for the quarter ended
September 30, 1998. Information regarding Lamson's PVC Pipe Business was
derived from the audited Combined Statement of Net Assets To Be Acquired at
January 2, 1999, the audited Combined Statement of Revenue and Operating
Expenses for the year ended January 3, 1998, and the unaudited Combined
Statement of Revenues and Operating Expenses for the nine months ended October
3, 1998, included herein. Information regarding the Oklahoma City Resin
Business was derived from the audited June 30, 1998 and unaudited September 30,
1998 financial statements included herein. The Pro Forma Financial Information
should be read in conjunction with these financial statements and the related
notes.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 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........... $ 219 $ 3 $ (3)(e) $ 219
Accounts receivable.... 9,684 $ 2,669 10,115 (10,115)(e) 12,353
(574)(e)
Inventories............ 9,238 16,092 $ (129)(a) 2,144 (113)(a) 26,658
Other.................. 880 31 (31)(e) 880
------- ------- --------- ------- -------- --------
Total current assets... 20,021 18,761 (129) 12,293 (10,836) 40,110
PROPERTY AND EQUIPMENT,
NET.................... 24,627 14,540 13,639 (d) 22,756 1,514 (e) 77,076
GOODWILL................ 4,014 5,541 (d) 9,555
(825)(h)
OTHER ASSETS............ 1,184 1,063 (f) 1,223 (1,054)(e) 1,591
------- ------- --------- ------- -------- --------
Total Assets........... $49,846 $33,301 $ 20,114 $36,272 ($11,201) $128,332
======= ======= ========= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Notes payable.......... $11,225 $ 3,000 (g) $ 14,225
Accounts payable....... 5,858 $ 1,464 $ (1,464)(e) 5,858
Accrued expenses....... 1,880 $ 1,017 3,304 (3,304)(e) 2,897
Current maturities of
long-term debt........ 1,863 757 (f) 2,620
------- ------- --------- ------- -------- --------
Total current
liabilities........... 20,826 1,017 3,757 4,768 (4,768) 25,600
LONG-TERM DEBT, less
current 3,000 (g)
maturities............. 10,926 44,200 (f) 800 (f) 58,926
(1,301)(h)
DEFERRED INCOME TAXES... 4,969 581 (e) 4,249
OTHER LIABILITIES AND
DEFERRED CREDITS....... 2,203 (2,203)(e)
REDEEMABLE PREFERRED
STOCK.................. 10,000 10,000
476 (h)
1,570 (d) 19,659 (e)
(32,284)(d) (24,332)(e)
STOCKHOLDERS' EQUITY.... 8,094 32,284 (129)(a) 24,332 (113)(a) 29,557
------- ------- --------- ------- -------- --------
Total Liabilities and
Stockholders' Equity.. $49,846 $33,301 $ 20,114 $36,272 ($11,201) $128,332
======= ======= ========= ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
46
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
CONDEA Vista
Lamson Pro Forma Oklahoma Pro Forma
PVC Pipe Adjustments and City Resin Adjustments and Holdings
Eagle Business Eliminations Business Eliminations Pro Forma
----- -------- --------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
($8,804)(b)
NET SALES............... $ 71,685 $141,383 (4,995)(c) $100,258 $(30,506)(a) $ 269,021
(3,319)(b)
(4,569)(c) 97 (e)
COST OF GOODS SOLD...... 57,452 131,938 1,340 (d) 104,200 (30,506)(a) 256,633
-------- -------- ------- -------- --------- ---------
Gross Profit........... 14,233 9,445 (7,251) (3,942) (97) 12,388
(3,097)(b)
(774)(c)
OPERATING EXPENSES...... 10,878 18,000 277 (d) 5,911 -- 31,195
-------- -------- ------- -------- --------- ---------
OPERATING INCOME
(LOSS)................. 3,355 (8,555) (3,657) (9,853) (97) (18,807)
495 (g)
NON OPERATING EXPENSE... 2,596 -- 5,716 (f) 951 (951)(f) 8,807
-------- -------- ------- -------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES........... 759 (8,555) (9,868) (10,804) 854 (27,614)
INCOME TAX (BENEFIT)
EXPENSE................ (171) -- -- (4,415) 4,586 (i) --
-------- -------- ------- -------- --------- ---------
NET INCOME (LOSS)....... 930 (8,555) (9,868) (6,389) (3,732) (27,614)
PREFERRED STOCK
DIVIDENDS.............. 520 -- -- -- -- 520
-------- -------- ------- -------- --------- ---------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCK.................. $ 410 $ (8,555) $(9,868) $ (6,389) $ (3,732) $ (28,134)
======== ======== ======= ======== ========= =========
EARNINGS (LOSS) PER
COMMON SHARE:
Basic.................. $ 0.06 ($1.64)
Diluted................ $ 0.06 ($1.64)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................. 6,503 17,118
Diluted................ 7,427 17,118
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
47
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 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>
$(6,639)(b)
NET SALES............... $59,664 $107,807 (4,159)(c) $56,817 $(21,849)(a) $191,641
(2,812)(b)
(3,874)(c) 72 (e)
COST OF GOODS SOLD...... 46,699 93,659 1,005 (d) 53,455 (21,565)(a) 166,639
------- -------- ------- ------- -------- --------
Gross Profit........... 12,965 14,148 (5,117) 3,362 (356) 25,002
(2,323)(b)
(649)(c)
OPERATING EXPENSES...... 9,155 12,957 208 (d) 4,667 24,015
------- -------- ------- ------- -------- --------
OPERATING INCOME
(LOSS)................. 3,810 1,191 (2,353) (1,305) (356) 987
371 (g)
NON OPERATING EXPENSE... 1,800 4,288 (f) 304 (304)(f) 6,459
------- -------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS..... 2,010 1,191 (7,012) (1,609) (52) (5,472)
INCOME TAX EXPENSE
(BENEFIT).............. 163 (800) 637 (i)
------- -------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS..... 1,847 1,191 (7,012) (809) (689) (5,472)
EXTRAORDINARY LOSS ON
DEBT PREPAYMENTS, less
income tax benefit of
$31.................... 656 656
------- -------- ------- ------- -------- --------
NET INCOME (LOSS)....... 1,191 1,191 (7,012) (809) (689) (6,128)
PREFERRED STOCK
DIVIDENDS.............. 602 602
------- -------- ------- ------- -------- --------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCK.................. $ 589 $ 1,191 $(7,012) $ (809) $ (689) $ (6,730)
======= ======== ======= ======= ======== ========
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) before
extraordinary loss.... $0.19 $(0.35)
Extraordinary loss on
debt prepayments...... (0.10) (0.04)
------- --------
Net income (loss) ..... $0.09 $(0.39)
======= ========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE
Income (loss) before
extraordinary loss.... $0.17 $(0.35)
Extraordinary loss on
debt prepayments...... (0.09) (0.04)
------- --------
Net Income (loss)...... $0.08 $(0.39)
======= ========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................. 6,688 17,302
Diluted................ 7,088 17,302
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
48
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) To eliminate sales, cost of goods sold and profit in inventory of PVC resin
sold from the Oklahoma City Resin Business to Eagle and the Lamson PVC Pipe
Business.
(b) To adjust the sales, cost of sales 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 sales 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 $5,541,000 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 subject to the Merger Agreement, to reflect
estimated fair value of the assets subject to the Merger Agreement and 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 $1,514,000 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 $45.8 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 10% for the
nine months ended September 30, 1998 and the year ended December 31, 1997,
respectively. If actual interest rates are different than the interest rate
assumed, the impact on income is $42,000 and $56,000 for each 1/8 percent
change in rate for the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively. Debt issuance costs related to
anticipated incremental borrowings of $1,062,500 are amortized over three
years, the term of the agreement. Allocated interest expense of the
Oklahoma City Resin Business has been eliminated.
(g) To adjust notes payable current, long term debt and interest expense for
the $6.0 million of notes payable to be issued in the acquisition of the
Lamson PVC Pipe Business at an interest rate of 8.25%.
(h) To adjust the valuation allowance for deferred tax assets related to net
operating losses as the use of these net operating losses will be limited
due to the issuances of common stock in connection with the acquisitions,
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.
49
<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 three months ended September 30, 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 quarter ended September 30,
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
Three Months Ended September 30, 1998 Compared with the Three Months Ended
September 30, 1997
The following table sets forth items from the Oklahoma City Resin Business
Statement of Operations for the three months ended September 30, 1997 and 1998,
as percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1998 1997
------- -------
<S> <C> <C> <C>
Net Sales.......................................... 100.0% 100.0%
Cost of Goods Sold................................. 90.1 102.3
Depreciation & Amortization........................ 4.0 2.6
Selling, General & Administration Expenses......... 9.0 6.1
Operating Income (Loss)............................ (3.1) (11.0)
Interest Expense................................... .7 .8
Loss Before Income Taxes........................... (3.8) (11.8)
Income Tax Benefit................................. (1.8) (4.8)
Net Loss........................................... (2.0)% (7.0)%
</TABLE>
Net sales for the quarter ended September 30, 1998 declined 34% from the same
period in 1997 reflecting the 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.
Costs of sales in the quarter ended September 30, 1998 were down 41% from the
same quarter a year ago as a result of lower VCM feedstock cost. The loss from
operations of $500,000 for the quarter was an improvement of $2.2 million
versus the prior year's three-month period.
50
<PAGE>
Depreciation and amortization expense and selling, general and administrative
expenses for the three months ended September 30, 1998 were essentially flat
compared to the same quarter a year ago. The changes from the prior year's
quarterly expenses expressed as a percentage 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 allocation for the first quarter of fiscal
1999 is down from the prior fiscal year's corresponding quarter due primarily
to a reduction in CONDEA Vista's investment in the Oklahoma City Resin
Business. The change in income tax benefit reflects the reduction in the net
loss incurred in the first quarter of fiscal 1999 versus that for the same
quarter a year ago.
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.
Liquidity and Capital Resources
The Oklahoma City Resin Business generated a positive cash flow from
operations of $3.1 million in the quarter ended September 30, 1998, largely due
to reductions in working capital. Capital expenditures totaled $559,000 during
the quarter, principally for three capacity improvement projects.
51
<PAGE>
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 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
52
<PAGE>
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.
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.
53
<PAGE>
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.
54
<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.
55
<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
56
<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.
57
<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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<PAGE>
(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
59
<PAGE>
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 Vista's counsel and accountants, underwriting discounts and commissions
and transfer taxes relating to the Registerable Shares.
60
<PAGE>
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
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.
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<PAGE>
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 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
62
<PAGE>
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; 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.
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<PAGE>
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
Three and Nine Months Ended September 30, 1998 Compared with Three and Nine
Months Ended September 30, 1997
The following table sets forth items from Eagle's Statement of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 75.0 82.4 78.3 79.3
Gross Profit............................... 25.0 17.6 21.7 20.7
Operating expenses......................... 15.5 13.9 15.3 14.6
Operating income........................... 9.5 3.7 6.4 6.1
Non-operating expense...................... (2.2) (3.1) (3.0) (3.6)
Income before income taxes and
extraordinary loss........................ 7.3 0.6 3.4 2.5
Income tax (expense) benefit............... (0.5) (0.1) (0.3) 0.3
Extraordinary loss on debt prepayment...... (3.2) -- (1.1) --
Net Income................................. 3.6% 0.5% 2.0% 2.8%
</TABLE>
Eagle posted record net sales for the three and nine month periods ended
September 30, 1998, increasing 4% and 5%, respectively, compared to the same
periods in 1997. Higher volumes, primarily due to increased demand and
production capacities, were responsible for the growth in revenues. Pounds sold
rose 15% and 14% for the three and nine month periods ended September 30, 1998,
compared to the same periods in 1997, respectively. Selling prices decreased 8%
and 11% for the three and nine month periods ended September 30, 1998, compared
to the same periods in 1997, respectively.
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 the Asian economic crisis which caused
an oversupply of resin because of lower exports. Strong demand allowed Eagle to
retain a portion of the raw material price decreases.
The increase in operating expenses, as a percentage of net sales, from 1997
to 1998 is primarily due to higher freight costs, from increased sales volume,
combined with lower selling prices.
The decrease in non-operating expenses, which consists principally of
interest expense, from 1997 to 1998 is primarily due to the issuance of $10.0
million of Eagle 8% Preferred Stock in May of 1997. The proceeds from the
preferred stock were used to pay down Eagle's revolving credit line.
The income tax provisions for 1998 and 1997 were calculated based upon
management's estimate of the annual effective rates, reduced by federal net
operating loss ("NOL") and state tax credit carryforwards utilized, as well as
NOL carryforwards expected to be used in future periods. Due to more profitable
operations and future expected profits, an income tax benefit of $250,000 was
recorded in the second quarter of 1997, representing a change in the deferred
tax asset valuation allowance relating to a portion of the NOL carryforwards
which are now expected to be utilized in the future.
In July 1998, the Company repurchased the remainder of its subordinated debt
for $4.3 million which generated an extraordinary loss of $656,419, net of
income taxes. In conjunction with the repurchase, the Company obtained a $6.5
million term note from its current lender.
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Year Ended December 31, 1997 Compared With Years Ended December 31, 1996 and
1995
The following table sets forth items from Eagle's Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of goods sold................................... 80.1 76.8 81.7
Gross profit......................................... 19.9 23.2 18.3
Operating expenses................................... 15.2 15.4 15.0
Operating income..................................... 4.7 7.9 3.3
Other expense........................................ (3.6) (4.1) (5.3)
Income (loss) before income taxes and extraordinary
loss................................................ 1.1 3.8 (2.0)
Income tax benefit................................... (0.2) (1.5) (0.3)
Income (loss) before extraordinary loss.............. 1.3 5.3 (1.7)
Extraordinary loss on debt prepayments............... -- 2.6 --
Net income (loss).................................... 1.3% 2.7% (1.7)%
</TABLE>
On July 10, 1995, Eagle acquired all of the outstanding common stock of
Pacific Plastics, Inc. and its wholly owned subsidiary, Arrow Pacific Plastics,
Inc. ("Pacific"). Since Pacific was not acquired by Eagle until July 1995,
operating results may not be comparable with prior years. Pro forma results,
reflecting operations as if the acquisition had occurred at the beginning of
1995 are provided in Note 2 of the 1997 financial statements. A discussion of
the pro forma results are made whenever it is deemed to enhance the reader's
understanding of Eagle's operating results.
Eagle posted record net sales in 1997, rising 10% from 1996 to 1997 after
increasing by 27% from 1995 to 1996. Higher sales volumes, primarily due to an
increase in production capacities, were responsible for the 1997 growth in
revenues. Higher sales volumes, primarily due to the acquisition of Pacific,
were responsible for the 1996 growth in revenues. Pounds sold rose by 13% from
1996 to 1997 and by 40% from 1995 to 1996. These higher volumes were partially
offset by lower selling prices, which decreased 3% from 1996 to 1997 and 9%
from 1995 to 1996. The lower selling prices in 1997 were caused by increased
competition due to over-capacity in the industry, while the lower selling
prices in 1996 were primarily due to lower PVC resin prices. On a pro forma
basis, sales in dollars decreased 6% from 1995 to 1996, while sales in pounds
increased 5%. The small pro forma sales increase in pounds is due to capacity
constraints at Eagle's three manufacturing facilities.
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 the gross
profit as a percentage of net sales from 1995 to 1996 is primarily due to the
stabilization of PVC and PE raw material costs and selling prices during 1996.
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.
Operating expenses as a percentage of net sales increased from 1995 to 1996
primarily due to lower selling prices in 1996 which were partially offset by
administrative efficiencies gained
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from the acquisition of Pacific. Operating expenses as a percentage of sales on
a pro forma basis were 14.4% for 1995. The increase in operating expenses from
1995 pro forma results to 1996 is due to lower selling prices in 1996 compared
to 1995.
The decrease in non-operating expenses, which consists mainly of interest
expense, as a percentage of net sales from 1996 to 1997 is the result of paying
down the revolving credit loan with the proceeds from the sale of the 8%
Preferred Stock in May 1997. Interest expense decreased in 1996 compared to
1995 as a result of Eagle's refinancing of debt along with the issuance of new
common equity in May 1996, which allowed Eagle to eliminate 40% of its higher
interest rate subordinated debt and related non-cash interest amortization.
The income tax provisions for 1997, 1996 and 1995, were calculated based upon
management's estimate of the annual effective rates, reduced by federal net
operating loss ("NOL") and state tax credit carryforwards utilized as well as
NOL carryforwards expected to be used in future periods. 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 $805,000 at September 30, 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 intends to
replace the short-term financing with long-term financing, which will improve
Eagle's working capital position.
Cash provided by operating activities was $2.5 million and $583,000 for the
nine months ended September 30, 1998 and 1997, respectively. The primary reason
for the improved results are improved profits and lower inventory levels in
1998 compared to 1997.
Eagle used $9.4 million and $6.5 million for investing activities for the
nine months ended September 30, 1998 and 1997, respectively. The primary use of
cash in 1998 and 1997 was for capital expenditures.
Cash provided by financing activities was $7.1 million and $5.9 million for
the nine months ended September 30, 1998 and 1997, respectively. The primary
source of cash in 1998 was borrowings under the revolving credit loan and the
refinancing of the subordinated debt with the issuance of a larger term note.
The primary source of cash in 1997 was the issuance of redeemable preferred
stock, partially offset by payments on the revolving credit loan and long-term
debt.
Eagle had commitments for capital expenditures of $587,000 at September 30,
1998, which will be funded from borrowings under the revolving credit loan.
Additional potential sources of liquidity, if needed, include Eagle's revolving
credit line, additional long-term debt financing, and the sale of Company
equity securities in 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.
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."
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 some of the statements made herein. These forward
looking statements involve a number of risks and uncertainties in addition to
those specifically
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mentioned below, including: business conditions and the general economy,
competitive factors such as major capacity increases from competitors, and
weather factors. Any one or more of these factors and risks could have a
materially adverse effect on Eagle's results of operations. See "Forward
Looking Statements May Prove Inaccurate."
Eagle expects the demand for plastic pipe and tubing 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 and tubing of three percent or greater per year through 1998.
Eagle has historically been able, and expects in the future, 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 in the higher profit products and geographic regions.
Eagle's gross margin percentage is a sensitive function of PVC and
polyethylene (PE) raw material resin prices. 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. Due to the commodity nature of PVC and PE resin and the dynamic supply
and demand factors both domestically and worldwide, it is very difficult to
predict gross margin percentages or assume that historical trends will
continue.
If the Merger is consummated, Eagle's use of the federal net operating loss
carryforwards ("NOLs") will be limited to an annual amount calculated based
upon the market capitalization of Eagle immediately prior to the Merger.
Management believes that the annual limitation will be between $550,000 and
$600,000. The NOLs are available through the year 2010, however, the majority
expire by the year 2000. The amount of available NOLs actually used is
dependent on future profits and the annual limitation, and Eagle will not be
able to utilize all of its NOLs before they expire.
Eagle believes that it has the product offerings, facilities, personnel, and
competitive and financial resources for continued business success, but future
revenues, costs, margins, and profits are all influenced by a number of
factors, as discussed above.
Year 2000 Compliance
Eagle relies on computer software and hardware systems to manage its
information and portions of its manufacturing. Eagle is aware of the computer
software and hardware issues associated with the programming code in existing
computer software programs and non-information technology such as micro-
controllers found in computer hardware. The issue is whether systems will
properly recognize date sensitive information. Much of the computer software
and hardware in use today is unable to recognize a year that begins with "20"
instead of "19." Many computers will be unable to recognize the Year 2000 and,
as a result, could generate erroneous data or cause a computer to fail. Some
computer systems may begin to operate improperly sooner for failure to read
other dates such as September 9, 1999. If not addressed properly, the Year 2000
issue could have a material adverse effect on Eagle.
Eagle has completed an assessment of its exposure to the Year 2000 issue by
evaluating its software and hardware systems. Eagle's assessment revealed that
its exposure to the Year 2000 issue is nominal and it is currently upgrading
its software and hardware systems to make such systems Year 2000 compliant. The
cost of such upgrade is not material. In addition to evaluating its own
systems, Eagle has inquired of its major customers and suppliers as to their
exposure to the Year 2000 issue to determine the extent to which Eagle is
indirectly vulnerable to the Year 2000 issues from such customers and
suppliers. Many of the Eagle's customers and suppliers have responded that they
believe they are or will be Year 2000 compliant. Eagle plans to continue to
assess its exposure to the Year 2000 issue and develop plans to address any
effects of the issue that could have an adverse effect on Eagle and 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, where
it can seek 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 caused its popularity including its low cost, easy
installation, and its lower weight and longer life than metal pipe. As a
result, PVC 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 meets all 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 one-seventh of an equivalent
metal pipe.
Pressure Pipe. Pressure pipe is used extensively 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.
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.
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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.
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.
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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 apply to 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 $3.8 billion in annual sales. Eagle is
the 16th largest extruder of plastic pipe, according to Plastic News. However,
many of the pipe manufacturers that ranked higher than Eagle produce large
diameter pipe (15-inch to 30-inch) 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 believes it
has reduced the commodity nature of its business through its high quality and
brand names, pricing pressure will continue and could 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. In an effort to ensure the
highest quality products possible, Eagle uses high quality raw materials and
the latest in extrusion technologies.
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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
53%, 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 December 31, 1998, was
7,603,000 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.
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.
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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 1997, the Lamson PVC Pipe Business contributed approximately
$141.4 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, $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 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.
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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.
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
74
<PAGE>
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 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
75
<PAGE>
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.
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 $ 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 $ 0
David P. Schnase, 1998 $130,000(3) $35,000 $6,000 0 $ 0
Sr. Vice President 1997 $125,000 $ 8,750 $6,000 $ 0
1996 $ 87,500(5) $12,500 $ 0 0 $ 0
Patrick M. Mertens, 1998 $ 94,000 $21,000 $ 0 $ 0
Chief Financial Officer 1997 $ 90,000 $ 5,250 $ 0 $ 0
1996 $ 68,000 $24,000 $ 0 0 $ 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
76
<PAGE>
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 $21,000 if Eagle meets certain operating profit levels. Such
employment agreement has a confidentiality provision, a one-year
noncompetition clause and provides for a severance payment equal to his
then annual base salary in the event of his termination other than for
cause.
Option/SAR Grants During 1998 Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------- ------------------------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/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% 1/6/08 $ 2.375 $ 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.
77
<PAGE>
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.
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
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Percent
Series A Preferred of Common
Common Stock Stock Stock and
----------------------------- --------------------- Series A
Shares Shares Percent Preferred
Name and Address of Beneficially Percent of Beneficially of Stock
Beneficial Owner Owned Class(1) Owned Class(1) Combined
------------------- ------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
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
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.
79
<PAGE>
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.
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."
Larry Schnase, former Chief Executive Officer of Eagle Plastics, entered into
a Consulting Agreement and Release for a two year term beginning January 1,
1997. 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 can receive an
annual bonus up to $30,000, if Eagle meets certain operating profit levels.
Such consulting agreement has a confidentiality provision and a five year
noncompetition clause. Mr. Schnase's existing Deferred Compensation Agreement
remained in effect until January 1, 1999 but was amended to provide that the
payments for $75,000 upon his death or upon termination of his consulting
arrangement with Eagle shall be increased at the rate of 7% per year.
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 January 1, 1999, Eagle had approximately 1,950 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.
80
<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. Members of Fredrikson &
Byron, P.A. own, in the aggregate, approximately shares of Eagle Common
Stock.
EXPERTS
The financial statements of Eagle Pacific Industries, Inc. as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 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 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.
81
<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.
82
<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 Nine Months Ended September 30, 1998
and 1997 (unaudited) and for the Years Ended December 31, 1997, 1996
and 1995 ............................................................. F-9
Balance Sheets as of September 30, 1998 (unaudited), December 31, 1997
and 1996.............................................................. F-10
Statements of Stockholders' Equity for the Years Ended December 31,
1997, 1996 and 1995................................................... F-11
Statements of Cash Flow for the Nine Months Ended September 30, 1998
and 1997 (unaudited) and for the Years Ended December 31, 1997, 1996
and 1995.............................................................. F-12
Notes to Financial Statements.......................................... F-13
CONDEA Vista Company Oklahoma City Plant
Report of Independent Accountants....................................... F-25
Financial Statements
Balance Sheets as of September 30, 1998 (unaudited), June 30, 1998 and
1997................................................................... F-26
Statement of Income and Changes in Owners Investment for the Three
Months Ended September 30, 1998 and 1997 (unaudited) and for the Years
Ended June 30, 1998, 1997 and 1996.................................... F-27
Statement of Cash Flows for the Three Months Ended September 30, 1998
and 1997 (unaudited) and for the Years Ended June 30, 1998, 1997 and
1996.................................................................. F-28
Notes to Financial Statements.......................................... F-29
PVC Pipe Business of The Lamson & Sessions Co.
Report of Independent Auditors.......................................... F-36
Financial Statements
Combined Statement of Net Assets To Be Acquired as of January 2, 1999.. F-37
Combined Statements of Revenues and Operating Expenses for the Nine
Months Ended October 3, 1998 (unaudited) and Fiscal Years Ended
January 2, 1999, January 3, 1998 and December 28, 1996................ F-38
Notes to Combined Financial Statements................................. F-39
</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 11, 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. as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
_____________________________________
Deloitte & Touche LLP
Minneapolis, Minnesota
February 24, 1998
F-8
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
NET SALES............... $71,685,080 $65,280,138 $51,330,127 $59,664,007 $56,989,941
COST OF GOODS SOLD...... 57,451,620 50,106,782 41,938,244 46,698,772 45,197,009
----------- ----------- ----------- ----------- -----------
Gross profit........... 14,233,460 15,173,356 9,391,883 12,965,235 11,792,932
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses....... 8,157,000 7,113,184 5,335,754 7,117,815 6,288,787
General and
administrative
expenses.............. 2,720,964 2,931,266 2,344,284 2,037,593 2,020,363
----------- ----------- ----------- ----------- -----------
10,877,964 10,044,450 7,680,038 9,155,408 8,309,150
----------- ----------- ----------- ----------- -----------
OPERATING INCOME........ 3,355,496 5,128,906 1,711,845 3,809,827 3,483,782
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense....... (2,636,862) (2,637,341) (2,932,563) (1,836,320) (2,101,638)
Minority interest...... -- (68,470) 55,297 -- --
Other income........... 40,810 46,533 136,597 36,526 27,110
----------- ----------- ----------- ----------- -----------
(2,596,052) (2,659,278) (2,740,669) (1,799,794) (2,074,528)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS..... 759,444 2,469,628 (1,028,824) 2,010,033 1,409,254
INCOME TAX (BENEFIT)
EXPENSE
(Note 10).............. (171,321) (1,009,685) 164,000 163,000 (167,932)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS..... 930,765 3,479,313 (864,824) 1,847,033 1,577,186
EXTRAORDINARY LOSS ON
DEBT PREPAYMENTS, less
income tax benefit of
$80,500 and $31,000
(Note 5)............... -- 1,728,353 -- 656,419 --
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... 930,765 1,750,960 (864,824) 1,190,614 1,577,186
PREFERRED STOCK
DIVIDENDS.............. (520,403) (90,791) (193,689) (601,969) (319,747)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCK.................. $ 410,362 $ 1,660,169 $(1,058,513) $ 588,645 $ 1,257,439
=========== =========== =========== =========== ===========
BASIC EARNINGS (LOSS)
PER COMMON SHARE:
Income (loss) before
extraordinary loss.... $ .06 $ .62 $ (.27) $ .19 $ .19
Extraordinary loss on
debt prepayments...... -- (.31) -- (.10) --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ .06 $ .31 $ (.27) $ .09 $ .19
=========== =========== =========== =========== ===========
DILUTED EARNINGS (LOSS)
PER COMMON SHARE:
Income (loss) before
extraordinary loss.... $ .06 $ .49 $ (.27) $ .17 $ .17
Extraordinary loss on
debt prepayments...... -- (.24) -- (.09) --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ .06 $ .25 $ (.27) $ .08 $ .17
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................. 6,503,426 5,444,683 3,899,587 6,687,619 6,497,745
Diluted................ 7,426,521 7,120,112 3,899,587 7,090,611 7,463,066
</TABLE>
See notes to financial statements.
F-9
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1996 1998
------------ ------------ -------------
UNAUDITED
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ -- $ 218,926
Accounts receivable, less allowance
for doubtful accounts and sale
discounts of $203,500, $195,100 and
$318,000, respectively............... 6,528,296 5,600,843 9,683,569
Inventories (Note 3).................. 13,269,560 10,279,169 9,237,884
Deferred income taxes (Note 10)....... 425,000 340,000 425,000
Other................................. 314,822 969,633 455,461
----------- ----------- -----------
Total current assets.................. 20,537,678 17,189,645 20,020,840
PROPERTY AND EQUIPMENT, NET (Note 4)... 16,854,447 11,486,019 24,626,732
OTHER ASSETS:
Prepaid interest (Note 5)............. 836,998 1,388,688 --
Goodwill, less accumulated
amortization of $370,000, $262,500
and $454,000, respectively........... 4,097,652 3,650,298 4,013,883
Deferred financing costs, less
accumulated amortization of $580,900,
$239,200 and $424,000, respectively.. 544,704 866,418 154,197
Deferred income taxes (Note 10)....... 825,000 660,000 825,000
Non-compete agreement, less
accumulated amortization of $132,500,
$79,500 and $172,253, respectively
(Note 2)............................. 132,492 185,496 92,739
Other................................. -- -- 112,415
----------- ----------- -----------
6,436,846 6,750,900 5,198,234
----------- ----------- -----------
$43,828,971 $35,426,564 $49,845,806
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 5)................. $ 4,405,976 $ 4,649,102 $11,225,159
Accounts payable...................... 8,892,015 8,020,368 5,858,396
Accrued liabilities................... 1,276,481 1,442,180 1,879,713
Current maturities of long-term debt
(Note 5)............................. 1,882,882 1,951,751 1,862,486
----------- ----------- -----------
Total current liabilities............. 16,457,354 16,063,401 20,825,754
LONG-TERM DEBT, less current maturities
(Note 5).............................. 5,489,900 7,035,562 10,926,426
SUBORDINATED DEBT (Note 5)............. 4,182,570 3,972,450 --
DEFERRED COMPENSATION (Note 6)......... -- 72,384 --
MINORITY INTEREST...................... -- 258,763 --
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 37,500
Undesignated stock, $.01 per share;
authorized 18,000,000 shares; none
issued and outstanding............... -- -- --
Common stock, par value $.01 per
share; authorized 30,000,000 shares;
issued and outstanding 6,506,174,
6,443,237 and 6,612,483 shares,
respectively......................... 65,062 64,432 66,125
Class B Common stock, par value $.01
per share; authorized 3,500,000
shares; none issued and outstanding.. -- -- --
Additional paid-in capital............ 36,707,200 37,211,090 36,511,969
Unearned compensation on stock
options.............................. -- (96,241) --
Notes receivable from officers and
employees on Common Stock purchases (434,206) (66,343) (434,206)
Accumulated deficit................... (28,676,409) (29,126,434) (28,087,762)
----------- ----------- -----------
Total stockholders' equity............ 7,699,147 8,024,004 8,093,626
----------- ----------- -----------
$43,828,971 $35,426,564 $49,845,806
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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
12/31/1994..... 1,383,500 $2,767,000 3,583,230 $35,832 $31,261,979 $(306,348) $ -- $(29,728,090)
Net loss........ -- -- -- -- -- -- -- (864,824)
Dividends on
preferred
stock.......... -- -- -- -- -- -- -- (193,689)
Issuance of com-
mon stock (Note
9)............. -- -- 569,710 5,697 1,495,402 -- -- --
Common stock
options vested
(Note 9)....... -- -- -- -- -- 102,116 -- --
---------- ---------- --------- ------- ----------- --------- --------- ------------
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 com-
mon 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 op-
tions vested
(Note 9)....... -- -- -- -- -- 107,991 -- --
Warrant issued
in debt refi-
nancing........ -- -- -- -- 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 com-
mon stock (Note
9)............. -- -- 62,937 630 37,603 -- -- --
Common stock op-
tions vested
(Note 9)....... -- -- -- -- -- 96,241 -- --
Preferred stock
issuance
costs.......... -- -- -- -- (583,029) -- -- --
Purchase of mi-
nority inter-
est............ -- -- -- -- 41,536 -- -- 39,663
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)
========== ========== ========= ======= =========== ========= ========= ============
<CAPTION>
TOTAL
----------- --- --- ---
<S> <C> <C> <C> <C>
BALANCE AT
12/31/1994..... $4,030,373
Net loss........ (864,824)
Dividends on
preferred
stock.......... (193,689)
Issuance of com-
mon stock (Note
9)............. 1,501,099
Common stock
options vested
(Note 9)....... 102,116
-----------
BALANCE AT
12/31/1995..... 4,575,075
Net income...... 1,750,960
Dividends on
preferred
stock.......... (90,791)
Issuance of com-
mon stock (Note
9)............. 1,612,112
Conversion of
preferred
stock.......... --
Common stock op-
tions vested
(Note 9)....... 107,991
Warrant issued
in debt refi-
nancing........ 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 com-
mon stock (Note
9)............. 38,233
Common stock op-
tions vested
(Note 9)....... 96,241
Preferred stock
issuance
costs.......... (583,029)
Purchase of mi-
nority inter-
est............ 81,199
Common stock
purchases (Note
9)............. (367,863)
-----------
BALANCE AT
12/31/1997..... $7,699,147
===========
</TABLE>
See notes to financial statements.
F-11
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ----------------------
1997 1996 1995 1998 1997
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ 930,765 $ 1,750,960 $ (864,824) $1,190,614 $1,577,186
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Extraordinary loss on
debt prepayments..... -- 1,728,353 -- 656,419 --
Minority interest..... -- 68,470 (55,297) --
Gain on disposal of
fixed assets......... (4,000) (10,401) (544) --
Depreciation and
amortization......... 1,679,278 1,564,684 1,336,410 1,642,972 1,312,799
Loan discount
amortization......... 551,834 329,724 345,170 362,106 427,456
Prepaid interest
amortization......... 551,690 435,160 735,619 295,410 403,985
Deferred income
taxes................ (250,000) (1,000,000) -- -- (250,000)
Change in assets and
liabilities, net of
acquisition:
Accounts receivable... (927,453) (51,607) 2,040,037 (3,155,273) (2,942,371)
Inventories........... (2,990,391) (2,104,212) 4,883,583 4,031,676 499,425
Other current assets.. 654,811 (43,364) 129,341 (140,639) (167,891)
Accounts payable...... 871,647 2,767,685 (2,227,281) (3,033,619) (385,178)
Accrued liabilities... (165,699) 313,359 (111,644) 603,232 198,576
Other................. (82,599) 8,622 (11,125) 31,133 (91,110)
---------- ----------- ---------- ---------- ----------
Net cash provided by
operating
activities.......... 819,883 5,757,433 6,199,445 2,484,031 582,877
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Pacific
Plastics, Inc., net
of cash acquired..... -- -- (4,195,035) -- --
Purchases of property
and equipment........ (6,764,430) (3,451,076) (1,171,689) (9,291,866) (5,386,782)
Purchases of minority
interest............. (748,734) (519,749) -- -- (748,718)
Deferred costs........ -- -- -- (112,415) --
Payment under
noncompete
agreement............ -- -- (750,000) --
Proceeds from
restricted cash...... -- 500,000 -- --
Proceeds from property
and equipment
disposals............ 4,000 40,150 13,425 --
Decrease in other
assets............... -- -- 100,000 --
Notes receivable from
officers and
employees on common
stock purchases...... (367,863) (66,343) -- -- (367,863)
---------- ----------- ---------- ---------- ----------
Net cash used in
investing
activities.......... (7,877,027) (3,497,018) (6,003,299) (9,404,281) (6,503,363)
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
(Payments) borrowings
under note payable,
net.................. (243,126) (872,403) 1,194,284 6,819,183 (2,026,105)
Proceeds from long-
term debt............ 260,000 8,029,950 1,961,624 6,477,800 260,000
Payment for prepaid
interest............. -- -- (1,500,000) --
Repayment of long-term
debt................. (1,874,531) (10,478,521) (1,399,072) (5,361,670) (1,473,155)
Payment of debt
issuance costs....... (20,000) (598,256) -- -- (20,000)
Issuance of common
stock................ 38,233 1,446,563 43,750 (194,168) 82,522
Issuance of preferred
stock, net of
offering costs....... 9,416,971 -- -- -- 9,416,971
Payment of preferred
stock dividend....... (520,403) (90,791) (193,689) (601,969) (319,747)
---------- ----------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities........... 7,057,144 (2,563,458) 106,897 7,139,176 5,920,486
---------- ----------- ---------- ---------- ----------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS........... -- (303,043) 303,043 218,926 --
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR..... -- 303,043 -- --
---------- ----------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF
YEAR.................. $ -- $ -- $ 303,043 $ 218,926 $ --
========== =========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-12
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND NINE MONTHS ENDED SEPTEMBER
30, 1998 AND 1997
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.
Unaudited Financial Statements--The balance sheet as of September 30, 1998,
the statements of income and cash flows for the nine months ended September 30,
1997 and 1998, and the statements of stockholders' equity for the nine months
ended September 30, 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 except
for the extraordinary loss on debt extinguishment) 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.
Cash Equivalents--Cash equivalents consist principally of money market and
short-term commercial paper investments with initial maturities of three months
or less.
Inventories--Inventories are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market.
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. Capitalized interest was
$101,027 for 1997.
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.
F-13
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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, 1997, 1996 and 1995, purchases of such raw
materials from two vendors totaled 61%, 61% and 72%, respectively, of total
material purchases.
Reclassifications--Certain reclassifications have been made to the 1996
consolidated financial statements to conform to the 1997 presentation. Such
reclassifications had no effect on net income (loss) or stockholders' equity as
previously reported.
2. ACQUISITION OF PACIFIC PLASTICS, INC.
On July 10, 1995, the Company acquired all of the outstanding common stock of
Pacific. Pacific extrudes polyvinyl chloride pipe and polyethylene pipe and
tubing products which are marketed primarily in the northwestern United States.
The purchase price of Pacific was $6,750,000, consisting of $4,350,000 in cash,
$1,700,000 in the form of a note to the previous owners of Pacific (Sellers),
and 262,210 shares of the Company's common stock valued at $700,000. Because
84,210 shares of the 262,210 shares issued were not registered for public sale
by March 1, 1996, the holders have the right to require the Company to
repurchase up to 84,210 shares at 80% of market price at the time of the
repurchase request. In addition, the Company paid $750,000 in cash to two of
the Sellers in exchange for their agreement not to compete with the Company for
five years.
The Company financed the cash portion of the purchase and non-competition
agreements from borrowings on a new revolving credit line (Revolver) and term
loan (Term Loan) of $3,184,000 and $1,916,000, respectively. Additional
proceeds from the Revolver were used to repay Pacific's existing line of
credit. Both the Revolver and the Term Loan were paid off in May 1996 (Note 5).
The $1,700,000 note payable to the Sellers requires the Company to make 36
monthly payments of principal and interest at a fixed rate of 9% per annum or
aggregate payments of $54,059 per month. The Sellers' note is guaranteed by the
Company.
The Company also entered into a three-year and a two-year employment contract
with two of the Sellers with whom the Company entered into non-compete
agreements. Such contracts provide for base salary and standard benefits. In
consideration for entering into such employment contracts, the Company granted
each seller options to purchase 100,000 shares of the Company's common stock at
$3.125 per share.
F-14
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
This acquisition was accounted for under the purchase method of accounting.
The Company included the results of operations of Pacific subsequent to the
acquisition. The fair value of the assets acquired less the liabilities assumed
exceeded the purchase price by $5,316,000. This excess has been recorded as a
reduction to property and equipment and noncompete agreements of $4,831,000 and
$485,000, respectively.
The following unaudited pro forma condensed combined statement of operations
reflect the combined operations of the Company and Pacific during the year
ended December 31, 1995, as if the acquisition had occurred at the beginning of
1995. The unaudited pro forma condensed combined statement of operations may
not necessarily reflect the actual results of operations of the Company which
would have resulted had the acquisition occurred as of the dates presented. The
unaudited pro forma information is not necessarily indicative of future results
of operations for the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
<S> <C>
Revenues..................................................... $69,495,000
Gross profit................................................. 12,302,000
Net loss..................................................... (505,000)
Net loss applicable to common stock.......................... (699,000)
Basic and diluted loss per common share...................... (.18)
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1996 1998
------------ ------------ -------------
<S> <C> <C> <C>
Raw materials........................ $ 5,033,398 $ 3,151,146 $4,055,419
Finished goods....................... 8,236,162 7,128,023 $5,182,465
----------- ----------- ----------
$13,269,560 $10,279,169 $9,237,884
=========== =========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land............................................ $ 2,105,664 $ 523,678
Buildings and leasehold improvements............ 2,874,347 2,687,673
Machinery and equipment......................... 14,738,163 10,586,322
Transportation equipment........................ 443,254 327,613
Furniture and fixtures.......................... 449,742 399,622
Construction-in-progress........................ 424,346 --
------------ -----------
21,035,516 14,524,908
Less accumulated depreciation................... 4,181,069 3,038,889
------------ -----------
$ 16,854,447 $11,486,019
============ ===========
</TABLE>
5. DEBT
In July 1998, the Company repurchased the remainder of its subordinated debt
for $4.3 million which generated an extraordinary loss of $656,419, net of
income taxes. In conjunction with the repurchase, the Company obtained a $6.5
million term note from its current lender.
F-15
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the Company had outstanding borrowings of $3,345,645
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, 1997, the Company
had additional borrowings available of approximately $7,500,000, which is based
on available collateral. The revolving credit loan expires May 9, 1999.
Interest is payable monthly at the bank's national base rate, plus .25% (8.75%
at December 31, 1997). The agreement also includes a commitment fee of .5% of
the unused portion of the credit loan, payable monthly. At December 31, 1996,
the Company had outstanding borrowings of $4,649,102. The revolving credit loan
is secured by substantially all assets of the Company. Until all obligations of
the revolving credit loan and term note are paid in full, the Company must
comply with certain covenants outlined in the loan agreement, including
tangible net worth, net cash flow and senior interest coverage ratio. At
December 31, 1997, the Company did not comply with the net cash flow covenant
and accordingly, received a waiver from its lenders. The weighted average
interest rate on all short-term borrowings at December 31, 1997 and 1996, was
8.7% and 8.5%, respectively.
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 finance
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 assigned to the warrant is being 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 CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1996 1998
------------ ------------ -------------
<S> <C> <C> <C>
Term promissory note
(A).................... $6,189,300 $ 7,332,900 11,809,400
Subordinated promissory
note (B)............... 4,182,570 3,972,450 --
Term promissory note
(C).................... 464,513 950,013 464,513
Various installment
notes payable (D)...... 718,969 704,400 514,999
---------- ----------- -----------
11,555,352 12,959,763 12,788,912
Less current maturi-
ties................... 1,882,882 1,951,751 1,862,486
---------- ----------- -----------
$9,672,470 $11,008,012 $10,926,426
========== =========== ===========
</TABLE>
(A) Payable $95,300 monthly, plus interest at LIBOR plus 2.75% (8.5% at
December 31, 1997), with remaining principal due May 9, 1999. Secured by
substantially all assets of the Company and subject to the terms and covenants
of the revolving credit loan agreement outlined above.
(B) Due in full on May 10, 1999, including interest at 10.4%. During 1996,
$3.0 million of this debt was prepaid. This promissory note is subordinated in
payment to the Company's revolving line of credit and term promissory note.
This agreement requires the Company to maintain the same covenants as the
revolving credit loan. The original issue discount (OID) of $1,590,000
($954,000 after the $3,000,000 prepayment in 1996) has been netted against the
debt and is being accreted over the term of the debt using the effective
interest method. This accretion is included in interest expense. At December
31, 1997 and 1996, unaccreted OID was $317,430 and $527,550, respectively.
Pursuant to the terms of the Subordinated Note, after January 1, 1999, the
lender was entitled to receive one or more contingent interest payments based
upon profitability. The maximum
F-16
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
aggregate amount of the contingent interest payments was to be 87.5% of certain
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
any four consecutive quarters after January 1, 1998. The contingent interest
was being accrued over the period the debt was to be outstanding under the
interest method, using an estimate of the EBITDA calculation for the year ended
December 31, 1998, based upon the current year's EBITDA. On March 16, 1995, the
Company executed an agreement with the lender whereby the contingent interest
requirement was fixed in exchange for: (i) $1,500,000 in cash, which came from
a draw on the revolving credit line; (ii) $1,200,000 paid on September 1, 1995;
(iii) $970,000 paid on September 1, 1996; (iv) 210,000 shares of the Company's
Common Stock; and (v) a three-year warrant to purchase 100,000 shares of the
Company's Common Stock at $3.00 per share. The present value of the total
consideration provided was recorded as prepaid interest and is being amortized
over the period the Subordinated Note is outstanding using the interest method.
The estimate of the total contingent interest payable used to accrue the
contingent interest payable at December 31, 1994, approximated the present
value of the total consideration provided pursuant to the March 16, 1995,
agreement described above.
(C) Due August 1, 1998; payable $54,059 monthly, including interest at 9%.
Guaranteed by the Company.
(D) 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 consolidated balance sheets under the
following captions at December 31:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current maturities of long-term debt............ $ 1,882,882 $ 1,951,751
Long-term debt, less current maturities......... 5,489,900 7,035,562
Subordinated debt............................... 4,182,570 3,972,450
----------- -----------
$11,555,352 $12,959,763
=========== ===========
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1997, are:
<TABLE>
<CAPTION>
<S> <C>
1998......................................................... $ 1,882,882
1999......................................................... 9,787,216
2000......................................................... 58,618
2001......................................................... 51,939
2002......................................................... 39,862
Thereafter................................................... 52,265
-----------
11,872,782
Less unamortized original issue discount..................... 317,430
-----------
$11,555,352
===========
</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.
F-17
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 1998.
7. COMMITMENTS AND CONTINGENCIES
Litigation--The Company is periodically involved in various legal actions
arising in the normal course of business. At December 31, 1997, the Company was
not aware of any material legal proceedings against it or its subsidiaries.
Leases--The Company has non-cancelable operating leases for certain operating
facilities which expire in the years 1998 and 2010. The operating facility
leases contain provisions for increasing the monthly rent for changes in the
Consumer Price Index.
Future minimum lease payments at December 31, 1997 were:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................... $ 136,000
1999........................................................... 121,000
2000........................................................... 121,000
2001........................................................... 121,000
2002........................................................... 121,000
Thereafter..................................................... 911,000
----------
$1,531,000
==========
</TABLE>
Rent expense under all operating leases was $363,000, $285,000 and $234,000
for the years ended December 31, 1997, 1996 and 1995, 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
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.
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
F-18
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of stock options, respectively. During 1995, the Company issued 262,210,
210,000, 72,500, and 25,000 shares of common stock in connection with the
purchase of Pacific, to fix the Blair contingent interest, the acquisition of
minority ownership of Eagle and the exercise of stock warrants, respectively.
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 market value is being
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 rate on the Company's
revolver loan (8.75% at December 31, 1997), 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, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current deferred taxes:
Warranty reserve............................... $ 13,000 $ 13,000
Allowance for doubtful accounts................ 79,000 76,000
Accrued expenses............................... 207,800 175,400
Prepaid expenses............................... 14,000 10,000
Federal net operating loss carryforwards....... 425,000 340,000
Less valuation allowance....................... (313,800) (274,400)
----------- -----------
Total.......................................... $ 425,000 $ 340,000
=========== ===========
Long-term deferred taxes:
LIFO inventory recapture....................... $ (396,000) $ (535,000)
Deferred compensation.......................... 205,000 160,000
Excess of tax over book depreciation........... (729,000) (892,000)
Non-compete agreement.......................... 190,000 192,000
Federal net operating loss carryforwards....... 13,606,000 14,313,000
Tax credit carryforwards....................... 634,000 684,000
AMT credit carryforwards....................... 78,000 86,000
Contribution carryforwards..................... 22,000 15,000
Less valuation allowance....................... (12,785,000) (13,363,000)
----------- -----------
Total.......................................... $ 825,000 $ 660,000
=========== ===========
</TABLE>
F-19
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense for the years ended December 31, 1997, 1996 and 1995,
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Current state........................... $ 78,679 $ 68,315 $(164,000)
Deferred--primarily federal............. (250,000) (1,078,000) --
--------- ----------- ---------
Income tax (benefit) expense before ex-
traordinary loss....................... (171,321) (1,009,685) (164,000)
Income tax benefit from extraordinary
loss on debt prepayments............... -- (80,500) --
--------- ----------- ---------
Income tax benefit...................... $(171,321) $(1,090,185) $(164,000)
========= =========== =========
</TABLE>
A reconciliation of the expected federal income taxes, using the effective
statutory federal rate of 35%, with the (benefit) provision for income taxes is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Expected federal expense (benefit)...... $ 266,000 $ 864,000 $(362,000)
State taxes, net of federal benefit and
tax credit............................. 56,000 46,000 (222,000)
Expiration of capital loss carry for-
ward................................... -- 366,000 --
Change in valuation allowance........... (538,600) (2,413,000) 407,000
AMT..................................... 36,000 69,000 --
Other................................... 9,279 58,315 13,000
--------- ----------- ---------
$(171,321) $(1,009,685) $(164,000)
========= =========== =========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards for
federal tax purposes of approximately $34,600,000. 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>
1998.......................................................... $ 6,100,000
1999.......................................................... 11,600,000
2000.......................................................... 11,400,000
2001.......................................................... 300,000
2002.......................................................... 500,000
2003.......................................................... 500,000
2004.......................................................... 700,000
2005.......................................................... 1,600,000
2007.......................................................... 300,000
2008.......................................................... 900,000
2010.......................................................... 700,000
</TABLE>
11. EARNINGS (LOSS) PER COMMON SHARE
Effective December 31, 1997 the Company adopted SFAS No. 128, "Earnings per
Share". Earnings (loss) per share amounts presented for 1996 and 1995 have been
restated for the adoption of SFAS No. 128. Basic earnings (loss) per share are
computed by dividing net income (loss) by the weighted average number of common
shares outstanding. Diluted earnings per share assumes conversion of
convertible preferred stock as of
F-20
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the beginning of the year and the exercise of stock options and warrants using
the treasury stock method, if dilutive. Diluted loss per share is the same as
basic loss per share due to the antidilutive effect of the assumed conversion
of convertible preferred stock and the exercise of stock options and warrants.
The following table reflects the calculation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- --------- ---------
<S> <C> <C> <C>
Net income.................................... $930,765
Preferred stock dividends..................... (520,403)
--------
BASIC EPS
Income available to common stockholders....... 410,362 6,503,426 $ .06
======== ========= =======
EFFECT OF DILUTIVE SECURITIES
Warrants and options.......................... 923,095
---------
DILUTED EPS
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 options 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, 1996
-------------------------------
PER SHARE
INCOME SHARES AMOUNT
---------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary item............ $3,479,313
Preferred stock dividends................... (90,791)
----------
BASIC EPS BEFORE EXTRAORDINARY ITEM
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 ITEM
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.
Because of the net loss in 1995, all potentially dilutive securities have an
antidilutive effect on the dilutive EPS calculation. Both basic and dilutive
EPS were computed by dividing the net loss applicable to common stock by the
weighted average common shares outstanding.
F-21
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C> <C>
BASIC EPS COMPUTATION
Income available to common stockholders......... $ 588,645 $1,257,439
========== ==========
Average common shares outstanding............... 6,687,619 6,497,745
========== ==========
Basic earnings per share........................ $ .09 $ .19
========== ==========
DILUTED EPS COMPUTATION
Income available to common stockholders......... $ 588,645 $1,257,439
8% redeemable preferred stock dividends......... -- --
7% convertible preferred stock dividends........ -- 1,969
---------- ----------
Income available to common stockholders......... 588,645 $1,259,408
========== ==========
Average common shares outstanding............... 6,687,619 6,497,745
Warrants and options............................ 402,992 946,571
8% redeemable preferred stock................... -- --
7% convertible preferred stock.................. -- 18,750
---------- ----------
7,090,611 7,463,066
========== ==========
Diluted earnings per share...................... $ .08 $ .17
========== ==========
</TABLE>
Options to purchase 308,946 and 15,878 shares of common stock were
outstanding at September 30, 1998 and 1997, respectively, 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. Conversion of the
8% redeemable convertible preferred stock was not assumed for the nine months
ending September 30, 1998 and 1997, respectively, since the conversion would
have an antidilutive effect on the diluted EPS calculation. Conversion of the
7% convertible preferred stock was not assumed for the nine months ending
September 30, 1997, since the conversion would have an antidilutive effect on
the diluted EPS calculation.
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 $235,251, $243,191 and $58,999 for the years
ended December 31, 1997, 1996 and 1995, 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. Effective December 31, 1997, all outstanding
stock options issued under a subsidiary's stock option plan have been converted
into options under the Company's 1997 stock option plan.
F-22
<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,
1997, 1996 and 1995, and changes during the year ended on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
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................ 2,126 $1.41 2,169 $1.57 1,668 $1.13
Granted................. -- -- 30 2.75 512 2.99
Exercised............... (80) .82 (70) .34 -- --
Canceled................ (6) .99 (3) 1.75 (11) 1.69
----- ----- -----
Outstanding at end of
year................... 2,040 1.66 2,126 1.41 2,169 1.57
===== ===== =====
Options exercisable at
year end............... 1,881 1.60 1,773 1.62 1,575 1.72
===== ===== =====
Options available for
future grant........... 970 970 --
===== ===== =====
Weighted average fair
value of options
granted during the
year................... $ -- $1.49 $1.53
===== ===== =====
</TABLE>
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related Interpretations in accounting for 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
1996 and 1995, consistent with the provisions of SFAS No. 123, the Company's
net income (loss) would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net income (loss) applicable to Common
Stock,
as reported............................. $410,362 $1,660,169 $(1,058,513)
Net income (loss) applicable to Common
Stock,
pro forma............................... 361,362 1,633,169 (1,756,513)
Basic earnings (loss) per common share
As reported............................ $ .06 $ .31 $ (.27)
Pro forma.............................. $ .06 $ .30 $ (.45)
Diluted earnings (loss) per common share
As reported............................ $ .06 $ .25 $ (.27)
Pro forma.............................. $ .05 $ .24 $ (.45)
</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>
1996 1995
---------- ---------
<S> <C> <C>
Dividend yield...................................... -- --
Expected volatility................................. 25% 50%
Expected life of option............................. 120 months 60 months
Risk free interest rate............................. 6.66% 6.38%
Fair value of options on grant date................. $ 45,000 $ 785,000
</TABLE>
F-23
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997 (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>
$.34 250 1.0 $0.34 250 $0.34
.64 to .75 620 2.9 0.75 620 0.75
1.75 to 2.50 689 2.5 1.98 570 1.97
2.75 to 3.25 481 2.7 3.04 441 3.05
----- -----
.34 to 3.25 2,040 2.5 1.66 1,881 1.60
===== =====
</TABLE>
14. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Non-cash Investing and Financing Activi-
ties:
Issuance of notes payable in connec-
tion with the agreement extinguishing
the contingent interest.............. $ -- $ -- $ 1,985,325
Issuance of common stock in connection
with the agreement extinguishing the
contingent interest.................. -- -- 642,600
Value of warrants issued in connection
with the agreement extinguishing the
contingent interest.................. -- -- 6,000
Issuance of common stock in connection
with the acquisition of Pacific...... -- -- 700,000
Issuance of notes payable in connec-
tion with the acquisition of Pacif-
ic................................... -- -- 1,700,000
Issuance of common stock in exchange
for Eagle stock...................... -- 165,549 108,750
Issuance of common stock in exchange
for preferred stock.................. -- 2,729,500 --
Additional Cash Flow Information:
Interest paid, including capitalized
interest and prepaid interest to ex-
tinguish contingent interest......... 816,308 1,839,443 3,311,987
Income taxes paid (refunded).......... 29,538 38,656 (121,400)
</TABLE>
F-24
<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-25
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------- SEPTEMBER 30,
1998 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 3 $ 3 $ 3
Accounts receivable............................. 12,506 15,762 10,115
Inventories..................................... 2,994 5,352 2,144
Prepaid insurance............................... 60 63 31
------- ------- -------
Total current assets.......................... 15,563 21,180 12,293
Property, plant and equipment, net................ 22,817 24,549 22,756
Prepaid pension................................... 556 530 512
Intangibles, net.................................. 752 916 711
------- ------- -------
Total assets.................................. $39,688 $47,175 $36,272
======= ======= =======
LIABILITIES AND OWNER'S INVESTMENT
Current liabilities:
Accounts payable................................ $ 2,335 $ 1,611 $ 1,464
Accrued liabilities............................. 3,592 2,691 3,304
------- ------- -------
Total current liabilities..................... 5,927 4,302 4,768
Deferred income taxes............................. 4,120 4,346 4,969
Other liabilities and deferred credits............ 2,244 992 2,203
Commitments and contingencies..................... -- -- --
Owner's investment................................ 27,397 37,535 24,332
------- ------- -------
Total liabilities and owner's investment...... $39,688 $47,175 $36,272
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
STATEMENTS OF INCOME AND CHANGES IN OWNER'S INVESTMENT
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
YEARS ENDED JUNE 30, 30,
-------------------------- ----------------
1998 1997 1996 1998 1997
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $87,760 $ 98,831 $91,257 $16,436 $24,719
Costs and expenses:
Cost of sales................. 85,564 97,195 87,140 15,034 25,299
Depreciation and
amortization................. 2,681 2,748 2,580 661 632
Selling, general and
administrative............... 6,053 5,938 6,418 1,472 1,511
------- -------- ------- ------- -------
94,298 105,881 96,138 17,167 27,442
------- -------- ------- ------- -------
Loss from operations............ (6,538) (7,050) (4,881) (731) (2,723)
Interest expense................ (624) (1,025) (766) (118) (206)
------- -------- ------- ------- -------
Loss before income taxes........ (7,162) (8,075) (5,647) (849) (2,929)
Income tax benefit:
Current....................... (2,779) (4,218) (4,494) (1,235) (2,120)
Deferred...................... (228) 871 2,083 849 929
------- -------- ------- ------- -------
(3,007) (3,347) (2,411) (386) (1,191)
Net loss........................ (4,155) (4,728) (3,236) (463) (1,738)
Net transfers (to) from owners.. (5,983) 4,668 968 (2,602) (3,144)
Owner's investment, beginning of
period......................... 37,535 37,595 39,863 27,397 37,535
------- -------- ------- ------- -------
Owner's investment, end of peri-
od............................. $27,397 $ 37,535 $37,595 $24,332 $32,653
======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
--------------------------- --------------------
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) $ (463) $ (1,738)
Adjustments to reconcile
net loss to net
cash provided (used) by
operating activities
Depreciation and amorti-
zation................. 2,681 2,748 2,580 661 632
Gain on disposal of as-
sets................... (266) -- -- -- --
Loss on retirement of
assets................. -- 167 -- -- --
Inventory market value
adjustment............. 415 93 -- 223 --
Deferred income tax..... (226) 871 2,083 849 929
Postretirement benefits
other than
pensions............... 106 107 96 30 27
Decrease (increase) in
accounts
receivable............. 3,256 1,013 (2,185) 2,391 2,675
Decrease (increase) in
inventories............ 1,943 (2,870) 712 627 1,022
(Decrease) increase in
other assets........... (23) (167) (112) 73 74
Increase (decrease) in
accounts
payable and accrued li-
abilities.............. 1,625 (591) 743 (1,159) (299)
(Decrease) increase in
other liabilities and
deferred credits....... (160) -- -- (71) 5
------- -------- -------- --------- ---------
Net cash provided (used)
by operating
activities............... $ 5,196 $ (3,357) $ 681 $ 3,161 $ 3,327
Cash flows from investing
activities
Capital expenditures...... (786) (1,311) (1,649) (559) (183)
Proceeds from sale of as-
sets..................... 1,573 -- -- -- --
------- -------- -------- --------- ---------
Net cash provided (used)
by investing
activities............... $ 787 $ (1,311) $ (1,649) $ (559) $ (183)
Cash flows from financing
activities
Net transfers (to) from
owners..................... (5,983) 4,668 968 (2,602) (3,144)
------- -------- -------- --------- ---------
Net cash (used) provided
by financing
activities............... $(5,983) $ 4,668 $ 968 $ (2,602) $(3,144)
Change in cash.............. -- -- -- -- --
Cash at beginning of peri-
od......................... 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-28
<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.
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 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.
F-29
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
The components of inventory at June 30, 1998 and 1997 and September 30, 1998
are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30,
1998 1997 1998
------ ------ -------------
(THOUSANDS)
<S> <C> <C> <C>
PVC resin..................................... $1,729 $4,123 $ 923
Supplies and parts............................ 1,265 1,229 1,221
------ ------ ------
$2,994 $5,352 $2,144
====== ====== ======
</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 first
quarter of fiscal year 1999, an inventory market value adjustment of
approximately $223,000 was recorded.
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-30
<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-31
<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-32
<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 as-
sets................................................... (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-33
<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 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.
F-34
<PAGE>
CONDEA VISTA COMPANY OKLAHOMA CITY PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-35
<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-36
<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-37
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
COMBINED STATEMENTS OF REVENUES AND OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 3,
FISCAL YEARS 1998
--------------------------- -----------
1998 1997 1996
-------- -------- -------- (UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales............................. $138,569 $141,383 $165,586 $107,807
Cost of product sold.................. 120,018 131,938 140,982 93,659
-------- -------- -------- --------
Gross profit.......................... 18,551 9,445 24,604 14,148
Selling, general and administrative
expenses............................. 14,799 16,507 20,690 11,636
Corporate allocation.................. 1,562 1,493 1,639 1,321
-------- -------- -------- --------
COMBINED REVENUES OVER (UNDER)
OPERATING EXPENSES................... $ 2,190 $ (8,555) $ 2,275 $ 1,191
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-38
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS
THREE FISCAL YEARS ENDED JANUARY 2, 1999 AND NINE MONTHS ENDED OCTOBER 3, 1998
(UNAUDITED)
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-39
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
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
F-40
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
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 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-41
<PAGE>
THE PVC PIPE BUSINESS OF THE LAMSON & SESSIONS CO.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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 equip-
ment, net............................... $ 968,000 $2,273,000 $2,747,000
Depreciation and amortization............ $2,393,000 $2,284,000 $3,871,000
</TABLE>
F-42
<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
-----------------
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................................................2
SECTION 1.4 Closing.........................................................2
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...............................................3
SECTION 2.3 Exchange of Eagle Capital Stock.................................4
SECTION 2.4 Exchange of Merger Sub Common Stock.............................6
SECTION 2.5 Stock Options and Warrants......................................6
ARTICLE III TRANSACTIONS PRIOR TO MERGER.......................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EAGLE.............................8
SECTION 4.1 Corporate Existence and Power...................................8
SECTION 4.2 Corporate Authorization.........................................8
SECTION 4.3 Governmental Authorization......................................8
SECTION 4.4 Non-Contravention...............................................9
SECTION 4.5 Capitalization..................................................9
SECTION 4.6 SEC Documents..................................................10
SECTION 4.7 Absence of Certain Changes or Events...........................11
SECTION 4.8 Litigation.....................................................11
SECTION 4.9 Labor Matters..................................................11
SECTION 4.10 Books and Records.............................................11
SECTION 4.11 Title to Assets...............................................12
SECTION 4.12 Tangible Personal Property....................................12
SECTION 4.13 Licenses and Permits..........................................12
SECTION 4.14 Real Property.................................................12
SECTION 4.15 Trademarks, Patents and Copyrights............................12
SECTION 4.16 Contracts and Other Agreements................................12
SECTION 4.17 Employee Benefit Plans........................................13
SECTION 4.18 Compliance with Laws..........................................14
SECTION 4.19 Brokers.......................................................14
SECTION 4.20 Vote Required.................................................14
SECTION 4.21 Tax Matters...................................................14
SECTION 4.22 Environmental Matters.........................................14
SECTION 4.23 Disclosure....................................................16
i
<PAGE>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, EAGLE
HOLDINGS AND MERGER SUB......................................................16
SECTION 5.1 Corporate Existence and Power..................................16
SECTION 5.2 Subsidiaries...................................................17
SECTION 5.3 Corporate Authorization........................................17
SECTION 5.4 Governmental Authorization.....................................17
SECTION 5.5 Non-Contravention..............................................17
SECTION 5.6 Capitalization.................................................18
SECTION 5.7 Financial Statements...........................................19
SECTION 5.8 Absence of Certain Changes or Events...........................19
SECTION 5.9 Litigation.....................................................20
SECTION 5.10 Labor Matters.................................................20
SECTION 5.11 Books and Records.............................................20
SECTION 5.12 Title to Assets...............................................20
SECTION 5.13 Tangible Personal Property....................................20
SECTION 5.14 Licenses and Permits..........................................21
SECTION 5.15 Real Property.................................................21
SECTION 5.16 Personal Property.............................................21
SECTION 5.17 Trademarks, Patents and Copyrights............................21
SECTION 5.18 Contracts and Other Agreements................................22
SECTION 5.19 Employee Benefit Plans........................................22
SECTION 5.20 Compliance with Laws..........................................23
SECTION 5.21 Brokers.......................................................23
SECTION 5.22 Vote Required.................................................24
SECTION 5.23 Tax Matters...................................................24
SECTION 5.24 Conduct of Business...........................................24
SECTION 5.25 Environmental Matters.........................................24
SECTION 5.26 Disclosure....................................................25
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS..........................26
SECTION 6.1 Conduct of Business by Eagle...................................26
SECTION 6.2 Conduct of Business by Parent, Eagle Holdings and Merger Sub...27
SECTION 6.3 Other Action...................................................29
SECTION 6.4 No Solicitation of Transactions................................29
SECTION 6.5 Tax Status.....................................................30
ARTICLE VII ADDITIONAL AGREEMENTS.............................................30
SECTION 7.1 Preparation of Registration Statement and the Proxy Statement;
Shareholders'Meeting.......................................................30
SECTION 7.2 Information Supplied by Eagle..................................31
SECTION 7.3 Information Supplied by Parent, Eagle Holdings and Merger Sub..32
SECTION 7.4 Access to Information..........................................32
SECTION 7.5 Confidentiality................................................32
SECTION 7.6 Public Announcements...........................................33
SECTION 7.7 Appropriate Action; Consents; Filings..........................34
ii
<PAGE>
SECTION 7.8 State Statutes.................................................35
SECTION 7.9 Obligations of Merger Sub......................................35
SECTION 7.10 Employee Benefits.............................................35
SECTION 7.11 Environmental Liabilities.....................................36
SECTION 7.12 Indemnification...............................................37
SECTION 7.13 Comfort Letters...............................................39
SECTION 7.14 Additional Agreements.........................................39
SECTION 7.15 Assumption of Stock Option Plan...............................40
SECTION 7.16 Disclosure Letters............................................40
SECTION 7.17 Production of Oklahoma Resin Business.........................40
SECTION 7.18 Stockholders'Agreement.......................................40
ARTICLE VIII CONDITIONS TO THE MERGER.........................................40
SECTION 8.1 Conditions of Each Party's Obligation to Effect the Merger.....40
SECTION 8.2 Conditions of Obligations of Parent, Eagle Holdings and
Merger Sub.................................................................42
SECTION 8.3 Conditions of Obligation of Eagle..............................43
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..................................45
SECTION 9.1 Termination....................................................45
SECTION 9.2 Effect of Termination..........................................47
SECTION 9.3 Fees and Expenses..............................................47
SECTION 9.4 Amendment......................................................48
SECTION 9.5 Waiver.........................................................49
ARTICLE X GENERAL PROVISIONS..................................................49
SECTION 10.1 Survival or Representations and Warranties....................49
SECTION 10.2 Notices.......................................................49
SECTION 10.3 Definitions...................................................50
SECTION 10.4 Entire Agreement..............................................52
SECTION 10.5 Severability..................................................52
SECTION 10.6 Successors and Assigns........................................52
SECTION 10.7 Parties in Interest...........................................52
SECTION 10.8 Enforcement...................................................52
SECTION 10.9 Governing Law.................................................53
SECTION 10.10 Counterparts; Effectiveness..................................53
SECTION 10.11 Arbitration..................................................53
iii
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Index of Exhibits
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
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Schedules
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
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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
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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.
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
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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 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
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<PAGE>
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
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<PAGE>
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.
(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
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
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 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
8
<PAGE>
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 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
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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
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:
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(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.
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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.
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
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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 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
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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 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.
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(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
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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.
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.
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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,
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
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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 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
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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
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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 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
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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
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
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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 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.
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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.
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(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 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.
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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;
(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;
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(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
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voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(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
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(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 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
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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; 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
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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
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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 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
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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
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
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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 contemplated by this
Agreement, each of Eagle and Parent, Eagle
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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
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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, 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
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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.
(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
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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.
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(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 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 Price
Waterhouse Coopers, 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
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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 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.
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(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.
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(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.
(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
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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, 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
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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
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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 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
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(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
(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
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(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.
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(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 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)
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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
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:
Term Section
---- -------
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
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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
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)
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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)
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 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.
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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 entitle 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
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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 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
By: /s/ William C. Knodel
-------------------------------
Name: William C. Knodel
Title: President
EAGLE PACIFIC HOLDINGS, INC.
By: /s/ William C. Knodel
-------------------------------
Name: William C. Knodel
Title: President
CV MERGER SUB, INC.
By: /s/ William C. Knodel
-------------------------------
Name: William C. Knodel
Title: President
EAGLE PACIFIC INDUSTRIES, INC.
By: /s/ William H. Spell
-------------------------------
Name: William H. Spell
Title: CEO
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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;
B-1
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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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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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<PAGE>
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>
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*To be filed by amendment.
(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.
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<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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on February 10, 1999.
EAGLE PACIFIC HOLDINGS, INC.
(REGISTRANT)
By /s/ Mark J. Schneider
_____________________________________
Mark J. Schneider
President
POWER OF ATTORNEY
Each person whose signature to this Registration Statement appears below
hereby constitutes and appoints Mark J. Schneider as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement and any and all instruments or
documents filed as part of or in connection with any of such amendments, and
each of the undersigned does hereby ratify and confirm all that said attorney-
in-fact and agent, or his or her substitutes, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this 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/ Mark J. Schneider President and Chief February 10, 1999
____________________________________ Financial Officer (principal
Mark J. Schneider executive officer and
principal financial and
accounting officer)
/s/ William C. Knodel Director February 10, 1999
____________________________________
William C. Knodel
</TABLE>
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<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>
- --------
*To be filed by amendment
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<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF Incorporation
of
EAGLE PACIFIC HOLDINGS, INC.
The following Amended and Restated Certificate of Incorporation is a
complete restatement of the Certificate of Incorporation, as amended, of Eagle
Pacific Holdings, Inc. filed with the Secretary of State of the State of
Delaware on December 7, 1998. This Amended and Restated Certificate of
Incorporation was duly adopted pursuant to Sections 242 and 245 of the General
Corporation Law of Delaware by written consent of the stockholder of the
Corporation pursuant to Section 228 of the General Corporation Law of Delaware.
Article 1
Name
1.1 The name of the Corporation is Eagle Pacific Holdings, Inc. (the
"Corporation").
Article 2
Registered Office and Agent
2.1 The registered office of the Corporation in the state of Delaware is 9 East
Loockerman Street, in the City of Dover, County of Kent, Delaware, 19901. The
name of its registered agent at such address is National Registered Agents, Inc.
Article 3
Purposes
3.1 The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
Article 4
Capital Stock
4.1 Authorized Shares; Establishment of Classes and Series. The aggregate number
of shares the Corporation has authority to issue shall be 75,510,000 shares, of
which 60,000,000 shares of par value of $.01 each shall be designated "Common
Stock" or "Voting Common Stock," 3,500,000 shares of par value of $.01 each
shall be designated "Class B Common Stock," and 12,010,000 shares of par value
of $.01 each shall be shares of "Preferred Stock." Of the total shares of
Preferred Stock, 2,000,000 shares of par value of $.01 each shall be designated
"Series A Preferred Stock," 10,000 shares of par value of $.01 each shall be
designated "8% Preferred Stock," and 10,000,000 shares of par value of $.01 each
shall be currently undesignated shares of Preferred Stock. The rights,
preferences, privileges and restrictions granted to or imposed upon the Common
Stock, the Class B Common Stock, the Series A Preferred Stock, and the 8%
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Preferred Stock shall be as set forth in this Article 4. The Board of Directors
is expressly authorized to provide for the issuance of all or any undesignated
shares of the Preferred Stock in one or more classes or series, and to fix for
each such class or series the voting powers (if any) and such distinctive
designations, preferences, and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution(s) adopted by the Board of
Directors providing for the issuance of such class or series and as may be
permitted by the Delaware General Corporation Law, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with such
adjustments; all as may be stated in such resolution or resolutions. Unless
required by law or specifically otherwise set forth in this Restated Certificate
of Incorporation, all shares of Class B Common Stock shall be identical in all
respects to all other Common Stock of the Corporation.
4.2 Dividends. Except in the case of distributions in liquidation, dissolution
or winding up of the affairs of the Corporation provided in Section 4.3 below,
the holders of Preferred Stock shall be entitled to receive dividends as
follows:
(a) Series A Preferred Stock. The holders of the Series A Preferred
Stock shall be entitled to receive out of any funds at any time legally
available for the declaration of dividends, when and as declared by the
Board of Directors, cash dividends at the rate of 7% of the Series A
Liquidation Preference provided in Section 4.3(b) hereof per annum per
share, such dividends to be payable quarterly each March 31, June 30,
September 30 and December 31, provided that the first dividend shall not
be payable until March 31, 1999. Dividends on shares of the Series A
Preferred Stock shall on the date they are issued be cumulative, whether
or not earned. In no event shall any dividend be paid or declared, nor
shall any distribution be made on the Corporation's Common Stock, nor
shall any Common Stock be purchased, redeemed or otherwise acquired by
the Corporation for value, unless all dividends on the Series A
Preferred Stock for all past periods shall have been paid or declared
and a sum sufficient for the payment thereof set apart for payment.
(b) 8% Preferred Stock. The holders of the 8% Preferred Stock shall be
entitled to receive cumulative cash dividends at the rate of 8% of the
8% Preferred Liquidation Preference provided in Section 4.3(a) hereof
per annum (computed on the basis of a 360-day year of twelve 30-day
months) per share, such dividends to be payable quarterly on each March
30, June 30, September 30 and December 30 in each year commencing March
30, 1999 (each such quarterly dividend period being hereinafter referred
to as a "Quarterly Dividend Period" and each such dividend payment date
being hereinafter referred to as a "Quarterly Dividend Payment Date")
and shall accrue on a daily basis
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<PAGE>
whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for
the payment of dividends. If on any Quarterly Dividend Payment Date, the
Corporation shall fail to pay such dividend in cash on the Quarterly
Dividend Payment Date, dividends on the 8% Preferred Stock for each
Quarterly Dividend Period thereafter shall be paid at the rate of 12% of
the 8% Preferred Liquidation Preference provided in Section 4.3(a)
hereof per annum per share (the "Adjusted Quarterly Dividend") for each
Quarterly Dividend Period until all accrued dividends on the 8%
Preferred Stock have been paid in full, in cash. If the Corporation
shall fail to pay in cash the accrued dividends payable on any Quarterly
Dividend Payment Date, to the extent permitted by applicable law, an
additional amount shall thereafter accrue on such accrued but unpaid
dividends which shall be computed at the rate of 12% per annum on the
amount of such accrued but unpaid dividends from the Quarterly Dividend
Payment Date on which the Corporation shall have failed to pay such
accrued dividends to the date on which such accrued dividends shall be
paid in full in cash. In addition, the holders of the 8% Preferred Stock
shall be entitled to receive cash dividends in the amount per share
determined by multiplying the amount per share at any time distributed
in cash on shares of Common Stock by the number of shares of Common
Stock at the time issuable upon conversion of a share of 8% Preferred
Stock (such distribution being hereinafter referred to as the "Common
Equivalent Dividend"), payable on the date that distributions shall be
paid or set apart for any shares of Common Stock. In no event shall any
dividend be paid or declared, nor shall any distribution be made on the
Corporation's Common Stock or preferred stock of any other class unless
(i) all dividends on the 8% Preferred Stock for all past periods shall
have been paid or declared and a sum sufficient for the payment thereof
set apart for payment, and (ii) Common Equivalent Dividends as set forth
above are declared and paid on the 8% Preferred Stock at or prior to
such time. In addition, upon any conversion of shares of 8% Preferred
Stock in accordance with Section 4.6 below, all accrued dividends and
other amounts, if any, payable on the 8% Preferred Stock shall be paid
in cash, including dividends for the portion of any Quarterly Dividend
Period in which such conversion shall have occurred. The Corporation
covenants and agrees that dividends on the 8% Preferred Stock shall be
declared at the annual rate of 8% of the Liquidation Value per share of
8% Preferred Stock and shall be paid in cash on each Quarterly Dividend
Payment Date unless the Corporation is prevented by operation of law
from the declaration or payment of such dividend.
(c) Common Stock. No dividend shall be paid on the Common Stock in any
year, other than dividends payable solely in Common Stock, until all
dividends for such year have been declared and paid in full on the
Preferred Stock. Any dividends shall be paid only after the
Corporation's compliance with Section 4.6(b)(4)(i).
4.3 Liquidation Preference. In the event of any liquidation, dissolution, or
winding up of the Corporation, either voluntary or involuntary, distributions to
the stockholders of the Corporation shall be made in the following manner:
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(a) 8% Preferred Stock. The holders of 8% Preferred Stock shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or declaration and
setting apart for payment of any amount shall be made in respect to the
Common Stock or stock of any other class or series (including the Series
A Preferred Stock or any other preferred stock), an amount equal to
$1,000 per share of 8% Preferred Stock (as adjusted to reflect stock
splits, dividends, combinations, and reclassifications) (the "8%
Preferred Liquidation Preference") plus an amount equal to any accrued
but unpaid dividends on such share of 8% Preferred Stock and other
amounts, if any, payable thereon.
(b) Series A Preferred Stock. After payment has been made according to
Section 4.3(a) above, the holders of Series A Preferred Stock shall be
entitled to be paid ratably out of the assets of the Corporation
available for distribution to its stockholders, before any payment or
declaration and setting apart for payment of any amount shall be made in
respect to the Common Stock or stock of any other class or series with
the exception of 8% Preferred Stock, an amount equal to $2.00 per share
(as adjusted to reflect stock splits, dividends, combinations, and
reclassifications) (the "Series A Liquidation Preference") plus any
amount equal to any accrued but unpaid dividends on such share of Series
A Preferred Stock and other amounts, if any, payable thereon. At any
time prior to the payment of the Series A Liquidation Preference, a
holder of Series A Preferred Stock may convert, at the holder's option,
the holder's Series A Preferred Stock into shares of Common Stock in
accordance with the provisions set forth in this Article 4.
(c) Common Stock. After payment has been made to the holders of the
Preferred Stock of the full amounts to which they shall be entitled
under this Section 4.3, the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among
the holders of 8% Preferred Stock and of the Common Stock, all 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.
(d) Merger or Consolidation. The merger or consolidation of the
Corporation into or with another corporation or corporations, or the
sale, transfer or lease of all or substantially all of the assets of the
Corporation shall not be deemed a liquidation, dissolution, or winding
up of the affairs of the Corporation as those terms are used in this
Section 4.3.
4.4 Voting Rights. Except as otherwise provided herein or required by law, the
holder of each share of Common Stock issued and outstanding as noted on the
transfer books of the Corporation shall be entitled to one vote per share. The
voting rights of the holders of shares of Common Stock and Preferred Stock shall
be as set forth in this Section 4.4, except as otherwise expressly provided
herein, or as required by law.
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The number of directors constituting the entire Board of Directors of
the Corporation shall be not more than eleven (11). The initial Board of
Directors shall be one (1), until changed in the manner prescribed in the Bylaws
or below in this Section 4.4.
(a) Series A and 8% Preferred Stock. Each holder of Series A Preferred
Stock shall have the right to vote for all stockholder purposes the
number of votes that is equal to the number of shares of Common Stock
into which such holder's Series A Preferred Stock is then convertible,
as provided in Section 4.6. Each holder of 8% Preferred Stock shall be
entitled to the right to vote for all stockholder purposes one vote for
each share of 8% Preferred Stock held by such holder. Except as
otherwise required by law, the holders of Series A Preferred Stock and
8% Preferred Stock shall vote together with the holders of Common Stock
as though the Series A Preferred Stock, 8% Preferred Stock and Common
Stock were a single class. Subject to Section 4.4(b) below, the entire
Board of Directors shall be elected by the holders of Common Stock,
Series A Preferred Stock and 8% Preferred Stock, voting together as a
single class.
(b) 8% Preferred Stock Right to Elect Director. In addition to the
voting rights of holders of 8% Preferred Stock as set forth in Section
4.4(a) above, if the Corporation shall fail to redeem the 8% Preferred
Stock in accordance with the requirements of Section 4.8 herein, the
number of Directors constituting the Corporation's Board of Directors
will, at the request of holders of two-thirds of the shares of the 8%
Preferred Stock then outstanding, be increased by one member, and the
holders of the 8% Preferred Stock will also have the special right,
voting separately as a single class (with each share being entitled to
one vote) and to the exclusion of all other classes of the Corporation's
stock, to elect an individual to fill such newly created directorship,
to fill any vacancy of such directorship and to remove any individual
elected to such directorship. The director elected by the holders of the
8% Preferred Stock will be entitled to cast one vote on each matter
considered by the Board of Directors (including for purposes of
determining the existence of a quorum). The special right of the holders
of 8% Preferred Stock to elect members of the Board of Directors may be
exercised at the special meeting called pursuant to this Section 4.4(b),
at any annual or other special meeting of stockholders and, to the
extent and in the manner permitted by applicable law, pursuant to a
written consent in lieu of a stockholders meeting. Such special right
shall continue until such time as all shares of 8% Preferred Stock shall
have been redeemed in accordance with the requirements of Section 4.8
herein together with accrued and unpaid dividends thereon, at which time
such special right shall terminate.
At any time when such special right has vested in the holders of 8%
Preferred Stock, a proper officer of the Corporation shall, upon the
written request of the holders of at least 10% of the 8% Preferred Stock
then outstanding, addressed to the secretary of the Corporation, call a
special meeting of the holders of 8% Preferred Stock for the purpose of
electing a director pursuant to this Section 4.4(b). Such meeting shall
be held at the earliest legally permissible date at the principal office
of the Corporation, or at such other place designated by the holders of
at least 10% of the 8% Preferred Stock then outstanding. If such meeting
has not been called by a proper officer of the Corporation within 10
days after personal service of such written request upon the secretary
of the
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Corporation or within 20 days after mailing the same to the secretary of
the Corporation at its principal office, then the holders of at least
10% of the 8% Preferred Stock then outstanding may designate in writing.
one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall
be held at the Corporation's principal office, or at such other place
designated by the holders of at least 10% of the 8% Preferred Stock then
outstanding.
At any meeting or at any adjournment thereof at which the holders of 8%
Preferred Stock have the special right to elect a director, the
presence, in person or by proxy, of the holders of two-thirds of the 8%
Preferred Stock then outstanding shall be required to constitute a
quorum for the election or removal of any director by the holders of the
8% Preferred Stock exercising such special right. The vote of a majority
of such quorum shall be required to elect or remove any such director.
Any director so elected by the holders of 8% Preferred Stock shall
continue to serve as a director until the redemption of the shares of 8%
Preferred Stock in accordance with the requirements of Section 4.8
herein. After the redemption of the 8% Preferred Stock in accordance
with the requirements of Section 4.8 herein, the director elected by the
holders of the 8% Preferred Stock shall cease to be a director and the
number of directors constituting the Board of Directors of the
Corporation shall decrease to such number as constituted the whole Board
of Directors of the Corporation immediately prior to the occurrence of
the event giving rise to the special right to elect directors.
(c) Class B Common Stock. Except as otherwise required by law, the
holders of Class B Common Stock shall not be entitled to vote on any
matter submitted to the stockholders for a vote.
4.5 Restrictions on Corporate Actions.
(a) 8% Preferred Stock. So long as any shares of the 8% Preferred Stock
shall be outstanding and, in addition to any other approvals or consents
required by law, without the consent of the holders of at least
two-thirds of the shares of 8% Preferred Stock at the time outstanding
as of a record date fixed by the Board of Directors, given either by
their affirmative vote at a special meeting called for that purpose, or,
if permitted by law, in writing, without a meeting, the Corporation
shall not:
(1) Amend any provision of the Restated Certificate of
Incorporation or the Bylaws of the Corporation;
(2) Declare, pay or obligate itself to pay a dividend or make
any other distributions (including payments upon redemption or
repurchase) relative to any shares of its Common Stock or any
other class or series of its capital stock other than the 8%
Preferred Stock unless:
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(i) such dividend or distribution is payable out of
earnings or surplus (other than revaluation surplus or
paid-in surplus) or payable in shares of Common Stock
referred to in subparagraph (4)(i) of Section 4.6(b) or
payable in warrants, rights or Convertible Securities
referred to in subparagraph (4)(iii) of Section 4.6(b),
and
(ii) such dividend or other distribution is made in
compliance with Section 4.2 herein;
(3) 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 including,
without limitation, any class or series of stock that:
(i) could be redeemed in whole or in part at a price per
share greater than the consideration per share received
by the Corporation therefor plus any accrued and unpaid
dividends thereon or would be entitled to payment of any
redemption price prior to or concurrently with the
holders of the 8% Preferred Stock;
(ii) would be entitled upon liquidation to receive any
amount per share in excess of the sum of the
consideration per share received by the Corporation
therefor plus any accrued and unpaid dividends thereon
or would be entitled to receive any liquidating
distribution prior to or concurrently with the holders
of the 8% Preferred Stock;
(iii) would be entitled to payment of any dividend or
distribution prior to or concurrently with the holders
of the 8% Preferred Stock;
(iv) would be convertible into or exchangeable for or
carry any option or right to acquire a class or series
of stock described in clauses (i), (ii) or (iii) above;
(4) Issue any evidence of indebtedness which is convertible into
or exchangeable for shares of any class or series of capital
stock of the Corporation;
(5) Directly or indirectly, or through any subsidiary, purchase,
redeem or retire any shares of its capital stock or any warrant,
rights or options to purchase or acquire any shares of its
capital stock (any such purchase, redemption or retirement being
herein collectively called "Restricted Payments") if either (x)
the Corporation shall have failed to pay dividends or any other
amount which shall have accrued on the shares of 8% Preferred
Stock then outstanding, or (y) the aggregate amount of
Restricted Payments made by the Corporation and by Eagle Pacific
Industries, Inc., a Minnesota corporation (predecessor by merger
to the Corporation) during the period from and after January 1,
1997 to and including
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the date of the making of the Restricted Payment in question
would exceed 8.9% of EBITDA for such period, computed on a
cumulative basis for said entire period;
For purposes of this paragraph (5), "EBITDA" for any period
shall mean the sum of net income from continuing operations of
the Corporation on a consolidated basis during such period, plus
(to the extent deducted in determining net income from
continuing operations of the Corporation on a consolidated
basis) (1) interest expense on indebtedness for borrowed money
(including non cash amortized interest expense on deferred
finance costs, original issue discount, prepaid interest, and
amortized costs relating to warrants) of the Corporation on a
consolidated basis during such period, (2) all provisions for
any federal, state or other income taxes made by the Corporation
on a consolidated basis during such period and (3) depreciation
and amortization expense of the Corporation on a consolidated
basis during such period, all determined in accordance with
generally accepted accounting principles at the time in effect
in the United States except as otherwise set forth herein;
(6) Alter or change the specific rights, preferences, or
privileges of any class or series of its Preferred Stock so as
to have an adverse effect on the 8% Preferred Stock or change
any rights or priorities of the 8% Preferred Stock (including
the rights of the holders of the 8% Preferred Stock under this
Section 4.5); or
(7) Issue any Additional Shares of Common Stock or any options,
warrants or other rights to subscribe for or purchase Additional
Shares of Common Stock at a price per share which is less than
the Conversion Price.
4.6 Conversion Rights. The holders of Preferred Stock shall have conversion
rights as follows ("Conversion Rights"):
(a) Series A Preferred Stock.
(1) At the option of the holder thereof, each share of Series A
Preferred Stock will be convertible into a number of fully paid
and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the
Corporation equal to the number obtained by dividing $2.00 by
the Series A Conversion Price (determined as hereinafter
provided) in effect at the time of conversion. The initial price
at which shares of Common Stock will be delivered upon
conversion of a Series A Preferred Stock (the "Series A
Conversion Price") will be $2.00 per share of Common Stock and,
accordingly, the initial conversion rate shall be one share of
Common Stock for each Series A Preferred Stock. The initial
Series A Conversion Price will be subject to adjustment from
time to time in certain instances as hereinafter provided. The
following provisions will govern such right of conversion:
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(i) Certificates. In order to convert Series A Preferred
Stock into shares of Common Stock of the Corporation,
the holder thereof will surrender at the office of the
Corporation (or at such other office or offices, if any,
as the Board of Directors may designate), the
certificate or certificates therefor, duly endorsed to
the Corporation or in blank. Further, the holder will
give written notice to the Corporation at such office
that such holder elects to convert such shares. Series A
Preferred Stock will be deemed to have been converted
immediately prior to the close of business on the day of
the surrender of such shares for conversion as herein
provided. The person entitled to receive the shares of
Common Stock of the Corporation issuable upon such
conversion will be treated for all purposes as the
record holder of such shares of Common Stock at such
time. As promptly as practicable on or after the
conversion date, the Corporation will issue and deliver,
or cause to be issued and delivered, at such office a
certificate or certificates for the number of shares of
Common Stock of the Corporation issuable upon such
conversion.
(ii) Adjustment to Conversion Price. The Series A
Conversion Price will be subject to adjustment from time
to time as hereinafter provided. Upon each adjustment of
the Conversion Price each holder of Series A Preferred
Stock will thereafter be entitled to receive the number
of shares of Common Stock of the Corporation obtained by
dividing $2.00 by the Series A Conversion Price after
the adjustment.
(iii) Subdivision of Shares. In case the Corporation at
any time subdivides its outstanding shares of Common
Stock into a greater number of shares, whether by stock
split, stock dividend or otherwise, the Series A
Conversion Price in effect immediately prior to such
Subdivision will be proportionately reduced. Conversely,
in case the outstanding shares of Common Stock of the
Corporation are combined into a smaller number of
shares, whether by reverse stock split or otherwise, the
Series A Conversion Price in effect immediately prior to
such combination will be proportionately increased.
(iv) Reorganizations; Mergers; Etc. If any capital
reorganization or reclassification of the capital stock
of the Corporation, or consolidation or merger of the
Corporation with another Corporation, or the sale of all
or substantially all of its assets to another
Corporation is effected in such a way that holders of
Common Stock are entitled to receive stock, securities
or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful
and adequate provision will be made whereby the holders
of Series A Preferred Stock will thereafter have the
right to receive (upon the basis and the terms and
conditions specified herein) upon the conversion of
Series A Preferred Stock, such shares of stock,
securities or assets as
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may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately
theretofore receivable upon the conversion of the Series
A Preferred Stock had such reorganization,
reclassification, consolidation, merger or sale not
taken place. In any such case, appropriate provision
will be made with respect to the rights and interests of
the holders of Series A Preferred Stock to the end that
the provisions hereof (including, without limitation,
provisions for adjustments of the Series A Conversion
Price and of the number of shares receivable upon the
conversion of Series A Preferred Stock) are thereafter
applicable, as nearly as may be in relation to any
shares of stock, securities or assets thereafter
receivable upon the conversion of Series A Preferred
Stock. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the
consummation thereof the successor Corporation (if other
than the Corporation) resulting from such consolidation
or merger, or the Corporation purchasing such assets,
assumes by written instrument executed and mailed to the
holders of Series A Preferred Stock, at the last
addresses of such holders appearing on the books of the
Corporation, the obligation to deliver to such holder
such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder
may be entitled to receive.
(v) Adjustment Notices. Upon any adjustment of the
Series A Conversion Price, then and in each case the
Corporation will give written notice thereof, by first
class mail, postage prepaid, addressed to the holders of
Series A Preferred Stock at the addresses of such
holders as shown on the books of the Corporation. Such
notice will state the Series A Conversion Price
resulting from such adjustment and the increase or
decrease, if any, in the number of shares receivable at
such price upon the conversion of Series A Preferred
Stock. Such notice will set forth in reasonable detail
the method of calculation and the facts upon which such
calculation is based.
(vi) Prior Notices of Certain Events. In case at any
time:
(A) the Corporation shall pay any dividends
payable in stock upon its shares of Common
Stock, or makes any distribution other than cash
distributions to the holders of its shares of
Common Stock;
(B) the Corporation offers for subscription pro
rata to the holders of its Common Stock any
additional shares of stock of any class or other
rights;
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(C) there is any capital reorganization, or
reclassification of the capital stock of the
Corporation, or consolidation or merger of the
Corporation with, or sale of all or
substantially all of its assets to, another
Corporation; or
(D) there is a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
then, in any one or more of such cases, the Corporation
will give written notice, by first class mail, postage
prepaid, addressed to the holders of Series A Preferred
Stock at the addresses of such holders as shown on the
books of the Corporation, of the date on which (i) the
books of the Corporation will close or a record will be
taken for such dividend, distribution or subscription
rights, or (ii) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up will take place, as the case may be. Such
notice will also specify the date as of which the
holders of Common Stock of record will participate in
such dividend, distribution or subscription rights, or
will be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up, as the
case may be. Such written notice will be given at least
20 days prior to the action in question and not less
than 20 days prior to the record date or the date on
which the Corporation's transfer books are closed in
respect thereto. At any time prior to such date the
holders of the Series A Preferred Stock, at their
option, may convert their Series A Preferred Stock into
shares of Common Stock in accordance with the terms
hereof.
(vii) Fractional Shares. The Corporation shall not be
required to issue fractional shares of Common Stock upon
conversion of the Series A Preferred Stock. If the
Corporation does not issue fractional shares, the
Corporation will pay a cash adjustment in respect of
such fraction that would otherwise be issuable in an
amount equal to the same fraction of the Market Price
per share of Common Stock as of the close of business on
the day of conversion. As used in this Section 4.6(a),
"Market Price" means the average of the high and low
prices of the Common Stock sales on all exchanges on
which the Common Stock may at the time be listed. If
there will have been no sales on any such exchange on
any such day, the Market Price means the average of the
bid and asked prices at the end of such day. If the
Common Stock is not so listed, the Market Price means
the average of the bid and asked prices at the end of
the day in the over-the-counter market, in each case
averaged over a period of 20 consecutive business days
prior to the date as of which Market Price is being
determined. If at any time the Common Stock is not
listed on any exchange or quoted in the over-the-counter
market, the Market Price will
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be deemed to be the higher of (i) the book value thereof
as determined by any firm of independent public
accountants of recognized standing selected by the Board
of Directors of the Corporation as of the last day of
any month ending within 60 days preceding the date as of
which the determination is to be made, or (ii) the fair
value thereof determined in good faith by the Board of
Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination
is to be made.
(2) The Series A Preferred Stock may be converted into shares of
Common Stock of the Corporation upon five days notice by the
Board of Directors of the Corporation to the holders of the
Series A Preferred Stock at any time after the Common Stock of
the Corporation trades in a public market for 20 consecutive
trading days at an average of the bid and asked prices greater
than $4.00 per share. Each holder of the former Series A
Preferred Stock so converted will be entitled to receive the
full 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 prior to the
conversion and the Corporation shall forthwith issue and deliver
to such holder the certificate(s) therefor. Upon such
conversion, each holder of Series A Preferred Stock shall
forthwith surrender such holder's certificate(s) for such former
Series A Preferred Stock.
In the event that any shares of Series A Preferred Stock shall
be converted in accordance with the terms of this Section
4.6(a), or purchased or otherwise acquired by the Corporation,
the shares so converted, purchased or acquired shall be restored
to the status of authorized but unissued shares of Preferred
Stock, without designation as to class, series, rights,
preferences or privileges, and may thereafter be re-issued, but
in no event as shares of Series A Preferred Stock as described
in this Restated Certificate of Incorporation.
(b) 8% Preferred Stock.
(1) Optional Conversion. Each share of the 8% Preferred Stock
shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office
of the Corporation or any transfer agent for the 8% Preferred
Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the 8% Preferred
Liquidation Preference of such share by the 8% Preferred
Conversion Price then in effect. The 8% Preferred Conversion
Price at which shares of Common Stock shall be delivered upon
conversion of each share of 8% Preferred Stock without the
payment of any additional consideration by the holder thereof
shall initially be $4.26 per share (the "8% Preferred Conversion
Price"). Such initial 8% Preferred Conversion Price shall be
subject to adjustment as set forth in paragraph (4) of this
Section 4.6(b).
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(2) Mandatory Conversion.
(i) Subject to the provisions of subparagraph (ii)
below, if at any time after the second anniversary of
the initial issuance of the 8% Preferred Stock, the
Current Market Price per share of Common Stock shall
exceed 175% of the Conversion Price then in effect, all
(but not less than all) of the shares of 8% Preferred
Stock shall be converted into shares of Common Stock at
the election of the Corporation as evidenced by a
resolution adopted by the Board of Directors of the
Corporation. Such resolution shall set forth the date
upon which the conversion shall occur which shall be not
less than 5 nor more than 15 days after the date upon
which such resolution is adopted. Written notice of such
conversion together with a copy of the resolution of the
Board of Directors relating to such conversion shall be
given to each holder of the 8% Preferred Stock promptly
following its adoption. 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 rights on the conversion date specified in
the resolution adopted by the Board of Directors.
(ii) Upon the occurrence of an event specified in
paragraph (2) of this Section 4.6(b), the outstanding
shares of the 8% Preferred Stock to be converted shall
be converted without any further action by the holders
of such shares and whether or not the certificates
representing such shares are surrendered to the
Corporation or its transfer agent; provided, however,
(1) that such conversion will not violate any legal
requirements (such as compliance with the
Hart-Scott-Rodino Antitrust Improvement Act of 1976) and
(2) that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates
evidencing such shares of the 8% Preferred Stock being
converted are delivered to either the Corporation or any
transfer agent, as hereinafter provided, or the holder
notifies the Corporation or any transfer agent, as
hereinafter provided, that such certificates have been
lost, stolen, or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection
therewith. Upon the mandatory conversion of the 8%
Preferred Stock, the holders of such 8% Preferred Stock
shall surrender the certificates representing such
shares at the office of the Corporation or of any
transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder, promptly
at such office and in his name as shown on such
surrendered certificate or certificates, a certificate
or certificates for the number of shares of Common Stock
into which the shares of the 8% Preferred Stock
surrendered were convertible on the date on which such
mandatory conversion occurred.
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(3) Mechanics of Conversion. The shares of Common Stock issued
to the holders of 8% Preferred Stock pursuant to this Section
4.6(b) will be shares of Class B Common Stock; except that any
holder of 8% Preferred Stock may request by written notice to
the Corporation that shares of Voting Common Stock be issued
upon conversion of the 8% Preferred Stock of such holder. Before
any holder of 8% Preferred Stock shall be entitled to convert
the same into shares of Common Stock pursuant to paragraph (1)
of this Section 4.6(b), he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the 8%
Preferred Stock, and shall give written notice by mail, postage
prepaid, to the Corporation at its principal corporate office of
the election to convert the same and shall state therein the
name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall
as soon as practicable thereafter, issue and deliver at such
office to such holder of 8% Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the
date of such surrender of the shares of 8% Preferred Stock to be
converted, and the person or person entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, the conversion may, at
the option of any holder tendering the 8% Preferred Stock for
conversion, be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the 8% Preferred Stock shall
not be deemed to have converted such 8% Preferred Stock until
immediately prior to the closing of such sale of securities.
(4) Conversion Price Adjustments of 8% Preferred Stock. The
Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Stock Dividends, Subdivisions and Combinations. If
the Corporation shall
(A) take a record of the holders of its Common
Stock for the purpose of entitling them to
receive a dividend payable in, or other
distribution of, Common Stock, or
(B) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common
Stock, or
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(C) combine its outstanding shares of Common
Stock into a smaller number of shares of Common
Stock,
then the Conversion Price shall be adjusted to that rate
determined by multiplying the Conversion Price in effect
immediately prior to such event by a fraction (1) the
numerator of which shall be the total number of
outstanding shares of Common Stock of the Corporation
immediately prior to such event, and (2) the denominator
of which shall be the total number of outstanding shares
of Common Stock of the Corporation immediately after
such event. In the event that the dividend or
distribution referenced in subparagraph (4)(i)(A) above
is lawfully abandoned, the Conversion Price shall be
appropriately readjusted.
(ii) Issuance of Additional Shares of Common Stock. If
the Corporation shall (except as hereinafter provided)
issue any Additional Shares of Common Stock for a
consideration which is less than the Current Market
Price per share, then the per share Conversion Price
upon each such issuance shall be adjusted to that price
determined by multiplying the per share Conversion Price
in effect immediately prior to such event by a fraction:
(A) the numerator of which shall be the number
of shares of Common Stock outstanding
immediately prior to the issuance of such
Additional Shares of Common Stock plus the
number of full shares of Common Stock which the
aggregate consideration for the total number of
such Additional Shares of Common Stock so issued
would purchase at the Current Market Price per
share, and
(B) the denominator of which shall be the number
of shares of Common Stock outstanding
immediately prior to the issuance of such
Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock
so issued.
The provisions of this subparagraph (4)(ii) shall not
apply to any Additional Shares of Common Stock that are
distributed to holders of Common Stock as a stock
dividend or subdivision, for which an adjustment is
provided for under subparagraph (4)(i) above. No
adjustment of the per share Conversion Price shall be
made under this subparagraph (4)(ii) upon the issuance
of any Additional Shares of Common Stock that are issued
pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such
Convertible
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<PAGE>
Securities (or upon the issuance of any warrants or
other rights therefor) pursuant to subparagraph (4)(iii)
below.
(iii) Issuance of Warrants, Other Rights or Convertible
Securities. In case the Corporation shall issue any
options, warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or issue
Convertible Securities and the consideration per share
for which Additional Shares of Common Stock may at any
time thereafter be issuable pursuant to such options,
warrants or other rights or pursuant to the terms of
such Convertible Securities shall be less than the
Current Market Price, then the per share Conversion
Price shall be adjusted as provided in subparagraph
(4)(ii) above.
For purposes of adjustments in the Conversion Price
pursuant to this subparagraph (4)(iii), the number of
shares of Common Stock outstanding shall be deemed to
include the maximum number of Additional Shares of
Common Stock issuable pursuant to all outstanding
options, warrants or other rights or necessary to effect
the conversion or exchange of all such outstanding
Convertible Securities of the Corporation. All such
options, warrants, other rights or Convertible
Securities shall be deemed to have been issued as of,
and the date as of which the Current Market Price per
share of Common Stock shall be computed shall be, the
earlier of (1) the date on which the Corporation shall
enter a firm contract or commitment for the issuance of
such options, warrants, other rights or Convertible
Securities or (2) the date of actual issuance of such
options, warrants, other rights or Convertible
Securities.
No adjustment of the per share Conversion Price shall be
made under this subparagraph (4)(iii) upon the issuance
of any Convertible Securities that are issued pursuant
to the exercise of any options, warrants or other
subscription or purchase rights therefor if any such
adjustment shall previously have been made upon the
issuance of such options, warrants or other rights
pursuant to said paragraph.
(iv) Other Provisions Applicable to Adjustments Under
This Paragraph. The following provisions shall be
applicable to the making of adjustments to the
Conversion Price hereinbefore provided in this paragraph
(b)(4):
(A) Computation of Consideration. To the extent
that any Additional Shares of Common Stock or
any Convertible Securities or any options,
warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock
or any Convertible Securities shall be issued
for a cash consideration, the consideration
received by the Corporation therefor shall be
deemed
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<PAGE>
to be the amount of the cash received by the
Corporation therefor, or, if such Additional
Shares of Common Stock or Convertible Securities
or options, warrants or other rights are offered
by the Corporation for subscription, the
subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities
or options, warrants or other rights are sold to
underwriters or dealers for public offering
without a subscription offering, the initial
public offering price, in any such case
excluding any amounts paid or receivable for
accrued interest or accrued dividends and
without deduction of any compensation, discounts
or expenses paid or incurred by the Corporation
for and in the underwriting thereof, or
otherwise in connection with the issue thereof.
To the extent that such issuance shall be for a
consideration other than cash, then, except as
herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the
fair value of such consideration at the time of
such issuance as determined in good faith by the
Board of Directors of the Corporation. The
consideration for any Additional Shares of
Common Stock issuable pursuant to any options,
warrants or other rights to subscribe for or
purchase the same shall be the consideration
received by the Corporation for issuing such
options, warrants or other rights, plus the
additional consideration payable to the
Corporation upon the exercise of such options,
warrants or other rights. The consideration for
any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible
Securities shall be the consideration received
by the Corporation for issuing any options,
warrants or other rights to subscribe for or
purchase such Convertible Securities plus the
consideration paid or payable to the Corporation
in respect of the subscription for or purchase
of such Convertible Securities, plus the
additional consideration, if any, payable to the
Corporation upon the exercise of the right of
conversion or exchange in such Convertible
Securities. In case of the issuance at any time
of any Additional Shares of Common Stock or
Convertible Securities in payment or
satisfaction of any dividend upon any class of
equity securities other than Common stock, the
Corporation shall be deemed to have received for
such Additional Shares of Common Stock or
Convertible Securities a consideration equal to
the amount of such dividend so paid or
satisfied.
(B) Readjustment of Conversion Price. Upon
expiration of the right of conversion or
exchange of any Convertible Securities, or upon
the expiration of any rights, options or
warrants, or upon any increase in the minimum
consideration receivable by the Corporation for
the issuance of Additional Shares of Common
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<PAGE>
Stock pursuant to such Convertible Securities,
rights, options or warrants, if any such
Convertible Securities shall not have been
converted or exchanged, or if any such rights,
options or warrants shall not have been
exercised, the number of shares of Common Stock
deemed to be issued and outstanding by reason of
the fact that they were issuable upon conversion
or exchange of any such Convertible Securities
or upon exercise of any such rights, options or
warrants shall no longer be computed as set
forth above, and the Conversion Price shall
forthwith be readjusted and thereafter be the
rate which it would have been (but reflecting
any other adjustments in the Conversion Price
made pursuant to the provisions of this Section
4.6(b) after the issuance of such Convertible
Securities, rights, options or warrants) had the
adjustment of the Conversion Price made upon the
issuance or sale of such Convertible Securities
or the issuance of such rights, options or
warrants been made on the basis of the issuance
only of the number of Additional Shares of
Common Stock actually issued upon conversion or
exchange of such Convertible Securities or upon
the exercise of such rights, options or
warrants, or upon the basis of such increased
minimum consideration, as the case may be, and
thereupon only the number of Additional Shares
of Common Stock actually so issued or the number
thereof issuable upon the basis of such
increased minimum consideration shall be deemed
to have been issued and only the consideration
actually received or such increased minimum
consideration receivable by the Corporation
(computed as in subparagraph (4)(iv)(A) of this
Section 4.6(b)) shall be deemed to have been
received by the Corporation.
(v) Common Equivalent Dividends. In case the Corporation
shall declare, to the extent otherwise permitted herein,
a dividend upon its Common Stock (except a dividend
payable in shares of Common Stock referred to in
subparagraph (4)(i) of this Section 4.6(b)) or a
dividend payable in warrants, rights or Convertible
Securities referred to in subparagraph (4)(iii) of this
Section 4.6(b) payable otherwise than out of earnings or
surplus (other than revaluation surplus or paid-in
surplus), the Corporation shall simultaneously declare a
dividend, in cash, upon the 8% Preferred Stock equal to,
in the case of a cash dividend, the amount of the per
share dividend declared upon the Common Stock times the
number of shares of Common Stock to be received by the
holders of the 8% Preferred Stock upon conversion at the
Conversion Price then in effect and, in the case of a
dividend payable other than in cash, the fair value of
such dividend declared upon the Common Stock as
determined by the Board of Directors of the Corporation.
For the purposes of the foregoing, a dividend payable
other than in cash shall be considered payable out of
earnings or surplus (other than revaluation surplus or
paid-in surplus) only
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<PAGE>
to the extent that such earnings or surplus are charged
an amount equal to the fair value of such dividend as
determined by the Board of Directors of the Corporation.
(vi) Minimum Adjustment. Except as hereinafter provided,
no adjustment of the Conversion Price hereunder shall be
made if such adjustment results in a change of the
Conversion Price then in effect of less than one cent
($.01). Any adjustment of less than one cent ($.01) of
any Conversion Price shall be carried forward and shall
be made at the time of and together with any subsequent
adjustment that, together with adjustment or adjustments
so carried forward, amounts to one cent ($.01) of the
Conversion Price then in effect or more. However, upon
the conversion of any share of the 8% Preferred Stock,
the Corporation shall make all necessary adjustments not
theretofore made to the Conversion Price up to and
including the date upon which the conversion is
exercised.
(vii) Notice of Adjustments. Whenever the Conversion
Price shall be adjusted pursuant to this paragraph (4),
the Corporation shall promptly make a certificate signed
by the President or a Vice President and by the
Treasurer or an Assistant Treasurer setting forth, in
reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the adjusted Conversion
Price, the method by which such adjustment was
calculated (including a description of the basis on
which the Board of Directors of the Corporation made any
determination hereunder), and shall promptly cause
copies of such certificate to be mailed (by first class
mail postage prepaid) to each of the holders of the 8%
Preferred Stock.
(5) Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity,
or any reorganization or reclassification of the Common Stock or
other equity securities of the Corporation (except a split-up or
combination, provision for which is made in subparagraph (4)(i)
of this Section 4.6(b), then, as a condition of such
consolidation, merger, reorganization or reclassification,
lawful and adequate provision shall be made whereby the holders
of the 8% Preferred Stock shall thereafter have the right to
receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable hereunder, such shares of
stock, securities or assets as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification)
be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of
shares of Common Stock immediately theretofore so receivable
hereunder had such consolidation, merger, sale, reorganization
or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights
and interests of the holders of the 8% Preferred Stock to the
end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price) shall
thereafter be
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<PAGE>
applicable as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon
conversion of such 8% Preferred Stock.
(6) Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Corporation in dissolution or
liquidation (except under circumstances when the foregoing
paragraph (5) of this Section 4.6(b) shall be applicable) the
Corporation shall mail notice thereof to the holders of the 8%
Preferred Stock and shall make no distribution to stockholders
until the expiration of 30 days from the date of mailing of the
aforesaid notice, and in any such case, the holders of the 8%
Preferred Stock may exercise the conversion rights with respect
to the 8% Preferred Stock within 30 days from the date of
mailing such notice and all rights herein granted not so
exercised within such 30-day period shall thereafter become null
and void.
(7) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section 4.6(b) and
in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the
holders of the 8% Preferred Stock against impairment.
(8) Fully Paid Stock; Taxes. The shares of stock represented by
each and every certificate for its Common Stock to be delivered
on the exercise of the conversion rights herein provided for
shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. The Corporation
shall pay when due and payable any and all federal and state
taxes (other than income taxes) which may be payable in respect
of the 8% Preferred Stock or any Common Stock or certificates
therefor upon the exercise of the conversion rights herein
provided for pursuant to the provisions hereof. The Corporation
shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the transfer and
delivery of stock certificates in the name other than that of
the holder of the 8% Preferred Stock converted, and any such tax
shall be paid by such holder at the time of presentation.
(9) Closing of Transfer Books. The right to convert any of the
8% Preferred Stock shall not be suspended during any period
while the stock transfer books of the Corporation for its Common
Stock may be closed. The Corporation shall not be required,
however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but
the Corporation may postpone the delivery of the certificate for
such Common Stock until the opening of such books, and they
shall, in such case, be delivered forthwith upon the opening
thereof, or as soon as practicable thereafter.
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<PAGE>
(10) Reservation of Common Stock. The Corporation will at all
times reserve and keep available such number of authorized
shares of its Voting Common Stock and Class B Common Stock,
solely for the purpose of issue upon the conversion of the 8%
Preferred Stock as herein provided for, as shall then be
issuable upon the conversion of all outstanding shares of 8%
Preferred Stock and such shares of Common Stock shall at no time
have a par value which is in excess of the Conversion Price then
in effect.
(c) Class B Common Stock. Each holder of Class B Common Stock shall have
the right at any time and from time to time to convert any or all shares
of Class B Common Stock registered in the name of such holder into an
equal number of shares of Voting Common Stock.
(1) Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity,
or any reorganization or reclassification of the Common Stock or
other equity securities of the Corporation, then, as a condition
of such consolidation, merger, reorganization or
reclassification, lawful and adequate provision shall be made
whereby the holders of the Class B Common Stock shall thereafter
have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Voting
Common Stock immediately theretofore receivable hereunder, such
shares of stock, securities or assets as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification)
be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of
shares of Common Stock immediately theretofore so receivable
hereunder had such consolidation, merger, sale, reorganization
or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights
and interests of the holders of the Class B Common Stock to the
end that the provisions hereof shall thereafter be applicable as
nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon conversion of such Class B
Common Stock.
4.7 Preemptive Rights. If at any time after the date of initial issuance of the
8% Preferred Stock, the Corporation grants, issues or sells any Additional
Shares of Common Stock, or issues or sells any options, Convertible Securities
or any warrants or other rights to subscribe for or purchase Additional Shares
of Common Stock, then each holder of the 8% Preferred Stock shall be entitled to
acquire, upon the same terms provided in any such grant, or applicable to any
such issuance or sale of such additional securities, such number of additional
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
(determined as of the date of issuance of such additional securities) to remain
unchanged.
4.8 Mandatory Redemption.
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<PAGE>
(a) Series A Preferred Stock. Neither the holders of Series A Preferred
Stock nor the Corporation will have the right to require the redemption
of all or any part of the outstanding Series A Preferred Stock.
(b) 8% Preferred Stock.
(1) On the seventh anniversary of the original issuance of the
8% Preferred Stock by Eagle Pacific Industries, Inc., a
predecessor by merger to the Corporation (such date the
"Redemption Date"), the Corporation shall set apart out of its
funds lawfully available for such purpose (or to the extent that
the same are lawfully available therefor) for the redemption of
the 8% Preferred Stock on the Redemption Date that sum in cash
which shall be sufficient to redeem, and shall redeem on the
Redemption Date, the shares of 8% Preferred Stock then
outstanding at a price equal to the 8% Preferred Liquidation
Preference set forth in Section 4.3 above plus an amount equal
to any accrued but unpaid dividends thereon and other amounts
payable thereon. If the full number of shares required to be
redeemed as aforesaid shall not be so redeemed, the deficiency
shall be made good thereafter as soon as funds shall become
lawfully available therefor.
(2) If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is to occur, the
Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the definitive terms
and date of consummation thereof to each holder of 8% Preferred
Stock, but in any event such notice shall not be given later
than five business days after the occurrence of such Change in
Ownership. The holder or holders of a majority of the 8%
Preferred Stock then outstanding may require the Corporation to
redeem all or any portion of the Convertible Preferred Stock
owned by such holder or holders at a price per share equal to
the Liquidation Preference thereof (plus all accrued and unpaid
dividends thereon and other amounts, if any, payable thereon) by
giving written notice to the Corporation of such election prior
to the later of (A) 21 days after receipt of the Corporation's
notice and (B) five business days prior to the consummation of
the Change in Ownership (the "Expiration Date"). The Corporation
shall give prompt written notice of any such election to all
other holders of 8% Preferred Stock with respect to which an
election under this paragraph (2) has been made within five days
after the receipt of notice thereof, and each such holder shall
have until the later of (1) the Expiration Date or (2) ten days
after receipt of such second notice to request redemption (by
giving written notice to the Corporation) of all or any portion
of the shares of 8% Preferred Stock owned by such holder. Upon
receipt of such election(s), the Corporation shall be obligated
to redeem the aggregate number of shares of 8% Preferred Stock
specified therein on the later of (I) the occurrence of the
Change in Ownership or (II) five days after the Corporation's
receipt of such election(s). If in any case a proposed Change in
Ownership does not occur, all requests for redemption in
connection therewith shall be automatically rescinded. The term
"Change in Ownership" means (x) any sale or series of sales of
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Common Stock by a member of the Spell Group which results in the
Spell Group owning beneficially and of record less than 358,024
shares of Common Stock of the Corporation, provided that shares
of Common Stock sold in an Exempt Sale shall be excluded from
any determination of a Change in Ownership, (y) any event which
results in an Acceptable Officer ceasing to continue to serve as
either the Chief Executive Officer or President of the
Corporation, or (z) any sale or issuance or series of sales
and/or issuances of shares of the Corporation's capital stock by
the Corporation or any holder thereof which results in any
person or group of affiliated persons (other than the Spell
Group) owning capital stock of the Corporation possessing the
voting power (under ordinary circumstances) to elect a majority
of the Corporation's Board of Directors. The term "Acceptable
Officer" shall mean William H. Spell or such other person as
shall be acceptable to the holders of at least a majority of the
shares of 8% Preferred Stock at the time outstanding. The term
"Exempt Sale" shall mean the sale of Common Stock by the estate
of any person included in the Spell Group following the death of
such person.
(3) If a Fundamental Change is proposed to occur, the
Corporation shall give written notice of such Fundamental Change
describing in reasonable detail the definitive terms and date of
consummation thereof to each holder of 8% Preferred Stock not
more than 45 days nor less than 20 days prior to the
consummation thereof. The holder or holders of a majority of the
8% Preferred Stock then outstanding may require the Corporation
to redeem all or any portion of the shares of 8% Preferred Stock
owned by each such holder or holders at a price per share equal
to the Liquidation Preference (plus all accrued and unpaid
dividends thereon and other amounts, if any, payable thereon) by
giving written notice to the Corporation of such election prior
to the later of (A) ten days prior to the consummation of the
Fundamental Change or (B) ten days after receipt of notice from
the Corporation. The Corporation shall give prompt written
notice of such election to all other holders of 8% Preferred
Stock with respect to which an election under this subparagraph
(iii) has been made (but in any event within five business days
prior to the consummation of the Fundamental Change), and each
such holder shall have until two days after the receipt of such
notice to request redemption (by written notice given to ` the
Corporation) of all or any portion of the shares of 8% Preferred
Stock owned by such holder. Upon receipt of such election(s),
the Corporation shall be obligated to redeem the aggregate
number of shares specified therein upon the consummation of such
Fundamental Change. If any proposed Fundamental Change does not
occur, all requests for redemption in connection therewith shall
be automatically rescinded. The term "Fundamental Change" means
(x) a sale or transfer of more than 50% of the assets of the
Corporation and its subsidiaries on a consolidated basis
(measured by either book value in accordance with generally
accepted accounting principles consistently applied or fair
market value determined in the reasonable good faith judgment of
the Corporation's Board of Directors) in any transaction or
series of transactions (other than sales in the ordinary course
of business) and (y) any merger or
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consolidation to which the Corporation is a party, except for a
merger in which the Corporation is the surviving Corporation
and, after giving effect to such merger, no person or group of
affiliated persons (other than the Spell Group) owns capital
stock of the Corporation possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's
Board of Directors. Notwithstanding the foregoing, the term
"Fundamental Change" shall not include the election of new
directors of the Corporation on the date of that special
stockholders meeting held in accordance with Section 3.10 of
that certain Stockholders' Agreement among the Corporation,
CONDEA Vista Company, and the Spell Group.
(4) If the Corporation shall fail to discharge its obligation to
redeem shares of 8% Preferred Stock pursuant to this Section
4.8(b) (the "Mandatory Redemption Obligation"), the Mandatory
Redemption Obligation shall be discharged as soon as the
Corporation is permitted by law or by its applicable contracts,
agreements, indentures, bonds, notes, debentures or similar
instruments to discharge such Mandatory Redemption Obligation.
If and so long as the Mandatory Redemption Obligation shall not
fully be discharged, the Corporation shall not, directly or
indirectly, declare or pay any dividend or make any
distributions on, or purchase, redeem or retire, or satisfy any
mandatory or optional redemption, sinking fund or other similar
obligation in respect of, any other series or class of its
stock.
(5) Nothing contained in this Section 4.8 shall prevent or
otherwise impair the exercise by any holder of shares of the 8%
Preferred Stock of the conversion rights existing under Section
4.6 above at any time prior to the actual redemption of such
shares pursuant to this Section 4.8.
(6) All shares of 8% Preferred Stock which shall have been
redeemed, purchased or otherwise acquired by, the Corporation
shall be canceled and shall not be reissued as shares of 8%
Preferred Stock.
4.9 Definitions. In addition to the terms defined elsewhere in this Restated
Certificate of Incorporation, the following terms have the following respective
meanings:
(a) The term "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation on and after the Merger
Effective Date, except:
(1) Common Stock issued upon conversion of the Series A
Preferred Stock or the 8% Preferred Stock;
(2) Shares of Common Stock which may be issued pursuant to stock
option agreements, warrants and contractual commitments in
effect on the Merger Effective Date; and
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(3) Shares of Common Stock or options issued under the 1997
Eagle Option Plan, or any other plan of the Corporation approved
by the holders of 8% Preferred Stock pursuant to Section 4.5(a).
(b) The term "Common Stock" shall mean (i) the Voting Common Stock, (ii)
the Class B Common Stock, unless otherwise specifically referred to
herein, and (iii) any other class of capital stock of the Corporation
hereafter authorized which is not limited to a fixed amount or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares to be received by the holders of
the 8% Preferred Stock upon conversion shall be either the Voting Common
Stock or the Class B Common Stock authorized on the date of issuance of
the 8% Preferred Stock.
(c) The term "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities that are convertible
into or exchangeable for Additional Shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of
a specified event.
(d) The term "Current Market Price" per share of Common Stock for the
purposes of any provision of Section 4.6 means the average of the
closing prices of such security's sales on all securities exchanges on
which such security may at the time be listed, or, if there has been no
sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day,
or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq Stock Market as
of 4:00 P.M., New York time, or, if on any day such security is not
quoted in the Nasdaq Stock Market, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period
of 31 days consisting of the day as of which "Market Price" is being
determined and the 30 consecutive business days prior to such day. For
purposes of determination pursuant to Section 4.6(b)(2), if at any time
the Common Stock of the Company is not listed on any national securities
exchange or quoted in the Nasdaq Stock Market, the "Market Price" shall
be deemed to be 0. For purposes of determination pursuant to Section
4.6, if at any time the Common Stock of the Company is not listed on any
securities exchange or quoted in the Nasdaq Stock Market or the
over-the-counter market, the "Market Price" shall be the fair value
thereof determined by resolution of the Board of Directors of the
Corporation in good faith; provided that if such valuation by the Board
of Directors is contested by a majority of the holders of the 8%
Preferred Stock within 20 days after receipt of written notice of the
adoption of such resolution, then as determined by any member of the
National Association of Securities Dealers, Inc. selected by the
Corporation.
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(e) The term "Family Trust" means, in respect of any person, any trust
for the exclusive benefit of such individual, his/her spouse and lineal
descendants, so long as such individual has the exclusive right to
control such trust.
(f) The term "Merger Effective Date" shall mean the date of consummation
of the merger between CV Merger Subsidiary, Inc., a Delaware corporation
and wholly-owned subsidiary of the Corporation, and Eagle Pacific
Industries, Inc., a Minnesota corporation, as such transaction is
contemplated by the terms of that certain Agreement and Plan of Merger
dated December 7, 1998 by and among CONDEA Vista Company, the
Corporation, CV Merger Subsidiary, Inc. and Eagle Pacific Industries,
Inc., and such other related documents.
(g) The term "Related Party" means, with respect to any person (i) a
spouse or child of such person, (ii) a Family Trust, or (iii) a
corporation, partnership or limited liability company in which such
person owns or holds a 51% or more controlling interest.
(h) The term "Spell Group" shall mean any one or more of Harry W. Spell,
William H. Spell, Richard Perkins and Bruce Richard and their respective
Related Parties; provided that the Spell Group shall at all times
include either Harry W. Spell or William H. Spell.
(i) The term "Voting Common Stock" shall mean the Corporation's Common
Stock, $.01 par value, authorized pursuant to the Certificate of
Incorporation (and shall not include the Class B Common Stock).
4.10 Issuance of Shares. Subject to terms and conditions of this Article 4, the
Board of Directors of the Corporation is authorized from time to time to accept
subscriptions for, issue, sell and deliver shares of any class or series of the
Corporation to such persons, at such times and upon such terms and conditions as
the Board may determine, valuing all non-monetary consideration and establishing
a price in money or other consideration, or a minimum price, or a general
formulation or method by which the price will be determined.
4.11 Issuance of Rights to Purchase Shares. Subject to terms and conditions of
this Article 4, the Board of Directors is further authorized from time to time
to grant and issue rights to subscribe for, purchase, exchange securities for,
or convert securities into, shares of the Corporation of any class or series and
to fix the terms, provisions and conditions of such rights, including the
exchange or conversion basis or the price at which such shares may be purchased
or subscribed for.
4.12 Issuance of Shares to Holders of Another Class or Series. Subject to the
terms herein, the Board is further authorized to issue shares of one class or
series to holders of that class or series or to holders of another class or
series to effectuate share dividends or splits.
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Article 5
Rights of Stockholders
5.1 No Preemptive Rights. Except as otherwise expressly granted in this Restated
Certificate of Incorporation, no shares of any class or series of the
Corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the Corporation now or hereafter authorized or issued.
5.2 No Cumulative Voting Rights. There shall be no cumulative voting by the
stockholders of the Corporation.
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Article 6
Directors
6.1 Written Action by Directors. Any action required or permitted to be taken at
a Board meeting may be taken by written action signed by all the directors.
6.2 Initial Board of Directors. The individuals on the Corporation's initial
Board of Directors shall be as follows:
William C. Knodel 900 Threadneedle
Houston, TX 77079-2990
Article 7
Merger, Exchange, Sale of Assets and Dissolution
7.1 Except as otherwise expressly provided in Article 4, where approval of
stockholders is required by law, the affirmative vote of the holders of at least
a majority of the voting power of all shares entitled to vote shall be required
to authorize the Corporation (i) to merge into or with one or more Corporations,
(ii) to exchange its shares for one or more other Corporations, (iii) to sell,
lease, transfer or otherwise dispose of all or substantially all of its property
and assets, including its goodwill, or (iv) to commence voluntary dissolution.
Article 8
Amendment of Certificate of Incorporation
8.1 Except as otherwise expressly provided in Article 4, after the issuance of
shares by the Corporation, any provision contained in this Restated Certificate
of Incorporation may be amended, altered, changed or repealed by the affirmative
vote of the holders of at least a majority of the voting power of the shares
present and entitled to vote at a duly held meeting or such greater percentage
as may be otherwise prescribed by the laws of the State of Delaware.
Article 9
Limitation of Director Liability
9.1 A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is hereafter amended to authorize the
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further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be so further eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended. Any repeal or modification of the foregoing provisions of this
Article 9 by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
Article 10
Indemnification
10.1 The Corporation shall indemnify, to the fullest extent authorized or
permitted by law as now enacted or hereafter amended, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or by reason of the fact that such
person, 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.
10.2 The Corporation shall, to the fullest extent authorized or permitted by law
as now enacted or hereafter amended, pay and advance the expenses (including
attorneys' fees) incurred by persons identified in the preceding paragraph of
this Article 10 in defending such action, suit or proceeding in advance of the
final disposition of the same.
10.3 The rights conferred on any person pursuant to this Article 10 shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statutes, Bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise.
10.4 The Board of Directors may authorize the purchase and maintenance of
insurance for the purpose of such indemnification or other rights granted
pursuant to this Article 10, against expense liability or loss, whether or not
the Corporation would have the power to indemnify such persons against such
expense, liability or loss under the Delaware General Corporation Law, as now
enacted or hereafter amended.
10.5 The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article 10 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Article 11
Bylaws
The Board of Directors is expressly authorized to make and alter the Bylaws of
this Corporation, subject to the power of the stockholders to change or repeal
such Bylaws and subject to any other
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limitations on such authority provided by the Delaware General Corporation Law,
as amended, the Bylaws, or the provisions of this Restated Certificate of
Incorporation.
The undersigned, Mark Schneider, President of the Corporation, hereby
acknowledges that the foregoing Restated Certificate of Incorporation is the act
and deed of the Corporation and that the facts stated therein are true.
----------------------------
Mark Schneider, President
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Exhibit 3.2
BYLAWS
OF
EAGLE PACIFIC HOLDINGS, INC.
A Delaware Corporation
PREAMBLE
These Bylaws ("Bylaws") are subject to, and governed by, the General
Corporation Law of the State of Delaware (the "Delaware Corporation Law") and
the certificate of incorporation (the "Certificate of Incorporation") of Eagle
Pacific Holdings, Inc., a Delaware corporation (the "Corporation"). In the
event of a direct conflict between the provisions of these Bylaws and the
mandatory provisions of the Delaware Corporation Law or the provisions of the
Certificate of Incorporation, such provisions of the Delaware Corporation Law or
the Certificate of Incorporation, as the case may be, shall be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
---------------------------
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
-------------
places, both within and without the State of Delaware, as the Board of Directors
of the Corporation (the "Board of Directors") may from time to time determine or
as the business of the Corporation may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
--------------
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may be properly brought before the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be called
---------------
by the Board of Directors pursuant to a resolution adopted by a majority of the
members of the directors then serving, by the Chairman of the Board and Chief
Executive Officer, by any holder or holders of record of at least 10% of the
outstanding shares of capital stock of the Corporation then entitled to vote on
any matter for which the respective special meeting is being called, or as may
be provided by the terms of the Certificate of Incorporation . A special
meeting shall be held on such date and at such time as shall be designated by
the person(s) calling the meeting and stated in the notice of the meeting or in
a duly executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice
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of such meeting given in accordance with these Bylaws or in a duly executed
waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
-----------------
any place within or without the State of Delaware designated by the Board of
Directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein or in the Certificate of
Incorporation.
2.4 Notice. Written or printed notice stating the place, day, and time of
------
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board and
Chief Executive Officer, the Secretary, or the officer or person(s) calling the
meeting, to each stockholder of record entitled to vote at such meeting. If
such notice is to be sent by mail, it shall be directed to such stockholder at
his address as it appears on the records of the Corporation, unless he shall
have filed with the Secretary of the Corporation a written request that notices
to him be mailed to some other address, in which case it shall be directed to
him at such other address. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy.
2.5 Notice of Stockholder Business; Nomination of Director Candidates.
-----------------------------------------------------------------
Except as otherwise may specifically be provided in the Certificate of
Incorporation:
(a) At annual meetings of the stockholders, only such business shall
be conducted as shall have been brought before the meetings (i) pursuant to
the Corporation's notice of meeting, (ii) by or at the direction of the
Board of Directors, or (iii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 2.5, who shall be entitled to vote at such meeting, and who
complies with the notice procedures set forth in this Section 2.5.
(b) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors, or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 2.5, who shall be entitled to vote for the election of such
particular director(s) at the meeting, and who complies with the notice
procedures set forth in this Section 2.5.
(c) A stockholder must give timely, written notice to the Secretary of
the Corporation to nominate directors at an annual meeting pursuant to
Section 2.5(b) hereof
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or to propose business to be brought before an annual or special meeting
pursuant to clause (iii) of Section 2.5(a) hereof. To be timely in the case
of an annual meeting, a stockholder's notice must be received at the
principal executive offices of the Corporation not more than 180 days nor
less than 120 days before the first anniversary of the preceding year's
annual meeting. To be timely in the case of a special meeting or in the
event that the date of the annual meeting is changed by more than 30 days
from such anniversary date, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the close of
business on the tenth day following the earlier of the day on which notice
of the meeting date was mailed or public disclosure of the meeting date was
made. For purposes of this Section 2.5(c), "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange
Act of 1934. Such stockholder's notice shall set forth (i) with respect to
each matter, if any, that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting,
(ii) with respect to each person, if any, whom the stockholder proposes to
nominate for election as a director, all information relating to such
person (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director) that is required under
the Securities Exchange Act of 1934, as amended, (iii) the name and
address, as they appear on the Corporation's records, of the stockholder
proposing such business or nominating such persons (as the case may be),
and the name and address of the beneficial owner, if any, on whose behalf
the proposal or nomination is made, (iv) the class and number of shares of
capital stock of the Corporation that are owned beneficially and of record
by such stockholder of record and by the beneficial owner, if any, on whose
behalf the proposal or nomination is made, and (v) any material interest or
relationship that such stockholder of record and/or the beneficial owner,
if any, on whose behalf the proposal or nomination is made may respectively
have in such business or with such nominee. At the request of the Board of
Directors, any person nominated for election as a director shall furnish to
the Secretary of the Corporation the information required to be set forth
in a stockholder's notice of nomination which pertains to the nominee.
(b) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted, and no person shall be nominated to serve as a
director, at an annual or special meeting of stockholders, except in
accordance with the procedures set forth in this Section 2.5. The
chairperson of the meeting shall, if the facts warrant, determine that
business was not properly brought before the meeting, or that a nomination
was not made, in accordance with the procedures prescribed by these Bylaws
and, if he or she shall so determine, he or she shall so declare to the
meeting, and any such business not properly brought before the meeting
shall not be transacted and any defective nomination shall be disregarded.
A stockholder shall also comply with all other applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this
Section 2.5.
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2.6 Voting List. At least 10 days before each meeting of stockholders,
-----------
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the Board of Directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares of capital stock registered in the name of each stockholder. For a
period of 10 days prior to such meeting, such list shall be kept on file at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting or a duly executed waiver of notice of such
meeting or, if not so specified, at the place where the meeting is to be held
and shall be open to examination by any stockholder, for any purpose germane to
the meeting, during ordinary business hours. Such list shall be produced at
such meeting and kept at the meeting at all times during such meeting and may be
inspected by any stockholder who is present.
2.7 Quorum. The holders of a majority of the outstanding shares of
------
capital stock entitled to vote on a matter, present in person or by proxy, shall
constitute a quorum at any meeting of stockholders, except as otherwise provided
by law, the Certificate of Incorporation, or these Bylaws. Where a separate
vote shall be required of a particular class or series of the Corporation's
outstanding capital stock, the holders of a majority of the outstanding shares
of such class or series entitled to vote on such matter, present in person or in
proxy, shall constitute a quorum at a meeting of such class or series, except as
otherwise expressly provided in the Certificate of Incorporation.
If a quorum shall not be present, in person or by proxy, at any meeting of
stockholders, the stockholders entitled to vote thereat who are present, in
person or by proxy (or, if no stockholder entitled to vote is present, any
officer of the Corporation), may adjourn the meeting from time to time without
notice other than announcement at the meeting (unless the Board of Directors,
after such adjournment, fixes a new record date for the adjourned meeting),
until a quorum shall be present, in person or by proxy. At any adjourned
meeting at which a quorum shall be present, in person or by proxy, any business
may be transacted which may have been transacted at the original meeting had a
quorum been present; provided that, if the adjournment is for more than 30 days
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting.
2.8 Required Vote; Withdrawal of Quorum. When a quorum is present at any
-----------------------------------
meeting, the vote of the holders of at least a majority of the outstanding
shares of capital stock entitled to vote thereat who are present, in person or
by proxy, shall decide any question brought before such meeting, unless the
question is one on which, by express provision of law, the Certificate of
Incorporation, or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question;
provided, however, that the vote of the holders of a plurality of the
outstanding shares of capital stock entitled to vote in the election of
directors who are present, in person or by proxy, shall be required to effect
elections of directors, except as otherwise may expressly be provided in the
Certificate of Incorporation. The stockholders present at a duly constituted
meeting may continue to transact
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business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.9 Method of Voting; Proxies. Except as otherwise provided in the
-------------------------
Certificate of Incorporation or by law, each outstanding share of capital stock,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders. Elections of directors need not be by
written ballot. At any meeting of stockholders, every stockholder having the
right to vote may vote either in person or by a proxy executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Each such proxy shall
be filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
2.10 Record Date. Except as otherwise provided in the Certificate of
-----------
Incorporation, for the purpose of determining stockholders entitled (a) to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
(b) to receive payment of any dividend or other distribution or allotment of any
rights, or (c) to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, for any such determination of stockholders, such date in any case to
be not more than 60 days and not less than 10 days prior to such meeting nor
more than 60 days prior to any other action. If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.11 Conduct of Meeting. The Chairman of the Board and Chief Executive
------------------
Officer, if such office has been filled, and, if such office has not been filled
or if the Chairman of the Board and Chief Executive Officer is absent or
otherwise unable to act, the President shall preside at all meetings of
stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these Bylaws or
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by resolution adopted by the Board of Directors, or if no officer has been given
such authority, by some person appointed at the meeting.
2.12 Inspectors. The Board of Directors may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count, and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and affairs of the Corporation shall be
----------
managed by or under the direction of the Board of Directors.
3.2 Number; Qualification; Election; Term.
-------------------------------------
a) The Board of Directors shall consist of not less than five (5) nor
more than eleven (11) directors. The number of members of the initial
Board of Directors shall be as set forth in the Certificate of
Incorporation.
b) Except as provided in Section 3.4 of these Bylaws, the directors
shall be elected at the annual meeting of stockholders and each director
elected shall hold office until the next succeeding annual meeting of
stockholders and until his successor shall be elected and shall qualify, or
until his earlier death, resignation, retirement, disqualification or
removal. The number of directors to be elected at any meeting of
stockholders shall be set forth in the notice of any meeting of
stockholders held for such purpose. Directors need not be residents of
Delaware or stockholders of the Corporation.
c) The Board of Directors of the Corporation shall not be divided
into separate classes as permitted by the Delaware Corporation Law.
3.3 Change in Number. No decrease in the number of directors constituting
----------------
the entire Board of Directors shall have the effect of shortening the term of
any incumbent director.
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3.4 Vacancies. Subject to the provisions of the Certificate of
---------
Incorporation, any or all directors may be removed with or without cause at any
annual or special meeting of stockholders, upon the affirmative vote of the
holders of a majority of the outstanding shares of each class of capital stock
then entitled to vote in person or by proxy at an election of such directors,
provided that notice of the intention to act upon such matter shall have been
given in the notice calling such meeting. Newly created directorships resulting
from any increase in the authorized number of directors and any vacancies
occurring in the Board of Directors caused by death, resignation, retirement,
disqualification, removal or other termination from office of any directors may
be filled by the vote of a majority of the directors then in office, though less
than a quorum, or by the affirmative vote, at a special meeting of the
stockholders called for the purpose of filling such directorship, of the holders
of a majority of the outstanding shares of capital stock then entitled to vote
in person or by proxy at such meeting. Each successor director so chosen shall
hold office until the next annual meeting of the stockholders and until his
successor shall have been duly elected and qualified, or until his earlier
death, resignation, retirement, disqualification or removal.
3.5 Meetings of Directors. The directors may hold their meetings and may
---------------------
have an office and keep the records of the Corporation, except as otherwise
provided by law, in such place or places within or without the State of Delaware
as the Board of Directors may from time to time determine or as shall be
specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.6 First Meeting. Each newly elected Board of Directors may hold its
-------------
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.7 Election of Officers. At the first meeting of the Board of Directors
--------------------
after each annual meeting of stockholders at which a quorum shall be present,
the Board of Directors shall elect the officers of the Corporation.
3.8 Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held at such times and places as shall be designated from time to time by
resolution of the Board of Directors. Notice of such regular meetings shall not
be required.
3.9 Special Meetings. Special meetings of the board of directors shall be
----------------
held whenever called by the Chairman of the Board and Chief Executive Officer,
or any director.
3.10 Notice. The Secretary shall give notice of each special meeting to
------
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who, either before or after the meeting,
submits a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. The
purpose of any special meeting shall be specified in the notice or waiver of
notice of such meeting.
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3.11 Quorum; Majority Vote. At all meetings of the Board of Directors, a
---------------------
majority of the directors fixed in the manner provided in these Bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there is less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the terms of the Certificate of Incorporation, or these Bylaws, the act of a
majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the Board of Directors. At any time that the
Certificate of Incorporation provides that directors elected by the holders of a
class or series of stock shall have more or less than one vote per director on
any matter, every reference in these Bylaws to a majority or other proportion of
directors shall refer to a majority or other proportion of the votes of such
directors.
a) Notwithstanding the provisions set forth above in this Section
3.11, the following actions shall require the unanimous approval of all of
the members of the entire Board of Directors:
(i) any substantial change in the type of business conducted by
the Corporation;
(ii) any acquisition of an unrelated business or entity for an
aggregate purchase price greater than $17,500,000. For the purposes
of this clause (ii) and clause (iii) below, the "aggregate purchase
price" or "aggregate sale price," as the case may be, shall equal the
total value of the consideration paid for the unrelated business or
entity, or assets, as the case may be, including, but not limited to,
any long-term debt assumed and maximum contingent payments and/or
earn-outs;
(iii) any sale of less than all or substantially all of the
assets of the Corporation 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. If the Board of Directors does not approve
such extraordinary bonus plan, the Board of Directors shall engage an
independent third party consultant specializing in executive
compensation, and such consultant shall determine the appropriate
bonus amount based on national surveys of corporations of similar size
and business, and based on the specific facts related to the
acquisition or corporate event;
(v) payment of severance benefits to William H. Spell (1) in
excess of $600,000 if his employment terminates on or before December
31, 2001; (2) in excess of $300,000 if his termination occurs during
the year ending December 31, 2002; and (3) in any amount if his
termination occurs after December 31, 2002; and
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<PAGE>
(vi) the establishment or approval 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 Company), which in the aggregate on an annual basis
exceeds 0.25% of the Corporation's 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%.
(vii) any grant or issuance of shares or options to acquire
shares to any member of the Spell Group (as such term is defined in
the Certificate of Incorporation) under any stock option, restricted
stock or other compensation, incentive or benefit plan; provided
--------
however that A) if such grant or issuance of shares or options is not
-------
so approved by the Board of Directors; and B) a Significant Event (as
defined below) has occurred, then the Board of Directors shall engage
an independent third party consultant specializing in executive
compensation, and such consultant shall determine the appropriateness
of such grant or issuance of shares or options based on national
surveys of corporations of similar size and business, and based on the
specific facts related to such grant or issuance.
For the purposes of this Section, a "Significant Event" means one or
more acquisitions, mergers or similar events which have a material
favorable effect on the Corporation's operations, results of
operations, or financial condition, or any significant increase in the
responsibilities of the individual member(s) of the Spell Group to
whom such shares or options are proposed to be issued.
b) Notwithstanding any language in these Bylaws to the contrary, the
unanimous voting requirement provisions specified in paragraph (a) above of
this Section 3.11 (and paragraph (b) of Section 8.14) shall terminate and
shall be null and void as of the date of the earlier to occur of the
following: (i) the date of the special meeting held to elect new directors
of the Corporation in accordance with Section 3.10 of that certain
Stockholders' Agreement among the Corporation, the CONDEA Vista Company,
and the Spell Group, or (ii) December 31, 2004.
3.12 Procedure. At meetings of the Board of Directors, business shall be
---------
transacted in such order as from time to time the Board of Directors may
determine. The Chairman of the Board and Chief Executive Officer, if such
office has been filled, and, if such office has not been filled or if the
Chairman of the Board and Chief Executive Officer is absent or otherwise unable
to act, the President shall preside at all meetings of the Board of Directors.
In the absence or inability to act of such officers, a chairman shall be chosen
by the Board of Directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the Board of
Directors unless the Board of Directors appoints another person to act as
secretary of the meeting. The Board of Directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
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3.13 Presumption of Assent. A director of the Corporation who is present
---------------------
at the meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.14 Compensation. The Board of Directors shall have the authority to fix
------------
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the Board of
Directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The Board of Directors may designate one or more
-----------
committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
---------------------------
more directors appointed by resolution adopted by a majority of the entire Board
of Directors. The number of committee members may be increased or decreased
from time to time by resolution adopted by a majority of the entire Board of
Directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 Authority. Each committee, to the extent expressly provided in the
---------
resolution establishing such committee, shall have and may exercise all of the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation except to the extent expressly restricted by law,
the Certificate of Incorporation, or these Bylaws.
4.4 Committee Changes. The Board of Directors shall have the power at any
-----------------
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The Board of Directors may designate
-------------------------------
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
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4.6 Regular Meetings. Regular meetings of any committee may be held
----------------
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
----------------
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
---------------------
the number of members designated by the Board of Directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the Certificate of Incorporation, or
these Bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
-------
prepared and shall report the same to the Board of Directors upon the request of
the Board of Directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the Board of
------------
Directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation
--------------
of authority to it shall not operate to relieve the Board of Directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the Certificate of Incorporation, or
------
these Bylaws, notice is required to be given to any committee member, director,
or stockholder and no provision is made as to how such notice shall be given,
personal notice shall not be required and any such notice may be given (a) in
writing, by mail, postage prepaid, addressed to such committee member, director,
or stockholder at his address as it appears on the books or (in the case of a
stockholder) the stock transfer records of the Corporation, or (b) by any other
method permitted by law (including but not limited to overnight courier service,
telegram, telex, or telefax). Any notice required or permitted to be given by
mail shall be deemed to be delivered and given at the time when the same is
deposited in the United States mail as aforesaid. Any notice required or
permitted to be given by overnight courier service shall be deemed to be
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<PAGE>
delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be
given by telegram, telex, or telefax shall be deemed to be delivered and given
at the time transmitted with all charges prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
------
stockholder, director, or committee member of the Corporation by statute, the
Certificate of Incorporation, or these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a stockholder, director, or committee member at a meeting shall
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
------------------------------
be a Chairman of the Board and Chief Executive Officer, a President, a
Secretary, and such other officers as the Board of Directors may from time to
time elect or appoint, including one or more Vice Presidents (with each Vice
President to have such descriptive title, if any, as the Board of Directors
shall determine) and a Treasurer. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified, until his
death, or until he shall resign or shall have been removed in the manner
hereinafter provided. Any two or more offices may be held by the same person.
None of the officers need be a stockholder or a director of the Corporation or a
resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board of Directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
---------
death, resignation, removal, or otherwise) may be filled by the Board of
Directors.
6.4 Authority. Officers shall have such authority and perform such duties
---------
in the management of the Corporation as are provided in these Bylaws or as may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
------------
be fixed from time to time by the Board of Directors; provided, however, that
the Board of Directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to the Chairman of the Board and Chief Executive Officer or the President.
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<PAGE>
6.6 Chairman of the Board and Chief Executive Officer. The Chairman of
-------------------------------------------------
the Board and Chief Executive Officer shall be the chief executive officer of
the Corporation and, subject to the supervision of the Board of Directors of the
Corporation, shall have the general management and control of the Corporation
and its subsidiaries (including the right to vote the voting securities of the
subsidiaries of the Corporation on behalf of the Corporation), shall preside at
all meetings of the stockholders and of the Board of Directors and may sign all
certificates for shares of capital stock of the Corporation.
6.7 President. The President shall be the chief operating officer of the
---------
Corporation and, subject to the supervision of the Chairman of the Board and
Chief Executive Officer, he shall have general executive charge, management, and
control of the properties and operations of the Corporation in the ordinary
course of its business, with all such powers with respect to such properties and
operations as may be reasonably incident to such responsibilities. In the
absence or inability to act of the Chairman of the Board and Chief Executive
Officer, the President shall exercise all of the powers and discharge all of the
duties of the Chairman of the Board and Chief Executive Officer. As between the
Corporation and third parties, any action taken by the President in the
performance of the duties of the Chairman of the Board and Chief Executive
Officer shall be conclusive evidence that the Chairman of the Board and Chief
Executive Officer is absent or unable to act. The President may sign all
certificates for shares of stock of the Corporation.
6.8 Vice Presidents. Each Vice President shall have such powers and
---------------
duties as may be assigned to him by the Board of Directors, the Chairman of the
Board and Chief Executive Officer, or the President, and (in order of their
seniority as determined by the Board of Directors or, in the absence of such
determination, as determined by the length of time they have held the office of
Vice President) shall exercise the powers of the President during that officer's
absence or inability to act. As between the Corporation and third parties, any
action taken by a Vice President in the performance of the duties of the
President shall be conclusive evidence of the absence or inability to act of the
President at the time such action was taken.
6.9 Treasurer. The Treasurer shall have custody of the Corporation's
---------
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors, the Chairman of the Board and Chief
Executive Officer, or the President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such
--------------------
powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board and Chief Executive Officer, or the President. The
Assistant Treasurers (in the order of their seniority as determined by the Board
of Directors or, in the absence of such a determination, as determined by the
length of time they have held the office of Assistant Treasurer) shall exercise
the powers of the Treasurer during that officer's absence or inability to act.
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<PAGE>
6.11 Secretary. Except as otherwise provided in these Bylaws, the
---------
Secretary shall keep the minutes of all meetings of the Board of Directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board and Chief Executive Officer or the President, in the name of the
Corporation, all contracts of the Corporation and affix the seal, if any, of the
Corporation thereto. He may sign with the Chairman of the Board and Chief
Executive Officer or the President all certificates for shares of stock of the
Corporation, and he shall have charge of the certificate books, transfer books,
and stock papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection by any director upon application at the
office of the Corporation during business hours. He shall in general perform
all duties incident to the office of the Secretary, subject to the control of
the Board of Directors, the Chairman of the Board and Chief Executive Officer,
and the President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such
---------------------
powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board and Chief Executive Officer, or the President. The
Assistant Secretaries (in the order of their seniority as determined by the
Board of Directors or, in the absence of such a determination, as determined by
the length of time they have held the office of Assistant Secretary) shall
exercise the powers of the Secretary during that officer's absence or inability
to act.
6.13 Vice Chairman of the Board. The Vice Chairman of the Board shall
--------------------------
have such powers and duties as may be provided herein or assigned to him by the
Board of Directors or the Chairman of the Board and Chief Executive Officer.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
-----------------------
Corporation shall be in such form as shall be approved by the Board of
Directors. The certificates shall be signed by the Chairman of the Board and
Chief Executive Officer or the President or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and may
be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. The certificates
shall be consecutively numbered and shall be entered in the books of the
Corporation as they are issued and shall exhibit the holder's name and the
number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The Corporation may
---------------------------------------------
direct a new certificate or certificates to be issued in place of a certificate
or certificates theretofore issued by the Corporation and alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate or certificates representing shares to be lost or
destroyed. When authorizing such issue of a new certificate or certificates the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the
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<PAGE>
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond with a surety or sureties satisfactory to the
Corporation in such sum as it may direct as indemnity against any claim, or
expense resulting from a claim, that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost or
destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The Board of Directors shall have the power and
-----------
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The Board of Directors shall have the power and authority to
-------
provide that certificates representing shares of stock bear such legends as the
Board of Directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the Certificate of
---------
Incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property, or in shares of
stock of the Corporation. Such declaration and payment shall be at the
discretion of the Board of Directors.
8.2 Reserves. There may be created by the Board of Directors out of funds
--------
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the Board of Directors shall
consider beneficial to the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
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<PAGE>
8.3 Books and Records. The Corporation shall keep correct and complete
-----------------
books and records of account, shall keep minutes of the proceedings of its
stockholders and Board of Directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
-----------
Board of Directors; provided, that if such fiscal year is not fixed by the Board
of Directors and the selection of the fiscal year is not expressly deferred by
the Board of Directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to time
----
may be approved by the Board of Directors.
8.6 Resignations. Any director, committee member, or officer may resign by
------------
so stating at any meeting of the Board of Directors or by giving written notice
to the Board of Directors, the Chairman of the Board and Chief Executive
Officer, the President, or the Secretary. Such resignation shall take effect at
the time specified therein or, if no time is specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board and Chief
--------------------------------
Executive Officer or the President shall have the power and authority to
transfer, endorse for transfer, vote, consent, or take any other action with
respect to any securities of another issuer which may be held or owned by the
Corporation and to make, execute, and deliver any waiver, proxy, or consent with
respect to any such securities.
8.8 Telephone Meetings. Members of the Board of Directors and members of a
------------------
committee of the Board of Directors may participate in and hold a meeting of
such Board of Directors or committee by means of a conference telephone or
similar communications equipment by means of which persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. Unless otherwise restricted by the
------------------------
Certificate of Incorporation or by these Bylaws, any action required or
permitted to be taken at a meeting of the Board of Directors, or of any
committee of the Board of Directors, may be taken without a meeting if a consent
or consents in writing, setting forth the action so taken, shall be signed by
all the directors or all the committee members, as the case may be, entitled to
vote with respect to the subject matter thereof, and such consent shall have the
same force and effect as a vote of such directors or committee members, as the
case may be, and may be stated as such in any certificate or document filed with
the Secretary of State of the State of Delaware or in any certificate
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<PAGE>
delivered to any person. Such consent or consents shall be filed with the
minutes of proceedings of the Board or committee, as the case may be.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
8.10 Invalid Provisions. If any part of these Bylaws shall be held
------------------
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage,
---------------
or other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the Board of Directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these Bylaws have been inserted for
--------
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
----------
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments.
----------
(a) Except as otherwise provided in the Certificate of Incorporation
or elsewhere herein, the Board of Directors may, upon the affirmative vote
of at least a majority of the directors then serving, make, adopt, alter,
amend, and repeal from time to time these Bylaws and make from time to time
new Bylaws of the Corporation (subject to the right of the stockholders
entitled to vote thereon to adopt, alter, amend, and repeal Bylaws made by
the Board of Directors or to make new Bylaws); provided, however, that the
-------- -------
stockholders of the Corporation may adopt, alter, amend, or repeal Bylaws
made by the Board of Directors or make new Bylaws solely upon the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of capital stock then entitled to vote thereon.
(b) Notwithstanding the foregoing paragraph (a) of this Section 8.14,
neither the stockholders nor the directors of the Corporation may alter,
amend or repeal Sections
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3.2(c), 3.4, 3.11 or 8.14 of these Bylaws unless upon the unanimous
approval of all of the members of the entire Board of Directors.
The undersigned Secretary of the Corporation hereby certifies that the
foregoing Bylaws were adopted by unanimous consent of the directors of the
Corporation as of ______________, 1998.
, Secretary
------------------------------
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Exhibit 8.1
________________ , 1999
Eagle Pacific Industries, Inc.
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
Re: Agreement and Plan of Merger by and among Condea Vista Company,
Eagle Pacific Holdings, Inc., CV Merger Sub, Inc. and
Eagle Pacific Industries, Inc. dated as of December 11, 1998
Ladies/Gentlemen:
You have requested our opinion as to certain United States federal income
tax consequences of the merger (the "Merger") of CV Merger Sub, Inc. ("Merger
Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of Eagle
Pacific Holdings, Inc. ("Parent"), a Delaware corporation, with and into Eagle
Pacific Industries, Inc. (the "Company"), a Minnesota corporation. The Merger is
being consummated pursuant to the Agreement and Plan of Merger, by and among
Condea Vista Company, a Delaware corporation, Parent, Merger Subsidiary, and the
Company dated as of December 11, 1998 (the "Merger Agreement"). Unless otherwise
defined, capitalized terms used herein have the meanings assigned to them in the
Merger Agreement.
In connection with rendering our opinion, we have reviewed the Merger
Agreement, including the Exhibits thereto, the Proxy Statement/Prospectus
constituting part of the Registration Statement on Form S-4 filed by Parent with
the Securities and Exchange Commission on _______________ , 1999, and such other
documents and corporate records as we have deemed necessary or appropriate as a
basis therefor. We have assumed that the representations and warranties
contained in the Merger Agreement were true, correct and complete when made and
will continue to be true, correct and complete through the Effective Time, and
that the parties have complied with and, if applicable, will continue to comply
with the covenants contained in the Merger Agreement. We also have assumed that
statements as to factual matters contained in the Proxy Statement/Prospectus are
true, correct, and complete and will continue to be true, correct and complete
through the Effective Time. Finally, we have relied on the representations made
by Parent and the Company in tax certificates provided to us dated February __,
1999, and we have assumed that such representations will continue to be true,
correct, and complete through the Effective Time.
<PAGE>
Eagle Pacific Industries, Inc.
__________________, 1999
Page 2
Based upon the foregoing, in reliance thereon and subject thereto, and
based upon the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, judicial decisions, revenue rulings
and revenue procedures of the Internal Revenue Service, and other administrative
pronouncements, all as in effect on the date hereof, and assuming that the
Merger and related transactions will be consummated in accordance with the terms
of the Merger Agreement, it is our opinion that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Parent, Merger Subsidiary, and the Company will be a party to such
reorganization within the meaning of Section 368(b) of the Code. Furthermore, we
hereby confirm that the discussion set forth under the caption "The
Merger--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, insofar as such discussion constitutes statements of
United States federal income tax law or legal conclusions, subject to the
assumptions, limitations, and qualifications set forth therein, accurately
reflects our opinion of the material United States federal income tax
consequences of the Merger.
No opinion is expressed as to any matter not specifically addressed above,
including the accuracy of the representations or reasonableness of the
assumptions relied upon by us in rendering the opinion set forth above. Our
opinion is based on current United States federal income tax law and
administrative practice and we do not undertake to advise you as to any future
changes in United States federal income tax law or administrative practice that
may affect our opinion unless we are specifically retained to do so. We consent
to the use of this opinion as an Exhibit to the Proxy Statement/Prospectus, and
to the references to Fredrikson & Byron, P.A. under the captions "The Merger
Agreement--Certain Federal Income Tax Consequences" and "Legal Matters" in the
Proxy Statement/Prospectus.
Very truly yours,
FREDRIKSON & BYRON, P.A.
By
---------------------------
<PAGE>
EXHIBIT 21.1
Subsidiaries of Eagle Pacific Holdings, Inc.
CV Merger Sub, Inc.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Eagle Pacific
Holdings, Inc. on Form S-4 of our report dated February 24, 1998, on the
financial statements of Eagle Pacific Industries, Inc. at December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
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
February 9, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
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
February 11, 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, included in the Proxy
Statement of Eagle Pacific Industries, Inc. that is referred to and made a part
of this Registration Statement (Form S-4) and Prospectus of Eagle Pacific
Holdings, Inc. for the registration of its 9,786,203 shares of Common Stock,
2,347,418 shares of Class B Common Stock, 18,750 shares of Series A 7%
Convertible Preferred Stock and 8% Convertible Preferred Stock.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 11, 1999
<PAGE>
EXHIBIT 99.1
EAGLE PACIFIC INDUSTRIES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints WILLIAM H. SPELL and PATRICK M.
MERTENS, or either of them acting alone, with full power of substitution, as
proxies to represent and vote, as designated below, all shares of Common Stock
and Series A 7% Convertible Preferred Stock of Eagle Pacific Industries, Inc.
held of record as of February __, 1999, which the undersigned would be entitled
to vote, at the Special Meeting of the Shareholders to be held on
_______________, March ___, 1999, at __:00 a.m., Central Standard Time, at the
Minneapolis Hilton and Towers Hotel, located at 1001 Marquette Avenue,
Minneapolis, Minnesota, and at all adjournments of such meeting. The
undersigned hereby revokes all proxies previously granted with respect to such
meeting.
The Board of Directors recommends that you vote "FOR" the following proposals:
(1) PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER, providing for the
merger of CV Merger Sub, Inc., a wholly owned subsidiary of Eagle Pacific
Holdings, Inc., into and with Eagle Pacific Industries, Inc. A copy of the
Agreement and Plan of Merger is attached as Appendix A to the Proxy
Statement/Prospectus for the Special Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) OTHER MATTERS. In their discretion, the appointed proxies are authorized
to vote upon such others business as may properly come before the Special
Meeting or any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.
Date_______________________, 1999. _____________________________________
_____________________________________
PLEASE DATE AND SIGN ABOVE exactly as
name appears at the left, indicating,
where appropriate, official position or
representative capacity. If stock is
held in joint tenancy, each joint owner
should sign. Please return this proxy
in the enclosed proxy return envelope,
which requires no postage if mailed in
the United States. If an envelope is
not enclosed or has been misplaced,
please return this completed proxy to
Norwest Shareowner Services, 161 North
Concord Exchange, South St. Paul,
Minnesota 55075-0738.
<PAGE>
EXHIBIT 99.2
CONSENT OF WILLIAM H. SPELL
I hereby consent to all references to me as a nominated director in the
Registration Statement on Form S-4 of Eagle Pacific Holdings, Inc. and the Proxy
Statement/Prospectus constituting a part thereof.
/s/ WILLIAM H. SPELL
--------------------
Minneapolis, Minnesota
February 8, 1999
<PAGE>
EXHIBIT 99.3
CONSENT OF HARRY W. SPELL
I hereby consent to all references to me as a nominated director in the
Registration Statement on Form S-4 of Eagle Pacific Holdings, Inc. and the Proxy
Statement/Prospectus constituting a part thereof.
/s/ HARRY W. SPELL
------------------
Minneapolis, Minnesota
February 8, 1999
