SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission File Number 0-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact name of Small Business Issuer as specified in its Charter)
MINNESOTA 41-1642846
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 371-9650
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, par value $.01 per share.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year: $51,330,127
The aggregate market value of the voting stock held by non-affiliates was
approximately $10,502,000 based upon the average bid and asked prices of the
Registrant's Common Stock on March 19, 1996 and assuming conversion of
Registrant's Series A 7% Convertible Preferred Stock. For this purpose, shares
held by all executive officers and directors have been excluded, but without
admitting that such persons are affiliates for other purposes.
There were 4,152,940 shares of Common Stock, $.01 par value, and 1,383,500
shares of Series A 7% Convertible Preferred Stock, outstanding as of March 19,
1996.
Portions of the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders are incorporated by reference in Part III.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business and Acquisitions
Eagle Pacific Industries, Inc., a Minnesota corporation (the
"Company"), formerly named Black Hawk Holdings, Inc., was incorporated under the
laws of the State of Iowa in 1891 under the name Rath Packing Company. Until
suspension of its operations in 1984, Rath Packing Company was engaged primarily
in the meat processing and packing business. Severe financial problems forced it
to file a voluntary petition for reorganization under Chapter 11 of Title XI of
the United States Bankruptcy Code on November 1, 1983. By the end of 1984 Rath
Packing Company had ceased virtually all operations with a substantial amount of
claims unsatisfied.
In the spring of 1985, a group of investors, with no prior relationship
to Rath Packing Company, proposed a reorganization which was approved by the
Bankruptcy Court in November 1985. The Company (then known as Black Hawk
Holdings, Inc.) emerged from the reorganization as a publicly traded corporation
with approximately $42,000,000 of net operating loss carryforwards and no other
material assets or liabilities.
Following its reorganization in bankruptcy, the Company, and its newly
formed subsidiary, Liberty Capital Corp. ("Liberty"), raised capital in a
private offering completed on December 30, 1985 (the "Private Placement") in
order to provide financing for acquisitions by Liberty.
During 1988, the Company completed its first two acquisitions, both of
which were specialty food distributors. At the end of 1989, the Company changed
its strategic direction. The Company sold both of its food distribution
businesses and established a new subsidiary, Black Hawk Financial Corp. This
subsidiary was engaged in commercial finance secured lending activities.
During 1991, the Company made an investment of $12,000 to acquire a 48%
interest in International Commercial Services, Inc. ("ICS"). As a result of the
operating losses sustained by ICS, the Company wrote off this investment to
zero. Additionally, the Company advanced $56,000 in loans to ICS. ICS was a
start-up sales/marketing company specializing in the food industry and had no
prior operating history. Also during the 1991 fiscal year, the Company
experienced a management change with the departures of its acting Chairman,
Chief Executive Officer, President, and a Director. After such change in
management, the business of the Company was conducted by its Board of Directors
which later appointed a President. The Company attempted to conserve its assets
and the Board considered alternatives for the Company's future. It was
determined that the Company should investigate the possibility of making
acquisitions of other entities.
In early January of 1992, the Company appointed four new members to the
Board of Directors: William H. Spell, Harry W. Spell, Richard W. Perkins and
Edward E. Strickland. Additionally, Harry W. Spell was elected Chairman of the
Board and Chief Executive Officer of the Company. William H. Spell was elected
President of Black Hawk Financial Corp. and subsequently became President of the
Company. During March of 1992, Bruce A. Richard was also elected to the Board of
Directors of the Company.
The strategic plan of the Company was changed from commercial lending
activities to attempting to acquire and own one or more profitable businesses
with earnings and cash flow. During 1992, the Company took a number of steps to
reposition itself to realize this new corporate strategy. The Company sold its
loan portfolio and loans receivable and ended its commercial finance business.
The Company also sold its equity investment in ICS to the majority shareholder
of ICS and restructured the loans, which were subsequently repaid.
In 1993, pursuant to its new strategic plan to acquire and own
profitable businesses with earnings and cash flow, the Company entered into a
Stock Purchase Agreement with the shareholders of Eagle Plastics, Inc. ("Eagle")
to purchase 90.77% of the outstanding Common Stock of Eagle, none of the Eagle
shareholders having had any prior affiliation with the Company prior to the
acquisition. The acquisition of the Eagle Common Stock (the "Eagle Acquisition")
was completed on December 17, 1993. The remaining Eagle Common Stock that was
not purchased by the Company was retained by Larry D. Schnase and G. Peter
Konen, officers and directors of Eagle and directors of the Company, who wished
to maintain an equity interest in Eagle and continue to operate it. The purchase
price for the Eagle Common Stock was $9,531,000 in cash and $2,075,000 in cash
was used to defease Eagle's Industrial Revenue Bond.
As a result of the Eagle Acquisition, Eagle became a 90.77% owned
subsidiary of the Company and its financial performance is consolidated with the
Company's for financial reporting purposes for the period subsequent to December
17, 1993 (date of acquisition). Funds for the Acquisition and defeasance of
Eagle's Industrial Revenue Bond came from approximately $2,500,000 of cash which
the Company had prior to the Eagle Acquisition and raised in a private placement
of its Preferred Stock and approximately $12,500,000 of debt. FirsTier Bank,
N.A. of Lincoln, Nebraska ("FirsTier") provided $5,000,000 as a term loan
("Term"), all of which proceeds were used for the Eagle Acquisition, and
$7,000,000 as a revolving credit line for Eagle, funds from which were not used
in the Eagle Acquisition, of which $500,000 was borrowed to repay Eagle's prior
credit facility and other non-acquisition debts. William Blair Mezzanine Capital
Partners ("Blair") provided the remaining debt of $7,500,000 in the form of a
subordinated note, of which the net proceeds to the Company, after the original
issue discount, were $5,910,000 (the "Subordinated Note"). The excess of
approximately $1,773,000 in net proceeds received by the Company not used for
the Eagle Acquisition or defeasance was used to pay expenses of the Eagle
Acquisition, bonuses to officers of Eagle and the Company in the amount of
$250,000 for completion of the Eagle Acquisition and for the repayment of
Eagle's former line of credit.
On March 16, 1995, the Company and Blair entered into a Plan of
Recapitalization (the "Plan"), pursuant to which the prior term loan agreement
was terminated and the Subordinated Note was surrendered. In consideration for
the termination of the prior agreement and Subordinated Note, the Company (i)
issued to Blair 210,000 shares of the Company's Common Stock and a Warrant to
purchase 100,000 shares and (ii) agreed to make cash payments to Blair of
$1,500,000 on March 16, 1995, $1,200,000 on September 1, 1995 and $970,000 on
September 1, 1996, and Eagle sold to Blair a Senior Subordinated Debenture (the
"Debenture") in the principal amount of $7,500,000, repayable in eleven
quarterly installments of $500,000 each commencing March 31, 1999 with a final
installment of $2,000,000 on December 31, 2001 and bearing interest at 10.4% per
annum. The Debenture is guaranteed by the Company.
In 1995, the Company entered into a Stock Purchase Agreement with the
shareholders of Pacific Plastics, Inc. ("Pacific") to purchase all of the
outstanding Common Stock of Pacific, none of the Pacific shareholders having had
any prior affiliation with the Company prior to the acquisition. The acquisition
of the Pacific Common Stock (the "Pacific Acquisition") was completed on July
10, 1995. The total consideration for the Pacific Common Stock was $6,750,000:
(i) $4,350,000 in cash; (ii) $1,700,000 in the form of a note to the sellers;
and (iii) $700,000 worth of Company Common Stock. In addition, $750,000 in cash
was paid to certain sellers in exchange for their agreement not to compete with
the Company or Pacific.
As a result of the Pacific Acquisition, Pacific became a 100% owned
subsidiary of the Company and its financial performance is consolidated with the
Company's for financial reporting purposes for the period subsequent to July 10,
1995 (date of acquisition). Cash funds for the Pacific Acquisition, the
noncompetition agreements, and the refinancing of existing Pacific indebtedness,
came from debt provided by Bank of America, Oregon ("BofA"), Portland, Oregon.
BofA provided $6,448,836 as a revolving credit line ("Pacific Revolver") for
Pacific and $1,916,000 as a term loan ("Pacific Term Loan"). The Pacific
Revolver requires interest to be paid monthly at the rate of interest publicly
announced from time to time by Bank of America National Trust and Savings
Association (the "Reference Rate") plus .5%. The Pacific Revolver expires
December 31, 1996 with principal due at such time. The total availability under
the Pacific Revolver is $7,000,000, subject to borrowing base limitations. The
Pacific Term Loan is due on June 1, 2000, with interest payable monthly at the
LIBOR Rate plus 2.75%. Principal payments on the Pacific Term Loan are due
quarterly in the amount of $87,500 for the first 12 quarters starting September
1, 1995, and $212,500 quarterly, thereafter, starting September 1, 1998. Both
the Pacific Revolver and the Pacific Term Loan are subject to a loan agreement
containing standard covenants, representations and warranties and are secured by
all of the assets of Pacific except real property and is guaranteed by the
Company. At December 31, 1995, the Company was in violation of various of these
covenants. The Company received a waiver from the BofA for each violation.
The sellers provided $1,700,000 of the total acquisition price in the
form of debt financing (the "Sellers' Notes"). The Sellers' Notes provide for 36
monthly payments of principal and interest at a fixed rate of 9% per annum for
aggregate payments of approximately $54,059 per month. The Sellers' Notes are
obligations of Pacific secured by the stock of Pacific acquired by the Company
and are guaranteed by the Company.
The Company's business focus is to be a holding company owning the
Eagle and Pacific Common Stock. It is anticipated that if any future
acquisitions were made by the Company, they would be in an industry
complementary to that of Eagle and Pacific. The Company also has two inactive
subsidiaries.
Eagle Plastics, Inc.
Eagle, a Nebraska corporation located in Hastings, Nebraska, was
established in 1984. Eagle is an extruder of polyvinyl chloride ("PVC") pipe and
polyethylene ("PE") tubing products in the United States with its primary market
in the Midwest United States. Eagle offers ten primary lines of pipe and tubing
products in diameters ranging from 1/2 inch to 8 inches. These products are used
for turf irrigation, natural gas, water wells and commercial and industrial
plumbing.
Pacific Plastics, Inc.
Pacific, an Oregon corporation, was established in 1967. Its operations
are located in Hillsboro, Oregon and Midvale, Utah. Pacific and its subsidiary,
Arrow Pacific Plastics, Inc. ("Arrow"), are extruders of PVC pipe and PE tubing
products with their primary markets in the Northwestern United States. Pacific
offers a number of pipe and tubing products in diameters from 1/2 inch through
15 inches. These products are used for water irrigation and pressure pipe, fiber
optic lines, sewer and drain pipe and electronic and telephone duct.
The Plastic Extrusion Process and Industry
Extrusion is a common manufacturing process used in the production of
plastic products. In the production of plastic pipe, PVC resin or PE pellets are
placed in an extrusion machine. Once in the extrusion machine, the PVC or PE
material is heated into molten plastic which is pulled through a sizing
apparatus to produce pipe or tubing of the required 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. The products are then stored
for shipping.
PVC pipe has become widely accepted in the building and construction
industry. A number of factors have caused this popularity including its low
cost, easy installation, lower weight than metal pipe and longer life. As a
result, PVC is replacing metal pipe in many construction situations. PE pipe is
expanding in its application and market share because of its flexibility and
strength. PE pipe is used for natural gas, municipal water and sewer, turf
irrigation and mining.
Products
Eagle. Eagle products consist of 1/2 inch to 8 inch PVC pipe and PE
tubing for plumbing applications in the building and construction industry, gas
lines, water wells and turf irrigation. Although in general the manufacture and
sale of PVC pipe and PE tubing is viewed as a commodity business with price
being the only purchasing consideration, Eagle has created brand name
recognition for its products while competing on price. Eagle also looks for
niches to enter, such as PE tubing for turf irrigation, where it can establish
itself as the primary supplier and command higher margins. It also adds features
to pipes such as quick connect gaskets and longer pipe lengths that allow for
easier installation, as well as proprietary marking for brand identification.
The following comprise Eagle's primary product line:
1. PURE CORE(R)
Pure Core(R) is Eagle's highest quality PE tubing. It is
recognizable by its white center made from virgin PE and its
black, protective outer layer made from carbon black enhanced
PE. The walls of this premium pipe are 25 percent thicker than
called for by both the American Society for Testing and
Materials ("ASTM") and National Sanitation Foundation
International ("NSFI") standards. This product comes with a
50-year warranty and is pressure tested to 200 psi. 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.
2. POLY-FLO
Poly-Flo is an all-black PE tubing product which meets the
high quality standards set by ASTM and NSFI, yet is offered at
a lower price than Eagle's Pure Core pipe. It is produced from
medium-density PE. One of Eagle's fastest growing products,
green-striped Eagle Tough(R) Turf Pipe is included within the
Poly-Flo product line. Green-striped Eagle Tough Turf Pipe is
also available in medium density PE or high density 3408 PE.
To the extent it is produced from medium density PE, it is
included within the Poly-Flo product line. Eagle's 3408
high-density pipe products are described below under Eagle
3408 Pipe.
Eagle's green-striped Eagle Tough Turf Pipe is a popular PE
pipe in the lawn irrigation industry. It is coextruded with
two green stripes to permanently identify it as Eagle Tough
Turf Pipe. This distinct, recognizable marking is unique to
Eagle Tough Turf Pipe. Part of its popularity is the Eagle
Tough Lifetime Guarantee against defects in materials and
workmanship, covering the replacement cost of the pipe and the
related labor. Eagle also serves its customers by providing
pipe sizing other than the traditional 1 inch diameter -- all
with the Eagle Tough Lifetime Guarantee, which is valid as
long as the original purchaser owns his or her property where
Eagle Tough Turf Pipe is installed.
Eagle Tough Turf Pipe is a specialized pipe for the turf
irrigation market, and its primary use is in sprinkler systems
for homes, office buildings, golf courses, and industrial
tracts. In addition to turf irrigation, primary markets and
uses for Poly-Flo pipe include domestic and municipal water
service, and limited applications for transporting potable
fluids for the food and chemical industries.
3. EAGLE 3408 PIPE
Eagle's 3408 Pipe is made from high-density 3408 polyethylene.
This product line includes both Eagle's Eagle Tough Turf Main
used for the mainline in irrigation systems and Eagle's
green-striped (high density PE) Eagle Tough Turf Pipe. Pipe
derived from high-density 3408 PE can handle higher pressures
than medium density PE tubing. Eagle Tough Turf Main is a
specialized pipe for the turf irrigation market and its
primary use is for the high pressure mainline in sprinkler
systems for homes, office buildings, golf courses, and
industrial tracts. The Eagle 3408 Pipe is also used for under
slab heating systems and transporting hot potable liquids and
chemicals.
4. POLY-FLEX
Utility grade Poly-Flex is a competitively priced
utility-grade PE tubing. This product carries a one-year
warranty and is tested to 100 psi. Other than transporting
potable water, Poly-Flex is suitable for pressure
installations. Primary markets and uses include farm water
systems, including transporting water to outlying areas for
livestock, plumbing/waste water and drainage applications, and
irrigation primarily home and other low pressure applications.
5. EAGLE NATURAL GAS PIPE
Union Carbide has developed a unique PE resin for use in small
and medium diameter pipe for gas distribution systems. Eagle
Natural Gas Pipe is extruded from this special resin and is
marked with yellow stripes for quick identification. This pipe
is available in diameters up to 4 inches. Eagle has
concentrated its marketing of the Eagle Natural Gas Pipe on
the after-market side of the business, serving installers and
contractors, instead of marketing directly to the utility
companies.
6. EAGLE PVC PRESSURE PIPE
A major use of PVC pipe is transporting water under pressure.
Eagle has developed several different PVC pipe products for
application at various points in the water distribution
system. A description of Eagle's pressure pipe products
follows.
(i) 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 high quality PVC
and meets all NSFI and ASTM 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.
(ii) PRESSURE PIPE. This versatile pipe is used
extensively in water service lines, turf irrigation,
water wells, and transporting crude oil and salt
water. It comes in diameters from 1/2 inch to 8
inches and in lengths up to 40 feet.
(iii) WHITE AND GREY SCHEDULE 80. Eagle offers an extra
strong PVC pipe for demanding industrial
applications. Its thick, strong walls stand up to
most chemicals, giving it distinct advantages over
conventional metal pipe.
(iv) GASKET JOINT PIPE. Eagle's 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 have the capability to mold the Reiber
gasket in place in its PVC pipe producing the
distinctive bell end on Eagle Gasket Joint Pipe.
7. EAGLE DRAIN, WASTE AND VENT PIPE.
Eagle Drain, Waste and Vent Pipe is used inside the home in
non-pressurized applications. It carries the NSFI approval,
and therefore is a popular product for use as waste drains and
vents in the home.
8. EAGLE SEWER DRAIN PIPE.
Eagle 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 Eagle Sewer Drain
Pipe into a municipal sewer system or other reclamation
system. Eagle Sewer Drain Pipe is available with different
wall thicknesses. The thick-walled Eagle Sewer Drain Pipe is
building code approved and easily identified by its light
green color. For rural and non-building code applications, a
thin-walled variety of Eagle Sewer Drain Pipe is available.
These exterior pipes are available in 4 inch through 8 inch
diameters and are belled at one end for easy joining. The
Reiber gasket system is available on green Eagle Sewer Drain
Pipe. For leach fields and other similar applications, Eagle
Sewer Drain Pipe is available with two rows of 5/8 inch holes.
9. EAGLE'S COEX CELLULAR CORE PIPE.
Coex Cellular Core is a relatively new product. It 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 all public
buildings. The Company's first sales of Coex Cellular Core
Pipe occurred in April 1990.
Pacific. Pacific products consist of 1/2 inch to 15 inch PVC pipe and
PE tubing which is comparable in use to Eagle's products. Pacific's products are
used for water irrigation and pressure pipe, fiber optic lines, sewer and drain
pipe and electronic and telephone duct. Pacific's emphasis on customer service
as well as quality and product innovation are key advantages to distinguishing
its products.
The following comprise Pacific's primary product line:
1. PRESSURE PIPE
Pressure pipe is a major use of PVC pipe. It is used primarily
for the transportation of water under pressure. Pacific has
developed several different PVC pipe products for application
at various points in the water distribution system. Pressure
pipe is a versatile pipe used extensively in water service
lines, turf irrigation, water wells and even the
transportation of crude oil and salt water. It is manufactured
in diameters from 1/2 inch to 12 inches and in lengths up to
40 feet. Pacific's pressure pipe is its most popular product
because of its wide applicability.
2. SEWER AND DRAIN PIPE
Sewer and drain pipe is used for exterior transportation of
waste water from home or other buildings to a municipal sewer
or other type of reclamation system. Pacific sewer and drain
pipe is manufactured in diameters from 3 inches to 15 inches.
3. ELECTRIC AND TELEPHONE DUCT
Electric and telephone duct is 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, which are still made of copper.
4. FIBER OPTIC PIPE
Fiber optic pipe is used for protecting underground fiber
optic cables. This tubing is purchased mainly by large
communications companies such as AT&T, Sprint and MCI, or by
railroad companies such as Southern Pacific which lay the pipe
beside their railroad tracks, and then lease space on their
own fiber optic lines to the communications companies. Fiber
optic pipe makes up a substantial amount of Pacific's PE pipe
and tubing sales.
5. OTHER
The remainder of Pacific's PVC and PE products are made up of
specialty products. These include snow poles, Fiber SenSys
products used in security applications, and several new
products designed for the consumer market such as plastic
fencing and plastic lumber.
Sales and Marketing
Eagle has 13 independent sales representative companies, one factory
salesperson, and two inside sales/customer service representatives. Independent
sales representative companies are assigned geographic or product specific
territories. Eagle's sales representatives are concentrated in the Midwest and
Rocky Mountain States.
Pacific has a four person sales force, two inside sales/customer
service representatives, and four independent sales representative companies.
Pacific's independent sales representative companies are assigned geographic or
product specific territories. Pacific's sales organization concentrates its
efforts primarily in the Pacific Northwest, and through its dependent sales
representative companies in Alaska, California, and Colorado.
Eagle and Pacific's marketing efforts are led by David P. Schnase,
Eagle's Senior Vice President, sales and marketing. Joe Nelson is the Vice
President, sales and marketing for Pacific and David P. Schnase leads the sales
and marketing effort for Eagle. In addition, Larry D. Schnase, Eagle's Chief
Executive Officer, Charles B. Gray, Jr., Pacific's Vice President and General
Manager, and Mike Jones, Arrow Pacific's Vice President and General Manager,
also are actively involved in working with customers to meet their needs and in
establishing promotional sales programs. The Company believes its officers' and
managers' experience and reputation in the plastic pipe industry provide it with
a strong position in the market.
The Company has a broad group of customers. There were no sales to
customers in 1995 which accounted for more than 10% of total net sales of the
combined Company.
Manufacturing
All of the Company's manufacturing is performed at its facilities in
Hastings, Nebraska, Hillsboro, Oregon and Midvale, Utah. It has 34 extrusion
lines to produce its PE and PVC products. These extrusion lines are capable of
producing pipe from 1/2 inch to 15 inches in diameter. In producing its pipe,
the Company acquires its PVC and PE resins in bulk, mainly by rail car. In April
of 1991, Eagle purchased a compound center for PVC resin. Prior to its
acquisition, Eagle had to pay the resin manufacturer or an independent
compounder to compound Eagle's PVC resin. Compounding consists of precisely
mixing various waxes, colorants, UV protectants and lubricants to the base PVC
resin to create the appropriate compound resin for each extrusion application.
By performing its own PVC compounding, Eagle has been able to lower its raw
material costs.
PE material used by the Company 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 the
Company's own PE compounding.
Compounded resins are transported to the extrusion equipment directly
by a conveyer feeding system. Once the pipe is produced it is automatically
marked with the appropriate identification information and cut to the desired
length. Multiple warehousing and outdoor storage facilities are used to store
finished product. Inventory is shipped from such storage to customers by common
carrier or by vehicles of the Company for orders close to a manufacturing
facility.
At each phase of the manufacturing process the Company pays great
attention to quality and producing a consistent product. Every PE and PVC
product is thoroughly examined for compliance with standards of ASTM. The
Company has established a Quality Control Department and has its own testing lab
for both resin and finished goods quality assurance. As a result of these steps,
the Company believes very few defective finished products reach its customers.
The Company offers a wide variety of warranty programs on its products,
which have been provided ever since the particular product has been introduced
by the Company. These warranties apply to failures in pipe due to defects in
material or workmanship. Generally, warranties are for one year, however, the
Pure Core product has a fifty year warranty while Eagle Tough Turf Pipe has its
own unique lifetime warranty, which is valid as long as the original purchaser
owns his or her property where Eagle Tough Turf Pipe is installed. These
warranties extend in scope from replacement of the defective pipe to payment of
all costs of replacing the defective pipe, including labor. The Company
maintains product liability insurance to cover such warranty claims, but to
date, warranty reserves have been sufficient to cover warranty claims.
The Company acquired raw materials from various sources. During the
years ended December 31, 1995 and 1994, purchases of such raw materials from two
vendors totaled 72% and 74%, respectively, of total material purchases.
COMPETITION
Although there are many PE tubing and PVC pipe manufacturers that are
larger than the Company, most produce large diameter pipe (6 inch to 30 inch).
Among producers of small and medium diameter pipe (1/2 inch to 15 inch) like the
Company, the Company believes few have greater financial or other resources than
the Company. Because of the costs of shipping, competition is usually regional,
instead of national, in scope. Within its primary markets, the Company believes
it is the largest producer of PE tubing and PVC pipe. However, because extrusion
of plastic pipe is not a proprietary process, although equipment intensive,
there can be no assurance that current or new competitors will not obtain
financial resources sufficient to exceed those of the Company and thus intensify
competition. Finally, although the Company believes it has reduced the commodity
nature of its business, pricing pressure will continue and could affect the
Company's margins.
Employees
Employees of the Company. The Company currently employs two full-time
employees and one part-time employee.
Employees of Eagle. Eagle currently employs approximately 100 full-time
employees and five part-time employees. Of such employees nine are in
administration, three in sales and the rest in manufacturing, shipping and
maintenance.
Employees of Pacific. Pacific currently employs approximately 150
full-time employees. Of such employees, ten are in administration, six are in
sales and the rest are in production, shipping and maintenance.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company. The Company currently leases 1,542 square feet of space at
2430 Metropolitan Centre, Minneapolis, Minnesota for $2,335 per month. The
Company subleases approximately 356 square feet of this space to a nonaffiliate
for $539 per month plus $500 per month for office support services. This space
is adequate for the operation of the Company's business.
Eagle. Eagle presently owns real property that consists of a 19,500
square foot warehouse and 20,700 square feet of outdoor storage and also owns a
18,750 square foot asphalt paved outdoor storage area. In addition, Eagle is in
the process of building a 28,000 square foot polyethylene manufacturing
facility. Eagle rents approximately 60,000 square feet of space at 146 North
Maple Street, Hastings, Nebraska, which facility houses its corporate offices,
extrusion equipment and compounding facility. Included with this structure is
approximately 150,000 square feet of outdoor storage space. This lease extends
through June 30, 2010 and annual lease payments are $112,000 and are subject to
annual cost of living adjustments. Eagle also leases a 6,600 square foot
warehouse, a 850 square foot office building and 22,500 square feet of outdoor
storage next to its manufacturing facility under a triple net lease at $12,800
per annum which is subject to annual cost of living adjustments. This lease
extends through June 30, 2010. Finally, Eagle leases three additional warehouses
comprising 30,000 square feet 8 miles from its main facility. The lease payments
under this lease are $1,060 per month. The lease is on a month-to-month basis.
It is anticipated that the facilities owned or rented by Eagle are sufficient to
conduct Eagle's business in the foreseeable future.
Pacific. Pacific has operating facilities in Hillsboro, Oregon (the
"Oregon Facility") and Midvale, Utah (the "Utah Facility"). Pacific owns the
land, buildings and manufacturing equipment at the Oregon Facility, while it
owns only the manufacturing equipment at the Utah Facility. The Oregon Facility
is a brick and block construction built in 1969 with additions in 1983 and 1988.
The manufacturing building is approximately 46,570 square feet, and there are
two mobile offices adjacent to the manufacturing building which serve as the
executive and administrative offices. Adjacent to the plant are seven storage
silos for PVC and PE resin. The silos are accessed by a railroad spur which can
accommodate up to 10 rail cars. The Utah Facility is a brick, block and metal
building built in the early 1960s. The building is 21,630 square feet and also
contains administrative offices. The building and surrounding outdoor storage
area is leased by the Company under terms extending through December 31, 1997.
In addition, the Company has two additional four year lease renewal options
under the terms of the lease. The lease provides for monthly lease payments of
$5,705 and is subject to annual cost of living adjustments. Pacific is
responsible for all taxes, insurance and maintenance costs on the facility.
Adjacent to the manufacturing plant are three storage silos for PVC and PE
resin, which are accessible by a rail spur which can accommodate up to 10 rail
cars. Pacific also leases approximately two acres of storage area in Midvale
across the street from the plant. The lease payments under this lease are $500
per month. The lease is on a month-to-month basis. It is expected that the
facilities owned or rented by Pacific, along with currently available options
for expansion, are sufficient to conduct Pacific's business in the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceedings against it
or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On July 11, 1995, the Company's shareholders approved the change in the
Company's name from Black Hawk Holdings, Inc. to Eagle Pacific Industries, Inc.
The Company's Common Stock is currently traded on the Nasdaq Small Cap Market
under the symbol "EPII." Prior to September 6, 1994 when the Company became
listed on the Nasdaq Small Cap Market, the Company's Common Stock was traded on
the National Association of Securities Dealers Over-the-Counter Bulletin Board.
The Company's Series A Preferred Stock does not trade. The following table sets
forth the high and low bid prices for each fiscal quarter in 1995 and 1994.
High Low
Year ended December 31, 1995:
First quarter $3-1/2 $2-1/4
Second quarter 3-1/8 2
Third quarter 3-3/8 1-5/8
Fourth quarter 2-1/4 1-3/8
Year ended December 31, 1994:
First quarter 1-3/4 1-5/8
Second quarter 2-5/8 1-3/4
Third quarter 3-1/4 2-5/8
Fourth quarter 3-1/8 2-1/4
The bid quotations represent interdealer prices and do not include
retail markups, markdowns, or commissions and may not necessarily represent
actual transactions. At March 19, 1996, the Company had approximately 1,825
shareholders of record, and the bid and ask prices of its Common Stock were
2-1/8 and 2-3/16, respectively.
The Company 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 the Company'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 the Company on its
Series A 7% Convertible Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION:
The Company entered into a Stock Purchase Agreement in 1995 with the
shareholders (the "Sellers") of Pacific Plastics, Inc. ("Pacific") to purchase
all of the outstanding Common Stock of Pacific. The acquisition of the Pacific
Common Stock (the "Pacific Acquisition") was completed on July 10, 1995. The
total consideration for the Pacific Common Stock was $6,750,000: (i) $4,350,000
in cash; (ii) $1,700,000 in the form of a note to the Sellers; and (iii)
$700,000 worth of Company Common Stock. In addition, $750,000 in cash was paid
to certain sellers in exchange for their agreement not to compete with the
Company or Pacific.
Pacific, an Oregon corporation located in Hillsboro, Oregon, was established in
1967 and has a wholly owned subsidiary, Arrow Pacific Plastics, Inc. ("Arrow")
located in Midvale, Utah. (Discussion of Pacific herein shall include the
operations of Arrow.) Pacific extrudes PVC pipe and PE tubing products with its
primary market in the northwestern United States. Pacific offers a number of
pipe and tubing products in diameters from 1/2 inch through 15 inches. These
products are used for water irrigation and pressure pipe, fiber optic lines,
sewer and drain pipe and electronic and telephone duct.
As a result of the Pacific Acquisition, Pacific became a 100% owned subsidiary
of the Company and its financial performance is thus consolidated with the
Company's for financial reporting purposes for the period subsequent to the
acquisition. Cash funds for the Pacific Acquisition and payment for the
noncompetition agreements, and to refinance existing Pacific indebtedness, came
from debt provided by Bank of America, Oregon ("BofA"), Portland, Oregon. BofA
provided $6,448,836 as a revolving credit line ("Pacific Revolver") for Pacific
and $1,916,000 as a term loan ("Pacific Term Loan"). The Pacific Revolver
requires interest to be paid monthly at the rate of interest publicly announced
from time to time by Bank of America National Trust and Savings Association (the
"Reference Rate") plus .5%. The Pacific Revolver expires December 31, 1996, with
principal due at such time. The total availability under the Pacific Revolver is
$7,000,000, subject to borrowing base limitations. The Pacific Term Loan is due
on June 1, 2000, with interest payable monthly at the LIBOR Rate plus 2.75%.
Principal payments on the Pacific Term Loan are due quarterly in the amount of
$87,500 for the first 12 quarters starting September 1, 1995, and $212,500
quarterly thereafter, starting September 1, 1998. Both the Pacific Revolver and
the Pacific Term Loan are subject to a loan agreement containing standard
covenants, representations and warranties, are secured by all of the assets of
Pacific except real property and are guaranteed by the Company. At December 31,
1995, the Company was in violation of various of these covenants. The Company
received a waiver from the BofA for each violation.
The Sellers provided $1,700,000 of the total acquisition price in the form of
debt financing (the "Sellers' Notes"). The Sellers' Notes provide for 36 monthly
payments of principal and interest at a fixed rate of 9% per annum for aggregate
payments of approximately $54,059 per month. The Sellers' Notes are obligations
of Pacific secured by the stock of Pacific acquired by the Company and are
guaranteed by the Company.
The final portion of the purchase price was provided to the Selling Shareholders
through the issuance of $700,000 worth of Company Common Stock or 262,210
shares. The holders of such shares have the right, until the shares are
registered, 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 to the purchase of the Pacific Common Stock, the Company entered
into noncompetition agreements with two of the Sellers; Loyal Sorensen and
Jarred Thompson. Both agreements provide that neither of Messrs. Sorensen or
Thompson will compete with Pacific or the Company for five years and will
maintain any confidential information concerning Pacific. As consideration for
such noncompetition agreements, Messrs. Sorensen and Thompson received cash of
$400,000 and $350,000, respectively.
All of the proceeds from the BofA loans were used to pay the cash portion of the
Pacific Acquisition and noncompetition payments, and to refinance existing
Pacific indebtedness, along with certain expenses of the Pacific Acquisition.
Revenues from Pacific have provided it the ability to pay down the Revolver and
thus increase availability thereunder for future working capital needs of
Pacific.
As Pacific was not acquired by the Company until July 1995, the Company's
operating results are not comparable with prior years.
RESULTS OF OPERATIONS:
Year ended December 31, 1995 compared to 1994:
Net Sales - Net sales for the year ended December 31, 1995, were $51,330,000, an
increase of $17,254,000 over net sales of $34,076,000 for the year ended
December 31, 1994. The increase in sales is due to the acquisition of Pacific
and higher selling prices. Pro forma 1995 net sales were $69,495,000, an
increase of $5,389,000 over 1994 pro forma net sales. The increase in pro forma
net sales is due primarily to higher selling prices.
Gross Profit - Gross profit as a percentage of net sales was 18.3% for the year
ended December 31, 1995, compared to 28.2% for the year ended December 31, 1994.
Pro forma gross profits are 17.7% for 1995 and 25.3% for 1994. The primary
reason for the decline in the gross profit is fluctuating polyvinyl chloride
(PVC) and polyethylene (PE) raw material prices and the reaction of the plastic
pipe market to these price changes. During the first six months of 1995 raw
material prices increased, partly due to higher foreign demand. Since part of
the price increase was derived from foreign markets, the Company was not able to
fully offset the raw material price increases to its domestic customers. During
the most recent six-month period ended December 31, 1995, PVC and PE raw
material prices decreased significantly. To maintain its market share, the
Company was required to lower its prices at the same rate as raw material price
changes. As higher priced inventory was sold at the lower market prices, gross
profits decreased significantly.
Operating Expenses - Total operating expenses for the year ended December 31,
1995 were $7,680,000, compared to $5,703,000 for the year ended December 31,
1994. Selling expenses for the year ended December 31, 1995, increased
$1,479,000 when compared to 1994. The increase in selling expenses is primarily
due to the acquisition of Pacific and the increase in net sales described above.
The primary selling expenses, shipping and commissions, fluctuate in conjunction
with gross sales. General and administrative expenses increased by $498,000
during the year ended December 31, 1995, when compared to 1994. The increase in
general and administrative expenses is primarily due to the acquisition of
Pacific and higher expenses relating to professional and consulting services and
employee compensation. Pro forma 1995 and 1994 total operating expenses were
$10,055,000 and $9,210,000, respectively. The increase in pro forma total
operating expenses is due to the increase in selling expenses caused by the
increase in net sales.
Interest Expense - Interest expense increased by $690,000 during the year ended
December 31, 1995, when compared to the same period in 1994. The increase in
interest expense is primarily due to higher levels of borrowings primarily
related to the Pacific acquisition. Pro forma 1995 and 1994 interest expense
were $3,374,000 and $2,722,000, respectively. The increase in pro forma interest
expense is due to higher borrowings on the revolving credit loans during the
spring and summer of 1995 due to high accounts receivable and inventory levels.
Income Taxes - The income tax provisions for the years ended December 31, 1995
and 1994, were calculated based upon management's estimate of the annual
effective rates. The effective income tax rate for fiscal 1995 is lower than the
statutory rate because the Company's net operating losses could not be carried
back. The effective income tax rate for fiscal 1994 is lower than the statutory
rate as a result of a decrease in the deferred income tax valuation primarily
due to utilizing federal net operating loss carryforwards to offset current
federal taxable income.
Net (Loss) Income - The Company's net loss of $865,000 for the year ended
December 31, 1995, compared to the net income of 1,400,000 for the same period
in 1994 was primarily due to lower gross profit margins. The pro forma net loss
of $505,000 for 1995, compared to the net income of $3,809,000 for 1994 was also
primarily due to lower gross margins.
Year ended December 31, 1994 compared to 1993:
Net Sales - The Company had sales of $34,076,000 for the year ended December 31,
1994, compared with sales of $602,000 for the year ended December 31, 1993. The
increase in sales is due to the acquisition of Eagle. Pro forma 1993 sales were
$25,929,000. The increase in sales, comparing 1994 to 1993 pro forma amounts, is
primarily the result of increased sales volume.
Gross Profit - The Company had gross profits of $9,609,000 or 28.2% for the year
ended December 31, 1994, compared with a gross profit of $112,000 or 18.7%
during the year ended December 31, 1993. The increase in the gross profit is due
to the acquisition of Eagle. The Company normally experiences lower gross profit
margins in the first and fourth quarters of its fiscal year when there is less
demand for its products due to colder weather. During these quarters, Eagle
builds up inventory levels for the peak second and third quarters of its fiscal
year. Pro forma 1993 gross profit is $6,099,000 or 23.5%. The increase in the
gross profit as compared to 1994 amounts is primarily the result of increased
sales volume. The increase in the percentage of gross profit is primarily the
result of an increase in the price of products sold.
Operating Expenses - Total operating expenses for the year ended December 31,
1994, were $5,703,000 as compared to $799,000 for the year ended December 31,
1993. General and administrative expenses accounted for $1,846,000 in 1994 as
compared to $666,000 in 1993. Selling expenses accounted for $3,857,000 in 1994
as compared to $132,000 in 1993. The increase in both general and administrative
and selling expenses is due to the acquisition of Eagle. Pro forma 1993 total
operating expenses were $5,124,000. The increase in total operating expenses in
1994 actual as compared to 1993 pro forma is due to the increase in sales volume
of Eagle.
Interest Expense - The Company had interest expense of $2,243,000 for the year
ended December 31, 1994, as compared to $73,000 for the same period in 1993.
Interest expense relates primarily to debt secured to finance the acquisition of
Eagle and the amortization of the related original issue discount and deferred
financing costs. For the year ended December 31, 1994, $973,000 of interest
expense related to non-cash elements of the Blair debt as compared to $13,000 in
the year ended December 31, 1993. The increase is due to such debt being
outstanding for all of 1994. Included in interest expense for the year ended
December 31, 1994, is $629,000 for contingent interest pursuant to the lending
arrangement with Blair described above. Pro forma 1993 interest expense was
$1,615,000. The increase in interest expense in 1994 actual as compared to 1993
pro forma is due to 1993 pro forma interest expense not including contingent
interest.
Income Taxes - Income tax expense of $190,000 for the year ended December 31,
1994, relates to Nebraska state income tax and Federal alternative minimum tax
as the Company is able to offset federal regular taxable income with its net
operating loss carryforwards. No income tax expense was incurred for the year
ended December 31, 1993, as the Company incurred a loss for the year. The
Company had no pro forma 1993 income tax expense as the Company incurred a loss
on a pro forma basis.
Net (Loss) Income - The Company had net income of $1,400,000 for the year ended
December 31, 1994, as compared to a net loss of $888,000 for the same period in
1993. As the Company did not acquire Eagle until December 1993, these amounts
are not comparable. The Company incurred a net loss for 1993 of $1,042,000 on a
pro forma basis. Such pro forma 1993 net loss was a result of lower net profit
for Eagle in 1993 as compared to 1994 and the significant loss by the Company in
1993 as a result of not acquiring a revenue generating operation until December
17, 1993.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at December 31, 1995, was $451,000, a decrease of $3,525,000
from working capital of $3,976,000 at December 31, 1994. The decrease in working
capital is primarily a result of the Company paying $1,500,000 in cash and
paying $1,200,000 on a noninterest bearing note due September 1, 1995, in
connection with an agreement to fix the amount of the contingent interest due
under the subordinated debt agreement. The agreement also required the Company
to enter into a $970,000 noninterest bearing note due September 1, 1996, issue
210,000 shares of the Company's common stock, and issue warrants to purchase
100,000 shares of the Company's common stock at $3.00 per share.
Net cash flows provided by operating activities were $6,199,000 for the year
ended December 31, 1995, an increase of $5,361,000 over cash flows provided by
operating activities of $838,000 for the year ended December 31, 1995. The
increase is primarily due to decreases in accounts receivable and inventory
since the acquisition of Pacific.
Net cash flows used in investing activities totaled $6,003,000 and $735,000 for
the years ended December 31, 1995 and 1994, respectively. The increase is
primarily due to the acquisition of Pacific.
Net cash flows provided by financing activities total $107,000 for the year
ended December 31, 1995. The primary sources of cash were additional borrowings
on the Company's line of credit and the issuance of long-term debt totaling
$3,156,000, which were offset by payments on long-term debt and prepaid interest
totaling $2,899,000. Net cash flows used in financing activities totaled
$517,000 for the year ended December 31, 1994. The primary use of cash was
payments on long-term debt.
The Company has commitments for capital expenditures at Eagle related to
expanding its plant to increase capacity. The plant expansion will cost
approximately $1.3 million of which $615,000 has already been expended. The
Company is planning to fund the expansion through Eagle's revolving line of
credit, debt financing, and the sale of Company securities.
RECENT ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This Statement requires that assets to be held and
used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. An
impairment loss should be recognized when the estimated future undiscounted cash
flows from the asset are less than the carrying value of the asset. Assets to be
disposed of should be reported at the lower of their carrying amount or fair
value. This Statement is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company does not believe that the
adoption of this statement will have a material impact on results of operations
or financial position.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has elected to continue following the guidance of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for measurement and recognition of stock-based transactions with
employees. The Company will adopt the disclosure provisions of SFAS No. 123 in
1996.
FORWARD-LOOKING INFORMATION:
The discussion in this Annual Report contains forward-looking statements that
involve risks and uncertainties, and actual results could differ materially from
these expectations. In addition to those discussed herein, the factors that
could cause actual results to differ materially from such expectations include,
but are not limited to, the following: general economic conditions; weather
factors; resin price volatility; and the risks and factors described from time
to time in the Company's reports filed with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
INFLATION:
The Company does not believe that inflation has had a significant impact on the
results of its operations.
ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements and Schedules.
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
of Eagle Pacific Industries, Inc. and Subsidiaries
(formerly Black Hawk Holdings, Inc. and Subsidiaries)
We have audited the accompanying consolidated balance sheets of Eagle Pacific
Industries, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Eagle Pacific
Industries, Inc. and subsidiaries at December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Minneapolis, Minnesota
March 6, 1996 (April 1, 1996, as to the last paragraph of Note 5)
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY BLACK HAWK HOLDINGS, INC. AND SUBSIDIARIES)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 5) 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 303,043 $ -
Restricted cash (Note 5) 500,000 500,000
Accounts receivable, less allowance for doubtful accounts and
sale discounts of $157,900 and $105,000, respectively 6,322,387 4,018,700
Inventories (Note 3) 8,174,957 3,834,246
Other 153,118 43,167
------------- -------------
Total current assets 15,453,505 8,396,113
------------- -------------
PROPERTY AND EQUIPMENT, net (Note 4) 9,354,748 6,616,910
OTHER ASSETS:
Prepaid interest (Note 5) 2,907,880 -
Goodwill, less accumulated amortization of $172,092 and
$87,601, respectively 3,202,631 3,287,000
Deferred financing costs, less accumulated amortization of
$239,205 and $118,277, respectively 541,949 592,877
Non-compete agreement, less accumulated amortization of $26,500 (Note 2) 238,500 -
Cash value of life insurance 218,569 188,272
Other - 100,000
------------- -------------
7,109,529 4,168,149
------------- -------------
$ 31,917,782 $ 19,181,172
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 5) $ 5,521,505 $ 916,985
Accounts payable 5,252,683 2,038,490
Accrued liabilities 1,209,321 554,607
Current maturities of long-term debt (Note 5) 3,019,064 910,478
------------- -------------
Total current liabilities 15,002,573 4,420,560
------------- -------------
LONG-TERM DEBT, less current maturities (Note 5) 5,356,762 3,273,710
SUBORDINATED DEBT (Note 5) 6,386,750 6,152,750
DEFERRED INTEREST PAYABLE (Note 5) - 624,800
DEFERRED COMPENSATION (Note 6) 263,595 181,905
MINORITY INTEREST 333,027 497,074
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 8):
Series A preferred stock, 7% cumulative dividend; convertible; $2 liquidation
preference; no par value; authorized 2,000,000 shares;
issued and outstanding 1,383,500 shares 2,767,000 2,767,000
Undesignated stock, $.01 per share 18,000,000 shares authorized, none
issued and outstanding
Common stock, par value $.01 per share; authorized 30,000,000 shares;
issued and outstanding 4,152,940 and 3,583,230 shares, respectively 41,529 35,832
Additional paid-in capital 32,757,381 31,261,979
Unearned compensation on stock options (204,232) (306,348)
Accumulated deficit (30,786,603) (29,728,090)
------------- -------------
Total stockholders' equity 4,575,075 4,030,373
------------- -------------
$ 31,917,782 $ 19,181,172
============= =============
</TABLE>
See notes to consolidated financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY BLACK HAWK HOLDINGS, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
NET SALES $ 51,330,127 $ 34,076,224
COST OF GOODS SOLD 41,938,244 24,467,365
------------ ------------
Gross profit 9,391,883 9,608,859
------------ ------------
OPERATING EXPENSES:
Selling expenses 5,335,754 3,856,345
General and administrative expenses 2,344,284 1,846,170
------------ ------------
7,680,038 5,702,515
------------ ------------
OPERATING INCOME 1,711,845 3,906,344
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (2,932,563) (2,242,757)
Minority interest 55,297 (95,657)
Other income 136,597 22,504
------------ ------------
(2,740,669) (2,315,910)
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (1,028,824) 1,590,434
INCOME TAX (BENEFIT) EXPENSE (Note 9) (164,000) 190,000
------------ ------------
NET (LOSS) INCOME (864,824) 1,400,434
PREFERRED STOCK DIVIDENDS (193,689) (193,289)
------------ ------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (1,058,513) $ 1,207,145
============ ============
NET (LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary $ (0.27) $ 0.27
============ ============
Fully diluted $ (0.27) $ 0.24
============ ============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 3,899,587 4,507,321
Fully diluted 3,899,587 5,890,821
See notes to consolidated financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY BLACK HAWK HOLDINGS, INC. AND SUBSIDIARIES)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------------------
UNEARNED
SERIES A ADDITIONAL COMPENSATION
PREFERRED STOCK COMMON STOCK PAID-IN ON ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK OPTIONS DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1993 1,371,000 $2,742,000 3,566,563 $ 35,665 $30,803,682 $ - $(30,935,235) $2,646,112
Net income - - - - - - 1,400,434 1,400,434
Dividends on preferred
stock - - - - - - (193,289) (193,289)
Issuance of preferred
stock (Note 8) 12,500 25,000 - - - - - 25,000
Issuance of common
stock (Note 8) - - 16,667 167 49,833 - - 50,000
Common stock options
granted (Note 8) - - - - 408,464 (408,464) -
-
Common stock options
vested (Note 8) - - - - - 102,116 - 102,116
--------- ----------- --------- -------- ----------- ---------- ------------ ----------
BALANCE AT
DECEMBER 31, 1994 1,383,500 2,767,000 3,583,230 35,832 31,261,979 (306,348) (29,728,090) 4,030,373
Net loss - - - - - - (864,824) (864,824)
Dividends on preferred
stock - - - - - - (193,689) (193,689)
Issuance of common
stock (Note 8) - - 569,710 5,697 1,495,402 - - 1,501,099
Common stock options
vested (Note 8) - - - - - 102,116 - 102,116
--------- ----------- --------- -------- ----------- ---------- ------------ ----------
BALANCE AT
DECEMBER 31, 1995 1,383,500 $ 2,767,000 4,152,940 $ 41,529 $32,757,381 $(204,232) $(30,786,603) $4,575,075
========= =========== ========== ======== =========== =========== ============= ==========
</TABLE>
See notes to consolidated financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY BLACK HAWK HOLDINGS, INC. AND SUBSIDIARIES)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (864,824) $ 1,400,434
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Minority interest (55,297) 95,657
Increase in deferred interest payable - 624,800
(Gain) loss on disposal of fixed assets (544) 265
Depreciation and amortization 1,336,410 1,038,040
Loan discount amortization 345,170 234,000
Prepaid interest amortization 735,619 -
Change in assets and liabilities, net of acquisition:
Accounts receivable - decrease (increase) 2,040,037 (1,004,214)
Inventories - decrease (increase) 4,883,583 (902,013)
Other current assets - decrease (increase) 129,341 (17,670)
Accounts payable - decrease (2,227,281) (599,700)
Accrued liabilities - decrease (111,644) (31,693)
Other (11,125) -
-------------- --------------
Net cash provided by operating activities 6,199,445 837,906
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Pacific Plastics, Inc. net of cash acquired (4,195,035) -
Purchases of property and equipment (1,171,689) (748,806)
Payment under noncompete agreement (750,000) -
Proceeds from property and equipment disposals 13,425 13,312
Decrease in other assets 100,000 -
-------------- --------------
Net cash used in investing activities (6,003,299) (735,494)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable, net $ 1,194,284 $ 416,985
Proceeds from long-term debt 1,961,624 -
Payment for prepaid interest (1,500,000) -
Repayment of long-term debt (1,399,072) (815,812)
Issuance of common stock 43,750 50,000
Issuance of preferred stock, net of offering costs - 25,000
Payment of preferred stock dividend (193,689) (193,289)
-------------- --------------
Net cash provided by (used in) financing activities 106,897 (517,116)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 303,043 (414,704)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR - 414,704
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 303,043 $ -
============== ==============
</TABLE>
See notes to consolidated financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY BLACK HAWK HOLDINGS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - On July 11, 1995, the
Company's shareholders approved the change in the Company's name from
Black Hawk Holdings, Inc. to Eagle Pacific Industries, Inc. The
consolidated financial statements include the accounts of Eagle Pacific
Industries, Inc. and its subsidiaries (the Company). The Company owns
100% of Pacific Plastics, Inc. and its wholly-owned subsidiary, Arrow
Pacific Plastics, Inc. (Pacific), Black Hawk Financial Corp. , and
Liberty Food Distributors, Inc., of which the latter two are currently
inactive, and 91.83% of Eagle Plastics, Inc. (Eagle). All significant
intercompany accounts and transactions have been eliminated.
The minority interest shown in the consolidated financial statements
represents the outside stockholders' 8.17% interest in the common equity
of Eagle.
Cash and 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.
Goodwill - Goodwill has been recorded for the excess of the purchase
price over the fair value of the net assets acquired 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 of Eagle.
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. The carrying value of all other financial
instruments approximate fair value due to the short term nature of the
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 his or her property where this product is installed. The Company
has established an accrual for these anticipated future warranty costs.
Sales - Sales are recorded at the time of shipment of the product.
Income Taxes - The Company utilizes the asset and liability method of
accounting for income taxes as set forth in Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax basis of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Net (loss) income per common share - Primary (loss) income per common
and common equivalent share was computed by dividing net (loss) income
by the weighted average number of shares of common stock and common
stock equivalents outstanding. Common stock equivalents in 1994 result
from the assumed exercise of stock options and warrants using the
modified treasury stock method. Such method assumes the exercise of all
dilutive options and warrants and the application of the aggregate
proceeds as if the funds were first applied to the repurchase of 20% of
the outstanding common shares and the remaining balance of the funds
were applied to reduce short- or long-term borrowings. Common stock
equivalents were not used in 1995 as their effect would have been
antidilutive because of the net loss. Fully diluted earnings per common
and common equivalent share for the year ended December 31, 1994 was
computed based on the assumed exercise of stock options and warrants
using the modified treasury stock method and the assumed conversion of
the Series A preferred stock.
Estimates - The preparation of the financial statments 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, 1995 and 1994, purchases of
such raw materials from two vendors totaled 72% and 74%, respectively,
of total material purchases.
New Accounting Standards - In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. This Statement requires that assets to be held and used be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying of an asset may not be recoverable. An
impairment loss should be recognized when the estimated future cash
flows from the asset are less than the carrying value of the asset.
Assets to be disposed of should be reported at the lower of their
carrying amount or fair value. This Statement is effective for
financial statements for fiscal years beginning after December 15,
1995. The Company does not believe that the adoption of this statement
will have a material impact on results of operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue following
the guidance of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, for measurement and recognition of
stock-based transactions with employees. The Company will adopt the
disclosure provisions of SFAS No. 123 in 1996.
Reclassifications - Certain reclassifications have been made to the 1994
consolidated financial statements to conform to the 1995 presentation.
Such reclassifications had no effect on net income 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 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 noncompetition
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. The Revolver requires interest to be paid
monthly at the bank's reference rate, as defined, plus .5%. The Revolver
expires December 31, 1996. The Term Loan is due on June 1, 2000, with
interest payable monthly at the LIBOR rate, plus 2.75%. Principal
payments on the Term Loan are due quarterly in the amount of $87,500 for
the first 12 quarters starting September 1, 1995, and $212,500
quarterly, thereafter, starting September 1, 1998. Both the Revolver and
the Term Loan are subject to a loan agreement containing standard
covenants, representations and warranties, are secured by all of the
assets of Pacific and its subsidiary, except real property, and are
guaranteed by the Company. At December 31, 1995, the Company was in
violation of various of these covenants. The Company received a waiver
from the respective lenders for each violation.
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
an obligation of Pacific, secured by the stock of Pacific acquired by
the Company and 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
noncompete agreements. Such contracts provide for base salary and
standard benefits. In consideration for entering into such employment
contracts, the Company granted each seller stock options to purchase
100,000 shares of the Company's common stock at $3.125 per share.
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 statements of
operations reflect the combined operations of the Company and Pacific
for the years ended December 31, 1995 and 1994, as if the acquisition
had occurred at the beginning of 1994. The unaudited pro forma condensed
combined statements 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 1994
----- ----
<S> <C> <C>
Revenues $69,495,000 $64,106,000
Gross profit 12,302,000 16,249,000
Net (loss) income (505,000) 3,809,000
Net (loss) income applicable to common stock (699,000) 3,616,000
Net (loss) income per common share $(.18) $.76
3. INVENTORIES
1995 1994
---- ----
Raw materials $2,485,546 $ 978,660
Finished goods 5,689,411 2,855,586
--------- ---------
$8,174,957 $3,834,246
========== ==========
4. PROPERTY AND EQUIPMENT
USEFUL LIFE 1995 1994
---- ----
Land $ 495,664 $ 150,000
Buildings and leasehold improvements 5-31 years 1,364,752 574,416
Machinery and equipment 3-15 years 7,955,641 6,346,275
Transportation equipment 5 years 341,447 60,425
Furniture and fixtures 5-8 years 405,748 246,104
Construction-in-progress 615,298 -
-------------- ---------------
11,178,550 7,377,220
Less accumulated depreciation 1,823,802 760,310
-------------- ---------------
$ 9,354,748 $ 6,616,910
============== ===============
</TABLE>
5. DEBT
At December 31, 1995, Eagle and Pacific had aggregate outstanding
borrowings of $5,521,505 under their revolving credit loan agreements
which are each $7,000,000 subject to borrowing base restrictions. Each
company may borrow up to 80% of "eligible" accounts receivable, as
defined, and 50% of "eligible" inventory, as defined. At December 31,
1995, the Company had additional aggregate borrowings available of
approximately $2,500,000 which is limited by the borrowing base
calculation. Pacific's and Eagle's revolving credit loans expire
December 31, 1996 and December 16, 1998, respectively. Pacific's and
Eagle's interest is payable monthly at the bank's national base rate
plus .5% (9.0% at December 31, 1995) and the bank's national base rate
(8.5% at December 31, 1995), respectively. The weighted average interest
rate at December 31, 1995 and 1994 was 8.8% and 8.5% respectively. The
agreements also include a commitment fee of .20% of the unused portion
of the credit loan, payable quarterly. In connection with securing the
line of credit at Eagle, the Company was required to place $500,000 in
an escrow account. This escrow account has been shown as restricted cash
on the consolidated balance sheets. At December 31, 1994, Eagle had
outstanding borrowings of $916,985.
The revolving credit loans are secured by substantially all assets of
the Company. Until all obligations of the revolving credit loans and
term notes are paid in full, the Company must comply with certain
covenants outlined in the loan agreements. The covenants include, but
are not limited to, maintenance of net working capital of $1,000,000; a
ratio of liabilities, excluding subordinated debt, to net worth, as
defined, of not more than 2.40 to 1.0; a debt service coverage ratio of
not less than 1.10 and prior approval by the lender for declaring
dividends.
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Term promissory note (A) $ 3,278,334 $ 4,184,188
Subordinated promissory note (B) 6,386,750 6,152,750
Term promissory note (C) 1,741,000 -
Term promissory note (D) 1,486,698 -
Note payable (E) 909,942 -
Various installment notes payable (F) 959,852 -
--------------- --------------
14,762,576 10,336,938
Less current maturities 3,019,064 910,478
--------------- --------------
$ 11,743,512 $ 9,426,460
============= =============
</TABLE>
(A) Due December 16, 1998; payable $102,583 monthly, including
interest at 8.5% until December 1996 and at a rate equal to
the two-year U.S. Treasury rate in effect on December 17, 1996
plus 4% thereafter. Secured by substantially all assets of
Eagle and subject to the terms and covenants of the credit
loan agreement outlined above.
(B) Due December 31, 2001; payable $500,000 quarterly beginning
March 31, 1999 with a final installment of $2,000,000 on
December 31, 2001, including interest at 10.4%. This
promissory note is subordinated in payment to the Company's
line of credit and term promissory note. This agreement
requires Eagle to maintain the same debt service coverage and
interest coverage ratios of the revolving credit loan.
Original issue discount (OID) of $1,590,000 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, 1995 and 1994,
unaccreted OID was $1,113,250 and $1,347,250, respectively.
Pursuant to the terms of the Subordinated Note, after January
1, 1999, the lendor was entitled to receive one or more
contingent interest payments based upon the profitability of
Eagle. The maximum aggregate amount of the contingent interest
payments was to be 87.5% of Eagle's 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 lendor whereby the
contingent interest requirement was extinguished in exchange
for: (i) $1,500,000 in cash, which came from a draw on the
Eagle revolving credit line; (ii) $1,200,000 paid on September
1, 1995; (iii) $970,000 to be 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 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 June 1, 2000; payable quarterly in the amount of $87,500
for the first 12 quarters starting September 1, 1995, and
$212,500 quarterly, thereafter, starting September 1, 1998.
Interest is payable monthly at the LIBOR rate plus 2.75%.
Secured by substantially all assets of Pacific.
(D) Due August 1, 1998; payable $54,059 monthly, including
interest at 9%. Secured by the stock of Pacific and is
guaranteed by the Company.
(E) Due September 1, 1996, in the amount of $970,000, including
imputed interest at 10.7%.
(F) Due dates ranging from March, 1997 through July, 2001,
initially payable $26,092 monthly, including interest at 7.5
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>
1995 1994
---- ----
<S> <C> <C>
Current maturities of long-term debt $ 3,019,064 $ 910,478
Long-term debt, less current maturities 5,356,762 3,273,710
Subordinated debt 6,386,750 6,152,750
--------- ---------
$14,762,576 $10,336,938
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1995 are:
1996 $ 3,019,064
1997 2,254,722
1998 2,418,891
1999 2,647,417
2000 2,021,999
Thereafter 3,513,733
----------------
15,875,826
Less unamortized original issue discount 1,113,250
----------------
$ 14,762,576
================
At December 31, 1995, the Company was in violation of various of the
debt covenants. The Company received a waiver from the respective
lenders for each violation.
6. DEFERRED COMPENSATION
The Company previously adopted a plan of deferred compensation for a
former officer of the Company. Under this plan, the officer will receive
$50,000 per year for three years commencing when the Company's annual
net income per share equals or exceeds $1.00.
The Company also has an unfunded deferred compensation agreement which
provides upon retirement approximately $570,000. The present value at
retirement of total estimated deferred compensation is being accrued
over the remaining years of employment to the full eligibility date.
7. COMMITMENTS AND CONTINGENCIES
Litigation - The Company is periodically involved in various legal
actions arising in the normal course of business. At December 31, 1995,
the Company is not aware of any material legal proceedings against it or
its subsidiaries.
Leases - The Company has noncancelable operating leases for office space
which expire in June 1998 and for certain operating facilities which
expire in the years 1997 and 2010. The office lease requires payment of
a proportionate share of real estate taxes and building operating
expenses. The operating facility leases contain provisions for
increasing the monthly rent for changes in the Consumer Price Index, and
the lease expiring in 1997 includes two renewal options for a period
from 1998 through 2005.
Future minimum lease payments at December 31, 1995 were:
1996 $ 221,000
1997 221,000
1998 139,000
1999 125,000
2000 125,000
Thereafter 1,187,000
-------------
$ 2,018,000
Rent expense under all operating leases was $234,000 and $166,000 for
the years ended December 31, 1995 and 1994, respectively. During 1995
and 1994, the Company received $6,000 and $15,000, respectively, of
sublease income. This sublease income has reduced the Company's rent
expense.
8. STOCKHOLDERS' EQUITY
The Company issued 12,500 shares of Series A convertible preferred stock
at $2.00 per share during the year ended December 31, 1994. 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 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 Eagle stock and
the exercise of stock warrants, respectively. During 1994, the Company
issued 16,667 shares of common stock in connection with the purchase of
equipment.
The Company's subsidiary, Eagle, has previously granted options to
purchase 600,000 shares of Eagle's 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 is December 1994
through December 1997. If such options are exercised, the Company's
ownership of Eagle would decrease to 84.39%.
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995 and
1994 consists of the following:
1995 1994
---- ----
Current:
Federal $ - $ 50,000
State (164,000) 140,000
---------- ---------
(164,000) 190,000
Deferred: - -
---------- ---------
$ (164,000) $ 190,000
========== =========
Differences between the provisions for income taxes at the federal
statutory rate and the recorded provisions for the years ended December
31, 1995 and 1994 are summarized as follows:
1995 1994
---- ----
Income tax (benefit) expense at
statutory rate $ (362,000) $ 560,000
State income taxes (222,000) 180,000
Change in valuation allowance 407,000 (570,000)
Other 13,000 20,000
---------- ----------
$ (164,000) $ 190,000
========== ==========
As of December 31, 1995, the Company had net operating loss
carryforwards for federal tax purposes of approximately $44,400,000.
Utilization of these carryforwards may be limited by applicable tax
regulations, in particular, Section 382 of the Internal Revenue Code,
and these carryforwards expire as follows during years ending December
31 if not utilized to reduce future taxable income:
1997 $10,100,000
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 400,000
Net deferred tax assets at December 31, 1995 and 1994 are comprised of
the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
Current:
<S> <C> <C>
Warranty reserve $ 15,000 $ 8,000
Allowance for doubtful accounts 67,000 41,000
Accrued expenses 154,000 40,000
Prepaid expenses 12,000 5,000
Less valuation allowance (248,000) (94,000)
---------------- -----------------
Net current tax benefit of temporary differences $ - $ -
================ =================
Noncurrent:
LIFO inventory recapture $ (599,000) $ -
Deferred compensation 207,000 115,000
Excess of book over tax depreciation (951,000) (750,000)
Noncompete agreement 208,000 -
Deferred interest payable - 245,000
Federal net operating loss carryforwards 15,181,000 15,054,000
Federal capital loss carryforward 366,000 366,000
State net operating loss carryforward 51,000
Tax credit carryforward 488,000 536,000
Other 30,000 9,000
Less valuation allowance (14,981,000) (15,575,000)
---------------- ----------------
Net noncurrent tax benefit of temporary differences $ - $ -
================ ================
</TABLE>
10. RETIREMENT PLAN
The Company has a 401(k) plan covering substantially all employees of
Eagle. 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 immediately and
in the Company's contributions at the end of three years. Total amounts
contributed by the Company were $58,999 and $112,942 for the years ended
December 31, 1995 and 1994, respectively.
11. STOCK OPTION PLANS
The Company has a 1989 and a 1991 stock option plan which provides for
the granting of incentive or nonqualified stock options to officers and
key employees at an exercise price equal to or less than the fair market
value of the shares at the date of grant. Stock option transactions
under both plans are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Shares under option at December 31:
<S> <C> <C>
Number of shares 198,400 207,250
Option prices per share $.64 - $3.06 $.64 - $2.50
Shares exercisable 194,000 168,250
During the year:
Options granted 2,400 18,000
Grant price per share $3.06 $1.75
Options exercised - -
Options lapsed 11,250 -
Exercise prices per share $1.25 - $2.25 -
</TABLE>
In addition, the Company and its subsidiaries have outstanding stock
options and warrants issued outside the stock option plans described
above. A summary of shares outstanding and activity for the years ended
December 31, 1995 and 1994, including the 600,000 shares discussed in
Note 8, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Outstanding at December 31:
Number of shares 2,085,438 1,500,438
Option prices per share $.34 - $4.00 $.34 - $4.00
Shares exercisable 1,494,938 712,688
During the year:
Shares granted 610,000 36,000
Grant price per share $2.50 - $3.13 $1.75
Shares exercised 25,000 -
Shares lapsed - 30,000
Exercise prices per share $1.75 $.34 - $2.00
</TABLE>
12. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Noncash investing and financing activities:
Issuance of notes payable in connection with the
agreement to fix the contingent interest $ 1,985,325 $ -
Issuance of common stock in connection with the
agreement to fix the contingent interest 642,600 -
Value of warrants issued in connection with the
agreement to fix the contingent interest 6,000 -
Issuance of common stock in connection with the
acquisition of Pacific 700,000 -
Issuance of notes payable in connection with the
acquisition of Pacific 1,700,000 -
Issuance of common stock to acquire additional
shares of Eagle 108,750 -
Additional cash information:
Interest paid, including prepaid interest
to fix the contingent interest $ 3,311,987 $ 1,664,371
Income taxes (refunded) paid (121,400) 224,700
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by Item 9 relating to directors is
incorporated by reference to the section labeled "Election of Directors" and the
information relating to section 16(a) of the Exchange Act is incorporated by
reference to the section labeled "Compliance with section 16(a) of the
Securities Exchange Act," which sections appear in the Registrant's definitive
Proxy Statement for its 1996 annual meeting.
The names, ages and positions of the executive officers of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harry W. Spell 72 Chairman of the Board and Chief Executive Officer
William H. Spell 39 President, Chief Operating Officer and Director
Bruce A. Richard 65 Vice Chairman of the Board, Secretary, Treasurer, and Director
Patrick M. Mertens 32 Chief Financial Officer
</TABLE>
Harry W. Spell has been Chairman of the Board and CEO of the Company
since January 1992. In addition, Mr. Spell is the Chairman of the Board of
Discus Corporation, which during 1995 completed the leveraged buyout of Peerless
Chain, Inc. Peerless is a manufacturer of chain and wire form products with over
$45 million of sales in 1995. Previously, Mr. Spell was involved with the
acquisitions of a specialty food products company and a manufacturer of various
clothing sportswear. He was employed by Northern States Power, a Fortune 500
company, from 1949 until August 1988 when he reached the mandatory retirement
age of 65 and he retired from all positions at Northern States Power Company.
Mr. Harry Spell was Senior Vice President, Finance and Chief Financial Officer
of Northern States Power Company from May 1983 until April 1988. Mr. Harry Spell
currently serves as a director of Appliance Recycling Centers of America, Inc.
and Discus Acquisition Corporation, as well as several private organizations.
William H. Spell has been President and a director of the Company since
January 1992. In addition, Mr. Spell is the Chief Executive Officer and a
Director of Discus Acquisition Corporation, which during 1995 completed the
leveraged buyout of Peerless Chain, Inc. Peerless is a manufacturer of chain and
wire form products with over $45 million of sales in 1995. Previously, Mr. Spell
was involved with the acquisitions of a specialty food products company and a
manufacturer of various clothing sportswear. From 1981 through 1988, Mr. Spell
was vice president and director of corporate finance at John G. Kinnard & Co., a
regional investment banking firm located in Minneapolis. Mr. Spell serves as a
director of Discus Acquisition Corporation and Garment Graphics, Inc. as well as
several private organizations. 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 the Company since March of
1992, Secretary, Treasurer since the Summer of 1993 and Vice Chairman since
February 1996. He also served as Chief Financial Officer of the Company from
mid-1993 to February 1996. In addition, Mr. Richard is the Chief Financial
Officer of Discus Acquisition Corporation, which during 1995 completed the
leveraged buyout of Peerless Chain, Inc. Peerless is a manufacturer of chain and
wire form products with over $45 million of sales in 1995. As a member of the
Spell Investment Group, Mr. Richard has been involved in numerous acquisitions
and investment activities. 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.
Patrick M. Mertens, who came to the Company last May as Controller of
Eagle Plastics, was recently promoted to Chief Financial Officer. From 1986 to
May of 1991, he was a Senior Auditor, specializing in manufacturing clients, for
Baird, Kurtz & Dobson, CPA's. During his tenure at Baird, Kurtz & Dobson, Mr.
Mertens was in charge of the annual audit for Eagle Plastics, Inc. 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.
Harry W. Spell is William H. Spell's father.
ITEM 10. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" in
the Registrant's definitive Proxy Statement for its 1996 annual meeting is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of
Principal Shareholders and Management" in the Registrant's definitive Proxy
Statement for its 1996 annual meeting is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Executive Compensation -
Certain Relationships and Related Transactions" in the Registrant's definitive
Proxy Statement for its 1996 annual meeting is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. See "Exhibit Index" immediately following the
signature page of this Form 10-KSB.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the last quarter of the Registrant's 1995 fiscal year.
SIGNATURES
Pursuant to the Requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
March 20, 1996 on its behalf by the undersigned, thereunto duly authorized.
EAGLE PACIFIC INDUSTRIES, INC.
March 20, 1996 By/s/ Harry W. Spell
------------------
Harry W. Spell, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
HARRY W. SPELL and WILLIAM H. SPELL his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
March 20, 1996 By/s/ Harry W. Spell
------------------
Harry W. Spell, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
March 20, 1996 By/s/ Patrick M. Mertens
----------------------
Patrick M. Mertens
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 20, 1996 By/s/ William H. Spell
--------------------
William H. Spell, Director
March 20, 1996 By/s/ George R. Long
------------------
George R. Long, Director
March 20, 1996 By/s/ Richard W. Perkins
----------------------
Richard W. Perkins, Director
March 20, 1996 By/s/ Bruce A. Richard
--------------------
Bruce A. Richard, Director
March 20, 1996 By/s/ Larry D. Schnase
--------------------
Larry D. Schnase, Director
March 20, 1996 By/s/ G. Peter Konen
------------------
G. Peter Konen, Director
EXHIBIT INDEX
TO
FORM 10-KSB FOR 1995 FISCAL YEAR
EAGLE PACIFIC INDUSTRIES, INC.
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of the Registrant, as amended to date
(Incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 - File No. 0-18050)
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-4 -
File No. 33-29511)
10.1 Registrant's 1989 Stock Option Plan (Incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-4 - File No. 33-29511)*
10.2 Form of Incentive Stock Option Agreement used under 1989 Stock
Option Plan (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-4 - File No.
33-29511)*
10.3 Form of Nonqualified Stock Option Agreement used under 1989
Stock Option Plan (Incorporated by reference to Exhibit 10.3 to
Registrant's Registration Statement on Form S-4 - File No.
33-29511)*
10.4 Registrant's 1991 Stock Plan (Incorporated by reference to
Exhibit 10.22 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1992 - File No. 0-18050)*
10.5 Lease Agreement dated May 31, 1992, with MET-MINNEAPOLIS VENTURE
for property at 2430 Lincoln Centre (Incorporated by reference
to Exhibit 10.11 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1993 - File No. 0-18050)
10.6 Sublease Agreement dated May 1, 1992 with Denver Kaufman for
property at 2430 Lincoln Centre (Incorporated by reference to
Exhibit 10.12 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993 File No. 0-18050)
10.7 Loan Agreement for Revolving Loan and Five-year Term Loan dated
December 17, 1993 between Registrant, Eagle Plastics, Inc. and
FirsTier Bank, National Association (Incorporated by reference
to Exhibit 10.1 to the Registrant's Form 8-K dated December 17,
1993 - File No. 0-18050)
10.8 Revolving Loan Note dated December 17, 1993 in the principal
amount of $7,000,000 to the order of FirsTier Bank, National
Association (Incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.9 Term Loan Note dated December 17, 1993 in the principal amount
of $5,000,000 to the order of FirsTier Bank, National
Association (Incorporated by reference to Exhibit 10.3 to the
Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.10 Assignment of Leases dated December 17, 1993 between Eagle
Plastics, Inc. and FirsTier Bank, National Association regarding
Lease Agreements between: Eagle Plastics, Inc. and Midstate
Industrial Company dated July 14, 1992; Eagle Plastics, Inc. and
Jerrold C. Kerr dated May 31, 1990; and Eagle Plastics, Inc. and
Kerr-Cochran, Inc. dated May 31, 1990; which leases cover the
corporate offices, manufacturing facility and storage areas of
Eagle Plastics, Inc. and are attached to the Assignment of
Leases agreement as Exhibit A (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 8-K dated December 17,
1993 - File No. 0-18050)
10.11 Pledge Agreement between Registrant, Eagle Plastics, Inc. and
FirsTier Bank, National Association dated December 17, 1993
regarding pledge of Eagle Plastics, Inc. assets to secure loans
to FirsTier Bank (Incorporated by reference to Exhibit 10.5 to
the Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.12 Intercreditor and Subordination Agreement dated December 17,
1993 between William Blair Mezzanine Capital Fund, L.P.,
FirsTier Bank National Association, Registrant and Eagle
Plastics, Inc. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.13 Tax Sharing Agreement between Registrant and Eagle Plastics,
Inc. dated December 17, 1993 (Incorporated by reference to
Exhibit 10.7 to the Registrant's Form 8-K dated December 17,
1993 - File No. 0-18050)
10.14 Amended and Restated Management Services Agreement between
Registrant and Eagle Plastics, Inc. dated March 15, 1995
(Incorporated by reference to Exhibit 10.14 to the Registrant's
Form 10-KSB for the fiscal year ended December 31, 1994 - File
No. 0-18050)
10.15 Guarantee dated March 16, 1995 by Registrant to secure payment
of William Blair Mezzanine Capital Fund, L.P. Senior
Subordinated Debenture (Incorporated by reference to Exhibit
10.6 to the Registrant's Form 10-KSB for the fiscal year ended
December 31 1994 - File No. 0-18050)
10.16 Restated Employment Agreement with William H. Spell dated
January 1, 1995 (Incorporated by reference to Exhibit 10.8 to
the Registrant's Form 10-KSB for the fiscal year ended December
31, 1994 - File No. 0-18050)*
10.17 Restated Employment Agreement between George Peter Konen and
Eagle Plastics, Inc. dated January 1, 1995 (Incorporated by
reference to Exhibit 10.19 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1994 - File No. 0-18050)*
10.18 Deferred Compensation Agreement between Larry Schnase and Eagle
Plastics, Inc. dated December 17, 1993 (Incorporated by
reference to Exhibit 10.14 to the Registrant's Form 8-K dated
December 17, 1993 - File No. 0-18050)*
10.19 Eagle Stock Agreement dated December 17, 1993 regarding Eagle
Plastics, Inc. Common Stock held by minority shareholders and
option holders (Incorporated by reference to Exhibit 10.16 to
the Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.20 Eagle Plastics, Inc. Stock Option Plan (Incorporated by
reference to Exhibit 10.17 to the Registrant's Form 8-K dated
December 17, 1993 - File No. 0-18050)*
10.21 Contract between Union Carbide Corporation and Eagle Plastics,
Inc. (Incorporated by reference to Exhibit 10.24 to the
Registrant's Form 10-KSB for the fiscal year ended December 31,
1994 - File No. 0-18050)
10.22 Amendment dated January 1, 1996 to Contract between Vista
Chemical Company and Eagle Plastics, Inc. (Confidential
treatment has been requested on portions of this document)
10.23 Sales Agreement dated January 1, 1996 between Vista Chemical
Company and Arrow Pacific, Inc. (Confidential treatment has been
requested on portions of this document)
10.24 Contract dated December 29, 1995 between Shintech Inc. and the
Registrant (Confidential treatment has been requested on
portions of this document)
10.25 Business Loan Agreement for Revolving Loan and Term Loan dated
July 10, 1995 between Bank of America Oregon, Pacific Plastics,
Inc. and Arrow Pacific Plastics, Inc. (Incorporated by reference
to Exhibit 10.1 to Registrant's Form 8-K dated July 10, 1995 -
File No. 0-18050)
10.26 Form of Agreement by and among the Registrant, Pacific Plastics,
Inc., Pacific Acquisition Corp., Loyal Sorensen and Jarred
Thompson. (Incorporated by reference to Exhibit 10.2 to
Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)
10.27 Form of Acknowledgement of Closing by and among the Registrant,
Pacific Plastics, Inc., Loyal Sorensen and Jarred Thompson
(Incorporated by reference to Exhibit 10.3 to Registrant's Form
8-K dated July 10, 1995 File No. 0-18050)
10.28 Security Agreement dated July 10, 1995 between Pacific Plastics,
Inc. and Bank of America Oregon (Incorporated by reference to
Exhibit 10.4 to Registrant's Form 8-K dated July 10, 1995 - File
No. 0-18050)
10.29 Security Agreement dated July 10, 1995 between Arrow Pacific
Plastics, Inc. and Bank of America Oregon (Incorporated by
reference to Exhibit 10.5 to Registrant's Form 8-K dated July
10, 1995 - File No. 0-18050)
10.30 Continuing Guaranty dated July 10, 1995 of Registrant in favor
of Bank of America Oregon (Incorporated by reference to Exhibit
10.6 to Registrant's Form 8-K dated July 10, 1995 - File No.
0-18050)
10.31 Tax Sharing Agreement between Registrant and Pacific Plastics,
Inc. dated July 10, 1995 (Incorporated by reference to Exhibit
10.7 to Registrant's Form 8-K dated July 10, 1995 - File No.
0-18050)
10.32 Management Services Agreement between Registrant and Pacific
Plastics, Inc. dated July 10, 1995 (Incorporated by reference to
Exhibit 10.8 to Registrant's Form 8-K dated July 10, 1995 - File
No. 0-18050)
10.33 Management Services Agreement between Eagle Plastics, Inc. and
Pacific Plastics, Inc. dated July 10, 1995 (Incorporated by
reference to Exhibit 10.9 to Registrant's Form 8-K dated July
10, 1995 - File No. 0-18050)
10.34 Promissory Note and Stock Pledge Agreement dated July 10, 1995
between Arrow Pacific Plastics, Inc., former shareholders,
Registrant and Pacific Plastics, Inc. (Incorporated by reference
to Exhibit 10.14 to Registrant's Form 8-K dated July 10, 1995 -
File No. 0-18050)
10.35 Registration Rights Agreement dated July 10, 1995 between the
Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson
and Sharron Thompson (Incorporated by reference to Exhibit 10.15
to Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)
10.36 Plan of Recapitalization dated March 16, 1995 among Registrant,
William Blair Mezzanine Capital Fund, L.P. ("Blair") and Eagle
Plastics, Inc. ("Eagle") (Incorporated by reference to Exhibit
10.29 to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1994 - File No. 0-18050)
10.37 Debenture Acquisition Agreement dated March 16, 1995 among
Registrant, Blair and Eagle (Incorporated by reference to
Exhibit 10.28 to the Registrant's Form 10-KSB for the fiscal
year ended December 31, 1994 File No. 0-18050)
10.38 Senior Subordinated Debenture of the Registrant dated March 16,
1995, in the principal amount of $7,500.00 in favor of Blair
(Incorporated by reference to Exhibit 10.17 to the Registrant's
Form 10-KSB for the fiscal year ended December 31, 1994 - File
No. 0-18050)
10.39 Registration Agreement dated March 16, 1995 between Registrant
and Blair (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-KSB for the fiscal year ended December 31,
1994 - File No. 0-18050)
10.40 Consent and First Amendment to InterCreditor and Subordination
Agreement dated March 16, 1995 between Blair and Firstier Bank,
National Association (Incorporated by reference to Exhibit 10.26
to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1994 - File No. 0-18050)
10.41 Restated Employment Agreement between Larry Schnase and Eagle
Plastics, Inc. dated January 1, 1995 (Incorporated by reference
to Exhibit 10.27 to the Registrant's Form 10-KSB for the fiscal
year ended December 31, 1994 - File No. 0-18050)*
21.0 Subsidiaries of Registrant
Subsidiary State of Incorporation
---------- ----------------------
Eagle Plastics, Inc. Nebraska
Black Hawk Financial Corp. Minnesota
Liberty Food Distributors Inc. Minnesota
Pacific Plastics, Inc. Oregon
Arrow Pacific Plastics, Inc.
(a subsidiary of Pacific Plastics, Inc.) Utah
25 Power of Attorney from certain directors and officers - see
"Signatures" on signature page of this Form 10-KSB
27 Financial Data Schedule
* Foster rule compensatory plan or arrangement.
EXHIBIT 10.22
Confidential portions of this document have been omitted and filed separately
with the Commission.
AMENDMENT TO THE ORIGINAL SALES
AGREEMENT BETWEEN VISTA CHEMICAL COMPANY
AND EAGLE PLASTICS, INC.
DATED JANUARY 1, 1993
Effective January 1, 1996, Sections 1. "Product", 2. "Period", 3. "Quantity", 5.
(A) "Payment Terms", "Price Changes, and 7. "Special Provisions" are hereby
deleted in their entirety and replaced with the following:
1. PRODUCT:
Vista 5385-3 PVC Resin (adhering to specification set forth in Addendum
A).
2. PERIOD:
January 1, 1996 through December 31, 1996 and continuing from calendar
year to calendar year thereafter, with either party having the right to
terminate this Agreement at the end of the primary period or any
subsequent calendar year by written notice to the other party not less
than ninety (90) days prior to the end of the calendar year.
3. QUANTITY:
One hundred percent of Buyer's PVC Resin requirements estimated to be
fifty-five (55) million pounds, at the Hastings, Nebraska plant.
5.(a.) Monthly billing - Net _____________________ days from invoice date.
6. PRICE CHANGES:
(a) Buyer's price shall not increase until thirty (30) days after
Seller's announced effective date of a price increase.
(b) Buyer's decrease in price shall apply to material shipped
thirty (30) days prior to the effective date of Seller's
announced price decrease.
(c) During any calendar month Buyer may purchase a maximum of ____
on a ____________ basis.
(d) During the __________ , the _____________ of the _________ in
____ shall apply to all pounds purchased during the _________.
7. SPECIAL PROVISIONS:
Discount programs and/or all specified contract provisions, if any, for
the contract year beginning January 1, 1997, and any subsequent contact
year, shall be negotiated on an annual basis prior to the start of the
contract year in question. The discount program and other specific
contract provisions for the contract period beginning January 1, 1996,
are as follows:
DISCOUNTS/ALLOWANCES
Buyer shall receive from Seller within ____ days of the end of each
calendar year quarter a performance rebate of $____ /lb on all pounds
purchased during the quarter provided that Buyer's purchases for the
quarter are ____ of the PVC resin requirements of the Hastings,
Nebraska facility, or ____ pounds, whichever is the lesser.
Buyer shall receive from Seller within ____ days from December 31, 1996
a performance rebate of $ ____/lb on all pounds purchased during the
year provided that Buyer's purchases for the year are ____ of the
annual PVC resin requirements of the Hastings, Nebraska facility, or
____ pounds, whichever is the lesser.
Seller agrees to provide Buyer with a ____ of ____ . This ___________
will be payable in quarterly installments of ____ each. In addition,
Seller will allow an incremental ____ per pound on all pounds purchased
in excess of ____ pounds.
If Seller elects to reduce its price to meet a competitive offer,
pursuant to the terms of Section 8. "COMPETITIVE OFFERS", purchases
made by Buyer at such reduced price shall qualify as purchases to which
the aforesaid discounts/allowances and ____ are applicable. If Seller
elects not to compete, pursuant to the terms of Section 8. "COMPETITIVE
OFFERS", such purchases made by Buyer at such reduced price, from a
third party, shall be deducted from the contractual quantity for
purposes of administering the allowances and discounts and, as such,
shall not qualify for said allowances and discounts.
Except as expressly set forth herein, all other terms and conditions set forth
in the original Agreement dated January 1, 1993 are hereby ratified and approved
for all purposes.
Agreed to and accepted as of the date indicated below, however effective as of
January 1, 1996.
EAGLE PLASTICS, INC. VISTA CHEMICAL COMPANY
By By
Charles J. Matson
Title Title Manager of Sales, PVC
Date Date
EXHIBIT 10.23
Confidential portions of this document have been omitted and filed separately
with the Commission.
SALES AGREEMENT
This Agreement entered into this 1st day of January, 1996 between Vista Chemical
Company, hereinafter called Seller, and Arrow Pacific Incorporated, c/o Eagle
Plastics, 146 North Maple, Hastings, Nebraska 68901-0229, hereafter called
Buyer.
WITNESSETH:
Seller agrees to sell and deliver and Buyer agrees to purchase and receive the
Product upon the terms and conditions set forth below:
PRODUCT:
Vista 5385 PVC resin adhering to the specifications as set forth in
Addendum A.
PERIOD:
January 1, 1996 through December 31, 1996 and renewing annually
thereafter with either party having the right to terminate this
Agreement at the end of an contractual period by giving written notice
to the other party not less than ninety (90) days prior to the end of a
calendar year.
QUANTITY:
One hundred percent (100%) of Buyer's PVC resin requirements, estimated
to be seventeen (17) million pounds, at the Arrow facility in Midvale,
Utah.
PRICE:
Buyer shall be invoiced at the end of each month at Seller's nominated
monthly price. All product shall be shipped F.O.B. origin, minimum
freight prepaid in minimum 160,000 pounds bulk railcars to Buyer's
plant.
PAYMENT TERMS:
Monthly billing - Net _________ days from invoice date throughout 1996.
All payments shall be made in United States dollars without discount or
deduction, by wire transfer at Seller's option, to a bank account
designated by Seller. Invoices not paid on due date will be subject to
a delinquency finance charge of 1% per month.
If in the opinion of Seller, the financial condition of Buyer so
warrants, the terms of payment herein specified may be withdrawn and
shipments withheld until such condition is corrected in a manner
satisfactory to the Seller.
PRICE CHANGE:
The price specified in this Agreement may be changed by Seller on the
first day of any calendar month by written notice sent to Buyer not
less than 15 days prior to the effective date of change. Unless Buyer
gives Seller written notice of objection to such change at least XX
days prior to the effective date of the change, Buyer shall be deemed
to have accepted the change. If Buyer gives such notice of objection
and Buyer and Seller fail to agree on such change prior to the
effective date thereof, this Agreement and the obligations of Seller
and Buyer hereunder shall terminate with respect to the unshipped
portion of the Product covered by it. In the event of any governmental
action or request which prevents Seller from making a price increase or
continuing any price already in effect, Seller may terminate this
Agreement by giving Buyer 30 days notice.
For 1996, the following shall also apply:
Buyer's price shall not increase until thirty (30) days after Seller's
announced effective date of a price increase.
Buyer's decrease in price shall apply to material shipped thirty (30)
days prior to the effective date of Seller's announced price decrease.
During any calendar month Buyer may purchase a maximum of three (3)
railcars on a pre-buy basis.
During the ____ , the ____ of the ____ in ____ shall apply to all
pounds purchased during the ____ .
SPECIAL PROVISIONS:
Discount programs and/or all specified contract provisions, if any, for
the contract year beginning January 1, 1997, and any subsequent
contract year, shall be negotiated on an annual basis prior to the
start of the contract year in question. The discount program and other
specific contract provisions for the contract period beginning January
1, 1996, are as follows:
DISCOUNTS/ALLOWANCES
Buyer shall receive from Seller within ____ days of the end of each
calendar year quarter a performance rebate of $ ____/lb on all pounds
purchased during the quarter provided that Buyer's purchases for the
quarter are ____ of Buyer's PVC resin requirements or ____ pounds,
whichever is the lesser.
Seller agrees to provide Buyer, within ____ days from ____, a ____ of
____ per pound on all pounds purchased.
If Seller elects to reduce its price to meet a competitive offer,
pursuant to the terms of Section 8. "COMPETITIVE OFFERS", purchases
made by Buyer at such reduced price shall qualify as purchases to which
the aforesaid discounts/allowances and ____ are applicable. If Seller
elects not to compete, pursuant to the terms of Section 8. "COMPETITIVE
OFFERS", such purchases made by Buyer at such reduced price, from a
third party, shall be deducted from the contractual quantity for
purposes of administering the allowances and discounts and, as such,
shall not qualify for said allowances and discounts.
COMPETITIVE OFFERS:
If Buyer receives a bona fide offer to purchase Product of the same
specifications as contained in this Agreement and of no greater
quantity, at a price, including terms and conditions, lower than then
applicable under this Agreement and if Buyer furnishes written evidence
specifying the details of such offer to Seller, Seller will, within 15
days, either meet such price on the same quantity offered or allow
Buyer to purchase the Product so offered. Buyer shall give Seller
prompt notice of any quantity of Product purchased or to be purchased
in accordance with the provisions of this paragraph. Such quantity
shall be deducted from the quantity specified in this Agreement for the
year in which it is so purchased. In addition, Seller at its option may
also deduct such quantity for each year thereafter remaining under this
Agreement. Election of such option by Seller shall be given to Buyer by
written notice within 90 days after Seller receives Buyer's notice of
purchase.
MEASUREMENTS:
Seller's determination, unless proven to be erroneous, shall be
accepted as conclusive evidence of the quantity of Product delivered
hereunder. Credit will not be allowed for shortages of 1/2 of 1% or
less of the quantity and overages of 1/2 of 1% or less of the quantity
will be waived. The total amount of shortages or overages will be
credited or billed when quantities are greater and such differences are
substantiated.
In the case of volumetric determination (or when calculating weights
from volumetric determinations) volume shall be corrected for
temperature to 60 degrees Fahrenheit in accordance with the appropriate
correction table. A gallon shall remain a U.S. standard gallon of 231
cubic inches measured at 60 degrees Fahrenheit.
In the case of Product sold by weight, the quantity of Product
delivered hereunder shall be:
For barge shipments, the calculated weight derived from the volumetric
content measured by the official gauge of the barge or by gauging or
metering from Seller's shore tank, at Seller's election; for tank car
or tank truck shipments, the calculated weight derived from the
volumetric content measured by the certified capacity of the tank car
or tank truck; or
For hopper, car, bulk truck, tank truck, box car or packaged truck load
shipment, the scale weight determination as certified by Seller.
SHIPMENTS AND DELIVERY:
Buyer shall give Seller annual or quarterly forecasts of its expected
requirements as Seller may from time to time request. Buyer shall give
Seller reasonable advance notice for each shipment which shall include
date of delivery and shipping instructions. Seller may, from time to
time, specify lead time requirements. Seller shall not be required to
ship in any one month more than the monthly quantity herein specified,
or if no monthly quantity is specified, more than a pro rata amount of
the maximum quantity herein specified, nor shall Seller be bound to
ship any quantities for which Buyer has not given notice. In the event
Buyer fails to take the quantity specified or the pro rata quantity in
any month, Seller may, at its option, in addition to other rights and
remedies, cancel such shipments or parts thereof.
Each delivery shall stand as a separate transaction and the failure of
any delivery shall not be deemed to impair the value of nor to breach
the Agreement as to other deliveries.
PURCHASE REQUIREMENTS:
If, during any consecutive three month period, Buyer for any reason,
(but not, however, for reasons of force majeure as set forth in Section
13) takes less than 90 percent of the average monthly quantity
specified or the prorated minimum monthly quantity then applicable to
such period under Section 3, Seller may elect to reduce monthly
quantities for the remaining period of this Agreement to the average
monthly quantity taken by Buyer during such three month period.
If, during any consecutive 3 month period, Buyer for any reason, (but
not, however, for reasons of force majeure as set forth in Section 13)
takes Product in quantities less than that equal to at least one-half
of the average monthly quantity specified or the prorated minimum
monthly quantity originally applicable to such period under Section 3,
Seller may elect to terminate this Agreement.
It is Seller's intent not to unreasonably exercise its rights under (a)
or (b) above in the event of adverse economic and business conditions
in general.
Notice of election by Seller under (a) or (b) above shall be given
within 30 days after the end of the applicable 3 month period, and, in
the event of notice of termination under (b), effective date of
termination shall be 30 days after the date of said notice.
Seller's rights and remedies under this Section shall be in addition to
such other rights and remedies as may be available to Seller in the
event Buyer fails to perform in accordance with this Agreement.
DETENTION POLICY:
Truck equipment owned by Seller will be allowed free time for unloading
equal to that provided by the applicable bulk common carrier tariffs.
Seller will bill buyer for the time such equipment is held in excess of
the allowed free time unless the time Buyer holds equipment in excess
of free time is caused by fault of Seller.
Seller may, from time to time, specify free unloading time allowances
and detention charges for its transportation equipment.
Demurrage charges resulting from the use of common carrier equipment
will be charged to the Buyer by the common carrier (or by Seller if
Seller is billed by carrier) if demurrage charges were incurred through
the fault of Buyer.
FORCE MAJEURE:
Neither party shall be liable to the other for failure or delay in
performance hereunder to the extent that such failure or delay is due
to war, fire, flood, strike, lockout or other labor trouble, accident,
breakdown of equipment or machinery, riot, act, request or suggestion
of governmental authority, act of God, or other contingencies beyond
the control of the affected party which interfere with the production
or transportation of the material covered by this Agreement or with the
supply of any raw material (whether or not the source of supply was in
existence or contemplated at the time of this Agreement) or energy
source used in connection therewith, or interfere with Buyer's
consumption of such material, provided that in no event shall Buyer be
relieved of the obligation to pay in full for material delivered
hereunder. Without limitation on the foregoing, neither party shall be
required to remove any cause listed above or replace the affected
source of supply or facility if it shall involve additional expense or
departure form its normal practices. If any of the events specified in
this paragraph shall have occurred, Seller shall have the right to
allocate in a fair and reasonable manner among its customers and
Seller's own requirements any supplies of material Seller has available
for delivery at the time or for the duration of the event.
RAW MATERIAL AND ENERGY SUPPLY:
Seller's ability to supply Product under this Agreement is dependent on
continued availability of necessary raw materials and products from its
usual and anticipated suppliers and continued availability of energy
supplies. In the event that such raw materials, product, and energy
supplies are not readily available in sufficient quantities to permit
Seller to meet its total commitments for Product, Seller shall have the
right to allocate in a fair and reasonable manner among its customers
and Seller's own requirements such Product as is available.
DISCLAIMER:
SELLER WARRANTS THAT THE MATERIAL SOLD UNDER THIS AGREEMENT SHALL MEET
THE SPECIFICATIONS SET FORTH HEREIN, OR, IF NO SPECIFICATIONS ARE SET
FORTH, THAT THE MATERIAL SHALL MEET SELLER'S STANDARD SPECIFICATIONS.
OTHER THAN THE FOREGOING, SELLER MAKES NO GUARANTY OR WARRANTY, EXPRESS
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE OF INFRINGEMENT,
MERCHANTABILITY, OR SUITABILITY OF THE MATERIAL FOR ANY SPECIFIC
PURPOSE, EVEN IF THAT PURPOSE IS KNOWN TO SELLER. SELLER SHALL NOT BE
LIABLE ON ANY CLAM UNDER OR ARISING OUT OF OR FOR BREACH OF THIS
AGREEMENT UNLESS ACTION THEREON SHALL BE BROUGHT WITHIN ONE YEAR FROM
THE DATE OF SHIPMENT OR BREACH. SELLER'S LIABILITY UNDER THIS AGREEMENT
SHALL BE LIMITED TO REPLACEMENT OF NON-SPECIFICATION MATERIAL OR REFUND
OF THE PURCHASE PRICE THEREOF, AT SELLER'S OPTION. IN NO EVENT SHALL
SELLER BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.
TAXES:
Any new tax or any increase in present tax hereafter payable by Seller
on or measured by the manufacture, production, processing,
transportation or sale of material covered by this Agreement shall be
paid by Buyer to Seller in addition to the price specified herein;
provided, however, that if any such tax is hereafter imposed or
increased, Buyer may, by written notice to Seller given within ten days
after the imposition of any such new or additional tax, elect not to
reimburse Seller therefore and in such event Seller may thereupon, by
written notice to Buyer, terminate this Agreement; if Buyer does not
promptly give such written notice of its election not to reimburse
Seller, Buyer shall pay such new or additional tax to Seller in
addition to the price specified herein and any other tax payable by
Buyer to Seller hereunder.
ASSIGNMENT:
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns provided,
however, any assignment by either party without the prior written
consent of the other party shall be void.
WAIVER OF BREACH:
No waiver by Seller or Buyer of any breach of any of the terms and
conditions contained in this Agreement shall be construed as a waiver
of any subsequent breach of the same or any other term or condition.
TERMINATION:
If any provision of this Agreement is or becomes violate of any law, or
any rule, order or regulation issued thereunder, Seller shall have the
right, upon notice to Buyer, to terminate such provision, without
affecting other provisions of the Agreement, or to terminate the
Agreement in its entirety.
GOVERNING LAW:
THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED ACCORDING TO, THE
LAWS OF THE STATE OF TEXAS.
NOTICES:
All notices required or contemplated under this Agreement shall be
given by prepaid first class mail or telex, and addressed to Seller as
follows:
Vista Chemical Company
P.O. Box 19029
Houston, Texas 77224
Attention: Charles J. Matson
Manager of Sales, PVC
and addressed to Buyer as follows:
Arrow Pacific, Incorporated
c/o Eagle Plastics
146 North Maple
Hastings, Nebraska 68901-0229
ENTIRE AGREEMENT:
This Agreement constitutes and contains the entire agreement between
Buyer and Seller; there are no oral promises, representations or
warranties. No alteration or amendment of this Agreement will be
effective unless it is writing and signed by Buyer and Seller.
EXECUTED as of the date first above written.
ARROW PACIFIC, INCORPORATED VISTA CHEMICAL COMPANY
By By
Charles J. Matson
Title Title Manager of Sales, PVC
Date Date
EXHIBIT 10.24
Confidential portions of this document have been omitted and filed separately
with the Commission.
SHINTECH INC. CONTRACT
Shintech Incorporated ("Seller") agrees to sell to Eagle Pacific
Industries, Inc. ("Buyer") and Buyer agrees to purchase from Seller, for Buyer's
own use and consumption at its Beaverton, OR plant the following material upon
terms and conditions hereinafter stated and as stated in the General Terms and
Conditions (on the back of this page) which are incorporated herein by
reference.
(1) Contract Period: January 1, 1996 - December 31, 1996,
automatically renewed for successive one (1)
year periods under the same terms and
conditions herein unless notified in writing
by September 30 of the current year by
either party. If either party notifies the
other of its intention not to renew this
Contract hereunder, both parties shall use
good faith reasonable efforts to negotiate
terms of a renewal contract on or before
December 31, 1996, and each December 31,
thereafter.
(2) Grade: Shintech Suspension Type PVC SE 950.
(3) Volume: Seller shall supply to Buyer, and Buyer
shall purchase from Seller Buyer's entire
monthly requirements at its Beaverton, OR
plant (which is estimated to be about 16
hopper cars) each month for the Contract
Period. Notwithstanding the foregoing,
Seller's supply obligation will not exceed
the monthly average of the purchases by
Buyer from Seller during the immediate
preceding three (3) month period.
(4) Price: * Seller's announced price for SE 950 or a
mutually acceptable monthly price for
products competitive with SE 950 ("Price").
The Price does not reflect any contract
discount, allowance or the like. Seller
agrees not to ____ .
* In the event Seller announces a Price
increase, such Price increase will take
effect thirty (30) days after the announced
effective date of the Price increase.
* During the period of ____ , after Buyer and
Seller have established a mutually
acceptable ____ for each month, Seller will
apply the ____ to all the shipments made in
compliance with (3) above during those ____
by issuing a ____ for the ____ .
(5) Volume Discount: Provided Buyer purchases ____ of its
requirements for its ____ from Seller
during the Contract Period, Seller will
apply a End-of-Year Discount of ____ per
pound to the Price.
(6) Seller agrees to ____ Buyer a mutually
acceptable ____ for the purpose of assisting
Buyer's ____ at its ____ . The ____ will be
no greater than the amount which can be
fully amortized with the accrued Volume
Discount by the end of the Contract Period.
All Volume Discount earned by Buyer will be
accrued and credited against the ____ . If,
for any reason, the ____ have not been fully
amortized by application of earned Volume
Discount by the end of the Contract Period,
Buyer promises to pay the ____ of the ____
in cash on ____ .
(7) Assistance for To assist Buyer's sales promotion ("Frequent
Frequent Buyer Buyer Program") in 1996, provided Buyer
Program: purchases in compliance with Paragraph (3)
above, Seller will contribute _______ on
each pound purchased from Seller by Buyer.
Credited quarterly.
(8) Good Faith Lower In the event that for any month Buyer
Price: receives a good faith quotation of a price
lower than the price determined pursuant to
Paragraphs (4) and (5) for such month for a
competitive product from a domestic
producer(s) ("Lower Price"), Buyer shall not
purchase at such Lower Price unless and
until Buyer shall extend to Seller the
option, but not the obligation, to meet
Lower Price. Buyer shall provide Seller with
true and correct documentation of Lower
Price. If Seller elects to meet Lower Price,
the End-of-Year Discount shall not be
applied to such volume. If Seller elects not
to meet Lower Price, Seller and Buyer shall
be relieved from their respective
obligations under Paragraph (3) above only
for the particular month. However, for
End-of-Year discount calculation purposes,
the amount purchased at Lower Price will
count toward the volume described in #3,
whether or not Seller elects to meet Lower
Price. Buyer agrees not to purchase any
resin during such month at a price higher
than quoted by Buyer to Seller as Lower
Price referred to in this Paragraph (8)
without affording Seller the first
subsequent opportunity to supply Buyer at
the same higher price.
(9) Payment Terms: Net ____ for ____ shipments, and net ____
for all other months. The payment terms
hereunder start on the date of shipment from
Freeport, Texas. (Payment is to be made to
P.O. Box 200430, Houston, Texas 77216).
Date of Contract: December 29, 1995.
SHINTECH INCORPORATED EAGLE PACIFIC INDUSTRIES, INC.
By: /s/ Gary P. Masters By: /s/ Larry D. Schnase
Name: Gary P. Masters Name: Larry D. Schnase
Title: Regional Sales Manager Title: President
GENERAL TERMS AND CONDITIONS
1. SHIPMENT. Unless otherwise mutually agreed, shipment shall be F.O.B.
Buyer's plant, in hopper cars of Sellers. Buyer shall empty and make
ready for pick-up all rail cars of Seller within seven (7) days from
the time of actual delivery at Buyer's plant, or from the time railroad
carrier advises Buyer of immediate readiness for delivery. Buyer shall
be charged $50.00 per day for each car retained thereafter.
2. WEIGHT MEASUREMENT. Seller's certified weights (or Seller's
measurements in case of the material sold by volume) taken at shipping
points shall govern concerning the quantity of PVC resin sold.
3. TITLE AND RISK OF LOSS. Title and risk of loss pass from Seller to
Buyer as the rail car containing the material arrives at Buyer's plant.
4. TAXES, ETC. Any tax, fee or other government charge upon the
production, sale and/or shipment of the material sold hereunder, now
imposed by federal, state, municipal or any other governmental
authorities or hereafter becoming effective for or during the period
hereof, shall be added to the price herein provided, and shall be paid
by Buyer.
5. FORCE MAJEURE. Neither Seller nor Buyer shall be liable for any delay
or failure by it to make or take any shipments hereunder, if such delay
or failure is caused by any event beyond its reasonable control,
including, without limitation, Act of God, war, riot, fire, explosion,
mechanical breakdown, strikes or other labor trouble, plant shutdown,
unavailability of or interference with necessary transportation, any
raw material or power, compliance with any law, regulation, order or
other requirement of any governmental authority. Unless otherwise
mutually agreed, the total quantity to be shipped shall be reduced by
the quantity of the shipment or shipments so omitted. If by reason of
any such circumstances, Seller's supply of the material herein
specified shall be insufficient to meet all requirements, including its
own, Seller shall have the right, at its option and without liability,
to apportion its available sales supply among any and all purchasers,
including Seller's affiliated divisions and companies, in such manner
as Seller believes equitable.
6. If, in Seller's judgment, Buyer's credit shall become impaired at any
time, Seller shall forthwith have the right to decline to make
shipments hereunder except for cash until such time as said credit has
been reestablished to Seller's satisfaction.
7. LIMITATION OF WARRANTY. EXCEPT AS EXPRESSLY SET OUT IN THIS CONTRACT,
SELLER MAKES NO OTHER WARRANTIES WITH RESPECT TO MATERIAL SOLD PURSUANT
TO THE CONTRACT. THE WARRANTIES SET OUT IN THIS CONTRACT ARE MADE
EXPRESSLY IN LIEU OF AND EXCLUDE ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER
EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES.
8. INDEMNITY. Buyer agrees to indemnify Seller from liability for damage
to persons or property resulting from the use of said material in
manufacturing processes, or in combination with other substances, or
otherwise. Buyer represents to Seller that it has used its own
independent skill and expertise in connection with the selection and
use of the material purchased pursuant to this Contract, and that it
possesses skill and expertise in the handling, storage, transportation,
treatment, use and disposal of this material.
9. LIMITATION OF ACTIONS. Claims on account of weight, quality, loss of or
damage to said material are waived by Buyer unless made in writing
within ten (10) days after arrival thereof at destination, and any
action for breach of this Contract, other than for nonpayment
hereunder, must be commenced within one (1) year of the date of
shipment, or due date of delivery in the event of nondelivery, of the
particular shipment upon which such claim is based. Seller's liability
for damages shall not exceed the purchase price of the particular
shipment with respect to which such damages are claimed and shall not
include liability for special, incidental, indirect, punitive, or
consequential damages.
10. TERMINATION.
(a) Either party may terminate this Contract by written notice to
the other in either of the following events:
(1) The other party defaults in the performance of any of
its obligations hereunder, and any such default
continues for thirty (30) days after receipt of the
default.
(2) The other party becomes insolvent, is dissolved,
liquidated, or becomes a party to a proceeding for
bankruptcy or insolvency of such party or to any
other similar proceeding, or transfers all or
material portion of its business, assets or shares of
capital stock, by agreement or by operation of law or
otherwise.
(b) Termination of this Contract for any cause shall not relieve
either party from any obligations accrued hereunder prior to
such termination or from any liability to the other party for
breach of this Contract.
11. NO DISCLOSURE. Except as may be compelled by a court or governmental
agency of competent jurisdiction, or when written approval is given by
the other party, neither party hereto will disclose the contents of
this Contract to any third party with the exception of the portions of
this Contract which must be disclosed in order to carry out the purpose
of this Contract.
12. SEVERABILITY. If any provision of this Contract, including any
provision of the General Terms and Conditions, is held to be void,
voidable or unenforceable by any court or governmental agency of
competent jurisdiction, such holding shall not affect other provisions
or the application or enforcement which can be given effect without the
invalid provision. If such invalidity becomes known or apparent to
Seller and to Buyer, they agree to negotiate promptly and in good faith
to make appropriate changes to achieve the intent and spirit of the
provision held to be invalid, consistent with applicable law.
13. GOVERNING LAW. This Contract shall be governed by the laws of the state
of Texas, including without limitation the Texas Business and Commerce
Code (Uniform Commercial Code).
14. ENTIRE AGREEMENT. This Contract, together with the General Terms and
Conditions, shall constitute the entire agreement of Seller and Buyer
with respect to the subject matter hereof and shall supersede all
previous understandings, oral or written, between the parties with
regard to this subject matter. No modification of this Contract shall
be effected by any purchase orders, acknowledgments, shipping document
or any other documents containing terms and conditions inconsistent
with or in addition to those set forth in this Contract, unless Seller
and Buyer specifically agree otherwise in writing.
15. This Contract, and all rights incident thereto are for the benefit of
Buyer and shall not be assignable to any third party, or to any
successor or assignee of Buyer (by merger, consolidation, liquidation,
operation of law, or otherwise), without the prior written consent of
Seller. Seller shall have the right to terminate this Contract upon
thirty (30) days written notice to Buyer in the event there is a change
in ownership or managerial control of Buyer.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 803,043
<SECURITIES> 0
<RECEIVABLES> 6,480,287
<ALLOWANCES> 157,900
<INVENTORY> 8,174,957
<CURRENT-ASSETS> 15,453,505
<PP&E> 11,178,550
<DEPRECIATION> 1,823,802
<TOTAL-ASSETS> 31,917,782
<CURRENT-LIABILITIES> 15,002,573
<BONDS> 0
2,767,000
0
<COMMON> 41,529
<OTHER-SE> 1,766,546
<TOTAL-LIABILITY-AND-EQUITY> 4,575,075
<SALES> 51,330,107
<TOTAL-REVENUES> 51,330,107
<CGS> 41,938,244
<TOTAL-COSTS> 41,938,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,932,563
<INCOME-PRETAX> (1,028,824)
<INCOME-TAX> (164,000)
<INCOME-CONTINUING> (864,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (864,824)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
