UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact name of registrant as specified in its Charter)
MINNESOTA 41-1642846
(State of incorporation) (I.R.S. Employer Identification No.)
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 371-9650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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___
The number of shares of the registrant's Common Stock, $.01 par value per share,
outstanding as of May 2, 1997 was 6,513,237.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
----
NO.
- ---
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Condensed Statements of Operations - Three
Months Ended March 31, 1997 and 1996 (Unaudited)................3
Consolidated Condensed Balance Sheets - March 31, 1997
and December 31, 1996 (Unaudited)...............................4
Consolidated Condensed Statements of Cash Flows - Three
Months Ended March 31, 1997 and 1996 (Unaudited)................5
Notes to Consolidated Condensed Financial Statements (Unaudited)....6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................9
SIGNATURES.........................................................10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- ------------------------------------------------------------------------
1997 1996
NET SALES $ 17,212,229 $ 15,942,013
COST OF GOODS SOLD 13,363,313 11,785,538
------------ ------------
Gross profit 3,848,916 4,156,475
OPERATING EXPENSES:
Selling expenses 1,948,073 1,687,324
General and administrative expenses 695,988 730,470
------------ ------------
2,644,061 2,417,794
------------ ------------
OPERATING INCOME 1,204,855 1,738,681
NON-OPERATING EXPENSE (677,587) (772,244)
------------ ------------
INCOME BEFORE INCOME TAXES 527,268 966,437
INCOME TAX EXPENSE 23,000 17,000
NET INCOME 504,268 949,437
PREFERRED STOCK DIVIDENDS (656) (48,423)
NET INCOME APPLICABLE TO COMMON STOCK $ 503,612 $ 901,014
============ ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary $ .07 $ .17
============ ============
Fully diluted $ .07 $ .14
============ ============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 7,542,179 5,606,190
Fully diluted 7,702,902 6,989,690
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1997 AND DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
ASSETS MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
Accounts receivable, less allowance for doubtful accounts
and sale discounts of $299,000 and $195,000, respectively 13,115,651 6,373,994
Inventories 12,635,971 10,279,169
Deferred income taxes 340,000 340,000
Other 259,049 196,482
------------ ------------
Total current assets 26,350,671 17,189,645
PROPERTY AND EQUIPMENT, net 11,740,202 11,486,019
OTHER ASSETS:
Prepaid interest 1,280,113 1,388,688
Goodwill, less accumulated amortization of $289,000 and
$263,000, respectively 3,895,541 3,650,298
Other 1,665,324 1,711,914
------------ ------------
6,840,978 6,750,900
------------ ------------
$ 44,931,851 $ 35,426,564
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 11,596,485 $ 4,649,102
Accounts payable 10,753,845 8,020,368
Accrued liabilities 1,218,094 1,442,180
Current maturities of long-term debt 2,002,484 1,951,751
------------ ------------
Total current liabilities 25,570,908 16,063,401
LONG-TERM DEBT, less current maturities 6,763,570 7,035,562
SUBORDINATED DEBT 4,014,522 3,972,450
OTHER LONG-TERM LIABILITIES 168,350 331,147
STOCKHOLDERS' EQUITY:
Series A preferred stock, 7% cumulative dividend;
convertible; $2 liquidation preference; no par value;
authorized 2,000,000 shares; issued and outstanding 18,750
shares 37,500 37,500
Undesignated stock, par value $.01 per share; authorized
18,000,000 shares, none issued and outstanding -- --
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 6,508,237 and
6,443,237 shares, respectively 65,082 64,432
Additional paid-in capital 37,275,909 37,211,090
Unearned compensation on stock options (64,170) (96,241)
Notes receivable from officers and employees on Common
Stock purchases (272,489) (66,343)
Accumulated deficit (28,627,331) (29,126,434)
------------ ------------
Total stockholders' equity 8,414,501 8,024,004
------------ ------------
$ 44,931,851 $ 35,426,564
============ ============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 504,268 $ 949,437
Adjustments to reconcile net income to net cash
used by operating activities:
Minority interest 7,216 37,369
Depreciation and amortization 427,588 401,368
Loan discount amortization 95,412 113,007
Prepaid interest amortization 108,575 148,350
Change in operating assets and liabilities (6,742,755) (2,953,583)
Other -- (7,485)
----------- -----------
Net cash used in operating activities (5,599,696) (1,311,537)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (595,509) (827,582)
Purchases of minority interest (369,587) --
Notes receivable from officers and employees for purchase
of common stock (206,146) --
Proceeds from restricted cash -- 500,000
----------- -----------
Net cash used in investing activities (1,171,242) (327,582)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable, net 6,947,383 1,944,187
Proceeds from long-term debt 260,000 29,950
Repayment of long-term debt (481,259) (589,638)
Issuance of common stock 65,469 --
Payment of debt issuance costs (20,000) --
Payment of preferred stock dividend (657) (48,423)
----------- -----------
Net cash provided by financing activities 6,770,936 1,336,076
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS -- (303,043)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD -- 303,043
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ --
=========== ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1. PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position of Eagle Pacific Industries, Inc. and subsidiaries
at March 31, 1997 and the results of its operations and cash flows for
the three month periods ended March 31, 1997 and 1996. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Although the Company's management believes that the disclosures are
adequate to make the information presented not misleading, it is
suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated financial statements of the
Company included with its annual report on Form 10-K for the year
ended December 31, 1996.
2. INVENTORY
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
Raw materials $ 5,218,664 $ 3,151,147
Finished goods 7,417,307 7,128,022
----------- -----------
$12,635,971 $10,279,169
----------- -----------
3. SUBSEQUENT EVENT
On May 9, 1997, the Company issued 10,000 shares of redeemable 8%
convertible preferred stock at $1,000 per share. The stock is
convertible at the holders option at $4.26 per share and has a
mandatory redemption at the liquidation preference of $1,000 per share
on May 9, 2004. After two years from issuance, the Company can cause a
mandatory conversion if the common stock trades above $7.45 for 30
consecutive days.
4. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". This statement specifies the computation, presentation,
and disclosure requirements for earnings per share. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. If the Company had
applied SFAS No. 128 to the computation of earnings per share in the
quarter ended March 31, 1997, the basic and diluted amounts would have
been $.08 and $.07, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS. The following table sets forth items from the Company's
Consolidated Statement of Operations as percentages of net revenues:
THREE MONTHS ENDED MARCH 31,
1997 1996
------ ------
Net sales 100.0% 100.0%
Cost of goods sold 77.6 73.9
Gross Profit 22.4 26.1
Operating expenses 15.4 15.2
Operating income 7.0 10.9
Non-operating expense (4.0) (4.8)
Income before income taxes 3.0 6.1
Income tax expense 0.1 0.1
Net Income 2.9% 6.0%
Eagle Pacific Industries posted record first quarter net sales in 1997,
increasing 8% from 1996. Higher volumes, primarily due to increased production
capacities and demand carried over from the fourth quarter of 1996, were
responsible for the growth in revenues. Pounds sold rose 10% from 1996 to 1997
and selling prices decreased slightly from the first quarter of 1996.
The decrease in the gross profit as a percentage of net sales from 1996
to 1997 is primarily due to higher resin prices in the first quarter of 1997,
compared to the first quarter of 1996, coupled with the slightly lower selling
prices mentioned above. PVC resin prices increased nearly 20% during the first
quarter of 1997 due to a tight supply of resin caused by various operational
problems with many of the resin producers. Pricing pressures from competitors
prevented the Company from successfully passing all of the raw material price
increases on to its customers.
The increase in operating expenses as a percentage of net sales from
1996 to 1997 is primarily due to higher selling expenses related to the
Company's new distribution center in Baker City, Oregon. The product stored in
this facility, polyethylene water and turf irrigation pipe, is primarily sold
during the spring and summer months, therefore, there are few sales at this
point to offset the distribution center expenses. The higher selling expenses
were partially offset by lower general and administrative expenses relating to
salaries and professional fees.
The decrease in interest expense from 1996 to 1997 is primarily due to
the debt refinancing and new common equity obtained in May of 1996, which
allowed the Company to eliminate 40% of the high cost subordinated debt. This
decrease was partially offset by higher borrowings under the Company's revolving
credit facility primarily due to large capital expenditures at the end of 1996
and during the first quarter of 1997.
The income tax provisions for 1997 and 1996 were calculated based upon
management's estimate of the annual effective income tax rates, reduced by
federal net operating loss (NOL) carryforwards utilized and state tax credits,
as well as NOL carryforwards expected to be used in future periods.
FINANCIAL CONDITION. The Company's financial condition remains strong
due to continued operating profits and the debt refinancing in 1996, partially
offset by seasonal factors such as the Spring Dating Program and the increase in
inventories during the first quarter.
Cash used in operating activities was $5.6 million in the first quarter
of 1997 compared to $1.3 million in 1996. The primary reason for the increase is
the larger increase in inventories during the three months ended March 31, 1997.
The Company used $1.2 million and $328,000 for investing activities for
the three months ended March 31, 1997 and 1996, respectively. The primary uses
of cash in 1997 were capital expenditures and purchase of minority interest.
Capital expenditures were the sole use of cash in 1996, partially offset by
proceeds from restricted cash.
Cash provided by financing activities was $6.8 million and $1.3 million
for the three months ended March 31, 1997 and 1996, respectively. The increase
is primarily due to higher borrowings under the note payable caused by the
Spring Dating Program. The Spring Dating Program offers extended terms to
selected customers during the winter months in order to keep the Company's
plants operating at or near capacity.
To implement its growth strategy, the Company will be required to look
to external sources to fund future capital expenditures and/or acquisitions. If
the Company is unable to obtain the external funding needed, growth will be
confined to a level that can be supported by internally generated capital. The
Company has no commitments for capital expenditures at March 31, 1997, but the
Company expects to spend approximately $5.0 million for capital additions in
1997. Sources of liquidity include the revolving credit line, additional
long-term debt financing, and the sale of Company equity securities under either
a private or public offering. The Company believes that it has the financial
resources needed to meet business requirements in the foreseeable future,
including capital expenditures for expanding manufacturing capacity and working
capital requirements.
OUTLOOK. The statements contained in this Outlook are based on current
expectations. These statements are forward looking and actual results may differ
materially.
The Company expects the demand for plastic pipe and tubing to grow as
acceptance of plastic pipe over metal pipe continues and the overall economy
continues to grow. Industry growth projections call for annual sales growth
rates for plastic pipe and tubing of four percent or greater per year through
1998. The Company has historically been able, and expects in the future, to grow
at rates substantially in excess of the industry averages due to its emphasis on
customer satisfaction, product quality and differentiation and innovative
promotional programs. The Company's strategy has been, and continues to be, to
concentrate growth in the higher profit products and geographic regions.
The Company's gross margin percentage is a sensitive function of PVC
and PE raw material resin prices. In a rising or stable market, margins and
sales volume have historically been higher and conversely, in falling markets
sales volumes and margins have historically been lower. Due to the commodity
nature of PVC and PE resin and the dynamic supply and demand factors worldwide,
it is very difficult to predict gross margin percentages or assume that
historical trends will continue.
The Company does not anticipate any events in the foreseeable future
that would hinder the availability of the federal net operating loss
carryforwards (NOLs). The NOLs are available through the year 2010, however, the
majority expire by the year 2000. The amount of available NOLs actually used is
dependent on future profits and the Company does not expect to utilize all of
its NOLs before they expire.
The Company's future results of operations and the other forward
looking statements contained in this Outlook, in particular the statements
regarding growth in the plastic pipe industry, capital spending and resin
prices, involve a number of risks and uncertainties. In addition to the factors
discussed above, the other factors that could cause actual results to differ
materially are the following: business conditions and the general economy,
competitive factors, such as major capacity increases from rivals, and weather
factors.
The Company believes that it has the product offerings, facilities,
personnel, and competitive and financial resources for continued business
success, but future revenues, costs, margins, and profits are all influenced by
a number of factors, as discussed above.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
10.1 Second Amendment Agreement dated February 14, 1997 between
Registrant, its subsidiaries and Blair
10.2 First Amendment Agreement dated February 14, 1997 between
Registrant, its subsidiaries and Fleet
11 Earnings Per Share Schedule
27 Financial Data Schedule
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE PACIFIC INDUSTRIES, INC.
By /s/ William H. Spell
--------------------------
William H. Spell
Chief Executive Officer
By /s/ Patrick M. Mertens
--------------------------
Patrick M. Mertens
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 12, 1997
EXHIBIT 10.1
SECOND AMENDMENT AGREEMENT
This SECOND AMENDMENT AGREEMENT ("Agreement") is made and entered into
as of February 14, 1997 by and between WILLIAM BLAIR MEZZANINE CAPITAL FUND,
L.P., an Illinois limited partnership ("Blair"); and EAGLE PLASTICS, INC., a
Nebraska corporation ("Eagle"), PACIFIC PLASTICS, INC., an Oregon corporation
("Pacific"), ARROW PACIFIC PLASTICS, INC., a Utah corporation ("Arrow"), and
EAGLE PACIFIC INDUSTRIES, INC., a Minnesota corporation ("EPII") (Eagle,
Pacific, Arrow and EPII are sometimes referred to herein collectively as the
"Company").
R E C I T A L S
A. Pursuant to that certain Plan of Recapitalization dated as of March
16, 1995 by and among Blair, Eagle and EPII (f/k/a Black Hawk Holdings, Inc.),
the parties entered into a Debenture Acquisition Agreement of even date
therewith (the "Debenture Acquisition Agreement"), and Blair was issued, among
other things, a senior subordinated debenture of Eagle having a principal amount
of $7,500,000 (the "Debenture") ($4,500,000 of which remains unpaid on the date
hereof).
B. As an inducement for Blair's consent to a refinancing of the
Company's senior indebtedness by Fleet Capital Corporation ("Fleet") as of May
10, 1996, the parties hereto amended selected terms of the Debenture Acquisition
Agreement and the Debenture in exchange for certain financial accommodations to
Blair pursuant to an Amendment Agreement of even date therewith.
C. Consistent with certain amendments proposed to be made by Eagle,
Pacific and Arrow to their credit facility with Fleet on the date hereof, the
parties hereto desire to again amend selected terms and conditions of the
Debenture Acquisition Agreement, all as hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the agreements set forth herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Incorporation of Recitals. The foregoing recitals are incorporated
herein by reference and made a part of this Agreement.
2. Amendment of the Debenture Acquisition Agreement. Subject to the
Company's performance of its obligations to Blair hereunder on the date hereof,
(x) Blair hereby consents to the terms of that certain First Amendment to Loan
and Security Agreement of even date herewith by and between Fleet and Eagle,
Pacific and Arrow, and (y) the parties hereto agree to amend the terms of the
Debenture Acquisition Agreement as follows:
(a) The following definition shall be inserted immediately
after the definition of "Capitalized Lease Obligations" contained in
Section 1.1 of the Debenture Acquisition Agreement:
"'Carryover Amount' shall mean (a) in respect to the
fiscal year ending December 31, 1997, Six Million Fifty
Thousand Dollars ($6,050,000), less the amount of Capital
Expenditures made in the fiscal year of Borrower ending
December 31, 1996 and (b) in respect to subsequent fiscal
years, the amount of permitted Capital Expenditures (without
giving effect to any Carryover Amount) for the previous two
fiscal years minus the amount of Capital Expenditures made in
such fiscal years."
(b) Sections 5.1(u) and (v) of the Debenture Acquisition
Agreement shall be deleted in their entirety and replaced with the
following:
"(u) Consolidated Net Cash Flow. Borrower and
Guarantors shall achieve Consolidated Net Cash Flow (as
defined in the Senior Loan Agreement) for each of the periods
listed below equal to or greater than the amount set forth
opposite such period:
Period Amount
------ ------
January 1, 1996 through and $135,000
including June 30, 1996
January 1, 1996 through and $585,000
including September 30, 1996
January 1, 1996 through and ($1,650,000)
including December 31, 1996
January 1, 1997 through and ($1,100,000)
including March 31, 1997
January 1, 1997 through and ($385,000)
including June 30, 1997
January 1, 1997 through and $135,000
including September 30, 1997
January 1, 1997 through and ($1,650,000)
including December 31, 1997
January 1, 1998 through and ($1,265,000)
including March 31, 1998
January 1, 1998 through and ($550,000)
including June 30, 1998
January 1, 1998 through and ($50,000)
including September 30, 1998
January 1, 1998 through and ($165,000)
including December 31, 1998
January 1, 1999 through and ($550,000)
including March 31, 1999
(v) Senior Interest Coverage Ratio. Borrower and
Guarantors shall achieve, at the end of each fiscal period
listed below during the term hereof, a Senior Interest
Coverage Ratio (as defined in the Senior Loan Agreement) equal
to or greater than the ratio shown below for the fiscal period
corresponding thereto:
Fiscal Period Ratio
------------- -----
January 1 to March 31 1.45 to 1
January 1 to June 30 3.15 to 1
January 1 to September 30 4.05 to 1
January 1 to December 31 2.15 to 1"
(c) Sections 5.2(d) and (w) of the Debenture Acquisition
Agreement shall be deleted in their entirety and replaced with the
following:
"(d) Restriction on Operating Leases. Borrower and
Guarantors shall not become liable for in any way whether
directly or indirectly, by assignment or as guarantor or other
surety for the obligations of the lessee under, any Operating
Lease, unless immediately after giving effect to the
incurrence of liability with respect to such lease, the
aggregate amount of all rental and all other payments under
such Operating Lease and all other Operating Leases of
Borrower and Guarantors in the aggregate at the time in effect
during any current or future period of 12 consecutive months
does not exceed $900,000.
(w) Capital Expenditures. Neither Borrower nor any
Guarantor shall, unless otherwise consented to by Purchaser in
writing, make Capital Expenditures (as defined in the Senior
Loan Agreement) which, in the aggregate, as to Borrower and
Guarantors during any fiscal year of Borrower, exceeds the
amount set forth opposite such fiscal year in the following
schedule:
Fiscal Year Ending Capital Expenditure
------------------ -------------------
December 31, 1996 $5,500,000
December 31, 1997 $4,400,000 plus the
Carryover Amount
December 31, 1998 and $1,650,000 plus the
each subsequent fiscal year Carryover Amount"
Notwithstanding anything to the contained to the contrary in the Debenture
Acquisition Agreement, Lender acknowledges that Borrower and Guarantors
contemplate making certain Capital Expenditures or other expenditures in
connection with the construction of a new facility in Salt Lake City, Utah.
Lender further acknowledges and consents to any sale and leaseback transaction
entered into in connection with such improvements, provided that such sale and
leaseback transaction do not cause Borrower and Guarantors to violate any other
covenants contained in the Debenture Acquisition Agreement.
3. Performance of the Company's Obligations. On the date hereof:
(a) Eagle shall pay to Blair in cash, by wire transfer to the
account specified in Section 2.5 of the Debenture Acquisition Agreement
all accrued Fixed Interest as defined in and payable pursuant to the
Debenture through and including the date hereof; and
(b) EPII shall deliver to Blair a certificate (the form and
substance of which are satisfactory to Blair and its counsel), signed
by the secretary or an assistant secretary of EPII, certifying as to
(i) the names of the officers of the Company authorized to sign this
Agreement and all other documents and instruments executed and/or
delivered in connection herewith or therewith, (ii) specimens of the
true signatures of such officers, on which Blair may conclusively rely,
and (iii) the truth and correctness of documents and instruments
executed and/or delivered in connection herewith and therewith.
4. Affirmation of Guarantee. EPII, Pacific and Arrow hereby acknowledge
that the Debenture Acquisition Agreement is being amended hereby and hereby also
acknowledges and affirms that (a) their respective Guarantees are in full force
and effect and the liability of each of EPII, Pacific and Arrow as Guarantors
therewith continue in accordance with the terms thereof and are in no way
affected or impaired by such amendment to the Debenture Acquisition Agreement,
(b) Blair's agreement to such amendment is in Blair's sole discretion, (c) Blair
is not required to provide notice to anyone of such amendment and (d) Blair's
provision of such notice to each of EPII, Pacific and Arrow, as guarantors,
shall not operate as a waiver of Blair's right to agree to further amendments in
their sole discretion without notice to each of EPII, Pacific and Arrow or any
other person that is or shall be a guarantor of the Company's obligations under
the Debenture Acquisition Agreement.
5. Representations and Warranties of the Company. As a further
inducement for Blair to consent to an amendment of the Company's senior
indebtedness by Fleet, the Company hereby represents and warrants to Blair that:
(a) The Company (and each of them) has the requisite corporate
power and authority to execute, deliver and carry out this Agreement,
all other agreements and instruments contemplated or required by the
provisions thereof and to be executed, delivered or carried out by the
Company (or any of them) (collectively, the "Ancillary Agreements") and
the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements, and the consummation by the Company of the
transactions contemplated hereby or thereby has been duly authorized by
all necessary corporate action and other consents, approvals and the
like required on the part of the Company.
(c) Neither the execution and delivery by the Company (or any
of them) of this Agreement or any of the Ancillary Agreements, nor the
consummation of the transactions contemplated hereby or thereby, nor
compliance by the Company with the terms, conditions and provisions
hereof or thereof, shall (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under,
(iii) result in the creation of any lien, security interest, charge or
encumbrance upon its capital stock or assets pursuant to, (iv) give any
third party the right to accelerate any obligation under, (v) result in
a violation of or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative
or governmental body pursuant to, the articles of incorporation or
bylaws of the Company (or any of them) or any law, statute, rule or
regulation to which the Company (or any of them) is subject, or any
agreement, instrument, order, judgment or decree to which the Company
(or any of them) is subject.
(d) This Agreement and each of the Ancillary Agreements to
which the Company (or any of them) is a party have been duly and
validly executed and delivered by Eagle, Pacific, Arrow and/or EPII (as
the case may be) and constitute legal, valid and binding obligations,
and all such obligations of the Company (or any of them) are
enforceable in accordance with their respective terms.
(e) All representations and warranties of Borrower and
Guarantors in the Debenture Acquisition Agreement, as amended to date,
remain true and correct as of the date hereof as though originally made
on and as of the date hereof, except to the extent any such
representation or warranty expressly relates to an earlier date (in
which case such representation or warranty shall have been true and
correct on such earlier date).
(f) Neither this Agreement nor any of the Ancillary Agreements
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact known to the
Company (or any of them) (other than general conditions which are a
matter of public knowledge) which materially adversely affects the
business, operations, properties, financial condition, operating
results or business prospects of the Company (or any of them). All
documents filed by EPII pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the AExchange
Act@), contain all statements that are required by the Exchange Act and
do not contain any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained therein not misleading.
6. Waiver of Breach. Blair hereby waives any and all breaches of the
terms of the Debenture Acquisition Agreement and the Debenture resulting from
(a) the execution and delivery by the Company of this Agreement and the other
agreements and instruments to be executed and delivered hereunder, (b) the
amendment of the Company's senior indebtedness by Fleet on the date hereof and
(c) Borrower's failure during its 1996 fiscal year to comply with its limitation
on Capital Expenditures (as defined in the Debenture Acquisition Agreement) as
set forth in Section 5.2(t) of the Debenture Acquisition Agreement.
7. Miscellaneous.
(a) Further Assurances. The Company shall, from time to time
at the request of Blair, do all further acts and things as may in the
opinion of Blair be necessary or advisable to effectuate the
transaction and other matters contemplated hereby, including, without
limitation, the modification of or amendment to any other agreements,
certificates or instruments to which the Company is a party.
(b) Joint and Several. The Company's obligations hereunder
shall be joint and several.
(c) Successors. This Agreement and the agreements and
obligations contained herein shall, as applicable, be binding upon and
inure to the benefit of the Company and Blair and their respective
successors and permitted assigns.
(d) Costs and Expenses. The Company agrees to pay all costs
and expenses, including, without limitation, attorney's fees and
expenses, expended or incurred by Blair in connection with (i) the
preparation and structuring of this Agreement and the Ancillary
Agreements, (ii) the enforcement of this Agreement or any of the
Ancillary Agreements, (iii) the collection of any amounts due hereunder
and (iv) any actions for declaratory relief in any way related to this
Agreement or the agreements, certificates and instruments described
herein or contemplated hereby (including, without limitation, the
Ancillary Agreements), or the protection or preservation of any rights
of Blair hereunder.
(e) Notices. All notices and other communications given to or
made upon any party hereto in connection with this Agreement shall,
except as otherwise expressly herein provided, be in writing (including
telexed or telecopied communication) and mailed, telexed, telecopied or
delivered by hand or by reputable overnight courier service to the
respective parties, as follows:
If to Blair, to:
William Blair Mezzanine Capital Fund, L.P.
222 West Adams Street
Chicago, Illinois 60606
Attention: Terrance M. Shipp
Telecopy: (312) 236-8075
with copy to:
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Robert L. Schlossberg, Esq.
and Laurence R. Bronska, Esq.
Telecopy: (312) 715-4800
If to the Company, to:
c/o Eagle Pacific Industries, Inc.
2430 Lincoln Center
333 S. 7th Street
Minneapolis, Minnesota 55402
Attention: William H. Spell
Telecopy: (612) 371-9651
with copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
Attention: Lynn Gardin, Esq.
Telecopy: (612) 347-7077
or in accordance with any subsequent written direction from the
recipient party to the sending party. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective upon delivery if delivered by hand; when deposited with a
reputable courier service, delivery charges prepaid; when deposited in
the mail, postage prepaid; or in the case of telex or telecopy, when
received.
(f) Survival. All representations, warranties, covenants and
agreements contained herein or made in writing in connection herewith
shall survive indefinitely the execution and delivery of this
Agreement.
(g) Assignability. This Agreement shall not be assignable by
either party without the prior written consent of the other party.
(h) Entire Agreement. This Agreement and the instruments to be
delivered by the parties pursuant to the provisions hereof constitute
the entire agreement between the parties hereto with respect to the
subject matter hereof. Any amendments or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by an authorized representative of each of the parties hereto.
(i) Counterparts. This Agreement may be executed in any number
of counterparts and by any party hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same
instrument.
(j) Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this
Agreement.
(k) No Further Amendments. Except as specifically amended
hereby, the terms and provisions of the Debenture Acquisition Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
EAGLE PLASTICS, INC.
By:___________________________________________
Title:________________________________________
EAGLE PACIFIC INDUSTRIES, INC.
By:___________________________________________
Title:________________________________________
PACIFIC PLASTICS, INC.
By:___________________________________________
Title:________________________________________
ARROW PACIFIC PLASTICS, INC.
By:___________________________________________
Title:________________________________________
WILLIAM BLAIR MEZZANINE CAPITAL FUND, L.P.
By: William Blair Mezzanine Capital Partners,
L.P., its general partner
By:______________________________________
A General Partner
EXHIBIT 10.2
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THE FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ("First Amendment")
is made as of the 14th day of February, 1997 by and between FLEET CAPITAL
CORPORATION ("Lender"), a Connecticut corporation with an office located at 200
West Madison, Chicago, Illinois 60606, and EAGLE PLASTICS, INC. ("EPI"), a
Nebraska Corporation with its chief executive office at 146 North Maple Street,
Hastings, Nebraska 68902, PACIFIC PLASTICS, INC. ("PPI"), an Oregon corporation
with its chief executive office and principal place of business at 21500
Northwest Plastics Drive, Hillsboro, Oregon 97124 and ARROW PACIFIC PLASTICS,
INC. ("APP"), a Utah corporation with its chief executive office and principal
place of business at 44 East 8th Avenue, Midvale, Utah 84047. EPI, PPI and APP
are hereinafter sometimes referred to individually as "Borrower" and
collectively as "Borrowers."
W I T N E S S E T H:
WHEREAS, Borrowers and Lender entered into a certain Loan and Security
Agreement dated as of May 10, 1996 (said Loan and Security Agreement is
hereinafter referred to as the "Loan and Security Agreement"); and
WHEREAS, Borrowers and Lender desire to amend and modify certain
provisions of the Loan and Security Agreement.
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Lender to Borrower, the parties hereto hereby agree as
follows:
Definitions. All capitalized terms used herein without definition shall
have the meanings given to them in the Loan and Security Agreement.
Termination Charges. Section 4.2.3 of the Loan and Security Agreement
is hereby deleted and the following is inserted in its stead:
"4.2.3 Termination Charges. At the effective date of termination of
this Agreement for any reason, Borrowers shall pay to Lender (in addition to the
then outstanding principal, accrued interest and other charges owing under the
terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to (i)
the sum of one percent (1%) of the lesser of the principal balance of the Term
Loan or Four Million Dollars ($4,000,000) less the amount of any prior
prepayments of the Term Loan plus three percent (3%) of the remaining portion of
the Total Credit Facility less the amount of principal paid on the Term Loan as
of such date, if termination occurs during the first or second twelve-month
period of the Original Term (May 10, 1996 through May 9, 1998); or (ii) the sum
of one percent (1%) of the lesser of the principal balance of the Term Loan or
Four Million Dollars ($4,000,000) less the amount of any prior prepayments of
the Term Loan plus two percent (2%) of the remaining portion of the Total Credit
Facility less the amount of principal paid on the Term Loan as of such date, if
termination occurs during the third 12-month period of the Original Term (May
10, 1998 through May 9, 1999). If termination occurs on the last day of the
Original Term, no termination charge shall be payable. Any other prepayment of
the Term Loan shall be subject to a prepayment fee equal to (i) the sum of (x)
one percent (1%) of the lesser of the amount of the prepayment or Four Million
Dollars ($4,000,000) less the amount of any prior prepayments of the Term Loan
plus (y) three percent (3%) of the remainder (if any) of the prepayment, if the
prepayment occurs during the first or second twelve-month period of the Original
Term (May 10, 1996 through May 9, 1998); or (ii) the sum of (x) one percent (1%)
of the lesser of the amount of the prepayment or ($4,000,000) less the amount of
any prior prepayments of the Term Loan, plus (y) two percent (2%) of the
remainder (if any) of the prepayment if the prepayment occurs within the third
twelve month period of the Original Term (May 10, 1998 through May 8, 1999). No
prepayment fee shall be due in respect to any prepayment made after May 8,
1999."
Leveraged Equity Participation Program. Section 8.2.2 of the Loan and
Security Agreement is hereby deleted and the following is inserted in its stead:
* * *
"8.2.2 Loans. Except as provided in Section 8.2.7 hereof, make, or
permit any Subsidiary of any Borrower to make, any loans or other advances of
money (other than for salary, travel, advances, advances against commissions and
other similar advances in the ordinary course of business) to any Person, except
that (x) if after giving effect to any such loan or advance, there is no
existing and continuing Default or Event of Default and Availability exceeds One
Million Dollars ($1,000,000) or, in the event that the Company has received Four
Million Dollars ($4,000,000) or more as a contribution to capital, which Four
Million Dollars ($4,000,000) is in turn contributed to the capital of any of
EPI, PPI or AAP or any combination thereof, Five Hundred Thousand Dollars
($500,000), then EPI may make loans and advances to PPI and/or APP and PPI
and/or APP may make loans and advances to EPI, and (y) if after giving effect to
any such loans or advance there is no existing and continuing Default or Event
of Default, Borrower may make loans and advances to its officers and executives
for the purpose of financing the purchase by such officers and executives in the
open market of shares of the Company's common stock; provided that the aggregate
amount of such loans and advances under this clause (y) does not exceed at any
point in time Six Hundred Thousand Dollars ($600,000).
Capital Expenditures. Section 8.2.8 of the Loan and Security Agreement
is hereby deleted and the following is inserted in its stead:
* * *
"8.2.8 Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as to
Borrowers and their respective Subsidiaries during any fiscal year of Borrowers
exceeds the amount set forth opposite such fiscal year in the following
schedule:
Fiscal Year Ending Permitted Capital Expenditure
------------------ -----------------------------
December 31, 1996 $5,500,000
December 31, 1997 $4,000,000 plus the Carryover Amount
December 31, 1998 and each $1,500,000 plus the Carryover Amount
subsequent fiscal year
"Carryover Amount" shall mean (x) in respect to the fiscal year ending
December 31, 1997, Five Million Five Hundred Thousand Dollars ($5,500,000) less
the amount of Capital Expenditures made in the fiscal year of Borrower ending
December 31, 1996, and (y) in respect to subsequent fiscal years, the amount of
permitted Capital Expenditures (without giving effect to any Carryover Amount)
for the previous two fiscal years minus the amount of Capital Expenditures made
in such fiscal years. If, after the date of the First Amendment, Lender, in its
sole discretion, agrees to increase the amount of permitted Capital
Expenditures, Lender agrees that Borrowers shall not be required to pay any fees
in connection with any such increase."
* * *
Leases. Section 8.2.13 of the Loan and Security Agreement is hereby
deleted and the following is inserted in its stead:
"8.2.13 Leases. Become, or permit any of their respective Subsidiaries
to become, a lessee under any operating lease (other than a lease under which
any Borrower or any of their respective Subsidiaries is lessor) of Property if
the aggregate Rentals payable during any current or future period of 12
consecutive months under the lease in question and all other leases under which
Borrowers or any of their respective Subsidiaries is then lessee would exceed
$900,000. The term "Rentals" means, as of the date of determination, all
payments which the lessee is required to make by the terms of any lease."
Consolidated Net Cash Flow. Section 8.3.2 of the Loan and Security
Agreement is hereby deleted and the following is inserted in its stead:
"8.3.2 Consolidated Net Cash Flow. Achieve Consolidated Net Cash Flow
for each of the periods listed below equal to or greater than the amount set
forth opposite such period:
Net Cash Flow Amount
- ------------- ------
January 1, 1996 through and
including June 30, 1996 $150,000
January 1, 1996 through and
including September 30, 1996 $650,000
January 1, 1996 through and
including December 31, 1996 ($1,500,000)
January 1, 1997 through and
including March 31, 1997 ($1,000,000)
January 1, 1997 through and
including June 30, 1997 ($350,000)
January 1, 1997 through and
including September 30, 1997 $150,000
January 1, 1997 through and
including December 31, 1997 ($1,500,000)
January 1, 1998 through and
including March 31, 1998 ($1,150,000)
January 1, 1998 through and
including June 30, 1998 ($500,000)
January 1, 1998 through and
including September 30, 1998 $0
January 1, 1998 through and
including December 31, 1998 ($150,000)
January 1, 1999 through and
including March 31, 1999 ($500,000)"
Senior Interest Coverage Ratio. Section 8.3.3 of the Loan and Security
Agreement is hereby deleted and the following is inserted in its stead:
"8.3.3 Senior Interest Coverage Ratio. Achieve, at the end of each
fiscal period listed below a Senior Interest Coverage Ratio equal to or greater
than the ratio shown below for the fiscal period corresponding thereto:
Fiscal Period Ratio
------------- -----
January 1 to March 31 1.65 to 1
January 1 to June 30 3.50 to 1
January 1 to September 30 4.50 to 1
January 1 to December 31 2.40 to 1"
Availability. Borrowers covenant to maintain Availability of
at least Two Million Dollars ($2,000,000) at all times during the period from
June 1, 1997 to and including the earlier of (i) May 31, 1998, and (ii) the date
on which the Company receives Four Million Dollars ($4,000,000) or more as a
contribution to capital, which Four Million Dollars ($4,000,000) is in turn
contributed to the capital of any of EPI, PPI or AAP or any combination thereof.
Sale and Leaseback. Lender acknowledges that Borrowers
contemplate making certain Capital Expenditures or other expenditures in
connection with the construction of APP's new facility in Salt Lake City, Utah.
Lender further acknowledges and consents to any sale and leaseback transaction
entered into in connection with such improvements; provided that such sale and
leaseback transaction does not cause Borrowers to violate any other covenants
contained in the Loan and Security Agreement.
Fee. In order to induce Lender to enter into this First
Amendment, Borrowers agree to pay Lender, upon execution of this First
Amendment, an amendment fee of Twenty Thousand Dollars ($20,000).
Continuing Effect. Except as otherwise specifically set out
herein, the provisions of the Loan and Security Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, this First Amendment has been duly executed as of
the day and year specified at the beginning hereof.
FLEET CAPITAL CORPORATION
By:_________________________________
Name:___________________________
Title:__________________________
EAGLE PLASTICS, INC.
By:_________________________________
Name:___________________________
Title:__________________________
PACIFIC PLASTICS, INC.
By:_________________________________
Name:___________________________
Title:__________________________
ARROW PACIFIC PLASTICS, INC.
By:_________________________________
Name:___________________________
Title:__________________________
Consented and Agreed as of the
14th day of February, 1997
William Blair Mezzanine Capital Fund, L.P.
By:_______________________________
A General Partner
By:_______________________________
Name:_______________________________
Title:_______________________________
EXHIBIT 11
Earnings Per Share Schedule
Calculation of net income used under the modified treasury stock method:
Primary
Net income applicable to common stock $ 503,612
Assumed interest expense reduction 9,717
----------
$ 513,329
==========
Weighted average shares outstanding 6,457,738
Common stock equivalents 1,084,441
----------
7,542,179
==========
Net income per share $ .07
==========
Fully diluted
Net income applicable to common stock $ 503,612
Preferred stock dividends assumed not paid 656
Assumed interest expense reduction -
----------
$ 504,269
==========
Weighted average shares outstanding 6,457,738
Common stock equivalents 1,226,414
Assumed conversion of preferred stock 18,750
----------
7,702,902
==========
Net income per share $ .07
==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,414,651
<ALLOWANCES> 299,000
<INVENTORY> 12,635,971
<CURRENT-ASSETS> 26,350,671
<PP&E> 15,115,270
<DEPRECIATION> 3,375,068
<TOTAL-ASSETS> 44,931,851
<CURRENT-LIABILITIES> 25,570,908
<BONDS> 10,778,092
37,500
0
<COMMON> 65,082
<OTHER-SE> 8,311,919
<TOTAL-LIABILITY-AND-EQUITY> 44,931,851
<SALES> 17,212,229
<TOTAL-REVENUES> 17,212,229
<CGS> 13,363,313
<TOTAL-COSTS> 13,363,313
<OTHER-EXPENSES> 2,648,052
<LOSS-PROVISION> (3,991)
<INTEREST-EXPENSE> 686,985
<INCOME-PRETAX> 527,268
<INCOME-TAX> 23,000
<INCOME-CONTINUING> 504,268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504,268
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
