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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999
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: 1-9083
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Broadway, Suite A
Addison, Texas 75001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 386-0101
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 par value per share American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based on the closing price of such stock on December 3, 1999, was
approximately $6.7 million. For purposes of this computation, all executive
officers, directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and 10% beneficial owners are affiliates. As of
December 3, 1999, the registrant had issued and outstanding 17,812,464 shares of
common stock, $.01 par value.
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POLYPHASE CORPORATION
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
----
Part I
Item 1 Description of Business 3
Item 2 Description of Property 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operation 13
Item 7A Quantitative and Qualitative Disclosures about Market Risk 18
Item 8 Financial Statements 18
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 18
Part III
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial Owners and Management 24
Item 13 Certain Relationships and Related Transactions 25
Part IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K 28
2
PART I
ITEM 1. Description of Business.
-----------------------
General
The Company is a diversified holding company that, through its subsidiaries,
currently operates in two industry segments: the food segment, which produces
high quality entrees, plated meals, soups, sauces and poultry, meat and fish
specialties (the "Food Group"); and the forestry segment, which distributes,
leases and provides financing for industrial and logging equipment and also
participates in related timber and sawmill operations (the "Forestry Group").
The Company's transformer manufacturing operation, which manufactures and
markets electronic transformers, inductors and filters (the "Transformer Group")
was discontinued in fiscal 1999, as a result of the sale of a wholly-owned
subsidiary, Polyphase Instrument Co. ("PIC"). The Company was incorporated in
New Jersey in 1963 under the name Kappa Networks, Inc. In June 1991, through a
merger with a wholly owned subsidiary, the Company reincorporated in
Pennsylvania and formally changed its name to Polyphase Corporation. In June
1994, the Company, through a merger with a wholly owned subsidiary,
reincorporated in Nevada.
Acquisitions
In connection with the Company's program of diversification and expansion, the
more significant acquisitions consummated by the Company over the past five
years were:
Texas Timberjack, Inc. ("Timberjack" or "TTI") In June 1994, the Company
- --------------------------------------------
acquired all of the outstanding capital stock of TTI from Harold Estes, current
President of TTI. Timberjack, with locations in Lufkin, Jasper, Cleveland and
Atlanta, Texas, is a distributor of industrial and logging equipment in East
Texas and Western Louisiana. The capital stock of TTI was acquired from Mr.
Estes for consideration of approximately $4,000,000 in cash, a $10,000,000
promissory note payable to the order of Mr. Estes, and 100,000 shares of the
Company's Series A Preferred Stock, which were subsequently converted into
2,000,000 shares of common stock. Subsequent to June 1994, the Company and Mr.
Estes have modified, renewed and extended the promissory note payable to Mr.
Estes. As of September 30, 1999 the promissory note had a balance of $17,914,842
(including accrued and unpaid interest) and was due December 15, 1999. The note
was modified, renewed and extended through October 10, 2002. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation-
Liquidity and Capital Resources."
Overhill Farms, Inc. ("Overhill") In May 1995, the Company acquired all the
- ---------------------------------
operating assets of IBM Foods, Inc. The purchase, which was accomplished through
Overhill, a newly-formed subsidiary of the Company, provided for a cash payment
to the seller of $31.3 million plus the assumption by the Company of certain
liabilities of the acquired business. Overhill's operations are located in
Culver City, California.
Disposition
Polyphase Instrument Co. ("PIC") Effective September 30, 1999, the Company sold
- -------------------------------
its wholly-owned subsidiary, PIC, to an investment group headed by management of
that company. The transaction was completed as a sale of 100% of the outstanding
capital stock of PIC for total consideration of approximately $2.8 million,
consisting of $1.8 million cash and a subordinated note receivable for $1.0
million. As discussed in Note 15 to the Company's consolidated financial
statements, the Company recorded a loss from discontinued operations of
approximately $1.2 million in 1999 as a result of this transaction.
3
Business Strategy
Management believes the Company's future growth opportunities will be
concentrated in the two core operations described above, the Food Group and
Forestry Group. The business environment of the food industry is mandating
consolidation of smaller regional food processing companies to enhance operating
efficiencies and provide service to mid-size and large national accounts. The
Food Group is evaluating selected acquisition candidates which can complement
the operations of Overhill by providing one or more of the following selected
criteria such as: regional brand labels, additional production capacity,
geographical diversification, new markets and/or new customers. The Forestry
Group continues to develop its internal growth through product line extensions
and geographic expansions. It is the intention of TTI to offer a wider range of
products to both its existing customer base and to "non-logging" companies in
TTI's marketing area using the Company's existing infrastructure. TTI's long
term objective is to continue to diversify with synergistic activities and to
move forward on reducing costs to defray the cyclical effects of the timber
market.
To achieve future growth within the Company, Management has identified the
following basic initiatives:
1) Continue to provide high quality products and superior services to our
customers.
2) Seek internal growth by developing new products, adding customers,
leveraging its geographic presence and securing distribution rights to
additional products.
3) Seek additional growth through strategic acquisitions of complementary
businesses with strong management, solid product lines and growth
potential.
Operating Segments
The following table sets forth business segment information with respect to the
percentage of net sales and operating income contributed by each segment for the
years ended September 30, 1999, 1998 and 1997.
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Net Sales
Food Group 71% 64% 63%
Forestry Group 29% 33% 34%
Transformer Group - 3% 3%
---- ---- -----
Total 100% 100% 100%
Operating Income
Food Group 83% 55% 53%
Forestry Group 17% 45% 48%
Transformer Group - - (1%)
---- ---- -----
Total 100% 100% 100%
- --------------------------------------------------------------------------------
Reference is made to Note 17 to the Company's consolidated statements for
revenues, operating profits or losses and identifiable assets attributable to
each industry segment for each of the last three fiscal years.
4
Food Group
Products and Services - The Food Group, through Overhill, is a value-added
manufacturer of quality frozen food products including entrees, plated meals,
soups, sauces, poultry, meat and fish specialties. Overhill is positioned as a
provider of custom prepared foods to a number of prominent customers such as
American Airlines, Jenny Craig, Albertsons, Carl's Jr., Jack in the Box, Panda
Express and King's Hawaiian. Historically, Overhill has served four industry
segments: airlines, health care, food service and retail.
Sales and Marketing - Overhill markets its products through an internal sales
force and outside food brokers. Overhill believes that the airline industry,
while mature, represents an area for moderate growth potential in the future.
The Company has re-focused its attention on domestic carriers not currently
being served to any great extent by Overhill and on foreign carriers who are
increasingly choosing frozen entrees as part of their in-flight feeding
programs. The Company projects that its health care business will diminish
somewhat in the near term. The Company is predominantly focusing on the retail,
club stores and food service markets as areas of significant future growth. As a
result, Overhill management has realigned its sales force and redirected its
marketing efforts to concentrate on these markets. During fiscal 1999, Overhill
continued to concentrate on building on and increasing the profitability of
existing accounts while establishing new relationships with companies such as
Panda Express, Albertson's and Denny's.
Approximately 54% of Overhill's sales in fiscal 1999 were derived from three
customers, Jenny Craig (20%), American Airlines (18%) and King's Hawaiian (18%).
On a consolidated basis each of these three customers represented approximately
12-14% of the Company's total sales. Although the Company's relationships with
these customers remains strong, there can be no assurance that these
relationships will continue. During fiscal 1999, the Company has made a
concerted effort to sign multi-year supply agreements with its major customers.
Major contracts that were signed or extended in fiscal 1999 include Panda
Express, Jenny Craig and Carl's Jr. The Company is currently negotiating a three
year agreement with King's Hawaiian. A decline in the sales of Overhill's
products to these customers or the loss of, or a significant change in the
relationship between the Company and any of these key customers, could have a
material adverse effect on the Company's business and operating results. It is
management's objective to reduce the reliance on this concentration of accounts
by further expansion into the retail and food service markets as described
above.
Manufacturing and Sourcing - Overhill's manufacturing operations are located in
three separate facilities near Los Angeles, California. The operations are labor
intensive, generally requiring semi-skilled employees. All manufacturing
employees are unionized with contracts covering each plant. Such contracts are
due to expire at various times over the next three years. Management believes
relations with the unions are excellent and does not anticipate any problems
which would affect future production. Each plant specializes in different
processing operations allowing efficiencies in production. In fiscal 1999, the
plants operated collectively at approximately 80-85% of capacity.
The Company's ability to economically produce large quantities of its products,
while at the same time maintaining a high degree of quality, depends in a large
part on its ability to procure raw materials on a reasonable basis. The Company
relies on a few large suppliers for its poultry products with the remaining raw
materials purchased from suppliers in the open market. The Company does not
anticipate any difficulty in acquiring these materials in the future. Raw
materials, packaging for production and finished goods are stored on site or in
a public frozen food storage facility until shipment is required.
Backlog - Overhill typically delivers products directly from finished goods
inventory, and as such does not maintain a large backlog of unfilled purchase
orders. While at any given time there may be a small backlog of orders, such
backlog is not material in relation to total sales, nor is it necessarily
indicative of
5
trends in its business. Orders are subject to changes in quantities or to
cancellation with thirty days notice without penalties to customers.
Product Development - Overhill maintains a comprehensive, fully staffed test
kitchen, which formulates recipes and upgrades specific products for current
customers and establishes production and quality standards. Products are
developed based upon either customers' specifications, conventional recipes or
new product developments. Overhill is continuously developing recipes as
customers' tastes and client requirements change. Overhill also maintains a
quality control department for testing and quality control. The Company
manufactures products in the retail and food service areas with branded and
private label entrees.
Competition - Overhill's food products, consisting primarily of poultry, pasta,
beef and assorted related products, compete with products produced by numerous
regional and national firms. Many of these companies are divisions of larger
fully integrated companies such as Tyson Foods and ConAgra, which have greater
financial, technical, human and marketing resources than the Company.
Competition is intense with most firms producing similar products for the food
service and retail industries. Competitive factors include price, product
quality, product development, customer service and, on a retail basis, name
recognition. There can be no assurance that the Company will compete
successfully against existing companies or new entrants to the marketplace.
Overhill competes in this market by its ability to produce small/custom product
runs, within a short time frame and on a cost effective basis.
Forestry Group
Products and Services - The Forestry Group, through Timberjack and its
majority-owned subsidiaries, is a distributor of industrial and logging
equipment with investments in related timber and sawmill operations. TTI has
four locations in eastern Texas; TTI's headquarters are located in Lufkin, with
smaller satellite showrooms and repair facilities located in Jasper, Cleveland
and Atlanta, Texas. TTI carries the Timberjack, Blount and Hyundai lines of
industrial and logging equipment and the New Holland line of farm equipment.
Subsequent to September 30, 1999, TTI signed an agreement to distribute New
Holland construction equipment. TTI is involved in the sale, leasing and
financing of the equipment it distributes as well as the servicing of all major
brands of related equipment. TTI's operations are primarily concentrated in the
forested areas of East Texas although its market extends into Western Louisiana.
TTI operates in a fragmented industry where its major competition is from
distributors and dealers of Caterpillar and John Deere equipment. TTI estimates
that in Eastern Texas it currently holds approximately 60% of the shear (a
machine that cuts timber) market, 35% of the skidder (a machine that transports
logs out of the forest onto a loader) market and 70% of the loader (a machine
that stacks trees onto trucks) market.
Sales and Marketing - Timberjack currently maintains sales and distribution
offices in Lufkin, Jasper, Cleveland and Atlanta, Texas primarily to serve
Eastern Texas and Western Louisiana. Sales are generated through repeat
customers, advertisements in various trade publications and direct marketing
calls on companies located in the area. A general sales manager and several
branch managers supply technical and operational support at the Lufkin
headquarters, while nine salesman have direct responsibility for customer
relationships. TTI meets customers' orders for new equipment and replacement
parts out of existing inventory or through purchase orders placed with the
manufacturers TTI currently represents.
Approximately 44% of TTI's equipment sales during fiscal 1999 are from new
equipment sold to companies involved in the forestry industries. Additional
revenues are derived from sales of used equipment (13%), servicing of equipment
(7%), sales of parts (22%) and financing equipment sales (14%). No single
customer accounts for more than 10% of TTI's sales. Equipment sales financed by
6
TTI are typically for periods ranging from 12 to 24 months at interest rates
ranging from 12.5% to 18% per annum.
Backlog - As a dealer, servicer and financier of forestry equipment, TTI does
not maintain a backlog of orders. Equipment ordered that is not in inventory
takes approximately one to six weeks to be shipped to a customer from the
manufacturer or another distributor.
Product Development - TTI does not develop products for sale to the public. TTI
relies primarily upon its suppliers (Timberjack, Blount, New Holland, Hyundai)
for a majority of its new units and parts.
Competition - Competition in the forestry segment is highly fragmented in the
Eastern Texas and Western Louisiana areas where TTI principally operates.
Because of its lengthy historical presence in these regions, TTI believes it has
established a strong local identity in its field with a proven record of
delivering equipment on a timely basis, providing satisfactory financing and
strong customer support and service. TTI is one of only a few distributors of
Timberjack and Blount forestry equipment in its operating areas. TTI has the
added advantage of being a leading seller and financier of various makes and
models of used logging equipment.
Principal competitors include local John Deere and Caterpillar distributors.
Patents, Trademarks and Copyrights
The Company does not have patents or patent applications pending on any of its
products, although it may file such patent applications in the future. The
Company attempts to protect its proprietary interests in its products by
entering into non-disclosure agreements with customers.
The Company has registered the trademarks "Polyphase" and "Overhill Farms" in
the United States Patent and Trademark Office.
Regulation
The Food Group is subject to strict government regulation, particularly in the
health and environmental areas, by the United States Department of Agriculture
("USDA"), the Food and Drug Administration ("FDA"), Occupational Safety and
Health Organization ("OSHA") and the Environmental Protection Agency ("EPA").
The Food Group anticipates increased regulation by the USDA and FDA concerning
food processing and storage. The Company's food processing facilities are
subject to on-site examination, inspection and regulation by the USDA.
Compliance with the current applicable federal, state and local environmental
regulations has not had, and the Company does not believe that in the future
such compliance will have, a material effect on its financial position, results
of operations, expenditures or competitive position. During 1997, the Company
implemented a Hazard Analysis Critical Point Plan to ensure proper handling of
all food items.
The Forestry Group is required to comply with various governmental regulations
and requirements concerning the discharge of materials into the environment or
otherwise relating to the protection of the environment. Compliance with the
current applicable federal, state and local environmental regulations has not
had, and the Company does not believe that in the future such compliance will
have, a material effect on its financial position, results of operations,
expenditures or competitive position.
The Company takes all reasonable precautions to ensure that its operations,
processing plants and facilities operate in a safe, sanitary and
environmentally-sound manner. However, events beyond the control of the Company,
such as the adoption by the government of more stringent environmental
regulations could adversely affect its operations. Management believes that the
Company is in
7
substantial compliance with all applicable laws and regulations relating to the
operations of facilities.
Employees
As of September 30, 1999, the Company had approximately 912 employees as
follows: approximately 750 full-time employees in the Food Group; 159 full-time
employees in the Forestry Group; and 3 full-time employees in the corporate
office. All subsidiaries presently provide group health plans for their domestic
employees and pay a portion of the costs associated with such plans. TTI also
maintains a profit sharing plan for its employees.
Safe Harbor Statement
The nature of the Company's operations, and the environment in which it
operates, subjects the Company to changing economic, competitive, regulatory and
technological conditions, risks and uncertainties. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company notes the following factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. Forward looking statements
contained in this document include, but are not limited to Year 2000 issues
(particularly with regard to the Company's business partners and suppliers), the
amount of future capital expenditures, and the possible uses of proceeds from
any future borrowings under the Company's currently effective credit facilities.
Factors which could cause results to differ include, but are not limited to:
changes in the Company's business environment, including actions of competitors
and changes in customer preferences; changes in governmental laws and
regulations, including income taxes; market demand for new and existing
products; and raw material pricing.
ITEM 2. Description of Property.
-----------------------
Corporate Headquarters
The Company leases an approximately 4,000 square foot facility which serves as
the corporate headquarters. The office space is located at 4800 Broadway, Suite
A, Addison, Texas 75001 and is leased at a basic rent of $4,100 per month. The
lease which began in February 1998 has a five year term with an option to buy
out the last two years for a nominal amount.
Food Group
Overhill leases three manufacturing facilities in the Los Angeles, California
area. Plant No. 1 is located in Inglewood, California and has 39,000 square feet
of manufacturing area. Plants No. 2 and No. 3 are located in Vernon, California
and have 49,000 and 27,000 square feet of manufacturing area, respectively. In
addition to the manufacturing facilities, Overhill also leases two dry goods
warehouses of 13,500 and 11,500 square feet, a 7,700 square foot frozen storage
facility in Inglewood, California and a 7,900 square foot office in Culver City,
California. While Overhill believes that the existing facilities are adequate to
meet its requirements in the foreseeable future, the Company is currently
reviewing the cost effectiveness of consolidating some manufacturing and
administrative functions and is actively seeking a facility on the east coast to
more cost effectively meet current and future customer requirements.
Forestry Group
TTI owns three buildings in Lufkin, Texas, two buildings in Jasper, Texas, a
building in Cleveland,
8
Texas and leases a building in Atlanta, Texas. The largest building in Lufkin
has 38,500 square feet, which is used for administrative offices, showroom,
parts sales and shop area. The remaining buildings have 3,600 and 4,200 square
feet, respectively. The Jasper, Cleveland and Atlanta buildings have
approximately 10,000, 6,700 and 7,500 square feet, respectively, which are used
for sales offices, parts sales and shop areas. TTI also leases six buildings on
68 acres in Bon Weir, Texas for a sawmill operation. The sawmill is leased at a
basic rent of $19,000 per month, which includes certain equipment, with an
option to purchase the land, buildings and equipment for $1,525,000 in March
2000.
ITEM 3. Legal Proceedings.
-----------------
During fiscal 1997, five substantially identical complaints were filed in the
United States District Court for the District of Nevada against the Company and
certain of its officers and directors. The complaints each sought certification
as a class action and asserted liability based on alleged misrepresentations
that the plaintiffs claimed resulted in the market price of the Company's stock
being artificially inflated. The defendants filed motions to dismiss in each of
the lawsuits. Without certifying the cases as class actions, the District Court
consolidated the cases into a single action. In June 1998, the District Court
ordered the plaintiffs to file an amended complaint within thirty days, finding
that their original allegations failed to state a claim under the federal
securities laws. The plaintiffs then filed a motion for re-consideration of the
Court's ruling. The defendants opposed that motion, and the Court denied the
plaintiff's motion for reconsideration. The plaintiffs did not file an amended
complaint within the specified thirty day time period, but subsequently filed an
amended complaint, claiming that they were entitled to additional time within
which to file an amended pleading by reason of a scheduling order issued by the
Court. The defendants moved to dismiss the case on the grounds that the amended
complaint was filed too late and failed to state a claim for securities fraud
under applicable legal authorities. The plaintiffs have sought a stay of the
Court's consideration of defendants' motion to dismiss, asserting that there is
uncertainty as to the legal standards to be applied in securities fraud cases.
The Court has not ruled on plaintiff's motion to stay or defendants' motion to
dismiss. However, management believes (based upon advice of legal counsel) that
this litigation will be resolved without material effect on the Company's
financial condition, results of operations or cash flows.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based on
the advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year.
9
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
The Common stock is listed on the American Stock Exchange, Inc. under the symbol
"PLY." The following table sets forth the range of high and low sales prices for
the Common stock on the American Stock Exchange for the periods indicated:
Fiscal 1999 High Low
----------- ------------ ------------
Quarter from October 1, 1998
to December 31, 1998 $ 0.5625 $ 0.2500
Quarter from January 1, 1999
to March 31, 1999 $ 0.5625 $ 0.3125
Quarter from April 1, 1999
to June 30, 1999 $ 0.5625 $ 0.3125
Quarter from July 1, 1999
to September 30, 1999 $ 0.8750 $ 0.3125
Fiscal 1998 High Low
----------- ------------ ------------
Quarter from October 1, 1997
to December 31, 1997 $ 1.8750 $ 0.7500
Quarter from January 1, 1998
to March 31, 1998 (2) $ 1.0625 $ 0.5000
Quarter from April 1, 1998
to June 30, 1998 $ 1.1875 $ 0.6250
Quarter from July 1, 1998
to September 30, 1998 $ 0.7500 $ 0.3125
Fiscal 1997 High Low
----------- ------------ ------------
Quarter from October 1, 1996
to December 31, 1996 $ 7.4375 $ 3.8750
Quarter from January 1, 1997
to March 31, 1997 (1) $ 5.5000 $ 3.8125
Quarter from April 1, 1997
to June 30, 1997 (1) $ 2.6250 $ 1.2500
Quarter from July 1, 1997
to September 30, 1997 $ 2.5000 $ 0.8750
(1) On February 3, 1997, the Company agreed with the American Stock Exchange,
Inc. to temporarily halt trading of its Common Stock pending the filing of its
Annual Report on Form 10-K for the fiscal year ended September 30, 1996. On June
16, 1997 the Form 10-K and the Forms 10-Q for the quarters ended December 31,
1996 and March 31, 1997, were filed and trading resumed on June 17, 1997.
(2) On January 14, 1998, trading in the Company's stock was temporarily halted
pending the Company's filing of its Annual Report on Form 10-K for the fiscal
year ended September 30, 1998. The stock resumed trading on February 23, 1998.
10
The Company has never paid cash dividends on its common stock and does not
anticipate doing so in the foreseeable future. Rather, the Company has
determined to utilize any earnings in the expansion of its business. Such policy
is, within the limitations and restrictions described below, subject to change
based on current industry and market conditions, as well as other factors beyond
the control of the Company.
As of September 30, 1999, the Company estimates that there were approximately
3,200 beneficial owners of the Company's common stock, represented by 213
holders of record.
Recent Sales of Unregistered Equity Securities
In November 1995, the Company sold in a private transaction with Infinity
Investors, Ltd. ("Infinity") for $2,500,000 cash, 250,000 shares of Series A-3
Preferred Stock having an aggregate redemption value of $2,500,000 and
convertible into Common stock as provided in the Certificate of Designations for
the Series A-3 Preferred Stock. During the years ended September 30, 1998 and
1999, the Company issued 197,586 and 2,302,414 shares of common stock,
respectively, in partial satisfaction of Infinity's conversion rights.
Subsequent to September 30, 1999, the Company agreed to repurchase Infinity's
remaining Series A-3 Preferred Stock.
In August 1997, the Company sold in a private transaction with Black Sea
Investments, Ltd. ("Black Sea") for net proceeds of approximately $734,000 cash,
7,500 shares of Series F 6% Convertible Preferred Stock having an aggregate
redemption value of $750,000 and convertible into Common stock at a variable
rate equal to 75% of the average closing market price for the Company's common
stock for the previous five trading days prior to conversion. During the year
ended September 30, 1998, the Company issued a total of 1,008,355 shares of
common stock in satisfaction of Black Sea's conversion rights.
The shares of Preferred Stock described above were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), and were issued by
the Company in reliance on exemptions to the Securities Act. With respect to the
shares of Series A-3 Preferred Stock issued to Infinity, such shares were issued
pursuant to the exemption provided by Section 4(2) of the Securities Act.
Infinity was in compliance with the necessary requirements of Section 4(2) to
receive such exemption. Of the shares of Series A-3 Preferred Stock that were
issued, no such shares were issued to any party other than Infinity.
With respect to the shares of Series F 6% Convertible Preferred Stock issued to
Black Sea, such shares were issued pursuant to the exemption provided by
Regulation S of the Securities Act. Black Sea is a non United States person as
that term is defined in the Securities Act. Of the shares of the Series F 6%
Convertible Preferred Stock that were issued, no such shares were issued to any
party other than Black Sea.
In December 1997, in connection with the refinancing of certain indebtedness to
Merrill Lynch World Income Fund, Inc. and Convertible Holdings, Inc.
(collectively "Merrill Lynch"), the Company issued warrants covering a total of
420,000 shares of the Company's Common Stock. The warrants issued to Merrill
Lynch covered 210,000 shares exercisable at $.01 per share (the "Penny
Warrants") and an additional 210,000 shares exercisable at $1.125 per share. The
Penny Warrants were exercised and 210,000 shares of Common Stock were issued in
May 1998. The shares of Common Stock issued to Merrill Lynch were not registered
under the Securities Act, and were issued pursuant to the exemption provided by
Section 4(2) of the Securities Act. Merrill Lynch was in compliance with the
necessary requirements of Section 4(2) to receive such exemption.
11
ITEM 6. Selected Financial Data
-----------------------
The following table sets forth selected financial data for the Company for each
of the last five fiscal years. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes included
elsewhere herein.
Fiscal Year Ended September 30
- -----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Data)
Income Statement Data: 1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Revenues $ 158,308 $ 141,398 $ 148,378 $ 145,992 $ 98,433
Operating Income 8,494 7,633 6,651 6,588 6,449
Net Income (Loss) Before
Discontinued Operations and
Extraordinary Item (415) 277 (18,349) (280) 2,999
Net Income (Loss) $ (1,598) $ (329) $ (18,825) $ (242) $ 3,286
Per Share Data - Basic and Diluted:
Net Income (Loss) Before
Discontinued Operations and
Extraordinary Item $ (.03) $ .01 $ (1.38) $ (.03) $ .24
Discontinued Operations (.07) - (.03) - .02
Extraordinary Item - (.04) - - -
------------ ------------ ----------- ------------ -----------
Net Income (Loss) $ (.10) $ (.03) $ (1.41) $ (.03) $ .26
============ ============ =========== ============ ===========
Weighted Average Shares
Outstanding - Basic 16,947,195 14,552,462 13,632,357 13,722,552 12,745,701
============ ============ =========== ============ ===========
Weighed Average Shares
Outstanding - Diluted 16,947,195 16,452,433 13,632,357 13,722,552 12,745,701
============ ============ =========== ============ ===========
As of September 30
- -----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance Sheet Data: 1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Total Assets $ 83,522 $ 80,843 $ 71,321 $ 93,330 $ 87,360
Long-Term debt 33,593 29,221 23,272 - 27,080
Total Liabilities 76,647 73,042 61,920 68,142 65,536
Accumulated Deficit (22,889) (21,200) (20,717) (1,488) (1,095)
Stockholders' Equity 5,450 6,601 7,402 23,998 21,137
12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation.
------------
Statements contained in this Form 10-K that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September 30,
1998
For the year ended September 30, 1999 the Company's revenues from continuing
operations increased $16,910,000 (12%) to $158,308,000 as compared to
$141,398,000 for the year ended September 30, 1998. The increase was due to
revenue gains in the Company's Overhill Farms subsidiary. Gross margins, on a
consolidated basis, remained constant at 18% with a decrease in margins at TTI
offset by improvements at Overhill Farms. During the period, operating income
increased 11% to $8,494,000 for fiscal 1999 from $7,633,000 last year.
Other income and expenses amounted to a net expense of $8,329,000 in 1999 as
compared to $7,299,000 in 1998. The prior year amounts were reported net of a
one time gain of $988,000 from the sale of the Company's office building in
December 1997.
The net loss for the year of $1,598,000, increased by $1,269,000 from a loss of
$329,000 reported in the prior year. The net loss for 1999 included charges for
$300,000 related to a tax assessment against TTI, $225,000 of accretion related
to Overhill's warrants and $1,183,000 related to the discontinued operations of
PIC. The 1998 amount was reported net of an extraordinary charge of $616,000,
related to the early extinguishment of Overhill debt.
The Food Group's revenues increased $19,147,000 (21%) to $112,496,000 for the
period ending September 30, 1999 as compared to $93,349,000 the same period last
year. Revenue gains were made in three of the four market segments the Company
serves with the largest gains coming from the food service segment. Increases in
this area were driven by the acquisition of two new national accounts (Panda
Express and Denny's) as well as increases from existing accounts. Gross margins
for the current period for the Food Group rose to 18% as compared to 15.8% for
the previous year. Operating income for fiscal 1999 increased by $2,408,000
(48%) to $7,384,000 as compared to $4,976,000 for fiscal 1998. Improvements in
gross margins and operating income are attributed to a cost reduction program
initiated in 1999 involving outsourcing some of the Company's production,
improved purchasing practices and the addition of new profitable accounts.
Income before income taxes for the Food Group increased to $1,647,000 for fiscal
1999 as compared to a loss before income taxes of $180,000 in the prior fiscal
year.
For the year ended September 30, 1999, revenues for the Forestry Group decreased
$2,237,000 (5%) to $45,812,000 as compared to $48,049,000 for the fiscal year
ended September 30, 1998. Gross margins decreased from almost 22% in fiscal 1998
to 18% in fiscal 1999. Operating income for the Forestry Group in fiscal 1999
was $1,490,000 as compared to $4,077,000 for the prior year. The decrease in
gross margins and operating income for the current period are primarily the
result of a change in product mix sold by the group in fiscal 1999. During the
period, sales of logging equipment, particularly used equipment, which
historically yields relatively higher percentage gross profits, decreased
markedly. Total equipment sales were down approximately 24% as compared to
fiscal 1998. These decreased sales were partially offset by gains in sales of
raw wood and timber products which brought lower gross margins than historical
equipment sales.
13
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997
For the year ended September 30, 1998, the Company's revenues decreased
$6,980,000 (5%) to $141,398,000 from $148,378,000 for the year ended September
30, 1997. On a consolidated basis, gross margins increased from 17% to 18%
during the period, resulting in an increase in operating income. Operating
income for the year ended September 30, 1998 increased $982,000 (15%) to
$7,633,000 from $6,651,000 during the comparable prior period. The Company
attributes the higher gross margins to the elimination of lower margin business
and improved purchasing of raw materials and inventory. Operating income
improved primarily from improved gross margins and the reduction of salaries and
other general and administrative expenses at the corporate level.
For the year ended September 30, 1998, the Company's interest expense increased
$1,701,000 (24%) to $8,830,000 from $7,129,000 in fiscal 1997. The increase in
interest is primarily due to additional borrowings and increased charges on the
Company's indebtedness to Mr. Harold Estes.
For the year ended September 30, 1998, the Company recorded a tax expense of
$57,000 primarily related to state tax liabilities. The benefit in 1997 resulted
primarily from the statutory tax benefit of the $18.7 million loss by the
Company, reduced by the valuation allowance relating to the portion of the tax
benefits that the Company was not able to utilize through carryback of such
losses to prior years.
Net income before discontinued operations and extraordinary item for the year
ended September 30, 1998 increased to $277,000 from a net loss before
discontinued operations and extraordinary item of $18,349,000 in fiscal 1997.
Net income for the fiscal 1998 period included a one time gain of $988,000 from
the sale of the Company's corporate headquarters in December 1997. Net income
for the fiscal 1998 was adversely affected by an extraordinary expense of
$616,000 relating to the early extinguishment of debt associated with the
refinancing of certain indebtedness by Overhill Farms.
The Food Group's revenues decreased $2,828,000 (3%) to $93,349,000 in fiscal
1998 from $96,177,000 in fiscal 1997. The decrease in revenue is primarily due
to the intentional paring of lower margin business and the aggressive bidding by
competitors, which if met, would have reduced profitability below minimum
requirements. During the year, the Company worked closely with American Airlines
and Jenny Craig to improve product selection and quality resulting in increased
sales to those customers of $900,000 and $1.1 million respectively. The food
service segment revenues decreased primarily because of decisions to forego
sales due to profitability considerations. Carl's Jr., Jack in the Box and Koo
Koo Roo continue to be key food service customers while Panda Express and
Denny's, new in fiscal 1998, are expected to be significant accounts in the near
future. Gross margins improved during the year due primarily to selectivity of
sales, reduction in manufacturing expenses from capital investments and
improvements in purchases of raw materials. Operating expenses increased
primarily from higher general and administrative costs, professional fees and
amortization associated with the refinancing of debt.
The Forestry Group's revenues decreased $4,153,000 (8%) to $48,049,000 from
$52,202,000 in fiscal 1997. The decrease in revenue is primarily attributable to
drier weather conditions in East Texas, reducing demand for new equipment. Gross
margins increased due to a change in the sales mix from new equipment to used
equipment sales and parts and service. Operating expenses increased $843,000
during the fiscal year resulting in a $420,000 (9%) decrease in operating income
for the year ended September 30, 1998. The operating expense increase resulted
from TTI's investment in a controlling interest of two forestry products
businesses. In the third quarter of fiscal 1998, Timberjack arranged the
purchase of the rights to harvest 94,500 tons of raw timber from the U.S.
Forestry Service. The timber was cut in late spring and early summer and will be
processed at a sawmill the Company leased in Bon Weir, Texas. The sawmill is
located in six main buildings on 68 acres which serves as storage for raw
14
materials and finished goods. For the year ended September 30, 1998 these
forestry products businesses contributed revenues of approximately $3.0 million
and a net loss of approximately $170,000.
Liquidity and Capital Resources
Principal sources of liquidity for the Company are cash flow from operations,
cash balances and additional financing capacity. The Company's cash and cash
equivalents decreased $26,000 to $375,000 at September 30, 1999, compared to
$401,000 at September 30, 1998.
The Company's operating activities in 1999 resulted in cash provided of
$2,552,000, as compared to a use of cash of $8,435,000 in 1998. The cash
generated during the current year is generally related to improved operating
profits at Overhill, along with increases in accounts payables offset by
increases in accounts receivable, both related to the volume increases at
Overhill, together with the reductions in inventories by TTI and its
subsidiaries.
The Company's investing activities for the year ended September 30, 1999
resulted in a use of cash of $1,994,000, as compared to a use of cash of
$2,433,000 in 1998. The use of cash resulted primarily from increases in notes
and related party receivables and capital expenditures by Texas Timberjack and
its subsidiaries, offset by $1,780,000 in cash proceeds from the sale of PIC.
The Company's financing activities for the year ended September 30, 1999
resulted in a use of cash of $584,000, as compared to cash provided of
$10,165,000 in 1998. The use of cash resulted from the repayment of $1,200,000
of convertible bonds held by Merrill Lynch reduced by slight increases in net
borrowings by Overhill and TTI.
In December 1997, Overhill refinanced a certain portion of its existing debt.
The new financing amounted to a total facility of $24.2 million which is
structured as a three-year term loan maturing in December 2000. The agreement
also requires Overhill to pay on a quarterly basis, service fees totaling
$180,000, $300,000 and $440,000 for the first, second and third years of the
loan respectively. Under the terms of the agreement, the Company granted stock
warrants that entitle the holder to immediately acquire at $.01 per share, 30%
of the common stock of Overhill, of which 25% (5/6 of the total shares under
warrant) could be repurchased by the Company for $2,000,000 during the two-year
period following the date of the agreement. In June 1998, in connection with
amending certain covenants and restrictions, the percentage of Overhill that the
Company can repurchase for $2,000,000 was reduced to 20% from 25%. Additionally,
the lender received fees totaling approximately $1.7 million in connection with
this financing, of which $500,000 is refundable if the loan is paid in full
during the second year of the loan. The Company used a portion of the proceeds
to repay Term Loans A and B, and $2,800,000 of principal of the $4,000,000
senior convertible debentures described below. The early extinguishment of this
indebtedness resulted in an extraordinary charge of approximately $616,000 in
fiscal 1998.
In November 1999, Overhill refinanced substantially all of its existing debt.
The total facility amounted to $44 million, consisting of a $16 million line of
credit provided by Union Bank of California, N.A. ("Union Bank") together with
$28 million in the form of a five-year term loan provided by Levine Leichtman
Capital Partners II, L.P. ("LLCP").
The line of credit with Union Bank expires in November 2002 and provides for
borrowings limited to the lesser of $16 million or an amount determined by a
defined borrowing base consisting of eligible receivables and inventories.
Borrowings under the line of credit will bear interest at a rate, as selected by
Overhill at the time of borrowing, of prime plus .25% or LIBOR plus 2.75%.
Availability under the line through December 15, 1999 ranged from approximately
$2 million to $5 million. The Union Bank agreement provides, among other things,
that Overhill will be subject to an unused line of credit fee of
15
.25% per annum. The agreement contains various covenants including restrictions
on capital expenditures, and specified net worth levels and debt service ratios.
In addition, the terms of the agreement generally prohibit loans, dividends or
advances from Overhill to the Company and limit payments of taxes and other
expenses to Polyphase to specified levels. The line of credit is guaranteed by
the Company and collateralized by certain assets of Overhill and all of the
Overhill common stock owned by the Company.
The term loan with LLCP is a secured senior subordinated note bearing interest
at 12% per annum, with interest payable monthly until maturity in October 2004.
Principal payments in an amount equal to 50% of the excess cash flow, as
defined, for Overhill's previous fiscal year are also payable annually
commencing in January 2001. Voluntary principal payments are permitted after
October 31, 2001, subject to certain prepayment penalties. The agreement
contains various covenants including restrictions on capital expenditures,
minimum EBITDA and net worth levels, and specified debt service and debt to
equity ratios. In addition, the terms of the agreement restrict changes in
control, generally prohibit loans, dividends, or advances by Overhill to the
Company and limit payments of taxes and other expenses to Polyphase to specified
levels. The term loan with LLCP is guaranteed by the Company and collateralized
by certain assets of Overhill. The agreement also requires Overhill to pay to
LLCP, during each January, annual consulting fees of $180,000.
In connection with the agreement, LLCP was granted stock warrants to purchase
17.5% of the common stock of Overhill, exercisable immediately at a nominal
exercise price. During the first two years following the date of the agreement,
Overhill has the right to repurchase 5% of Overhill's shares from LLCP for $3
million and/or to repurchase all 17.5% of the Overhill shares subject to the
LLCP warrant within five days of the term loan being repaid at their then
determined fair market value. If such shares are not repurchased, LLCP will be
entitled under the agreement to receive a cash payment of $500,000 from
Overhill. At the date of issuance, the warrants granted to LLCP were estimated
to have a fair value of $2.37 million.
As a result of these transactions, Overhill repaid in full the $22.7 million
senior subordinated notes payable and the $9.6 million revolving line of credit.
Additionally, Overhill repurchased for $3.7 million the warrants held by the
lender to purchase 30% of Overhill's common stock. In addition, in connection
with the refinancing, Overhill was permitted to make a one-time advance of $1.25
million to Polyphase for working capital and other specified purposes. Overhill
incurred costs and expenses in connection with the refinancing totaling
approximately $2.5 million, substantially all of which has been, or will be,
paid to the lenders. The early extinguishment of the previous indebtedness will
result in an extraordinary loss of approximately $1.2 million (net of a $500,000
refund for early payment of the senior subordinated notes) to be recognized
during the Company's quarter ending December 31, 1999.
In connection with its acquisition in 1995, Overhill obtained a credit facility
with Finova Capital Corporation in the original amount of $18,000,000,
consisting of a $12,000,000 revolving line of credit and two term loans, A and B
for $2,000,000 and $4,000,000, respectively. Term Loans A and B were repaid in
December 1997 as described above. Borrowings under the revolving line of credit
are limited to the lesser of $12,000,000 or an amount determined by a defined
borrowing base which is based on eligible receivables and inventory. Borrowings
under the line of credit facility bear interest at the Citibank base rate plus
1.5% (approximately 9.75% at September 30, 1999). Overhill's revolving line of
credit requires the payment of an unused line fee of .25% per annum and an
annual facility fee of .50% per annum. The credit facility is collateralized by
Overhill's receivables and inventories and has been guaranteed by the Company.
The borrowings are classified as long-term debt due to their subsequent
refinancing under a long-term arrangement with Union Bank as discussed above.
The 1999 Bonds were repaid in July 1999. Such Bonds, in the original principal
amount of $4,000,000,
16
were convertible at the option of the holder into shares of common stock equal
to the principal amount of each bond (or in $1,000 increments) divided by a
$3.00 per share conversion price, subject to adjustment in certain
circumstances. As part of the 1997 refinancing, the holders were granted
warrants to purchase 420,000 shares of the Company's common stock, exercisable
over a five-year period, with certain registration rights. The warrants are
exercisable for 210,000 shares at $.01 per share (which were exercised during
fiscal 1998) and 210,000 shares at $1.125 per share, the market price of the
Company's common stock on the date of grant.
In connection with the acquisition of TTI in June 1994, the Company recorded a
note to the seller (Mr. Harold Estes) in the amount of $9,737,719 with interest
at 8% due October 31, 1994 and collateralized by all the capital stock of TTI.
As of various maturity dates, Mr. Estes has entered into subsequent agreements
with the Company to modify and extend the term of the note. As of September 30,
1999, the note had a total unpaid balance of $17,914,842 (principal of
$16,347,191 and accrued interest of $1,567,651), bearing interest at 9.75% per
annum with a maturity date of December 15, 1999. During November 1999, the note
was further modified and extended to mature October 10, 2002 at an interest rate
of 9% per annum, and to allow for principal and interest payments to be made
with amounts upstreamed to Polyphase by TTI for the payment of taxes (subject to
the approval of Timberjack's Board of Directors and its lenders). In connection
with a previous modification in 1998, the Company agreed to assign any interest
it may have or subsequently obtain with respect to 2,000,000 shares of the
Company's common stock owned by the Pyrenees Group ("Pyrenees"), a private
investment firm controlled by Paul A. Tanner, the Company's former Chairman and
Chief Executive Officer, and held by Mr. Estes as secondary collateral. These
shares, which were recovered in 1999 on behalf of Mr. Estes, had a value of
$875,000, which was charged to interest expense in 1999.
TTI has an $8.0 million revolving line of credit with Bank of America, N.A.
(formerly NationsBank of Texas, N.A.). Amounts advanced under the line of credit
bear interest at prime less .25% (approximately 8.0% at September 30, 1999), and
are collateralized by substantially all of TTI's assets. The line of credit
agreement contains various covenants related to receivables, capital
expenditures, inventories, debt ratios, contingent liabilities and payment of
dividends. Furthermore, the terms of the revolving line of credit generally
prohibit dividends, loans or advances from TTI to the Company, but permit the
payment of taxes. The Company has guaranteed all obligations under the TTI
revolving line of credit. Availability under the line as of September 30, 1999
amounted to approximately $4.1 million. TTI intends to renew the revolving
credit facility upon maturity in March 2000.
TTI's majority-owned subsidiary, Southern Forest Products, LLC, has an $8.0
million revolving line of credit with Bank of America, N.A. (formerly
NationsBank of Texas, N.A.) The line of credit expires in April 2000 and amounts
advanced under the line bear interest at prime (approximately 8.25% at September
30, 1999), and are collateralized by substantially all of the assets of Southern
Forest Products. Availability under the line as of September 30, 1999 amounted
to approximately $2.5 million.
The Company believes that the funds available to it from operations and existing
capital resources will be adequate for its capital requirements for the next
twelve months.
Year 2000
The Company has initiated a Year 2000 program to identify and address issues
associated with the ability of its business systems and equipment to properly
recognize the Year 2000. The purpose of this effort is to avoid interruption of
the operations of the Company as a result of the century change that will occur
on January 1, 2000. The Company's program includes review of its software
systems, review of its operating systems, upgrade or retirement of non-compliant
hardware and contacting key suppliers to assess their Year 2000 readiness.
17
The Food Group has completed the installation of a new integrated accounting,
inventory, sales and purchasing system to replace the previous manual and
computer systems supporting operations. The system software and hardware has
been certified by the vendor to be Year 2000 compliant and has been implemented
as a parallel system. The Forestry Group has reviewed its existing software and
has completed an upgrade modification.
The Company began the second phase of its Year 2000 compliance project in late
January. The Company's subsidiaries are contacting key vendors to assess their
Year 2000 readiness and evaluate the effect of non-compliance on the Company's
future business.
Despite efforts to address the Year 2000 problem, there can be no guarantee that
critical suppliers or entities on which the Company relies will be converted on
a timely basis. The Company believes, based upon preliminary findings, that most
vendors are performing internal Year 2000 projects similar to the Company's and
that non-compliant vendors will offer alternative measures for time sensitive
products. Contingency plans for obtaining goods and services from non-compliant
vendors will be addressed on a case by case basis.
To date, the Company has had no material expenditures for direct Year 2000
compliance procedures.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
----------------------------------------------------------
The Company's interest expense is affected by changes in prime and LIBOR rates
as a result of its various line of credit arrangements (see Item 7). If these
market rates increase by an average of 1% in fiscal 2000, the Company's interest
expense would increase by approximately $200,000 based on the outstanding line
of credit balances at September 30, 1999.
The Company does not own, nor does it have an interest in any other market risk
sensitive instruments. See Item 1 "Description of Business".
ITEM 8. Financial Statements.
--------------------
See Index to Consolidated Financial Statements included in Item 14.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
None
18
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The following table sets forth certain information regarding the directors and
executive officers of the Company.
Name Age Position
- --------------------------------------------------------------------------------
James Rudis 50 Chairman of the Board,
Chief Executive Officer and President
William E. Shatley 53 Senior Vice President,
Chief Financial Officer, Treasurer and
Director
Michael F. Buck 62 Secretary and Director
George R. Schrader 68 Director
James Rudis was elected to the Board of Directors (the "Board") in December 1992
and has served as Chairman and Chief Executive Officer since February 1998 and
President since July 1997. He also served as Executive Vice President of the
Company from March 1994 until July 1997. Prior to his employment with the
Company, Mr. Rudis was President of Quorum Corporation, a private consulting
firm involved in acquisitions and market development. From 1970 until 1984, he
held various executive positions in CIT Financial Corporation, including Vice
President and Regional Manager of that company's Commercial Finance Division.
William E. Shatley was named as Senior Vice President and Treasurer of the
Company in March 1994 and was elected to the Board in February 1998. He joined
the Company in an executive capacity in October 1993, having previously served
the Company on an advisory basis since the relocation of its corporate offices
to Texas in 1992. Mr. Shatley, a Certified Public Accountant since 1970,
previously conducted his own consulting and accounting practice (1982-1993),
after having served as Vice President and Chief Financial Officer of Datotek,
Inc. (1977-1982) and in an executive capacity with Arthur Andersen (1968-1977).
Michael F. Buck is President of Mimatian Co., an operations and materials
consulting firm. From August 1990 to August 1994, Mr. Buck served as Vice
President of Bath Iron Works, Inc., a company engaged in building Aegis Class
cruisers and destroyers for the United States Navy. From August 1989 to August
1990, Mr. Buck was a Vice President of Sabreliner Corporation, a company engaged
in building, maintaining and overhauling executive jet aircraft. From March 1986
to August 1989, Mr. Buck was Vice President and Director of Procurement for
International Telephone and Telegraph. He became a director of the Company in
December 1989.
George R. Schrader was appointed as a director in March 1994. He is currently a
named member of Schrader & Cline, LLC, a financial and governmental management
consulting firm. From 1983 to 1993, he was a principal of Schrader Investment
Company, whose activities paralleled those of Schrader & Cline, LLC. Mr.
Schrader's additional experience includes ten years as City Manager for the city
of Dallas, Texas and a total of nine years experience as City Manager for the
Texas cities of Mesquite and Ennis.
19
Significant Employee
Mr. Harold Estes is the President of Texas Timberjack, Inc., a wholly owned
subsidiary of the Company. He was elected as a director in February 1996 and
resigned from the board in April 1997. TTI is a distributor of industrial and
commercial timber and logging equipment with locations in Lufkin, Cleveland,
Atlanta and Jasper, Texas. Mr. Estes has been President of TTI since 1984, when
he acquired it from the Eaton Corporation.
Meetings of the Board of Directors and its Committees
The Board has standing Compensation and Audit Review Committees. The
Compensation Committee is comprised of Messrs. Buck and Schrader. During fiscal
1999, the Compensation Committee met one time. The Compensation Committee (i)
administers the Company's employee stock option plans and approves the granting
of stock options and (ii) approves compensation for officers.
The Audit Review Committee is composed of Messrs. Buck and Schrader. During
fiscal 1999, the Audit Review Committee met two times. Its functions are to (i)
recommend the appointment of independent accountants; (ii) review the
arrangements for and scope of the audit by independent accountants; (iii)
consider the adequacy of the system of internal controls and review any proposed
corrective actions; and (iv) review and monitor the Company's policies regarding
business ethics and conflicts of interest.
The full Board of Directors met four times during fiscal 1999. Each director
attended all meetings of the Board of Directors and each Committee on which such
director served.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934 ("Exchange Act") requires
the Company's directors, officers and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission") and the American Stock Exchange. Directors, officers and
greater than 10 percent beneficial owners of the Company's equity securities are
required by applicable regulations to furnish the Company with copies of all
forms they file with the Commission pursuant to Section 16(a).
Based upon (i) a review of the copies of forms furnished to the Company pursuant
to the requirements of Section 16(a); (ii) information received by the Company
in connection with various purchases and sales of the Company's equity
securities; and (iii) the knowledge of the Company that Infinity Investors
Limited ("Infinity") may have owned greater than ten percent of the Company's
equity securities and did not file the required forms with the Commission
pursuant to Section 16(a), the Company believes that during fiscal 1999, all
filing requirements applicable to its directors and executive officers were
satisfied. However, with respect to the Company's greater than 10% beneficial
owners of equity securities, Infinity is delinquent in its Section 16(a) filing
obligations.
Based solely upon a review of the copies of forms furnished to the Company,
pursuant to the requirements of Section 16(a) and excluding Infinity, all
holders of greater than 10% of the Company's equity securities have satisfied
their Section 16(a) filing requirements.
20
ITEM 11. Executive Compensation.
----------------------
The following table sets forth for fiscal 1999, 1998 and 1997 compensation
awarded or paid to Mr. James Rudis, the Company's Chairman, Chief Executive
Officer and President and Mr. William E. Shatley, the Company's Senior Vice
President, Treasurer and Chief Financial Officer (collectively, the "Named
Executive Officers"). Other than as indicated in the table below, no executive
officer of the Company received salary plus bonus in excess of $100,000 for the
year ended September 30, 1999.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------ -------------------
Name and Principal Fiscal Other Annual All/Other
Position Year Salary Bonus Compensation Options/SARs Compensation
- ------------------------------------------------------------------------------------------------------------------------
James Rudis 1999 $180,000 $ 0 $ -(1) - $ -
Chairman, Chief 1998 $168,077 $ 0 $ -(1) - $ -
Executive Officer, 1997 $138,240 $ 0 $ -(1) - $ -
President and
Director (2)
William E. Shatley 1999 $132,000 $ 0 $ -(1) - $ -
Senior Vice President, 1998 $126,000 $ 0 $ -(1) - $ -
Treasurer, Chief 1997 $108,000 $ 0 $ -(1) - $ -
Financial Officer and
Director
_______________
(1) The Named Executive Officers each received certain perquisites and other
personal benefits from the Company during fiscal 1999, 1998 and 1997. These
perquisites and other personal benefits, however, did not equal or exceed
10% of the Named Executive Officers' salary and bonus during fiscal 1999,
1998 or 1997.
(2) Mr. Rudis was named Chairman and Chief Executive Officer in February 1998.
Mr. Rudis formerly the Company's Executive Vice President, became President
in July 1997.
No individual grants or exercises of stock options were made to the Named
Executive Officers during the fiscal year ended September 30, 1999.
The following table describes for the Named Executive Officers options and the
potential realizable value for his options as of September 30, 1999, which were
granted in prior fiscal years.
21
Fiscal Year End September 30, 1999 Option/SAR Values
Number of Unexercised Value of Unexercised In-the-Money
Options/SARs at Options/SARs at
September 30, 1999 September 30, 1999 (1)
--------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------
James Rudis 276,500 - $ - $ -
William E. Shatley 246,500 - $ - $ -
_________
(1) Based on $.6875 per share of Common Stock, which was the closing price per
share of Common Stock on September 30, 1999 on the AMEX as reported by The
Wall Street Journal.
Compensation Committee Report on Executive Compensation
The Board of Directors has established a Compensation Committee to review and
approve the compensation levels of executive officers of the Company, evaluate
the performance of the executive officers, consider senior management succession
issues and any related matters for the Company. The Compensation Committee is
charged with reviewing with the Board of Directors in detail all aspects of cash
compensation for the executive officers of the Company. Stock option
compensation for the executive officers is also considered by the Compensation
Committee.
The philosophy of the Company's compensation program is to employ, retain and
reward executives capable of leading the Company in achieving its business
objectives. These objectives include preserving a strong financial posture,
increasing the assets of the Company, positioning the Company's assets and
business operations in geographic markets and industry segments offering long
term growth opportunities, enhancing shareholder value and ensuring the survival
of the Company. The accomplishment of these objectives is measured against
conditions prevalent in the industries within which the Company operates. In
recent years these conditions reflect a highly competitive market environment
and rapidly changing regional, geographic and overall industry market
conditions.
The available forms of executive compensation include base salary, cash bonus
awards and incentive stock options. Performance of the Company is a key
consideration (to the extent that such performance can fairly by attributed or
related to such executive's performance), as well as the nature of each
executive's responsibilities and capabilities. The Company's compensation policy
recognizes, however, that stock price performance is only one measure of
performance and, given industry business conditions and the long term strategic
direction and goals of the Company, it may not necessarily be the best current
measure of executive performance. Therefore, the Company's compensation policy
also gives consideration to the Company's achievement of specified business
objectives when determining executive officer compensation. Compensation paid to
executive officers is based upon a Company-wide salary structure consistent for
each position relative to its authority and responsibility compared to industry
peers.
Based on comparative industry data, and after due consideration to the factors
mentioned above, the Compensation Committee set Mr. Rudis' salary at $180,000
for fiscal 1999. The Company did not pay any cash bonuses to Mr. Rudis for
fiscal 1999.
22
The Compensation Committee believes that the compensation of the Company's other
executive officers was reasonably related to the performance of the Company and
those individuals during fiscal 1999.
COMPENSATION COMMITTEE
Michael F. Buck
George R. Schrader
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries or had any relationship requiring disclosure
pursuant to Item 404 of Commission Regulation S-K. No executive officer of the
Company served as a member of a compensation committee of another corporation
(or other board committee of such company performing similar functions or, in
the absence of any such committee, the entire board of directors of such
corporation), one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of a
compensation committee of another corporation (or other board committee of such
corporation performing similar functions or, in the absence of any such
committee, the entire board of directors), one of whose executive officers
served as a director of the Company.
Director Compensation
Directors who are also employees of the Company receive no additional
compensation for services as directors. Nonemployee directors receive an annual
fee of $8,500, with additional fees of $2,500 and $1,500 for service on the
Audit Committee and Compensation Committee, respectively, plus additional fees
of $500 to $750 per Board and Committee meeting attended. Directors are also
reimbursed for all expenses incident to their service on the Board of Directors.
During March 1998, Mr. Michael F. Buck and Mr. George R. Schrader were granted
options to purchase 30,000 and 50,000 shares, respectively, of Common Stock,
exercisable at $0.75 per share (the fair market value at the date of grant) in
whole or in part, expiring in March 2008.
During July 1996, Mr. Buck and Mr. Schrader were each granted options to
purchase 30,000 shares of Common Stock, exercisable at $2.00 per share (the fair
market value at the date of grant), in whole or in part, expiring in July 2006.
Common Stock Performance Table
The following performance table compares the five-year cumulative return of the
Common Stock with that of a Broad Market Index (American Stock Exchange) and a
Published Industry Index (MG Industry Group 342 - Food and Beverage - Processed
and Packaged Goods). Each index assumes $100 invested at September 30, 1994, and
is calculated assuming quarterly reinvestment of dividends and quarterly
weighting by market capitalization.
23
Comparative Five-Year Total Returns
Company 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------
Polyphase Corporation 100.00 59.78 119.57 31.52 7.61 11.96
Industry Index 100.00 97.88 113.31 155.90 147.89 145.05
AMEX Market Index 100.00 120.49 125.40 152.50 133.20 155.13
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth information regarding the beneficial ownership of
Common Stock as of September 30, 1999, by each person or group who owned, to the
Company's knowledge, more than five percent of the Common Stock, each of the
Company's directors, the Company's Chief Executive Officer, and all of the
Company's directors and executive officers as a group.
Amount and Nature of
Name Beneficial Ownership (1) Percent of Class (1)
- ------------------------------------------------------------------------------------------
James Rudis 557,900 (2) 3.1%
William E. Shatley 404,700 (3) 2.2
Michael F. Buck 60,100 (4) *
George R. Schrader 80,000 (5) *
Harold Estes 3,921,200 (6) 22.0
Infinity Investors Limited 1,165,756 (7) 6.1
John E. McConnaughy, Jr. 1,511,900 (8) 8.5
All directors and executive officers
as a group (4 persons) 1,102,700 (9) 6.0
- ----------------
* Less than 1%.
(1) Except as noted, to the knowledge of the Company, the listed persons and
entities have sole investment power and sole voting power as to all shares
of Common Stock for which they are identified as being the beneficial
owners. Information as to beneficial ownership has been furnished to the
Company by such persons. Such presentation is based on 17,812,464 shares of
Common Stock outstanding as of September 30, 1999.
(2) Includes 276,500 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
(3) Includes 246,500 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
Includes 158,200 shares that Mr. Shatley may be deemed to beneficially own
as a general partner in a family limited partnership.
(4) Includes 60,000 shares that could be purchased pursuant to the exercise of
stock options
24
exercisable within 60 days subsequent to the date hereof.
(5) Includes 80,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
(6) Mr. Estes' address is Highway 59 South, Route 15, Box 9475, Lufkin, Texas
75901.
(7) The address of Infinity is 38 Hertford Street, London W1Y7TG, England. As
discussed in the subsection to Item 10 entitled "Section 16(a) Beneficial
Ownership Reporting Compliance," the number of shares reportedly held by
Infinity consists solely of 1,165,756 shares, 6.1% of the class on an "as
converted" basis, of Common Stock into which certain of the Company's
preferred stock (and accrued dividends thereon) held by Infinity is
convertible within 60 days subsequent to the date hereof.
(8) Mr. McConnaughy's address is 1011 High Ridge Road, Stamford, Connecticut
06905.
(9) Includes 663,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
ITEM 13. Certain Relationships and Related Transactions.
----------------------------------------------
The Pyrenees Option
In October 1992, the Company's Board of Directors authorized the issuance of
options to purchase five series of convertible preferred stock to the Pyrenees
Group, a private investment firm controlled by Paul A. Tanner, the Company's
former Chairman and Chief Executive Officer, or its assignees. The options are
summarized as follows:
Preferred Conversion Common
Series Shares Price Shares
-------- --------- ---------- ---------
A 125,000 $ .50 2,500,000
B 100,000 1.00 1,000,000
C 100,000 2.00 500,000
D 200,000 4.00 500,000
E 475,000 10.00 475,000
--------- ---------
1,000,000 4,975,000
During fiscal 1994 and 1995, Pyrenees exercised and converted Series A, B and C
Preferred Stock into common stock. In November 1995, Pyrenees exercised the
Series D option through the issuance of a 7% recourse note in the amount of
$2,000,000, collateralized by the shares issued, which was treated as an
in-substance stock option at the date of grant. During fiscal 1996, these shares
were converted to 500,000 shares of common stock. During the years ended
September 30, 1996 and 1997, principal payments of approximately $721,000 and
$304,000, respectively, were made on the note. The remaining balance of $975,000
became uncollectible, and the 500,000 shares of common stock that secure this
note have been recovered pursuant to certain litigation against Pyrenees and Mr.
Tanner. This recovery has been accounted for as an unexercised stock option in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". As such, $756,000, representing the difference
between the note balance and the fair market value of the 500,000 shares as of
the recovery date was recorded as a reduction in paid-in capital.
25
Advances to Related Parties
On February 23, 1998, Mr. Paul A. Tanner resigned as Chief Executive Officer and
Chairman of the Company's Board of Directors. Mr. James Rudis, the Company's
President, was elected by the Board to assume the vacated positions. Following
the resignation, a reserve of approximately $165,000 was established against all
outstanding advances due from Mr. Tanner.
During fiscal years 1994 and 1995 a number of advances were made to Mr. Tanner
which aggregated approximately $2.0 million. In December 1995, the advances were
refinanced though the issuance to the Company of a 12% unsecured demand note
from Mr. Tanner. Also during the aforementioned periods, the Company made
non-interest bearing cash advances of approximately $1.5 million to the Pyrenees
Group, a company controlled by Mr. Tanner.
Effective in January 1996, the Company reached an agreement to manage a project
to develop and build a multi-purpose sports facility in Las Vegas, Nevada. The
project was being developed by PLY Stadium Partners, Inc. ("Stadium Partners"),
a private investment firm headed by Mr. Tanner. The Company agreed to provide to
Stadium Partners up to $4 million of debt (1) convertible into a 14% economic
interest in the project and (2) guaranteed personally by Mr. Tanner and
Pyrenees. As part of this agreement, amounts which had been advanced during
fiscal 1994 and 1995 to Mr. Tanner and Pyrenees (approximately $3.5 million),
together with subsequent amounts advanced, charged or accrued to or on behalf of
Stadium Partners were considered as components of the $4 million of convertible
debt, bearing interest at 12.0% and guaranteed personally by Mr. Tanner and by
Pyrenees. Through September 30, 1996, the Company advanced an additional $9.27
million, for an approximate total of $13.3 million.
In addition to the cash advances referred to above, the Company, during fiscal
1996 accrued management and service revenues of $2,550,000 and interest income
of $790,000 related to the Company's activities with Stadium Partners, the
collectibility of which was dependent upon the success of the project and/or the
guarantees referred to above. As a result of the terms of the financing
arrangements with Lehman described below, Stadium Partners was precluded from
making any distributions until permanent project financing was secured or
stadium suite sales were made that were sufficient to repay the financing from
Lehman. As a consequence of Stadium Partners' inability to effect such sales or
obtain such financing by March 15, 1997 in order to make its payment to the
Company on such date, the Company established a reserve of $3.34 million as of
September 30, 1996, which represented all income accrued in 1996.
On November 15, 1996, Stadium Partners, through a newly-formed partnership,
purchased 62 acres in Las Vegas for the development of the stadium and adjacent
convention facility. Financing was provided by Lehman Brothers Holdings, Inc.
("Lehman") through a partnership, Nevada Stadium Partners Limited Partnership
("Nevada Partnership"), with Lehman receiving an equity interest in the project.
The Company guaranteed the repayment of the Lehman loan on behalf of Stadium
Partners. The guarantee is only effective in certain circumstances or upon the
occurrence of certain events. A foreclosure sale was conducted during July 1998.
Notwithstanding such foreclosure action, the Company, based on the advice of
legal counsel, does not believe that it will incur any significant liability as
a result of this guarantee. As a result, the Company believes the existence of
such guarantee will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
The loan agreement with Lehman required certain prepayments by Nevada
Partnership, the first of which in the amount of $5.0 million became due in
January 1997. This was paid primarily with funds advanced by the Company. The
second prepayment requirement of $20.0 million became due in May 1997; this
payment was not made. As a result of the failure to make this payment, another
agreement was entered into among the borrower, Lehman and the Company as of July
1, 1997. This agreement generally
26
provided forbearance by Lehman until September 30, 1997, to allow additional
time to raise the funds to make the principal payment. The terms of the
forbearance agreement were not met by the September deadline, and the note
matured unpaid in November 1997.
As a result of the above, the Company recorded a charge to earnings for the year
ended September 30, 1997, in the amount of $14.8 million, representing all
amounts remaining uncollected from Stadium Partners, net of the reserve
established in 1996. Amounts which may subsequently be recovered, if any, will
be recognized as income when collection is assured.
During April 1998, the Company filed suit against PLY Stadium Partners, Inc.,
and against Mr. Tanner and Pyrenees, the guarantors of the debt. In May 1999,
the Company was awarded a judgment against such defendants, jointly and
severally, in the amount of approximately $19.5 million, plus interest. In
connection therewith, the defendants were ordered to turn over all ownership of
the stock of Polyphase, as well as the stock and assets of PLY Stadium Partners,
Inc. and Pyrenees, which includes the rights to 2,000,000 shares of Polyphase
common stock owned by Pyrenees and held by Mr. Harold Estes as secondary
collateral. In connection with this recovery of the 2,000,000 Polyphase shares,
the Company recorded interest expense of $875,000, the fair value assigned to
the shares, resulting from its assignment to Mr. Estes. Additionally, the
Company recorded income of $656,000 related to the recovery of 1,500,000 shares
and accounted for the remaining 500,000 shares as an unexercised stock option in
accordance with APB No. 25. After evaluating the possibility of any potential
post judgment collections and the additional legal expenses to be incurred in
pursuing such collections, and further considering the likelihood of one or all
of the defendants seeking protection under bankruptcy laws, the Company is
presently in negotiations to settle the judgment. The objective is to secure
recoveries, in addition to the Polyphase shares discussed above, through the
collections of proceeds using either first or second liens on properties held by
other than the judgment debtors. Any further amounts ultimately recoverable as a
result of this judgment and turnover order or the settlement negotiations is not
presently determinable.
Other Transactions
Other assets include an insurance premium receivable from Mr. Harold Estes
representing insurance premiums paid by TTI on his behalf. As of September 30,
1999, the insurance premium receivable was $592,006.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer of TTI. The note which has been renewed and extended each year
since issuance is secured by marketable securities, is payable within one year
and bears interest at 3.96%. As of September 30, 1999 the balance outstanding
was $341,305 and the note has been classified as a non-current related party
receivable. Also included in related party receivables at September 30, 1999 are
approximately $683,000 in receivables from employees the Company and its
subsidiaries and $499,000 in receivables from partnerships in which TTI has
minority interests. As of September 30, 1999, approximately $570,000 of such
receivables are notes which are no longer accruing interest. During 1999, the
Company established a $100,000 reserve against receivables from employees of the
Company. The Company expects the remaining amounts due under related party
receivables to be realizable.
27
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
--------------------------------------------------------------
(a) 1. and 2. Financial Statements and Financial Statement Schedule.
1. The following consolidated financial statements of Polyphase
Corporation and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended September 30, 1999,
are included in Item 8:
Report of Independent Auditors F-2
Consolidated Balance Sheets-September 30, 1999 and 1998 F-3
Consolidated Statements of Operations-Years ended September 30, 1999, 1998,
and 1997 F-5
Consolidated Statements of Stockholders' Equity-Years ended September 30, 1999,
1998, and 1997 F-7
Consolidated Statements of Cash Flows-Years ended September 30, 1999, 1998,
and 1997 F-9
Notes to Consolidated Financial Statements F-12
2. The following consolidated financial statement schedule of Polyphase
Corporation and subsidiaries is included in item 14(a):
Schedule I - Condensed Financial Information of Registrant F-44
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
3. Exhibits
3.1 Articles of Incorporation of Polyphase Corporation, as amended
(incorporated by reference from Exhibits 4.1 and Exhibits 4.3 through
4.8 to the Company's registration statement on Form S-8
[No. 33-82008], filed with the Commission on July 27, 1994 [the "1994
Form S-8"])
3.2** Bylaws of Polyphase Corporation (as amended April 26, 1999)
4.1 Certificate of Designation relating to the Series A-2 Preferred Stock
(incorporated by reference from Exhibit 4.9 to the Company's
Registration Statement on Form SB-2 [No. 33-85334] filed with the
Commission on October 19, 1994 [the "Form SB-2"])
28
4.2 Certificate of Designation relating to the Series A-3 Preferred Stock
(incorporated by reference from Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995 [the "1995
Form 10-K"])
+10.1 Stock Option Agreement for Paul A. Tanner (incorporated by reference
from Exhibit 4.12 to the 1994 Form S-8)
+10.2 Stock Option Agreement for George R. Schrader (incorporated by
reference from Exhibit 4.15 to the 1994 Form S-8)
+10.3 Stock Option Agreement for James Rudis (incorporated by reference
from Exhibit 10.5 to the Company's Form 8-B, filed with the
Commission on August 27, 1994 [the "Form 8-B"])
+10.4 Stock Option Agreement for William E. Shatley (incorporated by
reference from Exhibit 10.6 to the Form 8-B)
+10.5 Employment Agreement, dated as of November 1, 1993, between Harold
Estes and Texas Timberjack, Inc. (incorporated by reference from
Exhibit 2 to the Company's Form 8-K dated June 24, 1994 [the "1994
Form 8-K"])
10.6 Pledge Agreement, dated as of June 24, 1994, between Polyphase
Corporation and Harold Estes (incorporated by reference from Exhibit
10.10 to the Form 8-B)
10.7 Security Agreement, dated as of June 24, 1994, between Texas
Timberjack, Inc. and Harold Estes (incorporated by reference from
Exhibit 10.11 to the Form 8-B)
10.8 Stock Option Agreement, dated as of October 21, 1992, between
Polyphase Corporation and the Pyrenees Group (incorporated by
reference from Exhibit 10.12 to the Form 8-B)
10.9 Securities Purchase Agreement, dated as of July 5, 1994, by and among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.16 to the Form 8-B)
10.10 Registration Rights Agreement, dated as of July 5, 1994, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.17 to the Form 8-B)
10.11 Indenture, dated as of July 5, 1994, from Polyphase Corporation to
IBJ Schroder Bank & Trust Company (incorporated by reference from
Exhibit 10.18 to the Form 8-B)
10.12 Form of 12% Senior Convertible Debenture No. 1, payable to Bridge
Rope & Co. or registered assigns (incorporated by reference from
Exhibit 10.19 to the Form 8-B)
10.13 Form of 12% Senior Convertible Debenture No. 2, payable to Vault &
Co. or registered assigns (incorporated by reference from Exhibit
10.20 to the Form 8-B)
10.14 Promissory Note in the amount of $2,000,000, from Pyrenees Group, as
maker, to Polyphase Corporation, dated November 1, 1995, related to
the exercise of options on Series D Preferred Stock (incorporated by
reference from Exhibit 10.29 to the 1995 Form 10-K)
29
10.15 Security Agreement, dated as of November 1, 1995, between Pyrenees
Group and Polyphase Corporation (incorporated by reference from
Exhibit 10.30 to the 1995 Form 10-K)
10.16 Promissory Note in the amount of $2,000,872, from Paul A. Tanner, as
maker, to Polyphase Corporation, dated December 8, 1995 (incorporated
by reference from Exhibit 10.31 to the 1995 Form 10-K)
10.17 Convertible Preferred Stock Purchase Agreement, dated as of November
10, 1995, by and between Polyphase Corporation and Infinity
Investors, Limited (incorporated by reference from Exhibit 10.32 to
the 1995 Form 10-K)
10.18 Securities Purchase Agreement, dated as of December 1, 1995, by and
among Polyphase Corporation, Merrill Lynch World Income Fund, Inc.,
and Convertible Holdings, Inc. (incorporated by reference from
Exhibit 10.33 to the 1995 Form 10-K)
10.19 Registration Rights Agreement, dated as of December 1, 1995, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc. and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.34 to the 1995 Form 10-K)
10.20 Indenture, dated as of December 1, 1995, from Polyphase Corporation
to IBJ Schroder Bank & Trust Company (incorporated by reference from
Exhibit 10.35 to the 1995 Form 10-K)
10.21 Form of 12% Senior Convertible Debenture No. 1, dated December 1,
1995 payable to Bridge Rope & Co. or registered assigns (incorporated
by reference from Exhibit 10.36 to the 1995 Form 10-K)
10.22 Form of 12% Senior Convertible Debenture No. 2, dated December 1,
1995 payable to Kane & Co. or registered assigns (incorporated by
reference from Exhibit 10.37 to the 1995 Form 10-K)
10.23 Stock Purchase Agreement among Letronix Acquisition Corp. and
Polyphase Corporation dated June 28, 1996 (incorporated by reference
from Exhibit 10.44 to the 1996 Form 10-K)
10.24 Security and Pledge Agreement, dated June 28, 1996 by and between
Letronix Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.45 to the 1996 Form 10-K)
10.25 Secured Promissory Note, dated June 28, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.46 to the 1996 Form 10-K)
10.26 Security Agreement, dated July 1, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.47 to the 1996 Form 10-K)
10.27 Promissory Note, dated July 1, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.48 to the 1996 Form
30
10-K)
10.28 Stock Purchase Agreement among Letronix Acquisition Corp. and
Polyphase Corporation dated July 1, 1996 (incorporated by reference
from Exhibit 10.49 to the 1996 Form 10-K)
+10.29 Stock Option Agreement for Paul A. Tanner dated July 23, 1996
(incorporated by reference from Exhibit 10.50 to the 1996 Form 10-K)
+10.30 Stock Option Agreement for James Rudis dated July 23, 1996
(incorporated by reference from Exhibit 10.51 to the 1996 Form 10-K)
+10.31 Stock Option Agreement for William E. Shatley dated July 23, 1996
(incorporated by reference from Exhibit 10.52 to the 1996 Form 10-K)
+10.32 Stock Option Agreement for Michael F. Buck dated July 23, 1996
(incorporated by reference from Exhibit 10.53 to the 1996 Form 10-K)
+10.33 Stock Option Agreement for George R. Schrader dated July 23, 1996
(incorporated by reference from Exhibit 10.54 to the 1996 Form 10-K)
10.34 Convertible Promissory Note, dated January 1, 1996 by and between
PLY Stadium Partners, Inc. and Polyphase Corporation (incorporated
by reference from Exhibit 10.53 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997 [the "1997 Form
10-K"])
10.35 Master Loan Agreement, dated January 1, 1996 by and between
Polyphase Corporation and PLY Stadium Partners, Inc. (incorporated
by reference from Exhibit 10.54 to the 1997 Form 10-K)
10.36 Guaranty, dated January 1, 1996 by Paul A. Tanner to Polyphase
Corporation (incorporated by reference from Exhibit 10.55 to the
1997 Form 10-K)
10.37 Guaranty, dated January 1, 1996 by Pyrenees Group, Inc. to Polyphase
Corporation (incorporated by reference from Exhibit 10.56 to the
1997 Form 10-K)
10.38 Management Agreement, dated January 1, 1996 by and between PLY
Stadium Partners, Inc. and Polyphase Corporation (incorporated by
reference from Exhibit 10.57 to the 1997 Form 10-K)
10.39 Security Agreement, dated January 1, 1996, between Paul A. Tanner
and Polyphase Corporation (incorporated by reference from Exhibit
10.58 to the 1997 Form 10-K)
10.40 Security Agreement, dated January 1, 1996, between Pyrenees Group,
Inc. and Polyphase Corporation (incorporated by reference from
Exhibit 10.59 to the 1997 Form 10-K)
+10.41 Stock Option Agreement for David Weinreb dated January 17, 1997
(incorporated by reference from Exhibit 10.60 to the 1997 Form 10-K)
10.42 Amended Renewal Promissory Note in the amount of $14,341,256 dated
December 2, 1997, payable by Polyphase Corporation to Harold Estes
(incorporated by reference from Exhibit 10.61 to the 1997 Form 10-K)
31
10.43 Amended Pledge Agreement, dated as of December 2, 1997, between
Polyphase Corporation and Harold Estes (incorporated by reference
from Exhibit 10.62 to the 1997 Form 10-K)
10.44 Amended Security Agreement, dated as of December 2, 1997, between
Texas Timberjack, Inc. and Harold Estes (incorporated by reference
from Exhibit 10.63 to the 1997 Form 10-K)
10.45 Term Loan Agreement in the amount of $22,500,000, dated December 4,
1997, among Overhill Farms, Inc. as borrower, Polyphase Corporation
as guarantor and The Long Horizons, Fund, L.P. as lender
(incorporated by reference from Exhibit 10.64 to the 1997 Form 10-K)
10.46 Security Agreement, dated December 4, 1997, between Overhill Farms,
Inc. as grantor and The Long Horizons Fund, L.P. as lender
(incorporated by reference from Exhibit 10.65 to the 1997 Form 10-K)
10.47 Assignment for Security (Trademarks) dated December 4, 1997, between
Overhill Farms, Inc. as assignor and The Long Horizons Fund, L.P. as
assignee (incorporated by reference from Exhibit 10.66 to the 1997
Form 10-K)
10.48 Pledge and Security Agreement, dated December 4, 1997, among
Polyphase Corporation as the pledgor, in favor of The Long Horizons
Fund, L.P. as the lender and Overhill Farms, Inc. as the borrower
(incorporated by reference from Exhibit 10.67 to the 1997 Form 10-K)
10.49 Registration Rights Agreement, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P. (incorporated
by reference from Exhibit 10.68 to the 1997 Form 10-K)
10.50 Common Stock Purchase Warrant, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P. (incorporated
by reference from Exhibit 10.69 to the 1997 Form 10-K)
10.51 Voting Rights Agreement, dated December 4, 1997, among Polyphase
Corporation, The Long Horizons Fund, L.P. and Overhill Farms, Inc.
(incorporated by reference from Exhibit 10.70 to the 1997 Form 10-K)
10.52 Supplemental Indenture, dated as of December 5, 1997, from Polyphase
Corporation to IBJ Schroder Bank & Trust Company (incorporated by
reference from Exhibit 10.71 to the 1997 Form 10-K)
10.53 Compromise Settlement Agreement with Mutual Release between Polyphase
Corporation and Rice Partners II, L.P. (incorporated by reference
from Exhibit 10.72 to the 1997 Form 10-K)
10.54 Stock Purchase Agreement between Letronix Acquisition Corp. and
Polyphase Corporation dated July 1, 1997 (incorporated by reference
from Exhibit 10.73 to the 1997 Form 10-K)
32
10.55 Certificate of Designation of Preferences of Series B Preferred
Stock of Letronix Acquisition Corporation dated July 2, 1997
(incorporated by reference from Exhibit 10.74 to the 1997 Form
10-K)
10.56 Term Loan Agreement in the amount of $2,800,000, dated August 29,
1997, between Dallas Parkway Properties, Incorporated and
National Operating, L.P. (incorporated by reference from Exhibit
10.75 to the 1997 Form 10-K)
10.57 Warrant to Purchase 500,000 Shares of Common Shares of Polyphase
Corporation by Black Sea Investments, Ltd., dated August 29, 1997
(incorporated by reference from Exhibit 10.76 to the 1997 Form
10-K)
10.58 Offshore Securities Subscription Agreement to purchase 7,500
Shares of Series F 6% Convertible Preferred between Polyphase
Corporation and Black Sea Investments, Ltd., dated August 29,1997
(incorporated by reference from Exhibit 10.77 to the 1997 Form
10-K)
10.59 Stock Exchange Agreement by and between Tollway Properties, Inc.
and Polyphase Corporation date as of December 1, 1997
(incorporated by reference from Exhibit 10.78 to the 1997 Form
10-K)
10.60 Release and Settlement Agreement between Dallas Parkway
Properties, Incorporated and Polyphase Corporation dated as of
December 1, 1997 (incorporated by reference from Exhibit 10.79 to
the 1997 Form 10-K)
10.61 General Release between Dallas Parkway Properties, Incorporated
and National Operating, L.P. dated as of December 1, 1997
(incorporated by reference from Exhibit 10.80 to the 1997 Form
10-K)
10.62 Common Stock Purchase Warrant, dated April 24, 1998, covering
105,000 shares issued to Merrill Lynch World Income Fund,
Inc.(incorporated by reference from Exhibit 10.81 to the
Company's Annual Report on Form 10-K for the year ended September
30, 1998 [the "1998 Form 10-K])
10.63 Common Stock Purchase Warrant, dated April 24, 1998, covering
105,000 shares issued to Merrill Lynch Convertible Fund, Inc.
(incorporated by reference from Exhibit 10.82 to the 1998 Form
10-K)
10.64 Common Stock Purchase Warrant, dated April 24, 1998, covering
52,500 shares issued to Merrill Lynch Convertible Fund, Inc. (w-
1) (incorporated by reference from Exhibit 10.83 to the 1998 Form
10-K)
10.65 Common Stock Purchase Warrant, dated April 24, 1998, covering
52,500 shares issued to Merrill Lynch Convertible Fund, Inc. (w-
1a) (incorporated by reference from Exhibit 10.84 to the 1998
Form 10-K)
10.66 Common Stock Purchase Warrant, dated April 24, 1998, covering
52,500 shares issued to Merrill Lynch World Income Fund, Inc. (w-
2) (incorporated by reference from Exhibit 10.85 to the 1998 Form
10-K)
10.67 Common Stock Purchase Warrant, dated April 24, 1998, covering
52,500 shares issued to
33
Merrill Lynch World Income Fund, Inc. (w-2a) (incorporated by
reference from Exhibit 10.86 to the 1998 Form 10-K)
10.68 Registration Rights Agreement, dated as of April 24, 1998, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc. and
Merrill Lynch Convertible Fund, Inc. (incorporated by reference
from Exhibit 10.87 to the 1998 Form 10-K)
10.69 Guaranty, dated August 7, 1998 by Polyphase Corporation to
NationsBank (incorporated by reference from Exhibit 10.88 to the
1998 Form 10-K)
10.70 Loan Agreement in the amount of $12,000,000 dated August 7, 1998
between NationsBank, as lender and Texas Timberjack, as borrower
(incorporated by reference from Exhibit 10.89 to the 1998 Form
10-K)
10.71 Promissory Note in the amount of $4,000,000 dated August 7, 1998
between NationsBank, as lender, and Texas Timberjack, as borrower
(incorporated by reference from Exhibit 10.90 to the 1998 Form
10-K)
10.72 Promissory Note in the amount of $8,000,000 dated August 7, 1998
between NationsBank, as lender, and Texas Timberjack, as borrower
(incorporated by reference from Exhibit 10.91 to the 1998 Form
10-K)
10.73 Security Agreement dated August 7, 1198 by Texas Timberjack to
NationsBank (incorporated by reference from Exhibit 10.92 to the
1998 Form 10-K)
+10.74 Stock Option Agreement for Michael F. Buck, dated March 17, 1998
(incorporated by reference from Exhibit 10.93 to the 1998 Form
10-K)
+10.75 Stock Option Agreement for George R. Schrader, dated March 17,
1998 (incorporated by reference from Exhibit 10.94 to the 1998
Form 10-K)
10.76** Stock Purchase Agreement, effective of September 30, 1999, by and
among Polyphase Corporation, Polyphase Instrument Acquisition
Corporation and Polyphase Instrument Co.
10.77** Promissory Note, dated September 30, 1999 in the principal amount
of $1,000,000, payable to the order of Polyphase Corporation, as
payee by Polyphase Instrument Acquisition Corporation, as maker.
10.78** Pledge Agreement, entered into on September 30, 1999, by and
between Polyphase Instrument Acquisition Corporation, as pledgor,
and Polyphase Corporation, as secured party.
10.79** Guaranty, executed as of September 30, 1999, by Polyphase
Instrument Co., as guarantor, in favor of Polyphase Corporation,
as payee, on promissory note executed by Polyphase Instrument
Acquisition Corporation, as maker.
10.80** Security Agreement entered into effective September 30, 1999, by
and between Polyphase Instrument Co., as pledgor, and Polyphase
Corporation, as secured party.
+10.81** Employment Agreement, entered into as of November 30, 1999
between Polyphase