<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(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, 1998
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
------------------- ------------------------
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
------- -------
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 31, 1998, was
approximately $4.4 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 31, 1998, the registrant had issued and outstanding 16,002,321 shares
of common stock, $ .01 par value.
Documents Incorporated by Reference
None
================================================================================
<PAGE>
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.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
James Rudis 49 Chairman of the Board, Chief
Executive Officer and President
William E. Shatley 52 Senior Vice President, Chief
Financial Officer, Treasurer and
Director
Michael F. Buck 61 Director
George R. Schrader 67 Director
</TABLE>
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 & Co. (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 to fill a
vacancy on the Board. 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.
2
<PAGE>
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
1998, 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 1998, 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 fifteen times during fiscal 1998. All
directors 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") and Black Sea Investments, Ltd. ("Black Sea") each may own
greater than ten percent of the Company's equity securities and have not filed
the required forms with the Commission pursuant to Section 16(a), the Company
believes that during fiscal 1998, 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, both Infinity
and Black Sea are delinquent in their Section 16(a) filing obligations.
Additionally, as is noted in Item 12 of this Form 10-K/A entitled "Security
Ownership of Certain Beneficial Owners and Management," Infinity and Black Sea
have failed to disclose their ownership of the Company's Common Stock.
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 and Black
Sea, all holders of greater than 10% of the Company's equity securities have
satisfied their Section 16(a) filing requirements.
3
<PAGE>
ITEM 11. Executive Compensation.
-----------------------
EXECUTIVE COMPENSATION
The following table sets forth for fiscal 1998, 1997 and 1996 compensation
awarded or paid to Mr. Paul A. Tanner, the Company's former Chairman of the
Board and Chief Executive Officer, 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, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- -------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation Options/SARs Compensation
-------- ------ --------- ----- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Tanner 1998 $102,960 $0 $--(1) - $ -
Former Chairman, 1997 $224,640 $0 $--(1) - -
Chief Executive Officer 1996 $196,560 $0 $--(1) 130,000 $ -
and Director (2)
James Rudis 1998 $168,077 $0 $--(1) - $ -
Chairman, Chief 1997 $138,240 $0 $--(1) - $ -
Executive Officer, 1996 $120,960 $0 $--(1) 130,000 $ -
President
and Director (3)
William E. Shatley 1998 $126,000 $0 $--(1) - $ -
Senior Vice President, 1997 $108,000 $0 $--(1) - $ -
Treasurer, Chief 1996 $ 94,500 $0 $--(1) 100,000 $ -
Financial Officer and
Director
</TABLE>
_______________
(1) The Named Executive Officers each received certain perquisites and other
personal benefits from the Company during fiscal 1998, 1997 and 1996.
These perquisites and other personal benefits, however, did not equal or
exceed 10% of the Named Executive Officers' salary and bonus during fiscal
1998,1997 or 1996.
(2) Mr. Tanner resigned as the Company's Chairman, Chief Executive Officer and
Director in February 1998. At the effective time of Mr. Tanner's
resignation, all stock options held by Mr. Tanner were cancelled for no
consideration of any kind. Mr. Tanner is not eligible to participate in any
stock option plans of the Company, and to the best of the Company's
knowledge, Mr. Tanner currently owns no material number of shares of
Company common stock.
(3) Mr. Rudis was named Chairman and Chief Executive Officer upon Mr. Tanners's
resignation in February 1998. Mr. Rudis, formerly the Company's Executive
Vice President, became President in July 1997, also replacing Mr. Tanner in
that position.
4
<PAGE>
No individual grants or exercises of stock options were made to the Named
Executive Officers during the fiscal year ended September 30, 1998.
The following table describes for the Named Executive Officers options and
the potential realizable value for his options as of September 30, 1998, which
were granted in prior fiscal years.
Fiscal Year End September 30, 1998 Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs at
September 30, 1998 September 30, 1998(1)
-------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Paul A. Tanner ....... 0 - $ - $ -
James Rudis .......... 276,500 - $ - $ -
William E. Shatley ... 246,500 - $ - $ -
</TABLE>
_________
(1) Based on $.4375 per share of Common Stock, which was the closing price per
share of Common Stock on September 30, 1998 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
$168,077 for fiscal 1998 and Mr. Tanner's salary at $102,960 for the period of
the fiscal year prior to his resignation in February 1998. The Company did not
pay any cash bonuses to Mr. Rudis or Mr. Tanner for fiscal 1998.
5
<PAGE>
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 1998.
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.
In March 1994, Mr. Schrader was granted options to purchase 50,000 shares
of Common Stock. Mr. Schrader's options are exercisable at $5.25 per share (the
fair market value at the date of grant), in whole or in part, and will expire in
March 1999.
6
<PAGE>
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-Multi-Industry Companies). Each
index assumes $100 invested at September 30, 1993, and is calculated assuming
quarterly reinvestment of dividends and quarterly weighting by market
capitalization.
Comparative Five-Year Total Returns
<TABLE>
<CAPTION>
Company 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Polyphase Corporation 100.00 158.62 94.83 189.66 50.00 12.07
Industry Index 100.00 110.21 114.22 150.37 163.05 90.62
Broad Market 100.00 101.92 122.80 127.81 155.42 135.76
</TABLE>
7
<PAGE>
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 December 31, 1998, 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.
<TABLE>
<CAPTION>
Percent
Amount and Nature of of
Name Beneficial Ownership (1) Class (1)
------------------------------------ ------------------------ ---------
<S> <C> <C>
James Rudis ......................... 557,900 (2) 3.4%
William E. Shatley .................. 404,700 (3) 2.5
Michael F. Buck ..................... 60,100 (4) *
George R. Schrader .................. 130,000 (5) *
Harold Estes ........................ 3,921,200 (6) 24.5
Merrill Lynch ....................... 820,000 (7) 4.9
Black Sea Investments, Ltd. ......... ** (8) **
Infinity Investors Limited .......... ** (9) **
Paul A. Tanner ...................... ** (10) **
All directors and executive officers
as a group (4 persons) ............ 1,152,700 (11) 6.9
</TABLE>
________________
* Less than 1%.
** Not available
(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 except as described in (8) and (9) below and as
further described in the subsection to Item 10 entitled "Section 16(a)
Beneficial Ownership Reporting Compliance". Such presentation is based on
16,002,321 shares of Common Stock outstanding as of December 31, 1998.
(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 exercisable within 60 days subsequent to the date hereof.
(5) Includes 130,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
8
<PAGE>
(6) Mr. Estes' address is Highway 59 South, Route 15, Box 9475, Lufkin, Texas
75901. Includes 2,000,000 shares owned by the Pyrenees Group, for which
Mr. Estes has sole voting power, and which is held as collateral by Mr.
Estes on the Company's note payable to Mr. Estes.
(7) For purposes of the table above, Merrill Lynch consists of Merrill Lynch
World Income Fund, Inc. ("MLW") and Convertible Holdings, Inc. ("CH"). The
address of MLW and CH is c/o Merrill Lynch Asset Management, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. This figure includes 400,000
shares of Common Stock into which certain of the Company's bonds held by
Merrill Lynch are convertible within 60 days subsequent to the date hereof;
such figure is subject to adjustment as specified in the indenture
governing the terms of such bonds. Also includes 210,000 shares that could
be purchased pursuant to the exercise of certain warrants held by Merrill
Lynch exercisable within 60 days subsequent to the date hereof.
(8) The address of Black Sea Investments, Ltd. ("Black Sea") is Cockburn House,
Cockburn Town, Grand Turk, Turks & Caicos Islands. The Company has been
unable, as of the date hereof, to obtain from Black Sea information as to
its direct ownership of Common stock as of December 31, 1998. Its indirect
ownership, however, includes 500,000 shares that could be purchased
pursuant to the exercise of certain warrants held by Black Sea which are
exercisable within 60 days subsequent to the date hereof.
(9) The address of Infinity Investors Limited ("Infinity") is 38 Hertford
Street, London W1Y7TG, England. As discussed in the subsection to Item 10
entitled "Section 16(a) Beneficial Ownership Reporting Compliance,"
Infinity refused to provide the Company with information as to its direct
ownership of Common Stock as of December 31, 1998. Its indirect ownership,
however, includes 3,512,427 shares, 18% 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.
(10) Mr. Tanner resigned as the Company's Chairman, Chief Executive Officer and
Director in February 1998. At the effective time of Mr. Tanner's
resignation, all stock options held by Mr. Tanner were cancelled for no
consideration of any kind. Mr. Tanner is not eligible to participate in any
stock option plans of the Company, and to the best of the Company's
knowledge, Mr. Tanner currently owns no material number of shares of
Company common stock.
(11) Includes 713,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
9
<PAGE>
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 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. During fiscal 1996 the 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 Company believes the
remaining balance of $975,000 will be uncollectible and that it will recover the
500,000 shares of common stock that secure this note. As discussed in Note 13
to the Consolidated Financial Statements, the Company expects to recover these
shares subsequent to September 30, 1998 and will account for this recovery as an
unexercised stock option in accordance with Accounting Principles Board opinion
No. 25, "Accounting for Stock Issued to Employees". As such, the difference
between the note balance ($975,000) and the fair market value of the 500,000
shares (approximately $218,500 at September 30, 1998) will be recorded as a
reduction in paid-in capital.
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 $2,000,000. 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.
During 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, the aforementioned amounts receivable from
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 Pyrenees. Through September
30, 1996, the Company advanced an additional $9.27 million, for an approximate
total of $13.3 million.
10
<PAGE>
During the twelve months ended September 30, 1996, the Company 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 on or about July
15, 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, of
which $2.4 million was obtained from an existing credit line and $2.5 million
was obtained from a six month term note, collateralized by the Company's
corporate office building. In connection with the loan transaction, the Company
entered into a consulting agreement with a principal of the lender, whereby the
Company granted such party an option to purchase 200,000 shares of the Company's
common stock at $.01 per share; this option was assigned a value of $973,000
which was charged to expense during fiscal 1997.
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 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 unpaid by 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. As of
September 30, 1998, the amount ultimately recoverable as a result of this
litigation, if any, is not determinable. However, in enforcing these
guarantees, the Company expects either through judicial foreclosure or
otherwise, to obtain the rights to 2,000,000 shares of Polyphase common stock
owned by Pyrenees and held by Mr. Harold Estes as secondary collateral as
described more fully in Notes 3, 9 and 10 to the Consolidated Financial
Statements.
11
<PAGE>
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,
1998, the insurance premium receivable was $592,000.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer of TTI. The note is secured by marketable securities, is
payable within one year and bears interest at 3.96%. As of September 30, 1998
the balance outstanding was $335,380 and the note has been classified as a
related party receivable. Also included in related party receivables at
September 30, 1998 are approximately $335,275 in notes receivable from employees
of TTI subsidiaries payable within one year.
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
By: /s/ James Rudis January 26, 1999
---------------
James Rudis
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
/s/ James Rudis January 26, 1999
- - ----------------
James Rudis
Chief Executive Officer,
Chairman of the Board,
President and Director
(Principal Executive Officer)
/s/ William E. Shatley January 26, 1999
- - -----------------------
William E. Shatley
Senior Vice President, Treasurer,
Chief Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/ George R. Schrader January 26, 1999
- - -----------------------
George R. Schrader
Director
/s/ Michael F. Buck January 26, 1999
- - --------------------
Michael F. Buck
Director
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