SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
EAGLE PACIFIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
EAGLE PACIFIC INDUSTRIES, INC.
2430 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
---------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1997
---------------------------------
TO THE SHAREHOLDERS OF EAGLE PACIFIC INDUSTRIES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of Eagle
Pacific Industries, Inc. will be held on Tuesday, May 13, 1997, at the Hilton
Hotel, 1001 Marquette Avenue, Minneapolis, Minnesota. The meeting will convene
at 3:30 p.m., Minneapolis Time, for the following purposes:
1. To set the number of directors at seven.
2. To elect two Class III directors to serve until the 2000
Annual Meeting of Shareholders.
3. To approve the Company's 1997 Stock Option Plan.
4. To ratify and approve the selection of independent public
accountants for the Company for the current fiscal year.
5. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 28,
1997, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
By Order of the Board of Directors,
William H. Spell
Chief Executive Officer
Minneapolis, Minnesota
April 10, 1997
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON.
SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON
IF THEY SO DESIRE.
EAGLE PACIFIC INDUSTRIES, INC.
-------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1997
-------------------------
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Eagle Pacific
Industries, Inc. (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders to be held on May 13, 1997, or any adjournment or adjournments
thereof. The cost of this solicitation will be borne by the Company. In addition
to solicitation by mail, officers, directors, and employees of the Company may
solicit proxies by telephone, telegraph or in person. The Company may also
request banks and brokers to solicit their customers who have a beneficial
interest in the Company's Common Stock registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses.
Any proxy may be revoked at any time before it is voted by written
notice to the Secretary or any other officer of the Company, or by receipt of a
proxy properly signed and dated subsequent to an earlier proxy, or by revocation
of a written proxy by request in person at the Annual Meeting. Proxies not
revoked will be voted in accordance with the choice specified by shareholders by
means of the ballot provided on the Proxy for that purpose. Proxies which are
signed but which lack any such specification will, subject to the following, be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the number and slate of directors proposed by the Board of Directors and
listed herein. If a shareholder abstains from voting as to any matter, then the
shares held by such shareholder shall be deemed present at the Meeting for
purposes of determining a quorum and for purposes of calculating the vote with
respect to such matter, but shall not be deemed to have been voted in favor of
such matter. Abstentions, therefore, as to any proposal will have the same
effect as votes against such proposal. If a broker returns a "non-vote" proxy,
indicating a lack of voting instruction by the beneficial holder of the shares
and a lack of discretionary authority on the part of the broker to vote on a
particular matter, then the shares covered by such non-vote shall be deemed
present at the Meeting for purposes of determining a quorum but shall not be
deemed to be represented at the Meeting for purposes of calculating the vote
required for approval of such matter.
The Company expects mailing of this Proxy Statement to shareholders of
the Company will commence on or about April 10, 1997. The Company's corporate
offices are located at 2430 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, Minnesota 55402, and its telephone number is (612) 371-9650.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 28, 1997, as the
record date for determining shareholders entitled to vote at the meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on March 28, 1997, the Company had
outstanding two classes of stock: (i) 6,443,237 shares of $.01 par value Common
Stock; and (ii) 18,750 shares of Series A 7% Convertible Preferred Stock (the
"Preferred Stock"). Each share of Common Stock and Preferred Stock is entitled
to one vote at the Annual Meeting.
The presence in person or by proxy of the holders of a combined
majority of the shares of Common Stock and Preferred Stock entitled to vote at
the Annual Meeting of Shareholders constitutes a quorum for the transaction of
business. The shares represented by the enclosed proxy will be voted if the
proxy is properly signed and received prior to the meeting.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table provides information as of March 28, 1997,
concerning the beneficial ownership of the Company's Common Stock by persons who
are known to own five percent or more of the Common Stock of the Company, by
each executive officer named in the Summary Compensation Table, by each
director, and by all directors and executive officers (including the named
individuals) of the Company as a group. Unless otherwise noted, the person
listed as the beneficial owner of the shares has sole voting and investment
power over the shares.
Shares Percent
Name and Address of Beneficially of
Beneficial Owner Owned Class(1)
- ------------------- ------------ --------
William Blair Mezzanine 750,000(2) 11.1%
Capital Fund, L.P.
222 West Adams Street
Chicago, IL 60606
Okabena Partnership K 425,000 6.6%
5140 Norwest Center
Minneapolis, MN 55402
William H. Spell 408,963(3)(4) 6.1%
2430 Metropolitan Centre
Minneapolis, MN 55402
Harry W. Spell 344,332(4)(5) 5.2%
2430 Metropolitan Centre
Minneapolis, MN 55402
Richard W. Perkins 323,228(6) 5.0%
730 East Lake Street
Wayzata, MN 55391
George R. Long 251,807(7) 3.9%
29 Las Brisas Way
Naples, FL 33963
Larry D. Schnase 199,375(8) 3.0%
146 North Maple
Hastings, NE 68901
G. Peter Konen 186,797(9) 2.8%
146 North Maple
Hastings, NE 68901
Bruce A. Richard 109,822(10) 1.7%
2458 Farrington Circle
Roseville, MN 55113
David P. Schnase 73,750(11) 1.1%
146 North Maple
Hastings, NE 68901
All Directors and Officers 1,872,574(12) 25.4%
as a Group (9 persons)
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of March 28, 1997 or within sixty
days of such date are treated as outstanding only when determining the
percent owned by such individual and when determining the percent owned
by the group.
(2) Includes 315,000 shares which may be purchased upon exercise of
currently exercisable Warrants.
(3) Includes 250,000 shares which may be purchased upon exercise of
currently exercisable options and 21,429 shares held by Mr. Spell's
wife.
(4) Includes 30,500 shares held by the Spell Family Foundation. Messrs.
Harry Spell and William Spell share voting and dispositive power over
such shares.
(5) Includes 185,000 shares which may be purchased upon exercise of
currently exercisable options.
(6) Includes 40,000 shares which may be purchased upon exercise of
currently exercisable options. Also includes 147,286 shares held by
Perkins Capital Management, Inc. ("PCM"), a registered investment
adviser, for its clients. Mr. Perkins is the controlling shareholder
and an officer of PCM and has sole dispositive power over such shares.
Mr. Perkins disclaims beneficial ownership of the shares held by PCM.
(7) Includes 45,000 shares which may be purchased upon exercise of
currently exercisable options.
(8) Includes 181,250 shares which may be purchased upon exercise of
currently exercisable options.
(9) Includes 126,250 shares which may be purchased upon exercise of
currently exercisable options.
(10) Includes 55,000 shares which may be purchased upon exercise of
currently exercisable options.
(11) Includes 53,750 shares which may be purchased upon exercise of
currently exercisable options.
(12) Includes 936,250 shares which may be purchased upon exercise of
currently exercisable options.
SET NUMBER OF DIRECTORS
(PROPOSAL NO. 1)
The Bylaws of the Company provide that the number of directors shall
not be less than three nor more than twelve, as determined by the shareholders.
The Board of Directors recommends that the number of directors be set at seven.
Each Proxy will be voted for or against such number, or not voted at all, as
directed in the Proxy.
VOTE REQUIRED; RECOMMENDATION
The adoption of the resolution to set the number of directors requires
the affirmative vote of the greater of (1) a majority of the voting power of
shares represented in person or by proxy at the Meeting with authority to vote
on such matter or (2) a majority of the voting power of the minimum number of
shares that would constitute a quorum for the transaction of business at the
meeting. The Board of Directors recommends that the shareholders vote in favor
of this Proposal No. 1.
ELECTION OF DIRECTORS
(PROPOSAL NO. 2)
GENERAL INFORMATION
Two directors will be elected at the Annual Meeting of Shareholders.
The Board of Directors consists of three classes of Directors, Class I who hold
office until the 1999 Annual Shareholders Meeting, Class II who hold office
until the 1998 Annual Shareholders Meeting and Class III who hold office until
the 1997 Annual Shareholders Meeting or, in all cases, until their successors
are elected. Larry D. Schnase and G. Peter Konen are current Class III directors
whose terms expire as of this Annual Meeting. Messrs. Schnase and Konen have
been nominated for reelection as Class III Directors by the Board of Directors
and each has consented to being named as a nominee. It is intended that
solicited proxies will be voted for such nominees. The Company believes that
each nominee named below will be able to serve; but in the event any nominee is
unable to serve as a director, the persons named as proxies have advised that
they will vote for the election of such substitute nominee as the Board of
Directors may propose or, in the absence of such proposal, for such fewer
directors as results from the inability of a nominee to serve.
The Board currently consists of seven directors, including the nominees listed
below:
Class I directors whose terms of office will continue until the 1999
Annual Meeting of Shareholders:
Richard W. Perkins(1)(2)
George R. Long(3)
Harry W. Spell(1)
Class II directors whose terms of office will continue until the 1998
Annual Meeting of Shareholders:
William H. Spell(2)
Bruce A. Richard(1)(3)
Class III Nominees whose terms of office will be until the 2000 Annual
Meeting of Shareholders if elected by the shareholders of the Company:
Larry D. Schnase(2)(3)
G. Peter Konen
- ----------------------
(1) Member of Compensation Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
The following is information concerning the principal occupations of
the nominees and those directors whose terms will continue beyond the Annual
Meeting for at least the past five years.
WILLIAM H. SPELL, AGE 40. Mr. Spell has been a director of the Company
since January 1992 and Chief Executive Officer since January 1997, and served as
the Company's President from January 1992 to January 1997. In addition, since
1994 Mr. Spell has been the Chief Executive Officer and director of Peerless
Industrial Group, Inc., a manufacturer of chain and wire form products. Since
1988 Mr. Spell has been involved as a principal in investing in various
transactions and currently is president of Spell Capital Partners, LLC. From
1981 through 1988, Mr. Spell was vice president and director of corporate
finance at John G. Kinnard and Company, Incorporated, a regional investment
banking firm located in Minneapolis. Mr. Spell serves as a director of Peerless
Industrial Group, Inc. as well as several private organizations. Mr. Spell has a
B.S. and an M.B.A. degree from the University of Minnesota.
HARRY W. SPELL, AGE 73. Mr. Harry Spell has been Chairman of the Board
of the Company since January 1992 and served as Chief Executive Officer from
January 1992 to January 1997. In addition, since 1994 Mr. Spell has been the
Chairman of the Board of Peerless Industrial Group, Inc. Since 1988, Mr. Spell
has been involved as a principal in investing in various transactions and
currently is Chairman of the Board of Spell Capital Partners, LLC. He was
employed by Northern States Power, a Fortune 500 company, from 1949 until August
1988, where he served as Senior Vice President and Chief Financial officer. Mr.
Spell currently serves as a director of Appliance Recycling Centers of America,
Inc. and Peerless Industrial Group, Inc., as well as several private
organizations.
BRUCE A. RICHARD, AGE 67. Mr. Richard has been a director of the
Company since March 1992, Secretary since the summer of 1993 and Vice Chairman
since February 1996. He also served as Chief Financial Officer of the Company
from mid-1993 to February 1996. As a member of Spell Capital Partners, LLC, Mr.
Richard has been involved in numerous leveraged acquisitions and investment
transactions. He retired as President and Chief Operating Officer of Northern
States Power Company, a Fortune 500 company, in July of 1986. He is a former
member of the Board of Regents of St. John's University and is actively involved
in other philanthropic organizations.
RICHARD W. PERKINS, AGE 66. Mr. Perkins has been a director of the
Company since January 1992. Mr. Perkins has been President of Perkins Capital
Management, Inc., a registered investment adviser, since 1984 and has 40 years
experience in the investment business. Prior to establishing Perkins Capital
Management, Inc., Mr. Perkins was a Senior Vice President at Piper Jaffray Inc.
where he was involved in corporate finance and venture capital activities, as
well as rendering investment advice to domestic and international investment
managers. As a member of Spell Capital Partners, LLC, Mr. Perkins has been
involved in numerous leveraged acquisition and investment transactions. Mr.
Perkins is a director of various public companies, including: Bio-Vascular,
Inc., Lifecore Biomedical, Inc., Children's Broadcasting Corporation, CNS, Inc.,
Quantech Ltd. and Nortech Systems, Inc.
GEORGE R. LONG, AGE 66. Mr. Long has been a director of the Company
since 1986. He has served as Chairman of the Board of Directors of the Mayfield
Corporation, a financial advisory firm, since 1973. For over five years, he has
been a private investor. Mr. Long also is a director of the IAI Series of Mutual
Funds, Minneapolis, Minnesota.
LARRY D. SCHNASE, AGE 64. Mr. Schnase has been a director of the
Company since December 1993. He was Chief Executive Officer of the Company's
subsidiary, Eagle Plastics, Inc. ("Eagle Plastics"), from its inception in 1984
until his retirement in January 1997, and served as President of Eagle Plastics
from 1984 to February 1996. Prior to founding Eagle Plastics, Mr. Schnase served
as Vice President of Sales for Western Plastics, a PVC pipe and PE tubing
manufacturer. Mr. Schnase has over 35 years of experience in the business of
manufacturing and sales of plastic pipe.
G. PETER KONEN, AGE 47. Mr. Konen has been a director of the Company
since December 1993 and President of the Company since January 1997. In
addition, he has served as President of Eagle Plastics since February 1996. He
was Executive Vice President and Chief Operating Officer of Eagle Plastics from
1984 to February 1996. Prior to 1984, he was Plant Manager with Western
Plastics, a PVC pipe and PE tubing manufacturer. Mr. Konen has over 22 years of
experience in the manufacturing and sales of plastic pipe.
Harry W. Spell is William H. Spell's father.
VOTE REQUIRED; RECOMMENDATION
The election of each nominee requires the affirmative vote of a
majority of the shares represented in person or by proxy at the Annual Meeting.
The Board unanimously recommends that shareholders vote "For" the two nominees
for Class III directors named above.
COMMITTEE AND BOARD MEETINGS
The Company has an Audit Committee whose members during fiscal 1996
were Messrs. Richard (Chairman), Konen and Perkins and which met once during
such fiscal year. The Audit Committee, among other responsibilities, recommends
to the full Board of Directors the selection of auditors and reviews and
evaluates the activities and reports of the auditors, as well as the internal
accounting controls of the Company.
The Company has a Compensation Committee whose members during fiscal
1996 were Messrs. Perkins (Chairman), Long and Richard. The Compensation
Committee met once during fiscal 1996. The Compensation Committee is charged
with determining the compensation to be paid to officers of the Company and to
determine other compensation issues if requested by the Board of Directors.
Finally, the Company has a Nominating Committee whose members during
fiscal 1996 were Messrs. Harry Spell (Chairman), Schnase and William Spell and
which met once in fiscal 1996. The Nominating Committee presents nominees for
members on the Board of Directors to the full Board of Directors for approval.
The Nominating Committee does consider nominees recommended by Company
shareholders. Such recommendations should be submitted in writing to William
Spell and include a biography of the nominee.
The Board of Directors met six times during fiscal 1996. Each director
attended at least 75% of the meetings of the Board of Directors and any
committee on which he served.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE'S RESPONSIBILITY. The Compensation Committee of
the Board of Directors is currently composed of directors Richard A. Perkins,
who is the Chairman of the Committee, Bruce A. Richard and Harry W. Spell. Harry
W. Spell was Chief Executive Officer of the Company during 1996. Bruce Richard
was Chief Financial Officer of the Company from mid-1993 to February 1996, and
is currently Vice Chairman and Secretary. During 1996, the Compensation
Committee members were Richard Perkins, George Long and Bruce Richard. The
Committee is responsible for developing and making recommendations to the Board
with respect to compensation of the executive officers of the Company and its
three subsidiaries.
COMPENSATION PHILOSOPHY. The Company is concerned with finding and
retaining top quality employees. The Committee looks at industry averages and
surveys, and also considers geographic location in establishing salaries.
The executive compensation plan is comprised of base salaries, annual
EBITDA performance bonuses, long-term incentive compensation in the form of
stock option awards and Company loans to purchase stock, and various benefits in
which all qualified employees of the Company participate. In addition, the
Compensation Committee from time to time may award special cash bonuses or stock
options related to non-recurring, extraordinary performance.
BASE SALARY. Base salaries for executive officers are reviewed by the
Committee on an annual basis. Each year the Committee assesses the executive
employee's level of responsibility, experience, and external market standards.
For the year ended 1996, salaries were considered to be low so compensation was
increased. Each year the Committee reviews the Company's performance and
recommends to the full Board the salaries for the coming year.
ANNUAL INCENTIVES. In 1996, the Company adopted an EBITDA (earnings
before interest, taxes, depreciation and amortization) Bonus Plan (the "Bonus
Plan"). Generally, executives receive a percentage, up to 100%, of potential
bonuses based upon the Company's performance relative to EBITDA goals. Under the
Bonus Plan, the Board of Directors establishes the Company's EBITDA goals and
identifies other factors that will be considered in awarding bonuses. The
Compensation Committee presents recommendations to the Board for executives'
potential bonuses for the Board's approval.
LONG TERM INCENTIVES. The Company may grant some executive level
employees long-term awards, including stock options pursuant to the Company's
1997 Stock Option Plan. Prior to 1997, the Company had a 1991 Stock Plan,
however no awards were made under such plan during 1996. Beginning in 1997,
awards under the 1991 Stock Plan will no longer be made. The Company adopted a
Leverage Equity Purchase Plan (the "LEPP") in 1996 under which the Company loans
90% of the cost of purchasing shares of the Company's common stock to selected
employees. The purpose of the LEPP is to more closely align the goals and
motivation of management with those of other shareholders and to provide key
personnel with a long-term capital accumulation opportunity. In 1996, the
Company made grants under the LEPP to executive employees in the amount of
$190,000 and total grants under the LEPP to all employees of $510,000.
OTHER COMPENSATION PLANS. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the named executives,
are permitted to participate on the same terms and conditions relating to
eligibility and generally subject to the same limitation on the amounts that may
be contributed or the benefits payable under those plans. The Company's
subsidiaries maintain plans qualified under I.R.C. Section 401(k), and the
Company made aggregate contributions to such plans of $243,191 for year ended
1996, and a contribution of $58,999 for year ended 1995.
CHIEF EXECUTIVE OFFICER COMPENSATION. Harry W. Spell served as the
Company's Chief Executive Officer in 1996. Mr. Harry Spell received compensation
of $7,200 in 1996. Beginning January 1997, William H. Spell, formerly the
President and Chief Operating Officer, will serve as the Company's Chief
Executive Officer. The Compensation Committee has established a base salary of
$108,000 for Mr. William Spell and he is eligible for a cash bonus of up to
$51,000 beginning 1997.
MEMBERS OF THE COMPENSATION COMMITTEE. Richard W. Perkins, George R.
Long and Bruce A. Richard.
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid
by the Company and its subsidiary, Eagle Plastics, as well as certain other
compensation paid or accrued, during the last three fiscal years to the Chief
Executive Officers of the Company and Eagle Plastics and the executive officers
of the Company and Eagle Plastics who received more than $100,000 during fiscal
1996:
<TABLE>
<CAPTION>
Long Term
Compen-
Annual Compensation sation
-------------------------------------------------- ------
Securities
Underlying
Name and Other Options All
Principal Fiscal Annual and Other
Position Year Salary(1) Bonus Compensation SARs Compensation
-------- ---- --------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Harry W. Spell 1996 $ 7,200(2) 0 0 0 0
Chairman of the 1995 $ 7,200 0 0 15,000 0
Board and former 1994 $ 6,000 0 0 0 0
Chief Executive
Officer of the Company
William H. Spell 1996 $ 89,188(3) $ 55,000 0 0 0
Chief Executive 1995 $ 74,648 $ 0 0 50,000 0
Officer of 1994 $ 62,500 $ 35,000 0 0 0
the Company and
Chairman and CEO
of Eagle Plastics
Larry D. Schnase 1996 $179,050(4) $150,000 0 0 0
Former Chief Executive 1995 $167,225 $ 0 0 35,000 0
Officer of Eagle 1994 $150,000 $150,000 0 0 0
Plastics
G. Peter Konen 1996 $145,000(5) $ 75,000 0 0 0
President of the 1995 $118,000 $ 0 0 75,000 0
Company and 1994 $105,500 $ 50,000 0 0 0
Eagle Plastics
David Schnase 1996 $137,797(6) $ 12,500 0 0 0
Sr. Vice President of the 1995 $139,970(6) $ 0 0 30,000 0
Company and 1994 $115,818(6) $ 12,500 0 0 0
Eagle Plastics
- -----------------------
</TABLE>
(1) Compensation to Messrs. Peter Konen, Larry and David Schnase and
William Spell is paid by Eagle Plastics, the Company's Subsidiary,
which was acquired by the Company on December 17, 1993.
(2) During 1996, Harry W. Spell, pursuant to an oral agreement, received
$600 per month for his services as Chairman of the Board and Chief
Executive Officer. No other benefits were provided to Mr. Spell other
than stock options that he has received.
(3) William H. Spell, Chief Executive Officer of the Company, entered into
a restated employment contract with the Company for a three year term
beginning January 1, 1997. Under such contract, Mr. Spell will receive
an annual base salary (currently $108,000) and a $600 per month car
allowance. Along with this base salary, he can receive a bonus up to
$51,000 per year if the Company meets certain operating profit levels.
Such employment agreement has a confidentiality provision, a two year
noncompetition clause and provides for a severance payment equal to Mr.
Spell's base salary in the event of his termination other than for
cause.
(4) Larry Schnase, former Chief Executive Officer of Eagle Plastics,
entered into a Consulting Agreement and Release for a two year term
beginning January 1, 1997. Under such agreement, Mr. Schnase resigned
as an officer and employee of the Company and its subsidiaries. Mr.
Schnase will receive monthly compensation of $10,000 during 1997 and
$8,333 during 1998 and will be assigned the Company's interest in two
insurance policies on his life. Along with this compensation, Mr.
Schnase can receive an annual bonus up to $30,000, if the Company meets
certain operating profit levels. Such consulting agreement has a
confidentiality provision and a five year noncompetition clause. Mr.
Schnase's existing Deferred Compensation Agreement will remain in
effect until January 1, 1999 but was amended to provide that the
payments for $75,000 upon his death or upon termination of his
consulting arrangement with the Company shall be increased at the rate
of 7% per year.
(5) G. Peter Konen, President, entered into a restated employment contract
for a three year term beginning January 1, 1997. Under such contact,
Mr. Konen will receive an annual base salary (currently $175,000) and a
$600 per month car allowance. Along with his base salary, Mr. Konen can
receive an annual bonus up to $81,000 if the Company meets certain
operating profit levels. Such employment agreement has a
confidentiality provision, a two year noncompetition clause and
provides for a severance payment equal to Mr. Konen's base salary in
the event of his termination other than for cause.
(6) David P. Schnase, Senior Vice President-Sales, entered into an
employment contract for a three year term beginning January 1, 1997.
Under such contract, Mr. Schnase will receive an annual base salary
(currently $125,000). Along with his base salary, Mr. Schnase can
receive an annual bonus up to $35,000 if the Company meets certain
operating profit levels. Such employment agreement has a
confidentiality provision, a two-year noncompetition clause and
provides for a severance payment equal to his then annual base salary
in the event of his termination other than for cause. Salary figures
shown for Mr. Schnase include commissions of $50,297, $52,470 and
$50,818 for years ended 1996, 1995 and 1994 respectively.
OPTION/SAR GRANTS DURING 1996 FISCAL YEAR
No stock options or SARs were granted to the named executive officers
during fiscal 1996.
OPTION/SAR EXERCISES IN 1996 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information as to individual exercises
of options, number of options and value of options at December 31, 1996 with
respect to the named executive officers:
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Securities In-the-Money
Underlying Options/SARs
Options/SARs at
Shares at FY-End(#)(2) FY-End($)(1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized(1) Unexercisable Unexercisable
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
William H. Spell 35,000 $110,470 250,000/0 $353,281/0
Harry W. Spell 35,000 $110,470 185,000/0 $332,656/0
Larry D. Schnase 0 0 181,250/48,750 118,125/39,375
G. Peter Konen 0 0 126,250/43,750 66,875/25,625
David P. Schnase 0 0 53,750/21,250 36,250/13,750
- ------------------
</TABLE>
(1) Based on the difference between the closing price of the Company's
Common Stock as reported by Nasdaq on the date of exercise or at fiscal
year end, as the case may be, and the option exercise price.
(2) Does not include outstanding options to purchase Common Stock of Eagle
Plastics at $.75 per share held by William Spell (100,000 shares),
Larry Schnase (380,000 shares), Peter Konen (80,000 shares) and David
Schnase (40,000 shares).
DIRECTORS' COMPENSATION
In 1996, each director who was not an employee of the Company or a
subsidiary (other than the Chairman and the Vice Chairman) was entitled to a fee
of $600 for attendance at each meeting of the Board of Directors or any
committee meeting of the Board. Harry W. Spell, Chairman of the Board, and Bruce
A. Richard, Vice Chairman of the Board, were compensated for their services in
such capacities at the rate of $600 per month and $450 per month, respectively.
Also, pursuant to the Company's 1991 Stock Option Plan (the "1991 Plan"), each
nonemployee member of the Board of Directors was entitled to receive at the time
of his election or re-election, an option to purchase 5,000 shares of the
Company's Common Stock at a purchase price equal to the fair market value of the
Company's Common Stock on the date of such election or re-election. In
connection with its adoption of the Company's 1997 Stock Option Plan (See
Proposal No. 3 below), the Board has determined that no additional options will
be granted under the 1991 Plan. In 1997, Harry W. Spell and Bruce A. Richard
shall receive fees of $24,000 and George R. Long and Richard W. Perkins shall
receive fees of $9,000 for their roles as non-employee directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Office Sharing. William H. Spell, President of the Company, pursuant to
his employment contract, has an office sharing arrangement with the Company. In
addition to those responsibilities pertaining to the Company, Mr. Spell is
engaged in activities unrelated to those of the Company, for which he has agreed
to pay a fee equal to fair market value. Currently, another business with which
Mr. Spell is involved shares the space with the Company and pays fees to the
Company for such office sharing. Because of such payments, Mr. Spell's payment
obligation under his employment contract has been waived by the Company. The
Company's Board of Directors has approved a proposed arrangement whereby the
Company would pay a monthly fee of $10,000 for rent, secretarial support and
other incidentals. The proposed arrangement is expected to take effect mid-year
1997.
Eagle Stock Agreement. In conjunction with the acquisition of Eagle
Plastics, the Company entered into an Eagle Stock Agreement (the "Agreement").
Pursuant to the Agreement: (i) an aggregate of 628,581 shares of Eagle Plastics
Common Stock held by Larry Schnase and G. Peter Konen; (ii) an aggregate of
500,000 shares of Eagle Plastics Common Stock that may be acquired upon exercise
of Stock Options held by Larry Schnase, G. Peter Konen and David Schnase; and
(iii) up to 338,357 shares that may be purchased upon exercise of Stock Options
that may be granted under the Eagle Plastics 1993 Stock Option Plan
(collectively the "Liquidity Shares") have liquidity rights. Such liquidity
rights provide that at any time after June 30, 1995, upon request by a holder of
Liquidity Shares, the Company will provide such holder liquidity in his or her
Liquidity Shares by: (i) purchasing such Liquidity Shares for cash based on the
market value of the Company's Common Stock at the time of the request; (ii) by
registering the Liquidity Shares pursuant to the Securities Act of 1933, as
amended, for public sale; (iii) exchanging the Liquidity Shares for the
Company's Common Stock on a one-for-one ratio, provided, however, that only
314,290 of the Liquidity Shares may be presented to the Company pursuant to the
Agreement from June 30, 1995 through December 31, 1995 and an additional 157,145
Liquidity Shares may be presented after January 1, 1997 and January 1, 1998. The
determination of which form of liquidity to be provided is in the sole
discretion of the Company. During Fiscal 1996, 34,047 Liquidity Shares
previously owned by Peter Konen were exchanged for 34,047 shares of the
Company's Common Stock.
Employment Agreements. The Company entered into Employments Agreements
with William H. Spell, G. Peter Konen and David P. Schnase, and a Consulting
Agreement and Release with Larry D. Schnase, all as more specifically described
herein in the notes to the Summary Compensation Table.
The Company has entered into an employment contract with Patrick M.
Mertens, Chief Financial Officer, for a three year term beginning January 1,
1997. Under such contract, Mr. Mertens will receive an annual base salary
(currently $90,000). Along with his base salary, Mr. Mertens can receive an
annual bonus up to $21,000 if the Company meets certain operating profit levels.
Such employment agreement has a confidentiality provision, a one year
noncompetition clause and provides for a severance payment equal to his then
annual base salary in the event of his termination other than for cause.
William Blair Mezzanine Fund, L.P. Agreement. The Company entered into
a Plan of Recapitalization dated March 16, 1995 with William Blair Mezzanine
Capital Fund, L.P., an Illinois limited partnership ("Blair"). Pursuant to this,
Blair was issued a senior subordinated debenture of Eagle Plastics in the
principal amount of $7,500,000 which was guaranteed by the Company, a warrant to
purchase 100,000 shares of the Company's common stock at $3.00 per share, and
210,000 shares of Company common stock. In addition, Blair was granted, among
other things, the right to receive certain cash payments. On May 10, 1996 the
Company, its subsidiaries and Blair entered into an Amendment Agreement revising
the terms of the March 1995 Plan of Recapitalization. Under the Amendment
Agreement, the Company paid Blair $970,000 as full payment of all cash payments
owed, $3,000,000 as a partial prepayment under the senior subordinated debenture
and issued a warrant to purchase 215,000 shares of Company common stock at $3.25
per share.
STOCK PERFORMANCE CHART
The following chart compares the cumulative total shareholder return on
the Company's Common Stock with the S&P Midcap 400 Index and an index of peer
companies selected by the Company (the "Peer Group Index"). The comparison
assumes $100 was invested on December 31, 1991 in the Company's Common Stock and
in each of the foregoing indices and assumes reinvestment of dividends.
TOTAL SHAREHOLDER RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME/INDEX DEC91 DEC92 DEC93 DEC94 DEC95 DEC96
- --------------------------------------------------------------------------------
EAGLE PAC INDUSTRIES INC 100 433.33 500.00 600.00 383.20 733.33
S&P MIDCAP 400 INDEX 100 111.91 127.53 122.96 161.00 191.91
PEER GROUP 100 136.36 115.15 145.45 187.88 175.76
The Peer Group Index includes the following companies: Lamson and
Sessions Co. and Royal Group Tech Ltd.
APPROVAL OF 1997 STOCK OPTION PLAN
(PROPOSAL NO. 3)
GENERAL
The Board of Directors has adopted, subject to shareholder approval,
the Company's 1997 Stock Option Plan (the "Plan") and reserved 1,000,000 shares
of the Company's Common Stock for issuance pursuant to the Plan.
A general description of the Plan is set forth below, but such
description is qualified in its entirety by reference to the full text of the
Plan, a copy of which may be obtained without charge upon written request to the
Company's Chief Financial Officer.
DESCRIPTION OF PLAN
PURPOSE. The purpose of the Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers, employees and key consultants
upon whose efforts the success of the Company will depend to a large degree.
TERM. Incentive stock options may be granted under the Plan for a
period of ten years from the date of adoption of the Plan by the Board of
Directors. Nonqualified stock options may be granted pursuant to the Plan until
the Plan is discontinued or terminated by the Board.
ADMINISTRATION. The Plan may be administered by the Board of Directors
or a Committee of the Board of Directors (the "Committee"). The Plan gives broad
powers to the Committee to administer and interpret the Plan, including the
authority to select the individuals to be granted options and to prescribe the
particular form and conditions of each option granted.
ELIGIBILITY. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the Plan. All employees,
directors and officers of, and consultants and advisors to, the Company or any
subsidiary are eligible to receive nonqualified stock options. As of February
28, 1997, the Company had approximately 331 employees (of which five are
officers) and three directors who are not employees.
OPTIONS. When an option is granted under the Plan, the Committee at its
discretion specifies the option price, the type of option (either "incentive" or
"nonqualified") to be granted, and the number of shares of Common Stock which
may be purchased upon exercise of the option. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Company's
Common Stock and, unless otherwise determined by the Committee, the option price
of a nonqualified option will not be less than 100% of the fair market value of
the Company's Common Stock on the date of grant. The market value of the
Company's Common Stock on March 25, 1997 was $4.00. The term during which the
option may be exercised and whether the option will be exercisable immediately,
in stages or otherwise are set by the Committee, but the term of an incentive
stock option may not exceed ten years from the date of grant. Optionees may pay
for shares upon exercise of options with cash, certified check or, if approved
by the Committee, Common Stock of the Company valued at the stock's then fair
market value. Each incentive stock option granted under the Plan is
nontransferable during the lifetime of the optionee. Each outstanding option
under the Plan may terminate earlier than its stated expiration date in the
event of the optionee's termination of employment or other relationship with the
Company.
AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, (i) no such
revision or amendment may impair the terms and conditions of any outstanding
option to the material detriment of the optionee without the consent of the
optionee except as authorized in the event of merger, consolidation or
liquidation of the Company and (ii) the Plan may not, without the approval of
the shareholders, be amended in any manner that will (a) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events; (b) change the
designation of the class of employees eligible to receive options; (c) decrease
the price at which options will be granted; or (d) materially increase the
benefits accruing to optionees under the Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN. Under present law, an
optionee will not realize any taxable income on the date a nonqualified option
is granted pursuant to the Plan. Upon exercise of the option, however, the
optionee must recognize, in the year of exercise, ordinary income equal to the
difference between the option price and the fair market value of the Company's
Common Stock on the date of exercise. Upon the sale of the shares, any resulting
gain or loss will be treated as capital gain or loss. The Company will receive
an income tax deduction in its fiscal year in which nonqualified options are
exercised, equal to the amount of ordinary income recognized by those optionees
exercising options, and must withhold income and other employment-related taxes
on such ordinary income.
Incentive stock options granted under the Plan are intended to qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code.
Under Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable income
when the option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the optionee if he or she does
not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the granting of the option and one year
from the receipt of the shares.
PLAN BENEFITS. The table below shows the total number of stock options
that have been received by the following individuals and groups under the Plan
as of March 28, 1997:
Total Number of
Name and Position/Group Options Received
----------------------- ----------------
Harry W. Spell, Chairman and Former CEO 0
William H. Spell, CEO 0
Larry D. Schnase, Former CEO of Eagle Plastics 0
David P. Schnase, Senior Vice President 0
G. Peter Konen, President 0
Current Executive Officer Group 0
Current Non-executive Officer Director Group 0
Current Non-executive Officer Employee Group 30,250
Because future grants of stock options are subject to the discretion of
the Committee, the future benefits that may be received by these individuals or
groups under the Plan cannot be determined at this time.
VOTE REQUIRED; RECOMMENDATION
The Board of Directors recommends that the shareholders approve the
1997 Stock Option Plan. Approval of the Plan requires the affirmative vote of
the greater of (i) a majority of the shares represented at the meeting with
authority to vote on such matter or (ii) a majority of the voting power of the
minimum number of shares that would constitute a quorum for the transaction of
business at the meeting.
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 4)
Deloitte & Touche LLP, independent public accountants, has served as
the auditors of the Company since August 18, 1992. The Board of Directors has
again selected Deloitte & Touche LLP as the Company's auditors for fiscal 1997
and shareholder ratification of the appointment is requested. In the event the
appointment is not approved by the shareholders, the Board of Directors will
reconsider its decision.
A representative of Deloitte & Touche LLP is expected to be present at
the Annual Meeting of Shareholders and will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions. The Board of Directors recommends a vote "For" the
appointment of Deloitte & Touche LLP.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders ("Insiders") are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31, 1996
all Section 16(a) filing requirements applicable to Insiders were complied with
except as follows: Forms 3 were filed late by David Schnase and Patrick Mertens;
two forms covering two transactions were filed late by G. Peter Konen; and one
form covering one transaction was filed late by each of Harry W. Spell, William
H. Spell and David Schnase.
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders of a Company, after timely notice to the Company, to present
proposals for shareholder action in the Company's proxy statements where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by Company action in accordance
with the proxy rules. The Company did not receive from its shareholders any
proposals for action at the 1997 Annual Meeting. Any appropriate proposal
submitted by a shareholder of the Company and intended to be presented at the
1998 Annual Meeting of Shareholders must be received by the Company on or before
December 4, 1997 to be includable in the Company's proxy statement and related
proxy for the 1998 annual meeting.
GENERAL
Management knows of no other matters that will be presented at the
Annual Meeting of Shareholders. However, the enclosed proxy gives discretionary
authority in the event that any additional matters should be presented.
The Annual Report of the Company for the past fiscal year is enclosed
herewith and contains the Company's financial statements for the fiscal year
ended December 31, 1996. No portion of the Annual Report is incorporated herein
or is considered to be proxy soliciting material. SHAREHOLDERS MAY RECEIVE,
WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING
FINANCIAL STATEMENTS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, BY
WRITING TO: INVESTOR RELATIONS, EAGLE PACIFIC INDUSTRIES, INC., 2430
METROPOLITAN CENTRE, 333 SOUTH SEVENTH STREET, MINNEAPOLIS, MINNESOTA 55402.
By Order of the Board of Directors,
William H. Spell
Chief Executive Officer
EAGLE PACIFIC INDUSTRIES, INC.
PROXY
FOR 1997 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harry W. Spell and William H. Spell,
and each of them acting alone, with full power of substitution, his or her
Proxies to represent and vote, as designated below, all shares of Eagle Pacific
Industries, Inc. (the "Company") registered in the name of the undersigned, at
the Company's 1997 Annual Meeting of Shareholders to be held at the Hilton
Hotel, 1001 Marquette Avenue, Minneapolis, Minnesota, at 3:30 p.m., Minneapolis
Time, on Tuesday, May 13, 1997, and at any adjournment thereof, and the
undersigned hereby revokes all proxies previously given with respect to the
Meeting.
1. To set the number of directors at seven.
|_| FOR |_| AGAINST |_| ABSTAIN
2. To elect two Class III directors to hold office until the 2000 Annual
Meeting of Shareholders. (Nominees: Larry D. Schnase and G. Peter
Konen)
|_| FOR all nominees listed above |_| WITHHOLD AUTHORITY to vote
(except those whose names have for all nominees listed above
been written on the line below)
(To withhold authority to vote for any individual nominee write that
nominee's name on the line below.)
-----------------------------------------------------------------------
3. To approve the Company's 1997 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To ratify and approve the selection of Deloitte & Touche LLP as
independent public accountants for the Company for the current fiscal
year.
|_| FOR |_| AGAINST |_| ABSTAIN
5. OTHER MATTERS. In their discretion, the appointed Proxies are.
|_| AUTHORIZED |_| NOT AUTHORIZED
to vote upon such other business as may properly come before the
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION
IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL AND, IN THE
CASE OF PROPOSAL #5 WILL BE DEEMED TO GRANT AUTHORITY UNDER PROPOSAL #5.
Dated: ____________________, 1997 ________________________________________
________________________________________
(PLEASE DATE AND SIGN name(s) exactly as
shown on your stock certificate.
Executors, administrators, trustees,
guardians, etc., should indicate
capacity when signing. For stock held in
Joint Tenancy, each joint owner should
sign.)
