SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A (No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File Number 000-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact name of Small Business Issuer as specified in its Charter)
Minnesota 41-1642846
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
2430 Metropolitan Centre
333 South Seventh Avenue
Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 371-9650
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, par value $.01 per share.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year: $65,280,138
The aggregate market value of the voting stock held by non-affiliates was
approximately $14,719,000 based upon the average high and low bid prices of the
Registrant's Common Stock as of February 28, 1997.
There were 6,443,237 shares of common Stock, $.01 par value, outstanding as of
February 28, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No [X]
<PAGE>
The Registrant is providing this Amendment No. 1 to Form 10-K to amend Part II,
Item 5 and Part III, Items 10, 11, 12 and 13.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq SmallCap
Market under the symbol "EPII." Prior to September 6, 1994, when the Company
became listed on the Nasdaq SmallCap Market, the Company's Common Stock was
traded on the National Association of Securities Dealers Over-the-Counter
Bulletin Board. The Company's Series A Preferred Stock does not trade. The
following table sets forth the high and low bid prices for each fiscal quarter
in 1996 and 1995.
High Low
Year ended December 31, 1996:
First quarter $2-3/8 $1-1/4
Second quarter 4 1-1/2
Third quarter 3-7/8 3-1/8
Fourth quarter 3-1/2 2-5/16
Year ended December 31, 1995:
First quarter $3-1/2 $2-1/4
Second quarter 3-1/8 2
Third quarter 3-3/8 1-5/8
Fourth quarter 2-1/4 1-3/8
The bid quotations represent interdealer prices and do not include
retail mark-ups, mark-downs, or commissions and may not necessarily represent
actual transactions. At February 28, 1997, the Company had approximately 1,880
shareholders of record.
The Company has never paid a cash dividend on its Common Stock. Payment
of Common Stock dividends is at the discretion of the Board of Directors subject
to the Company's lending arrangements. The Board of Directors plans to retain
earnings, if any, for operations and does not intend to pay Common Stock
dividends in the near future. However, dividends are paid by the Company on its
Series A 7% Convertible Preferred Stock.
RECENT SALES OF UNREGISTERED SECURITIES. On November 13, 1996 the
Company issued 34,047 shares of common stock to a director in exchange for
shares of common stock of Eagle Plastics, Inc. of equivalent value. As an
exemption from registration for this transaction, the Company relied upon
Section 4(2) of the Securities Act of 1933 as a transaction by an issuer not
involving a public offering.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and directors
of the Company are as follows:
Name Age Position
Harry W. Spell(1) 73 Chairman of the Board
William H. Spell(2) 40 Chief Executive Officer and
Director
Bruce A. Richard(1)(3) 66 Vice Chairman of the Board,
Secretary, Treasurer, and
Director
G. Peter Konen 47 President and Director
Patrick M. Mertens 33 Chief Financial Officer
Richard W. Perkins(1)(2) 66 Director
George R. Long(3) 66 Director
Larry D. Schnase(2)(3) 64 Director
===============================================================================
(1) Member of Compensation Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
HARRY W. SPELL has been Chairman of the Board of the Company since
January 1992. He was formerly Chief Executive Officer of the Company from
January 1992 through December 1996. In addition, Mr. Spell is the Chairman of
the Board of Peerless Industrial Group, which during 1995 completed the
leveraged buyout of Peerless Chain, Inc. Peerless is a manufacturer of chain and
wire form products with over $45 million of sales in 1995. Previously, Mr. Spell
was involved with the acquisitions of a specialty food products company and a
manufacturer of various clothing sportswear. He was employed by Northern States
Power, a Fortune 500 company, from 1949 until August 1988 when he reach the
mandatory retirement age of 65 and he retired from all positions at Northern
States Power Company. Mr. Harry Spell was Senior Vice President, Finance and
Chief Financial Officer of Northern States Power Company from May 1983 until
April 1988. Mr. Harry Spell currently serves as a director of Appliance
Recycling Centers of America, Inc. and Peerless Industrial Group, as well as
several private organizations.
<PAGE>
WILLIAM H. SPELL has been President and a director of the Company since
January 1992 and was named Chief Executive Officer of the Company in December
1996. He was formerly President of the Company from January 1992 through
December 1996. In addition, Mr. Spell is the Chief Executive Officer and a
Director of Peerless Industrial Group, which during 1995 completed the leveraged
buyout of Peerless Chain, Inc. Peerless is a manufacturer of chain and wire form
products with over $45 million of sales in 1995. Previously, Mr. Spell was
involved with the acquisitions of a specialty food products company and a
manufacturer of various clothing sportswear. From 1981 through 1988, Mr. Spell
was vice president and director of corporate finance at John G. Kinnard &
Company, Inc., a regional investment banking firm located in Minneapolis. Mr.
Spell serves as a director of Peerless Industrial Group, as well as several
private organizations. Mr. Spell has a B.S. and an M.B.A. degree from the
University of Minnesota.
BRUCE A. RICHARD has been a Director of the Company since March of 1992,
Secretary, Treasurer since the summer of 1993 and Vice Chairman since February
1996. He also served as Chief Financial Officer of the Company from mid-1993 to
February 1996. In addition, Mr. Richard is the Chief Financial Officer of
Peerless Industrial Group, which during 1995 completed the leveraged buyout of
Peerless Chain, Inc. Peerless is a manufacturer of chain and wire form products
with over $45 million of sales in 1995. As a member of the Spell Investment
Group, Mr. Richard has been involved in numerous acquisitions and investment
activities. He retired as President and Chief Operating Officer of Northern
States Power Company, a Fortune 500 company, in July of 1986. He is a former
member of the Board of Regents of St. John's University, and is actively
involved in other philanthropic organizations.
G. PETER KONEN has been a Director of the Company since December 1993. He
has been Executive Vice President and Chief Operating Officer of Eagle since its
inception in 1984 and was named President of the Company in December 1996. Prior
to founding Eagle Plastics, he was Plant Manager with Western Plastics, a PVC
pipe and PE tubing manufacturer. Mr. Konen has over 28 years of experience in
the business of manufacturing and sales of plastic pipe.
PATRICK M. MERTENS came to the Company in May 1995 as Controller and was
promoted to Chief Financial Officer in December 1995. From 1986 to May of 1991,
he was a Senior Auditor, specializing in manufacturing clients, for Baird, Kurtz
& Dobson, CPA's. During his tenure at Baird, Kurtz & Dobson, Mr. Mertens was in
charge of the annual audit for Eagle Plastics, Inc. for three years. From 1991
to May of 1995 he was Assistant Controller of ISCO, Inc., a public company that
manufactures scientific and environmental instruments. Mr. Mertens has a B.S.
degree from Peru, Nebraska State College and an M.B.A. degree from the
University of Nebraska.
RICHARD W. PERKINS. 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. 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.
<PAGE>
LARRY D. SCHNASE. 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.
Harry W. Spell is William H. Spell's father.
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.
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.
<PAGE>
ITEM 11. 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.
<PAGE>
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:
<PAGE>
<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.
<PAGE>
(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
$50,818 for years ended 1996, 1995 and 1994 respectively.
Option/SAR Grants During 1996 Fiscal Year
No stock options or SARs were granted to the named executive officers
during fiscal 1996.
Option/SAR Exercises in 1996 Fiscal Year and Fiscal Year End Option Values
The following table sets forth information as to individual exercises
of options, number of options and value of options at December 31, 1996 with
respect to the named executive officers:
<PAGE>
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Securities In-the-Money
Underlying Options/SARs
Options/SARs at
Shares at FY-End(#)(2) FY-End($)(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.
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.
<PAGE>
TOTAL SHAREHOLDER RETURNS
<TABLE>
<CAPTION>
YEARS ENDING
BASE
PERIOD
COMPANY NAME/INDEX DEC91 DEC92 DEC93 DEC94 DEC95 DEC96
- --------------------------------------- ------------ ----------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The Peer Group Index includes the following companies: Lamson and Sessions
Co. and Royal Group Tech Ltd.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS AND MANAGEMENT
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 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.
<PAGE>
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)
<PAGE>
(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.
<PAGE>
ITEM 14. 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.
<PAGE>
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.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAGLE PACIFIC INDUSTRIES, INC.
Dated: May 22, 1997 By: /s/ Patrick M. Mertens
Patrick M. Mertens, Chief
Financial Officer
