SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
Commission file number 0-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-1642846
(State of Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 305-0339
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required by 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 as of February 27, 1998 was approximately $10,900,000 (based on the
closing sale price of $2.00 per share as reported on the Nasdaq SmallCap
Market).
The number of shares of the registrant's Common Stock, $.01 par value per share,
outstanding as of February 27, 1998 was 6,816,174.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers:
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company as of April 27, 1998. A summary
of the background and experience of these individuals is set forth after the
table.
Name Age Position
Harry W. Spell(1)(2) 74 Chairman of the Board
William H. Spell(2) 41 Chief Executive Office and Director
Bruce A. Richard(1)(3) 68 Vice Chairman of the Board and Secretary
G. Peter Konen 48 President and Director
Patrick M. Mertens 34 Chief Financial Officer and Treasurer
David P. Schnase 37 Senior Vice President-Sales and Marketing
George R. Long(3) 67 Director
Richard W. Perkins(1)(2) 67 Director
Larry D. Schnase(2) 66 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 and served as Chief Executive Officer from January 1992 to January 1997. In
addition, Mr. Spell is Chief Financial Manager and Chairman of the Board of
Spell Capital Partners, LLC, which is a private equity investment fund which
focuses on leveraged acquisitions of established businesses in the Upper
Midwest. Mr. Spell has been involved in private equity investing since 1988. 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., as well as several private organizations.
William H. 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, Mr. Spell is the
President of Spell Capital Partners, LLC, which is a private equity investment
fund which focuses on leveraged acquisitions of established businesses in the
Upper Midwest. Mr. Spell has been involved in private equity investing since
1988. 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, Minnesota. Mr. Spell has a B.S.
and an M.B.A. degree from the University of Minnesota.
<PAGE>
Bruce A. 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 and as Treasurer from mid-1993 to March 1998. In addition, Mr. Richard is
affiliated with Spell Capital Partners, LLC, which is a private equity
investment fund which focuses on leveraged acquisitions of established
businesses in the Upper Midwest. Mr. Richard has been involved in private equity
investing since 1988. 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 and
President of the Company since January 1997. In addition, he served as President
of Eagle Plastics from February 1996 until December 1997, when it was merged
into the Company. 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
28 years of experience in the manufacturing and sales of plastic pipe.
Patrick M. Mertens, who joined the Company in May 1995 as Controller of the
Company's former subsidiary, Eagle Plastics, Inc. ("Eagle Plastics") was
promoted to Chief Financial Officer of the Company in February 1996 and
Treasurer in March 1998. 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 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.
David P. Schnase, was elected Senior Vice President-Sales and Marketing of
the Company in January 1998. He joined Eagle Plastics in April 1985 and served
as Senior Vice President-Sales and Marketing of Eagle Plastics and of the
Company's other subsidiaries from February 1996 until December 1997, when such
subsidiaries were merged into the Company.
George R. 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>
Richard W. 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 had 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. Mr. Perkins
is also affiliated with Spell Capital Partners, LLC, which is a private equity
investment fund which focuses on leveraged acquisitions of established
businesses in the Upper Midwest. Mr. Perkins is a director of various public
companies, including: Bio-Vascular, Inc., Lifecore Biomedical, Inc., Children's
Broadcasting Corporation, CNS, Inc., Quantech Ltd., Nortech Systems, Inc. and
Vital Images, Inc.
Larry D. Schnase has been a director of the Company since December 1993. He
was Chief Executive Officer of 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. Larry D. Schnase is David P.
Schnase's father.
Compliance with Section 16(a) of the Exchange Act.:
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, 1997 all
Section 16(a) filing requirements applicable to Insiders were complied with
except that one form covering one transaction was filed late by G. Peter Konen.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid by
the Company and its former subsidiary, Eagle Plastics, as well as certain other
compensation paid or accrued, during the last three fiscal years to the Chief
Executive Officer of the Company and the executive officers of the Company and
Eagle Plastics who received more than $100,000 during fiscal 1997:
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compen-
sation
----------------
Name and Other Securities All
Principal Fiscal Annual Underlying Other
Position Year Salary(1) Bonus Compensation Options and SARs Compensation
-------- ---- --------- ----- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Spell 1997 $ 108,000(2) $12,750 $7,200 100,000(3) $ 0
Chief Executive 1996 $ 89,188(3) $55,000 $7,200 0 $ 0
Officer of 1995 $ 74,648 $ 0 $ 0 50,000 $ 0
the Company and
Chairman and CEO
of Eagle Plastics
G. Peter Konen 1997 $ 175,000(4) $20,250 $7,200 80,000(3) $ 0
President of the 1996 $ 145,000 $75,000 $6,000 0 $ 0
Company and 1995 $ 118,000 $ 0 $ 0 75,000 $ 0
Eagle Plastics
David P. Schnase 1997 $ 125,000 $ 8,750 $6,000 44,500(3) $ 0
Sr. Vice President of the 1996 $ 87,500(5) $12,500 $ 0 0 $ 0
Company and 1995 $ 87,500(5) $ 0 $ 0 30,000 $ 0
Eagle Plastics
- -----------------
</TABLE>
(1) Compensation to Messrs. Peter Konen, David Schnase and William Spell has
been paid by Eagle Plastics, the Company's former subsidiary, which was
acquired by the Company on December 17, 1993 and merged into the Company in
December 1997.
(2) 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 $115,000) 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.
(3) Such options were converted from options to acquire stock of Eagle Plastics
in connection with assumption by the Company of the Eagle Plastics, Inc.
Stock Option Plan. See "Executive Compensation--Option/SAR Grants During
1997 Fiscal Year."
(4) 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 $182,000) 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.
<PAGE>
(5) 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
$130,000). 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
and $52,470 for years ended 1996 and 1995, respectively.
Option/SAR Grants During 1997 Fiscal Year
In connection with the merger of the Company's subsidiary, Eagle Plastics
into the Company effective December 31, 1997, the Company assumed Eagle
Plastics' Stock Option Plan and all options outstanding under such Plan, and all
such options were amended to provide optionees with an opportunity to purchase
an equivalent number of shares of the Company's Common Stock. Options held by
the named executive officers under the Eagle Plastics Plan were amended as
options to purchase shares of the Company's Common Stock, as set forth below. No
other options were granted to the named executive officers during fiscal 1997.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants(1) Appreciation for Option Term
- -------------------------------------------------------------------------------- -----------------------------------
Number of Percent of
Securities Total
Underlying Options/SARs Exercise Market
Options/SARs Granted to or Base Price on
Granted Employees Price Grant Date Expiration
Name (#) in Fiscal Year ($/Sh) ($/Sh)(2) Date 0% ($) 5% ($) 10% ($)
- ---- ------------ -------------- --------- ---------- ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William H. Spell 100,000 15.4% $0.75 $1.75 11/30/00 $100,000 $127,584 $157,925
G. Peter Konen 80,000 12.3% $0.75 $1.75 11/30/00 $ 80,000 $102,068 $126,340
David Schnase 40,000 6.2% $0.75 $1.75 11/30/00 $ 40,000 $ 51,034 $ 63,170
4,500 .7% $1.75 $1.75 05/12/01 $ 0 $ 1,241 $ 2,607
</TABLE>
(1) All options were 100% exercisable as of December 31, 1997.
(2) These options were converted from options to acquire shares of Eagle
Plastics Common Stock, initially granted in December 1993 and May 1994, to
options to acquire shares of Company Common Stock on December 31, 1997. The
Market Price on Grant Date reflects the fair market value of shares of
Eagle Plastics Common Stock on the date of initial grant of each of the
options.
<PAGE>
Option/SAR Exercises in 1997 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, 1997 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(#) FY-End($)(1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
---- ----------- -------- --------------- -------------
<S> <C> <C> <C> <C>
William H. Spell 0 N/A 350,000/0 $403,281/0
G. Peter Konen 0 N/A 240,000/10,000 155,000/0
David P. Schnase 0 N/A 114,500/5,000 84,750/0
</TABLE>
- -----------------------------
(1) Based on the difference between the closing price of the Company's Common
Stock as reported by Nasdaq at fiscal year end and the option exercise
price.
Directors' Compensation
In 1997, each director who was not an employee of the Company or a
subsidiary (other than the Chairman and the Vice Chairman) was entitled to an
annual fee of $9,000 for service as directors and committee members. Harry W.
Spell, Chairman of the Board, and Bruce A. Richard, Vice Chairman of the Board,
were each compensated for their services in such capacities at the annual rate
of $24,000. In 1998, Harry W. Spell and Bruce A. Richard will receive fees of
$30,000 and George R. Long and Richard W. Perkins will receive fees of $12,000
and $21,000, respectively, for their roles as non-employee directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table provides information as of April 27, 1998, 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 435,000 6.3%
Capital Fund, L.P.
222 West Adams Street
Chicago, IL 60606
Okabena Partnership K 425,000 6.2%
5140 Norwest Center
Minneapolis, MN 55402
<PAGE>
William H. Spell 527,963(2)(3)(4) 7.5%
2430 Metropolitan Centre
Minneapolis, MN 55402
Harry W. Spell 357,332(3)(4)(5) 5.2%
2430 Metropolitan Centre
Minneapolis, MN 55402
Richard W. Perkins 151,942(4)(6) 2.2%
730 East Lake Street
Wayzata, MN 55391
George R. Long 236,807(7) 3.4%
29 Las Brisas Way
Naples, FL 33963
Larry D. Schnase 628,125(8) 8.4%
146 North Maple
Hastings, NE 68901
G. Peter Konen 310,547(9) 4.4%
146 North Maple
Hastings, NE 68901
Bruce A. Richard 146,597(4)(10) 2.1%
2458 Farrington Circle
Roseville, MN 55113
David P. Schnase 134,500(11) 1.9%
146 North Maple
Hastings, NE 68901
All Directors and Officers 2,497,613(12) 30.6%
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 April 27, 1998 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.
<PAGE>
(2) Includes 210,000 shares which may be purchased upon exercise of currently
exercisable options and 21,429 shares held by Mr. Spell's wife.
(3) Includes 30,500 shares held by the Spell Family Foundation. Messrs. Harry
Spell and William Spell share voting and dispositive power over such
shares.
(4) Messrs. William Spell, Harry Spell, Richard Perkins and Bruce Richard have
individually acquired securities of the Company from the Company and in
open market transactions and each of them individually anticipates that he
will acquire additional securities of the Company in the future. Such
persons have entered into an agreement which requires that a majority of
them approve any sale of securities of the Company by any of them. This
agreement is designed to keep all of such persons interested and focused on
the long-term success of the Company and recognizes that each of such
persons contributes specific expertise to the Company through their
positions as directors and/or officers. The agreement does not require that
such persons vote their shares in any specific manner or act in concert in
connection with any purchase or sale of securities of the Company.
(5) Includes 45,000 shares which may be purchased upon exercise of currently
exercisable options.
(6) Includes 25,000 shares which may be purchased upon exercise of currently
exercisable options and 11,429 shares held by a Profit Sharing Trust for
Mr. Perkins' benefit.
(7) Includes 30,000 shares which may be purchased upon exercise of currently
exercisable options.
(8) Includes 610,000 shares which may be purchased upon exercise of currently
exercisable options.
(9) Includes 240,000 shares which may be purchased upon exercise of currently
exercisable options.
(10) Includes 25,000 shares which may be purchased upon exercise of currently
exercisable options.
(11) Includes 114,500 shares which may be purchased upon exercise of currently
exercisable options.
(12) Includes 1,319,500 shares which may be purchased upon exercise of currently
exercisable options.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Office Sharing. The Company has an office sharing arrangement with Spell
Capital Partners, LLC pursuant to which the Company pays $10,000 per month for
space and administrative support. William H. Spell and Harry W. Spell are both
members of Spell Capital Partners, LLC.
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 could have been acquired upon
exercise of Stock Options held by Larry Schnase, G. Peter Konen and David P.
Schnase; and (iii) up to 338,357 shares that could have been acquired upon
exercise of future stock options granted under the Eagle Plastics 1993 Stock
Option Plan (collectively the "Liquidity Shares") had liquidity rights. Such
liquidity rights provided that at any time after June 30, 1995, upon request by
a holder of Liquidity Shares, the Company would 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; or (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 could be presented to the Company pursuant
to the Agreement from June 30, 1995 through December 31, 1995 and an additional
157,145 Liquidity Shares could be presented after January 1, 1997 and January 1,
1998. The determination of which form of liquidity to be provided was in the
sole discretion of the Company. During Fiscal 1997, the Company purchased
272,757 shares of Eagle Plastics Common Stock from Larry Schnase for an
aggregate purchase price of $748,717.93. As a result of the merger of Eagle
Plastics into the Company in December 1997, all options granted under the Eagle
Plastics Plan were assumed by the Company and were amended to provide the
holders with options to acquire shares of Company Common Stock. After December
1997, all liquidity rights of the Liquidity Shares were effectively terminated.
Employment and Consulting Agreements. The Company has entered into
Employment Agreements with William H. Spell, G. Peter Konen and David P.
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.
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 received monthly compensation of
$10,000 during 1997 and will receive $8,333 per month during 1998, and was
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in Minneapolis,
Minnesota on the 29th day of April, 1998.
EAGLE PACIFIC INDUSTRIES, INC.
By /s/ William H. Spell
William H. Spell
Chief Executive Officer
