UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
TO
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-21133
SPURLOCK INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 84-1018956
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
209 West Main Street 23890
Waverly, Virginia (Zip Code)
(Address of Principal Executive Offices)
(804) 834-8980
(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, no 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 Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for past 90 days.
Yes X No
----- -----
AMENDMENT
The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 is hereby amended as follows:
Item 13. Certain Relationships and Related Transactions
Employment Agreements. Pursuant to an Agreement and Plan of
Reorganization dated April 22, 1992 (the "Spurlock Adhesives Agreement"), Air
Resources, among other things, acquired all of the capital stock of Spurlock
Adhesives from Harold N. Spurlock. The Spurlock Adhesives Agreement required Air
Resources to purchase all of Mr. Spurlock's shares of Air Resources' common
stock at his request upon the termination of his employment by Air Resources.
The per share purchase price set by the Spurlock Adhesives Agreement was the
highest market bid price at which such shares have traded in the preceding
twelve months. The Spurlock Adhesives Agreement also provided for Air Resources
to purchase all of Mr. Spurlock's shares of Air Resources' common stock upon his
death at the request of his heirs upon mutually agreeable terms. These
provisions of the Spurlock Adhesives Agreement relating to Air Resources'
obligations to purchase Mr. Spurlock's shares were terminated by mutual
agreement effective April 15, 1996, without compensation to Mr. Spurlock.
On August 21, 1996, Harold N. Spurlock and Spurlock Adhesives entered
into a certain Employment and Retirement Benefit Agreement (the "Employment
Agreement") which provides, among other things, for Mr. Spurlock's employment
and certain retirement benefits. Pursuant to the Employment Agreement, Mr.
Spurlock has agreed to serve as vice president for product development, and as a
member of the Company's and Spurlock Adhesives' Boards of Directors, until
August 31, 1999.
For his services, Mr. Spurlock will receive under the Employment
Agreement a base salary of $180,000 per year, reimbursement of expenses in
accordance with the general policies of Spurlock Adhesives, and such additional
or special compensation as the Board of Directors of Spurlock Adhesives may
determine from time to time. Mr. Spurlock will not receive any additional
compensation for service on the Company's Board of Directors and that of
Spurlock Adhesives.
The Employment Agreement provides that Mr. Spurlock's employment with
Spurlock Adhesives will be terminated by reason of his death or permanent
disability, by Mr. Spurlock upon 30 days notice in writing, or by Spurlock
Adhesives with cause. "Cause" is deemed to exist under the Employment Agreement
if Mr. Spurlock (i) willfully refuses to perform services thereunder, (ii)
materially breaches the provisions thereof relating to trade secrets, and
confidential information, retention of documents, and noncompetition, (iii)
engages in acts of dishonesty or fraud, or (iv) engages in other serious
misconduct. If Mr. Spurlock's employment with Spurlock Adhesives terminates for
cause, or due to death, permanent disability or voluntary termination, any
portion of his fixed salary, which is earned but unpaid as of the date of such
termination shall be paid to him, or his designated beneficiary in the event of
death.
The Employment Agreement provides for a retirement benefit equal to
$100,000 per year to be received by Mr. Spurlock upon his retirement from
employment at or after August 31, 1999, or permanent disability prior to such
date, for a period of five years. In the event of Mr. Spurlock's death prior to
or after such date, Mr. Spurlock's wife would receive such benefit during such
five year period. Any benefit payable to Mr. Spurlock's wife would cease upon
her death. Neither Mr. Spurlock nor his wife would be entitled to any retirement
or death benefit under the Employment Agreement in the event that he voluntarily
terminated his employment with Spurlock Adhesives prior to August 31, 1999
without "good reason." Under the Employment Agreement, "good reason" is deemed
to exist if, and only if:
(a) Spurlock Adhesives generally fails to timely pay the amounts and
benefits provided to Mr. Spurlock under the Employment Agreement;
(b) the assignment to Mr. Spurlock of duties materially inconsistent
with and inferior to Mr. Spurlock's position, duties and responsibilities and
status as a vice president; or
(c) the transfer of Mr. Spurlock's place of employment further than
30 miles beyond the limits of Petersburg, Virginia without his prior consent.
2
The Employment Agreement requires Mr. Spurlock to keep in confidence
certain trade secrets and confidential information of Spurlock Adhesives during
the term of his employment and for a period of five years thereafter. Mr.
Spurlock has further agreed not to remove or retain any documents of Spurlock
Adhesives. Also, for so long as Mr. Spurlock is employed by Spurlock Adhesives
and as long as he is receiving retirement benefits, he has agreed not to compete
with Spurlock Adhesives. In connection therewith, Mr. Spurlock has also agreed
in the Employment Agreement not to solicit employees of Spurlock Adhesives for a
period of 12 months following termination of his employment for any reason.
Indemnification Agreements. On December 21, 1995, Air Resources entered
into an Indemnification Agreement with Phillip S. Sumpter upon his appointment
to the Board of Directors. The Company succeeded to and assumed all the rights
and obligations of Air Resources under the Indemnification Agreement, which was
subsequently superseded by a new Indemnification Agreement between such parties
dated January 30, 1997. Similar Indemnification Agreements were entered into
between the Company and Glen S. Whitwer and Raymond G. Tuttle on September 19,
1996 and January 30, 1997, respectively. Such agreements provide for the
indemnification of such directors against claims, losses, liabilities, damages,
costs and expenses that each may suffer as a result of his service as a director
of the Company, to the full extent that such indemnification is permitted and
not prohibited by applicable federal or state law, including securities law, or
the Articles of Incorporation of the Company.
Certain Related Transactions. Described below are obligations of the
Company which have been personally guaranteed by certain executive officers,
directors and shareholders of the Company. All such personal guarantees were
released during 1996 due to the repayment of all such obligations by the
Company.
Pursuant to the Spurlock Adhesives Agreement, Air Resources acquired
all of the stock of Spurlock Adhesives. At the time of the acquisition, Harold
N. Spurlock, formerly Chairman of the Board, President and Chief Executive
Officer of Air Resources and the Company, personally guaranteed a large portion
of Spurlock Adhesives' debt, including all debt then secured by real property
and/or equipment and debt owed to its largest trade creditor. Creditors at the
time agreed to allow the debt to remain outstanding after the acquisition of
Spurlock Adhesives on the condition that Mr. Spurlock continue to guarantee the
debt, that he remain as Chairman of the Board of Spurlock Adhesives, and that he
be appointed Chairman of the Board of Air Resources. Due to the repayment of
amounts due to such creditors in 1996, Mr. Spurlock's personal guarantee has
been released and the requirement that Mr. Spurlock serve as Chairman of the
Board of the Company and Spurlock Adhesives is no longer applicable.
In addition to Harold N. Spurlock's personal guarantee of the
above-described debt, Irvine R. Spurlock and H. Norman Spurlock, Jr., the
Company's current Chairman, President, and Chief Executive Officer, and
Executive Vice President and Secretary, respectively, and Harold N. Spurlock
also had personally guaranteed various other debts of the Company, which has
succeeded to and assumed all the rights and obligations of Air Resources, and of
Spurlock Adhesives. In May 1995, Irvine R. Spurlock and H. Norman Spurlock, Jr.
replaced a past director, Lloyd B. Putman, and a then serving director, Jesse A.
Adams, as guarantors on a note with an Arkansas bank. The loan in the original
principal amount of $500,000 was taken out in August 1992 to provide working
capital needed to operate the Company's facility in Malvern, Arkansas. The note
was secured by certain real property and equipment. On or about June 30, 1996,
the note was repaid in full and each of the personal guarantors were released
from any further obligation on the loan.
Both Harold N. Spurlock and his wife, Daphne R. Spurlock, had
guaranteed a loan from the Bank of Waverly (Virginia) secured by certain real
property and equipment relating to the construction of the Company's
formaldehyde plant in Waverly, Virginia. Mr. and Mrs. Spurlock also had
guaranteed a loan from First Union National Bank relating to the construction of
resin and formaldehyde production facilities in Waverly, Virginia. Both of these
loans were repaid in full as of July 9, 1996 and June 30, 1996, respectively,
and Mr. and Mrs. Spurlock were each released from their personal guaranties of
the loans upon such repayment.
3
Harold N. Spurlock, Daphne R. Spurlock and Irvine R. Spurlock had
guaranteed a loan from a trade creditor, Hydro Agri Tampa, Inc., that
represented trade debt converted to a note in 1991. The note was secured by
certain real property and equipment of Spurlock Adhesives. As of June 24, 1996,
the note was repaid in full and each of the personal guarantors were released
from any further obligation on the loan. Hydro Agri Tampa, Inc. was previously a
major supplier of urea to Spurlock Adhesives, but discontinued supply of such
raw material into the United States in 1991.
Each of Harold N. Spurlock, Irvine R. Spurlock and H. Norman Spurlock,
Jr. also guaranteed payments due under a lease with D.B. Western, Inc. for the
Waverly, Virginia formaldehyde plant. On December 19, 1991, Spurlock Adhesives
entered into a Formaldehyde Plant Lease with D.B. Western, under which D.B.
Western agreed to construct a fully operational formaldehyde plant at Waverly,
Virginia and lease the facility to Spurlock Adhesives for ten years at $55,000
per month, commencing at such time as the plant became mechanically complete and
ready for start up. The lease commenced in February, 1993. In July, 1996,
Spurlock Adhesives exercised its option to purchase the formaldehyde plant from
D.B. Western and terminate the D.B. Western lease. As a part of Spurlock
Adhesives' acquisition of the formaldehyde plant and the termination of the
lease, Spurlock Adhesives obtained the release of each of the personal
guarantors from any obligation for lease payments due under the D.B. Western
lease. As of July 9, 1996, the amount of unpaid lease payments totaled $471,000.
In connection with the Company's revolving credit line instituted in
February 1995, Harold N. Spurlock provided a personal guarantee as additional
security for all amounts borrowed under the facility, and Irvine R. Spurlock and
H. Norman Spurlock, Jr. provided limited guarantees in the amount of $250,000
each. As of June 28, 1996, the credit line was repaid in full and each of the
personal guarantors were released from any further obligation on the loan. The
Company's current credit facility with the National Canada Finance Corporation,
Richmond, Virginia, does not require the personal guaranties of the Company's
officers and directors.
Loan From Former Director and Officer. During 1992 and 1993, Lloyd B.
Putman, a former executive officer of Air Resources who resigned from the Board
of Directors in September 1994, loaned Air Resources $116,000. The loan, the
largest balance of which during 1996 was $65,958, bore an interest rate of 8%
per annum, payable with principal quarterly, and matured in December 1996. The
loan related to monies advanced by Mr. Putman to Air Resources' gas recovery
operations to help cover ongoing expenses for the development and production of
gas recovery technology. The loan was repaid in full as agreed on December 31,
1996.
Indebtedness of Management. On June 30, 1995, Harold N. Spurlock, then
Chairman of the Board, President and Chief Executive Officer of the Company,
received a loan in the amount of $112,500 from Spurlock Adhesives. Principal and
interest at 9.0% per annum are payable in five equal annual installments
commencing in July 1996, the first of which was paid as agreed. The largest
aggregate amount of such debt outstanding during 1996 was $112,500. The balance
as of December 31, 1996 was $82,500. The loan relates to the purchase by Mr.
Spurlock of certain manufacturing assets in Malvern, Arkansas that were
contributed by Mr. Spurlock to Air Resources pursuant to the Spurlock Adhesives
Agreement.
During 1993, Harold N. Spurlock received advances in the aggregate
principal amount of $126,000 from Spurlock Adhesives. In 1994, the advances were
converted to a loan bearing interest at 8.0% per annum. The largest aggregate
amount outstanding under the loan during 1996 was approximately $92,140. As of
March 26, 1997, the outstanding balance of the loan was approximately $93,784.
The loan relates to the purchase by Mr. Spurlock of certain manufacturing assets
in Malvern, Arkansas that were contributed by Mr. Spurlock to Air Resources
pursuant to the Spurlock Adhesives Agreement.
4
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPURLOCK INDUSTRIES, INC.
Date: October 14, 1997 By: /s/ Irvine R. Spurlock
----------------------------------
Irvine R. Spurlock
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Irvine R. Spurlock Chairman, President, Chief Executive October 14, 1997
------------------------------------- Officer and Director
Irvine R. Spurlock (Principal Executive Officer)
/s/ Phillip S. Sumpter Executive Vice President, Chief October 14, 1997
------------------------------------- Financial Officer and Director
Phillip S. Sumpter (Principal Financial Officer)
/s/ Warren E. Beam, Jr. Treasurer and Controller October 14, 1997
------------------------------------- (Principal Accounting Officer)
Warren E. Beam, Jr.
/s/ H. Norman Spurlock, Jr. Director October 14, 1997
-------------------------------------
H. Norman Spurlock, Jr.
/s/ Glen S. Whitwer Director October 14, 1997
-------------------------------------
Glen S. Whitwer
/s/ Harold N. Spurlock Director October 14, 1997
-------------------------------------
Harold N. Spurlock
/s/ Raymond G. Tuttle Director October 14, 1997
-------------------------------------
Raymond G. Tuttle
5