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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
COMMISSION FILE NUMBER 1-9307
GUNDLE/SLT ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or other Jurisdiction of 22-2731074
Incorporation or Organization) (I.R.S. Employer Identification No.)
19103 GUNDLE ROAD
HOUSTON, TEXAS 77073
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (281) 443-8564
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 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. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $45,430,000 as of March 3, 1998. All share amounts
included herein have been restated to reflect all previous stock splits.
The number of shares outstanding of the issuer's common stock, $.01 par
value, as of March 3, 1998, was 13,294,880 shares.
The Registrant's proxy statement to be filed in connection with the
Registrant's 1998 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.
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1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Results of
Operations and
Financial Condition....................................... 10
Item 8. Consolidated Financial Statements and Supplementary Data.... 14
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 36
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 36
Item 11. Executive Compensation...................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 36
Item 13. Certain Relationships and Related Transactions.............. 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 36
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Gundle/SLT Environmental, Inc. (the "Company") is the world leader in
providing geosynthetic lining solutions, products, and services to satisfy
customers' needs for protecting the environment.
The Company is a Delaware corporation formed in 1986. The Company's
principal executive offices are located at 19103 Gundle Road, Houston, Texas
77073. The Company's telephone number is (281) 443-8564.
GENERAL
The Company manufactures, sells and installs synthetic lining systems and
products on a worldwide basis principally for the prevention of groundwater
contamination from municipal and industrial sources, and for the containment of
water and industrial liquids and solids. The Company markets its lining systems
primarily to waste management, industrial and mining companies, municipalities
and other governmental agencies that own or operate waste, material processing,
water treatment or containment facilities, as well as to engineering firms and
construction contractors that serve these industries. During the three year
period ended December 31, 1997, the Company sold nearly 2 billion square feet of
polyethylene membrane to customers in the United States and more than 70 other
countries.
The Company's four primary manufacturing facilities located in the United
States, Germany, and the United Kingdom, generate revenue from the direct sale
of its products to customers, as well as from the installation of liner systems
that incorporate the liners and other products manufactured by or distributed
through the Company. On July 27, 1995, the Company merged with SLT
Environmental, Inc. (SLT) thereby obtaining additional manufacturing facilities
in Houston, Texas, and Rechlin, Germany. Other products include drainage nets,
geotextiles, geocomposites, geosynthetic clay liners, vertical barrier walls,
geogrids, and specialty concrete attachment products.
The Company sells and installs its products through its worldwide
distribution system consisting of its own sales and installation personnel, as
well as a worldwide dealer and distributor organization.
Geosynthetic lining systems installed by the Company or its independent
installers are designed by its customers or third-party engineering firms to
meet their particular containment requirements, ranging from a single lining to
more complex systems consisting of several liners interlayered with drainage
materials, geotextiles, and geogrids. The principal components of the Company's
lining systems are geomembranes, manufactured by the Company primarily from
polyethylene resins and certain chemical additives comprising a proprietary
formula designed to resist weathering and ultraviolet degradation for extended
periods of time in an exposed environment. The Company's sheets are generally
welded together on the customer's job site using a hot wedge or extrusion
welding method. The welded seams are tested as part of its quality assurance
program.
The Company believes that its manufacturing capabilities, quality control
procedures, welding processes, and use of high quality resins enable it to
produce and install lining systems of the highest quality. The Company provides
its customers with a single source for the manufacture, installation, and
testing of complete lining systems.
SYNTHETIC LINER INDUSTRY
The Company manufactures flexible geomembrane liners ("FMLs") that compete
directly in some cases with coated textiles and clay soils, as well as FMLs made
from other resins. The principal types of FMLs presently available are: high
density polyethylene ("HDPE") and other variations of polyethylene, such as very
flexible polyethylene ("VFPE"), polyvinyl chloride ("PVC"), ethylene propylene
diene terpolymer ("EPDM"), scrim-reinforced chlorosulphonated polyethylene
("Hypalon"), and polypropylene or combinations or variations of these
synthetics. Polyethylene membranes have several physical advantages over PVC
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and other FMLs that include chemical resistance characteristics (e.g., their
resistance to various acids, alkalis, aromatic solvents and oils), and certain
strength characteristics (e.g., their relative impermeability, puncture
resistance and tendency to stretch rather than tear in response to certain types
of pressure). HDPE sheeting represents a major portion of the synthetic liner
market, particularly for municipal solid waste and other environmentally
critical applications. The Company believes the market for synthetic liners in
general and polyethylene liners in particular, continues to expand as engineers
throughout the world become more familiar with the quality, utility and breadth
of product options involving liners manufactured from HDPE and VFPE.
The Company believes that significant factors in the growth of the world
market for FMLs include: laws and regulatory requirements relating to the
storage of hazardous and nonhazardous substances (see "Regulatory Background");
increasing public concern for the environment and for protecting groundwater;
cost benefits of synthetic liners when compared to more traditional containments
such as clay soil, concrete and steel; the inert, sanitary characteristic of
polyethylene liners that makes them usable for potable water containment or
conveyance and aquaculture ponds; and the increasing use of polyethylene liners
in leach pads associated with large scale mining operations.
REGULATORY BACKGROUND -- UNITED STATES
In the past two decades, substantial regulations have been enacted
worldwide relating to the management, treatment, storage, and disposal of waste
materials. The Company believes that these regulations have enhanced the market
for the Company's lining systems and helped establish the quality, utility, and
breadth of product options of HDPE and VFPE lining systems in general.
The principal U.S. federal statute that has influenced the market for the
Company's products is the Resource Conservation and Recovery Act of 1976
("RCRA") as amended. RCRA provides a comprehensive scheme for the regulation of
waste facilities and the storage, treatment, and disposal of wastes. The
Environmental Protection Agency (the "EPA"), which is charged with implementing,
administering and enforcing RCRA, has adopted regulations under RCRA governing
the management and disposal of wastes, including standards for storage areas,
incinerators, and landfills.
RCRA legislation is divided into a number of subtitles, including "Subtitle
C -- Hazardous Waste Management" and "Subtitle D -- State or Regional Solid
Waste Plans". Regarding synthetic liners, Subtitle D impacts the disposal of all
municipal solid waste ("MSW") at roughly 2,700 MSW active landfill sites in the
country by providing minimum national standards for the protection of human
health and the environment. Regulations adopted under Subtitle D govern the
methods by which MSW landfills are sited, designed, built, operated and closed,
and impose strict compliance standards with regard to groundwater protection.
Subtitle D regulations are generally enforced at the state level as a
majority of states have created their own regulations that meet or exceed the
federal guidelines. EPA approved state programs can permit facilities using
alternatives to the federally specified criteria, but alternative liner designs
must be proven to be as effective as the minimum design standard. The Subtitle D
regulations specify use of a composite liner system consisting of highly
impermeable clay plus a geomembrane. The geomembrane must be at least 30 mils
(one mil equals 1/1000 of an inch) thick. HDPE liners have been installed in
landfills in every state. The Company believes that a broad range of factors
favor use of HDPE geomembranes in landfills, including material properties,
extensive experience and history.
The Hazardous and Solid Waste Amendments of 1984 (the "1984 Amendments")
require that all new hazardous waste landfills use approved lining systems
composed of two or more liners with leachate collection and drainage systems
above and between each liner (a "Double Liner System"). The 1984 Amendments also
require the use of a Double Liner System for all surface impoundments or ponds
used in the containment of certain hazardous liquids. The welds joining
individual sections of synthetic lining systems must also be tested in
compliance with EPA procedures. The Company believes that, of the lining systems
for hazardous waste landfill sites that have received EPA approval under RCRA
since 1984, HDPE lining systems have been the most widely used.
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The Comprehensive Environmental Response, Compensation and Liability Act of
1980 (commonly known as "CERCLA" or the "Superfund" legislation), was enacted in
response to the dangers of uncontrolled hazardous waste sites. The Superfund
legislation authorizes the EPA to compel owners and operators to clean up
hazardous waste sites and, if they fail to do so, authorizes the EPA to perform
the cleanup work, using funds appropriated for that purpose by Congress, and
then pursue owners or operators for reimbursement.
The EPA published a presumptive remedy that the use of a liner cap in
closed MSW landfills will prevent groundwater contamination and contain
subterranean waste plumes. The Company believes its products directly address
this application.
EPA published regulations and some state regulations also require that
gypsum waste, a by-product of phosphate mining, be stored in lined facilities.
In addition, all states have enacted statutes and issued regulations regulating
the handling and storage of hazardous substances, specifically petroleum
products and other chemicals contained in tanks or lagoons. The Company's
products directly address these applications.
REGULATORY BACKGROUND -- FOREIGN
Similar laws and regulatory requirements exist in other countries
throughout the world, particularly in the European Community, Japan, and Central
and South America, relating to projects that involve intensive water use or that
can have an impact on groundwater quality. These activities include agricultural
irrigation, livestock feedlots, aquaculture facilities, industrial stormwater
runoff containment areas, canals, mining, and tunnels.
PRODUCTS AND SERVICES
The Company produces a variety of FML products that are used in lining
systems. The Company's principal product is a smooth finished HDPE sheet. The
sale and installation of HDPE smooth sheeting accounted for approximately 61% ,
65% and 55% of the Company's sales in 1997, 1996 and 1995 respectively. The
Company manufactures HDPE sheet in thicknesses from 20 to 240 mil (one mil
equals 1/1000 of an inch) in varying seamless widths up to 34.5 feet. Sheet
width, and consequently, the number of seams required for installation is
critical. Seaming represents the major technical difficulty for liner
installation. A greater number of seams requires more technical labor and more
testing. The Company also manufactures and sells textured HDPE sheet for use on
sloping terrain, or where a high friction interface is required.
The Company manufactures sheeting using low density resins. The Company
markets these products as a very flexible polyethylene ("VFPE") membrane with
chemical compatibility and temperature tolerance characteristics superior to PVC
and other FML products. Applications include landfill caps, mining heap leach
pads, and floating covers.
The Company utilizes its co-extrusion capability to produce sheets with
layers consisting of different materials. When co-extruded, these layers become
molecularly integrated such that they cannot delaminate. The Company has been
awarded a patent for its white-surfaced sheet for use in landfills and waste
containment applications. By reflecting radiant heat, the white surfaced sheet
reduces the expansion/contraction (wrinkling/bridging) of the liner during
installation and protects subgrade soils from desiccation. Under identical
exposure conditions, white-surfaced sheets have recorded temperatures as much as
50% lower than standard black geomembranes. In addition, white-surfaced sheets
greatly improve installation damage detection and quality by revealing scoring
and abrasion as black marks exposed against the white surface. The Company also
manufactures this product with a textured surface.
A patent has been awarded for the Company's electrically conductive sheet
product that incorporates a proprietary conductive layer and allows for 100%
electric spark testing of the installed liner. Unlike traditional electric leak
detection surveys, the Company's conductive sheet spark testing does not require
flooding of the containment system with water, which can be expensive and time
consuming.
The Company manufactures a high density polyethylene drainage net,
consisting of two sets of HDPE strands intertwined to form a net along which
fluid may be conveyed for drainage. The Company bonds
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geotextiles to one or both sides of the drainage net, which allows one-step
installation of drainage media for primary leachate collection where soil is
placed directly on top of the drainage layer.
The Company, under non-exclusive agreements, markets and installs other
third-party products such as high-flow net, geogrids, piping, and geotextiles.
The Company operates four primary geomembrane manufacturing facilities: two
in Houston, Texas, one in Rechlin, Germany, and one in Soham, England, using two
different extrusion manufacturing technologies for its primary sheeting
products: flat cast and round die film. The Company operates a total of thirteen
continuous flow extrusion lines, ten for sheeting products and three for its
drainage net products. Raw materials are delivered by railcar or truck, and
pneumatically transported into storage silos or directly to a production line
where it is extruded into sheet or net. Material handling equipment moves the
rolls of finished product to a storage yard prior to inspection and final
shipment to the customer. The Company's production facilities normally operate
continuously throughout the year.
The Company's joint venture in Egypt utilizes a flat cast continuous flow
extrusion line for producing sheet. It manufacturers smooth FML products in
thicknesses from 20 mil to 120 mil.
The Company often provides its customers with completely installed and
tested lining systems. The Company employs trained technicians and supervisors
who travel to customer job sites and install the lining materials. It also
offers installation services on a worldwide basis through a network of trained
distributors and subcontractors. In many applications, the Company furnishes a
technical supervisor to monitor and provide quality assurance technical advice
during the installation process. The sheets are joined in the field using hot
wedge or extrusion welders. The hot wedge welder operates by propelling itself
along the sheets that are to be joined drawing a hot metal wedge between them.
The heated sheets are then fed between pressure rollers, creating a dual track
seam. The extrusion welder operates by extruding heated resin through the dual
head of the welder, and integrating such material with the resin of the sheets
that are to be joined. Both the hot wedge and the extrusion weld result in a
homogeneous bond between the sheets, thereby offering the same chemical
resistance as the sheet. Because of the homogeneous bond created with the sheet,
the Company believes its welding methods are superior to other methods, such as
gluing.
The Company manufactures and sells a geosynthetic clay liner (GCL) that
combines the Company's various sheet products with highly expansive sodium
bentonite clay. The benefit of the clay layer is that its high swelling capacity
seals small punctures accidentally made in an overlaying FML. In addition, the
Company manufactures its Studliner product at its Rechlin, Germany, facility,
which is used in tunnels and foundations for concrete protection.
In addition, the Company conducts its own laboratory and onsite testing of
its manufactured products. The laboratory tests monitor the quality of incoming
raw materials and satisfy all routine tests on the finished product required by
the customer's specification. The Company tests the strength and adequacy of the
welds on the liners it installs by some combination of the following methods:
cutting samples from the liners and destructively testing the weld seam;
pressure testing an air channel created in the length of the weld during hot
wedge welding; performing vacuum testing for the airtightness of the extrusion
weld seam, and electric spark testing of its conductive sheet product. The
Company considers the testing of its products and the maintenance of high
quality standards essential to the successful operation of its business.
The Company's research and development efforts focus on the development of
new products, new quality control procedures, and new or more efficient
manufacturing and installation techniques. Concepts are generated by the
Company's internal research efforts, as well as through contacts with potential
customers and professionals in the field. The Company's research and
development, and quality control expenditures during 1997, 1996 and 1995 were
$1,469,000, $1,675,000 and $1,705,000 respectively.
RAW MATERIALS
The principal raw materials used by the Company are various high grade
polyethylene resins. The Company conducts initial screening tests of the resins
upon delivery as part of its quality control program. Each of the Company's
manufacturing units purchase polyethylene resins from two primary suppliers. The
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Company uses different types of polyethylene resins utilizing proprietary
formulations of stabilizers and antioxidants to manufacture various products.
Polyethylene resins are occasionally in short supply and are subject to
substantial price fluctuation in response to market demand. The Company has not
encountered any significant difficulty to date in obtaining raw materials in
sufficient quantities to support its worldwide operations at current or expected
near-term future levels. But, any significant interruption in raw material
supplies or abrupt increases in raw material prices could have an adverse effect
upon the Company's operations. The Company has ongoing programs of working with
its suppliers to ensure quality, supply, and new product development.
APPLICATIONS
The following table sets forth the principal applications of the Company's
lining systems, the dollar amounts (in thousands), and the percentages of net
sales for each application for the past three years.
SALES BY MARKET APPLICATION
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YEAR ENDED DECEMBER 31,
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1997 % 1996 % 1995 %
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Solid Waste Containment..................... $122,681 62% $121,624 58% $148,738 60%
Mining...................................... 21,844 11 32,729 16 40,680 16
Hazardous Waste Containment................. 14,765 7 6,003 3 4,282 2
Liquid Containment.......................... 23,059 12 19,980 9 22,067 9
Other Applications.......................... 16,969 8 29,036 14 32,296 13
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Total Net Sales............................. $199,318 100% $209,372 100% $248,063 100%
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Solid Waste Containment. Solid waste containment applications for synthetic
liners include the lining of new landfill sites, or new cells within existing
landfill sites, to be used for the disposal or storage of non-hazardous waste.
Synthetic liners are used to cover or "cap" unlined landfill sites to
prevent rainwater from creating excessive leachate that may seep into the
underlying groundwater, and to cap lined landfill cells to meet federal and
state guidelines. Synthetic liner covers also are used in the systems to collect
methane gas that is naturally produced as waste decays for use as fuel or to
meet regulatory requirements.
Mining. Synthetic liners are employed for various purposes in the mining
industry. Liners are used for the containment of chemicals used in the mining of
gold, silver, copper and phosphate. These minerals are dissolved or "leached"
from the ore by chemical solutions that are circulated through ore-bearing
crushed rock deposited on top of a liner pad. The synthetic liner acts as a
collection and drainage system for the mineral-bearing solution. Demand for
synthetic liners for the mining industry is a direct result of the introduction
of leaching processes in gold, silver and copper mines. Leaching is a lower cost
recovery technique, as compared with traditional, capital-intensive mining
techniques for the separation of minerals from ore, and also permits the
extraction of minerals from low-grade ore that previously were not processed.
Synthetic liners are also used in various mining applications to contain the
spent ore, or tailings, and for containment of the various chemical solutions
after the leaching process. Gypsum, a byproduct of the phosphate mining
industry, is regulated to require containment systems, as it becomes acidic
during the mining process. The Company believes the gypsum market represents an
important segment of the overall mining application market.
Hazardous Waste Containment. Synthetic liners are used for containment of
both solid and liquid hazardous waste. The Hazardous and Solid Waste Amendments
of 1984 mandate the use of synthetic lining systems at all new hazardous waste
landfill sites, and at all new ponds containing certain hazardous liquids.
Liquid Containment. Applications such as aquaculture ponds, wastewater
ponds for municipal sewage treatment, industrial process liquid containment,
tank lining, stormwater runoff containment, potable water
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reservoirs, irrigation canals, erosion control along banks, and decorative ponds
often require the use of liners to contain liquids or protect concrete. A
growing application in the agriculture market is the use of synthetic liner for
the cost effective containment of organic wastes in commercial pig and cattle
feed lot operations.
Other Applications. Synthetic liners are used in various other industrial
and non-industrial applications, including secondary containment, tunnel
waterproofing and prefabricated products. Synthetic liners also are used as
floating covers on liquid or semi-solid surfaces to protect the covered elements
from water and other elements in the environment, control odor, promote
anaerobic digestion of organic wastes and capture the resultant methane gas
produced. The Company is continually evaluating other industries in which its
lining systems might have commercially viable applications.
MARKETING AND SALES
The Company conducts a worldwide direct sales effort focused on engineers,
general contractors, facility owners, and government officials who are
responsible for designing projects and awarding construction contracts involving
the installation of synthetic lining systems. It has sales personnel located in
the United States, France, Germany, the United Kingdom, Italy, the Netherlands,
Singapore, Australia, Egypt and the United Arab Emirates. The Company also sells
material to a select group of domestic installation companies and through a
network of independent commercial agents and distributors throughout the world.
In 1997 the Company entered into a joint-venture arrangement to sell its
products in the United Arab Emirates. The joint-venture commenced operations by
opening a warehouse and sales office in the duty free zone in the Jebel Ali Free
Zone in Dubai.
The Company advertises in specialized trade publications and by direct mail
to its customers and potential customers, and participates in trade conventions
and conducts industry seminars domestically and abroad. The Company also gives
presentations to government administrators regarding the available technology
for the containment of waste materials and the advantages offered by the
Company's products.
In the United States, the Company sells liners generally through
construction contracts awarded on the basis of a competitive bidding process or
directly to independent installers. When the Company sells pursuant to
construction contracts, the customer's bid proposal specifies the design and
performance criteria for the lining system to be constructed. If the Company is
awarded the contract, the remainder of the contractual terms are negotiated with
the customer, or with the customer's general contractor. The contract price
covers the cost of manufacturing the lining material, other third party
products, and the labor and other costs involved in installation, welding and
testing. The Company also may indemnify the site owner or general contractor for
certain damages resulting from the negligence of the Company's employees. The
Company often is required to post bid and performance bonds covering the full
amount of an installation contract. In most contracts, the Company provides the
customer with specified limited warranties as to material quality and
workmanship. These limited warranties may last for up to 20 years, but are
generally limited to repair or replacement by the Company of the defective liner
or installation up to the dollar amount of the contract involved, on a prorated
basis.
The Company's foreign manufacturing subsidiaries generally sell liners to
independent installers on the basis of a competitive bidding process. In some
foreign contracts, the Company provides the customer with specified limited
warranties as to material quality. Some of the Company's foreign subsidiaries
also sell through construction contracts.
In 1997, 1996 and 1995, respectfully, 52%, 54% and 51% of the Company's net
sales were to customers in the United States.
During 1997, 1996 and 1995, no single customer accounted for 10% or more of
the Company's net sales. The Company believes that the loss of any one customer
would not have a material adverse effect on the Company's financial position or
results of operations.
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PRODUCT LIABILITY AND INSURANCE
Although the Company is not exposed to the type of potential liability that
might arise from being in the business of handling, transporting, or storing
hazardous wastes or materials, the Company could be susceptible to liability for
environmental damage or personal injury resulting from defects in the Company's
products, or negligence by Company employees in the installation of its lining
systems. Such liability could be substantial because of the potential that
hazardous or other waste materials might leak out of their containment system
into the environment. The Company maintains liability insurance, which includes
pollution coverage in amounts that it believes to be prudent. However, there is
no assurance that this coverage will remain available to the Company. The
Company has experienced no material losses from defects in products and
installations. But, the Company's claims experience to date may not be a
meaningful measure of its potential exposure for product liability.
BACKLOG
The backlog of unfilled orders at December 31, 1997, was $59.6 million
compared with $57.2 million at December 31, 1996. It is anticipated that,
subject to weather and other construction-related delays, the majority of the
value of construction contracts and customer purchase orders included in backlog
at December 31, 1997, will be completed or filled prior to December 31, 1998.
Contracts and commitments for products and services are occasionally varied,
modified, or canceled by mutual consent.
SEASONALITY AND OTHER BUSINESS CONDITIONS
The Company's operations are subject to seasonal fluctuation with the
greatest volume of product deliveries and installations typically occurring
during the summer and fall. In addition, scheduled deliveries are often subject
to delay at the customers' request to correspond with customers' annual
budgetary and permitting cycles. With the Company's manufacturing facilities in
the United States, Germany, England, and Egypt, the Company is attempting to
mitigate the seasonal fluctuation on its delivery and installation schedules.
See Supplementary Data.
COMPETITION
The Company believes that there are approximately 30 companies engaged in
the production of various synthetic liners worldwide. At least 12 of these
companies compete directly with the Company throughout the world. The principal
competitive factors within the synthetic liner market are performance of the
lining system, installation capability and price. The Company believes that it
has been able to maintain its position within the synthetic lining market
because of the performance advantages of the Company's lining systems over other
types of liners available, the convenience to the customer of having the Company
take sole responsibility for the manufacture, installation and testing of its
lining systems, and by being price competitive. Although the Company is a
leading supplier of synthetic lining systems, certain of the Company's existing
competitors are subsidiaries of larger companies that have greater financial
resources than the Company. The possibility exists that other companies with
more significant resources than the Company could enter the synthetic lining
market.
EMPLOYEES
As of December 31, 1997, the Company had 851 employees, of whom 622 were
employed in the United States and 229 in foreign locations. During peak
construction periods in the summer and fall months, the Company's workforce
increases. During the winter months, the Company's workforce is maintained at
levels somewhat below the peak staffing levels experienced during the summer and
fall months. Some of the Company's full-time employees in foreign locations are
unionized, but, the Company has never experienced a strike or walkout. The
Company believes its employee relations are satisfactory.
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PATENTS AND PROPRIETARY INFORMATION
The Company has been awarded patents for the "GSE White(TM)", "GSE
Conductive(TM)" and "GSE CurtainWall(R)" products, as well as the
"FrictionFlex(R)" texturing process. The Company has other patents and pending
applications. The Company's manufacturing, welding and testing processes also
involve proprietary information and know-how. See "Products and Services". The
Company has registered its new trademark and logo ("GSE") with the U.S. Office
of Patent and Trademark and is in the process of registering this new trademark
in select foreign countries.
ITEM 2. PROPERTIES.
UNITED STATES
The Company's corporate headquarters and one of its manufacturing
facilities are situated on a 21.5-acre tract of Company-owned land located in an
industrial park in north Houston. This location has 31,400 square feet of office
space in two buildings, housing executive, administrative, marketing, and
accounting personnel. The manufacturing plant is a 67,000 square foot building
of metal skin over steel frame construction that contains seven continuous flow
liner extrusion lines. This manufacturing facility also houses one continuous
flow drainage net extruder. In addition, fabrication services and equipment are
housed in a 12,000 square foot facility located on the premises.
A second manufacturing facility in Houston occupies 16.9 acres with 3,300
square feet of office space, and 83,000 square feet of manufacturing facilities.
A continuous flow extrusion line operates on this site, as well as geonet,
geocomposite and texturing lines.
The Company has a manufacturing facility located in Spearfish, South
Dakota, that manufactures the Company's GCL. This 16,000 square foot facility
contains one production line.
GERMANY
The administrative offices of GSE Lining Technology GmbH, the Company's
German subsidiary, are located in Hamburg, Germany. The manufacturing facility,
located in Rechlin, Germany, on 8.2 acres, supplies polyethylene sheet to
customers in Europe. The Company operates a continuous flow extrusion line and
two texturing lines on this site.
UNITED KINGDOM
The administrative offices of SGS Geosystems Limited (SGS(TM)) and GSE
Lining Technology Ltd., two of the Company's United Kingdom subsidiaries, are
located on a .75 acre leased site in Soham, England. This location has 2,433
square feet of office space and 10,652 square feet of manufacturing facilities.
SGS operates a continuous flow extrusion line on this site.
EGYPT
The Company owns a 50% interest in two joint ventures, Hyma/GSE
Manufacturing Co. (Hyma/GSE) and Hyma/GSE Lining Technology Co., a manufacturing
company and a trading company, respectively. The administrative offices for
these ventures are in a small leased facility in Cairo. Hyma/GSE's manufacturing
facilities are located on a 1.1 acre leased site located outside of Cairo.
Located on this site are two buildings totaling 34,262 square feet that house
the manufacturing equipment. A single continuous flow extrusion line is operated
on this site.
OTHER
The Company also leases sales or installation offices located in the United
Kingdom, Singapore, Australia, and Dubai.
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS.
For information concerning various legal proceedings involving the Company,
see Note 17 of the Notes to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The common stock of the Company trades on the New York Stock Exchange
(NYSE) under the symbol GSE. The following table shows the range of high and low
sale prices for the common stock on the New York Stock Exchange through December
31, 1997 for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996
-------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter............................................... 9 1/4 6 1/2 6 1/2 5 1/4
Second Quarter.............................................. 7 7/8 4 5/8 7 1/2 5 1/4
Third Quarter............................................... 5 7/8 4 1/2 6 7/8 5 1/2
Fourth Quarter.............................................. 5 7/8 4 5/8 7 7/16 5 5/16
</TABLE>
The approximate number of record holders of the Company's common stock at
March 3, 1998, was 420. Management estimates that the aggregate number of
beneficial holders exceeds 3,500.
ITEM 6. SELECTED FINANCIAL DATA.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $199,318 $209,372 $248,063 $223,328 $185,805
Gross profit........................... 36,101 49,871 47,690 46,572 34,120
Nonrecurring charges................... -- -- 15,270 -- --
Operating income....................... 10,613 22,562 3,727 14,805 5,349
Interest expense, net.................. 2,191 3,230 5,350 4,521 4,710
Income (loss) before income taxes...... 7,846 20,080 (1,296) 10,775 425
Net income (loss)...................... 4,550 11,646 (2,231) 7,545 1,874
Basic and diluted earnings (loss) per
common share........................ .29 .67 (.13) .44 .11
BALANCE SHEET DATA:
Working capital........................ $ 60,461 $ 86,585 $ 79,546 $ 61,680 $ 43,384
Total assets........................... 177,961 204,046 196,021 211,182 177,753
Total debt............................. 43,395 49,740 55,573 60,834 57,981
Stockholders' equity................... 86,110 109,513 97,550 98,478 81,925
</TABLE>
9
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
General
On July 27, 1995, the Company merged (the Merger) with SLT Environmental,
Inc. (SLT). SLT manufactured and installed synthetic lining systems and operated
manufacturing facilities in Rechlin, Germany, and Houston, Texas. The
stockholder of SLT received 7,000,000 shares of the Company's common stock for
all issued and outstanding shares of SLT common stock. The Merger was accounted
for as a pooling of interests. Accordingly, the Company's financial statements
have been restated to include the results of SLT for all periods presented.
On January 23, 1997, the Company purchased 2,071,656 shares of its common
stock at a price of $7.00 per share for a total cost of $14,502,000. On December
16, 1997, the Company purchased 2,200,000 shares of its common stock at a price
of $5.40 per share for a total cost of $11,880,000. Both of these transactions
were funded from the Company's available cash. At December 31, 1997, the Company
had 13,279,655 shares outstanding.
Year Ended December 31, 1997, Versus Year Ended December 31, 1996
The Company's net sales of $199,318,000 decreased $10,054,000, or 5%, in
1997 from the $209,372,000 reported in 1996. Seventy percent of this net
decrease resulted from the cumulative decrease in the US dollar value of the
functional currencies of the Company's foreign operating units. The balance of
the decrease is net changes in product and service prices and a one percent
increase in units sold. Sales to the North American market were $104,022,000 in
1997 compared with $114,339,000 in 1996. North American sales, in units, were
down 9% from 1996. Sales to foreign markets were $95,296,000 in 1997 compared
with $95,033,000 in 1996. Sales, in units, to foreign markets were up 12% from
1996.
Gross profit was $36,101,000 in 1997 compared to $49,871,000 in 1996. This
28% decrease of $13,770,000 was primarily driven by excess market capacity. 1997
selling prices of product were held slightly lower than 1996's by the
competitive markets. At the same time, the average cost of raw material,
polyethylene, increased approximately 22%. Higher costs on lower sales volume
resulted in a drop in gross profit margin to 18% of sales in 1997 from 24% of
sales in 1996.
Selling, general and administrative expenses of $24,107,000 were $2,113,000
lower in 1997 than in 1996. Expenses were down in the Company's foreign
operating units by nearly $2,000,000. Approximately $800,000 of this reduction
resulted from the net lower US dollar value of the foreign units' functional
currencies. The balance of this reduction was spread about equally between the
Company's major foreign operations.
Interest expense was $828,000 lower in 1997 than in 1996. This reduction
was the result of a lower level of average debt outstanding and a lower
effective interest rate. During 1997 the company repaid $5,000,000 of 11.17%
interest rate debt. Interest expense was also reduced by the Company's cross
currency debt and interest rate swap completed late in 1996 discussed in Note 9
of the Notes to Consolidated Financial Statements.
Interest income of $1,796,000 in 1997 compared with $1,585,000 in 1996.
This increase was the result of higher levels of short term investments in 1997.
Short term investments were reduced $11,880,000 in December 1997 to repurchase
2,200,000 shares of the Company's common shares.
Foreign exchange losses of $334,000 were recorded in 1997 compared with
foreign exchange gains of $683,000 in 1996. These gains and losses result from
the Company's foreign operating units entering into sales and purchases in
currencies other than their functional currency.
Other expense, net was $242,000 in 1997 compared with $65,000 of income in
1996. In 1996 approximately $200,000 of income was recorded from gains on
hedging transactions.
The Company's provision for income taxes was $3,296,000 in 1997 compared
with $8,434,000 in 1996. The tax provision in both years was provided at
statutory rates adjusted for permanent differences.
10
<PAGE> 13
Year Ended December 31, 1996, Versus Year Ended December 31, 1995
The Company's net sales decreased $38,691,000 or 16% in 1996 compared with
1995. This decrease was driven by lower prices as unit sales volume was the same
year to year. Sales price follows raw material cost, which was down considerably
during the first half of 1996. Geographically, unit sales volumes were up
slightly in North America and up over 7% in Europe. These increases were offset
by the lower unit sales in Latin and South America and the Middle East/Africa.
Gross profit increased $2,181,000 or 5% despite the lower sales level. The
improvement in gross profit was generated by the Company's North American and
European operations. The increase in gross profit on lower sales volume was
generated from a reduction in the Company's overall cost structure enhanced by
the Merger in 1995. This margin improvement on lower sales increased gross
profit margins from 19% in 1995 to 24% in 1996.
Selling, general and administrative expenses declined $1,565,000 or 6% in
1996 compared with 1995. Expenses in the United States declined nearly
$2,500,000, but this decrease was offset by increased expenses in Europe. The
increase in expenses in Europe was due to the acquisition of SGS Geosystems
Limited in 1996. Excluding this acquisition, expenses outside the U.S. were
comparable with the prior year.
Interest expense declined $1,141,000 or 19% from 1995 to 1996. This
reduction was the result of a lower level of average debt outstanding during
1996 combined with lower interest rates due to the debt restructuring in
conjunction with the Merger.
Interest income increased to $1,585,000 in 1996 from $606,000 in 1995. This
increase was the result of significantly higher levels of short term investments
in 1996.
Foreign exchange gains of $683,000 were recorded in 1996 compared with a
foreign exchange loss of $120,000 in 1995. The majority of the gain was recorded
in the Company's German operations and was driven by gains on receivables that
were denominated in currencies other than the Deutsche Mark.
Other income declined from $447,000 in 1995 to $65,000 in 1996. In 1995,
approximately $500,000 of other income was recorded in connection with the
receipt of a development grant for the Company's investment in its German
manufacturing facility.
The Company's provision for income taxes was $8,434,000 in 1996 compared
with $935,000 in 1995. The tax provision in both years was provided at the
statutory rates adjusted for permanent differences. The 1995 provision, on a
pretax loss of $1,296,000, was due to the nondeductibility of certain expenses,
particularly merger and meals and entertainment expenses and goodwill
amortization.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $60,461,000 of
which $24,844,000 was cash and cash equivalents. The Company's cash, inventory
and receivable balances fluctuate from quarter to quarter due to the seasonality
of sales. The Company's capital structure consisted of $43,395,000 in debt and
$86,110,000 in stockholders' equity at December 31, 1997.
The Company has a $35,000,000 multi-currency revolving credit facility (the
"Revolver") with NationsBank of Texas, N.A. as agent bank. The Revolver, as
amended, matures on September 30, 1999 and bears interest, at the Company's
option, at the bank's prime rate or LIBOR plus an applicable margin based on the
ratio of funded debt to total capitalization. An annual commitment fee of up to
3/8% is payable on any unused portion of the facility. Under the terms of the
revolving line of credit agreement, the Company is required to maintain certain
financial ratios and a specific level of consolidated tangible net worth. At
December 31, 1997, and December 31, 1996, there was no balance outstanding on
the Revolver. However, at December 31, 1997, letters of credit issued under this
facility totaled $1,125,000 thereby reducing the balance available to
$33,875,000 (see Note 8 of the Notes to Consolidated Financial Statements). The
letters of credit issued under this facility secure performance of installation
projects and self-insurance programs.
On June 15, 1998, the Company will make a $5,000,000 principal payment on
its 11.17% Notes. The Company believes that its cash balance, cash generated by
operations and the balance available under the Revolver are adequate to meet any
other foreseeable cash requirements during 1998.
11
<PAGE> 14
The Company's operations are subject to seasonal fluctuation with the
greatest volume of product deliveries and installations typically occurring in
the summer and fall months. In particular, the Company's operating results are
most impacted in the first quarter as both product deliveries and installations
are at their lowest levels due to the inclement weather experienced in the
Northern Hemisphere.
In connection with sales and installation projects outside of the United
States, principally Europe and Australia, the Company may enter into sales or
installation contracts that are denominated in currencies different than the
subsidiary's functional currency. The Company recognizes that its international
operations are subject to the risk of foreign currency fluctuations not present
in domestic operations. Currency losses to date have not been material to the
Company's operations as a whole.
The Company's products are sometimes sold into foreign markets with
extended terms, secured by an irrevocable letter of credit from a customer's
bank. Payment terms may extend up to six months. At December 31, 1997, the
Company had a U.S. dollar receivable of $3,666,000 from an Indonesian customer
secured by an irrevocable letter of credit issued by an Indonesian bank,
maturing in 1998. Indonesia is experiencing economic and currency difficulties
which could create the potential for non-performance under the terms of this
letter of credit by the Indonesian bank. Management has complied with all the
terms of the letter of credit and has requested payment from the bank with the
first payment due in March 1998. There has been no indication that the bank will
not perform under the terms of the letter of credit, and therefore, there has
been no provision made in the financial statements for any possible difficulty
in collecting under this irrevocable letter of credit.
There currently is excess manufacturing capacity in the market place. The
Company was not able to increase its product selling prices in 1997 to cover its
increased cost of raw material, polyethylene, which severely reduced its net
income in 1997 from 1996. The Company does not expect the market's excess
manufacturing capacity to change in 1998, and believes that its product profit
margins may deteriorate further in 1998.
Pricing for the Company's products and services are principally driven by
worldwide manufacturing capacity in the industry and raw material costs. The
Company's primary raw material occasionally is in short supply and is subject to
substantial price fluctuation in response to market demand. Any increase in
worldwide manufacturing capacity, interruption in raw material supply or abrupt
raw material price increase could have an adverse effect upon the Company's
operations. Inflation has not had a significant impact in the Company's
operation.
YEAR 2000 COMPLIANCE
The Company has been evaluating and upgrading its computer systems to make
its U.S. operations more efficient since the merger with SLT in 1995. This
evaluation culminated with the Company purchasing the JDEdwards suite of
systems. These systems will replace all of the U.S. legacy systems, which are
not year 2000 compliant, by the end of 1998. Final implementation of all
features of the JDEdwards systems will be made in 1999. The Company has
contracted with JDEdwards to help it install the new software in the U.S. The
approximate cost of the U.S. project is $3,000,000. During 1998, the Company
will be evaluating using the JDEdwards systems in its German operations with
implementation of a new system in 1999. The Company's other foreign operations
are year 2000 compliant.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995, and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management, as well as assumptions made by and information
currently available to the Company's management. When used in this report, the
words, "anticipate", "believe", "estimate", "expect", "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive market factors,
worldwide manufacturing capacity in the industry, general economic conditions
around the world, raw material pricing and supply, governmental regulation and
supervision, seasonality, distribution networks, and other factors described
herein. Based upon changing
12
<PAGE> 15
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
13
<PAGE> 16
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gundle/SLT Environmental, Inc.
We have audited the accompanying consolidated balance sheets of Gundle/SLT
Environmental, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gundle/SLT
Environmental, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
January 30, 1998
14
<PAGE> 17
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 24,844 $ 43,122
Accounts receivable:
Trade, net............................................. 52,672 51,384
Other.................................................. 934 2,122
Contracts in progress..................................... 2,189 3,948
Inventory................................................. 22,000 21,430
Deferred income taxes..................................... 6,408 6,991
Prepaid expenses and other................................ 913 2,154
-------- --------
Total current assets.............................. 109,960 131,151
Property, plant and equipment, net.......................... 35,283 40,282
Excess of purchase price over fair value of net assets
acquired, net............................................. 28,118 29,858
Other assets................................................ 4,600 2,755
-------- --------
$177,961 $204,046
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 39,835 $ 33,138
Advance billings on contracts in progress................. 725 936
Current portion of long-term debt......................... 5,767 5,648
Income taxes payable...................................... 2,400 2,976
Deferred income taxes..................................... 772 1,868
-------- --------
Total current liabilities......................... 49,499 44,566
Deferred income taxes....................................... 3,297 4,584
Long-term debt.............................................. 37,628 44,092
Other liabilities........................................... 1,427 1,291
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 18,087,111 and 17,872,174 shares issued.... 180 179
Additional paid-in capital................................ 69,929 69,405
Retained earnings......................................... 46,350 41,800
Unearned compensation..................................... (1,051) (1,204)
Cumulative translation adjustment......................... 1,351 3,600
-------- --------
116,759 113,780
Treasury stock at cost, 4,807,456 shares and 500,000
shares................................................. (30,649) (4,267)
-------- --------
Total stockholders' equity........................ 86,110 109,513
-------- --------
$177,961 $204,046
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 18
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $199,318 $209,372 $248,063
Cost of sales.............................................. 163,217 159,501 200,373
-------- -------- --------
Gross profit............................................... 36,101 49,871 47,690
Selling, general and administrative expenses............... 24,107 26,220 27,785
Amortization of goodwill................................... 1,381 1,089 908
Nonrecurring charges....................................... -- -- 15,270
-------- -------- --------
Operating income........................................... 10,613 22,562 3,727
Other expenses:
Interest expense......................................... 3,987 4,815 5,956
Interest income.......................................... (1,796) (1,585) (606)
Foreign exchange (gain) loss............................. 334 (683) 120
Other, net............................................... 242 (65) (447)
-------- -------- --------
Income (loss) before income taxes.......................... 7,846 20,080 (1,296)
Provision for income taxes................................. 3,296 8,434 935
-------- -------- --------
Net income (loss).......................................... $ 4,550 $ 11,646 $ (2,231)
======== ======== ========
Basic and diluted earnings (loss) per common share......... $ 0.29 $ 0.67 $ (0.13)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 19
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK
--------------- PAID-IN RETAINED TRANSLATION UNEARNED -----------------
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT COMPENSATION SHARES AMOUNT TOTAL
------ ------ ---------- -------- ----------- ------------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994...................... 17,685 $177 $68,216 $32,385 $ 1,967 $ -- 500 $ (4,267) $ 98,478
Exercise of stock
options................. 4 -- 16 -- -- -- -- -- 16
Purchases under the
Employee Stock Purchase
Plan.................... 7 -- 38 -- -- -- -- -- 38
Cumulative translation
adjustment.............. -- -- -- -- 1,249 -- -- -- 1,249
Net loss.................. -- -- (2,231) -- -- -- -- (2,231)
------ ---- ------- ------- ------- ------- ----- -------- --------
BALANCE AT DECEMBER 31,
1995...................... 17,696 177 68,270 30,154 3,216 -- 500 (4,267) 97,550
Exercise of stock
options................. 15 -- 76 -- -- -- -- -- 76
Restricted stock grant.... 157 2 1,037 -- -- (1,204) -- -- (165)
Purchases under the
Employee Stock Purchase
Plan.................... 4 -- 22 -- -- -- -- -- 22
Cumulative translation
adjustment.............. -- -- -- -- 384 -- -- -- 384
Net income................ -- -- -- 11,646 -- -- -- -- 11,646
------ ---- ------- ------- ------- ------- ----- -------- --------
BALANCE AT DECEMBER 31,
1996...................... 17,872 179 69,405 41,800 3,600 (1,204) 500 (4,267) 109,513
Exercise of stock
options................. 70 -- 488 -- -- -- -- -- 488
Restricted stock grant.... 139 1 8 -- -- 153 35 -- 162
Purchases under the
Employee Stock Purchase
Plan.................... 6 -- 28 -- -- -- -- -- 28
Cumulative translation
adjustment.............. -- -- -- -- (2,249) -- -- -- (2,249)
Net income................ -- -- -- 4,550 -- -- -- -- 4,550
Treasury stock
purchases............... -- -- -- -- -- -- 4,272 (26,382) (26,382)
------ ---- ------- ------- ------- ------- ----- -------- --------
BALANCE AT DECEMBER 31,
1997...................... 18,087 $180 $69,929 $46,350 $ 1,351 $(1,051) 4,807 $(30,649) $ 86,110
====== ==== ======= ======= ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 20
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 4,550 $11,646 $ (2,231)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation........................................... 7,148 8,012 8,123
Amortization of goodwill............................... 1,381 1,089 908
Amortization of debt issuance costs.................... 120 52 40
Amortization of unearned compensation.................. 164 516 --
Deferred income taxes.................................. (749) (957) (1,573)
Gain on sale of assets................................. (271) (186) (86)
Write down of assets................................... -- -- 8,470
Increase (decrease) in cash due to changes in assets
and liabilities:
Accounts receivable net.............................. (2,292) 16,612 10,802
Costs and estimated earnings in excess of billings on
contracts in progress............................. 1,345 6,401 (1,200)
Inventory............................................ (1,434) (942) 2,222
Prepaid expenses and other, net...................... 856 (217) (965)
Accounts payable and accrued liabilities............. 7,166 (3,387) (8,535)
Advance billings on contracts in progress............ (181) 358 135
Income taxes payable................................. (576) 3,101 (1,914)
-------- ------- --------
Net cash provided by (used in) operating
activities...................................... 17,227 42,098 14,196
-------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (3,769) (4,526) (4,135)
Proceeds from the sale of equipment....................... 450 1,173 860
Payments for acquisition of a business, net of cash
acquired............................................... -- (4,774) --
Advances to affiliates and other, net..................... (123) (1,696) (387)
-------- ------- --------
Net cash provided by (used in) investing
activities...................................... (3,442) (9,823) (3,662)
-------- ------- --------
Cash flows from financing activities:
Payments on short-term debt, net.......................... -- -- (12,467)
Proceeds from long-term debt.............................. -- -- 25,000
Repayments of long-term debt.............................. (5,916) (6,242) (17,692)
Proceeds from the exercise of stock options and purchases
under the employee stock purchase plan................. 486 98 54
Repurchase of common stock................................ (26,382) -- --
Other..................................................... -- 467 --
-------- ------- --------
Net cash provided by (used in) financing
activities...................................... (31,812) (5,677) (5,105)
Effect of exchange rate changes on cash..................... (251) 467 1,140
-------- ------- --------
Net increase (decrease) in cash and cash equivalents........ (18,278) 27,065 6,569
Cash and cash equivalents at beginning of year.............. 43,122 16,057 9,488
-------- ------- --------
Cash and cash equivalents at end of year.................... $ 24,844 $43,122 $ 16,057
======== ======= ========
Cash paid for interest...................................... $ 4,152 $ 4,697 $ 4,856
======== ======= ========
Cash paid for income taxes.................................. $ 4,764 $ 6,631 $ 5,184
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 21
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION --
Organization --
Gundle/SLT Environmental, Inc. (the "Company"), a Delaware corporation, was
incorporated in August 1986, and through its wholly owned subsidiaries is
primarily engaged in the manufacture, sale and installation of polyethylene
lining systems.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Consolidation --
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Investments in partially owned
entities in which ownership ranges from 20 to 50 percent are accounted for using
the equity method. All material intercompany balances and transactions have been
eliminated.
Cash Equivalents --
The Company considers all highly liquid short-term investments with an
original maturity of three months or less to be cash equivalents.
Inventory --
Inventory is stated at the lower of cost or market. Cost, which includes
material, labor and overhead, is determined by the weighted average cost method,
which approximates the first in first out cost method.
Property, plant and equipment --
Costs of additions and major improvements are capitalized, whereas
maintenance and repairs which do not improve or extend the life of the asset are
charged to expense as incurred. When items are retired or otherwise disposed of,
income is charged or credited for the difference between net book value and
proceeds realized thereon. Interest costs incurred in construction of assets are
capitalized and depreciated over the useful life of the asset. Depreciation is
computed using the straight-line method, based on the estimated useful lives of
the assets. Total repairs and maintenance expense during 1997, 1996 and 1995 was
$2,411,000, $2,404,000 and $2,650,000, respectively.
Excess of purchase price over fair value of net assets acquired --
The excess of the aggregate price paid by the Company in the acquisition of
businesses, accounted for as a purchase, over the fair market value of the net
assets acquired is amortized on a straight-line basis over periods not exceeding
40 years. The carrying value of the excess of purchase price over fair value of
net assets acquired is reviewed if the facts and circumstances suggest that it
may be impaired. If this review indicates that the carrying value will not be
recoverable, determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, it is reduced to the discounted
cash flow value. As of December 31, 1997 and 1996, accumulated amortization was
$11,195,000 and $9,984,000, respectively.
Revenue and cost recognition --
The Company recognizes revenue upon shipment of product to the customer
except when work is being performed under an installation contract. Revenues
from installation contracts are recognized on the percentage-of-completion
method measured by the percentage of costs incurred to total estimated costs for
each contract.
19
<PAGE> 22
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cost of sales includes all direct material and labor costs, and indirect
costs such as indirect labor, depreciation, insurance, supplies, tools and
repairs.
Provisions for the total estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance,
job conditions, estimated profitability and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined.
Selling, general and administrative costs are charged to expense as
incurred.
Deferred costs --
Debt issuance costs are capitalized and amortized using the effective
interest rate method over the period the related debt is anticipated to be
outstanding.
Warranty Costs --
The Company's products are sold and installed with specified limited
warranties as to material quality and workmanship and may extend up to 20 years.
Provision for warranty costs are made based on the Company's claims experience.
The reserve for these costs is included in the self-insurance reserve (see Note
7).
Income taxes --
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statements and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Foreign currency translation --
Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the year. Assets and liabilities of these foreign subsidiaries are translated
using the exchange rates in effect at the balance sheet date and the resulting
translation adjustments are recognized as a separate component of stockholders'
equity. Gains and losses arising from foreign currency transactions are
recognized in income as incurred.
In connection with contracts performed outside of the United States, the
Company routinely bids fixed-price contracts which are denominated in currencies
different than the functional currency of the applicable subsidiary performing
the work. The Company recognizes that such bidding practices, in the context of
international operations, are subject to the risk of foreign currency
fluctuations not present in domestic operations. Losses related to these
contracts are included in cost of sales and have not been significant.
Foreign exchange contracts --
The Company occasionally enters into forward contracts and cross currency
swaps in its management of foreign currency exposures. As a matter of policy,
the Company does not speculate in financial markets and therefore, does not hold
these contracts for trading purposes. The Company utilizes what it considers
straightforward instruments to accomplish its objectives.
The Company is using a cross currency principal and interest rate swap to
effectively convert a portion of its U.S. dollar denominated debt into Deutsche
Marks. The objective of this hedging strategy is the management of the foreign
currency exchange risk associated with its net investment in Germany and is
based on the projected foreign currency cash flows from Germany over the next
eight years. The Company's investment in Germany and the foreign currency
portion of its swap are adjusted each period to reflect current
20
<PAGE> 23
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
foreign exchange rates with the gains and losses recorded in the equity section
of the balance sheet. The differential paid or received on the interest rate
component is recognized as an adjustment to interest expense.
Earnings per common share --
In 1997, the Financial Accounting Standards Board Issued Statement No. 128
Earnings per Share. Statement 128 replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented and,
where appropriate, restated to conform to the Statement 128 requirments.
Stock options --
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
stock options. See Note 10 for disclosures required by Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation".
Use of estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Supplier/sources of supply --
The Company currently purchases its raw material (polyethylene resins) from
at least two suppliers at each location. Polyethylene resins are occasionally in
short supply and are subject to substantial price fluctuation in response to
market demand. The Company has not encountered any significant difficulty to
date in obtaining raw materials in sufficient quantities to support its
operations at current or expected near-term future levels. However, any
disruption in raw material supply or abrupt increases in raw material prices
could have an adverse effect upon the Company's operations.
Reclassifications --
The accompanying consolidated financial statements for 1995 and 1996
contain certain reclassifications to conform with the presentation used in 1997.
Accounting Changes --
In 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
and Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. These statements, which are effective for periods beginning after
December 15, 1997, expand and modify disclosures and, accordingly, will have no
impact on the Company's reported financial position, results of operations, or
cash flows.
21
<PAGE> 24
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) TRADE RECEIVABLES --
Trade receivables consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Direct sales................................................ $30,233 $29,231
Contracts:
Completed................................................. 20,646 17,425
In progress............................................... 3,821 7,280
Retainage................................................. 2,319 2,872
------- -------
57,019 56,808
Allowance for doubtful accounts............................. (4,347) (5,424)
------- -------
$52,672 $51,384
======= =======
</TABLE>
(4) ACCOUNTING FOR INSTALLATION CONTRACTS --
The following summarizes installation contracts in progress at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 85,371 $64,576
Estimated earnings, net of losses........................... 16,137 12,271
-------- -------
101,508 76,847
Less -- billings to date.................................. 100,044 73,835
-------- -------
$ 1,464 $ 3,012
======== =======
Included in the accompanying balance sheet under the
following captions:
Contracts in progress..................................... $ 2,189 $ 3,948
Advance billings.......................................... (725) (936)
-------- -------
$ 1,464 $ 3,012
======== =======
</TABLE>
(5) INVENTORY --
Inventory consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $ 6,812 $ 5,084
Finished goods.............................................. 15,188 16,346
------- -------
$22,000 $21,430
======= =======
</TABLE>
22
<PAGE> 25
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT --
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 2,959 $ 3,001
Buildings and improvements.................................. 14,030 14,013
Machinery and equipment..................................... 70,259 70,188
Furniture and fixtures...................................... 1,533 1,638
-------- --------
88,781 88,840
Less -- accumulated depreciation............................ (53,498) (48,558)
-------- --------
$ 35,283 $ 40,282
======== ========
</TABLE>
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
Accounts payable and accrued liabilities consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable...................................... $21,967 $12,534
Self-insurance reserves..................................... 2,952 3,775
Compensation and benefits................................... 3,105 3,753
Accrued construction costs.................................. 2,382 2,833
Taxes, other than income.................................... 1,000 981
Other accrued liabilities................................... 8,429 9,262
------- -------
$39,835 $33,138
======= =======
</TABLE>
23
<PAGE> 26
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT --
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit payable to banks, interest due
quarterly................................................. $ -- $ --
11.17% Notes due June 15, 2000, with required annual
principal payments of $5,000,000 on June 15, interest
payable quarterly at 11.17%............................... 15,000 20,000
7.34% Notes due August 1, 2005, with required annual
principal payments of $5,000,000 beginning August 1, 2001,
interest payable semi-annually at 7.34%................... 25,000 25,000
8% Promissory Note due December 31, 2004, with required
annual principal and interest payments of $206,000 on
December 31............................................... 1,072 1,172
Installment loans, denominated in Deutsche Marks, due
September, 2002, with required semi-annual principal and
interest payments, interest rates ranging from 7.5% to
8.0%, secured by property and plant....................... 2,114 3,069
Installment loan, denominated in British Pounds, due
September 2, 1998, with required quarterly principal and
interest payments, interest rate at 11%, secured by
equipment................................................. 209 499
------- -------
43,395 49,740
Less -- current maturities................................ (5,767) (5,648)
------- -------
$37,628 $44,092
======= =======
</TABLE>
The Company entered into a $35,000,000 multi-currency revolving credit
facility (the "Revolver") with NationsBank of Texas, N.A. as agent, on July 27,
1995. The Revolver as amended, matures on September 30, 1999, and bears
interest, at the Company's option, at the bank's prime rate or the reserve
adjusted LIBOR plus an applicable margin based on the ratio of funded debt to
total capitalization. An annual commitment fee of up to 3/8% is payable on any
unused portion of the facility. Under the terms of the revolving line of credit
agreement, the Company is required to maintain certain financial ratios and a
specific level of consolidated tangible net worth. As of December 31, 1997,
there was no balance outstanding under the Revolver. However, letters of credit
issued under this facility totaled $1,125,000 reducing the balance available to
$33,875,000. The letters of credit primarily secure performance of installation
contracts and self-insurance programs.
On July 27, 1995, the Company entered into note agreements (the "7.34%
Notes") with two lenders, in the aggregate amount of $25,000,000 which mature on
August 1, 2005. The 7.34% Notes, which are unsecured, require semiannual
interest payments at a rate of 7.34% that began February 1, 1996, and annual
principal payments of $5,000,000 beginning August 1, 2001. The terms of the
7.34% Notes place various restrictions on the Company's ability to pay dividends
or make certain other payments, incur additional debt, consolidate or merge into
another corporation or sell assets unless certain other criteria are met. The
7.34% Notes also require the Company to maintain certain financial ratios and a
specified level of consolidated net worth. The proceeds from the 7.34% Notes
were used to retire outstanding indebtedness of SLT.
The 11.17% Notes, which are unsecured, require quarterly interest payments
at a rate of 11.17% that began September 15, 1990, and annual principal payments
of $5,000,000 that began June 15, 1996. The terms of the 11.17% Notes are
consistent with the terms of the 7.34% Notes.
The 8% Promissory Note, which is unsecured, requires annual principal and
interest payments of $206,000 ending December 31, 2004.
24
<PAGE> 27
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized below are the maturities of long-term debt of the Company during
the next five years and thereafter (in thousands).
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1998.................................................................. $ 5,767
1999.................................................................. 5,644
2000.................................................................. 5,654
2001.................................................................. 5,665
2002.................................................................. 5,298
Thereafter............................................................ 15,367
-------
$43,395
=======
</TABLE>
(9) FINANCIAL INSTRUMENTS --
Fair value of financial instruments --
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments and a cross
currency swap (see "Derivative financial instrument" below). The book values of
cash and cash equivalents, trade receivables and trade payables and
floating-rate debt instruments are considered to be representative of their
respective fair values. The Company had $43,395,000 and $49,740,000 of
fixed-rate debt instruments at December 31, 1997 and 1996, with fair values of
approximately $42,364,000 and $48,800,000, respectively. The fair value of
long-term debt was estimated based on quoted market prices for these or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities. The difference between the fair value and the carrying
value represents the theoretical net premium the Company would have to pay to
retire all debt at such date.
Derivative financial instrument --
Effective October 18, 1996, the Company swapped $10,000,000 in long-term
debt with an annual interest rate of 7.34% for 15,380,000 Deutsche Mark (DM)
denominated long-term debt with an annual interest rate of 6.32%, effectively
hedging a portion of its German net investment. The DM swap agreement requires
the Company to re-exchange 3,076,000 DM for $2,000,000 each August 1 for the
five-year period beginning August 1, 2001. The DM is marked to market as the
U.S. Dollar/DM exchange rate changes. These adjustments are included as a
component of cumulative translation adjustment in stockholders' equity. Interest
payments and receipts are semi-annual on February 1 and August 1. The DM
interest payments are also subject to exchange rate fluctuations. The gains and
losses resulting from these fluctuations are recognized in interest expense
during the current period.
(10) PER SHARE INFORMATION --
The following table sets forth the weighted average shares for the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding................. 15,506 17,314 17,193
Dilutive securities -- stock options....................... 3 65 11
------ ------ ------
Weighted average common shares outstanding assuming full
dilution................................................. 15,509 17,379 17,204
====== ====== ======
</TABLE>
25
<PAGE> 28
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY --
On December 12, 1997, the Company purchased 2,200,000 shares of its common
stock at a purchase price of $5.40 per share, or a total of $11,880,000. The
transaction was funded with the Company's available cash balances. The shares
purchased represented approximately 14.2% of the Company's then outstanding
stock.
On January 23, 1997, the Company purchased 2,071,656 shares of its common
stock at a purchase price of $7.00 per share, or a total of $14,502,000. The
transaction was funded with the Company's available cash balances. The shares
purchased represented approximately 12% of the Company's then outstanding stock.
On June 1, 1992, the Company's board of directors adopted a stock
repurchase plan under which the company was authorized to repurchase up to
500,000 shares of its outstanding common stock in open market transactions
depending on market conditions. As of December 31, 1997 and 1996, stockholders'
equity included 500,000 shares repurchased under the plan at an aggregate cost
of $4,267,000.
The Company's board of directors adopted a qualified employee stock
purchase plan on October 16, 1991, effective January 1, 1992. The plan
authorizes the issuance of up to 100,000 shares of common stock for purchase by
participating employees at a 15% discount from the market price. As of December
31, 1997 and 1996, 30,086 and 24,539 shares, respectively, had been issued under
this plan.
In 1986, the Company's board of directors adopted an employee stock option
plan (the "1986 Employee Plan"). This Plan, as amended, permitted up to 850,000
stock options to be granted. The plan permitted the grant of both "incentive"
and "non-qualified" stock options to employees of the Company. Each option is
exercisable for a period of up to ten years after it is granted. Unless the
terms of the option specify otherwise, options may be exercised in respect of
33 1/3%, 66 2/3% and 100% of the shares covered, upon the third, fourth and
fifth anniversaries of the date of grant. The option price cannot be less than
the fair market value of the shares on the date the option is granted. Any
options that were available for grant under this plan as of December 1995, are
now a part of the 1995 Incentive Stock Plan.
During 1988, the Company's board of directors adopted a director stock
option plan (the "1988 Director Plan"), which permits the grant of up to 75,000
"non-qualified" stock options to non-employee directors. The terms of this plan
are substantially the same as those of the 1986 Employee Plan. This Plan was
terminated in December 1995 and subsequently replaced by the 1996 Non-Qualified
Stock Option Plan for Non-Employee Directors.
In 1995, the Company's board of directors adopted the 1995 Incentive Stock
Plan (the "1995 Employee Plan"). The 1995 Employee Plan as subsequently amended
and restated, permits the grant of up to 1,750,000 stock options less any
options exercised or outstanding under the 1986 Employee Plan. The 1995 Employee
Plan provides for the grant of (i) non-qualified stock options, (ii) incentive
stock options, (iii) shares of restricted stock, (iv) shares of phantom stock,
and (v) stock bonuses (collectively, "Incentive Awards"). In addition, the 1995
Employee Plan permits the grant of cash bonuses payable when a participant is
required to recognize income for federal income tax purposes in connection with
the vesting of shares of restricted stock or the grant of a stock bonus. Key
employees, including officers (whether or not they are directors), of the
Company and its subsidiaries are eligible to participate in the 1995 Employee
Plan. Each non-qualified stock option issued under the 1995 Employee Plan is
granted for a period up to seven years after it is granted and may be exercised
in respect of 50% and 100% of the shares covered upon the first and second
anniversaries of the date of grant. The option price cannot be less than the
fair market value of the shares on the date the option is granted.
During 1997 and 1996, the board of directors granted 138,840 and 156,800
shares, respectively of restricted stock to senior management under the 1995
Employee Plan. One-third of the shares are subject to annual vesting provided
specific financial performance measurements are met by the Company. This plan
also provides for cash bonuses to be paid to grantees to cover federal income
taxes and requires that the grantee be
26
<PAGE> 29
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employed at the end of the three year vesting period in order to receive the
shares. Shares issued to employees who terminate employment prior to the plans
three year vesting period are transferred into treasury shares.
During 1996, the Company's board of directors adopted the 1996
Non-Qualified Stock Option Plan for Non-Employee Directors (the "1996 Director
Plan"). The 1996 Director Plan authorizes an aggregate of 100,000 shares, of
non-qualified stock options to be issued to non-employee directors. The 1996
Director Plan provides for the automatic annual grant to each non-employee
director of a five year option to purchase 2,000 shares of common stock at an
exercise price equal to the market price on the date of grant. The options will
be granted immediately following each annual meeting of stockholders, with each
option to vest and become exercisable in its entirety one year from the date of
grant. This Plan replaces the 1988 Director Plan.
The stock option activity under each plan is set forth below:
<TABLE>
<CAPTION>
1986 EMPLOYEE PLAN 1988 DIRECTOR PLAN 1995 EMPLOYEE PLAN
-------------------------- ------------------------ -------------------------
SHARES OPTION SHARES OPTION SHARES OPTION
UNDER PRICE UNDER PRICE UNDER PRICE
OPTION PER SHARE OPTION PER SHARE OPTION PER SHARE
-------- --------------- ------ --------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994...... 450,383 $4.27 to $16.92 50,000 $6.25 to $16.17
Granted.............................. 10,000 $7.00 289,700 $5.38 to $5.50
Exercised............................ (3,751) $4.27
Cancelled............................ (75,085) $7.63 to $15.63
-------- --------------- ------ --------------- -------- --------------
OUTSTANDING AT DECEMBER 31, 1995...... 371,547 $4.27 to $16.92 60,000 $6.25 to $16.17 289,700 $5.38 to $5.50
Granted.............................. 291,800 $5.31 to $7.13
Exercised............................ (15,375) $4.27 (156,800) $5.31 to $5.31
Cancelled............................ (121,375) $5.25 to $15.63 (5,000) $5.38 to $7.13
-------- --------------- ------ --------------- -------- --------------
OUTSTANDING AT DECEMBER 31, 1996...... 234,797 $4.27 to $16.92 60,000 $6.25 to $16.17 419,700 $5.38 to $7.13
Granted.............................. 438,590 $4.88 to $9.00
Exercised............................ (140,090) $5.63 to $7.25
Cancelled............................ (50,647) $5.25 to $13.38 (37,750) $5.50 to $6.75
-------- --------------- ------ --------------- -------- --------------
OUTSTANDING AT DECEMBER 31, 1997...... 184,150 $5.25 to $15.63 60,000 $6.25 to $16.17 680,450 $4.88 to $9.00
======== =============== ====== =============== ======== ==============
OPTIONS EXERCISABLE................... 136,810 $5.25 to $15.63 44,998 $6.25 to $16.17 261,034 $4.88 to $9.00
======== =============== ====== =============== ======== ==============
OPTIONS AVAILABLE FOR FUTURE
GRANTS............................... -- -- 460,071
======== ====== ========
<CAPTION>
1996 DIRECTOR PLAN
-----------------------
SHARES OPTION
UNDER PRICE
OPTION PER SHARE
------ --------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994......
Granted.............................. 0
Exercised............................
Cancelled............................
------ --------------
OUTSTANDING AT DECEMBER 31, 1995...... 0
Granted.............................. 12,000 $6.50 to $7.00
Exercised............................
Cancelled............................
------ --------------
OUTSTANDING AT DECEMBER 31, 1996...... 12,000 $6.50 to $7.00
Granted.............................. 12,000 $4.88
Exercised............................
Cancelled............................
------ --------------
OUTSTANDING AT DECEMBER 31, 1997...... 24,000 $4.88 to $7.00
====== ==============
OPTIONS EXERCISABLE................... 12,000 $6.50 to $7.00
====== ==============
OPTIONS AVAILABLE FOR FUTURE
GRANTS............................... 76,000
======
</TABLE>
Substantially all outstanding options were priced between $4.88 and $16.17
per share at December 31, 1997. The weighted average of the remaining
contractual life for the outstanding options at December 31, 1997, was 5.9
years. The weighted average price of options outstanding during 1997, 1996 and
1995 was $6.51, $7.57 and $7.64, respectively.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
expense has been recognized for its 1996 Director Plan and unrestricted stock
options from the 1995 Employee Plan. The compensation expense that has been
charged against income for its performance based restricted stock grant pursuant
to the provisions of the 1995 Employee Plan was $164,000, $516,000, and $0 for
1997, 1996, and 1995, respectively.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation".
Statement 123 also requires that the information be determined as if the Company
has accounted for its employee stock options granted subsequent to December 31,
1994, under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997 and 1996,
respectively: risk-free interest rates of 6% and 6.5%; a dividend yield of 0%;
volatility factors of the expected market price of the Company's common stock of
44% and a weighted-average expected life of the option of 5 to 7 years.
27
<PAGE> 30
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Net income (loss)
As reported.......................................... $4,550 $11,646 $(2,231)
Pro forma............................................ 4,235 11,398 (2,347)
Basic and diluted earnings (loss) per share
As reported.......................................... .29 .67 (.13)
Pro forma............................................ .27 .66 (.14)
</TABLE>
The estimated fair value of stock options issued in 1997 and 1996 was
$891,000 and $545,000, respectively.
(12) INCOME TAXES --
Domestic and foreign income (losses) before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................... $5,836 $18,113 $(2,124)
Foreign................................................ 2,010 1,967 828
------ ------- -------
Total........................................ $7,846 $20,080 $(1,296)
====== ======= =======
</TABLE>
28
<PAGE> 31
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense:
U.S.
Federal.......................................... $ 2,149 $ 7,861 $ 2,109
State............................................ 195 1,501 386
------- ------- -------
Total U.S................................... 2,344 9,362 2,495
Foreign............................................. 2,081 29 13
------- ------- -------
Total current............................... 4,425 9,391 2,508
Deferred expense (benefit):
U.S.
Federal.......................................... 129 (1,293) (1,572)
State............................................ 19 (357) (530)
------- ------- -------
Total U.S................................... 148 (1,650) (2,102)
Foreign............................................. (1,277) 693 529
------- ------- -------
Total deferred.............................. (1,129) (957) (1,573)
------- ------- -------
Total provision for income taxes............ $ 3,296 $ 8,434 $ 935
======= ======= =======
</TABLE>
A reconciliation between the provision for income taxes and income taxes
computed by applying the statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate................. $2,667 $7,028 $(441)
Add (deduct):
Merger costs............................................ -- -- 553
Amortization of goodwill................................ 449 365 377
Meals and entertainment disallowance.................... 375 329 440
Foreign Sales Corporation benefit....................... (306) (344) (200)
Taxable differential for foreign operations............. 122 312 144
State income taxes...................................... 72 744 (95)
Other, net.............................................. (83) -- 157
------ ------ -----
$3,296 $8,434 $ 935
====== ====== =====
</TABLE>
29
<PAGE> 32
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that gave rise to the deferred tax
assets and liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $6,381 $6,965
Other..................................................... 64 196
------ ------
6,445 7,161
------ ------
Deferred tax liabilities:
Excess of tax depreciation over book depreciation......... 3,076 3,477
Long-term contracts....................................... 436 1,267
Intangible assets......................................... 95 82
Other..................................................... 499 1,796
------ ------
4,106 6,622
------ ------
Total deferred tax asset (liabilities)............ $2,339 $ 539
====== ======
</TABLE>
In 1995 the U.S. current tax provision for income taxes was net of
approximately $601,000, of tax benefit due to the utilization of net operating
loss carryforwards. In Germany the 1997, 1996 and 1995 current tax provisions
for income taxes were net of approximately $132,000, $607,000 and $324,000,
respectively, of tax benefit due to utilization of net operating loss
carryforwards.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $1,515,000 at December 31, 1997. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation.
(13) EMPLOYEE BENEFIT PLANS --
The Company has a defined contribution employee benefit plan under which
substantially all U.S. employees are eligible to participate. The Company
matches a portion of the employees' contributions. The Company contributed
$376,000, $380,000 and $264,000 to the plan during the years ended December 31,
1997, 1996 and 1995, respectively. Under the terms of the plan, contributions to
the plan may be discontinued at any time.
(14) PENSION PLAN --
The Company's German subsidiary has an unfunded pension plan providing
benefits to one present employee and three former employees. The plan provides
fixed minimum pension payments at retirement age. There are no assets held in
outside funds.
The Company has adopted FAS 87, "Employers' Accounting for Pensions";
however, to the extent pension costs under German law exceed amounts computed
under FAS 87, those additional amounts are recorded by the Company. Pension
expense for the years ended December 31, 1997, 1996, and 1995 was $96,000,
$160,000 and $94,000, respectively. The actuarial present value of accumulated
benefits was $1,219,000 at December 31, 1997, and $1,315,000 at December 31,
1996. The projected benefit obligation for service rendered to date, net of
unrecognized prior service cost, was $1,210,000 and $1,308,000 as of December
31, 1997 and 1996, respectively.
30
<PAGE> 33
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation assumed a discount rate on benefit obligations of 7%,
annual salary increases of 2% and annual benefit increases of 3%.
(15) SALES TO SIGNIFICANT CUSTOMERS --
During 1997, 1996 and 1995, no single customer accounted for 10% or greater
of total net sales.
(16) RESEARCH AND DEVELOPMENT COSTS --
Research and development costs are charged to expense as incurred. The
amounts of research and development and quality control expenditures during the
years ended December 31, 1997, 1996 and 1995 were $1,469,000, $1,675,000 and
$1,705,000, respectively.
(17) COMMITMENTS AND CONTINGENCIES --
Product warranties and insurance coverage --
The Company's products are sold and installed with specified limited
warranties as to material quality and workmanship. These limited warranties may
last for up to 20 years, but are generally limited to repair or replacement by
the Company of the defective liner or the dollar amount of the contract
involved, on a prorated basis. The Company may also indemnify the site owner or
general contractor for other damages resulting from negligence of the Company's
employees. The Company often is required to post bid and performance bonds
covering the full amount of an installation contract.
Although the Company is not exposed to the type of potential liability that
might arise from being in the business of handling, transporting or storing
hazardous waste or materials, the Company could be susceptible to liability for
environmental damage or personal injury resulting from defects in the Company's
products or negligence by Company employees in the installation of its lining
systems. Such liability could be substantial because of the potential that
hazardous or other waste materials might leak out of their containment system
into the environment. The Company maintains liability insurance, which includes
pollution coverage in the U.S. and Germany, in amounts which it believes to be
prudent. However, there is no assurance that this coverage will remain available
to the Company. While the Company's claims experience to date may not be a
meaningful measure of its potential exposure for product liability, the Company
has experienced no material losses from defects in products and installations.
Litigation and claims --
The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.
Operating Leases --
The Company leases certain equipment through operating lease arrangements
of varying terms. Annual rental expense under the terms of non-cancellable
operating leases is less than 1% of consolidated revenues.
Other --
The Company's products are sometimes sold into foreign markets with
extended terms, secured by an irrevocable letter of credit from a customer's
bank. Payment terms may extend up to six months. At December 31, 1997, the
Company had a U.S. dollar receivable of $3,666,000 from an Indonesian customer
secured by an irrevocable letter of credit issued by an Indonesian bank,
maturing in 1998. Indonesia is experiencing economic and currency difficulties
which could create the potential for non-performance under
31
<PAGE> 34
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the terms of the letter of credit by the Indonesian bank. Management has
complied with all the terms of the letter of credit and has requested payment
from the bank with the first payment due in March 1998. There has been no
indication that the bank will not perform under the terms of the letter of
credit, and therefore, there has been no provision made in the financial
statements for any possible difficulty in collecting under this irrevocable
letter of credit.
(18) ACQUISITION OF SGS GEOSYSTEMS, LTD. --
On April 30, 1996, the Company acquired SGS Geosystems Ltd. (SGS), a UK
geomembrane manufacturer, for $4,774,000 net cash plus the assumption of certain
obligations of SGS in the amount of $600,000. The acquisition was accounted for
as a purchase and, accordingly, the results of operations of SGS have been
included in the consolidated results of operations of the Company from the date
of acquisition. The excess of purchase price over fair value of net assets
acquired associated with this transaction was $2,796,000. Pro forma financial
information for SGS has not been presented as it is not material to the overall
consolidated operating results of the Company.
(19) INVESTMENT IN JOINT VENTURE --
On November 9, 1996, the Company completed the formation of two joint
ventures with Hyma Plastic Hyma Foam Co., an Egyptian supplier of plastic liner,
bags and foam products. The administrative offices of the ventures are located
in Cairo, Egypt. The manufacturing facilities are located outside of Cairo,
Egypt and will manufacture and sell synthetic lining systems in Egypt.
The Company made an initial contribution of $1,696,000 to the ventures and
has a commitment to invest an additional $1,659,000 over the next nine years.
The Company has a 50% ownership interest in both ventures and accounts for its
investments using the equity method of accounting.
(20) MERGER WITH SLT ENVIRONMENTAL, INC. --
On July 27, 1995, the Company merged with SLT Environmental, Inc. (SLT).
The stockholder of SLT received 7,000,000 shares of the Company's common stock
for all issued and outstanding shares of SLT common stock. The merger was
accounted for as a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of SLT for all periods
presented.
Combined and separate results of Gundle and SLT during the period preceding
the merger were as follows (unaudited and in thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED JULY 27, 1995
--------------------------------
GUNDLE SLT COMBINED
------- ------- --------
<S> <C> <C> <C>
Sales............................................... $70,390 $67,715 $138,105
======= ======= ========
Net income.......................................... $ (267) $ 1,308 $ 1,041
======= ======= ========
</TABLE>
As a result of the merger and the planned disposal of SLT's old office and
manufacturing facility, the Company recorded nonrecurring charges of
$15,270,000. Of this amount, $10,070,000 related to a plan to reduce the overall
cost structure of the Company's products and manufacturing operations. To
accomplish the reduction in cost, the Company standardized its products, as well
as streamlined its manufacturing processes. An analysis was completed during
1995 and the Company concluded that certain products, processes and
manufacturing assets had to be upgraded or eliminated. The resulting charge of
$10,070,000 represented the Company's best estimate of the net cost to
standardize products and streamline the manufacturing process, including the
writedown of certain assets. Costs related to the merger with SLT were
$5,200,000. These
32
<PAGE> 35
GUNDLE/SLT ENVIRONMENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses represented the cost of combining the two companies, including costs
related to the consolidation of SLT's manufacturing facilities, closing its
Conroe facility, severance expense, standardization of employee benefit plans,
professional fees, office and equipment relocation and other related costs
incurred in connection with the merger.
(21) GEOGRAPHIC INFORMATION --
Summary geographic financial information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America.................................... $104,023 $114,339 $129,221
Europe........................................... 54,474 63,780 68,391
Latin & South America............................ 11,824 12,956 25,764
Far East/Pacific Rim............................. 21,620 16,229 19,988
Middle East/Africa............................... 7,377 2,068 4,699
Identifiable assets:
North America.................................... 133,471 151,685 138,551
Europe........................................... 37,029 45,024 50,320
Far East/Pacific Rim............................. 5,756 7,337 7,150
Middle East/Africa............................... 1,705 -- --
</TABLE>
33
<PAGE> 36
GUNDLE/SLT ENVIRONMENTAL, INC.
SUPPLEMENTARY DATA
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) --
Unaudited quarterly information for fiscal 1997 and 1996 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
QUARTER QUARTER
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $33,349 $48,352 $66,096 $51,521 $27,107 $60,625 $71,898 $49,742
Gross profit.......................... 6,168 8,276 12,271 9,386 5,526 16,123 17,776 10,446
Income (loss) before income taxes..... (948) 1,685 5,184 1,925 (1,523) 7,835 10,306 3,462
Net income (loss)..................... (550) 977 3,010 1,113 (883) 4,544 5,977 2,008
Basic and diluted earnings (loss) per
common share........................ (.03) .06 .19 .07 (.05) .26 .34 .12
</TABLE>
The above data should be read in conjunction with the consolidated financial
statements and notes thereto.
34
<PAGE> 37
SCHEDULE II
GUNDLE/SLT ENVIRONMENTAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT END
DESCRIPTION OF YEAR TO EXPENSE WRITEOFFS OF YEAR
----------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
Allowance for doubtful accounts.................. $2,700 $4,133 $2,098 $4,735
====== ====== ====== ======
December 31, 1996:
Allowance for doubtful accounts.................. $4,735 $2,519 $1,830 $5,424
====== ====== ====== ======
December 31, 1997:
Allowance for doubtful accounts.................. $5,424 $1,290 $2,367 $4,347
====== ====== ====== ======
</TABLE>
35
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Part III (Items 10 through 13) is omitted since the Company expects to file
with the Securities and Exchange Commission within 120 days following December
31, 1997, definitive proxy materials pursuant to Regulation 14A under the
Securities Exchange Act of 1934 involving the annual election of directors and
certain other matters. If for any reason such a statement is not so filed, this
Report will be appropriately amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial statements (see financial statements at pages 14-33)
(a)(2) Supplementary data (see page 34)
(a)(3) Financial schedule (see page 35)
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above are omitted since the information required to be
submitted has been included in the financial statements or the notes thereto, or
the schedules are not required.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
2-A -- Plan Agreement of Merger dated March 28, 1995, between
the Company and SLT Environmental, Inc. (Exhibit A to
Registrant's Preliminary Proxy Statement filed on May 4,
1995, is incorporated herein by reference).
3-A -- Articles of Incorporation as amended (Exhibits 3.1, 3.2
and 3.3 to Registrant's Registration Statement No.
33-9809 are incorporated herein by reference).
3-B -- Bylaws (Exhibit 3.4 to Registrant's Registration
Statement No. 33-9809 is incorporated herein by
reference).
4-E -- Credit Agreement dated as of July 27, 1995, between the
Company, the financial institutions named therein and
NationsBank of Texas, N.A., as agent (incorporated by
reference to Exhibit 1.6 to Registrant's Current Report
on Form 8-K filed on August 9, 1995).
4-F -- Note Agreements dated as of June 15, 1995, between Gundle
Environmental Systems, Inc. and certain institutions
covering the Senior Notes due August 1, 2005
(incorporated by reference to Exhibits 1.3 and 1.4 to
Registrant's Current Report on Form 8-K filed August 9,
1995).
10-B -- Registrant's 1986 stock option plan (Exhibit 10.11 to
Registrant's Registration Statement No. 33-44306 is
incorporated herein by reference).
10-G -- Registrant's 1995 Amended and Restated Incentive Stock
Plan. (Incorporated by reference to 4.1 of the
Registrant's Registration Statement number 333-01759)
10-H -- Employment Agreement dated March 10, 1997, between
William P. Reid and the Company.
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10-I -- Employment Agreement dated March 10, 1997, between Roger
J. Klatt and the Company.
10-J -- Registrant's 1996 Nonqualified Stock Option Plan for
Non-Employee Directors (Exhibit 4.1 to Registrant's
Report on Form S-8 No. 333-23299 is incorporated herein
by reference).
11 -- Computation of per share earnings (see financial
statements at page 21).
21 -- Subsidiaries.
23 -- Consent of Independent Auditors -- Ernst & Young LLP.
27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K -- None.
(c) Exhibits (see Item (a)(3), above).
(d) Additional financial statements (see Items (a)(1) and (a)(2) above).
37
<PAGE> 40
SIGNATURES
Pursuant to the requirements 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, on the 3rd day of
March, 1998.
GUNDLE/SLT ENVIRONMENTAL, INC.
By /s/ WILLIAM P. REID
-----------------------------------
William P. Reid, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 3rd day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ WILLIAM P. REID Director and Principal Executive Officer
- -----------------------------------------------------
William P. Reid
/s/ ROGER J. KLATT Principal Financial and Accounting Officer
- -----------------------------------------------------
Roger J. Klatt
/s/ SAMIR T. BADAWI Director and Chairman of the Board
- -----------------------------------------------------
Samir T. Badawi
/s/ JAMES R. BURKE Director
- -----------------------------------------------------
James R. Burke
/s/ AHMED Y. KHALAWI Director
- -----------------------------------------------------
Ahmed Y. Khalawi
/s/ T. WILLIAM PORTER Director
- -----------------------------------------------------
T. William Porter
/s/ HUGH L. RICE Director
- -----------------------------------------------------
Hugh L. Rice
/s/ BRIAN D. YOUNG Director
- -----------------------------------------------------
Brian D. Young
</TABLE>
38
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
2-A -- Plan Agreement of Merger dated March 28, 1995, between
the Company and SLT Environmental, Inc. (Exhibit A to
Registrant's Preliminary Proxy Statement filed on May 4,
1995, is incorporated herein by reference).
3-A -- Articles of Incorporation as amended (Exhibits 3.1, 3.2
and 3.3 to Registrant's Registration Statement No.
33-9809 are incorporated herein by reference).
3-B -- Bylaws (Exhibit 3.4 to Registrant's Registration
Statement No. 33-9809 is incorporated herein by
reference).
4-E -- Credit Agreement dated as of July 27, 1995, between the
Company, the financial institutions named therein and
NationsBank of Texas, N.A., as agent (incorporated by
reference to Exhibit 1.6 to Registrant's Current Report
on Form 8-K filed on August 9, 1995).
4-F -- Note Agreements dated as of June 15, 1995, between Gundle
Environmental Systems, Inc. and certain institutions
covering the Senior Notes due August 1, 2005
(incorporated by reference to Exhibits 1.3 and 1.4 to
Registrant's Current Report on Form 8-K filed August 9,
1995).
10-B -- Registrant's 1986 stock option plan (Exhibit 10.11 to
Registrant's Registration Statement No. 33-44306 is
incorporated herein by reference).
10-G -- Registrant's 1995 Amended and Restated Incentive Stock
Plan. (Incorporated by reference to 4.1 of the
Registrant's Registration Statement number 333-01759)
10-H -- Employment Agreement dated March 10, 1997, between
William P. Reid and the Company.
10-I -- Employment Agreement dated March 10, 1997, between Roger
J. Klatt and the Company.
10-J -- Registrant's 1996 Nonqualified Stock Option Plan for
Non-Employee Directors (Exhibit 4.1 to Registrant's
Report on Form S-8 No. 333-23299 is incorporated herein
by reference).
11 -- Computation of per share earnings (see financial
statements at page 21).
21 -- Subsidiaries.
23 -- Consent of Independent Auditors -- Ernst & Young LLP.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.H
[GUNDLE/SLT ENVIRONMENTAL, INC. LETTERHEAD]
March 10, 1997
Mr. William P. Reid
President and Chief Executive Officer
Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Dear Mr. Reid:
Gundle/SLT Environmental, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential
for the protection and enhancement of the best interests of the Company and its
shareholders. In view of your experience and performance in the business of the
Company and its subsidiaries, the Company desires to secure your services for an
extended period. In addition, the Company recognizes that, as is the case with
many publicly-held corporations, the possibility of a change in control may
arise and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders.
Accordingly, the board of directors of the Company (the "Board") has
determined that appropriate steps should be taken to assure the Company of the
continuation of your services and to reinforce and encourage the attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a change in
control of the Company. In particular the Board believes it important, should
the Company or its shareholders receive a proposal for or notice of transfer of
control of the Company, that you be able to assess and advise the Board whether
such transfer would be or is in the best interests of the Company and its
shareholders, and to take such other action regarding such proposal or transfer
as the Board might determine to be appropriate without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (the "Agreement"), which has been approved by the Board and
which supersedes the previous employment agreement between you and the Company
dated October 13, 1989 (as amended March 28, 1995) in its entirety, sets forth
the terms of your continued employment by the Company and the compensation and
severance benefits which the Company agrees will be provided to you in the event
of a change in control and if your employment with the Company should be
terminated under the circumstances described below.
<PAGE> 2
Mr. William P. Reid
March 10, 1997
Page 2
Reference is made to Annex I hereto for definitions of certain terms
used in this Agreement, and such definitions are incorporated herein by such
reference with the same effect as if set forth herein. Certain capitalized terms
used in this Agreement in connection with the description of various Plans are
defined in the respective Plans, but if any conflicts with a definition herein
contained, the latter shall prevail.
1. Term of Employment. The Company hereby agrees to continue your
employment and you hereby agree to serve the Company for an employment period
commencing on the date hereof and initially ending December 31, 1999; provided,
however, that on each successive December 1 commencing in 1997, the employment
period shall automatically be extended for one additional year (with the date to
which the employment period has most recently been extended being hereinafter
referred to as the "Expiration Date" and the period commencing the date hereof
and ending on the Expiration Date being hereinafter referred to as the
"Employment Period"), subject to prior termination of the Employment Period
pursuant to Section 4 of this Agreement.
2. Duties.
(a) During the Employment Period, you shall serve the Company
as its President and Chief Executive Officer and perform your duties and
responsibilities diligently, faithfully and loyally and devote such time to the
Company's affairs as may be necessary to the end of achieving the proper,
efficient and successful operation of the Company's business. In such capacities
you shall (i) generally have the duties of such offices as specified in the
Bylaws, (ii) report directly to the Board and (iii) have general executive
supervision and management of the business and affairs of the Company, subject
to the direction of the Board or any Committee thereof. The foregoing shall not,
however, be deemed to restrict you from attending to matters or engaging in
activities not directly related to the business of the Company, if reasonable in
scope and time commitment and not otherwise in violation of this Agreement.
(b) If during the Employment Period, (i) a tender offer or
exchange offer is made for more than 20% of the Company's outstanding Voting
Securities or (ii) a transaction is proposed which, if consummated, would result
in a Change of Control, you agree that you will not leave your employment with
the Company (other than as a result of Disability or upon Retirement) and will
also render the services contemplated in the introductory paragraphs of this
Agreement until such time as such tender offer, exchange offer or proposed
transaction is abandoned or terminated or a Change of Control has occurred.
<PAGE> 3
Mr. William P. Reid
March 10, 1997
Page 3
3. Compensation.
(a) Base Salary. As compensation for your services, the
Company agrees to pay you basic compensation at the rate of $325,000 per annum
through December 31, 1997 ("Base Salary"), payable on a current basis in equal
installments not less frequently than monthly, subject only to such payroll and
withholding deductions as may be required by law or the terms of Plans in which
you are a participant. For periods subsequent to December 31, 1997, your Base
Salary shall be established annually by the Compensation Committee of the Board
and paid on the same basis as for the prior year, but no such adjustment shall
result in a Base Salary for any year of less than the highest annual rate so
authorized by the Board to be paid to you during any previous calendar year(s)
of the Company ended during the Employment Period, except upon your prior
written consent.
(b) Plans. In addition to your Base Salary, you will
participate in the Bonus Plan and LTIP Plan, and be eligible to participate in
the Defined Contribution Plan and Other Plans, for each year during the
Employment Period.
(c) Other. The Company shall reimburse you for all expenses
paid or incurred by you in the performance of your duties under this Agreement
in accordance with the Company's normal expense reimbursement policies
applicable to senior executives.
4. Termination. Upon compliance by the initiating party with any
applicable procedures set forth in Section 5 hereof, your employment with the
Company:
(a) shall terminate automatically upon your death or
Retirement;
(b) may be terminated prior to the Expiration Date at the
discretion of the Board upon your Disability;
(c) may be terminated prior to the Expiration Date at the
discretion of the Board for Cause;
(d) may be terminated prior to the Expiration Date at your
discretion, other than for Good Reason;
(e) may be terminated prior to the Expiration Date at the
discretion of the Board prior to a Change of Control without Cause;
<PAGE> 4
Mr. William P. Reid
March 10, 1997
Page 4
(f) may be terminated prior to the Expiration Date at the
discretion of the Board at or after a Change of Control without Cause;
(g) may be terminated prior to the Expiration Date at your
discretion for Good Reason prior to a Change of Control; or
(h) may be terminated prior to the Expiration Date at your
discretion for Good Reason at or after a Change of Control.
5. Procedures for Termination. If it is intended that your
employment be terminated:
(a) pursuant to Section 4(b), the Company shall transmit to
you written notice setting forth the particulars upon which the Company
bases its determination that a Disability exists, together with a Board
resolution adopted by at least two-thirds of the members of the Board
requiring that you resume your duties within 30 days following the date
thereof, failing which a "final discharge" shall then occur;
(b) pursuant to Section 4(c), the Company shall transmit to
you written notice setting forth the Cause for which you are proposed
to be dismissed in sufficient detail to permit a reasonable assessment
of the bona fides thereof, and setting a meeting of the Board not less
than 30 days following the date of such notice at which the Board shall
consider your termination and at which you and your counsel shall have
the opportunity to be heard, following which the Board shall either by
resolution withdraw the notice, or if it so finds in its good faith
opinion, issue its report within ten days thereafter that Cause exists
and specifying the particulars of its findings, in which latter event a
"final discharge" shall occur. After receipt of a notice of intended
termination for Cause, you shall not have any authority to incur any
obligation of any kind whatsoever on behalf of the Company pending
withdrawal of such notice or "final discharge;"
(c) pursuant to Section 4(d), you shall transmit to the
Company written notice specifying that your resignation is other than
for Good Reason;
(d) pursuant to Section 4(e) or 4(f) the Company shall
transmit to you written notice specifying that your termination is
without Cause;
(e) pursuant to Section 4(g) or 4(h), you shall transmit to
the Company written notice setting forth the particulars upon which you
base your determination that Good
<PAGE> 5
Mr. William P. Reid
March 10, 1997
Page 5
Reason exists and, only if the stated basis therefor is capable of
being cured, requesting a cure within 10 days, failing which a "final
separation" shall then occur, and if such stated basis is not capable
of cure by the Company, "final separation" shall occur co-extensive
with delivery of the notice.
For purposes of this Agreement, a "Termination Date" shall be deemed to
have occurred upon (i) the happening of any event contemplated by Section 4(a)
[death or Retirement], (ii) the date of "final discharge" in the case of
termination initiated under Sections 5(a) [Disability] or 5(b)[Cause], (iii) the
date of "final separation" in the case of a termination initiated under Section
5(e) [Good Reason], or (iv) the 30th day following the date of any notice
contemplated by Sections 5(c) [resignation without Good Reason] or 5(d)
[discharge without Good Reason; provided, that any proceeding initiated pursuant
to Section 11 hereof within 15 days after the giving of any notice under this
Section 5 shall (anything else in this Agreement to the contrary
notwithstanding) automatically toll the effectiveness of any Termination Date
until final resolution of such proceeding. Each notice which complies with the
requirements of this Section 5 is hereinafter referred to as a "Termination
Notice".
6. Effect of Termination. If your employment is terminated:
(a) pursuant to Sections 4(a) [death or Retirement], 4(b)
[Disability], 4(c) [Cause], or 4(d) [resignation without Good Reason],
then you shall be entitled to receive (i) payment when due of your Base
Salary through the end of the first monthly pay period ended after the
Termination Date and (ii) all benefits under the Plans in which you are
at the time a participant, to the extent the same are vested under the
terms thereof at the Termination Date, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(b) pursuant to Sections 4(e) [discharge without Cause prior
to Change of Control] or 4(g) [resignation for Good Reason prior to
Change of Control], then you shall become entitled to all benefits
conferred upon you by the Termination Package, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(c) pursuant to Sections 4(f) [discharge without Cause after
Change of Control] or 4(h) [resignation for Good Reason after Change of
Control], then you shall become entitled to all benefits conferred upon
you by the Severance Package, and (except as
<PAGE> 6
Mr. William P. Reid
March 10, 1997
Page 6
otherwise provided herein) all other obligations of the Company under
this Agreement shall thereupon cease.
You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment, nor shall the amount
of any payment provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer after any
Effective Date or Termination Date.
7. LTIP Benefit Acceleration at Effective Date. Immediately upon any
Effective Date, all contingent compensation rights issued to you under the LTIP
Plan which are then outstanding shall become vested, exercisable, distributable
and unrestricted (any contrary provision in the LTIP Plan notwithstanding) for a
period of 183 days following the Effective Date (the "Exercise Period") whether
or not during such period you continue to be employed by the Company. During the
Exercise Period, you shall have the right immediately upon any written request
by you to the Company, if approved in writing by any person (acting solely in
his individual capacity and when so acting, such concurring person shall do so
without any contrary "fiduciary" or other duty to the Company) who was at the
Effective Date an officer or director of the Company, to (i) exercise all or any
portion of all your options covered (including, at your sole election, any
associated Tandem SAR) by the LTIP Plan and to have the underlying Shares issued
to you, (ii) have issued to you on a non-forfeitable basis any or all Shares
covered by Restricted Stock Awards held by you under the LTIP Plan, (iii) have
issued to you any or all Performance Shares and/or Performance Units held by you
in the LTIP Plan, (iv) exercise all or any portion of any LTIP Plan Freestanding
SAR held by you, and (v) obtain the full benefit of any other contingent
compensation rights to which you may be entitled under the LTIP Plan, in each
case as though all applicable Performance Targets had been met for all
Performance Periods (including those extending beyond the Effective Date) and
any and all other LTIP Plan contingencies had been satisfied in full at the
Effective Date and the maximum possible benefit thereunder had been earned in
full at the Effective Date. To the extent you have not exercised or requested
performance of such benefits following the Effective Date and prior to
expiration of the Exercise Period, all terms applicable to any such benefit
prior to the Effective Date shall again become fully applicable as though an
Effective Date had never occurred.
8. Excise Tax. To the extent that the acceleration of vesting or any
payment, distribution or issuance made to you pursuant to this Agreement
following any Effective Date or Change of Control is subject to federal income,
excise, or other tax at a rate above the rate ordinarily applicable to like
payments paid in the ordinary course of business ("Penalty Tax"), whether as a
result of the provisions of Section 280G(b)(1) and 4999(a) of the Internal
Revenue
<PAGE> 7
Mr. William P. Reid
March 10, 1997
Page 7
Code of 1986, as amended, any similar or analogous provisions of any statute
adopted subsequent to the date hereof, or otherwise, then the Company shall pay
you an additional amount of cash (the "Additional Amount") such that the net
amount received by you, after paying any applicable Penalty Tax and any federal
or state income tax on such Additional Amount, shall be equal to the amount that
you would have received if such Penalty Tax were not applicable.
9. Deferral of Payments; Early Payments. At any time prior to a
Termination Date, you may irrevocably direct the Company that any amounts which
are or should become payable to you under the Termination Package, the Severance
Package or pursuant to Section 7 hereof shall be paid to you in three equal
installments, payable on or within ten days following the Termination Date, and
on the first and second anniversaries of the initial installment payment. In
addition, if any payment to you in respect of a stock-based benefit which is
precipitated by the occurrence of an Effective Date or a Termination Date and
which would, in and of itself, give rise to a short-swing profit under Section
16(b) of the Exchange Act, then both the payment and the entitlement to payment
thereof, shall automatically be deferred until the earliest date (not later than
183 days following a Termination Date) at which the payment of such benefit
would not, in and of itself, result in a short-swing profit. The Company and you
further agree that when it has become apparent in our collective best judgment
(as expressed by the Compensation Committee of the Board, in the case of the
Company) that a Change of Control is likely to occur and further, that a likely
consequence thereof will be the occurrence of a Termination Date, the Company
and you will use reasonable good faith efforts to undertake and conclude
negotiations intended to result in the payment to you of a portion of the
Termination Package or Severance Package earlier than would otherwise be the
case hereunder, thereby increasing the benefit conferred upon you and the tax
efficiency of such payments to the Company, with any consequent tax savings to
be allocated between you and the Company in such reasonable proportions as we
shall agree; unless so agreed to by both parties in writing, no such negotiation
or agreement shall affect the Company's obligations to you under any other
provision of this Agreement.
10. Conditional Share Purchase Obligation.
(a) If a Change of Control occurs as a consequence of a tender
offer or exchange offer (the "Tender Offer"), the Company shall, if requested by
you, purchase from you (whether a Termination Date has occurred following the
Change of Control) for cash on any business day selected by you upon not less
than ten days' notice to the Company, which day shall not be less than ten days
following consummation of the Tender Offer nor more than three years after the
Effective Date, up to that number of Shares which shall be equal to the product
of (x) the number of Shares acquired by you upon exercise or distribution of any
benefit under the Bonus
<PAGE> 8
Mr. William P. Reid
March 10, 1997
Page 8
Plan or LTIP Plan prior to consummation of the Tender Offer, multiplied by (y)
the decimal equivalent of (I) the number of Shares accepted for purchase or
exchange in the Tender Offer, divided by (II) the number of Shares timely and
validly tendered pursuant to the Tender Offer. In the event the above obligation
to purchase Shares occurs by reason of a cash tender offer or a combination cash
tender offer and exchange offer, the cash price per share to be paid to you
hereunder shall be equal to the highest price paid in cash pursuant to the
Tender Offer. In the event such obligation occurs by reason of an exchange
offer, the cash price per share to be paid to you hereunder shall be equal to
the closing price, if traded on a stock exchange, or the average bid and asked
prices, if traded in the over-the-counter market, of the security of the person
so exchanged for the Shares (the "Exchange Security") on the first day on which
the Exchange Security could have been sold by you on such exchange or in the
over-the-counter market, as the case may be, in a regular broker's transaction
had your Shares been tendered and accepted, multiplied by the number of Exchange
Securities (or fraction thereof) issued in the Tender Offer for each Company
Share; and
(b) if a Change of Control occurs pursuant to a Tender Offer
and (i) a merger, consolidation, reorganization, sale, spin-off, or purchase of
assets under which all remaining outstanding Shares will be converted into or
become exchangeable for cash, or for securities ("Merger Security") issued or to
be issued by the Person who made the Tender offer (or a subsidiary or affiliate
of such Person), is thereafter proposed to the Company or its shareholders, and
(ii) such merger, consolidation, reorganization or purchase of assets occurs
less than three years after the Effective Date, and (iii) the amounts of cash
into which each Share would be converted if the transaction is effected wholly
for cash, or the Merger Security Value (as defined below) if such transaction is
effected wholly for Merger Securities, or the sum of the cash and the Merger
Security Value if the Transaction is effected partly for cash and partly for
Merger Securities, as the case may be, is less than 95% of the per share price
that would have been paid by the Company for such portion of your Shares had you
exercised your option to require the Company to purchase such Shares under
Section 10(a) above, the Company shall pay you (whether or not a Termination
Date has occurred following a Change of Control), an amount in cash equal to the
difference between the aggregate price you would have received from the number
of Shares the Company would have been required to purchase from you had you
exercised such option under Section 10(a) and the amount of cash and/or the
Merger Security Value received for the same number of Shares in such merger,
consolidation, reorganization or purchase of assets. Such cash payment shall be
made to you on a business day selected by you upon no less than ten calendar
days' notice to the Company or its Successor (as hereinafter defined). For
purposes of this Section 10(b), "Merger Security Value" shall mean the closing
price, if traded on a stock exchange, or the average bid and asked prices if
traded in the over-the-counter market, of the Merger Security
<PAGE> 9
Mr. William P. Reid
March 10, 1997
Page 9
on the first day on which the Merger Security could have been sold by you on
such exchange or in the over-the-counter market, as the case may be, in a
regular broker's transaction, multiplied by the number of Merger Securities (or
fraction thereof) for which each Share was exchangeable or into which each Share
was convertible. If no public market develops for the Merger Security within 30
days from the date of its issue, however, "Merger Security Value" shall mean the
fair market value of such Merger Security (on a per unit basis) in the written
opinion of a nationally recognized investment banking firm acceptable to you) on
the effective date of the merger, consolidation, reorganization or purchase of
assets, as the case may be, multiplied by the number of Merger Securities (or
fraction thereof) for which each Share was exchangeable or into which each Share
was convertible.
11. Dispute Resolution. It is irrevocably agreed that if any dispute
arises between us under this Agreement, or as to any interpretive matter under
or alleged breach of this Agreement, the exclusive remedy of each of us shall be
to commence binding arbitration proceedings under the rules of the American
Arbitration Association (the "Rules"), with any such arbitration proceeding to
be conducted in Houston, Texas, applying the substantive law of the State of
Texas ("Arbitration"). If Arbitration is commenced prior to an Effective Date,
each of us will deposit with the arbitrator(s), 50% of the arbitrator's
preliminary estimate of the costs of arbitration (excluding counsel fees and
expenses) as security for costs; if Arbitration is commenced after an Effective
Date, the Company will be solely responsible for all costs thereof and shall
deposit with the arbitrator(s) 100% of the arbitrator(s) preliminary estimate
thereof. Notwithstanding any contrary provision of the Rules or Texas law, the
Company shall have the burden of proof with respect to any of the following
which are at issue in Arbitration: (i) that Cause or Disability existed at the
time any notice was given to you under Section 5 based upon either them and/or
the sufficiency of such notice; and (ii) that Good Reason did not exist at the
time notice was given to the Company under Section 5 based upon Good Reason (but
only if such notice was dated on or after an Effective Date) and/or the
sufficiency of such notice; and (iii) that a Change of Control has not occurred.
Any final ruling of the arbitrator(s) in an Arbitration shall be final and
binding for all purposes, and judgment on any Arbitration award may be entered
and enforced in any court having jurisdiction.
The Company and you irrevocably agree that in the event the
arbitrator(s) shall determine (after hearing) that any matter presented in
Arbitration is one which under Texas law is not susceptible to arbitration, in
such event (and only in such event), (i) exclusive jurisdiction over the
non-arbitrable issue shall be in the lowest Texas state court of general
jurisdiction sitting in Harris County, Texas, (ii) we are each at the time
present in Texas for the purpose of conferring personal jurisdiction; (iii) any
such action may be brought in such courts, and any objection that
<PAGE> 10
Mr. William P. Reid
March 10, 1997
Page 10
the Company or you may now or hereafter have to the venue of such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court is waived, and we each agree not to plead or claim the same,
(iv) service of process in any such proceeding or action may be effected by
mailing a copy thereof by registered or certified mail, return receipt requested
(or any substantially similar form of mail), postage prepaid, to such party at
the address provided in Section 14 hereof, (v) no punitive or consequential
damages shall be awarded in any such action or proceeding and we each agree not
to plead or claim the same; and (vi) prior to any trial on the merits, we will
submit any such non-arbitrable issue to court supervised, non-binding mediation.
If proceedings are commenced prior to an Effective Date, all actual
costs of Arbitration or court proceedings involving any non-arbitrable issue
(excluding, in each case, counsel fees and expenses), shall be apportioned by
the arbitrator(s) or the court in such manner as shall be deemed equitable in
light of any final Arbitration award or judgment; if commenced on or after an
Effective Date, all such costs shall be borne exclusively by the Company.
Anything else in this Section to the contrary notwithstanding, nothing
in this Agreement shall impair your ability to seek specific performance of your
right to be paid under, and to receive all other benefits conferred by, Section
3 of this Agreement during the pendency of any dispute or proceeding concerning
Sections 5, 6, 7 and/or 9 hereof.
12. Successors; Binding Agreement.
(a) Upon your written request, the Company will seek to have
any Successor (as defined below), by agreement in form and substance
satisfactory to you, expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it. If there has been a Change of Control prior to, or a Change of Control will
result from, any such succession, then failure of the Company to obtain at your
request such agreement prior to or upon the effectiveness of any such succession
(other than by merger or consolidation) shall constitute Good Reason for
termination by you of your employment and, upon delivery of a Notice of
Termination by you to the Company, you shall be entitled to the benefits
provided in Section 6(c) hereof. "Successor" shall mean any Person that succeeds
to, or has the ability to control, the Company's business as a whole, directly
by merger, consolidation or spin-off or indirectly by purchase of the Company's
Voting Securities or acquisition of all or substantially all of the assets of
the Company.
<PAGE> 11
Mr. William P. Reid
March 10, 1997
Page 11
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13. Fees and Expenses. The Company shall pay all legal fees and
reasonable expenses incurred by you (including costs of arbitration) as a result
of (a) your termination following a Change of Control (including all such fees
and expenses, if any, incurred in contesting or disputing any such termination)
or (b) your seeking to obtain, assert or enforce any right or benefit conferred
upon you by this Agreement.
14. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
delivered in person to the persons specified below or deposited in the United
States mail, certified or registered mail, postage prepaid and addressed as
follows:
If to the Company: Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Attention: Chairman, Compensation
Committee of the Board of Directors
If to you: William P. Reid
23 Misty Grove Circle
The Woodlands, Texas 77381
Either party may change, by the giving of notice in accordance with
this Section 14, the address to which notices are thereafter to be sent.
15. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. Survival. All obligations undertaken and benefits conferred
pursuant to this Agreement, except those set forth in Sections 1 and 2, shall
survive the Employment Period and continue thereafter until performed in full.
<PAGE> 12
Mr. William P. Reid
March 10, 1997
Page 12
17. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by you and the Chairman of the Compensation Committee of the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the internal laws of the State of Texas.
If this letter correctly sets forth our understanding with respect to
the subject matter hereof, please sign and return one copy of this letter to the
Company.
Sincerely,
GUNDLE/SLT ENVIRONMENTAL, INC.
BY:
--------------------------------------------
T. William Porter
Chairman of the Compensation Committee
of the Board
Agreed to as of the 10th
day of March, 1997
- ------------------------------
William P. Reid
<PAGE> 13
ANNEX I TO AGREEMENT DATED MARCH 10, 1997
BETWEEN
GUNDLE/SLT ENVIRONMENTAL, INC.
AND
WILLIAM P. REID
DEFINITION OF
CERTAIN TERMS
"BONUS PLAN" means for calendar 1997 and each subsequent year, the
Company's Management Incentive Plan or any other Plan adopted by the Board which
provides for the payment of additional compensation on an annual basis to senior
executive officers contingent upon the Company's results of operations for that
specific year, as such Plan shall be amended or modified to, but not on or
after, any Effective Date.
"BYLAWS" means the bylaws of the Company as in effect at the date
hereof and as the same shall be amended or otherwise modified to, but not on or
after, any Effective Date.
"CAUSE" means (i) your conviction by a court of competent jurisdiction,
from which conviction no further appeal can be taken, of a felony-grade crime
involving scienter, or (ii) your willful failure to perform substantially your
duties with the Company (other than a failure due to physical or mental illness)
which is materially and demonstrably injurious to the Company, or (iii) only
prior to an Effective Date, the engaging by you in any "business" engaged in
activities in direct competition with the Company, whether as an employee,
officer or director or through the beneficial ownership by you of 10% or more of
the Voting Securities of such "business." No act or failure to act on your part
shall be considered "willful" unless done, or omitted to be done, by you in bad
faith and without reasonable belief that your action or omission was in, or not
opposed to, the best interests of the Company.
"CHANGE OF CONTROL" means the earliest date at which:
(i) Any Person (other than Wembley Investments, Ltd.) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's outstanding Voting Securities, other than
through the purchase of Voting Securities directly from the Company through a
private placement; or
(ii) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least two-thirds of the directors comprising
A-1
<PAGE> 14
the Incumbent Board shall from and after such election be deemed to be a member
of the Incumbent Board; or
(iii) the Company is merged or consolidated with another corporation or
entity and as a result of such merger or consolidation less than 50% of the
outstanding Voting Securities of the surviving or resulting corporation or
entity shall then be owned by the former stockholders of the Company; or
(iv) a tender offer or exchange offer is made and consummated by a
Person other than the Company for the ownership of 20% or more of the Voting
Securities of the Company then outstanding; or
(v) all or substantially all of the assets of the Company are sold or
transferred to a Person as to which (A) the Incumbent Board does not have
authority (whether by law or contract) to directly control the use or further
disposition of such assets and (B) the financial results of the Company and such
Person are not consolidated for financial reporting purposes.
Anything else in this definition to the contrary notwithstanding, no
Change of Control shall be deemed to have occurred by virtue of any transaction
which results in you, or a group of Persons which includes you, acquiring more
than 50% of either the combined voting power of the Company's outstanding Voting
Securities or the Voting Securities of any other corporation or entity which
acquires all or substantially all of the assets of the Company, whether by way
of merger, consolidation, sale of such assets or otherwise.
"CHARTER" means the certificate of incorporation of the Company as in
effect at the date hereof and as the same shall be amended or otherwise modified
to, but not on or after, any Effective Date.
"DEFINED CONTRIBUTION PLAN" means the Company's 401(k) Plan as the same
shall be amended or modified to, but not on or after, any Effective Date.
"DISABILITY" means your continuing full-time absence from your duties
with the Company for 180 days or longer as a result of physical or mental
incapacity.
"EFFECTIVE DATE" means the earliest date upon which (i) any of the
events set forth under the definition of Change of Control shall have occurred,
(ii) the receipt by the Company of a Schedule 13D stating the intention of any
Person to take actions which, if accomplished, would constitute a Change of
Control, or (iii) the public announcement by any Person of its intention to take
any such action, in each case without regard for any contingency or condition
which has not been satisfied on such date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
A-2
<PAGE> 15
"GOOD REASON" means any of the following:
(i) except as a result of your death or Retirement, or
following the receipt by you of a Notice of Termination for Cause or
due to Disability, a change in your status, title(s) or position(s) as
an officer of the Company which, in your reasonable judgment, does not
represent a promotion, with commensurate adjustment of compensation,
from your status, title(s) and position(s) or the assignment to you of
any duties or responsibilities which, in your reasonable judgment, are
inconsistent with such status, title(s) or position(s), or the
withdrawal from you of any duties or responsibilities which in your
reasonable opinion are consistent with such status, title(s) or
position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s); or
(ii) a reduction by the Company in your base salary; or
(iii) the failure by the Company to continue in effect any
Plan in which you were then participating other than as a result of the
normal expiration or amendment of any such Plan in accordance with its
terms, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any such Plan on at least as favorable a basis to you as is the case on
the date hereof, or which would materially reduce your benefits under
any of such Plan or deprive you of any material benefit enjoyed by you
on the date hereof, except as proposed by the President and Chief
Executive Officer to the Board or the Compensation Committee thereof;
or
(iv) the Company's requiring you to be based anywhere other
than the Company's principal executive offices as they were located as
of the date hereof except for required travel on the Company's business
to an extent substantially consistent with your business travel
obligations on behalf of the Company prior to the date hereof; or
(v) the failure by the Company upon a Change of Control to
obtain the assumption of this Agreement by any Successor (other than by
merger or consolidation); or
(vi) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination;
and for purposes of this Agreement, no such purported termination shall
be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which you attended to or were engaged in prior
to the date hereof and which do not otherwise violate your obligations
hereunder; or
(viii) any continuing material default by the Company in the
performance of its obligations under this Agreement, whether before or
after a Change of Control.
A-3
<PAGE> 16
"LTIP PLAN" means the Company's 1995 Incentive Stock Plan, as the same
shall be amended or modified to, but not on or after, any Effective Date.
"OTHER PLANS" means any thrift, bonus or incentive, stock option,
deferred compensation or stock accumulation, pension, medical, disability,
accident or life insurance plan, program or policy of the Company which is
intended to benefit the chief executive officer and/or executive officers of the
Company (other than the Bonus Plan, Defined Contribution Plan or LTIP Plan).
"PERSON" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company or any Plans sponsored by the
Company.
"PLANS" means the Bonus Plan, Defined Benefit Plan, Defined
Contribution Plan, LTIP Plan and Other Plans.
"RETIREMENT" means termination of your employment on or after the last
day of the year in which you become 65 years of age.
"SEVERANCE PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum, cash amount equal to the
sum of (i) three times the highest annual rate of Base Salary in effect
during the current year or any of the three years preceding the
Termination Date and (ii) three times the greater of (A) the maximum
award you would have been eligible to receive under the Bonus Plan in
respect of the current year, regardless of any limitations otherwise
applicable to the Bonus Plan (i.e., the failure to have completed any
vesting period or the current measurement period, or the failure to
achieve any performance goal applicable to all or any portion of the
measurement period) or (B) the largest award earned (whether or not
paid) under the Bonus Plan in respect of any of the three years
preceding the Termination Date, or (C) 50% of your Base Pay at the
applicable Termination Date or (D) $100,000; and
(b) in addition to your entitlement to the vested portion of
your interest in the Defined Contribution Plan in accordance with the
terms of that plan, the Company shall pay to you, on or within ten days
following the applicable Termination Date, an amount in cash equal to
the unvested portion of the Company's contributions to your account;
and
(c) immediately upon an applicable Termination Date, all
options and rights to other forms of contingent incentive compensation
granted to you under the LTIP Plan which are not then fully vested,
exercisable, distributable or otherwise performable by the Company
shall immediately become fully vested, exercisable, distributable or
otherwise performable by the Company as though all applicable
Performance Targets had been met or achieved at maximum levels for all
Performance Periods (including those extending beyond the Termination
Date) and any and all other LTIP Plan contingencies had been satisfied
in full
A-4
<PAGE> 17
at the Termination Date and the maximum benefits thereunder had been
earned at the Termination Date; and
(d) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus, Defined Contribution and LTIP Plans and
medical, disability, accident and life insurance plans and programs for
all of which separate provision is made herein) in which you are at the
time a participant, but only to the extent the same are vested under
the terms of such Plans at the Termination Date; and
(e) unless you give notice to the Company pursuant to the next
sentence within 90 days following an applicable Termination Date, the
Company shall maintain in full force and effect, at its sole expense
for the continued benefit of you and your dependents during the period
from the Termination Date through the earlier of (i) three years from
the Termination Date or (ii) the commencement date of equivalent
benefits from a new employer, all insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Termination Date. Alternatively, if you notify
the Company that you so elect, the Company shall pay you within five
days of such notification an amount in cash equal to three times the
average annual cost incurred by the Company during the preceding three
calendar years as a result of your participation in such welfare
benefit Plans (or such fewer whole calendar years as you have so
participated). If your participation in any such welfare benefit Plan
is barred, the Company, at its sole cost and expense, shall arrange to
have issued for the benefit of you and your dependents individual
policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which you are entitled to receive under such
Plans. You shall not be required to pay any premiums or other charges
for such policies. At the end of three years after the Termination
Date, the Company, provided you have not previously received or are not
then receiving equivalent benefits from a new employer, shall arrange,
at its sole cost and expense, to enable you to convert you and your
dependents' coverage under such Plans to individual policies or
programs upon the same terms as employees of the Company may apply for
such conversions.
Anything else in this Agreement to the contrary notwithstanding, if an
applicable Termination Date results from a merger or a tender offer or an
exchange offer, then unless otherwise agreed to by both parties in writing, all
amounts to which you shall at the closing thereof, or which you may upon
subsequent notice or lapse of time, become entitled under this Severance Package
or Section 10 shall be accelerated to, and become immediately due and payable
contemporaneously with, such closing.
"SHARES" means shares of Common Stock, $.01 par value, of the Company
at the date of this Agreement, as the same shall be subsequently amended,
modified or changed. The term "market value," when used with respect to a Share
means the closing price therefor on the New York Stock Exchange or if not listed
thereon, on such other exchange as shall at the time constitute the principal
exchange for trading in Shares.
A-5
<PAGE> 18
"TERMINATION PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum cash amount equal to the
sum of (i) the highest annual rate of Base Salary in effect during the
current year or any of the two years preceding the Termination Date and
(ii) the greater of (A) the maximum award you would have been eligible
to receive under the Bonus Plan in respect of the current year,
regardless of any limitations otherwise applicable to the Bonus Plan
(i.e., the failure to have completed any vesting period or the current
measurement period, or the failure to achieve any performance goal
applicable to all or any portion of the measurement period) or (B) the
largest award earned (whether or not paid) under the Bonus Plan in
respect of any of the three years preceding the Termination Date; and
(b) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus Plan and welfare benefit Plans, for which
separate provision is made herein) in which you are at the time a
participant, but only to the extent the same are vested under the terms
of such Plans at the Termination Date; and
(c) the Company shall maintain in full force and effect, at
its sole expense for the continued benefit of you and your dependents
during the period from the Termination Date through the earlier of (i)
one year from the Termination Date or (ii) the commencement date of
equivalent benefits from a new employer, all insured and self-insured
employee pension, medical, dental, disability, accident and life
insurance welfare benefit Plans in which you were entitled to
participate immediately prior to the Termination Date. If your
participation in any such welfare benefit Plan is barred, the Company,
at its sole cost and expense, shall arrange to have issued for the
benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on an after-tax basis) to
those which you are entitled to receive under such Plans.
"VOTING SECURITIES" means, with respect to any corporation or business
enterprise, those securities which under ordinary circumstances are entitled to
vote for the election of directors or others charged with comparable duties
under applicable law.
A-6
<PAGE> 1
EXHIBIT 10.I
[GUNDLE/SLT ENVIRONMENTAL, INC LETTERHEAD]
March 10, 1997
Mr. Roger J. Klatt
Senior Vice President and Chief Financial Officer
Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Dear Mr. Klatt:
Gundle/SLT Environmental, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential
for the protection and enhancement of the best interests of the Company and its
shareholders. In view of your experience and performance in the business of the
Company and its subsidiaries, the Company desires to secure your services for an
extended period. In addition, the Company recognizes that, as is the case with
many publicly-held corporations, the possibility of a change in control may
arise and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders.
Accordingly, the board of directors of the Company (the "Board") has
determined that appropriate steps should be taken to assure the Company of the
continuation of your services and to reinforce and encourage the attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a change in
control of the Company. In particular the Board believes it important, should
the Company or its shareholders receive a proposal for or notice of transfer of
control of the Company, that you be able to assess and advise the Board whether
such transfer would be or is in the best interests of the Company and its
shareholders, and to take such other action regarding such proposal or transfer
as the Board might determine to be appropriate without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (the "Agreement"), which has been approved by the Board and
which supersedes the previous letter agreement between you and the Company dated
February 11, 1994 in its entirety, sets forth the terms of your continued
employment by the Company and the compensation and severance benefits which the
Company agrees will be provided to you in the event of a change in control and
if your employment with the Company should be terminated under the circumstances
described below.
<PAGE> 2
Mr. Roger J. Klatt
March 10, 1997
Page 2
Reference is made to Annex I hereto for definitions of certain terms
used in this Agreement, and such definitions are incorporated herein by such
reference with the same effect as if set forth herein. Certain capitalized terms
used in this Agreement in connection with the description of various Plans are
defined in the respective Plans, but if any conflicts with a definition herein
contained, the latter shall prevail.
1. Term of Employment. The Company hereby agrees to continue your
employment and you hereby agree to serve the Company for an employment period
commencing on the date hereof and initially ending December 31, 1999; provided,
however, that on each successive December 1 commencing in 1997, the employment
period shall automatically be extended for one additional year (with the date to
which the employment period has most recently been extended being hereinafter
referred to as the "Expiration Date" and the period commencing the date hereof
and ending on the Expiration Date being hereinafter referred to as the
"Employment Period"), subject to prior termination of the Employment Period
pursuant to Section 4 of this Agreement.
2. Duties.
(a) During the Employment Period, you shall serve the Company
as its Senior Vice President and Chief Financial Officer and perform your duties
and responsibilities diligently, faithfully and loyally and devote such time to
the Company's affairs as may be necessary to the end of achieving the proper,
efficient and successful operation of the Company's business. In such capacities
you shall (i) generally have the duties of such offices as specified in the
Bylaws, (ii) report directly to the President and Chief Executive Officer of the
Company and (iii) have general management of the financial affairs of the
Company, subject to the direction of the President and Chief Executive Officer,
the Board or any Committee thereof. The foregoing shall not, however, be deemed
to restrict you from attending to matters or engaging in activities not directly
related to the business of the Company, if reasonable in scope and time
commitment and not otherwise in violation of this Agreement.
(b) If during the Employment Period, (i) a tender offer or
exchange offer is made for more than 20% of the Company's outstanding Voting
Securities or (ii) a transaction is proposed which, if consummated, would result
in a Change of Control, you agree that you will not leave your employment with
the Company (other than as a result of Disability or upon Retirement) and will
also render the services contemplated in the introductory paragraphs of this
Agreement until such time as such tender offer, exchange offer or proposed
transaction is abandoned or terminated or a Change of Control has occurred.
<PAGE> 3
Mr. Roger J. Klatt
March 10, 1997
Page 3
3. Compensation.
(a) Base Salary. As compensation for your services, the
Company agrees to pay you basic compensation at the rate of $180,000 per annum
through December 31, 1997 ("Base Salary"), payable on a current basis in equal
installments not less frequently than monthly, subject only to such payroll and
withholding deductions as may be required by law or the terms of Plans in which
you are a participant. For periods subsequent to December 31, 1997, your Base
Salary shall be established annually by the Compensation Committee of the Board
and paid on the same basis as for the prior year, but no such adjustment shall
result in a Base Salary for any year of less than the highest annual rate so
authorized by the Board to be paid to you during any previous calendar year(s)
of the Company ended during the Employment Period, except upon your prior
written consent.
(b) Plans. In addition to your Base Salary, you will
participate in the Bonus Plan and LTIP Plan, and be eligible to participate in
the Defined Contribution Plan and Other Plans, for each year during the
Employment Period.
(c) Other. The Company shall reimburse you for all expenses
paid or incurred by you in the performance of your duties under this Agreement
in accordance with the Company's normal expense reimbursement policies
applicable to senior executives.
4. Termination. Upon compliance by the initiating party with any
applicable procedures set forth in Section 5 hereof, your employment with the
Company:
(a) shall terminate automatically upon your death or
Retirement;
(b) may be terminated prior to the Expiration Date at the
discretion of the President and Chief Executive Officer upon your
Disability;
(c) may be terminated prior to the Expiration Date at the
discretion of the President and Chief Executive Officer for Cause;
(d) may be terminated prior to the Expiration Date at your
discretion, other than for Good Reason;
(e) may be terminated prior to the Expiration Date at the
discretion of the President and Chief Executive Officer prior to a
Change of Control without Cause;
<PAGE> 4
Mr. Roger J. Klatt
March 10, 1997
Page 4
(f) may be terminated prior to the Expiration Date at the
discretion of the President and Chief Executive Officer at or after a
Change of Control without Cause;
(g) may be terminated prior to the Expiration Date at your
discretion for Good Reason prior to a Change of Control; or
(h) may be terminated prior to the Expiration Date at your
discretion for Good Reason at or after a Change of Control.
5. Procedures for Termination. If it is intended that your employment
be terminated:
(a) pursuant to Section 4(b), the Company shall transmit to
you written notice setting forth the particulars upon which the Company
bases its determination that a Disability exists, together with a
written request of the President and Chief Executive Officer that you
resume your duties within 30 days following the date thereof, failing
which a "final discharge" shall then occur;
(b) pursuant to Section 4(c), the Company shall transmit to
you written notice setting forth the Cause for which you are proposed
to be dismissed in sufficient detail to permit a reasonable assessment
of the bona fides thereof, and setting a meeting with the President and
Chief Executive Officer not less than 30 days following the date of
such notice at which the President and Chief Executive Officer shall
consider your termination and at which you and your counsel shall have
the opportunity to be heard, following which the President and Chief
Executive Officer shall either withdraw the notice, or if he so finds
in his good faith opinion, issue his report within ten days thereafter
that Cause exists and specifying the particulars of his findings, in
which latter event a "final discharge" shall occur. After receipt of a
notice of intended termination for Cause, you shall not have any
authority to incur any obligation of any kind whatsoever on behalf of
the Company pending withdrawal of such notice or "final discharge;"
(c) pursuant to Section 4(d), you shall transmit to the
Company written notice specifying that your resignation is other than
for Good Reason;
(d) pursuant to Section 4(e) or 4(f) the Company shall
transmit to you written notice specifying that your termination is
without Cause;
<PAGE> 5
Mr. Roger J. Klatt
March 10, 1997
Page 5
(e) pursuant to Section 4(g) or 4(h), you shall transmit to
the Company written notice setting forth the particulars upon which you
base your determination that Good Reason exists and, only if the stated
basis therefor is capable of being cured, requesting a cure within 10
days, failing which a "final separation" shall then occur, and if such
stated basis is not capable of cure by the Company, "final separation"
shall occur co-extensive with delivery of the notice.
For purposes of this Agreement, a "Termination Date" shall be deemed to
have occurred upon (i) the happening of any event contemplated by Section 4(a)
[death or Retirement], (ii) the date of "final discharge" in the case of
termination initiated under Sections 5(a) [Disability] or 5(b)[Cause], (iii) the
date of "final separation" in the case of a termination initiated under Section
5(e) [Good Reason], or (iv) the 30th day following the date of any notice
contemplated by Sections 5(c) [resignation without Good Reason] or 5(d)
[discharge without Good Reason; provided, that any proceeding initiated pursuant
to Section 11 hereof within 15 days after the giving of any notice under this
Section 5 shall (anything else in this Agreement to the contrary
notwithstanding) automatically toll the effectiveness of any Termination Date
until final resolution of such proceeding. Each notice which complies with the
requirements of this Section 5 is hereinafter referred to as a "Termination
Notice".
6. Effect of Termination. If your employment is terminated:
(a) pursuant to Sections 4(a) [death or Retirement], 4(b)
[Disability], 4(c) [Cause], or 4(d) [resignation without Good Reason],
then you shall be entitled to receive (i) payment when due of your Base
Salary through the end of the first monthly pay period ended after the
Termination Date and (ii) all benefits under the Plans in which you are
at the time a participant, to the extent the same are vested under the
terms thereof at the Termination Date, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(b) pursuant to Sections 4(e) [discharge without Cause prior
to Change of Control] or 4(g) [resignation for Good Reason prior to
Change of Control], then you shall become entitled to all benefits
conferred upon you by the Termination Package, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(c) pursuant to Sections 4(f) [discharge without Cause after
Change of Control] or 4(h) [resignation for Good Reason after Change of
Control], then you shall become
<PAGE> 6
Mr. Roger J. Klatt
March 10, 1997
Page 6
entitled to all benefits conferred upon you by the Severance Package,
and (except as otherwise provided herein) all other obligations of the
Company under this Agreement shall thereupon cease.
You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment, nor shall the amount
of any payment provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer after any
Effective Date or Termination Date.
7. LTIP Benefit Acceleration at Effective Date. Immediately upon any
Effective Date, all contingent compensation rights issued to you under the LTIP
Plan which are then outstanding shall become vested, exercisable, distributable
and unrestricted (any contrary provision in the LTIP Plan notwithstanding) for a
period of 183 days following the Effective Date (the "Exercise Period") whether
or not during such period you continue to be employed by the Company. During the
Exercise Period, you shall have the right immediately upon any written request
by you to the Company, if approved in writing by any person (acting solely in
his individual capacity and when so acting, such concurring person shall do so
without any contrary "fiduciary" or other duty to the Company) who was at the
Effective Date an officer or director of the Company, to (i) exercise all or any
portion of all your options covered (including, at your sole election, any
associated Tandem SAR) by the LTIP Plan and to have the underlying Shares issued
to you, (ii) have issued to you on a non-forfeitable basis any or all Shares
covered by Restricted Stock Awards held by you under the LTIP Plan, (iii) have
issued to you any or all Performance Shares and/or Performance Units held by you
in the LTIP Plan, (iv) exercise all or any portion of any LTIP Plan Freestanding
SAR held by you, and (v) obtain the full benefit of any other contingent
compensation rights to which you may be entitled under the LTIP Plan, in each
case as though all applicable Performance Targets had been met for all
Performance Periods (including those extending beyond the Effective Date) and
any and all other LTIP Plan contingencies had been satisfied in full at the
Effective Date and the maximum possible benefit thereunder had been earned in
full at the Effective Date. To the extent you have not exercised or requested
performance of such benefits following the Effective Date and prior to
expiration of the Exercise Period, all terms applicable to any such benefit
prior to the Effective Date shall again become fully applicable as though an
Effective Date had never occurred.
8. Excise Tax. To the extent that the acceleration of vesting or any
payment, distribution or issuance made to you pursuant to this Agreement
following any Effective Date or Change of Control is subject to federal income,
excise, or other tax at a rate above the rate ordinarily applicable to like
payments paid in the ordinary course of business ("Penalty Tax"),
<PAGE> 7
Mr. Roger J. Klatt
March 10, 1997
Page 7
whether as a result of the provisions of Section 280G(b)(1) and 4999(a) of the
Internal Revenue Code of 1986, as amended, any similar or analogous provisions
of any statute adopted subsequent to the date hereof, or otherwise, then the
Company shall pay you an additional amount of cash (the "Additional Amount")
such that the net amount received by you, after paying any applicable Penalty
Tax and any federal or state income tax on such Additional Amount, shall be
equal to the amount that you would have received if such Penalty Tax were not
applicable.
9. Deferral of Payments; Early Payments. At any time prior to a
Termination Date, you may irrevocably direct the Company that any amounts which
are or should become payable to you under the Termination Package, the Severance
Package or pursuant to Section 7 hereof shall be paid to you in three equal
installments, payable on or within ten days following the Termination Date, and
on the first and second anniversaries of the initial installment payment. In
addition, if any payment to you in respect of a stock-based benefit which is
precipitated by the occurrence of an Effective Date or a Termination Date and
which would, in and of itself, give rise to a short-swing profit under Section
16(b) of the Exchange Act, then both the payment and the entitlement to payment
thereof, shall automatically be deferred until the earliest date (not later than
183 days following a Termination Date) at which the payment of such benefit
would not, in and of itself, result in a short-swing profit. The Company and you
further agree that when it has become apparent in our collective best judgment
(as expressed by the Compensation Committee of the Board, in the case of the
Company) that a Change of Control is likely to occur and further, that a likely
consequence thereof will be the occurrence of a Termination Date, the Company
and you will use reasonable good faith efforts to undertake and conclude
negotiations intended to result in the payment to you of a portion of the
Termination Package or Severance Package earlier than would otherwise be the
case hereunder, thereby increasing the benefit conferred upon you and the tax
efficiency of such payments to the Company, with any consequent tax savings to
be allocated between you and the Company in such reasonable proportions as we
shall agree; unless so agreed to by both parties in writing, no such negotiation
or agreement shall affect the Company's obligations to you under any other
provision of this Agreement.
10. Conditional Share Purchase Obligation.
(a) If a Change of Control occurs as a consequence of a tender
offer or exchange offer (the "Tender Offer"), the Company shall, if requested by
you, purchase from you (whether a Termination Date has occurred following the
Change of Control) for cash on any business day selected by you upon not less
than ten days' notice to the Company, which day shall not be less than ten days
following consummation of the Tender Offer nor more than three years after the
Effective Date, up to that number of Shares which shall be equal to the product
of (x) the
<PAGE> 8
Mr. Roger J. Klatt
March 10, 1997
Page 8
number of Shares acquired by you upon exercise or distribution of any benefit
under the Bonus Plan or LTIP Plan prior to consummation of the Tender Offer,
multiplied by (y) the decimal equivalent of (I) the number of Shares accepted
for purchase or exchange in the Tender Offer, divided by (II) the number of
Shares timely and validly tendered pursuant to the Tender Offer. In the event
the above obligation to purchase Shares occurs by reason of a cash tender offer
or a combination cash tender offer and exchange offer, the cash price per share
to be paid to you hereunder shall be equal to the highest price paid in cash
pursuant to the Tender Offer. In the event such obligation occurs by reason of
an exchange offer, the cash price per share to be paid to you hereunder shall be
equal to the closing price, if traded the average bid and asked prices, if
traded in the over-the-counter market, of the security of the person so
exchanged for the Shares (the "Exchange Security") on the first day on which the
Exchange Security could have been sold by you on such exchange or in the
over-the-counter market, as the case may be, in a regular broker's transaction
had your Shares been tendered and accepted, multiplied by the number of Exchange
Securities (or fraction thereof) issued in the Tender Offer for each Company
Share; and
(b) if a Change of Control occurs pursuant to a Tender Offer
and (i) a merger, consolidation, reorganization, sale, spin-off, or purchase of
assets under which all remaining outstanding Shares will be converted into or
become exchangeable for cash, or for securities ("Merger Security") issued or to
be issued by the Person who made the Tender offer (or a subsidiary or affiliate
of such Person), is thereafter proposed to the Company or its shareholders, and
(ii) such merger, consolidation, reorganization or purchase of assets occurs
less than three years after the Effective Date, and (iii) the amounts of cash
into which each Share would be converted if the transaction is effected wholly
for cash, or the Merger Security Value (as defined below) if such transaction is
effected wholly for Merger Securities, or the sum of the cash and the Merger
Security Value if the Transaction is effected partly for cash and partly for
Merger Securities, as the case may be, is less than 95% of the per share price
that would have been paid by the Company for such portion of your Shares had you
exercised your option to require the Company to purchase such Shares under
Section 10(a) above, the Company shall pay you (whether or not a Termination
Date has occurred following a Change of Control), an amount in cash equal to the
difference between the aggregate price you would have received from the number
of Shares the Company would have been required to purchase from you had you
exercised such option under Section 10(a) and the amount of cash and/or the
Merger Security Value received for the same number of Shares in such merger,
consolidation, reorganization or purchase of assets. Such cash payment shall be
made to you on a business day selected by you upon no less than ten calendar
days' notice to the Company or its Successor (as hereinafter defined). For
purposes of this Section 10(b), "Merger Security Value" shall mean the closing
price, if traded on a stock exchange, or
<PAGE> 9
Mr. Roger J. Klatt
March 10, 1997
Page 9
the average bid and asked prices if traded in the over-the-counter market, of
the Merger Security on the first day on which the Merger Security could have
been sold by you on such exchange or in the over-the-counter market, as the case
may be, in a regular broker's transaction, multiplied by the number of Merger
Securities (or fraction thereof) for which each Share was exchangeable or into
which each Share was convertible. If no public market develops for the Merger
Security within 30 days from the date of its issue, however, "Merger Security
Value" shall mean the fair market value of such Merger Security (on a per unit
basis) in the written opinion of a nationally recognized investment banking firm
acceptable to you) on the effective date of the merger, consolidation,
reorganization or purchase of assets, as the case may be, multiplied by the
number of Merger Securities (or fraction thereof) for which each Share was
exchangeable or into which each Share was convertible.
11. Dispute Resolution. It is irrevocably agreed that if any dispute
arises between us under this Agreement, or as to any interpretive matter under
or alleged breach of this Agreement, the exclusive remedy of each of us shall be
to commence binding arbitration proceedings under the rules of the American
Arbitration Association (the "Rules"), with any such arbitration proceeding to
be conducted in Houston, Texas, applying the substantive law of the State of
Texas ("Arbitration"). If Arbitration is commenced prior to an Effective Date,
each of us will deposit with the arbitrator(s), 50% of the arbitrator's
preliminary estimate of the costs of arbitration (excluding counsel fees and
expenses) as security for costs; if Arbitration is commenced after an Effective
Date, the Company will be solely responsible for all costs thereof and shall
deposit with the arbitrator(s) 100% of the arbitrator(s) preliminary estimate
thereof. Notwithstanding any contrary provision of the Rules or Texas law, the
Company shall have the burden of proof with respect to any of the following
which are at issue in Arbitration: (i) that Cause or Disability existed at the
time any notice was given to you under Section 5 based upon either them and/or
the sufficiency of such notice; and (ii) that Good Reason did not exist at the
time notice was given to the Company under Section 5 based upon Good Reason (but
only if such notice was dated on or after an Effective Date) and/or the
sufficiency of such notice; and (iii) that a Change of Control has not occurred.
Any final ruling of the arbitrator(s) in an Arbitration shall be final and
binding for all purposes, and judgment on any Arbitration award may be entered
and enforced in any court having jurisdiction.
The Company and you irrevocably agree that in the event the
arbitrator(s) shall determine (after hearing) that any matter presented in
Arbitration is one which under Texas law is not susceptible to arbitration, in
such event (and only in such event), (i) exclusive jurisdiction over the
non-arbitrable issue shall be in the lowest Texas state court of general
jurisdiction sitting in Harris County, Texas, (ii) we are each at the time
present in Texas for the purpose of conferring
<PAGE> 10
Mr. Roger J. Klatt
March 10, 1997
Page 10
personal jurisdiction; (iii) any such action may be brought in such courts, and
any objection that the Company or you may now or hereafter have to the venue of
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court is waived, and we each agree not to plead
or claim the same, (iv) service of process in any such proceeding or action may
be effected by mailing a copy thereof by registered or certified mail, return
receipt requested (or any substantially similar form of mail), postage prepaid,
to such party at the address provided in Section 14 hereof, (v) no punitive or
consequential damages shall be awarded in any such action or proceeding and we
each agree not to plead or claim the same; and (vi) prior to any trial on the
merits, we will submit any such non-arbitrable issue to court supervised,
non-binding mediation.
If proceedings are commenced prior to an Effective Date, all actual
costs of Arbitration or court proceedings involving any non-arbitrable issue
(excluding, in each case, counsel fees and expenses), shall be apportioned by
the arbitrator(s) or the court in such manner as shall be deemed equitable in
light of any final Arbitration award or judgment; if commenced on or after an
Effective Date, all such costs shall be borne exclusively by the Company.
Anything else in this Section to the contrary notwithstanding, nothing
in this Agreement shall impair your ability to seek specific performance of your
right to be paid under, and to receive all other benefits conferred by, Section
3 of this Agreement during the pendency of any dispute or proceeding concerning
Sections 5, 6, 7 and/or 9 hereof.
12. Successors; Binding Agreement.
(a) Upon your written request, the Company will seek to have
any Successor (as defined below), by agreement in form and substance
satisfactory to you, expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it. If there has been a Change of Control prior to, or a Change of Control will
result from, any such succession, then failure of the Company to obtain at your
request such agreement prior to or upon the effectiveness of any such succession
(other than by merger or consolidation) shall constitute Good Reason for
termination by you of your employment and, upon delivery of a Notice of
Termination by you to the Company, you shall be entitled to the benefits
provided in Section 6(c) hereof. "Successor" shall mean any Person that succeeds
to, or has the ability to control, the Company's business as a whole, directly
by merger, consolidation or spin-off or indirectly by purchase of the Company's
Voting Securities or acquisition of all or substantially all of the assets of
the Company.
<PAGE> 11
Mr. Roger J. Klatt
March 10, 1997
Page 11
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13. Fees and Expenses. The Company shall pay all legal fees and
reasonable expenses incurred by you (including costs of arbitration) as a result
of (a) your termination following a Change of Control (including all such fees
and expenses, if any, incurred in contesting or disputing any such termination)
or (b) your seeking to obtain, assert or enforce any right or benefit conferred
upon you by this Agreement.
14. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
delivered in person to the persons specified below or deposited in the United
States mail, certified or registered mail, postage prepaid and addressed as
follows:
If to the Company: Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Attention: Chairman, Compensation
Committee of the Board of Directors
If to you: Roger J. Klatt
12127 Maple Rock Drive
Houston, Texas 77077
Either party may change, by the giving of notice in accordance with
this Section 14, the address to which notices are thereafter to be sent.
15. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. Survival. All obligations undertaken and benefits conferred
pursuant to this Agreement, except those set forth in Sections 1 and 2, shall
survive the Employment Period and continue thereafter until performed in full.
<PAGE> 12
Mr. Roger J. Klatt
March 10, 1997
Page 12
17. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by you and the Chairman of the Compensation Committee of the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the internal laws of the State of Texas.
If this letter correctly sets forth our understanding with respect to
the subject matter hereof, please sign and return one copy of this letter to the
Company.
Sincerely,
GUNDLE/SLT ENVIRONMENTAL, INC.
BY:
---------------------------------------------
T. William Porter
Chairman of the Compensation Committee
of the Board
Agreed to as of the 10th
day of March, 1997
- --------------------------------
Roger J. Klatt
<PAGE> 13
ANNEX I TO AGREEMENT DATED MARCH 10, 1997
BETWEEN
GUNDLE/SLT ENVIRONMENTAL, INC.
AND
ROGER J. KLATT
DEFINITION OF
CERTAIN TERMS
"BONUS PLAN" means for calendar 1997 and each subsequent year, the
Company's Management Incentive Plan or any other Plan adopted by the Board which
provides for the payment of additional compensation on an annual basis to senior
executive officers contingent upon the Company's results of operations for that
specific year, as such Plan shall be amended or modified to, but not on or
after, any Effective Date.
"BYLAWS" means the bylaws of the Company as in effect at the date
hereof and as the same shall be amended or otherwise modified to, but not on or
after, any Effective Date.
"CAUSE" means (i) your conviction by a court of competent jurisdiction,
from which conviction no further appeal can be taken, of a felony-grade crime
involving scienter, or (ii) your willful failure to perform substantially your
duties with the Company (other than a failure due to physical or mental illness)
which is materially and demonstrably injurious to the Company, or (iii) only
prior to an Effective Date, the engaging by you in any "business" engaged in
activities in direct competition with the Company, whether as an employee,
officer or director or through the beneficial ownership by you of 10% or more of
the Voting Securities of such "business." No act or failure to act on your part
shall be considered "willful" unless done, or omitted to be done, by you in bad
faith and without reasonable belief that your action or omission was in, or not
opposed to, the best interests of the Company.
"CHANGE OF CONTROL" means the earliest date at which:
(i) Any Person (other than Wembley Investments, Ltd.) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's outstanding Voting Securities, other than
through the purchase of Voting Securities directly from the Company through a
private placement; or
(ii) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least two-thirds of the directors comprising
A-1
<PAGE> 14
the Incumbent Board shall from and after such election be deemed to be a member
of the Incumbent Board; or
(iii) the Company is merged or consolidated with another corporation or
entity and as a result of such merger or consolidation less than 50% of the
outstanding Voting Securities of the surviving or resulting corporation or
entity shall then be owned by the former stockholders of the Company; or
(iv) a tender offer or exchange offer is made and consummated by a
Person other than the Company for the ownership of 20% or more of the Voting
Securities of the Company then outstanding; or
(v) all or substantially all of the assets of the Company are sold or
transferred to a Person as to which (A) the Incumbent Board does not have
authority (whether by law or contract) to directly control the use or further
disposition of such assets and (B) the financial results of the Company and such
Person are not consolidated for financial reporting purposes.
Anything else in this definition to the contrary notwithstanding, no
Change of Control shall be deemed to have occurred by virtue of any transaction
which results in you, or a group of Persons which includes you, acquiring more
than 50% of either the combined voting power of the Company's outstanding Voting
Securities or the Voting Securities of any other corporation or entity which
acquires all or substantially all of the assets of the Company, whether by way
of merger, consolidation, sale of such assets or otherwise.
"CHARTER" means the certificate of incorporation of the Company as in
effect at the date hereof and as the same shall be amended or otherwise modified
to, but not on or after, any Effective Date.
"DEFINED CONTRIBUTION PLAN" means the Company's 401(k) Plan as the same
shall be amended or modified to, but not on or after, any Effective Date.
"DISABILITY" means your continuing full-time absence from your duties
with the Company for 180 days or longer as a result of physical or mental
incapacity.
"EFFECTIVE DATE" means the earliest date upon which (i) any of the
events set forth under the definition of Change of Control shall have occurred,
(ii) the receipt by the Company of a Schedule 13D stating the intention of any
Person to take actions which, if accomplished, would constitute a Change of
Control, or (iii) the public announcement by any Person of its intention to take
any such action, in each case without regard for any contingency or condition
which has not been satisfied on such date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
A-2
<PAGE> 15
"GOOD REASON" means any of the following:
(i) except as a result of your death or Retirement, or
following the receipt by you of a Notice of Termination for Cause or
due to Disability, a change in your status, title(s) or position(s) as
an officer of the Company which, in your reasonable judgment, does not
represent a promotion, with commensurate adjustment of compensation,
from your status, title(s) and position(s) or the assignment to you of
any duties or responsibilities which, in your reasonable judgment, are
inconsistent with such status, title(s) or position(s), or the
withdrawal from you of any duties or responsibilities which in your
reasonable opinion are consistent with such status, title(s) or
position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s); or
(ii) a reduction by the Company in your base salary; or
(iii) the failure by the Company to continue in effect any
Plan in which you were then participating other than as a result of the
normal expiration or amendment of any such Plan in accordance with its
terms, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any such Plan on at least as favorable a basis to you as is the case on
the date hereof, or which would materially reduce your benefits under
any of such Plan or deprive you of any material benefit enjoyed by you
on the date hereof, except as proposed by the President and Chief
Executive Officer to the Board or the Compensation Committee thereof;
or
(iv) the Company's requiring you to be based anywhere other
than the Company's principal executive offices as they were located as
of the date hereof except for required travel on the Company's business
to an extent substantially consistent with your business travel
obligations on behalf of the Company prior to the date hereof; or
(v) the failure by the Company upon a Change of Control to
obtain the assumption of this Agreement by any Successor (other than by
merger or consolidation); or
(vi) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination;
and for purposes of this Agreement, no such purported termination shall
be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which you attended to or were engaged in prior
to the date hereof and which do not otherwise violate your obligations
hereunder; or
(viii) any continuing material default by the Company in the
performance of its obligations under this Agreement, whether before or
after a Change of Control.
A-3
<PAGE> 16
"LTIP PLAN" means the Company's 1995 Incentive Stock Plan, as the same
shall be amended or modified to, but not on or after, any Effective Date.
"OTHER PLANS" means any thrift, bonus or incentive, stock option,
deferred compensation or stock accumulation, pension, medical, disability,
accident or life insurance plan, program or policy of the Company which is
intended to benefit the chief executive officer and/or executive officers of the
Company (other than the Bonus Plan, Defined Contribution Plan or LTIP Plan).
"PERSON" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company or any Plans sponsored by the
Company.
"PLANS" means the Bonus Plan, Defined Benefit Plan, Defined
Contribution Plan, LTIP Plan and Other Plans.
"RETIREMENT" means termination of your employment on or after the last
day of the year in which you become 65 years of age.
"SEVERANCE PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum, cash amount equal to the
sum of (i) three times the highest annual rate of Base Salary in effect
during the current year or any of the three years preceding the
Termination Date and (ii) three times the greater of (A) the maximum
award you would have been eligible to receive under the Bonus Plan in
respect of the current year, regardless of any limitations otherwise
applicable to the Bonus Plan (i.e., the failure to have completed any
vesting period or the current measurement period, or the failure to
achieve any performance goal applicable to all or any portion of the
measurement period) or (B) the largest award earned (whether or not
paid) under the Bonus Plan in respect of any of the three years
preceding the Termination Date, or (C) 40% of your Base Pay at the
applicable Termination Date or (D) $100,000; and
(b) in addition to your entitlement to the vested portion of
your interest in the Defined Contribution Plan in accordance with the
terms of that plan, the Company shall pay to you, on or within ten days
following the applicable Termination Date, an amount in cash equal to
the unvested portion of the Company's contributions to your account;
and
(c) immediately upon an applicable Termination Date, all
options and rights to other forms of contingent incentive compensation
granted to you under the LTIP Plan which are not then fully vested,
exercisable, distributable or otherwise performable by the Company
shall immediately become fully vested, exercisable, distributable or
otherwise performable by the Company as though all applicable
Performance Targets had been met or achieved at maximum levels for all
Performance Periods (including those extending beyond the Termination
Date) and any and all other LTIP Plan contingencies had been satisfied
in full
A-4
<PAGE> 17
at the Termination Date and the maximum benefits thereunder had been
earned at the Termination Date; and
(d) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus, Defined Contribution and LTIP Plans and
medical, disability, accident and life insurance plans and programs for
all of which separate provision is made herein) in which you are at the
time a participant, but only to the extent the same are vested under
the terms of such Plans at the Termination Date; and
(e) unless you give notice to the Company pursuant to the next
sentence within 90 days following an applicable Termination Date, the
Company shall maintain in full force and effect, at its sole expense
for the continued benefit of you and your dependents during the period
from the Termination Date through the earlier of (i) three years from
the Termination Date or (ii) the commencement date of equivalent
benefits from a new employer, all insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Termination Date. Alternatively, if you notify
the Company that you so elect, the Company shall pay you within five
days of such notification an amount in cash equal to three times the
average annual cost incurred by the Company during the preceding three
calendar years as a result of your participation in such welfare
benefit Plans (or such fewer whole calendar years as you have so
participated). If your participation in any such welfare benefit Plan
is barred, the Company, at its sole cost and expense, shall arrange to
have issued for the benefit of you and your dependents individual
policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which you are entitled to receive under such
Plans. You shall not be required to pay any premiums or other charges
for such policies. At the end of three years after the Termination
Date, the Company, provided you have not previously received or are not
then receiving equivalent benefits from a new employer, shall arrange,
at its sole cost and expense, to enable you to convert you and your
dependents' coverage under such Plans to individual policies or
programs upon the same terms as employees of the Company may apply for
such conversions.
Anything else in this Agreement to the contrary notwithstanding, if an
applicable Termination Date results from a merger or a tender offer or an
exchange offer, then unless otherwise agreed to by both parties in writing, all
amounts to which you shall at the closing thereof, or which you may upon
subsequent notice or lapse of time, become entitled under this Severance Package
or Section 10 shall be accelerated to, and become immediately due and payable
contemporaneously with, such closing.
"SHARES" means shares of Common Stock, $.01 par value, of the Company
at the date of this Agreement, as the same shall be subsequently amended,
modified or changed. The term "market value," when used with respect to a Share
means the closing price therefor on the New York Stock Exchange or if not listed
thereon, on such other exchange as shall at the time constitute the principal
exchange for trading in Shares.
A-5
<PAGE> 18
"TERMINATION PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum cash amount equal to the
sum of (i) the highest annual rate of Base Salary in effect during the
current year or any of the two years preceding the Termination Date and
(ii) the greater of (A) the maximum award you would have been eligible
to receive under the Bonus Plan in respect of the current year,
regardless of any limitations otherwise applicable to the Bonus Plan
(i.e., the failure to have completed any vesting period or the current
measurement period, or the failure to achieve any performance goal
applicable to all or any portion of the measurement period) or (B) the
largest award earned (whether or not paid) under the Bonus Plan in
respect of any of the three years preceding the Termination Date; and
(b) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus Plan and welfare benefit Plans, for which
separate provision is made herein) in which you are at the time a
participant, but only to the extent the same are vested under the terms
of such Plans at the Termination Date; and
(c) the Company shall maintain in full force and effect, at
its sole expense for the continued benefit of you and your dependents
during the period from the Termination Date through the earlier of (i)
one year from the Termination Date or (ii) the commencement date of
equivalent benefits from a new employer, all insured and self-insured
employee pension, medical, dental, disability, accident and life
insurance welfare benefit Plans in which you were entitled to
participate immediately prior to the Termination Date. If your
participation in any such welfare benefit Plan is barred, the Company,
at its sole cost and expense, shall arrange to have issued for the
benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on an after-tax basis) to
those which you are entitled to receive under such Plans.
"VOTING SECURITIES" means, with respect to any corporation or business
enterprise, those securities which under ordinary circumstances are entitled to
vote for the election of directors or others charged with comparable duties
under applicable law.
A-6
<PAGE> 1
EXHIBIT 21
GUNDLE/SLT ENVIRONMENTAL, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF EFFECTIVE
ENTITY NAME INCORPORATION OWNERSHIP
----------- --------------- ---------
<S> <C> <C>
GSE Lining Technology, Inc. ................................ Delaware 100%
GSE Lining Technology GmbH.................................. Germany 100%
Gundle GmbH................................................. Germany 100%
Geoplastics GmbH............................................ Germany 100%
GSE Lining Technology Pty. Ltd. ............................ Australia 100%
GSE Lining Technology Pte. Ltd. ............................ Singapore 100%
GSE Lining Technology Ltd. ................................. United Kingdom 100%
GSE U.K. Ltd. .............................................. United Kingdom 100%
Gundle Environment Ltd. .................................... United Kingdom 100%
SGS Geosystems Limited...................................... United Kingdom 100%
SGS Holdings Limited........................................ United Kingdom 100%
GSE Clay Lining Technology Co. ............................. South Dakota 100%
GSE International, Inc. .................................... Delaware 100%
GSE Foreign Sales, Ltd. .................................... Barbados 100%
GSE Gulf Offshore Limited .................................. British Virgin Islands 41%
Hyma/GSE Lining Technology Co. ............................. Arab Republic of Egypt 50.01%
Hyma/GSE Manufacturing Co. ................................. Arab Republic of Egypt 50.01%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
pertaining to the 1986 Stock Option Plan, (Form S-8 No. 33-44306) the 1991
Employee Stock Purchase Plan and 1988 Nonqualified Stock Option Plan For
Non-Employee Directors of Gundle/SLT Environmental, Inc., (Form S-8 No.
33-44531) the Gundle/SLT Environmental, Inc. Amended and Restated 1995
Incentive Stock Plan, (Form S-8 No. 333-01759) the Gundle/SLT Environmental,
Inc. 1996 Nonqualified Stock Option Plan for Non-Employee Directors (Form S-8
No. 333-23299) and the Registration Statements (Forms S-3 No. 33-62947 and No.
333-27735) of Gundle/SLT Environmental, Inc., and in the related Prospectuses
of our report dated January 30, 1998, with respect to the consolidated
financial statements and schedule of Gundle/SLT Environmental, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Houston, Texas
March 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,844
<SECURITIES> 0
<RECEIVABLES> 57,019
<ALLOWANCES> (4,347)
<INVENTORY> 22,000
<CURRENT-ASSETS> 109,960
<PP&E> 88,781
<DEPRECIATION> 53,498
<TOTAL-ASSETS> 177,961
<CURRENT-LIABILITIES> 49,499
<BONDS> 0
0
0
<COMMON> 180
<OTHER-SE> 85,930
<TOTAL-LIABILITY-AND-EQUITY> 177,961
<SALES> 199,318
<TOTAL-REVENUES> 199,318
<CGS> 163,217
<TOTAL-COSTS> 163,217
<OTHER-EXPENSES> 25,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,191
<INCOME-PRETAX> 7,846
<INCOME-TAX> 3,296
<INCOME-CONTINUING> 4,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,550
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
