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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1996,
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
_________________________________ TO __________________________________ .
Commission file number 0-23454.
TOTAL CONTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 23-2394872
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
422 BUSINESS CENTER, A130 NORTH DRIVE,
P.O. BOX 939, OAKS, PENNSYLVANIA 19456
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (610) 666-7777
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK (PAR VALUE $.01 PER SHARE)
(Title of Class)
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]
Based on the closing sale price of the Registrant's Common Stock as quoted
on the Nasdaq Stock Market, the aggregate market value of the shares of Common
Stock held by nonaffiliates as of February 28, 1997, was $5,512,650.
As of February 28, 1997 the Registrant had 4,641,600 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the 1996 Annual Report to
Stockholders of the Registrant are incorporated by reference into Part II of
this Report and portions of the Proxy Statement of the Registrant relating to
the Registrant's Annual Meeting to be held on April 11, 1997 are incorporated
by reference into Part III of this Report.
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TOTAL CONTAINMENT, INC.
TABLE OF CONTENTS
<TABLE>
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PART I
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES..................................................... 4
ITEM 3. LEGAL PROCEEDINGS.............................................. 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 5
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT........................... 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................................ 6
ITEM 6. SELECTED FINANCIAL DATA........................................ 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................... 7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 7
ITEM 11. EXECUTIVE COMPENSATION......................................... 7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 7
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K.............................................................. 8
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Total Containment, Inc. (the "Company") was incorporated in the State of
Delaware in 1986. The Company is a leading manufacturer and distributor of
underground systems and products for the conveyance and containment of
petroleum and alcohol based motor vehicle fuels from underground storage tanks
to aboveground fuel dispensers. The Company's systems and products are used in
connection with the installation of new and the retrofitting of existing
underground fuel containment and distribution systems ("Fuel Containment
Systems") worldwide. The principal end users of the Company's products are
major oil companies and convenience stores. End users also include government
bodies, utilities and other fleet vehicle operators.
During the third quarter of 1996, the Company acquired American Containment,
Inc. ("ACI"). ACI is principally engaged in the manufacture and installation of
fiberglass tank and dispenser sumps used in underground piping systems. The
Company acquired ACI to have a supply of quality fiberglass components in
addition to an increased presence in the Western United States.
PRINCIPAL PRODUCTS
The principal products of the Company and their primary features are
summarized in the following table:
A flexible double-wall pipe . Double-wall construction
Enviroflex(R) for the conveyance and provides primary pipe
secondary containment of protection and secondary
motor vehicle fuels from containment
underground storage tanks to . Flexible
product dispensers . No joints
. UL-approved for gasoline and
gasohol
. Primary pipe can be
retracted for repair or
replacement
. Ease of installation
. Thermoplastic construction
. Certain features protected
by patent
Sump/risers Liquid-resistant access . Secondary containment
chambers made from . Mounted on all types of
fiberglass or polyethylene underground storage tanks
for submersible pumps and . Provides easy aboveground
other fittings attached to access to pumps and fittings
underground storage tanks . Sumps and risers can be
stacked and trimmed to
achieve required burial
depth
. Polyethylene and fiberglass
construction
. Certain features protected
by patent
Dispenser Liquid-resistant secondary . Secondary containment
sumps containment chambers made . UL-approved mounting frames,
from fiberglass or brackets and stabilizer bars
polyethylene for above . Provides aboveground access
ground fuel dispensers to dispenser valves, joints
and connectors
. Polyethylene and fiberglass
construction
. Certain features protected
by patent
Bulkhead Specially designed fittings . Ease of installation
fittings and used to seal pipe/sump . Thermoplastic construction
reducers connections . Certain features protected
by patent
Tank A polyethylene jacket that . Secondary containment
Jacket(R) provides secondary . UL-approved secondary
containment and corrosion containment and corrosion
protection for steel protection jacket
underground storage tanks . UL-approved for gasoline and
gasohol
. Less expensive than
fiberglass tanks
. Ease of transportation
. Polyethylene construction
. Certain features protected
by patent
Pipe Jacket A telescoping polyethylene . Seconday containment
pipe that provides liquid . Polyethylene construction
conveyance and corrosion . Certain features protected
protection for rigid by patent
fiberglass or steel
underground piping systems
1
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SALES ACTIVITIES
General
The sales of the Company's principal products and the sales of each product
as a percentage of total sales in 1994, 1995 and 1996 are set forth in the
following table:
SALES AND PERCENTAGES OF TOTAL SALES
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YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Enviroflex(R) and other piping... $20,210 50.1% $18,465 47.3% $16,912 44.8%
Sump/risers and bulkhead fittings
and reducers.................... 7,795 19.3 7,696 19.7 8,374 22.2
Dispenser sumps.................. 4,543 11.3 4,732 12.1 4,876 12.9
Tank Jacket(R)................... 5,177 12.8 5,983 15.3 6,008 15.9
Pipe Jacket...................... 1,381 3.4 774 2.0 624 1.7
Applicator equipment and other... 1,249 3.1 1,418 3.6 936 2.5
------- ----- ------- ----- ------- -----
Totals........................... $40,355 100.0% $39,068 100.0% $37,730 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Geographic Markets
In addition to the United States, the Company's geographic market for its
products includes Canada, Mexico, Central and South America, Europe (including
the EEC, Hungary and Poland), Australia, New Zealand, Southeast Asia
(including Singapore, Thailand, Taiwan and Hong Kong), and the Middle East
(including Turkey and Israel). The Company's net sales to customers outside
the United States in 1996, 1995 and 1994 were $12.7 million, $12.3 million and
$13.6 million, respectively. The Company's principal foreign end users are the
major oil companies.
The following table sets forth, for the periods indicated, the net sales of
the Company's products by geographic market area.
NET SALES BY GEOGRAPHIC MARKET AREA
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YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
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(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
United States......................................... $26,743 $26,761 $25,001
Canada................................................ 2,188 1,811 1,566
Mexico, Central and South America..................... 7,874 4,957 6,028
Europe and the Middle East............................ 2,659 4,431 3,761
Southeast Asia, Australia and New Zealand............. 891 1,108 1,374
------- ------- -------
Total.................................................. $40,355 $39,068 $37,730
======= ======= =======
</TABLE>
Information relating to foreign operating income and foreign assets is set
forth in Note 12 of Notes to Consolidated Financial Statements included
elsewhere herein.
PRODUCT DEVELOPMENT
The Company is committed to a program of continuous product evaluation and
continuous improvement in order to maintain the technological competitiveness
of its product line. In addition, the Company is actively engaged in
developing new products for traditional markets in addition to expanding into
non-traditional markets.
2
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In 1996, the Company successfully completed the Underwriters' Laboratories
(UL) testing for a complete retractable Enviroflex(R) piping system as well as
a non-retractable co-axial piping system. Also, the Company received UL
approval on a dual extrusion, vapor recovery piping system.
END USERS
The principal domestic end users of the Company's products are major oil
companies and convenience store chains which purchase the Company's products
in connection with the installation of new and the retrofitting of existing
Fuel Containment Systems. The Company's other domestic customers are primarily
state and local government bodies, utilities and other fleet vehicle
operators.
Substantially all of the Company's sales relating to oil company and
convenience store chain end users are performed pursuant to purchase orders or
non-exclusive contracts, neither of which provide for any minimum purchase
requirements. During each of the last three fiscal years, the Company's
backlog of orders averaged less than $770,000. The Company typically ships
incoming orders within approximately seven days and, therefore, does not have
a significant backlog.
COMPETITION
The industry in which the Company operates is highly competitive and
dominated by a few companies. The companies compete on several factors
including product performance, service, and pricing.
The Company's principal competitors in the market for underground piping
systems (including sump risers and dispenser sumps) are divisions or
subsidiaries of A. O. Smith Corporation and Ameron, Inc. both fiberglass
manufacturers, as well as Environ Products, Inc., a manufacturer of flexible
piping systems.
The Company's primary competition for Tank Jacket(R) are manufacturers of
fiberglass, fiberglass clad, and steel tanks. Of these competing
manufacturers, Fluid Containment, Inc. and Xerxes Corporation, are both
fiberglass tank manufacturers.
MANUFACTURERS AND SUPPLIERS
The Company traditionally relies on independent suppliers to manufacture
substantially all of its products. The Company directly manufacturers Tank
Jacket(R) and has also formed Rene Morin, Inc., a wholly-owned subsidiary,
which manufactures rubber molded bulkhead fittings and other seals. In
addition, the Company acquired American Containment, Inc. to manufacture and
install fiberglass tank and dispenser sumps.
Ten suppliers provide the Company approximately 77% of its purchases. The
Company has entered into written supply contracts with two of these ten
suppliers, Dayco Products, Inc. ("Dayco") (which manufacturers flexible
primary pipes) and Cleveland Tubing, Inc. (which manufactures various extruded
pipes such as Enviroflex(R) secondary). The Company has elected not to enter
into written supply contracts with its other principal suppliers.
PATENTS AND TRADEMARKS, LICENSING AGREEMENTS
The Company derives revenues from the sale of Enviroflex(R) and Tank
Jacket(R), certain features of which are covered by patents owned by or
assigned or licensed to the Company. The Company relies on these and other
patents, other intellectual property rights, contractual provisions, and
technical measures to protect these design features.
On December 16, 1994 the Company and Mr. Keith Osborne entered into a
settlement agreement (the "Settlement Agreement") pursuant to which the
parties settled an interference proceeding commenced by Mr. Osborne against
the Company that challenged the retractability feature of the patent which
covers
3
<PAGE>
Enviroflex(R). Pursuant to the terms of the Settlement Agreement, the Company
was granted an exclusive worldwide license (the "License"), for the life of
the applicable patents, to practice the claims of the retractability feature
of Enviroflex(R) which are covered under the patent (the "Patent") issued to
Mr. Osborne and which are covered under any and all foreign applications and
foreign patents of Mr. Osborne, subject to the right of Mr. Osborne to
practice such claims. Mr. Osborne also agreed, among other things, to refrain
from assigning or granting rights to the inventions in the future and from
selling his business to other than to the Company, except under certain
limited circumstances. In exchange for the grant by Mr. Osborne of the License
and related consideration, the Company is required to pay to Mr. Osborne a
royalty equal to three percent (3%) of net sales of the Company attributable
to products covered by the inventions which are subject matter of the Patent.
For purposes of the Settlement Agreement, net sales means the gross sales of
the Company less discounts, allowances, applicable sales tax, duties, tariffs,
freight, insurance, rebates, returns, and reasonable commissions actually
paid. Royalties are required to be paid by the Company within forty-five (45)
days following the end of each calendar quarter. Notwithstanding the
foregoing, the Company must make a minimum payment to Mr. Osborne of $75,000
per calendar quarter. On the date of the execution of the Settlement
Agreement, the Company paid to Mr. Osborne $1.5 million as an advance against
earned royalties. As of December 31, 1996, the prepaid royalty was $646,000.
The License and the obligation of the Company to pay the royalty in
connection with the grant of the License will terminate upon the earlier of:
(a) the failure of the Company to pay any royalty payment due within sixty
(60) days after the date when such payment is due, or (b) the expiration of
the patent. For information relating to certain litigation relating to the
settlement agreement and the rights of others to practice the invention
covered under the Patent, see "Item 3. Legal Proceedings."
The Company also relies on unpatented proprietary information to maintain
and develop its commercial position.
Enviroflex(R), Tank Jacket(R), Omniflex(R) and Total Containment(R) are
registered trademarks of the Company.
EMPLOYEES
As of December 31, 1996, the Company employed 156 persons, of which 24 were
engaged in marketing and sales; 9 were engaged in research and development; 96
were engaged in manufacturing and assembly; and 27 were engaged in finance,
administration and management. Of the total number of employees, 4 were
located outside the United States. None of the Company's employees are covered
by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company operates in a 68,000 square foot leased facility located in
Oaks, Pennsylvania. The Company believes that the facility will accommodate
its administrative and manufacturing needs for the foreseeable future.
RMI operates in a 12,000 square foot leased facility located in Plainfield,
Connecticut.
ACI operates in several leased buildings, totaling approximately 10,000
square feet, located in Bakersfield, California.
ITEM 3. LEGAL PROCEEDINGS
Patent Settlement Agreement and Related Litigation. In December 1994, the
Company and Mr. Keith Osborne executed an agreement settling a dispute as to
the ownership of the retractability feature of the underground containment
system sold by the Company. Under the settlement agreement, Mr. Osborne
retained rights to manufacture and sell underground systems with a
retractability feature, granted the Company similar rights, and agreed to
terminate the rights of two existing licensees, Ameron, Inc. ("Ameron") and
Environ
4
<PAGE>
Products, Inc. ("Environ") (collectively "the Licensees") to practice these
and other inventions. The Company agreed to reimburse Mr. Osborne, under
certain conditions, for amounts paid to the Licensees to terminate their
rights, not to exceed $1.95 million, and if certain conditions are met, to
defend and indemnify Mr. Osborne against any losses it incurred in connection
with such termination. The agreement also precludes Mr. Osborne from assigning
his rights to the invention to others, or from selling his business except
under certain circumstances.
After Mr. Osborne terminated the rights of the Licensees, they commenced an
action against the Company on November 24, 1994 in the United States District
Court for the Central District of California and Mr. Osborne alleging trade
defamation, unfair competition, restraint of trade, breach of contract, and
violation of the antitrust laws. The Licensees sought compensatory damages,
punitive damages and a declaration that Mr. Osborne may not terminate their
licenses. The Court dismissed the antitrust claims, the jury otherwise found
in favor of the Company and the Licensees appealed. Management does not
believe the Company will incur any material liability related to this suit.
Therefore, no specific provision for loss has been recorded by the Company. In
September 1996, one of the Licensees sued Mr. Osborne seeking to cause the
third party to refund $1.0 million due to the Licensee as a result of the
jury's determination. In January 1997, the Court found that the Licensee was
entitled to a refund but noted that the receipt by the Licensee of a refund
may result in a waiver of its right to appeal the earlier jury determination.
The Company expects that Mr. Osborne will demand reimbursement for the amount
of the judgment, if payable. The Company believes that it possesses
meritorious defenses in any such action.
The Company is a defendant in counterclaims asserted by Mr. Osborne, OPW
Fueling Components ("OPW"), Buffalo Environmental Products Corporation
("Buffalo") and Intelpro Corporation ("Intelpro") in an action instituted by
the Company in October, 1996, in the United States District Court for the
Eastern District of Pennsylvania. The counterclaims assert that the Company
breached contractual undertakings under the settlement agreement to consent to
a transfer by Mr. Osborne of his business, including his retained rights
thereunder. The counterclaims also assert tortious interference with contract
and seek unspecified damages. The Company denies liability. Discovery recently
commenced, and a trial date of April 1, 1997 has been set. The Company intends
to defend these counterclaims vigorously.
Other Litigation. The Company is also involved in various other lawsuits
incidental to the conduct of its business. The Company does not believe that
the outcome of these lawsuits will have a material adverse effect upon its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages and positions with the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Pierre Desjardins........ 55 President and Chief Executive Officer
Jeffrey A. Boehmer....... 31 Vice President Operations
Randolph B. Braun........ 39 Vice President Sales and Marketing
David L. Gilbert......... 47 Vice President Engineering
Homer N. Holden.......... 60 Vice President -- Research and Product Development
</TABLE>
5
<PAGE>
The principal occupation and business experience during the last five years
of the executive officers of the Company are as follows:
Pierre Desjardins joined the Company in September 1996 as President and
Chief Executive Officer. From 1990 to 1994, he was President and Chief
Executive Officer of Domtar, Inc., a publicly held Canadian pulp and paper
corporation. He is currently a director for Discreet Logic, a publicly held
Canadian company that develops, assembles, markets, and supports systems for
creating, editing and compositing imagery and special effects for film and
video.
Jeffrey A. Boehmer joined the Company as an accountant in 1987, became
Accounting Manager in mid-1989, Administrative Assistant at the end of 1989
and served as Operations Manager from 1990 to 1996. Mr. Boehmer has served as
Secretary of the Company since 1994 and Vice President Operations since
January, 1996.
Randolph B. Braun joined the Company as Director of Marketing in April 1995
and became Vice President of Sales and Marketing in January 1996. Prior to
joining the Company, from 1992 to 1995, Mr. Braun was a Sales and Marketing
Account Executive for Mark IV Automotive, concentrating on customers in the
Pacific Rim and the Japanese auto manufacturers transplanted in the United
States.
David L. Gilbert joined the Company in March of 1996 as Vice President
Engineering. Prior to joining the Company, from 1992 to 1996, Mr. Gilbert was
Manager of Program Development with Mark IV automotive. In this position he
was responsible for establishing new manufacturing plants in Europe.
Homer N. Holden joined the Company as Director of Research in 1990 and
became Vice President -- Research and Product Development in 1992. Prior to
joining the Company, from 1988 to 1990, Mr. Holden managed the Plastic
Products Development Laboratory at Dayco.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock (the "Common Stock") commenced trading on the
Nasdaq Stock Market under the symbol TCIX on February 25, 1994, the date on
which the Company completed its initial public offering (the "Offering").
Prior to the Offering there was no public market for the Common Stock. As of
February 28, 1997, the Company had 21 shareholders of record and approximately
430 beneficial owners of the Common Stock.
The following table sets forth the quarterly ranges of high and low sale
prices, and the closing sale price, for shares of the Common Stock for the
periods indicated. Such prices represent quotations between dealers and do not
include mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.
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SALE PRICES
---------------- CLOSING
HIGH LOW SALE PRICE
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1996
First Quarter....................................... $ 5 $3 1/4 $ 3 5/8
Second Quarter...................................... 3 3/4 2 1/4 3 1/2
Third Quarter....................................... 4 1/4 1 27/32 3 1/4
Fourth Quarter...................................... 3 1/2 2 1/4 3 3/8
1995
First Quarter....................................... $ 8 1/2 $7 $ 7
Second Quarter...................................... 11 6 10 5/8
Third Quarter....................................... 10 1/2 3 3 11/16
Fourth Quarter...................................... 4 3/4 2 3/4 4
</TABLE>
6
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The Company has not paid any cash dividends on the Common Stock in the past
and does not anticipate that any cash dividends will be declared or paid in
the foreseeable future. The Company's current line of credit facility
prohibits the payment of any dividends by the Company without the lender's
prior written consent.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included on Page 3 of the Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item is included on Pages 4 through 7 of the
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited Consolidated Financial Statements of the Company at December 31,
1995 and 1996 and for the three years ended December 31, 1996 required by this
Item are included on Pages 9 through 21 of the Annual Report. No supplementary
financial data is required to be included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference herein is the information appearing in the Proxy
Statement relating to the Company's Annual Meeting of Stockholders to be held
on April 11, 1997 (the "Proxy Statement") under the heading "Election of
Directors -- Continuing Directors and Nominees for Election as Director" and
under the heading "Report of the Compensation Committee on Executive
Compensation -- Additional Information Regarding Directors and Officers."
Information regarding executive officers of the Company is presented in Part
I, Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference herein is the information appearing in the Proxy
Statement under the heading "Report of the Compensation Committee on Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference herein is the information appearing in the Proxy
Statement under the headings "General -- Principal Stockholders" and "Election
of Directors -- Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
7
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. AUDITED FINANCIAL STATEMENTS
The financial statements of the Company listed on the index set forth below
are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PAGE OF THE
ANNUAL REPORT
-------------
<S> <C>
Report of Independent Accountants............................... 8
Consolidated Balance Sheets as of December 31, 1995 and 1996.... 9
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996............................... 10
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996............... 11
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996............................... 12
Notes to Consolidated Financial Statements...................... 13
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES.
1. Report of Independent Accountant on Financial Statement Schedule.
2. Schedule II - Valuation and Qualifying Accounts.
3. EXHIBITS.
The following is a list of the Exhibits required by Item 601 of Regulation
S-K and incorporated by reference herein or attached as Exhibits to this
Annual Report on Form 10-K.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Company, incorporated herein by
reference to Exhibit 3(a) to Registration Statement No. 33-70456 on Form
S-1 of the Company.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit 3(b)
to Registration Statement No. 33-70456 on Form S-1 of the Company.
4.1 Specimen of Common Stock Certificate of the Company, incorporated herein
by reference to Exhibit 4(a) to Registration Statement No. 33-70456 on
Form S-1 of the Company.
10.1 Stock Compensation Plan, dated January 14, 1994, incorporated herein by
reference to Exhibit 10(a) to Registration Statement No. 33-70456 on Form
S-1 of the Company.*
10.2 Stock Compensation Plan, dated February 27, 1997.*
10.3 Employment Agreement between the Company and Marc Guindon, incorporated
by reference to Exhibit 10(b) to Registration Statement No. 33-70456 on
Form S-1 of the Company.*
10.4 Employment Agreement between the Company and Pierre Desjardins.*
10.5 Employment Agreement between the Company and Homer N. Holden,
incorporated by reference to Exhibit 10(o) to Registration Statement No.
33-70456 on Form S-1 of the Company.*
10.6 Employment Agreement between the Company and Jeffrey A. Boehmer,
incorporated by reference to the Quarterly Report of the Company on Form
10-Q for the quarter ended March 31, 1994.*
10.7 Supply Agreement, dated January 1, 1993, between the Company and Dayco,
incorporated herein by reference to Exhibit 10(i) to Registration
Statement No. 33-70456 on Form S-1 of the Company.
10.8 Supply Agreement, dated December 2, 1992, between the Company and
Cleveland Tubing, Inc., incorporated herein by reference to Exhibit 10(j)
to Registration Statement No. 33-70456 on Form S-1 of the Company.
</TABLE>
8
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<TABLE>
<C> <S>
10.9 Secrecy Agreement, dated November 2, 1987, between the Company and
Remcon Plastics, Inc., incorporated herein by reference to Exhibit 10(m)
to Registration Statement No. 33-70456 on Form S-1 of the Company.
10.10 Settlement Agreement, dated December 16, 1994, between the Company and
the Settlement Counterparty, incorporated by reference to Exhibit 10.14
to the Annual Report on Form 10-K of the Company for the fiscal year
ended December 31, 1994.
10.11 Release of All Claims/Settlement Agreement, dated March 5, 1996, between
the Company and James Lawrence.
11 Statement re: Computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule
</TABLE>
- --------
* Denotes compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1996.
9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Total Containment, Inc.
(Registrant)
/s/ Pierre Desjardins
-------------------------------------
PIERRE DESJARDINS, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: March 25, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Marc Guindon Chairman of the March 21, 1997
- ------------------------------------- Board and Director
MARC GUINDON
/s/ Pierre Desjardins President and Chief March 25, 1997
- ------------------------------------- Executive Officer
PIERRE DESJARDINS
/s/ Jeffrey A. Boehmer Vice President March 25,1997
- ------------------------------------- Operations and
JEFFREY A. BOEHMER Secretary
(Principal
Financial Officer)
/s/ Jean-Claude Arpin Director March 21,1997
- -------------------------------------
JEAN-CLAUDE ARPIN
/s/ Marcel Dutil Director March 24,1997
- -------------------------------------
MARCEL DUTIL
/s/ Charles Frey, Sr. Director March 21, 1997
- -------------------------------------
CHARLES FREY, SR.
/s/ Paul Gobeil Director March 21, 1997
- -------------------------------------
PAUL GOBEIL
/s/ Nycole Pageau-Goyette Director March 21, 1997
- -------------------------------------
NYCOLE PAGEAU-GOYETTE
/s/ Bernard Gouin Director March 21, 1997
- -------------------------------------
BERNARD GOUIN
10
<PAGE>
[LOGO OF TOTAL CONTAINMENT APPEARS HERE]
To Our Stockholders:
1996 was a disappointing year for Total Containment, Inc. and its
stockholders due to the Company's financial performance. But, it was also a
year of transition which saw TCI secure its financial base, make moves for the
future such as the acquisition of American Containment, Inc., increase its
focus on product quality and research and development, and add additional
expertise to its senior management. It was also a year of contrast with
continued improvement in Latin America and Asia while the North American
market was showing very sporadic industry activity.
HIGHLIGHTS
1996 was a year of heavy investment, a year to prepare the Company to be
more competitive in the future. The Company has:
(1) Acquired American Containment, Inc., broadening our product line with
fiberglass tank and dispenser sumps and positioning Total Containment
as the only supplier with a complete line of fiberglass and
polyethylene sump products.
(2) Opened five U.S. Branch Warehouses (Dallas, TX; Greensboro, NC;
Orlando, FL; Bakersfield, CA; and Fort Wayne, IN) to supply products
where and when needed.
(3) Hired established senior management personnel in Sales, Engineering,
and Finance.
(4) Signed a new three-year credit facility to finance future growth.
(5) Invested significantly in research and development and quality
control.
THE RESULTS
The Company's net sales decreased to $37.7 million in 1996 from $39.1
million in 1995 due primarily to a market slow down in the United States,
Canada and the United Kingdom, and also because of the continued downward
pressure on prices due to market shifts from major oils to independent jobbers
and increased competition.
The Company had net income of $398,000 or $.09 per share compared to a loss
of $2.2 million or $0.48 per share in 1995.
THE MARKET
TCI's sales in 1996 were:
<TABLE>
<CAPTION>
% OF TOTAL % CHANGE 96/95
---------- --------------
<S> <C> <C>
North America................................... 70.4% (7.1)%
Latin America................................... 16.0% 21.6%
Europe.......................................... 10.0% (15.1)%
Asia............................................ 3.6% 24.0%
</TABLE>
In North America, several major oil companies have completed their retrofit
work and the bulk of the market is now coming from the mini-majors and
independents who focus more on cost of material versus benefits which puts
pressure on pricing.
1
<PAGE>
South America and Asia are developing at a nice pace while European sales
are recovering from an industry standstill for most of 1996 in the United
Kingdom.
THE FUTURE
TCI has developed an enviable position in the market place because of its
people, products, and excellent service to our many customers. TCI expects its
growth to continue in Latin America and Asia, and to resume our growth in
Europe. Through more product development, an improved cost base, and continued
service excellence, we will also be more competitive in North America.
THE PEOPLE
The Board of Directors wishes to thank the employees who have shown
tremendous insight, dedication and loyalty to this Company. The Board would
also like to thank Marc Guindon for his leadership in the last six years. Mr.
Guindon was Chairman, President and CEO until August, 1996, and continues to
serve as Chairman of the Board.
Thank you to all.
Very truly yours,
/s/ Marc Guindon
Marc Guindon
Chairman of the Board
/s/ Pierre Desjardins
Pierre Desjardins
President and Chief Executive
Officer
2
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain consolidated summary financial data
of the Company for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................... $21,425 $31,500 $40,355 $39,069 $37,730
Cost of sales................ 12,307 17,627 22,779 31,131 25,035
------- ------- ------- ------- -------
Gross profit................. 9,118 13,873 17,576 7,938 12,695
Selling, general and
administrative.............. 7,456 7,650 9,350 10,262 10,665
Amortization of patents,
licenses and
goodwill(1)(2).............. 314 314 356 483 508
Loss on write-off of
patent(2)................... -- -- 1,847 -- --
------- ------- ------- ------- -------
Operating income (loss)...... 1,348 5,909 6,023 (2,807) 1,522
Interest expense............. 1,283 1,222 286 146 362
Other (income) and
expense(3).................. -- -- -- 407 --
------- ------- ------- ------- -------
Income before income taxes... 65 4,687 5,737 (3,360) 1,160
Income tax expense
(benefit)................... 211 2,036 2,391 (1,112) 762
------- ------- ------- ------- -------
Net income (loss)............ $ (146) $ 2,651 $ 3,346 $(2,248) $ 398
======= ======= ======= ======= =======
Net income (loss) per common
share(4).................... $ .78 $ (.48) $ .09
======= ======= =======
<CAPTION>
DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).... $ (559) $ (993) $ 7,776 $ 8,224 $ 8,261
Goodwill, patents, patent
rights and licenses,
net(1)(2)................... 8,107 7,863 10,449 10,317 10,700
Total Assets................. 16,254 19,132 26,901 30,702 34,965
Line of credit
borrowings(5)(7)............ 1,239 1,606 983 251 3,677
Debt(5)(7)................... 6,300 5,800 -- 654 2,664
Subordinated debt to related
party(6).................... 2,000 2,000 -- -- --
Stockholders' equity(6)...... 2,071 4,573 20,804 18,616 19,016
</TABLE>
- ------------
(1) In connection with the initial public offering by the Company of 1,346,600
shares of its common stock (the "Offering"), the Company acquired the Tank
Jacket(R) patent from Groupe Treco Ltee ("Treco"), a majority stockholder
of the Company, in consideration for the issuance by the Company to Treco
of 45,000 shares of the Company's common stock. The Tank Jacket(R) patent
was valued at $427,500. See Note 8 of Notes to Consolidated Financial
Statements appearing elsewhere herein.
(2) On December 16, 1994, the Company and Mr. Keith Osborne entered into a
settlement agreement pursuant to which the parties settled an interference
proceeding (the "Interference Proceeding") commenced by Mr. Osborne
against the Company. In connection with the settlement of the Interference
Proceeding, the Company wrote-off the remaining unamortized portion of the
Company's patent pertaining to the retractability feature of Enviroflex(R)
and capitalized amounts paid to acquire a license and related costs. See
Note 2 of Notes to Consolidated Financial Statements appearing elsewhere
herein. See also "Item 3. Legal Proceedings."
(3) During 1995, the Company incurred non-recurring transaction expenses,
consisting primarily of legal fees and special committee and board fees of
$407,000, related to negotiations with a third party and certain members
of management with respect to their proposed acquisition of the Company.
In August 1995, the Company announced that the acquisition negotiations
had been terminated and charged all costs associated therewith to other
expense.
(4) Based on 4.3 million weighted average shares outstanding during 1994 and
4.6 million during 1995 and 1996.
(5) The proceeds from the Offering were used, in part, to repay, in full, the
bank debt and the subordinated debt to a related party and for the
temporary repayment of the Company's working capital line of credit.
(6) On March 4, 1994, the Company completed the Offering and received net
proceeds of approximately $11.0 million.
(7) Increases in the line of credit and debt in 1996 were due to increased
working capital requirements for, among other things, warranty charges
related to the Enviroflex(R) pipe, as well as two term loans for expansion
and the acquisition of American Containment, Inc.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements of the Company, including the related notes thereto,
appearing elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 56.4 79.7 66.4
------- ------- -------
Gross profit........................................ 43.6 20.3 33.6
Selling, general and administrative................. 23.2 26.3 28.3
Amortization of patents, licenses and goodwill...... 0.9 1.2 1.3
Loss on write-off of patent......................... 4.6 -- --
------- ------- -------
Operating income (loss)............................. 14.9 (7.2) 4.0
Interest expense.................................... 0.7 0.4 0.9
Non-recurring transaction expense................... -- 1.0 --
------- ------- -------
Income (loss) before income taxes................... 14.2 (8.6) 3.1
Income tax expense (benefit)........................ 5.9 (2.8) 2.0
------- ------- -------
Net income (loss)................................... 8.3% (5.8)% 1.1%
======= ======= =======
</TABLE>
Years Ended December 31, 1996, 1995 and 1994
Net Sales
The Company's net sales were $37.73 million in 1996, compared to $39.07
million in 1995, and $40.36 million in 1994.
Net sales decreased $1.34 million, or 3.4%, in 1996 as compared to 1995. The
decrease was primarily attributable to a decrease in sales of Enviroflex(R)
piping systems in North America and the United Kingdom, increased competition
worldwide in the flexible pipe market, as well as an increase in discounting
to customers.
Gross Profit
The primary component of the Company's cost of sales is the product
manufacturing costs paid to various third party manufacturers. Other
components are the variable and fixed costs of operating the Company's
warehouses, depreciation of molds, tools and equipment, warranty expense and
limited assembly costs. The Company's gross profit was $12.69 million in 1996,
compared to $7.94 million in 1995 and $17.58 million in 1994.
Gross profit increased $4.75 million or 59.8% in 1996 as compared to 1995.
The increase resulted primarily from a $7.50 million warranty charge in 1995
related to the Enviroflex(R) pipe. This was partially offset by an increase in
discounting to customers, along with an increase in the cost of certain
purchased materials, as well as an increase in freight costs and manufacturing
overhead.
4
<PAGE>
Gross profit decreased $9.64 million or 54.8% in 1995 as compared to 1994.
The decrease resulted primarily from the $7.50 million warranty charge, a
decrease in sales, and to a lesser extent, a decrease of selling price due to
increased competition in the flexible piping market.
Operating Expense
Selling, general and administrative expenses consist primarily of salaries
and related employee benefits, payroll taxes, commissions, royalties, legal
expenses and other general, administrative and overhead costs. Selling,
general and administrative expenses were $10.66 million in 1996, compared to
$10.26 million in 1995. Selling, general and administrative expenses increased
$402,000, or 3.9%, in 1996, as compared to 1995, which was primarily
attributable to an increase in selling and administrative expenses related to
the acquisition of American Containment, Inc. and additional corporate
personnel.
Selling, general and administrative expenses were $10.26 million in 1995,
compared to $9.35 million in 1994. The increase was primarily attributable to
an increase in salaries as a result of the hiring of additional engineers,
sales personnel, and administrative support, as well as an increase in both
research and development and marketing expenses.
The increase in selling, general and administrative expenses as a percentage
of net sales to 28.3% in 1996, from 26.3% in 1995 and 23.2% in 1994, resulted
primarily from selling, general and administrative expenses being spread over
a lesser volume of sales and, in 1996, from increased selling, general and
administrative expenses as a result of the acquisition of American
Containment, Inc.
Research and development expenses are included in the general expense
category and were approximately $786,000, $760,000 and $700,000, in 1996, 1995
and 1994, respectively. The increase in research and development expense for
1996, as compared to 1995 and 1994, resulted from an increase in product
development efforts.
Amortization of Intangibles
Amortization of intangibles consists of the amortization of goodwill over a
period of 40 years and the amortization of various patents and licenses that
are amortized on a straight-line basis over the estimated lives of the patents
and licenses (which range from 13 to 17 years) at the acquisition date or
subsequent issuance date.
The Company adopted FAS No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of. The carrying value of long-
lived assets, including goodwill, is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company
compares the expected future cash flows to the carrying value of long-lived
assets and identifiable intangibles. If the anticipated undiscounted future
cash flows are less than the carrying amount of such assets, the Company
recognizes an impairment loss for the difference between the carrying amount
of the assets and their estimated fair value. The adoption of FAS 121 did not
have a material effect on the Company's financial statements.
Patent Write-Off
In connection with the settlement of the Interference Proceeding, the
Company, in December, 1994, wrote-off $1.85 million, the remaining unamortized
portion of the TCI/Exxon Patent. See "Item 3. Legal Proceedings."
Interest Expense
Interest expense was $362,000, $146,000 and $286,000 in 1996, 1995 and 1994,
respectively. The increase of $216,000 in interest expense in 1996 compared to
1995 was due to a term loan used to acquire American
5
<PAGE>
Containment, Inc. and an increase in the Company's line of credit activity
for, among others, warranty charges related to the Enviroflex(R) pipe. The
decrease of $140,000 in interest expense in 1995 compared to 1994 was due to a
non-cash charge in 1994 which represented the remaining unamortized portion of
deferred financing fees related to the term loans repaid by the Offering
proceeds.
Other
The Company incurred non-recurring transaction expenses, consisting
primarily of legal fees and special committee and board fees and expenses, of
$407,000 during the year ended 1995, as a result of offers made by Danaher
Corporation, certain members of management and others to acquire the
outstanding common stock of the Company.
Income Taxes
Income tax expense (benefit) was $762,000, ($1.11 million) and $2.39 million
in 1996, 1995 and 1994, respectively. The fluctuation in income tax expense
(benefit) during the three-year period was primarily due to changes in the
Company's income before income taxes. The Company has recorded a deferred tax
asset of approximately $1.70 million and $3.22 million in 1996 and 1995,
respectively, which primarily relates to its warranty reserves which are
deductible for tax purposes as claims are paid. See Note 9 of Notes to
Consolidated Financial Statements appearing elsewhere herein for additional
information concerning variations in the customary relationship between income
before income tax expense (benefit) and income tax expense (benefit).
Net Income
The Company's net income was $398,000 in 1996, as compared to a net loss of
$2.25 million in 1995, and net income of $3.35 million in 1994. The increase
in net income in 1996, as compared to 1995, resulted from an additional
warranty charge of $7.5 million in 1995, and non-recurring transaction
expense. This was partially offset by a decrease in gross margin due to, among
other things, increased customer discounts and costs of certain purchased
materials.
Seasonality and Economic Conditions
The Company's sales are affected by the timing of planned construction of
new service stations and the retrofitting of existing service stations by end
users, both of which are influenced by inclement weather and general economic
conditions. Accordingly, the Company's net sales and operating results for the
quarter ended March 31 are generally adversely affected.
Inflation
Management does not believe that inflation has had a material impact upon
results of operations during the years ended December 31, 1996, 1995 or 1994.
Recent Accounting Pronouncements
The Company adopted FAS No. 123, Accounting for Stock-based Compensation
("FAS 123") in 1996. This statement requires the fair value of stock options
and other stock-based compensation issued to employees to either be included
as compensation expense in the income statement, or the pro forma effect on
net income and earnings per share of such compensation expense to be disclosed
in the footnotes to the Company's financial statements. The Company has
elected to disclose the pro forma effect on net income and earnings per share
in the footnotes to the Company's financial statements.
6
<PAGE>
Liquidity and Capital Resources
The Company had working capital of $8.26 million at December 31, 1996,
compared to $8.22 million in 1995 and $7.78 million at December 31, 1994.
The Company satisfies its working capital needs primarily through funds
generated by operations and by borrowings under a $6.00 million unsecured line
of credit facility with a commercial bank. Amounts borrowed under this line of
credit bear interest at the bank's national commercial rate (8.25% at December
31, 1996). At December 31, 1996, the Company owed $3.68 million under the line
of credit. In addition, the Company has a $1.50 million credit facility with
the commercial bank for expansion purposes. At December 31, 1996, the Company
had not used this facility.
In 1995, the Company executed a term loan with a bank for $1.60 million
which is exclusively for the purchase of equipment. The term loan bears
interest at the bank's national commercial rate plus .125% (8.375% at December
31, 1996) and is secured by all equipment financed thereunder. At December 31,
1996 and 1995, $1.29 million and $654,000, respectively, were outstanding
under the term loan. The loan requires the payment of equal monthly
installments of principal in the amount of $26,667 plus interest on the unpaid
principal balance.
In 1996, the Company executed a term loan with a bank for $1.0 million which
was used for the acquisition of American Containment, Inc. The term loan bears
interest at the bank's national commercial rate plus .125% (8.375% at December
31, 1996.) and is secured by the assets of American Containment, Inc. At
December 31, 1996, $933,000 was outstanding under the term loan. The loan
requires the payment of equal monthly installments of principal in the amount
of $16,667 plus interest on the unpaid principal balance.
In 1996, the Company signed a note payable to a third party of $500,000. The
note payable bears an interest rate of 8% compounded annually. At December 31,
1996, the balance of $437,500 was outstanding under the note payable. The note
requires the payment of equal quarterly installments of $62,500 plus interest
on the unpaid principal balance.
The Company invested $1.91 million, $2.12 million and $1.38 million in
capital equipment and leasehold improvements in 1996, 1995 and 1994,
respectively. The purchase of product molds and tooling constituted $737,000,
$992,000 and $946,000 of these capital expenditures in 1996, 1995, and 1994,
respectively. Total capital expenditures during 1997 are expected to be
approximately $2.15 million, of which the purchase of product molds and
tooling are expected to be approximately $850,000 and the purchase of
equipment for expansion is expected to be approximately $1.25 million. The
Company intends to use its cash flow from operations and, to the extent
necessary, its working capital line of credit and term loans to fund its 1997
capital expenditures.
Because the Company does not manufacture or install the majority of its
products, and because the Company does not discharge material into the
environment, the Company does not anticipate that it will incur any material
costs or expenses in complying with federal, state and local environmental
laws or otherwise relating to the protection of the environment. However, the
Company could incur substantial costs and expenses for research and
development necessary to modify its existing product lines to comply with
changes in such laws and could, under certain circumstances, become liable
with respect to the discharge of materials into the environment that results
from a defect in a product.
During the third quarter of 1996, the Company acquired American Containment,
Inc. ("ACI"). ACI is principally engaged in the manufacture and installation
of fiberglass tank and dispenser sumps used in underground piping systems. The
Company acquired ACI to have a supply of quality fiberglass components in
addition to an increased presence in the Western United States.
The Company believes that its presently available funds, existing credit
facility and the cash flow expected to be generated from operations, will be
adequate to satisfy its anticipated working capital requirements for the
foreseeable future.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Total Containment, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Total Containment, Inc. and its subsidiaries at December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 7, 1997
8
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 336,518 $ 616,015
Accounts receivable, net of allowance for doubtful ac-
counts of $50,000 for 1995 and 1996.................. 6,316,219 7,452,901
Inventories........................................... 5,691,346 7,248,293
Deferred income taxes................................. 1,125,686 576,983
Prepaid royalties..................................... 438,000 438,000
Other current assets.................................. 680,115 2,662,049
----------- -----------
Total current assets............................... 14,587,884 18,994,241
Molds and tooling costs, net........................... 1,397,887 1,362,112
Property and equipment, net............................ 1,544,970 2,511,301
Prepaid royalties...................................... 656,747 207,747
Patents, patent rights and licenses, net............... 5,018,465 5,155,124
Goodwill, net.......................................... 5,298,669 5,544,521
Deferred income taxes.................................. 2,092,380 1,123,638
Other assets........................................... 105,458 66,585
----------- -----------
$30,702,460 $34,965,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings............................. $ 251,000 $ 3,677,000
Current portion of long-term debt..................... 240,000 770,012
Accounts payable and accrued expenses................. 2,910,185 5,125,582
Warranty reserve - current............................ 2,963,062 1,160,604
----------- -----------
Total current liabilities.......................... 6,364,247 10,733,198
Long-term debt......................................... 414,214 1,894,082
Non-current warranty................................... 5,308,494 3,322,410
----------- -----------
Total liabilities.................................. 12,086,955 15,949,690
----------- -----------
Commitments and contingencies.......................... -- --
Stockholders' equity:
Preferred stock - $.01 par value; authorized 1,000
shares; none issued and outstanding.................. -- --
Common stock - $.01 par value; authorized 20,000,000
shares; 4,641,600 shares issued and outstanding...... 46,416 46,416
Capital in excess of par value........................ 13,728,778 13,728,778
Retained earnings..................................... 4,818,636 5,216,846
Equity adjustment from foreign currency translation... 21,675 23,539
----------- -----------
Total stockholders' equity......................... 18,615,505 19,015,579
----------- -----------
$30,702,460 $34,965,269
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................... $40,355,813 $39,068,990 $37,730,009
Cost of sales (including warranty
expense of $1,580,798, $8,073,005, and
$746,792 in 1994, 1995, and 1996,
respectively).......................... 22,779,381 31,131,283 25,035,327
----------- ----------- -----------
Gross profit............................ 17,576,432 7,937,707 12,694,682
Selling, general and administrative..... 9,350,440 10,261,950 10,664,161
Amortization of patents, licenses and
goodwill............................... 355,602 482,803 508,309
Loss on write-off of patent (Notes 2 and
10).................................... 1,847,080 -- --
----------- ----------- -----------
Income (loss) from operations........... 6,023,310 (2,807,046) 1,522,212
Other expense, net:
Interest expense - related party...... (33,333) -- --
- other............................... (252,692) (145,979) (362,437)
Other (Note 2)........................ -- (407,133) --
----------- ----------- -----------
Income (loss) before income taxes....... 5,737,285 (3,360,158) 1,159,775
Income tax expense (benefit)............ 2,391,033 (1,112,121) 761,565
----------- ----------- -----------
Net income (loss)....................... $ 3,346,252 $(2,248,037) $ 398,210
=========== =========== ===========
Per share data:
Net income (loss) per common share..... $.78 $(.48) $.09
=========== =========== ===========
Weighted average shares used in
computation of net income (loss) per
common share.......................... 4,299,386 4,641,600 4,641,600
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
PREFERRED CAPITAL FROM FOREIGN
STOCK COMMON IN EXCESS RETAINED CURRENCY
CLASS B STOCK OF PAR VALUE EARNINGS TRANSLATION TOTAL
--------- ------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993....... $ 10 $ 20 $ 1,000,970 $ 3,720,421 $(148,535) $ 4,572,886
Stock split............. 29,927 (29,927)
Conversion of preferred
stock.................. (10) 1,053 (1,043)
Issuance of stock to
acquire patent......... 450 427,050 427,500
Sale of common stock.... 13,466 10,950,228 10,963,694
Issuance of stock to
acquire license (Notes
2 and 10).............. 1,500 1,381,500 1,383,000
Net income.............. 3,346,252 3,346,252
Equity adjustment from
foreign currency
translation............ 110,998 110,998
---- ------- ----------- ----------- --------- -----------
December 31, 1994....... -- 46,416 13,728,778 7,066,673 (37,537) 20,804,330
Net loss................ (2,248,037) (2,248,037)
Equity adjustment from
foreign currency
translation............ 59,212 59,212
---- ------- ----------- ----------- --------- -----------
December 31, 1995....... -- 46,416 13,728,778 4,818,636 21,675 18,615,505
Net Income.............. 398,210 398,210
Equity adjustment from
foreign currency
translation............ 1,864 1,864
---- ------- ----------- ----------- --------- -----------
December 31, 1996....... $ -- $46,416 $13,728,778 $ 5,216,846 $ 23,539 $19,015,579
==== ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 3,346,252 $(2,248,037) $ 398,210
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 1,013,189 1,472,333 1,566,294
Amortization of deferred financing
fees................................. 114,269 -- --
Loss on write-off of patent........... 1,847,080 -- --
Change in assets and liabilities:
Accounts receivable.................. (918,968) 1,042,693 (813,202)
Inventories.......................... (1,900,181) (1,123,495) (1,219,947)
Other assets......................... (1,236,489) (5,675) (1,494,063)
Deferred taxes....................... (941,922) (2,495,144) 1,516,445
Accounts payable and accrued
expenses............................ (1,631,883) 27,243 2,043,716
Income taxes payable................. 189,886 (442,296) --
Warranty reserve..................... 1,232,754 6,464,653 (3,788,542)
----------- ----------- -----------
Net cash provided by operating
activities......................... 1,113,987 2,692,275 (1,791,089)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of molds and tooling.......... (945,713) (991,990) (736,761)
Purchase of property and equipment..... (438,283) (1,123,726) (1,176,778)
Patent costs and license fees.......... (2,488,944) (350,634) (484,039)
Payment received on note receivable.... 180,000 -- --
Purchase of net assets of ACI.......... -- -- (1,000,000)
----------- ----------- -----------
Net cash used for investing
activities......................... (3,692,940) (2,466,350) (3,397,578)
----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock................... 10,963,694 -- --
Borrowings on long-term debt........... -- 654,214 2,219,050
Payments on long-term debt............. (5,800,000) -- (209,170)
Payments on demand note payable to
related party......................... (2,000,000) -- --
Net borrowings (payments) under line of
credit................................ (623,000) (733,873) 3,426,000
----------- ----------- -----------
Net cash provided by (used for)
financing activities................. 2,540,694 (79,659) 5,435,880
----------- ----------- -----------
Effect of foreign currency exchange
rate................................... 19,321 9,246 1,864
----------- ----------- -----------
Net increase (decrease)................. (18,938) 155,512 249,077
Cash and cash equivalents at beginning
of year................................ 199,944 181,006 366,938
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 181,006 $ 336,518 $ 616,015
=========== =========== ===========
Supplemental cash flow information:
Interest paid......................... $ 222,135 $ 147,888 $ 391,561
Income taxes paid..................... 2,972,089 1,959,971 75,604
See Notes 2, 8 and 10 for noncash investing and
financing activities
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Total Containment, Inc. (the Company) is a leading manufacturer and
distributor of underground systems and products for the conveyance and
containment of petroleum and alcohol based motor vehicle fuels from
underground storage tanks to aboveground fuel dispensers. The principal end
users of the Company's products are service stations, convenience stores and
other retail sellers of gasoline, gasohol and other motor vehicle fuels,
government bodies, utilities, and other fleet vehicle operators.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, TCI Environment
NV/SA (TCI-NV), Rene Morin, Inc. and American Containment, Inc. (acquired in
1996). All significant intercompany balances and transactions have been
eliminated.
On July 11, 1996, the Company purchased all of the assets and certain
liabilities of American Containment, Inc., a manufacturer and installer of
fiberglass tank and dispenser sumps. This transaction was accounted for under
the purchase method of accounting. The results of operations of American
Containment, Inc. are reflected in the Company's consolidated statement of
operations from July 11, 1996 to December 31, 1996. Goodwill associated with
this purchase will be amortized over approximately thirty-three years. Pro
forma (unaudited) revenues, net income, and earnings per share would be
approximately $39,530,000, $517,470, and $.12, respectively, if the operating
results of American Containment, Inc. were included in the operations of the
Company for the entire year. The pro forma results in 1995 would not have been
materially different had American Containment, Inc. been included in the
financial results of the Company.
Foreign currency translation. TCI-NV uses the Belgian Franc as its
functional currency. Translation adjustments are reported separately and
accumulated as a separate component of stockholders' equity.
Concentration of credit risks. The Company's trade receivables result
primarily from the sale of product to distributors who sell to automobile
service stations and convenience store markets including several large chains.
The Company traditionally relies on a limited number of suppliers on an
exclusive basis.
Inventories. Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first-out (FIFO) basis.
Property and equipment. Property and equipment are valued at cost.
Depreciation is computed on a straight-line basis over the useful lives of the
assets: furniture, fixtures and equipment -- five to ten years; leasehold
improvements -- life of lease; and tools and molds -- three years.
Patents, patent rights and licenses. The Company capitalizes costs of
acquired patents, and other costs related to obtaining and maintaining
patents. Patents, patent rights and licenses are being amortized on a
straight-line basis over the estimated lives of the patents and licenses
(which range from 13 to 17 years). Amortization expense aggregated $199,556,
$326,757 and $347,381 for 1994, 1995 and 1996, respectively. Accumulated
amortization was $928,969 and $1,276,350 at December 31, 1995 and 1996,
respectively. (See Note 8.)
In September 1994, the Company received an unfavorable decision from the
Board of Patent Appeals and Interference of the Patent and Trademark Office on
an interference proceeding related to its Enviroflex(R) patent.
13
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In December 1994, a settlement was reached (See Note 10). This resulted in a
charge of approximately $1.8 million in 1994 which represents the unamortized
costs of the Enviroflex(R) patent. As part of the settlement, the Company
entered into a world-wide licensing agreement with a third party for the use
of the patented technology. The license fee and related costs have been
capitalized and are being amortized over the life of the patent.
Goodwill. Goodwill represents the excess of the purchase price over the fair
value of the net tangible and identified intangible assets, and is being
amortized between thirty-three and forty years. Goodwill amortization
approximated $156,000 for 1994 and 1995 and $160,928 for 1996. Accumulated
goodwill amortization was $941,180 and $1,102,108 at December 31, 1995 and
1996, respectively.
The Company evaluates the carrying value of long-lived assets, including
goodwill, whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated undiscounted future cash flows are less than the carrying amount
of such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value.
Warranty reserve. The Company's Tank Jacket(R) and Pipe Jacket product lines
carry a warranty of one year for workmanship and materials. The Enviroflex(R)
product line carries a two to ten year warranty for workmanship and materials.
The Tank Jacket(R) product line also carries a thirty year warranty for
corrosion from certain specified materials. The Company's warranties are
limited to replacement of defective material; they do not cover by their terms
costs associated with leaks or spillage of tank or pipe contents. Management
has accrued a reserve for anticipated warranty and other products liability
claims and associated legal fees based upon its industry knowledge and actual
claims experience.
During 1995, the Company increased its warranty reserve through a charge to
expense of approximately $7.5 million as a result of anticipated future
warranty claims associated with deterioration of the cover material on the
Enviroflex(R) primary (inner) retractable pipe manufactured between 1990 and
September 1994. (See Note 10.)
Income taxes. The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax liabilities and assets are recorded for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
The Company's foreign subsidiary has undistributed retained earnings of
$835,000 and $1,138,192 at December 31, 1995 and 1996, respectively. Since a
substantial portion of these earnings has been reinvested in working capital
and the remainder is not expected to be remitted to the Company, U.S. income
and foreign withholding taxes have not been provided on these unremitted
earnings.
Other expenses. During 1995, the Company incurred non-recurring transaction
expenses, consisting primarily of legal fees and special committee and board
fees and expenses, of $407,000 related to negotiations with a third party and
certain members of management in connection with their proposed acquisition of
the Company. In August, 1995, the Company announced the acquisition
negotiations had been terminated and charged to expense all costs associated
with this failed transaction.
Revenue recognition. Sales are recorded upon shipment. Expenses for
estimated product returns and warranty costs are accrued in the period of sale
recognition.
Earnings (loss) per share. Earnings (loss) per share is calculated by
dividing net income by the weighted average number of common shares and common
stock equivalent shares outstanding during the period.
14
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Raw materials....................................... $ 396,660 $ 502,954
Finished goods...................................... 5,294,686 6,745,339
---------- ----------
$5,691,346 $7,248,293
========== ==========
</TABLE>
4. MOLDS AND TOOLING COSTS
Molds and tooling costs include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Molds and tooling costs......................... $ 3,191,714 $ 3,928,475
Less - accumulated amortization................. (1,793,827) (2,566,363)
----------- -----------
$ 1,397,887 $ 1,362,112
=========== ===========
</TABLE>
Amortization of molds and tooling costs was $466,576, $781,300 and $772,536
for the years ended December 31, 1994, 1995 and 1996, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Furniture, fixtures and office equipment........ $ 518,993 $ 542,459
Equipment....................................... 1,407,067 2,510,165
Leasehold improvements.......................... 347,550 472,764
----------- -----------
2,273,610 3,525,388
Less - Accumulated depreciation................. (728,640) (1,014,087)
----------- -----------
$ 1,544,970 $ 2,511,301
=========== ===========
</TABLE>
Depreciation expense on property and equipment was $187,005, $243,998 and
$285,447 for the years ended December 31, 1994, 1995 and 1996, respectively.
6. LONG-TERM DEBT
Acquisition Debt. In conjunction with an acquisition in 1990, the Company
executed a $6.8 million bank loan with interest at 13% and a $2,000,000 note
payable with interest at 10% to the former majority stockholder
15
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
of the predecessor company and a related party. These loans were repaid in
March 1994 with proceeds from the public offering of shares of the Company's
common stock. (See Note 8.)
Interest expense for the years ended December 31, 1994 on the above notes
amounted to approximately $160,000.
Term Loans. In 1995, the Company executed a term loan with a bank for
$1,600,000 which is exclusively for the purchase of equipment. The term loan
bears interest at the bank's national commercial rate plus .125% (8.375% at
December 31, 1996) and is secured by all equipment financed thereunder. At
December 31, 1995 and 1996, $654,214 and $1,293,264 respectively were
outstanding under the term loan. The loan requires the payment of equal
monthly installments of principal in the amount of $26,667 plus interest on
the unpaid principal balance.
In 1996, the Company executed a term loan with a bank for $1,000,000 which
was used for the acquisition of American Containment, Inc. The term loan bears
interest at the bank's national commercial rate plus .125% (8.375% at December
31, 1996.) and is secured by the assets of American Containment, Inc. At
December 31, 1996, $933,329 was outstanding under the term loan. The loan
requires the payment of equal monthly installments of principal in the amount
of $16,667 plus interest on the unpaid principal balance.
In 1996, the Company signed a note payable to a third party of $500,000. The
note payable bears an interest rate of 8% compounded annually. At December 31,
1996, the balance of $437,500 was outstanding under the note payable. The note
requires the payment of equal quarterly installments of $62,500 plus interest
on the unpaid principal balance.
Aggregate maturities of the borrowings is as follows:
<TABLE>
<S> <C>
1997........................................................... $ 770,012
1998........................................................... 707,512
1999........................................................... 520,012
2000........................................................... 520,012
2001........................................................... 146,546
----------
$2,664,094
==========
</TABLE>
7. LINE OF CREDIT
The Company has a line of credit agreement with a bank which provides for
borrowings up to an aggregate limit of $6,000,000. Advances under the line of
credit bear interest at the bank's national commercial rate (8.25% at December
31, 1996) and are unsecured. At December 31, 1996, $3,677,000 was outstanding
under the line of credit. Also, the Company has a $1.5 million credit facility
for expansion purposes. At December 31, 1996, the Company had not used this
facility.
The line of credit contains certain financial covenants. The Company was in
compliance with such requirements at December 31, 1996. The Company has
renewed the line of credit in January 1997, with an expiration date of June
30, 1999. The line of credit facility prohibits the payment of any dividends
by the Company without the lender's prior written consent.
Interest expense on borrowings under the line of credit was $25,782,
$144,000, and $195,337 in 1994, 1995 and 1996, respectively.
16
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. STOCKHOLDERS' EQUITY
Public offering. On March 4, 1994, the Company completed a public offering
(the "Offering") of 1,346,600 shares of its common stock and received net
proceeds of approximately $11 million. A portion of the proceeds from the
Offering were used to repay the Company's long-term debt in the aggregate
principal amount of $7.8 million and the balance on the line of credit in the
amount of $605,000.
In connection with the Offering, there was a 1,497.37 for 1 stock split of
the outstanding shares of common stock and a conversion of each share of Class
B preferred stock into 105.26 shares of common stock.
Also, in conjunction with the Offering, the Company issued 45,000 shares of
common stock, valued at $9.50 per share, in exchange for certain Tank
Jacket(R) patent rights owned by an affiliate of the Company.
In 1994, all of the outstanding preferred stock was converted to common
stock. At December 31, 1995, the Company had authorized 1,000 shares of
preferred stock. None of these shares were issued or outstanding at December
31, 1996.
Stock compensation plan. In January 1994, the Board of Directors of the
Company adopted and the stockholders of the Company approved a Stock
Compensation Plan ( the "Plan"). The Plan authorizes the issuance of up to
400,000 shares of the common stock to key employees of the Company and its
subsidiaries. The number of shares authorized for issuance under the Plan, and
the outstanding awards granted under the Plan, are subject to adjustment in
the event of stock dividends, stock splits and similar transactions. Awards
may be granted in the form of nonqualified stock options, incentive stock
options, stock appreciation rights, performance units and restricted stock.
The options granted under the Plan are restricted and unvested at the date of
grant. The option awards become fully vested and unrestricted five years
subsequent to their grant date at a rate of twenty percent per year on the
anniversary of the grant date. The fixed exercise price associated with the
shares subject to option is the fair value of the company's stock at the grant
date. Generally, the options expire ten years after the date of grant. No
options have been exercised as of December 31, 1996. In addition, the Company
granted to its current Chief Executive Officer, in connection with his
employment, incentive stock options of the Company to purchase 225,000 shares.
The options granted have a term of five years from the date of grant. Options
vest at the rate of one-third per year for three consecutive years, beginning
one year from the date of grant. The options granted to the Chief Executive
Officer were not granted under the Plan.
Common shares subject to options are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Outstanding at January 1...................... -- 205,000 205,000
Options granted............................... 205,000 -- 480,000
Weighted average exercisable price........... $ 9.50 -- $ 2.77
Options exercised............................. -- -- --
Weighted average exercisable price........... -- -- --
Options expired or terminated................. -- -- 90,000
Weighted average exercisable price........... -- -- $ 8.33
At December 31:
Options outstanding........................... 205,000 205,000 595,000
Weighted average exercisable price........... $ 9.50 $ 9.50 $ 4.24
Options exercisable........................... -- 41,000 52,000
Weighted average exercisable price........... -- $ 9.50 $ 9.50
</TABLE>
The Company applies APB Opinion No. 25 Accounting for Stock Issued to
Employees, and related interpretations in accounting for stock options.
Accordingly, no compensation expense has been recognized for the outstanding
performance-based stock option awards. Statement of Financial Accounting
Standards No. 123
17
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Accounting for Stock-Based Compensation was issued in 1995. The Company has
elected not to adopt the optional recognition provisions of SFAS No. 123. The
options granted during 1994 were done so when the Company was private,
therefore, under SFAS No. 123, the minimum value method is used to estimate
the fair value of the options. The pro forma information below, is presented
as if the company had adopted these recognition provisions.
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- --------
<S> <C> <C> <C>
Weighted average fair value of options
granted -- calculated using the
Black-Scholes option-pricing model... $ 2.69 $ 2.69 $ 2.54
Pro Forma
Net income........................... $3,346,252 $(2,358,327) $139,880
Earnings per share................... $ 0.78 $ (0.51) $ 0.03
Assumptions:
Weighted average dividend yield...... -- -- --
Weighted average volatility.......... N/A N/A 61.63%
Weighted average risk-free interest
rate................................ 6.71% 6.73% 6.79%
Weighted average expected life
(years)............................. 10 9 7.67
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal............................ $2,529,042 $ 869,015 $(1,043,920)
State.............................. 638,035 232,759 --
Foreign............................ 165,878 281,249 289,040
Deferred............................ (941,922) (2,495,144) 1,516,445
---------- ----------- -----------
$2,391,033 $(1,112,121) $ 761,565
========== =========== ===========
</TABLE>
The Company's income, as reported in the statement of operations, differs
from taxable income as reported in its tax return principally due to the use
of accelerated depreciation for income tax purposes, use of the installment
method for recognizing the gain on the sale of patent for income tax purposes
and the accrual of warranty expenses for financial reporting purposes which
are deductible for income tax purposes when paid.
Deferred income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
--------- ----------- ----------
<S> <C> <C> <C>
Depreciation......................... $ 85,562 $ (10,103) $ 4,209
Warranty reserve..................... (465,587) (2,492,392) 1,522,413
Patent sale on installment method.... (72,000) -- --
Loss on write-off of patent.......... (490,000) -- --
Other................................ 103 7,351 (10,177)
--------- ----------- ----------
$(941,922) $(2,495,144) $1,516,445
========= =========== ==========
</TABLE>
18
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A reconciliation of income taxes with the amounts which would result from
applying the U.S. statutory rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ----------- --------
<S> <C> <C> <C>
Tax expense (benefit) at U.S. statu-
tory rate............................ $1,950,677 $(1,142,454) $394,324
State income taxes, net of federal
benefit.............................. 297,878 (155,239) --
Excess foreign tax on foreign subsidi-
ary income........................... 31,596 38,000 36,363
Amortization of certain intangible as-
sets................................. 97,506 148,100 172,825
Increase in valuation allowance....... -- -- 159,687
Other................................. 13,376 (528) (1,634)
---------- ----------- --------
$2,391,033 $(1,112,121) $761,565
========== =========== ========
</TABLE>
Significant components of the deferred tax balances at December 31, 1995 and
1996 are:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
DEFERRED DEFERRED DEFERRED DEFERRED
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Warranty reserve........... $1,055,140 $2,130,839 $ 496,260 $1,167,306
Accrued vacation........... 48,456 -- 43,598 --
Allowance for doubtful
accounts.................. 19,396 -- 19,500 (43,668)
Depreciation............... -- (38,459) -- --
Net operating loss
carryforward.............. -- -- 159,687 --
Other...................... 2,694 17,625 --
---------- ---------- --------- ----------
$1,125,686 $2,092,380 $ 736,670 $1,123,638
Valuation Allowance........ -- -- (159,687) --
---------- ---------- --------- ----------
$1,125,686 $2,092,380 $ 576,983 $1,123,638
========== ========== ========= ==========
</TABLE>
Realization of deferred tax assets associated with the net operating loss
(NOL) carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. The Company believes that there is a risk that
certain of these NOL carryforwards may expire unused and, accordingly, has
established a valuation allowance against them. The valuation allowance at
December 31, 1996 relates to state net operating loss carryforwards expiring
through the year 1999. Although realization is not assured for the remaining
deferred tax assets, the Company believes it is more likely than not that they
will be realized through future taxable earnings.
10. PATENT SETTLEMENT AGREEMENT, LITIGATION AND CONTINGENCIES
Patent Settlement Agreement and Related Litigation. In December 1994, the
Company and a third party executed an agreement settling a dispute as to the
ownership of the retractability feature of the Enviroflex(R) primary pipe.
Under the settlement agreement, the third party retained rights to manufacture
and sell underground systems with a retractability feature, granted similar
rights to the Company and agreed to terminate the rights of two licensees to
practice these and other inventions. For the granting of this exclusive
license, the Company paid the third party $3.5 million in cash and shares of
the Company's common stock, as well as granted the third party non-exclusive
rights to practice certain of the Company's patented technology, excluding
tank sumps. The Company also agreed to reimburse the third party, under
certain conditions, for amounts paid to the licensees to terminate their
rights, not to exceed $1.95 million, and if certain conditions are met, to
defend and indemnify it against any losses it incurs in connection with such
termination. The agreement also precluded the third party from assigning its
rights to the invention to others, or from selling its business except under
certain circumstances. In addition, the agreement required the Company to
advance $1.5 million as a prepaid royalty against a royalty of 3% of future
sales of the Enviroflex(R) piping system to be paid by the Company. The $3.5
19
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
million payment and related costs were capitalized as a license and are being
amortized over the life of the patent. (See Note 2.)
After the third party terminated the rights of the two licensees, they
commenced actions against the Company and the third party alleging trade
defamation, unfair competition, restraint of trade, breach of contract, and
violation of the antitrust laws. The licensees sought compensatory damages of
$5,000,000, punitive damages and a declaration that the third party may not
terminate their licenses. The court dismissed the antitrust claims, the jury
otherwise found in favor of the Company and the licensees appealed. Management
does not believe the Company will incur any material liability related to this
suit. Therefore, no specific provision for loss has been made in the Company's
financial statements. In September 1996, one of the licensees sued the third
party seeking to cause the third party to refund $1.0 million due to the
licensee as a result of the jury's determination. In January 1997, the court
found that the licensee was entitled to a refund but noted that the receipt by
the licensee of the refund may result in a waiver of its right to appeal the
earlier jury determination. The Company expects that the third party will
demand reimbursement for the amount of the judgment, if payable. The Company
believes that it possesses meritorious defenses in any such action. The
Company is obligated to reimburse the third party in the event that the third
party pays under its agreement with the licensees and delivers a release,
executed by the licensees, confirming, among other things, that their
respective rights have been terminated and stating that neither have any
further rights or claims against the third party or the Company relating to
the inventions. It is unlikely that the licensees will be willing to provide
any such release. Moreover, if willing, it is unlikely that such licensees
would provide any such release until the completion of the appellate process
(probably during the 1st quarter of 1998). Therefore, the Company has not
recorded any liability associated with this matter in the Company's financial
statements.
The Company is a defendant in counterclaims asserted by the third party and
certain of the third party's affiliates and an entity to whom the third party
proposes to transfer its business, including the invention, in an action
instituted by the Company. The counterclaims assert that the Company has
breached contractual undertakings to consent to the transfer. The
counterclaims also assert tortious interference liability. Discovery recently
commenced, and a trial date of April 1, 1997 has been set. The Company intends
to defend these counterclaims vigorously. It is not currently possible to
evaluate the likelihood of an unfavorable outcome or to reasonably estimate
the damages, if any, that might result therefrom.
Enviroflex warranty matter and Dayco negotiations. During 1995, the Company
increased its warranty reserve by $7.5 million as a result of anticipated
future warranty claims associated with deterioration of the cover material on
the Enviroflex(R) primary (inner) retractable pipe manufactured between 1990
and September 1994. This deterioration results from a microbiological fungus
which attaches to and grows on the pipe. The Company purchased the primary
pipe from Dayco who designed, manufactured and sold it to the Company under a
Supply Agreement with the Company. Although Dayco preliminarily disclaimed
legal responsibility for the deterioration of its pipe, they subsequently
agreed to (i) issue the Company a credit for past overcharges and (ii) provide
the Company pipe and couplings necessary for replacement at no cost to the
Company.
Other Litigation. The Company is also involved in various other legal
actions incidental to the conduct of its business. Management is contesting
these cases vigorously and believes it has meritorious defenses in each
matter. Management does not believe the ultimate outcome of these various
legal actions will have a material effect on the Company's financial
condition, results of operations or working capital requirements.
11. COMMITMENTS
Dayco Agreement. On January 1, 1993, Dayco and the Company entered into a
five year supply agreement (the "Dayco Agreement") pursuant to which Dayco
agreed to sell Enviroflex(R) primary pipe exclusively to the
20
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Company for use in flexible double-wall underground piping systems and the
Company agreed to purchase such pipe exclusively from Dayco. Under the Dayco
Agreement, the Company has minimum purchase requirements per calendar year.
The Company exceeded the minimum purchase requirements in each calendar year
the Dayco Agreement has been in effect.
Lease Commitments. The Company leases its facilities, certain office
equipment and vehicles under noncancelable operating leases. Total rental
expense under these leases for the years ended December 31, 1994, 1995 and
1996 was approximately $275,000, $265,000 and $235,000, respectively.
Future minimum lease payments under noncancelable operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997............................................................. $402,700
1998............................................................. 400,400
1999............................................................. 15,100
2000............................................................. 5,900
--------
$824,100
========
</TABLE>
12. FOREIGN OPERATIONS AND EXPORT SALES
Summarized financial data with respect to the operations of TCI-NV at
December 31, 1995 and 1996 and for the years then ended follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Total assets........................................ $2,061,000 $1,989,000
Total liabilities................................... 1,163,000 786,000
---------- ----------
Net assets.......................................... $ 898,000 $1,203,000
========== ==========
Net sales........................................... $4,431,000 $3,761,000
========== ==========
Net income.......................................... $ 399,000 $ 335,000
========== ==========
</TABLE>
The Company's net sales by geographic region are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
United States...................... $26,743,000 $26,761,000 $25,001,000
Canada............................. 2,188,000 1,811,000 1,566,000
Mexico, Central and South America.. 7,874,000 4,957,000 6,028,000
Europe and the Middle East......... 2,659,000 4,431,000 3,761,000
Southeast Asia, Australia and New
Zealand........................... 891,000 1,108,000 1,374,000
----------- ----------- -----------
Total............................... $40,355,000 $39,068,000 $37,730,000
=========== =========== ===========
</TABLE>
21
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Total Containment, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 7, 1997 in the 1996 Annual Report to Shareholders of Total
Containment, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 7, 1997
11
<PAGE>
SCHEDULE II
TOTAL CONTAINMENT, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Warranty Reserve December 31,
1994........................ $ 571,171 $1,580,798(1) $ (348,044) $1,803,925
December 31, 1995............ $1,803,925 $8,073,005(2) $(1,605,374) $8,271,556
December 31, 1996............ $8,271,556 $2,877,806(3) $(6,666,348) $4,483,014
</TABLE>
- --------
(1)Includes insurance recoveries received which relate to unsettled warranty
claims.
(2)Includes pipe warranty of $7,500,000 (See Notes 2 and 10).
(3)Includes Dayco receivable for replacement materials (See Note 10).
12
<PAGE>
EXHIBIT 10.2
TOTAL CONTAINMENT, INC.
STOCK COMPENSATION PLAN
SECTION 1
PURPOSE OF THE PLAN
The purpose of the Total Containment, Inc. Stock Compensation Plan (the
"Plan") is to provide incentive compensation opportunities for selected
officers and key employees of Total Containment, Inc. (the "Company") and its
subsidiaries. In providing these opportunities, the Company seeks to generate
in the participants a proprietary and vested interest in the performance of
the Company and an increasing incentive to contribute to the Company's future
success and prosperity, thereby benefitting all stockholders. Providing
incentive compensation opportunities to key employees will aid the Company in
attracting, retaining, and encouraging the kind of management it requires to
realize its long term financial objectives.
SECTION 2
EFFECTIVE DATE OF PLAN
This Plan shall become effective February 27, 1997, the date on which it was
adopted by the Board of Directors of the Company, subject to approval by the
stockholders of the Company.
SECTION 3
DEFINITIONS
The following terms, when capitalized and used herein, shall have the
meanings set forth below unless the context clearly indicates otherwise:
3.1 Award: means a nonqualified stock option, an incentive stock option, a
stock appreciation right, a performance unit, or restricted stock, or a
combination of the foregoing, granted pursuant to the terms of this Plan.
3.2 Board: means the Board of Directors of the Company.
3.3 Code: means the Internal Revenue Code of 1986, as amended from time to
time.
3.4 Committee: means the Committee designated by the Board to administer the
Plan.
3.5 Common Stock: means the $.01 par value common stock of the Company.
3.6 Company: means Total Containment, Inc., a Delaware business corporation,
and any successor by merger thereto.
3.7 Disability: means permanent and total disability such that an individual
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or is expected to last for a continuous
period of not less than 12 months. All determinations as to disability shall
be made by the Committee and shall be final and binding.
3.8 Employee: means any employee of the Company or any Subsidiary.
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<PAGE>
3.9 Fair Market Value: means (i) in the event that the Common Stock is
listed on an established exchange, the closing price of the Common Stock on
the relevant date or, if no trade occurred on that day, on the next preceding
day on which a trade occurred, (ii) in the event that the Common Stock is not
listed on an established exchange, but is then quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
average of the average of the closing bid and asked quotations of the Common
Stock for the five (5) trading days immediately preceding the relevant date,
or (iii) in the event that the Common Stock is not then listed on an
established exchange or quoted on NASDAQ, the average of the average of the
closing bid and asked quotations of the Common Stock for the five (5) trading
days immediately preceding the relevant date as reported by two (2) brokerage
firms to be selected by the Committee which are then making a market in the
Common Stock. In the event that the Common Stock is not listed on an
established exchange and no closing bid and asked quotations are available,
Fair Market Value shall be determined in good faith by the Committee. In the
case of (ii) or (iii) above, in the event that no closing bid or asked
quotation is available on one or more of such trading days, Fair Market Value
shall be determined by reference to the five (5) trading days immediately
preceding the relevant date on which closing bid and asked quotations are
available.
3.10 Option: means an incentive stock option or a nonqualified stock option
(including a Reload Option) granted to a Participant permitting the
Participant to purchase shares of Common Stock, subject to the terms and
conditions described in the Plan.
3.11 Participant: means an Employee who is selected by the Committee to
receive an Award under the Plan.
3.12 Performance Cycle: means the period of months or years selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Units has been earned.
3.13 Performance Goals: means the objectives established by the Committee
for a Performance Cycle for the purpose of determining the extent to which an
award of Performance Units has been earned.
3.14 Performance Unit: means a fixed or variable dollar denominated unit
contingently awarded to a Participant subject to the terms and conditions as
described in the Plan.
3.15 Reload Option: means a nonqualified stock option which entitles the
Participant to purchase from the Company a number of shares of Common Stock
equal to the number of shares of Common Stock tendered to the Company in
payment of the exercise price of an Option, subject to such terms and
conditions as the Committee may in its discretion set forth in an Award
Agreement; provided, that the option price of a Reload Option shall not be
less than 100% of the fair market value of the shares of Common Stock subject
to the Reload Option on the date on which the grant of the Reload Option
becomes effective; provided further that a Reload Option must be exercised
prior to the expiration of the term of the Option in respect of which the
grant of that Reload Option becomes effective.
3.16 Restricted Period: means the period of months or years selected by the
Committee during which a grant of Restricted Stock may be forfeited to the
Company.
3.17 Restricted Stock: means shares of Common Stock contingently granted to
a Participant subject to the terms and conditions as described in the Plan.
3.18 Retirement: means the voluntary termination of employment by a
Participant on or after attainment of age 65 or the voluntary termination of
employment by a Participant on or after attainment of age 55 if the
Participant has been an Employee for at least fifteen (15) years.
3.19 Subsidiary: means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
the grant of an Award, each of the corporations other than the last
2
<PAGE>
corporation in the unbroken chain owns stock possessing 50 percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
SECTION 4
STOCK SUBJECT TO AWARDS
Subject to the provisions of Section 6 of this Plan, the maximum number of
shares of Common Stock that may be issued pursuant to all Awards granted under
the Plan shall be 400,000 shares. Such shares may be treasury or authorized,
but unissued, shares of Common Stock. Shares issuable pursuant to Awards
which, by reason of the expiration, cancellation or other termination of
Awards prior to issuance, are not issued, shall again be available for future
Awards, except that Restricted Shares that are forfeited after issuance shall
not be available for reissuance pursuant to future Awards.
SECTION 5
ADMINISTRATION
5.1 Committee Members. The Plan shall be administered by the Committee,
which shall be composed of at least two members of the Board who the full
Board designates.
5.2 Committee Authority. The Committee shall have authority, subject to
Board approval, (i) to grant Awards upon terms (not inconsistent with the
provisions of this Plan) as the Committee may consider appropriate, (ii) to
determine the Employees to whom Awards will be made under the Plan, and (iii)
to determine the time and frequency at which Awards will be made and the
number of shares to be optioned or awarded. The Committee shall have
authority, subject to Board approval, to grant Awards of one type or of
several types and in such combinations as the Committee shall determine.
Notwithstanding anything to the contrary herein, the Committee may, in its
discretion, subject to Board approval, accelerate the time at which: (i) any
Option or stock appreciation right may be exercised, (ii) any Performance
Units shall be earned, or (iii) restrictions on Restricted Stock shall lapse.
In addition, the Committee shall have authority, subject to Board approval,
to construe and interpret all provisions of this Plan, to adopt, amend and
rescind rules and regulations pertaining to the administration of the Plan,
and to make all other determinations necessary or advisable for the
administration of this Plan.
Any decision made, or action taken, by the Committee in connection with the
administration of the Plan or in connection with any Award shall be final and
conclusive, subject to Board approval. No member of the Committee shall be
liable for any act done in good faith with respect to this Plan. All expenses
of administering this Plan shall be borne by the Company.
SECTION 6
STOCK ADJUSTMENTS
In the event of any change in the number of issued and outstanding shares of
Common Stock of the Company which results from a stock split, reverse stock
split, the payment of a stock dividend or any other change in the capital
structure of the Company, the Committee shall proportionately adjust the
maximum number of shares reserved under Section 4 and shall appropriately
adjust the number of shares subject to each outstanding Award, and (where
appropriate) the price per share thereof (but not the total Award price), so
that upon exercise or realization of such Award, the Participant shall receive
the same number of shares he would have received had he been the holder of all
shares subject to his outstanding Award immediately before the effective date
of
3
<PAGE>
such change in the number of issued and outstanding shares of Common Stock of
the Company. Such adjustment shall not, however, result in the issuance of
fractional shares.
Any adjustment under this Section shall be made by the Committee, subject to
approval by the Board. No adjustment shall be made that would cause an
incentive stock option to fail to continue to qualify as an incentive stock
option within the meaning of Section 422 of the Code. The grant of an Award
pursuant to the Plan shall not affect in any way the right of the Company to
make adjustments, reclassifications, reorganizations, or changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate,
sell, or transfer all or any part of its business or assets.
SECTION 7
ELIGIBILITY
Employees, as may be designated by the Committee, who are performing or who
have been engaged to perform services of special importance to the management,
operation, or development of the Company shall be eligible to receive Awards
under the Plan. Members of the Board who are not Employees shall not be
eligible for Awards under the Plan.
SECTION 8
GRANT OF AWARDS
Each Award granted under this Plan shall be evidenced by an agreement (an
"Award Agreement") executed by the Company and the Participant. The Award
Agreement shall set forth the type of Award, the terms and conditions of the
Award, and the manner in which it may be exercised, subject to the provisions
of this Plan. Each Award Agreement shall be consistent with the applicable
provisions of this Plan and may contain such terms, conditions and other
provisions as the Committee may in its discretion determine to be appropriate
and which are not inconsistent with the provisions of this Plan.
SECTION 9
TERMS AND CONDITIONS
9.1 Nonqualified Stock Options. The grant of a nonqualified stock option
entitles the Participant to purchase from the Company a stated number of
shares of Common Stock, subject to the following terms and conditions:
A. Price. The Committee shall establish the Option price at the time each
nonqualified stock option is granted, which price shall not be less than
100% of the Fair Market Value of the shares of Common Stock on the day the
Option is granted.
B. Exercise of Options. The Option price of each share as to which a
nonqualified stock option is exercised shall be paid in full at the time of
such exercise. Unless otherwise provided in an Award Agreement, such
payment shall be made in cash, by tender of shares of Common Stock which
have been owned by the Participant for at least six (6) months, or by a
combination of cash and such shares of Common Stock. In addition, at the
request of the Participant and to the extent permitted by applicable law,
the Company in its discretion may selectively approve arrangements with a
brokerage firm under which such brokerage firm, on behalf of the
Participant, shall pay to the Company the exercise price of the Options
being exercised, and the Company, pursuant to an irrevocable notice from
the Participant, shall promptly deliver the shares being purchased to such
brokerage firm.
C. Time Period for Exercise. The Committee may establish time periods
after which unexercised nonqualified stock options shall expire. The
Committee may determine that a nonqualified stock option shall
4
<PAGE>
become exercisable in installments and may determine that the right to
exercise such nonqualified stock option as to such installments shall
expire on different dates or on the same date.
D. Termination of Employment. Unless otherwise provided in an Award
Agreement, a Participant may exercise a nonqualified stock option only
while he is an Employee, except that: (i) in the case of a Participant who
ceases to be an Employee for reasons of Disability or death, a nonqualified
stock option may be exercised by the Participant or by the Participant's
personal representative or beneficiary (as the case may be) for a period of
twelve (12) months following the date of Disability or death, and (ii) a
Participant who ceases to be an Employee because of Retirement may exercise
a nonqualified stock option for a period of three (3) months following the
date of Retirement.
E. Reload Option. The Committee may in its discretion grant a Reload
Option in connection with the grant of a nonqualified stock option.
9.2 Incentive Stock Options. Incentive stock options granted under the Plan
are intended to qualify as "incentive stock options" as defined in Section 422
of the Code, and shall entitle the Participant to purchase from the Company a
stated number of shares of Common Stock, subject to the following terms and
conditions:
A. Price. The Committee shall establish the Option price at the time each
incentive stock option is granted, which price shall not be less than 100%
of the Fair Market Value of the shares of Common Stock on the day the
Option is granted. If an Employee, at the time the incentive stock option
is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the Option price shall
not be less than 110% of the Fair Market Value of the shares of Common
Stock on the day the option is granted.
B. Ten Year Limitation. Incentive stock options shall not be granted
under this Plan later than ten (10) years after the earlier of: (i) the
date this Plan is adopted, or (ii) the date this Plan is approved by the
stockholders of the Company. An incentive stock option which is granted
under this Plan shall not be exercisable later than ten (10) years after
its date of grant. The Committee may determine that any incentive stock
option shall become exercisable in installments and may determine that the
right to exercise such incentive stock option as to such installments shall
expire on different dates or on the same date.
C. Termination of Employment. A Participant may exercise an incentive
stock option only while he is an Employee, except that: (i) in the case of
a Participant who ceases to be an Employee for reasons of Disability or
death, an incentive stock option may be exercised by the Participant or by
the Participant's personal representative or beneficiary (as the case may
be) for a period of twelve (12) months following the date of Disability or
death, and (ii) a Participant who ceases to be an Employee because of
Retirement may exercise an incentive stock option for a period of three (3)
months following the date of Retirement.
D. Exercise of Options. The option price of each share as to which an
incentive stock option is exercised shall be paid in full at the time of
such exercise. Unless otherwise provided in an Award Agreement, such
payment shall be made in cash, by tender of shares of Common Stock owned by
the Participant for at least six (6) months, or by a combination of cash
and such shares of Common Stock. In addition, at the request of the
Participant and to the extent permitted by applicable law, the Company in
its discretion may selectively approve arrangements with a brokerage firm
under which such brokerage firm, on behalf of the Participant, shall pay to
the Company the exercise price of the Options being exercised, and the
Company, pursuant to an irrevocable notice from the Participant, shall
promptly deliver the shares being purchased to such brokerage firm.
E. Reload Option. The Committee may in its discretion grant a Reload
Option in connection with the grant of an incentive stock option.
9.3 Stock Appreciation Rights. A stock appreciation right shall entitle the
Participant to receive from the Company an amount equal to the positive
difference between the Fair Market Value of a share of Common Stock at the
time the Award is granted and the Fair Market Value of a share of Common Stock
on the date of exercise of the stock appreciation right, or some percentage of
such difference as the Committee may determine at the time of grant, subject
to the following terms and conditions:
5
<PAGE>
A. Grant and Exercisability. Stock appreciation rights may be granted in
tandem with an Option, in addition to an Option, or may be freestanding and
unrelated to an Option. Stock appreciation rights granted in tandem or in
addition to an Option may be granted either at the same time as the Option
or at a later time. No stock appreciation right shall be exercisable
earlier than six (6) months after its grant.
B. Payment. The Committee shall determine and the Award Agreement shall
specify whether a stock appreciation right shall be settled in cash, shares
of Common Stock or a combination of cash and shares of Common Stock.
C. Termination of Employment. Unless otherwise provided in an Award
Agreement, a Participant may exercise a stock appreciation right only while
he is an Employee, except that: (i) in the case of a Participant who ceases
to be an Employee for reasons of Disability or death, a stock appreciation
right may be exercised by the Participant or by the Participant's personal
representative or beneficiary (as the case may be) for a period of twelve
(12) months following the date of Disability or death, and (ii) a
Participant who ceases to be an Employee because of Retirement may exercise
a stock appreciation right for a period of three (3) months following the
date of Retirement.
9.4 Performance Units. Performance Units entitle a Participant to earn a
designated number of shares of Common Stock or a designated dollar amount,
contingent upon the attainment of certain goals by the Company, subject to the
following terms and conditions:
A. Grant. The Committee shall determine the number of Performance Units
to be granted, if any, and the number of such shares and units for each
Performance Cycle, and shall determine the duration of each Performance
Cycle and the value of each Performance Unit. There may be more than one
Performance Cycle in existence at any one time, and the duration of
Performance Cycles may differ from each other.
B. Performance Goals. The Committee shall establish Performance Goals for
each Performance Cycle on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time determine. During any
Performance Cycle, the Committee, in its discretion, may adjust the
Performance Goals for such Performance Cycle as it deems equitable in
recognition of unusual or non-recurring events affecting the Company,
changes in applicable tax laws or accounting principles, or similar events.
C. Earned Awards. At the end of each Performance Cycle, the Committee
shall determine the number of Performance Units which have been earned by
Participants on the basis of performance in relation to the established
Performance Goals. The determination by the Committee shall be final and
binding.
D. Payment. At the expiration of a Performance Cycle, unless otherwise
provided in an Award Agreement, payment for Performance Units shall be in
(i) cash; (ii) shares of Common Stock; (iii) shares of Restricted Stock; or
(iv) in nonqualified stock options with an aggregate discount from Fair
Market Value not in excess of the value of the earned Performance Unit for
which payment is being made, in such proportions as the Committee shall
determine at the end of the Performance Cycle.
E. Termination of Employment. Unless otherwise provided in an Award
Agreement, a Participant must be an Employee at the end of a Performance
Cycle in order to be entitled to payment of Performance Units in respect of
such Performance Cycle, except that in the event of a Participant's death,
Disability or Retirement prior to the end of a Performance Cycle, the
Committee, in its discretion and after taking into consideration the
performance of such Participant and the performance of the Company during
that portion of the Performance Cycle, may authorize payment to such
Participant or his successor with respect to some or all of the Performance
Units deemed earned for that Performance Cycle. The determination of the
Committee shall be final and binding.
9.5 Restricted Stock. Restricted Stock may be contingently granted to a
Participant, subject to the following terms and conditions:
A. Grant. At the time of making a grant of Restricted Stock, the
Committee shall determine the number of shares of Restricted Stock to be
granted to each Participant, the duration of the Restricted Period
6
<PAGE>
after which, and the conditions under which, all or part of the Restricted
Stock may vest in the Participant, the price to be paid (if any) for the
Restricted Stock, and any terms and conditions of the Award in addition to
those contained in this Section 9.5, including, but not limited to, the
establishment of criteria which would permit the Restricted Stock to vest
on an accelerated basis.
B. Certificates and Payment. Certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by him, together with a stock power endorsed in blank, with the
Company. At the expiration of the Restricted Period, the Company shall
deliver to the Participant or his legal representative such certificates
representing shares which have vested.
C. Termination of Employment. Unless otherwise provided in an Award
Agreement: (i) in the event that a Participant ceases to be an Employee
during the Restricted Period for reasons other than death or Disability,
all shares of Restricted Stock which have not previously vested in the
Participant shall be forfeited to the Company, and (ii) in the event of a
Participant's death or Disability during the Restricted Period, the
restrictions imposed under the Award Agreement shall lapse and all shares
of Restricted Stock shall immediately vest in the Participant.
SECTION 10
PLAN TERMINATION, AMENDMENT OR CHANGE OF CONTROL
10.1 Plan Termination or Amendment. To the extent permitted by law, the
Board may amend, suspend, or terminate the Plan at any time; provided,
however, that with respect to incentive stock options, except as specified in
Section 6, no amendment may be adopted that will increase the number of shares
reserved for Awards under the Plan, change the option price, or change the
provisions required for compliance with Section 422 of the Code and
regulations issued thereunder. The amendment or termination of this Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Award previously granted hereunder.
10.2 Change of Control. In order to maintain the Participants' rights in the
event of a "Change of Control" of the Company, the Committee, in its sole
discretion, may, notwithstanding anything to the contrary contained in the
Plan or an Award Agreement, either at the time an Award is made or at any time
prior to or simultaneously with a "Change of Control": (i) provide for the
acceleration of any time periods relating to the exercise or realization of
such Awards so that such Awards may be exercised or realized in full on or
before a date fixed by the Committee; (ii) provide for the purchase of such
Awards by the Company, upon the Participant's request, for an amount of cash
equal to the amount which could have been attained upon the exercise or
realization of such rights had such Awards been currently exercisable or
payable; (iii) make such adjustment to the Awards then outstanding as the
Committee deems appropriate to reflect such change; or (iv) cause the Awards
then outstanding to be assumed or new rights of equivalent value substituted
therefor, by the successor corporation in such change.
"Change of Control" means the occurrence of: (i) a person (including a group
as defined in Section 13(d)(3) of the Securities Exchange Act of 1934)
becoming, directly or indirectly, the beneficial owner (as defined under the
Securities Exchange Act of 1934) of twenty-five percent (25%) or more of the
shares of Common Stock of the Company, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board, ceasing for any reason to constitute at least a majority of the
Board, unless the election of each director of the Board, who was not a
director of the Board at the beginning of such period, was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of such period, or (iii) the Company merging or
consolidating with or having its assets purchased by another corporation and
as a result of such merger, consolidation or sale of assets, less than a
majority of the outstanding voting stock of the surviving, resulting or
purchasing corporation being owned, immediately after the transaction, by the
holders of the voting stock of the Company outstanding immediately before the
transaction.
7
<PAGE>
SECTION 11
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option shall be exercisable, no Common Stock shall be awarded or issued,
no certificates for shares of Common Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all applicable federal
and state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares are now or may in the future be listed. The Company shall
have the right to rely on an opinion of its counsel as to such compliance. Any
share certificate issued to evidence Common Stock may bear such legends and
statements as the Committee may deem advisable to assure compliance with
federal and state laws and regulations.
No Option shall be exercisable, no Common Stock shall be awarded or issued,
no certificate for shares shall be delivered, and no payment shall be made
under this Plan until: (a) the Company has obtained such consent or approval
as the Committee may deem advisable from regulatory bodies having jurisdiction
over such matters, and (b) the Participant either: (i) authorizes the Company
to withhold in accordance with applicable law from any compensation payable to
the Participant, or (ii) agrees to remit to the Company (in either case as,
and upon such terms as, the Committee may require) any taxes required to be
withheld by the Company under federal, state or local law. A Participant may
(with the consent of the Company) authorize the Company to withhold shares
otherwise issuable to the Participant in order to satisfy any applicable tax
withholding requirements.
Without limiting the foregoing, the shares of Common Stock to be issued
under this Plan shall be registered as soon as practicable under the
Securities Act of 1933 by the Company by filing an appropriate registration
statement. No Option shall be exercisable, no Common Stock shall be awarded or
issued, and no certificates for shares of Common Stock shall be delivered
until such registration statement is effective.
SECTION 12
GENERAL PROVISIONS
12.1 Effect on Employment. No person shall have any claim or right to be
granted an Award and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any of
its subsidiaries. Neither the adoption of this Plan, its operation, nor any
documents describing or referring to this Plan, including, without limitation,
any Award Agreement, shall in any way affect any right and power of the
Company or any subsidiary of the Company to terminate the employment of any
person at any time with or without assigning a reason therefor.
12.2 Rights as a Stockholder. No Participant shall have any rights as a
stockholder with respect to any Award granted to him unless and until
certificates for shares of Common Stock are issued to him, except that in the
event an Award is made in the form of Restricted Stock, the Participant shall
have all rights of a stockholder (subject to the provisions of Section 9.5),
including but not limited to, the right to receive all dividends paid on such
shares (if any) and the right to vote such shares.
12.3 Notices. Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to the Company: (i) on the date it is
personally delivered to the Secretary of the Company at its principal
executive offices, or (ii) three business days after it is sent by registered
or certified mail, postage prepaid, addressed to the Secretary at such
offices. Notice shall be deemed delivered to a Participant: (i) on the date it
is personally delivered to him, or (ii) three business days after it is sent
by registered or certified mail, postage prepaid, addressed to him at the last
address shown for him on the records of the Company.
12.4 Indemnification. With respect to liabilities arising under or relating
to this Plan, the Company shall indemnify each member of the Committee and
each other officer or employee of the Company to whom any duty or power
relating to the Plan may be allocated or delegated, to the fullest extent
permitted under the laws of the Commonwealth of Pennsylvania and the Bylaws of
the Company.
8
<PAGE>
12.5 Governing Law. All questions pertaining to construction, validity and
effect of the provisions of this Plan and the rights of all persons hereunder
shall be governed by the laws of the Commonwealth of Pennsylvania.
12.6 Transferability. Awards may be sold, assigned, transferred, pledged or
otherwise encumbered, including, without limitation, by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations order
as defined by the Code. Upon the death of a Participant, an Award shall be
exercisable, to the extent permitted, by the Participant's estate or by a
person who acquired the right to exercise such Award by bequest or inheritance
or by reason of the death of the Participant. Notwithstanding anything to the
contrary herein, a Participant shall not sell, transfer or otherwise dispose
of any shares of Common Stock acquired pursuant to this Plan unless at least
six (6) months have elapsed from the date the Award was granted, if at the
time of such disposition the Participant is subject to Section 16 of the
Securities Exchange Act of 1934.
12.7 Unfunded Plan. The Plan, insofar as it provides for grants of Awards,
shall be unfunded, and the Company shall not be required to segregate any
assets that may at any time be represented by Awards under this Plan. Any
liability of the Company to any person with respect to any Awards under this
Plan shall be based solely upon any contractual obligations that may be
created pursuant to this Plan. No such obligation of the Company shall be
deemed to be secured by any pledge of, or other encumbrance on, any property
of the Company.
12.8 Rules of Construction. Headings are given to the sections of this Plan
solely as a convenience to facilitate reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law. All words herein shall be
construed to be of such number and gender as the context requires.
9
<PAGE>
EXHIBIT 10.4
AGREEMENT BETWEEN TCI AND PIERRE DESJARDINS
Date: July 29, 1996
POSITION: President And Chief Executive Officer of Total
- -------- Containment Inc. (TCI).
DUTIES: All of the company's worldwide activities, as well as
- ------ those of its subsidiaries, including the hiring of
personnel, the development and management of
budgets, financing, the development of the future
corporate mission, dealings with the board of
directors and shareholders, etc. The person in this
position reports directly to the board of directors.
SALARY: US$300,000 per year, payable according to the
- ------ company's practice as regards salaried executives.
OPTIONS: Grant of one option to purchase 225,000 shares at
- ------- market price on September 3, 1996, which option
may be exercised in whole or in part until September
3, 2001, as follows: a first portion of 75,000 shares as
of September 3, 1997, a second portion of 75,000
shares as of September 3, 1998 and a final portion of
75,000 shares as of September 3, 1999, or as of an
earlier date under the circumstances described
hereinafter.
TERM: Except in the event of the voluntary departure or
- ---- resignation of Pierre Desjardins, the term of the
contract shall be a minimum of three (3) years,
beginning September 3, 1996. This term shall be
extended for an additional year upon each anniversary
date as of the first anniversary date, unless TCI sends
a written note of non-renewal to Pierre Desjardins
prior to such anniversary date.
Nevertheless, TCI shall be entitled to terminate this
contract for cause. TCI shall also be entitled to
terminate this contract any time by giving a written
notice to Pierre Desjardins, provided that TCI
immediately pays to Pierre Desjardins a sum equal to the
total salary which TCI would have been obliged to
pay to him for the unexpired portion of the term, TCI
<PAGE>
-2-
continues to pay for the insurance coverage until the
end of the unexpired portion of the term, and provided
Pierre Desjardins is entitled to exercise all the
options which shall have been granted to him in order
to purchase all the shares covered by such options, even
if the exercise dates or the conditions precedent to
such exercise have not yet arrived or occurred, such
exercise right to extend for a period of twelve (12)
month following the company's notice.
The sale of all or a material portion of the business,
the amalgamation of TCI with another company, any change
of control of TCI or its main shareholder, or the
reduction of the duties assigned to Pierre Desjardins
may be treated by Pierre Desjardins as a notice of
resiliation of the contract by TCI upon Pierre
Desjardins simply giving a written confirmation thereof
to TCI, in which case the above-mentioned effects shall
result.
OTHER MATTERS: TCI undertakes to provide or pay for the following
- ------------- items:
- business expenses in accordance with the usual
industry standards for this type of position;
- United States work permit;
- travel between Montreal and TCI;
- lodging in Philadelphia/OAKS;
- car leasing and expenses;
- insurance (life, disability, health,
hospitalization, medical care and dental care)
providing the same benefits and privileges in the
United States as those available to a chief
executive officer of a company in Quebec;
- in the event of a relocation: relocation,
transportation and brokerage costs; return trip
to Montreal;
<PAGE>
-3-
- financial consultant;
- social/business club.
DATE: August 14, 1996
/s/ Pierre Desjardins
------------------------------
PIERRE DESJARDINS
DATE: Aug. 28, 1996
/s/ Marcel Dutil
-----------------------------
TOTAL CONTAINMENT INC.
<PAGE>
EXHIBIT 10.11
RELEASE OF ALL CLAIMS/SETTLEMENT AGREEMENT
------------------------------------------
AGREEMENT made this 5th day of March, 1996 between TOTAL CONTAINMENT,
INC., a Delaware Corporation (the "Company") and JAMES LAWRENCE ("Lawrence").
BACKGROUND OF AGREEMENT
-----------------------
Lawrence is employed by the Company and desires to tender his resignation
effective as of the date of this Agreement. The Company and Lawrence have
negotiated a RELEASE OF ALL CLAIMS/SETTLEMENT AGREEMENT (sometimes hereinafter
referred to as the "Agreement") relative to his termination of employment with
the Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
herein contained and intending to be legally bound hereby, agree as follows:
1. Lawrence hereby resigns as an employee, officer and member of the Board
of Directors of the Company effective as of the date of this Agreement.
2. The Company agrees to pay, as severance to Lawrence, the sum of One
Hundred Seventy Thousand Dollars ($170,000.00), for the balance of 1996, payable
in the form of (i) Lawrence's current rate of salary (semi-monthly payments of
$7,500.00 each)at the times of normal Company payroll payments (commencing with
payroll payments due in March 1996) and (ii) four (4) quarterly payments of Five
Thousand Dollars ($5,000.00) each on March 31, June 30, September 30 and
December 31, 1996, commencing after
<PAGE>
execution of this Agreement and after a seven (7) day revocation period has
expired. All payments shall be less required employee withholding for taxes,
social security etc. In addition, Lawrence shall continue to receive health
insurance benefits until December 31, 1996; provided, however, should Lawrence
find new employment, health insurance benefits shall only be continued if not
provided by his new employer. All insurance continuation is subject, as
appropriate, to COBRA requirements.
3. Effective with the date of this Agreement, Lawrence shall no longer have
any expense account, right to reimbursement for expenses, or car allowance. Any
and all Company credit cards shall be returned upon execution of this Agreement.
4. Company agrees to pay to Executive Career Resource Group, together with
the first payment due under Section 2 of this Agreement, the sum of Twelve
Thousand Dollars (S12,000.00), representing fees for out-placement services
incurred or to be incurred by Lawrence based upon invoices or proposals
previously submitted for approval to the Company through Bernard Gouin, its
designated representative for purposes of review and approval of those items.
5. Lawrence does hereby remise, release, and forever discharge the Company,
its subsidiaries and affiliates and its and their current and former officers,
directors, employees and agents, in their official and individual capacities,
and its and their representatives, successors and assigns, heirs, executors and
administrators (hereinafter collectively and/or individually
2
<PAGE>
referred to, as the case may be as "TCI") of and from all manner of actions and
causes of action, suits, debts, dues, accounts, bonds, covenants, contracts,
agreements, judgments, claims, and demands whatsoever in-law or equity,
especially from any and all claims for damages, expenses, wages, severance pay,
vacation pay, fringe benefits, emotional distress, or other monies or
accountings, including, but not limited to, compensation or benefits on account
of or relating to his employment or separation from employment with the Company,
(including any of the foregoing arising out of Lawrence's Employment Agreement
with the Company dated February 26, 1994 (the "Employment Agreement")), or any
other reason whatsoever relating to the Company's actions prior to Lawrence's
signing this Agreement, including punitive damages, liquidated damages,
exemplary damages, or compensatory damages, physical, mental, or emotional
distress, pain and suffering, back pay, front pay, severance pay, costs and
attorneys' fees, and any other legal or equitable relief arising out of
Lawrence's employment or separation from employment or any efforts for rehire,
reemployment, or employment with the Company, or which did, could, or should
have arisen or have been alleged or stated in any complaint or charge and
including, but not limited to, claims which could have been or were instituted,
filed, or otherwise processed or started before, with, or to any state or
federal court or any local, state, or federal agency against TCI, which Lawrence
ever had, now has, or which his heirs, executors, administrators, successors, or
assigns, or any
3
<PAGE>
of them, hereafter can, shall, or may have for, or by reason of any cause,
matter, or thing whatsoever, whether known or unknown, from the beginning of the
world to the date of this RELEASE OF ALL CLAIMS/SETTLEMENT AGREEMENT, including
but not limited to, any causes as might arise under or through any federal or
state constitutions, statutes; regulations, or policies (collectively
"Employment Laws"), including, but not limited to, the Age Discrimination in
Employment Act, the Older Workers' Benefit Protection Act, the Human Relations
Act of the Commonwealth of Pennsylvania, Title VII of the Civil Rights Act of
1964, as amended, any federal, state, and local statute or law relating to
hours, wages, and other terms and conditions of employment or fair employment
practices, or other employment discrimination, any other federal, state, or
local statute, or any other cause of action, referring or concerning
discrimination on account of age, race, sex, national origin, or color, the Fair
Labor Standards Act, any wage and hour laws of the Commonwealth of Pennsylvania,
or any of its counties, cities, or other subdivisions, any federal, state, or
local Civil Rights and/or Human Rights laws, Fair Employment codes or laws or
labor codes, any Vocational or Fair Employment codes or laws or labor codes, any
Vocational or Rehabilitation or Handicap Act, Statute, or Regulation, Employee
Retirement Income Security Act, as amended, any other health, medical, or fringe
benefit, related statute, law, or rule, workers' compensation laws, the common
law, civil codes, constitution, actions in tort or wrongful discharge or breach
of
4
<PAGE>
contract, or breach of covenant or good faith and fair dealing, or express or
implied public policy of the United States, Commonwealth of Pennsylvania, or any
other state. Notwithstanding anything in this Paragraph to the contrary, this
Release is not intended to preclude Lawrence from making claims under the
Pennsylvania Worker's Compensation Act, for unemployment compensation or for any
vested benefits under any qualified employee benefit plan, nor is it intended to
waive any claim Lawrence may have for breach of this Agreement by Company.
6. Lawrence warrants and acknowledges as follows:
(a) that Lawrence has read the terms of this Agreement and that Lawrence
understands its terms and effects, including the fact that Lawrence has agreed
to RELEASE AND FOREVER DISCHARGE TCI from any legal or equitable action arising
out of Lawrence's Employment Agreement, employment relationship with the
Company, the terms and conditions of that employment relationship and the
termination of that employment relationship;
(b) that Lawrence has signed this Agreement voluntarily and knowingly in
exchange for the consideration described herein, which Lawrence acknowledges is
adequate and satisfactory to him;
(c) that the payments, benefits, promises and undertakings set forth
herein exceed and are greater than the payments and benefits, if any, to which
Lawrence would have been entitled upon resignation or termination of his
employment with the Company had Lawrence not executed this Agreement;
5
<PAGE>
(d) that Lawrence has been advised to consult with an attorney concerning
this Agreement;
(e) that Company has provided Lawrence with a period of twenty-one (21)
days in which to consider this Agreement and that Lawrence has signed on the
date indicated below after concluding that this Agreement is satisfactory to
Lawrence; and
(f) that neither the Company nor any of its agents, representatives,
employees or attorneys have made any representations to Lawrence construing the
terms or effect of this Agreement other than those contained in this Agreement.
7. Lawrence agrees and recognizes that his employment relationship with the
Company has been terminated, and that the Company has no obligation, contractual
or otherwise, to employ or appoint Lawrence in the future.
8. Lawrence warrants and understands that as a condition of this RELEASE OF
ALL CLAIMS/SETTLEMENT AGREEMENT, Lawrence is PRECLUDED FROM DISCLOSING, directly
or indirectly, any of the terms and conditions of this settlement to any person,
place, or, thing whatsoever except his immediate family, attorney and
accountant.
9. Company agrees that it shall be PRECLUDED FROM DISCLOSING, directly or
indirectly, any of the terms and conditions of this Settlement to any person,
place or thing whatsoever except the Board of Directors, Executive Officers of
the Company, the Company's attorneys and accountants and, to the extent required
in any Securities and Exchange Commission filings. In addition,
6
<PAGE>
the Company shall be free to disclose to its customer base and the general
industry that Lawrence is no longer employed by the Company.
10. (a) Lawrence hereby acknowledges and recognizes the highly
competitive nature of the Company's business and accordingly agrees that, for a
period of three (3) years following the date hereof Lawrence shall not:
(i) be engaged, directly or indirectly, either for his own account or
as agent, consultant, employee, partner, officer, director, proprietor,
investor, or otherwise by any person, firm, corporation, or enterprise engaged,
within the restricted territory, in any activity in which the Company was
engaged during the time of Lawrence's employment; or
(ii) render financial or other assistance to any person, firm,
corporation, or enterprise engaged, within the restricted territory, in any
activity in which the Company was engaged during the time of Lawrence's
employment.
(b) For purposes of this Section 10: (i) the phrases "Company's
business" or "activity in which the Company is engaged during the time of
Lawrence's employment" shall be deemed to include, but not be limited to, the
design, manufacture, marketing, distribution, engineering, sale and servicing of
systems and all components thereof for the conveyance and containment of
petroleum or alcohol based motor vehicle or other fuels (including, without
limitation, gasoline, gasohol and oil) from underground storage tanks to above
ground product dispensers or
7
<PAGE>
machinery and equipment which uses such fuels, but excluding any products and/or
services not currently under development by or being marketed by the Company
(ii) the term "restricted territory" shall mean: (A) the United States,
including its territories and possessions, (B) Canada, and (C) any other foreign
country in which the products and/or services of the Company or of any of its
subsidiaries were sold during the time of Lawrence's employment.
(c) Lawrence, in connection with this Section 10, represents and
acknowledges that he is fully familiar with all the existing products and
services of the Company, products under development and the general business of
the Company.
11. Lawrence acknowledges that the Company's trade secrets, as they may
exist from time to time, and confidential information concerning the Company's
business, products, technical information, sales activities, procedures,
promotion, pricing techniques, customer lists, and credit and financial data
concerning customers are valuable, special, and unique assets of the Company,
access to and knowledge of which were essential to the performance of Lawrence's
duties under the Employment Agreement. In light of the highly competitive nature
of the industry in which the business of the Company is conducted, Lawrence
further agrees that all knowledge and information described in the preceding
sentence not in the public domain, and known by Lawrence as a result of
Lawrence's employment by the Company, shall be considered confidential
information. In recognition of this
8
<PAGE>
fact, Lawrence agrees that Lawrence will not disclose any of such confidential
information to any person or other entity for any reason or purpose whatsoever,
nor shall Lawrence make use of any such confidential information for Lawrence's
own purposes or for the benefit of any person or other entity under any
circumstances. For purposes of this Section 11, trade secrets and confidential
information of the Company shall be deemed to include all trade secrets and
confidential information of the Company and its affiliates or subsidiaries.
12. Lawrence hereby agrees that he shall not solicit for the purpose of
hiring any employees of the Company, or its affiliates or subsidiaries for a
period of three (3) years after the date of this Agreement.
13. Lawrence acknowledges that under Section 10 of the Employment Agreement
Lawrence was required to promptly disclose, grant and assign to the Company for
its sole use and benefit any and all inventions, improvements, technical
information, patent applications and suggestions, relating in any way to
existing products or those products under consideration for development, of the
Company or any affiliate of the Company, or capable of beneficial use by
customers to whom products of the Company or any affiliate of the Company are
sold which Lawrence had in the past and/or during his employment with the
Company, conceived, developed or acquired (whether or not during usual working
hours), and reissues thereof that may at any time be granted for or upon any
such invention, improvement, technical information,
9
<PAGE>
patent applications and suggestions (collectively the "Concepts"). Therefore,
Lawrence agrees that Lawrence shall promptly at all times during and after the
date hereof:
(a) execute and deliver such applications, assignments, descriptions and
other instruments as may be necessary or proper, in the sole opinion of the
Company to vest in the Company title to such Concepts and to enable Company to
obtain and maintain the entire right and title thereto throughout the world; and
(b) render to the Company at Company's expense all such assistance as it
may require in the prosecution of applications for said Concepts or reissues
thereof, in the prosecution or defense of interference or infringement which may
be declared, involving any such Concepts, and in any litigation in which the
Company or its affiliates or subsidiaries may be involved relating to any such
Concept.
14. (a) Lawrence acknowledges and agrees that the Company's remedy at law
for a breach or threatened breach of any of the agreements or restrictions
contained in this RELEASE OF ALL CLAIMS/SETTLEMENT AGREEMENT would be inadequate
and, in recognition of this fact, in the event of a breach or threatened breach
by Lawrence of any of the agreements or restrictions contained in this RELEASE
OF ALL CLAIMS/SETTLEMENT AGREEMENT, it is agreed that, in addition to any remedy
at law, the Company shall be entitled to request equitable relief in the form of
specific performance, temporary restraining order, temporary or
10
<PAGE>
permanent injunction, or any other equitable remedy which may then be available,
and Lawrence agrees not to oppose such request on the grounds that equitable
relief is not appropriate. Nothing herein contained shall be construed to
preclude any other remedies available to Company for such breach or threatened
breach. If the Company is obliged to resort to the Courts for the enforcement of
any of the agreements or restrictions contained in this RELEASE OF ALL
CLAIMS/SETTLEMENT AGREEMENT, or if such agreements or restrictions are otherwise
the subject of litigation between the parties, then the terms of such agreements
or restrictions shall be extended for a period of time equal to the period of
such breach, which extension shall commence on the latter of (1) the date on
which the original (unextended) term of such agreements or restrictions is
scheduled to terminate or (2) the date of the final court order (without further
right of appeal) enforcing such agreements or restrictions.
(b) It is expressly understood and agreed that although Lawrence and the
Company consider the agreements and restrictions contained in Sections 8, 9, 1O,
11, 12 and 13 of this Agreement reasonable for the purposes of preserving for
the Company, and its affiliates or subsidiaries, their good will and other
proprietary rights, if a final judicial determination is made by a court having
jurisdiction that the time, territory or any other agreement or restriction
contained in Sections 8, 9, 10, 11, 12 and 13 of this Agreement is an
unreasonable or otherwise unenforceable agreement or restriction against
Lawrence, the
11
<PAGE>
provisions of Sections 8, 9, 10, 11, 12 and 13 of this Agreement shall not be
rendered void but shall be deemed amended to apply, as to such maximum time and
territory and to such other extent, as such court may judicially determine or
indicate to be reasonable.
(c) It Lawrence breaches this RELEASE OF ALL CLAIMS/SETTLEMENT AGREEMENT,
the Company, in addition to any other rights and remedies, shall be entitled to
set aside and rescind any relief it has agreed to provide Lawrence, and Company
shall be entitled to the return of all monies or benefits tendered to, or on
behalf of Lawrence, as part of this RELEASE OF ALL CLAIMS/SETTLEMENT, together
with reasonable attorneys' fees, and such other relief, including injunctive,
against Lawrence as the Court deems just.
15. Lawrence understands and acknowledges that he may revoke this RELEASE
OF ALL CLAIMS/SETTLEMENT AGREEMENT within seven (7) days after execution.
Lawrence further understands and acknowledges that this RELEASE OF ALL
CLAIMS/SETTLEMENT agreement will not become effective or enforceable, and
further payments will not commence until this seven (7) day revocation period
has passed.
16. Any vested rights to exercise options for Company stock which Lawrence
currently has must be exercised and paid for no later than the date of execution
of this Agreement or be forfeited. All non-vested options or incentive rights
for Company stock
12
<PAGE>
are otherwise terminated as to Lawrence, effective as of the date of execution
of this Agreement.
17. Any notices due or sent pursuant to the terms of this Agreement shall
be sent by certified mail return receipt requested, or by same day or overnight
courier service as follows:
To: Lawrence:
James Lawrence
P.O. Box 166
Oaks, PA 19456
To: Company:
Total Containment, Inc.
422 Business Center
A-130 North Drive
P.0. Box 939
Oaks, PA 19456
Attention: Marc Guindon
Notices sent by certified mail return receipt requested shall be deemed given
two (2) days after the date of mailing and if by same day or overnight courier
service, one (1) day after delivery to such courier service.
18. This Agreement constitutes the entire agreement among the parties and
may not be amended or modified except in writing signed by the parties hereto.
19. This Agreement is intended to be governed by and construed under the
laws of the Commonwealth of Pennsylvania.
20. This Agreement is intended to be binding upon and inure to the benefit
of the parties hereto their heirs, executors, administrators, successors and
assigns.
13
<PAGE>
21. Lawrence agrees to make himself available upon reasonable notice for
all of calendar years 1996, 1997 and 1998, to provide services as a witness,
consultant or otherwise to the Company with regard to any existing and/or future
claims, disputes or litigation involving the Company. In exchange for providing
the foregoing services to the Company, Company agrees to pay to Lawrence the sum
of $10,000 at the end of each calendar quarter in the years 1997 and 1998
commencing March 31, 1997. In addition, Company shall reimburse Lawrence for any
and all reasonable expenses incurred for travel, food and lodging in conjunction
with any requests by Company to have Lawrence make himself available as provided
herein. Should it be determined, at the end of calendar year 1998, that during
calendar years 1997 and 1998, the amount of hours required to be spent by
Lawrence in performing the services required under this Section 21, exceeds 800
hours, Lawrence shall be compensated at the rate of $100.00 per hour for each
hour over and above the 800 hours of service. "Hours of service" shall include
only travel, witness preparation, depositions, discovery, interrogatories,
meetings and preparatory work by Lawrence as agreed in advance by TCI.
IN WITNESS WHEREOF, the parties have duly executed this RELEASE OF ALL
CLAIMS/SETTLEMENT AGREEMENT THIS 5th day of March, 1996.
/s/ James Lawrence
------------------------------
JAMES LAWRENCE
[SIGNATURES CONTINUED ON THE NEXT PAGE]
14
<PAGE>
TOTAL CONTAINMENT, INC.
By: /s/ Marc Guindon
-----------------------------
Its: Chairman
-----------------------------
15
<PAGE>
STATE OF PENNSYLVANIA :
: SS
COUNTY OF DELAWARE :
On this, the 5th day of March, 1996, before me, the undersigned officer,
personally appeared JAMES LAWRENCE, known to me or satisfactorily proven to be
the person whose name is subscribed to the foregoing instrument and acknowledged
that he executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Sally A. Scully
------------------------------
Notary Public
My Commission Expires:
NOTARY SEAL
SALLY A. SCULLY, Notary Public
Radnor, Delaware County
My Commission Expires Sept. 23, 1996
16
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:
COUNTY OF MONTGOMERY :
On this, the 6th day of March, 1996, before me, the undersigned officer,
personally appeared Marc Guindon, who acknowledged himself to be the Chairman of
TOTAL CONTAINMENT, INC., and that he, being authorized to do so, executed the
within instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Wendy M. Schilling
-----------------------------
Notary Public
My Commission Expires:
NOTARY SEAL
Wendy M. Schilling, Notary Public
Upper Providence Twp., Montgomery County
My Commission Expires Nov. 29, 1996
17
<PAGE>
Exhibit 11
Total Containment, Inc.
Statement Re: Computation of Earning Per Share
(Unaudited)
<TABLE>
<CAPTION>
For the year ended
December 31,
1996 1995
------------------
(In 000's
except per share data)
<S> <C> <C>
Primary:
Average shares outstanding 4,642 4,642
1996 Options were anti-dilutive - -
1995 Options were anti-dilutive - -
----- -------
Totals 4,642 4,642
===== =======
Net Income (loss) 398 ($2,248)
===== =======
Per Share amount $0.09 ($0.48)
===== =======
Fully diluted:
Average shares outstanding 4,642 4,642
1996 - Options were anti-dilutive - -
1995 - Options were anti-dilutive - -
----- -------
Totals 4,642 4,642
===== =======
Net income (loss) 398 ($2,248)
===== =======
Per Share amount $0.09 ($0.48)
===== =======
</TABLE>
<PAGE>
EXHIBIT 21
List of Subsidiaries of
Total Containment, Inc.
Name Place of Organization
- ---- ---------------------
TCI Environment NV/SA Belgium
Rene Morin, Inc. Delaware
American Containment, Inc. Delaware
FMW, Inc. Delaware
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-83486) of Total Containment, Inc. of our report
dated March 7, 1997 appearing on page 8 of the 1996 Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 11 of such Form 10-K.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 616
<SECURITIES> 0
<RECEIVABLES> 7,503
<ALLOWANCES> (50)
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0
0
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