<PAGE>
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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, 1998,
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)
----------------
Pennsylvania 23-2394872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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422 Business Center, A130 North Drive, 19546
P.O. Box 939, Oaks, Pennsylvania (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (610)666-7777
----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
(Title of Class)
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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. [ ]
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 26, 1999, was $12,115,050.
As of February 26, 1999 the Registrant had 4,652,600 shares of Common Stock
outstanding.
Documents incorporated by reference. Portions of the 1998 Annual Report to
Shareholders 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 16, 1999 are incorporated
by reference into Part III of this Report.
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or
loss per share, capital expenditures, growth prospects, dividends, the effect
of currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements
of assumptions, such as the prevailing weather conditions in the Company's
market areas, underlying other statements and statements about the Company or
its business.
31
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TOTAL CONTAINMENT, INC.
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
ITEM 1. BUSINESS........................................................... 33
ITEM 2. PROPERTIES......................................................... 37
ITEM 3. LEGAL PROCEEDINGS.................................................. 38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 39
ITEM 4A.EXECUTIVE OFFICERS OF THE REGISTRANT............................... 39
</TABLE>
PART II
<TABLE>
<S> <C>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS........................................................... 40
ITEM 6. SELECTED FINANCIAL DATA........................................... 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................. 40
</TABLE>
PART III
<TABLE>
<S> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 42
ITEM 11. EXECUTIVE COMPENSATION............................................ 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 42
</TABLE>
PART IV
<TABLE>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 43
</TABLE>
32
<PAGE>
PART I
ITEM 1. BUSINESS
Total Containment, Inc. (the "Company") was incorporated in the State of
Pennsylvania. 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. The Company has
transferred this business from ACI to the Company. During 1997, the Company
caused ACI to focus on the custom part service business, as well as on becoming
the field technical arm of the Company. The Company believes that this action
will complement the Company's parts business, enhance its field level expertise
and provide an additional resource to its customers.
Rene Morin, Inc., a wholly owned subsidiary, fabricates rubber components
mainly for the Company. TCI-Environment NV provides sales support for the
Company's products in Europe.
PRINCIPAL PRODUCTS
The principal products of the Company and their primary features are
summarized in the following table:
<TABLE>
<S> <C> <C>
Enviroflex(R) A flexible double-wall --Double-wall
pipe for the conveyance construction provides
and secondary contain- primary pipe protection
ment of motor vehicle and secondary
fuels from underground containment
storage tanks
to product dispensers --Flexible
--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
</TABLE>
33
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<TABLE>
<S> <C> <C>
Sump/risers Liquid-resistent access --Secondary containment
chambers made from
fiberglass or polyethyl- --Mounted on all types
ene for submersible of underground storage
pumps and other fittings tanks
attached to underground --Provides easy above-
storage tanks and fit- ground access to pumps
tings
--Sumps and risers can
be stacked and trimmed
to achieve required
burial depth
Dispenser sumps Liquid-resistant second- --Secondary containment
ary containment chambers
made from fiberglass or --UL-approved mounting
polyethylene for above frames, brackets and
ground fuel dispensers stabilizer bars
--Provides aboveground
access to dispenser
valves, joints and
connectors--
--Polyethylene and
fiberglass
construction--
--Certain features
protected by patent
Bulkhead fittings and Specially designed fit- --Ease of installation
reducers tings used to seal
pipe/sump
connections --Thermoplastic
construction
--Certain features
protected by patent
Tank Jacket(R) A polyethylene jacket --Secondary containment
that provides secondary
containment and corro- --UL-approved secondary
sion protection for containment and
rigid fiberglass or corrosion protection
steel underground stor- jacket
age tanks
--Certain features
protected by patents--
--UL-approved for
gasoline and gasohol
--Less expensive than
fiberglass tanks
--Ease of transportation
--Polyethylene
construction
--Certain features
protected by patent
</TABLE>
The Company discontinued its Pipe Jacket product line in 1995.
34
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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 1995, 1996 and 1997 are set forth in the
following table:
Sales and Percentages of Total Sales
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Enviroflex and other piping....... $16,912 44.8% $19,550 42.8% $21,709 40.5%
Sump/risers and bulkhead fittings
and reducers..................... 8,374 22.2 10,168 22.3 14,489 27.0
Dispenser sumps................... 4,876 12.9 5,060 11.1 5,746 10.7
Tank Jacket....................... 6,008 15.9 6,109 13.4 5,800 10.8
Pipe Jacket....................... 624 1.7 485 1.1 51 0.1
Installation...................... -- -- 1,977 4.3 4,517 8.4
Applicator equipment and other.... 936 2.5 2,300 5.0 1,270 2.5
------- ----- ------- ----- ------- ----
Totals.......................... $37,730 100.0% $45,649 100.0% $53,582 100%
======= ===== ======= ===== ======= ====
</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, 1997 and 1998 were $12.7 million, $12.5 million and $10.1
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
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net Sales:
United States........................................ $25,001 $33,128 $41,950
Canada............................................... 1,566 1,463 1,646
Mexico, Central and South America.................... 6,028 6,412 5,059
Europe and the Middle East........................... 3,761 3,536 3,781
Southeast Asia, Australia and New Zealand............ 1,374 1,110 1,146
------- ------- -------
Total.............................................. $37,730 $45,649 $53,582
======= ======= =======
</TABLE>
Information relating to foreign operating income and foreign assets is set
forth in Note 14 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.
35
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NEW MANUFACTURING LINE
In the fourth quarter of 1997, the Company completed the installation of a
new primary pipe manufacturing line at its Oaks, Pennsylvania facility. Prior
to such completion, the Company, since its inception, had purchased its primary
pipe from Dayco Products, Inc., a subsidiary of Mark IV Industries. See Note 12
of Notes to Consolidated Financial Statements and "Item 3. Legal Proceedings."
With this new manufacturing equipment, the Company was able to redesign and
significantly improve certain important features of the Enviroflex(R) and
Omniflex(R) primary pipes. This primary pipe carries the approval of
Underwriters' Laboratories.
Also, the Company finalized the design and began producing a new pipe for
use in remote fill applications. This pipe is a 4 inch corrugated composite
extrusion with field attachable fittings. The Company expects that this pipe
will be sold principally overseas.
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 1996, the Company's backlog of orders averaged less than
$770,000. In 1997, the backlog averaged $1.7 million. In 1998, the backlog
averaged less than $1.5 million. 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 of which are
fiberglass manufacturers, as well as Environ Products, Inc., a manufacturer of
flexible piping systems, and a new competitor of the Company, OPW Fueling
Components ("OPW"), a division of Dover Resources, Inc. (See "Item 3--Legal
Proceedings"). Many of these companies have greater financial resources than
the Company.
The Company's primary competition for Tank Jacket 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
In the fourth quarter of 1997, the Company began manufacturing the primary
pipe component of its Enviroflex and Omniflex flexible piping systems. Prior
thereto, the Company purchased its primary pipe from Dayco Products, Inc., a
subsidiary of Mark IV Industries (See Item 3--"Legal Proceedings"). The Company
also manufacturers its Tank Jacket product, as well as molded bulkhead
fittings, other seals, fiberglass tanks and dispenser sumps.
36
<PAGE>
Ten suppliers provide the Company approximately 75% of its purchases. In
1997, the Company entered into a written supply contract with Cleveland Tubing,
Inc. (which manufactures various extruded pipes for the Company, including the
Enviroflex secondary pipe). The Company does not have any written supply
contracts with any other principal suppliers.
PATENTS AND TRADEMARKS, LICENSING AGREEMENTS
The Company derives revenues from the sale of Enviroflex and Omniflex piping
systems and its Tank Jacket product, certain features of which are covered by
patents owned by, assigned to, or licensed to the Company. The Company relies
on its intellectual property rights to protect its interest in these design
features.
The Company had the right to practice certain claims with respect to piping
used in the Enviroflex and Omniflex system pursuant to an exclusive worldwide
license (the "license") with respect to patents owned by OPW, which also
possessed the right to practice these claims. Due to a judicial order issued in
September 1998 in litigation between the Company and Environ Products, Inc.,
which declared invalid the patent licensed by the Company, the company wrote
off in 1998 approximately $3.7 million of current unamortized cost of the
patent license.
Under the license, the Company was obligated to pay a royalty of three
percent of net sales of the Company attributable to products covered by the
patents to OPW, payable quarterly, with a minimum payment of $75,000 per
calendar quarter. On April 1, 1994, the Company paid an advance of $1.5 million
against the royalties. The Company used the last of the prepaid royalties
during the fourth quarter of 1997. Beginning with the third quarter of 1998 the
Company ceased paying the quarterly royalty. For information relating to
litigation with OPW, see "Item 3. Legal Proceedings." See also "Competition."
The Company does not believe that the loss of the patent has had or will have a
material adverse effect on its business. (See Note 12 of Notes to Consolidated
Financial Statements).
The Company also relies on unpatented proprietary information to maintain
and promote its commercial position.
EMPLOYEES
As of December 31, 1998, the Company employed 305 persons, of whom 17 were
engaged in marketing and sales; 4 of whom were engaged in research and
development; 136 of whom were engaged in manufacturing and assembly; 90 of whom
were engaged in field service installations; and 58 of whom 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 125,000 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.
Rene Morin, Inc. a wholly owned subsidiary of the Company, operates from a
12,000 square foot leased facility located in Plainfield, Connecticut.
American Containment, Inc. operates from several leased buildings, totaling
approximately 10,000 square feet, located in Bakersfield, California.
TCI-Environment NV, a wholly owned subsidiary of the Company, operates from
an office and warehouse space located in Antwerp, Belgium.
37
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ITEM 3. LEGAL PROCEEDINGS
In January, 1998 the Company settled and terminated litigation with two
competitors who claimed that they possessed licenses to manufacture and sell
underground systems with retractability and other features covered by patents
licensed to the Company. The purported licensees acknowledged that whatever
license rights they had were terminated and the Company paid $1.6 million to
them.
Two cases were pending in the Eastern District of Pennsylvania, in which the
Company, as exclusive licensee of these certain patents, and the licensor of
those patents sought money damages and an injunction due to patent infringement
by Environ Products, Inc.("Environ") and Environ sought a declaration of
invalidity of the patents, non-infringement, and unenforceability. These cases
were to be tried in the Fall of 1998. The court issued an Order September 29,
1998 which, among other things, granted Environ's motions for summary judgment
of invalidity of the patents and non-infringement by Environ. This constituted
a final judgment of all issues which were material to these cases, and the
licensor has filed an appeal to the U.S. Court of Appeals, Federal Circuit. As
a result of this decision, the Company wrote off during 1998 the current
unamortized cost of this license, which was approximately $3.7 million.
During 1997, the Company initiated a legal action against Dayco Products,
Inc., a subsidiary of Mark IV Industries, in the United States District Court
for the Eastern District of Pennsylvania seeking, among other things, a
judicial determination that Dayco breached the provisions of two Supply
Agreements, entered into in 1990 and 1993 for the sale of primary pipe. The
Complaint alleges that Dayco supplied pipe that was defective because it was
susceptible to microbial fungus. In its suit, the Company requests that the
Court award damages to cover, among other things, the cost of inspecting and
replacing defective pipe and related costs in an amount to be determined at
trial and for further appropriate relief. The Company, in consultation with its
legal counsel, believes that it is more likely than not that the Company will
prevail with respect to its material claims. (See "Significant Accounting
Policies--Warranty Reserve.") As of January 1, 1999 the Company has entered
into a contingency fee arrangement with its legal counsel whereby the Company
will only pay for out-of-pocket expenses for the remainder of the discovery
period and the trial-related costs.
A legal action was filed in the Fifth Circuit Court of the State of Hawaii
on September 16, 1997 by JJR Inc., James Jasper Enterprises, Inc., and others
with interests in a retail shopping center on the Island of Kauai, Hawaii,
against the Company, Dayco, and Senter Petroleum, Inc. for damages allegedly
resulting from the failure of the Company's Enviroflex piping system on or
about August 12, 1996 at The Little Gas Shack (the "Shack"), a retail gasoline
service facility supplied by Senter adjacent to the shopping center. The
complaint alleges that more than 1,800 gallons of gasoline were released onto
the property occupied by the Shack and the adjacent businesses and into a
nearby stream and the harbor where the shopping center was located. Although
the amount sought by the plaintiffs is not specified in the Compliant, the
attorney retained by the Company's insurance carrier has ascertained that
plaintiffs are seeking approximately $23 million in damages. The Company has
and maintains insurance with policy limits at the time of this claim of $3
million which may respond to this claim, however, the amount claimed exceeds
the liability limits. Under the Dayco Supply Agreement, Dayco is required to
indemnify and hold the Company harmless from all claims and suits by third
parties based upon the manufacture of Enviroflex primary pipe or the
performance by Dayco of its obligations under the Agreement. Dayco, has not, as
yet, agreed to honor this obligation. The Company has commenced litigation to
enforce its rights against Dayco. Based upon the Company's investigation to
date, the Company believes that the Enviroflex secondary containment system
functioned properly to contain the overflow and was not responsible for the
release, and that any loss was caused by the failure of equipment manufactured
and supplied by third parties. The Company believes that plaintiff's claims are
grossly excessive and intends to vigorously defend its position. The Company
believes that it has no material uninsured liability in connection with this
matter and that if it does, it is covered by Dayco's contractual indemnity.
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.
38
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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........ 57 President and Chief Executive Officer
Jeffrey A. Boehmer....... 33 Vice President Operations
Richard DiMaggio......... 40 Vice President
Homer N. Holden.......... 62 Vice President--Research and Product Development
Keith R. Ruck............ 37 Vice President Finance and Chief Financial Officer
John R. Wright, Jr....... 38 Vice President Marketing and Engineering
</TABLE>
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. In April 1997, Mr. Desjardins was elected Chairman of
the Board for the Company. 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 of 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. He is also a director of The Canam Manac Group, Inc., a publicly owned
Canadian industrial corporation engaged in the manufacture of construction
steel components and trailers in Canada, the United States, France and Mexico.
He is also a director of Uni-Select Inc., a publicly owned, Canadian company
engaged in the distribution of parts and systems for motor vehicles.
Jeffrey A. Boehmer joined the Company as an accountant in 1987. From 1990
until 1996, Mr. Boehmer served as Operations Manager. He served as Vice
President Operations from January 1996 until June 1997, and as Vice President
Finance from June 1997 until December 1997. Mr. Boehmer presently serves as
Vice President of Operations. Mr. Boehmer has also served as Secretary of the
Company from 1994 to December 1998.
Richard DiMaggio joined the Company as part of its acquisition of American
Containment, Inc. ("ACI") in 1996. Mr. DiMaggio has been the President of ACI
since 1993 and was elected Vice President of the Company in April 1998.
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.
Keith R. Ruck joined the Company in April 1998 as Vice President Finance
and Chief Financial Officer. Previously Mr. Ruck had been Corporate Controller
from December 1994 to April 1998 and Assistant Controller from July 1993 to
December 1994 for InterDigital Communications Corporation, a wireless
telecommunications company. Mr. Ruck began his career with Arthur Andersen LLP
and has held a variety of accounting and financial positions with public
companies.
John R. Wright, Jr. joined the company in June 1997 as Vice President
Operations. In December 1998, he became Vice President of Marketing and
Engineering. From 1982 to 1997 Mr. Wright was Director of Materials Management
for Lukens, a specialty steel manufacturer. Prior responsibilities at Lukens
included Corporate planning, manager, and various sales positions.
39
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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 National Market System ("Nasdaq NMS") 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 26, 1999, the Company had 66
shareholders of record and approximately 500 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.
<TABLE>
<CAPTION>
Sale Prices
-----------------
Closing
High Low Sale Price
------ ----- ----------
<S> <C> <C> <C>
1998
First Quarter................................. $ 3 15/16 $ 2 3/8 $ 3 7/8
Second Quarter................................ 6 1/2 3 3/8 5
Third Quarter................................. 6 7/8 3 5/8 6 5/16
Fourth Quarter................................ 7 1/8 4 1/2 6 15/16
1997
First Quarter................................. $ 3 $ 2 3/8 $ 3
Second Quarter................................ 3 2 1/4 2 5/8
Third Quarter................................. 2 15/16 2 5/8 2 5/8
Fourth Quarter................................ 2 7/8 2 3/16 2 3/4
</TABLE>
The Company has not paid any cash dividends on the Common Stock in the past
and does not anticipate that any cash dividends on Common Stock 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 5 through 11 of the
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited Consolidated Financial Statements of the Company at December 31,
1997 and 1998 and for the three years ended December 31, 1998 required by this
Item are included on Pages 14 through 17 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
On January 12, 1998, the Company engaged Grant Thornton LLP as the Company's
principal accountant to audit the Company's financial statements. The Company
did not consult with Grant Thornton LLP regarding any accounting matter during
the two most recent fiscal years or any subsequent interim period prior to
engaging Grant Thornton LLP.
40
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The following information is set forth in accordance with the relevant
provisions of Item 304 of Regulation S-K:
Item 304(a)(1)--
(i) On December 3, 1997, Price Waterhouse LLP resigned as the
independent accountants of the Registrant.
(ii) The reports of Price Waterhouse LLP on the financial statements
for the fiscal years ended December 31, 1995 and 1996, contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle.
(iii) Not applicable.
(iv) In connection with its audits for the fiscal years ended December
31, 1995 and 1996, and through December 3, 1997, there were no
disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of
Price Waterhouse LLP, would have caused them to make reference thereto in
their report on the financial statements for such years, except as
described in (A) below:
(A) During the third quarter of 1997, the Company sustained a $20.4
million operating loss due in large measure to an $18 million warranty
charge and certain other charges of $2.4 million. Based on its review
of all evidence and other information available to it at September 30,
1997, the Company recorded a $6.8 million tax benefit represented by
deferred tax assets which management believed would be fully
realizable, based on the Company's historical results of operation,
management's forecast of future taxable income, and other factors.
Based on procedures performed in connection with its review of the
Company's unaudited financial information for the quarter ended
September 30, 1997, Price Waterhouse LLP stated the Company should
record a substantial valuation allowance because, in its view, the
objective evidence indicated it was more likely than not that such
deferred assets would not be fully realized. This matter was discussed
by the Company's Audit Committee with representatives of Price
Waterhouse LLP.
This disagreement between the Company and Price Waterhouse LLP,
which occurred prior to the commencement of the 1997 year-end audit
process, was not resolved at the time of Price Waterhouse LLP's
resignation.
The Company evaluated whether a valuation allowance is appropriate
under all the facts and circumstances that existed at December 31,
1997, in connection with the 1997 audit process and concluded that a
valuation allowance of $275,465 was required to cover various state net
operating loss carryforwards with relatively short carryforward
periods. Grant Thornton LLP concurred with the Company's determination
that no additional valuation allowance was required.
The Company was unable to quantify the amount of the required
valuation allowance. A substantial valuation allowance would have
reduced the Company's consolidated assets, net worth, and net income by
the amount of the increase in the valuation allowance.
(B) The Audit Committee of the Registrant's Board of Directors
discussed the subject matter of the disagreement referenced above with
Price Waterhouse LLP.
(C) The Registrant authorized Price Waterhouse LLP to respond fully
to the inquiries of Grant Thornton LLP, concerning the subject matter
of the disagreement referenced above.
(v) During the fiscal years ended December 31, 1995 and 1996, and
through December 3, 1997, there were no reportable events (as defined in
Item 304(a)(1)(v) of Regulation S-K)).
41
<PAGE>
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 Shareholders to be held
on April 16, 1999 (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 Annual Report on 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 Shareholders" and "Election of
Directors--Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
42
<PAGE>
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>
Reports of Independent Accountants.............................. 12-13
Consolidated Balance Sheets as of December 31, 1997 and 1998.... 14
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998............................... 15
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1996, 1997 and 1998............... 16
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998............................... 17
Notes to Consolidated Financial Statements...................... 18
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
A schedule setting forth the warranty reserves of the Company as of December
31, 1996, 1997 and 1998 is attached as an Appendix to this Annual Report on
Form 10-K.
43
<PAGE>
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 3.1 to the Quarterly Report of the Company on Form
10-Q for the quarter ended June 30, 1997.
3.2 Bylaws of the Company incorporated herein by reference to Exhibit 3.2 to
the Quarterly Report of the Company on Form 10-Q for the quarter ended
June 30, 1997.
3.3 Certificate Representing Shares of Class A Floating Rate Preferred Stock
and Related Statement With Respect to Shares--Domestic Business
Corporation, with Attachments incorporated herein by reference to
Exhibit 3.3 to the Annual Report on Form 10-K of the Company for the
year ended December 31, 1997.
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 incorporated herein by
reference to Exhibit 10.2 to the Annual Report of the company on Form
10-K for the fiscal year ended December 31, 1996.*
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
incorporated herein by reference to Exhibit 10.4 to the Annual Report of
the Company on Form 10-K for the fiscal year ended December 31, 1996.*
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 Settlement Agreement between the Company Ameron, Inc., Environ Products,
Inc., Michael C. Webb, Keith Osborne, Intelpro Corporation, and Buffalo
Environmental Products Corporation, dated as of January 26, 1998,
incorporated herein by reference to Exhibit 10.7 to the Annual Report on
Form 10-K of the Company for the year ended December 31, 1997.
10.8 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.
10.9 Settlement Agreement, dated December 16, 1994, between the Company and
Keith Osborne, et al. 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.
10.10 Release of All Claims/Settlement Agreement, dated March 5, 1996, between
the Company and James Lawrence, incorporated by reference to Exhibit
10.11 to the Annual Report of the Company on Form 10-K for the fiscal
year ended December 31, 1996.
10.11 Commitment Letter from Commercial Bank dated January 17, 1998 setting
forth terms of $10 million line of credit facility incorporated by
reference to Exhibit 10.11 to the Annual Report of the Company on Form
10-K for the fiscal year ended December 31, 1997.
</TABLE>
44
<PAGE>
<TABLE>
<C> <S>
10.12 Employment Agreement between the Company and Richard DiMaggio dated July
10, 1996.
10.13 Employment Agreement between the Company and John R. Wright Jr. dated
June 12, 1997.
10.14 Employment Agreement between the Company and Keith R. Ruck dated July
16, 1998.
10.15 Loan Modification Agreement and Allonge dated December 23, 1998 amending
the line of credit agreement.
16 Letter of Price Waterhouse re: Change in Certifying Accountant,
incorporated by reference to Exhibit 16 to the Current Report on Form 8-
K/A of the Company dated December 15, 1997.
21 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of PriceWaterhouseCoopers LLP.
27 Financial Data Schedule
</TABLE>
- --------
* Denotes compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during the
fourth quarter of 1998:
None.
45
<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
By: _________________________________
Pierre Desjardins,
President and Chief Executive
Officer
Dated: February 27, 1999
POWER OF ATTORNEY
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Pierre Desjardins President and Chief February 23, 1999
______________________________________ Executive Officer
Pierre Desjardins
/s/ Keith R. Ruck Vice President Finance and February 23, 1999
______________________________________ Chief Financial Officer
Keith R. Ruck
/s/ Marc Guindon Director February 23, 1999
______________________________________
Marc Guindon
/s/ Jean-Claude Arpin Director February 23, 1999
______________________________________
Jean-Claude Arpin
/s/ Marcel Dutil Director February 23, 1999
______________________________________
Marcel Dutil
/s/ Paul Gobeil Director February 23, 1999
______________________________________
Paul Gobeil
/s/ Nycole Pageau-Goyette Director February 23, 1999
______________________________________
Nycole Pageau-Goyette
/s/ Bernard Gouin Director February 23, 1999
______________________________________
Bernard Gouin
</TABLE>
46
<PAGE>
SCHEDULE VIII
TOTAL CONTAINMENT, INC.
RESERVES
DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning cost and at end
of period expenses Deductions of period
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Warranty Reserve December
31, 1996................ $ 8,271,556 $ 2,877,806(1) $(6,666,348) $ 4,483,014
December 31, 1997........ $ 4,483,014 $ 18,596,329(2) $(5,757,945) $17,321,398
December 31, 1998........ $17,321,398 $(1,711,907)(3) $(9,490,609) $ 6,118,882
</TABLE>
- --------
(1) Includes Dayco receivable for replacement materials (See Note 10 of Notes
to Consolidated Financial Statements).
(2) Includes pipe warranty of $17,200,000 (See Notes 2 and 10 of Notes to
Consolidated Financial Statements).
(3) Includes a reversal of the pipe warranty reserve of $3.3 million (see Note
2 of Notes to Consolidated Financial Statements).
47
<PAGE>
Total Containment 1998 Annual Report
engineering
for the future of
fuel delivery
[ART WORK APPEARS HERE]
<PAGE>
To Our Shareholders:
In last year's annual report, TCI stated that it had implemented a plan in
1997 to set the foundation for enhanced profitability and competitiveness. The
plan set as goals:
. Regaining lost sales momentum and market share
. Identifying and reducing costs while enhancing quality
. Developing resources to grow its business while developing a proactive
plan to deal with its previously disclosed pipe replacement program
. Enhancing its expertise on the logistics/operations front
We were pleased to report in 1997 that we regained lost sales momentum,
increased our market share, decreased costs of manufacturing our piping
products, substantially improved our quality control capabilities, and added a
senior level logistics and operations officer. I would now like to tell you
about our progress during 1998.
Achievements
Record Sales
In 1998, TCI continued its sales momentum and again increased its market
share. The Company's net sales increased to $53.6 million in 1998 from $45.6
million in 1997. The three major contributors to this sales increase were our
redirected sales efforts, a buoyant North American industry climate, and a
significant expansion of our field services operations. To increase our
long-term revenue base and to respond to customer needs, we developed a custom
part service business at TCI's subsidiary, American Containment, in Bakersfield,
California. This unit focuses solely on this business and is also the field
technical arm of TCI. American Containment continues to be a natural complement
to our parts business and has enhanced our technical support for our customers.
Record Profits
The foundation we established in 1997 for future profitability has enabled
TCI to report for 1998 a significant increase in gross profit margin to 42% from
33% in 1997 before the effect of the warranty provision, and record net income
applicable to common shareholders of $4.3 million or $.93 per share.
Substantial Cost Reduction
As part of our overall cost reduction and enhanced quality programs, we
installed a pipe manufacturing line in Oaks, Pennsylvania in 1997. This line has
resulted in significant cost savings during 1998. This new line has enabled us
not only to achieve substantial savings, but also to control our quality and
substantially improve our product development capability. Additionally, we have
expanded our quality control laboratory in our Oaks facilities. We also targeted
additional major cost reduction opportunities from which we should benefit
during 1999.
<PAGE>
Continuing our focus on cost reduction and efficiency, we have appointed
a senior operations manager to be responsible for our fiberglass operations.
During 1998, by managing the work force more efficiently, reducing scrap and
freight costs, automating some procedures, and reducing raw material acquisition
costs, TCI significantly reduced its fiberglass manufacturing costs.
Pipe Replacement Program Nearing Completion
Following a thorough assessment to deal with the deteriorating piping
supplied to us by Dayco Products, Inc. prior to 1994, we committed to a very
substantial proactive plan in 1997 to replace this product. We are pleased to
report that this program will be completed in late 1999. Not only will this
project be completed on time, but at a lower cost per site than originally
estimated. Introducing more efficiency in this process in 1998 has allowed us to
reduce our warranty reserve against these activities by $3.3 million.
We continued pursuing litigation against Dayco Products, Inc. to recover the
damages we sustained as a result of Dayco's deteriorating pipe.
Enhanced Productivity
In 1998, we made progress on several other fronts:
. Completion of start up at our pipe plant and plans for completion
of the next phase in 1999
. Return to profitability at our Bakersfield facility
. Completion of Year 2000 compliance
Outlook
During 1997 and 1998, TCI laid the foundation for enhanced profitability
with a plan for increased sales, efficiencies and continued cost reduction. This
foundation, coupled with an anticipated healthy industry, should again result in
strong operating results in 1999.
Very truly yours,
Pierre Desjardins
Chairman, President and Chief Executive Officer
<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,
------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales......................... $40,355 $39,069 $37,730 $ 45,649 $53,582
Cost of sales (excluding warranty
expense)......................... 22,174 23,058 24,288 30,698 30,991
------- ------- ------- -------- -------
18,181 16,011 13,442 14,951 22,591
Warranty expense.................. 605 573 747 1,396 1,636
Special pipe warranty charge
(reversal)(1).................... -- 7,500 -- 17,200 (3,347)
------- ------- ------- -------- -------
Gross profit (loss)............... 17,576 7,938 12,695 (3,645) 24,302
Selling, general and
administrative................... 9,350 10,262 10,665 12,307 12,261
Amortization of patents, licenses
and goodwill(2)(3)............... 356 483 508 521 430
Loss on write-off of patent and
patent license(3)(4)............. 1,847 -- -- 565 3,727
Other operating expense(5)........ -- -- -- 1,800 --
------- ------- ------- -------- -------
Income (loss) from operations..... 6,023 (2,807) 1,522 (18,838) 7,884
Interest expense.................. 286 146 362 627 537
Other expense(6).................. -- 407 -- -- --
------- ------- ------- -------- -------
Income (loss) before income
taxes............................ 5,737 (3,360) 1,160 (19,465) 7,347
Income tax expense (benefit)...... 2,391 (1,112) 762 (7,109) 2,759
------- ------- ------- -------- -------
Net income (loss)(7).............. $ 3,346 $(2,248) $ 398 $(12,356) 4,588
Preferred stock dividend(8)....... -- -- -- -- 264
------- ------- ------- -------- -------
Net income (loss) applicable to
common shareholders.............. $ 3,346 $(2,248) $ 398 $(12,356) $ 4,324
======= ======= ======= ======== =======
Earnings (loss) per common share-
basic(9)......................... $ .78 $ (.48) $ .09 $ (2.66) $ .93
======= ======= ======= ======== =======
Earnings (loss) per common share--
assuming dilution................ $ .78 $ (.48) $ .08 $ (2.66) $ .89
======= ======= ======= ======== =======
<CAPTION>
December 31,
------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 7,776 $ 8,224 $ 8,261 $ 1,128 $ 4,761
Goodwill, patents and patent
rights and license, net(2)(3).... 10,449 10,317 10,700 9,672 6,102
Deferred income taxes............. 771 3,228 1,701 7,420 4,377
Total assets...................... 26,901 30,702 34,965 40,047 37,155
Line of credit
borrowings(10)(11)............... 983 251 3,677 3,197 3,388
Debt(10).......................... -- 654 2,664 3,049 2,394
Stockholders' equity(8)........... 20,804 18,616 19,016 6,440 14,821
</TABLE>
3
<PAGE>
- ------
(1) As a result of a review performed during 1998 of the progress regarding the
Company's replacement of deteriorating pipe supplied by Dayco Products,
Inc. prior to 1994 which the Company sold to end-users, as well as the
costs expected to be incurred to complete this process, the Company
recorded, during the third quarter of 1998, a reduction of the warranty
reserve of approximately $3.3 million.
(2) 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 patent from Groupe Treco Ltee ("Treco"), in consideration of the
issuance by the Company to Treco of 45,000 shares of the Company's common
stock. The Tank Jacket patent was valued at $427,500. See Note 12 of Notes
to Consolidated Financial Statements.
(3) 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 during 1994 the remaining unamortized
portion of the Company's patent pertaining to the retractability feature of
Enviroflex and capitalized amounts paid to acquire a license and related
costs. See Note 2 of Notes to Consolidated Financial Statements.
(4) Due to a judicial order issued in September 1998 in litigation between the
Company and Environ Products, Inc., which declared invalid a patent
licensed by the Company, the Company wrote off in 1998 approximately $3.7
million of current unamortized cost of the patent license. See Note 12 of
Notes to Consolidated Financial Statements.
(5) The other expense of $1.8 million incurred in 1997 was associated with the
legal settlement regarding licensing of certain patented technology.
(6) In 1995, the Company incurred non-recurring transaction expenses,
consisting primarily of legal fees and special committee and board fees of
approximately $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.
(7) The net loss in 1997 resulting principally from the $20.4 million of
warranty and other expense in 1997 created a deferred tax asset of
approximately $7.4 million. This future tax asset is reflected under
"Deferred Income Taxes" (both current and long-term) on the Company's
balance sheet which will be deductible in future years.
(8) On March 17, 1998, the Company's principal shareholder purchased from the
Company 400 shares of authorized Series A Floating Rate Preferred Stock of
the Company at $10,000 cash per share or $4 million in the aggregate.
(9) Based on approximately 4.3 million weighted average shares outstanding
during 1994 and approximately 4.6 million weighted average shares
outstanding during 1995, 1996, 1997 and 1998.
(10) 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.
(11) 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.
4
<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--1996-1998
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net sales......................................... 100.0% 100.0 % 100.0%
Cost of sales (excluding warranties).............. 64.4 67.2 57.8
------- ------- -------
35.6 32.8 42.2
Warranty expense.................................. 2.0 3.1 3.0
Special pipe warranty charge (reversal)........... -- 37.7 (6.2)
------- ------- -------
Gross profit...................................... 33.6 (8.0) 45.4
Selling, general and administrative............... 28.3 27.0 22.9
Amortization of patents, licenses and goodwill.... 1.3 1.1 0.8
Loss on write-off of patent and patent license.... -- 1.2 7.0
Other operating expense........................... -- 3.9 --
------- ------- -------
Operating income (loss)........................... 4.0 (41.2) 14.7
Interest expense.................................. 0.9 1.4 1.0
------- ------- -------
Income (loss) before income taxes................. 3.1 (42.6) 13.7
Income tax expense (benefit)...................... 2.0 (15.6) 5.1
------- ------- -------
Net income (loss)................................. 1.1% (27.0)% 8.6
------- ------- -------
Preferred stock dividend.......................... -- -- .5
------- ------- -------
Net income (loss) applicable to common sharehold-
ers.............................................. 1.1% (27.0)% 8.1%
======= ======= =======
</TABLE>
5
<PAGE>
1998 VERSUS 1997
Net Sales
The Company's net sales for the year ended December 31, 1998 were $53.6
million compared to $45.6 million for the year ended December 31, 1997, an
increase of 17.4%. The increase was primarily attributable to increased sales
from our field operations at our American Containment, Inc. subsidiary, as well
as continued strong sales of our flexible underground piping systems driven by
the buoyancy of the North American market.
Gross Profit (Loss)
The primary component of the Company's cost of sales is the product
manufacturing costs incurred by the Company as well as costs paid to various
third party manufacturers. Other components are the variable and fixed costs of
operating the Company's manufacturing, field service and warehousing
operations, depreciation of molds, tools and equipment, and warranty expense.
The Company's gross profit after the warranty provision for the year ended
December 31, 1998 was $24.3 million compared to a $3.6 million loss after the
warranty provision for the year ended December 31, 1997. During 1997, the
Company recorded warranty expense of $18.6 million primarily to cover the cost
of replacing deteriorating pipe (see Note 2 of Notes to Consolidated Financial
Statements). As a result of a review performed in 1998 of the progress made
regarding this replacement pipe program, including the costs now expected to be
incurred to complete this process, the Company recorded a reduction of the
warranty reserve of approximately $3.3 million in 1998. The Company has been
able to significantly reduce the cost of performing the pipe replacement
program by managing more efficiently the use of outside contractors as well as
controlling the costs incurred by the Company's service crews.
Comparing margins before the effect of the warranty provision, the Company
experienced an increase in gross profit primarily from increased sales and
reduced costs of producing our main piping products. The integration of our
pipe manufacturing plant in October 1997, coupled with lower costs in certain
other products due to our cost reduction program initiated in the second half
of 1997 has reduced the overall cost of the Company's products. The Company
also experienced an increase in gross margin due to a decrease in the costs of
producing certain fiberglass products at its Bakersfield, California
operations.
The Company's gross profit percentage after the effect of the warranty
provision increased to 45.4% for the year ended December 31, 1998, compared to
a gross loss after the effect of the warranty provision of 8.0% for the year
ended December 31, 1997. The gross margin for 1997 was adversely affected by
the $18.6 million warranty charge. The gross margin for 1998 experienced a
benefit from the $3.3 million reduction of the warranty reserve. The Company's
gross profit percentage before effect of the warranty provision for the year
ended December 31, 1998 increased to 42.2%, compared to a gross profit
percentage before the effect of the warranty provision of 32.8% for the year
ended December 31, 1997. The increase was primarily attributable to the reduced
costs of our main piping products as well as lower costs in certain other
products.
Operating Expense
Selling, general and administrative expenses consist primarily of salaries
and related benefits, payroll taxes, commissions, royalties, legal expenses and
other general, administrative and overhead costs. Selling, general and
administrative expenses for the year ended December 31, 1998 were $12.26
million, compared to $12.31 million for the year ended December 31, 1997. The
Company experienced a decrease in overall legal costs but it was almost
entirely offset by an increase in bad debt expense and training costs related
to the implementation of our new information system.
6
<PAGE>
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
(which range from 13 to 17 years) at the acquisition date or subsequent
issuance date. The decrease in amortization expense to $430,468 in fiscal 1998
from $521,077 in fiscal 1997 is due to the write off of the patent license in
the third quarter of 1998 (See Note 12 of Notes to Consolidated Financial
Statements).
Other Expense
Other expense of $3.7 million incurred during the year ended December 31,
1998 was associated with the write off of a patent license originally
capitalized by the Company in connection with litigation which invalidated the
underlying patent. The Company does not believe that the loss of the patent has
had or will have a material adverse effect on its business. (See Note 12 of
Notes to Consolidated Financial Statements). The other expense of $1.8 million
incurred in the year ended December 31, 1997 was associated with the legal
settlement regarding licensing of certain patented technology. The Company also
incurred during 1997, $564,684 of other expense related to the write off of a
patent of a product line that has been discontinued.
Interest Expense
Interest expense for the year ended December 31, 1998 was $536,490, compared
to $626,575 for the year ended December 31, 1997. Interest expense is incurred
on term loans that were used for purchasing equipment and under the Company's
working capital line of credit. The decrease is due to a lower average balance
outstanding on the Company's line of credit during 1998 compared to 1997 due to
the proceeds from the issuance of the $4 million of Preferred Stock, and a
decrease in the interest rate charged on the line of credit (see Note 7 of the
Consolidated Financial Statements.)
Income Taxes
Income taxes for the year ended December 31, 1998 were $2.8 million compared
to a benefit of $7.1 million for the year ended December 31, 1997. The
Company's effective tax rate was 38% during 1998 compared to an effective tax
rate of 37% in 1997. The Company provided a valuation allowance of $275,465 for
state deferred income tax assets in 1997 but removed the valuation allowance in
1998 due to the expectation that they will be fully realized.
Preferred Stock Dividends
In 1998, the Company accrued a dividend of $264,301 on the Company's
outstanding Series A Floating Rate Preferred Stock (the "Preferred Stock").
(See Note 10 of Notes to Consolidated Financial Statements).
Net Income (Loss) Applicable to Common Shareholders
The Company's net income applicable to common shareholders for the year ended
December 31, 1998 was $4.3 million, or $.93 per share compared to a loss of
$12.4 million, or $2.66 per share for the year ended December 31, 1997. The
increase of $16.7 million was a result of the prior year results containing a
$20.4 million pre-tax charge to earnings to increase the company's warranty
reserve, to write down certain inventory, as well as to record charges
associated with licensing of certain patented technology and the write off of a
patent. The 1998 results were adversely affected by the $3.7 million write off
of a patent license, which was substantially offset by the reversal of $3.3
million of the warranty reserve. The increase in net income for the year,
excluding the previously mentioned charges, resulted from increased sales and
an increase in gross margin percentage which was partially offset by the
increase in income tax expense.
7
<PAGE>
1997 VERSUS 1996
Net Sales
The Company's net sales for the year ended December 31, 1997 were $45.6
million, compared to $37.7 million for the year ended December 31, 1996, an
increase of 21.9%. The increase was primarily attributable to increased sales
from our flexible underground piping systems.
Gross Profit (Loss)
The Company's gross loss after the warranty provision for the year ended
December 31, 1997 was $3.6 million, compared to gross profit after the warranty
provision of $12.7 million for the year ended December 31, 1996. During 1997,
the Company recorded warranty expense of $18.6 million primarily to cover the
cost of replacing deteriorating pipe.
Comparing margins before the effect of the warranty provision, the Company
experienced an increase in gross margin to $15.0 million in 1997 from $13.4
million in 1996, primarily from increased sales.
The Company's gross profit percentage after effect of the warranty provision
decreased to a loss of 8.0% for the year ended December 31, 1997, compared to a
gross profit of 33.6% for the year ended December 31, 1996. The gross margin
for 1997 was adversely affected by the $18.6 million warranty charge. The
Company's gross profit percentage before effect of the warranty provision
decreased to 32.8%, compared to 35.6% before the effect of the warranty
provision for the year ended December 31, 1996. This decrease was primarily
attributable to the increased costs of our main piping products.
Operating Expense
Selling, general and administrative expenses for the year ended December 31,
1997 were $12.3 million, compared to $10.7 million for the year ended December
31, 1996. The increase in 1997 resulted mainly from increased selling and
administrative costs associated with the acquisition of American Containment,
Inc.
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
(which range from 13 to 17 years) at the acquisition date or subsequent
issuance date. Amortization of intangibles was $521,077 for the year ended
December 31, 1997, compared to $508,309 for the year ended December 31, 1996.
Other Expense
Other Expense of $1.8 million for the year ended December 31, 1997 was
associated with the legal settlement regarding licensing of certain patented
technology.
Interest Expense
Interest expense for the year ended December 31, 1997 was $626,575 compared
to $362,437 for the year ended December 31, 1996. Interest expense is incurred
on term loans that were used for purchasing equipment and under the Company's
working capital line of credit. The increase is due to a higher balance
outstanding on the Company's line of credit during 1997.
8
<PAGE>
Income Taxes
The Company had a tax benefit of $7.1 million for the year ended December 31,
1997, compared to an expense of $761,565 for the year ended December 31, 1996.
The Company's effective tax rate was 37% during 1997 compared to an effective
tax rate of 65.7% in 1996. The high effective tax rate in 1996 was primarily
due to the recognition of a valuation allowance against deferred tax assets and
certain non-deductible amortization.
Net Income (Loss)
The Company's net loss for the year ended December 31, 1997 was $12.4
million, or $2.66 per share compared to net income of $398,210, or $.09 per
share for the year ended December 31, 1996. The decrease of $12.8 million was a
result of the 1997 results containing a $20.4 million charge to earnings to
increase the company's warranty reserve, to write down certain inventory, as
well as to record charges associated with licensing of certain patented
technology and the write off of a patent.
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, 1997 or 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 15, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 eliminates the primary and fully diluted earnings per share and requires
the presentation of basic and diluted earnings per share in conjunction with
the disclosure of the methodology used in computing such earnings. Basic
earnings per share excludes the dilution and is computed by dividing income
available to common shareholders by the weighted average number of shares
outstanding during the period. Dilutive earnings per share takes into account
the potential dilution that could occur if securities and other contracts to
issue common stock were exercised and converted into common stock. Prior
periods income (loss) per share calculations have been restated to reflect the
adoption of SFAS No. 128.
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Prior period amounts have been
restated to conform to the provisions of SFAS No. 130. The adoption of SFAS No.
130 had no impact on the Company's financial position or results of operations.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires that
public business enterprises report certain information about the operating
segments in a complete set of financial statements of the enterprise and in
condensed financial statements of interim periods issued to shareholders. It
also requires the reporting of certain information about their products and
services, the geographic area in which they operate, and their major customers.
The adoption of SFAS No. 131 had no impact on the Company's financial position
or results of operation.
9
<PAGE>
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP segments an
internal use software project into stages and the accounting is based on the
stage in which a cost is incurred. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998 for costs incurred in those fiscal years for
all projects, including projects in progress when the SOP is adopted. The
adoption of SOP 98-1 is not expected to have a material impact on the Company's
financial position or results of operations.
YEAR 2000 DISCLOSURE
Management initiated, early in 1998, an enterprise-wide program to identify
areas where Company owned or operated computer hardware, software,
electronically operated manufacturing and support equipment, and any other
application, could be adversely impacted by the problems presented by the year
2000, and prepare these computer systems, applications, and other equipment for
continuing use through the year 2000. Assessment and testing of all computer
hardware and software and manufacturing hardware and software is complete. The
Company has identified where a small amount of remediation must be performed
where a few older personal computers will be replaced. The Company expects all
of its internal remediation to be completed by June 1999; however, despite its
best efforts, business may be interrupted with potentially material impact on
its financial position or results of operations if any of the following occur:
external supply of raw materials or utilities is delayed or unavailable for an
extended period; manufacturing systems fail; or, central corporate computer
systems fail. To limit the effects of these potential failures, the Company has
completed corporate contingency planning guidelines and will prepare
contingency plans for potential disruptions of critical systems or processes.
Examples of contingency plans include modifications to computer systems,
ensuring availability of additional information technology personnel during the
critical time period, backing-up systems at off-site facilities, making
alternate raw material supply arrangements, and preparing for temporary shut-
downs of certain plants and facilities. In addition, the company has standard
operating procedures in place for a safe and orderly shut-down of systems and
facilities should this be necessary.
The Company has incurred or expects to incur internal staff costs as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare the systems for the year 2000. Testing and
conversion of system applications is expected to cost approximately $350,000,
of which approximately $300,000 has already been incurred as part of the
acquisition of the Company's new information system.
In the opinion of management, the Company believes that all of its important
business resources, either currently or in the near future, are expected to
allow the Company to continue operating through the year 2000 and that there
will be no disruption of any material business operation or capability.
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $4.8 million at December 31, 1998,
compared to $1.1 million at December 31, 1997. The increase is due primarily to
the funds received on the sale of the Preferred Stock of $4 million.
The Company satisfies its working capital needs primarily through funds
generated by operations and by borrowings under a $10 million line of credit
facility with a commercial bank. The loan is secured by essentially all of the
Company's assets. Amounts borrowed under this line of credit bear interest at
the bank's national commercial rate (7.75% at December 31, 1998). At December
31, 1998, the Company owed $3.4 million under the line of credit. In January
1999, the Company negotiated a change in the interest rate charged on the line
of credit from the national commercial rate to a LIBOR based rate. The Company
is currently charged LIBOR plus 250 basis points (currently 7.44% at February
19, 1999). The rate will be further reduced to LIBOR plus 225 basis points as
of June 30, 1999 if certain financial covenants are met.
10
<PAGE>
In 1997, the Company borrowed under a term loan credit facility to acquire
equipment related to a new pipe manufacturing line. The term loan bears
interest at the bank's national commercial rate plus .125% (7.875% at December
31, 1998) and is secured by all equipment financed thereunder. At both December
31, 1997 and 1998, a balance of $807,977 was outstanding under the term loan.
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% (7.875% at December
31, 1998.) and is secured by the assets of American Containment, Inc. At
December 31, 1998, $533,305 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 bore an interest rate of 8% compounded annually. At December 31,
1998, nothing was outstanding under the note payable. The note required the
payment of equal quarterly installments of $62,500 plus interest on the unpaid
principal balance.
In 1995, the Company executed a term loan with a bank for $1.60 million which
is required to be used exclusively for the purchase of equipment. The term loan
bears interest at the bank's national commercial rate plus .125% (7.875% at
December 31, 1998) and is secured by all equipment financed thereunder. At
December 31, 1998, $880,000 was 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.
The Company invested $1.91 million, $2.20 million and $1.48 million in
capital equipment and leasehold improvements in 1996, 1997 and 1998,
respectively. The purchase of product molds and tooling constituted $737,000,
$501,000 and $197,000 of these capital expenditures in 1996, 1997, and 1998,
respectively. Total capital expenditures during 1999 are expected to be
approximately $1.3 million. Also, the Company is evaluating an additional
expansion of its manufacturing line which would cost approximately $1.9
million. The Company has signed a letter of intent with its bank in February
1999. This agreement provides for an additional equipment loan bearing interest
at the prime rate for up to $2.0 million of these capital purchases. 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
remaining 1999 capital expenditures.
Because the Company does not discharge a significant amount of 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.
The Company does not anticipate that it will incur material 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.
The Company believes that its presently available funds, together with cash
flow expected to be generated from operations and amounts available under its
commitments from its commercial bank, will be adequate to satisfy its
anticipated working capital requirements for the foreseeable future.
11
<PAGE>
Accountants and [Grant Thornton Logo Appears Here]
Management Consultants Grant Thornton LLP
The US Member Firm of
Grant Thornton International
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Total Containment, Inc.
We have audited the consolidated balance sheets of Total Containment, Inc. (a
Pennsylvania Corporation) and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the two year period ended
December 31, 1998. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We also audited the
adjustments to shares and earnings per share data for 1996 due to the adoption
of Statement of Financial Accounting Standards No. 128, "Earnings per Share" as
discussed in Note 8, and the comprehensive income data for 1996 due to the
adoption of Statement of Financial Accounting Standards No. 130, "Comprehensive
Income" as discussed in Note 2. In our opinion, such adjustments are appropriate
and have been properly applied.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Total Containment, Inc. and Subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for each of the years in the two year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
February 19, 1999
Suite 3100
Two Commerce Square
2001 Market Street
Philadelphia, PA 19103-7080
Tel: 215 561-4200
Fax: 215 561-1066
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
and Board of Directors of
Total Containment, Inc.
In our opinion, the consolidated statements of operations, of changes in
shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Total Containment, Inc. and its
subsidiaries at December 31, 1996, and the results of their operations and
their cash flows for the one year 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 the 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. We have not audited the consolidated financial statements of Total
Containment, Inc. for any period subsequent to December 31, 1996.
Price Waterhouse LLP
Philadelphia, Pennsylvania
March 7, 1997
13
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 612,119 $ 132,164
Accounts receivable, net of allowance for doubtful
accounts of $200,000 and $420,499 for 1997 and
1998, respectively................................ 7,887,074 13,329,081
Inventories........................................ 7,305,643 7,622,796
Deferred income taxes.............................. 3,114,165 2,850,602
Other current assets............................... 2,276,818 766,962
----------- -----------
Total current assets............................. 21,195,819 24,701,605
Molds and tooling, net............................. 986,612 437,721
Property and equipment, net........................ 3,870,524 4,386,726
Patents, patent rights and licenses, net........... 4,292,630 309,880
Goodwill, net...................................... 5,379,359 5,792,391
Deferred income taxes.............................. 4,305,894 1,526,823
Other assets....................................... 15,956 --
----------- -----------
$40,046,794 37,155,146
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings.......................... $ 3,197,000 $ 3,388,000
Current portion of long-term debt.................. 743,512 667,576
Accounts payable, trade and accrued expenses....... 6,019,265 6,412,250
Other payable...................................... 4,020,481 4,020,481
Warranty reserve--current.......................... 6,087,565 5,451,992
----------- -----------
Total current liabilities........................ 20,067,823 19,940,299
Long-term debt....................................... 2,305,282 1,726,798
Non-current warranty................................. 11,233,833 666,890
----------- -----------
Total liabilities................................ 33,606,938 22,333,987
----------- -----------
Commitments and contingencies........................ -- --
Shareholders' equity:
Preferred stock--$10,000 par value; authorized 400
shares issued and outstanding..................... -- 4,000,000
Common stock--$.01 par value; authorized 20,000,000
shares 4,641,600 and 4,652,600 shares issued and
outstanding....................................... 46,416 46,526
Capital in excess of par value..................... 13,728,778 13,756,355
Retained earnings.................................. (7,139,358) (2,815,886)
Accumulated other comprehensive income............. (195,980) (165,836)
----------- -----------
Total shareholders' equity....................... 6,439,856 14,821,159
----------- -----------
$40,046,794 $37,155,146
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Net sales............................... $37,730,009 $ 45,648,699 $53,581,818
Cost of sales (excluding warranty ex-
pense)................................. 24,288,535 30,697,518 30,991,472
----------- ------------ -----------
13,441,474 14,951,181 22,590,346
Warranty expense........................ 746,792 1,396,329 1,635,660
Special pipe warranty charge (rever-
sal)................................... -- 17,200,000 (3,347,567)
----------- ------------ -----------
Gross profit (loss)..................... 12,694,682 (3,645,148) 24,302,253
Selling, general and administrative..... 10,664,161 12,307,515 12,261,077
Amortization of patents, licenses and
goodwill............................... 508,309 521,077 430,468
Loss on write-off of patent and patent
license................................ -- 564,684 3,727,250
Other operating expense................. -- 1,800,000 --
----------- ------------ -----------
Income (loss) from operations........... 1,522,212 (18,838,424) 7,883,458
Interest expense........................ 362,437 626,575 536,490
----------- ------------ -----------
Income (loss) before income taxes....... 1,159,775 (19,464,999) 7,346,968
Income tax expense (benefit)............ 761,565 (7,108,795) 2,759,195
----------- ------------ -----------
Net income (loss)....................... $ 398,210 $(12,356,204) $ 4,587,773
Preferred stock dividend................ -- -- 264,301
----------- ------------ -----------
Net income applicable to common share-
holders................................ $ 398,210 $(12,356,204) $ 4,323,472
=========== ============ ===========
Per share data:
Earnings (loss) per common share--ba-
sic.................................... $ .09 $ (2.66) $ .93
=========== ============ ===========
Earnings (loss) per common share assum-
ing dilution........................... $ .08 $ (2.66) $ .89
=========== ============ ===========
Weighted average shares used in computa-
tion of earnings (loss) per common
share--basic........................... 4,641,600 4,641,600 4,646,000
=========== ============ ===========
Weighted average shares used in computa-
tion of earnings (loss) per common
share--assuming dilution............... 4,709,138 4,641,600 4,859,872
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1997 And 1998
<TABLE>
<CAPTION>
Accumulated
Other
Capital Comprehensive
Preferred Common In Excess Retained Income
Stock Stock Of Par Value Earnings (Loss) Total
---------- ------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996......... $ -- $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
Net loss................ (12,356,204) (12,356,204)
Equity adjustment from
foreign currency
translation............ (219,519) (219,519)
---------- ------- ----------- ----------- --------- -----------
December 31, 1997....... -- 46,416 13,728,778 (7,139,358) (195,980) 6,439,856
Net income.............. 4,587,773 4,587,773
Equity adjustment from
foreign currency
translation............ 30,144 30,144
Issuance of preferred
stock.................. 4,000,000 4,000,000
Issuance of common
stock.................. 110 27,577 27,687
Preferred stock
dividends.............. (264,301) (264,301)
---------- ------- ----------- ----------- --------- -----------
December 31, 1998....... $4,000,000 $46,526 $13,756,355 $(2,815,886) $(165,836) $14,821,159
========== ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operation activities:
Net income (loss).................... $ 398,210 $(12,356,204) $ 4,587,773
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 1,566,294 1,744,418 1,940,778
Loss on write-off of patent.......... -- 564,684 3,727,250
Change in assets and liabilities:
Accounts receivable.................. (813,202) (561,500) (5,424,842)
Inventories.......................... (1,219,947) (158,721) (303,804)
Other assets......................... (1,494,063) 1,081,230 1,525,848
Deferred taxes....................... 1,516,445 (5,719,438) 3,042,634
Accounts payable, trade and accrued
expenses............................ 2,043,716 987,414 (436,771)
Other payable........................ -- 4,020,481 --
Warranty reserve..................... (3,788,542) 12,855,711 (11,205,524)
---------- ------------ -----------
Net cash provided by (used for)
operating activities.............. (1,791,089) 2,458,075 (2,546,658)
========== ============ ===========
Cash flows from investing activities:
Purchase of molds and tooling........ (736,761) (500,688) (197,066)
Purchase of property and equipment... (1,176,778) (1,699,212) (1,279,361)
Patent costs and license fees........ (484,039) (67,744) --
Purchase of net assets of ACI........ (1,000,000) -- --
---------- ------------ -----------
Net cash used for investing activi-
ties.............................. (3,397,578) (2,267,644) (1,476,427)
========== ============ ===========
Cash flows from financing activities:
Proceeds from sale of preferred
stock............................... -- -- 4,000,000
Proceeds from sale of common stock... -- -- 27,687
Borrowings on long-term debt......... 2,219,050 1,154,712 105,000
Payments on long-term debt........... (209,170) (770,012) (759,420)
Net borrowings (payments) under line
of credit........................... 3,426,000 (480,000) 191,000
---------- ------------ -----------
Net cash provided by (used for)
financing activities.............. 5,435,880 (95,300) 3,564,267
---------- ------------ -----------
Effect of foreign currency exchange
rate.................................. 1,864 (99,027) (21,137)
---------- ------------ -----------
Net increase (decrease)................ 249,077 (3,896) (479,955)
Cash and cash equivalents at beginning
of year............................... 336,518 616,015 612,119
Cash and cash equivalents from ACI ac-
quisition............................. 30,420 -- --
---------- ------------ -----------
Cash and cash equivalents at end of
year.................................. $ 616,015 $ 612,119 132,164
========== ============ ===========
Supplemental cash flow information:
Interest paid........................ $ 391,561 $ 626,575 $ 540,469
Income taxes paid (received) net of
refunds............................. 75,604 (1,024,129) (1,567,063)
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<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 (TCIE-NV), Rene Morin, Inc. and American Containment, Inc. (acquired in
1996). All significant intercompany balances and transactions have been
eliminated in consolidation. The presentations of the 1996 and 1997 statements
of operations were reclassified to conform with the current year presentation.
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 forty years. The 1996 pro
forma (unaudited) revenues, net income, and earnings per share would be
approximately $39,530,000, $517,470, and $.11, respectively, if the operating
results of American Containment, Inc. were included in the operations of the
Company for the entire year.
Foreign currency translation. TCI Environment NV uses the Belgian Franc as
its functional currency. Changes in the amount of the translation adjustment
during each reporting period are reported as a separate component of
Shareholders' Equity under Accumulated other comprehensive income.
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.
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 $347,381, $326,757 and $255,500
for 1996, 1997 and 1998, respectively. A patent was written off in the third
quarter of 1997 for a product line that was discontinued with a book value of
$564,684. Due to a judicial order issued in September 1998 in the litigation
between the Company and Environ Products, Inc., which declared the underlying
patent to the license invalid, the Company wrote off in 1998 approximately $3.7
million of current unamortized cost of the patent license. Accumulated
amortization was $1,641,904 and $346,620 at December 31, 1997 and 1998,
respectively.
18
<PAGE>
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 over forty years. Goodwill amortization approximated $160,928,
$166,009 and $174,968 for 1996, 1997 and 1998, respectively. Accumulated
goodwill amortization was $1,268,117 and $1,443,085 at December 31, 1997 and
1998, 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.
Company sponsored retirement plan. Certain employees of the Company
participate in a Company sponsored 401(k) retirement plan. The Company's only
costs during the years ended December 31, 1996, 1997, and 1998 were the
management fees charged for administration of the plan.
Warranty reserve. The Company's Tank Jacket and Pipe Jacket product lines
carry a warranty of one year for workmanship and materials. The Enviroflex
product line carries a ten year warranty for workmanship and materials. The
Tank Jacket 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.
As the result of a review of piping problems initiated in 1996, the Company,
during the third quarter of 1997, increased its warranty reserve by
approximately $18.6 million primarily to cover the Company's estimate of the
cost, anticipated to be incurred over a two to three year period, of inspecting
and replacing pipe with deteriorating cover material on the retractable inner
pipe portion of the Company's double-wall underground fuel dispensing and
containment systems installed between 1990 and 1994 at over 3,000 sites. The
deterioration results from a microbiological fungus which, under certain
conditions, affects the outer layers of the system's primary (inner)
retractable pipe. The Company has instituted litigation against the supplier of
the pipe to recover the cost the Company has and will sustain to replace such
pipe, as well as other damages. As a result of a review performed during the
third quarter of 1998 of the progress made regarding this replacement pipe
program, as well as the costs now expected to be incurred to complete this
process, the Company recorded, during the third quarter of 1998, a reduction of
the warranty reserve of approximately $3.3 million. The Company has been able
to significantly reduce the cost of performing the pipe replacement program by
managing more efficiently the use of outside contractors as well as controlling
the costs incurred by the Company's service crews. (See Note 12 of the Notes to
Consolidated Financial Statements).
Income taxes. The Company uses the liability method (specified by SFAS No.
109) 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 for financial statement
purposes and the tax bases of assets and liabilities. Income tax expense
(benefit) for the years ended December 31, 1996, 1997 and 1998 were a charge of
$761,565, a benefit of $7.1 million and a charge of $2.8 million, respectively.
The variance from 1998 to 1997 and 1997 to 1996 was due to the change in the
Company's income before income taxes. The income tax benefit in 1997, which was
derived principally from the future deductibility of warranty expense
recognized for financial statement purposes in 1997, had been established as a
deferred tax asset in the amount of $7.4 million as of December 31, 1997 and
was segmented into current and long term based upon projections as to the tax
period in which the Company will receive these benefits. The Company utilized
some of the deferred tax asset
19
<PAGE>
during 1998, thereby decreasing its balance to $4.4 million as of December 31,
1998. The valuation allowance relating to the state net operating loss
carryforward component of the deferred tax asset was $275,465 at December 31,
1997 but was eliminated as of December 31, 1998 due to the expectation that the
state net operating loss carryforwards will be utilized.
The Company's foreign subsidiary has undistributed retained earnings of $1.2
million and $1.4 million at December 31, 1997 and 1998, respectively. Because 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. The other expense in 1997 of $1.8 million was associated with
the legal settlement regarding licensing of certain patented technology. The
other expense in 1998 of $3.7 million was associated with the write-off of a
patent license (See Note 12 of Notes to Consolidated Financial Statements).
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. On December 15, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." SFAS No. 128 eliminates the presentation of primary and
fully diluted earnings per share and requires the presentation of basic and
diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings. Basic earnings per share excludes
the dilution and is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding during the
period. Dilutive earnings per share takes into account the potential dilution
that could occur if securities and other contracts to issue common stock were
exercised and converted into common stock. Prior periods income (loss) per
share calculations have been restated to reflect the adoption of SFAS No. 128.
Advertising Cost. The Company expenses advertising costs as incurred.
Research and Development. Research and Development cost, which are expensed
by the Company as incurred, were $786,000, $527,000 and $375,500 in 1996, 1997,
and 1998, respectively.
New Accounting Pronouncements. On January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
to provide prominent disclosure of comprehensive income items. Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Prior
period presentations have been restated to conform to the provisions of SFAS
No. 130. The adoption of SFAS No. 130 had no impact on the Company's financial
position or results of operations. The Company's total comprehensive
income(loss) for the years ended December 31, 1996, 1997 and 1998 was $400,074,
$12,575,723 and $4,617,917, respectively.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires that
public business enterprises report certain information about the operating
segments in a complete set of financial statements of the enterprise and in
condensed financial statements of interim periods issued to shareholders. It
also requires the reporting of certain information about their products and
services, the geographic area in which they operate, and their major customers.
The adoption of SFAS No. 131 had no impact on the Company's financial position
or results of operation.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP segments an
internal use software project into stages and the accounting is based on the
stage in which a cost is incurred. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998 for costs incurred in those fiscal years for
all projects, including projects in progress when the SOP is adopted. The
adoption of SOP 98-1 is not expected to have a material impact on the Company's
financial position or results of operations.
20
<PAGE>
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. Significant
estimates made by management that are reasonably subject to change include the
warranty reserve and deferred tax assets.
3.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Raw materials............................................. $ 516,042 $ 784,719
Finished goods............................................ 6,789,601 6,838,077
---------- ----------
$7,305,643 $7,622,796
========== ==========
</TABLE>
4.MOLDS AND TOOLING
Molds and tooling include the following:
<TABLE>
<CAPTION>
December 31,
Useful ------------------------
Lives 1997 1998
------ ----------- -----------
<S> <C> <C> <C>
Molds and tooling............................. 3 years $ 4,418,081 $ 2,386,973
Less--accumulated amortization................ (3,431,469) (1,949,252)
----------- -----------
$ 986,612 $ 437,721
=========== ===========
</TABLE>
Amortization expense of molds and tooling costs was $772,536, $865,106 and
$698,058 for the years ended December 31, 1996, 1997 and 1998, respectively.
5.PROPERTY AND EQUIPMENT
Property and equipment include the following:
<TABLE>
<CAPTION>
December 31,
Useful ------------------------
Lives 1997 1998
------ ----------- -----------
<S> <C> <C> <C>
Furniture, fixtures and
office equipment......................... 3-5 years $ 568,397 $ 981,801
Equipment................................. 5-10 years 3,781,410 4,075,351
Leasehold improvements.................... lease term 674,874 861,212
----------- -----------
5,024,681 5,918,364
Less--Accumulated depreciation............ (1,154,157) (1,531,638)
----------- -----------
$ 3,870,524 $ 4,386,726
=========== ===========
</TABLE>
Depreciation expense on property and equipment was $285,447, $322,640 and
$814,663 for the years ended December 31, 1996, 1997 and 1998, respectively.
Fully depreciated assets of $196,284 and $437,181 were removed from both the
fixed asset and accumulated depreciation account in 1997 and 1998 respectively.
6.LONG-TERM DEBT
Term Loans. In 1995, the Company executed a term loan agreement with a bank
for $1,600,000 which was used exclusively for the purchase of equipment. The
term loan bears interest at the bank's national commercial rate plus .125%
(7.875% at December 31, 1998) and is secured by all equipment financed
thereunder. At December 31, 1997 and 1998, $1.2 million and $880,000,
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.
21
<PAGE>
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% (7.875% at December
31, 1998) and is secured by the assets of American Containment, Inc. At
December 31, 1997 and 1998, $733,317 and $533,305 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,
1997 and 1998, $187,500 and nothing respectively, was outstanding under this
note payable. The note required the payment of equal quarterly installments of
$62,500 plus interest on the unpaid principal balance.
In 1997, the Company borrowed under a term loan credit facility to acquire
equipment related to a new pipe manufacturing line. The term loan bears
interest at the bank's national commercial rate plus .125% (7.875% at December
31, 1998) and is secured by all equipment financed thereunder. At both December
31, 1997 and 1998, a balance of $807,977 was outstanding under the term loan.
In 1996, Rene Morin, Inc. borrowed under a term loan for manufacturing
equipment. The term loan bears interest at 9.5%. At December 31, 1997 and 1998,
a balance of $120,000 and $84,000 was outstanding.
Also, the Company is evaluating an additional expansion of its manufacturing
line which would cost approximately $1.9 million. The Company has signed a
letter of intent with its bank in February 1999. This agreement provides for an
additional equipment loan bearing interest at the prime rate for up to $2.0
million of these capital purchases.
Aggregate maturities of the borrowings is as follows:
<TABLE>
<S> <C>
1999............................................................. $ 667,576
2000............................................................. 753,642
2001............................................................. 569,176
2002............................................................. 161,592
2003............................................................. 161,592
Thereafter....................................................... 80,796
-----------
$ 2,394,374
===========
</TABLE>
7.LINE OF CREDIT
In April 1998, the Company increased its overall working capital line of
credit with its bank to $10.0 million. This facility provides for financing of
working capital needs and equipment purchases and is secured by the Company's
receivables, inventory and other assets. The initial interest rate for this
facility was the prime rate plus one-quarter ( 1/4) percent and expires
December 31, 1999. As of June 30, 1998, the Company met certain financial
covenants contained in the line of credit agreement and therefore received a
reduction in the interest rate effective September 1, 1998, down to the prime
rate (7.75% at December 31, 1998).
In January 1999, the Company negotiated a change in the interest rate charged
on the line of credit from the national commercial rate to a LIBOR based rate.
The Company is currently charged LIBOR plus 250 basis points (currently 7.44%
at February 19, 1999). The rate will be further reduced to LIBOR plus 225 basis
points as of June 30, 1999 if certain financial covenants are met.
Interest expense on borrowings under the line of credit was $195,337,
$353,796 and $307,794 in 1996, 1997 and 1998, respectively.
22
<PAGE>
8.EARNINGS (LOSS) PER SHARE
The following table illustrates the required disclosure of the reconciliation
of the numerators and denominators of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
For The Year Ended December 31, 1998
-----------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
------------- -------------- ----------
<S> <C> <C> <C>
Income applicable to common share-
holders............................. $ 4,323,472
=============
BASIC EPS
Income applicable to common share-
holders............................. $ 4,323,472 $ 4,646,000 $ .93
=======
EFFECT OF DILUTIVE SECURITIES
Options.............................. -- 213,872 --
------------- -------------- -------
DILUTED EPS
Income applicable to common
shareholders plus assumed
conversions......................... $ 4,323,472 $ 4,859,872 $ .89
============= ============== =======
</TABLE>
Options to purchase 148,000 shares of common stock at a range of $6.63 to
$9.50 a share were outstanding during 1998 that were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. The options, which expire from
January 16, 1999 to August 7, 2002, were still outstanding at December 31,
1998.
<TABLE>
<CAPTION>
For The Year Ended December 31, 1997
-------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
------------ ------------- ---------
<S> <C> <C> <C>
Loss applicable to common shareholders.. $(12,356,204)
============
BASIC EPS
Loss applicable to common shareholders.. $(12,356,204) 4,641,600 $(2.66)
======
EFFECT OF DILUTIVE SECURITIES
Options................................. -- -- --
------------ --------- ------
DILUTED EPS
Loss applicable to common shareholders
plus assumed conversions............... $(12,356,204) 4,641,600 $(2.66)
============ ========= ======
</TABLE>
Options to purchase 665,000 shares of common stock at a range of $2.50 to
$9.50 a share were outstanding during 1997 that were not included in the
computation of diluted EPS because effect of the options would have been
antidilutive. 595,000 of these options, which expire from January 16, 1999 to
August 7, 2002, were still outstanding at December 31, 1998.
<TABLE>
<CAPTION>
For The Year Ended December 31, 1996
-----------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
------------ -------------- ----------
<S> <C> <C> <C>
Income applicable to common share-
holders........................... $ 398,210
============
BASIC EPS
Income applicable to common share-
holders........................... $ 398,210 4,641,600 $ 0.09
=========
EFFECT OF DILUTIVE SECURITIES
Options............................ -- 67,538 --
------------ ------------- ---------
DILUTED EPS
Income applicable to common
shareholders plus assumed
conversions....................... $ 398,210 4,709,138 $ 0.08
============ ============= =========
</TABLE>
23
<PAGE>
Options to purchase 180,000 shares of common stock at a range of $3.50 to
$9.50 a share were outstanding during 1996 that were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. 16,000 of these options, which
expire from January 16, 1999 to July 10, 2001, were still outstanding at
December 31, 1998.
9.STOCK OPTION PLAN
At December 31, 1998, the Company had two stock option plans. The Company
applies APB Opinion 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its plans. Accordingly, no compensation costs
have been recognized for either plan.
On January 16, 1994, the shareholders 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. Stock
options are issued at prices equal to the market price at the date of grant.
The stock options have a vesting period of five years from the date of
issuance.
On February 27, 1997, the Board of Directors of the Company approved and
adopted the 1997 Stock Compensation Plan, which was approved by shareholders on
April 11, 1997. The 1997 Plan authorizes the issuance of up to an additional
400,000 shares of Common Stock to employees of the Company and its
subsidiaries. The 1997 plan is substantially identical to the 1994 plan.
Options to acquire 683,000 shares were outstanding under both plans at December
31, 1998.
On August 28, 1996, 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 have a term of five years from
the date of grant. The stock options have a vesting period of three years from
the date of issuance, beginning one year from the date of grant. The options
granted to the Chief Executive Officer were not issued under the 1994 Plan. In
August, 1997, following the approval of an additional 400,000 option allotment
under the 1997 Plan, the 1996 options granted to the Chief Executive Officer
which were not issued under the Plans were subsequently incorporated into the
1997 Plan without any change in terms.
Had compensation cost for the plan year been determined based on the fair
value of options at the grant dates consistent with the method of SFAS 123,
"Accounting for Stock-Based Compensation," the Company's net income and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------------ ----------
<S> <C> <C> <C> <C>
Net Income (loss) applicable to
Common Shareholders.............. as reported $398,210 $(12,356,204) $4,323,472
pro forma $139,880 $(12,554,174) $4,207,743
Basic earnings (loss)
per share........................ as reported $ .09 $ (2.66) $ .93
pro forma $ .03 $ (2.71) $ .91
Diluted earnings (loss)
per share........................ as reported $ .08 $ (2.66) $ .89
pro forma $ .03 $ (2.71) $ .87
</TABLE>
These pro forma amounts may not be representative of future disclosure
because they do not take into effect the pro forma compensation expense related
to grants before 1995.
24
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996, 1997 and 1998, respectively; no dividend
yield for all years; expected volatility of 61.63%, 32.00% and 66.63%; risk-
free interest rate of 6.79%, 6.11% and 5.23%; and expected lives of 10 years
for all years for options under the Plan and five years for options granted to
the Chief Executive Officer.
A summary of the status of the Company's option plans as of December 31,
1998, and changes for the three years then ended was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Price Per of Price Per of Price Per
Shares Share Shares Share Shares Share
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 205,000 $9.50 595,000 $4.20 665,000 $4.10
Options granted......... 480,000 2.77 70,000 2.70 88,000 5.56
Options exercised....... -- -- -- -- (11,000) 2.52
Options forfeited....... (90,000) 8.33 -- -- (59,000) 4.92
------- ----- ------- ----- ------- -----
Outstanding at end of
year................... 595,000 $4.24 665,000 $4.10 683,000 $4.51
======= ===== ======= ===== ======= =====
Options exercisable at
year end............... 52,000 $9.50 201,000 $5.41 268,600 $5.01
------- ----- ------- ----- ------- -----
Weighted average fair
value of options
granted during the
year................... $2.54 $1.53 $4.33
===== ===== =====
</TABLE>
The following information applies to options outstanding at December 31,
1998:
<TABLE>
<S> <C>
Number outstanding............................................ 683,000
Range of exercise prices...................................... $2.50 to $9.50
Weighted average exercise price............................... $4.24
Weighted average remaining contractual life................... 2 years 6 months
</TABLE>
The following table summarizes information about non-qualified stock options
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1998 Life Price 1998 Price
-------- ------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$2.50 to $3.50.......... 485,000 2 yr. 10 ms. $2.81 180,600 $2.82
$4.75 to $6.63.......... 88,000 4 yr. 10 ms. $5.56 -- --
$9.50................... 110,000 1 ms. $9.50 88,000 $9.50
</TABLE>
10.PREFERRED STOCK
On March 17, 1998, the Company's principal shareholder purchased from the
Company 400 shares of authorized Series A Floating Rate Preferred Stock of the
Company at $10,000 cash per share (the "Preferred Stock"), or $4 million in the
aggregate. The Preferred Stock is entitled to receive, as and if declared by
the Company's Board, dividends at a floating rate equal to the rate payable by
the Company on its line of credit with its commercial bank. Dividends are paid
quarterly in arrears, and if not declared or paid would cumulate at the line of
credit rate, plus 50 basis points. The preferred stock: (i) does not possess
voting rights, (ii) is not convertible into common stock, and (iii) is not
redeemable at the option of the holder. The Preferred Stock is redeemable at
the option of the Company, but only (i) if and to
25
<PAGE>
the extent the Company's net tangible assets at the end of any fiscal quarter
and after such dividend exceeds $4.5 million, or (ii) if at least a majority of
the independent and disinterested members of the audit committee of the
Company's Board of Directors approve such redemption. The preceding provision
relating to redemption constitutes a covenant between the Company, the
Company's principal shareholder and its remaining shareholders and may not be
changed without the approval of at least a majority of the independent and
disinterested members of the audit committee of the Company's Board of
Directors.
11.INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Currently payable:
Federal................................. $(1,043,920) $(1,390,866) $ (354,236)
State................................... -- (178,732) 23,018
Foreign................................. 289,040 180,241 47,779
Deferred.................................. 1,516,445 (5,719,438) 3,042,634
----------- ----------- ----------
$ 761,565 $(7,108,795) $2,759,195
=========== =========== ==========
</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, and the accrual of warranty
expenses and other accruals 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,
-----------------------------------
1996 1997 1998
---------- ----------- ----------
<S> <C> <C> <C>
Depreciation............................. $ 4,209 $ 31,633 $ 51,133
Allowance for doubtful accounts.......... -- (58,500) (85,995)
Warranty reserve......................... 1,522,413 (5,021,502) 4,298,704
Other reserves........................... -- (672,011) 549,398
Federal and state NOL carryforward....... -- -- (1,490,071)
Decrease in valuation allowance of state
NOL..................................... -- -- (275,465)
Other.................................... (10,177) $ 942 (5,070)
---------- ----------- ----------
$1,516,445 $(5,719,438) $3,042,634
========== =========== ==========
</TABLE>
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,
---------------------------------
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Tax expense (benefit) at U.S. statutory
rate...................................... $394,324 $(6,618,099) $2,497,969
State income tax expense (benefit), net of
federal benefit........................... -- (910,592) 413,099
Excess foreign tax on foreign subsidiary
income.................................... 36,363 35,028 5,029
Amortization of certain intangible assets
and non-deductible meals and entertain-
ment...................................... 172,825 261,794 115,623
Increase (decrease) in valuation allow-
ance...................................... 159,687 115,778 (275,465)
Other...................................... (1,634) 7,296 2,940
-------- ----------- ----------
$761,565 $(7,108,795) $2,759,195
======== =========== ==========
</TABLE>
26
<PAGE>
Significant components of the deferred tax balances at December 31, 1997 and
1998 are:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
---------------------- ---------------------
Current Noncurrent Current Noncurrent
deferred deferred deferred deferred
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Warranty reserve............... $2,303,873 $4,381,195 $2,126,277 $ 260,087
Accrued vacation............... 43,325 -- -- --
Other reserves................. 672,010 -- 165,937 --
Allowance for doubtful ac-
counts........................ 78,000 -- 163,995 --
Depreciation................... -- (75,301) -- (126,434)
Net operating loss carry for-
ward.......................... 275,465 -- 372,366 1,393,170
Other.......................... 16,957 -- 22,027 --
---------- ---------- ---------- ----------
$3,389,630 $4,305,894 $2,850,602 $1,526,823
Valuation Allowance............ (275,465) -- -- --
---------- ---------- ---------- ----------
$3,114,165 $4,305,894 $2,850,602 $1,526,823
========== ========== ========== ==========
</TABLE>
Realization of deferred tax assets associated with net operating loss (NOL)
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. The Company provided a valuation allowance of $275,465 for
state deferred income tax assets in 1997 but removed the valuation allowance in
1998 due to the expectation that they will be fully realized. Although
realization is not assured for the remaining deferred tax assets at December
31, 1998, the Company believes it is more likely than not that they will be
realized through future taxable earnings.
12.PATENTS AND TRADEMARKS, LITIGATION AND CONTINGENCIES
In December 1994, the Company acquired a license for all inventions covered
by a third party's patents, patent applications and continuations in exchange
for a payment of $2.0 million in cash and $1.5 million of the Company's Common
Stock. The Company capitalized these costs as well as certain other acquisition
costs. The Company was expensing these costs over a 17 year amortization
period.
Two cases were pending in the Eastern District of Pennsylvania, in which the
Company, as exclusive licensee of these certain patents, and the licensor of
those patents sought money damages and an injunction due to patent infringement
by Environ Products, Inc. ("Environ") and Environ sought a declaration of
invalidity of the patents, non-infringement, and unenforceability. These cases
were to be tried in the Fall of 1998. The court issued an order on September
29, 1998 which, among other things, granted Environ's motions for summary
judgment of invalidity of the patents and non-infringement by Environ. This
constituted a final judgment of all issues which were material to these cases,
and the licensor has filed an appeal to the U.S. Court of Appeals, Federal
Circuit. As a result of this decision, the Company wrote off during 1998 the
current unamortized cost of this license, which was approximatley $3.7 million.
In January, 1998 the Company settled and terminated litigation with two
competitors who claimed that they possessed licenses to manufacture and sell
underground systems with retractability and other features covered by patents
licensed to the Company. The purported licensees acknowledged that whatever
license rights they had were terminated and the Company paid approximately
$1.64 million to them, excluding various other expenses associated with this
litigation of approximately $160,000.
During 1997, the Company initiated a legal action against Dayco Products,
Inc., a subsidiary of Mark IV Industries, in the United States District Court
for the Eastern District of Pennsylvania seeking, among other things, a
judicial determination that Dayco breached the provisions of two Supply
Agreements, entered into in 1990 and 1993 for the sale of primary pipe. The
Complaint alleges that
27
<PAGE>
Dayco supplied pipe that was defective because it was susceptible to microbial
fungus. In its suit, the Company requests that the Court award damages to
cover, among other things, the cost of inspecting and replacing defective pipe
and related costs in an amount to be determined at trial and for further
appropriate relief. The Company, in consultation with its legal counsel,
believes that it is more likely than not that the Company will prevail with
respect to its material claims. (See Note 2 of the Notes to Consolidated
Financial Statements--"Significant Accounting Policies--Warranty Reserve.")
A legal action was filed in the Fifth Circuit Court of the State of Hawaii on
September 16, 1997 by JJR Inc., James Jasper Enterprises, Inc., and others with
interests in a retail shopping center on the Island of Kauai, Hawaii, against
the Company, Dayco, and Senter Petroleum, Inc. for damages allegedly resulting
from the failure of the Company's Enviroflex piping system on or about August
12, 1996 at The Little Gas Shack (the "Shack"), a retail gasoline service
facility supplied by Senter adjacent to the shopping center. The Complaint
alleges that more than 1,800 gallons of gasoline were released onto the
property occupied by the Shack and the adjacent businesses and into a nearby
stream and the harbor where the shopping center was located. Although the
amount sought by the plaintiffs is not specified in the Complaint, the attorney
retained by the Company's insurance carrier has ascertained that the plaintiffs
are seeking approximately $23 million in damages. The Company has and maintains
insurance with policy limits at the time of this claim of $3 million which may
respond to this claim, however, the amount claimed exceeds the liability
limits. Under the Dayco Supply Agreement, Dayco is required to indemnify and
hold the Company harmless from all claims and suits by third parties based upon
the manufacture of Enviroflex primary pipe or the performance by Dayco of its
obligations under the Agreement. Dayco, has not, as yet, agreed to honor this
obligation. The Company has commenced litigation to enforce its rights against
Dayco. Based upon the Company's investigation to date, the Company believes
that the Enviroflex secondary containment system functioned properly to contain
the overflow and was not responsible for the release, and that any loss was
caused by the failure of equipment manufactured and supplied by third parties.
The Company believes that plaintiff's claims are grossly excessive and intends
to vigorously defend its position. The Company believes that it has no material
uninsured liability in connection with this matter and that if it does, it is
covered by Dayco's indemnity.
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.
13.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 primary pipe exclusively to the Company for use in
flexible double-wall underground piping systems and the Company agreed to
purchase such pipe exclusively from Dayco. During 1997, the Company terminated
this agreement (see Note 12). Dayco has asserted that it is entitled to payment
of approximately $4.0 million for goods, services, and freight contracted for
by the Company under the Dayco Agreement. The Company has declined to pay this
for the reason, among other things, that management estimates that amounts owed
to the Company by Dayco exceed the amount to which Dayco claims it is entitled.
Employment Agreements. The Company has employment agreements with certain key
executives that provide severance pay benefits if there is a change in control
of the Company. The agreements will continue in effect on a year-to-year basis
until terminated or not renewed by the Company or key executives. Upon a change
in control, the Company shall continue to pay the key executives' salaries per
the agreements and certain benefits for the agreed upon time periods. The
maximum contingent liability under the agreements at December 31, 1998 was
$908,000.
28
<PAGE>
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, 1996, 1997 and 1998
was approximately $235,000, $867,000 and $943,000, respectively.
Future minimum lease payments under noncancelable operating leases at
December 31, 1998 are as follows (rounded to the nearest thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
------------
<S> <C>
1999.............................................................. $1,032,000
2000.............................................................. 1,026,000
2001.............................................................. 945,000
2002.............................................................. 699,000
2003.............................................................. 653,000
----------
$4,355,000
==========
</TABLE>
14.FOREIGN OPERATIONS AND EXPORT SALES
Summarized financial data with respect to the operations of TCI-Environment
NV at December 31, 1997 and 1998 and for the years then ended follows (rounded
to the nearest thousand):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Total assets........................................... $2,144,000 $1,783,000
Total liabilities...................................... 912,000 418,000
---------- ----------
Net assets............................................. $1,232,000 $1,365,000
========== ==========
Net sales.............................................. $3,536,000 $3,782,000
========== ==========
Net income............................................. $ 248,000 $ 78,000
========== ==========
</TABLE>
The Company's net sales by geographic region (rounded to the nearest
thousand)are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
United States............................ $25,001,000 $33,128,000 $41,950,000
Canada................................... 1,566,000 1,463,000 1,646,000
Mexico, Central and South America........ 6,028,000 6,412,000 5,059,000
Europe and the Middle East............... 3,761,000 3,536,000 3,781,000
Southeast Asia, Australia and New
Zealand................................. 1,374,000 1,110,000 1,146,000
----------- ----------- -----------
Total.................................. $37,730,000 $45,649,000 $53,582,000
=========== =========== ===========
</TABLE>
29
<PAGE>
TOTAL
CONTAINMENT
Delivering the Difference
Board of Directors
Pierre Desjardins
Chairman, President & Chief Executive Officer
Jean-Claude Arpin
Director
Marcel Dutil
Director
Paul Gobeil
Director
Bernard Gouin
Director
Nycole Pageau-Goyette
Director
Marc Guindon
Director
Stock Transfer Agent & Register
American Stock Transfer & Trust Company
Stock Market Information
Total Containment, Inc. stock is traded on the
Nasdaq National Market System.
Nasdaq Trading Symbol: TCIX
Total Containment, Inc.
A130 North Drive
P.O. Box 939
Oaks, PA 19456
tel: 610-666-7777
fax: 610-666-5321
www.totalcontainment.com
[email protected]
Shareholder Contact:
[email protected]
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of this 10th day of July, 1996, by and
among AMERICAN CONTAINMENT, INC. (the "Company"), a Delaware corporation having
its principal office at 422 Business Center, A-130 North Drive, Oaks,
Pennsylvania 19456, and RICHARD DIMAGGIO (the "Executive"), an individual
residing at 15540 Strebor Drive, Bakersfield, California, 93312.
BACKGROUND
----------
The Company has agreed to employ the Executive, and the Executive has
agreed to accept employment by the Company, on the terms and conditions set
forth in this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby employs the Executive, as President and
----------
the Executive hereby accepts such employment, on the terms and conditions set
forth in this Agreement.
2. Duties of Employee.
------------------
(a) The Executive shall perform and discharge well and faithfully such
duties as an executive officer of the Company as may be assigned to the
Executive from time to time by the Board of Directors of the Company (the
"Board"). The Executive shall devote his full time attention, and energies to
the business of the Company and shall not, during the Employment Period (as
defined in Section 3 of this Agreement), be employed or involved in any other
business activity, whether or not such activity is pursued for gain, profit, or
other pecuniary advantage, without the consent of the Company, which consent
shall not be unreasonably withheld. The Executive shall report directly to the
Chief Executive Officer of Total Containment, Inc. ("TCI") the parent of the
Company.
(b) This Section 2 shall not be construed as preventing the Executive
from investing the Executive's personal assets in businesses (1) which do not
compete with the Company or any affiliate of the Company (2) where the form or
manner of such investments will not require services on the part of the
Executive in the operation of the affairs of the business in which such
investments are made, and (3) in which the Executive's participation is solely
that of a private investor. Notwithstanding the foregoing, the purchase by the
Executive of any class of publicly traded securities of any entity which
competes with the Company or any affiliate or sub-
<PAGE>
sidiary of the Company, which securities constitute less than 5% of the
aggregate securities of such class of such entity, shall not be a violation of
clause (1) hereof.
3. Term of Agreement; Termination. This Agreement shall continue for a term
------------------------------
commencing on the date hereof and terminating on that date which is five (5)
years after the date hereof (the "Employment Period"). Notwithstanding the
foregoing, this Agreement and the Executive's employment hereunder shall
terminate:
(a) immediately, for Cause, by action of the Board upon notice to the
Executive;
(1) "Cause" shall mean any of the following:
(A) the Executive's conviction of or plea of guilty or nolo
contendere to a felony not involving vehicular manslaughter, a crime
of falsehood, or a crime involving moral turpitude, or the actual
incarceration of the Executive for a period of time of ten (10) days
or more;
(B) the Executive's commission or omission of an act or course
of conduct constituting gross negligence, willful or intentional
misconduct, embezzlement, fraud or malfeasance as to the Company
and/or the Executive's employment hereunder;
(C) The Executive's material failure to follow the good faith
instructions of the Board or Chief Executive or Operating Officer of
Company or of TCI, with respect to the Company or its operations,
following notice of such good faith instructions;
(D) the Executive's breach of this Agreement after providing the
executive a written notice and a fifteen (15) day notice within which
to cure such breach;
(E) the Executive's intentional failure to comply in any
material respect with the Company's written policies and procedures of
which he has actual notice (For purposes of this clause, any failure
of the Executive to comply with a particular policy or procedure
following written notice to the Executive of a failure to comply with
such policy or procedure, and any failure of the Executive to comply
with a policy or procedure which has been designated by written notice
to the Executive to be of sufficient materiality to the operation
supervised by the Executive that such failure, if unintentional,
constituted a reckless disregard for such policy or procedure, shall
be deemed to be an intentional failure.); or
(F) The Executive's failure, whether intentional or
unintentional, on two (2) or more occasions during any twelve (12)
month period (after the first of which the Executive was notified in
writing of such fail-
2
<PAGE>
ure) to comply in all material respects with all of the Company's
written policies and procedures of which he has actual notice.
(b) at any time, immediately upon giving the Executive notice of a
determination by the Board that the Executive has been incapacitated by
accident, sickness, or otherwise so as to render the Executive mentally or
physically incapable of performing the services required of the Executive under
this Agreement for an aggregate of one hundred eighty (180) days or one hundred
twenty (120) consecutive days during any period of twelve (12) months, upon the
expiration of either such periods or at any time thereafter; or
(c) immediately upon the Executive's death.
4. Employment Period Compensation.
------------------------------
(a) Base Salary. For the services rendered by the Executive under this
-----------
Agreement, the Company shall pay the Executive a base salary during the
Employment Period at the rate of One Hundred Twenty Thousand Dollars
($120,000.00) per year, payable bi-weekly.
(b) Other Benefits. The Executive shall participate in any qualified or
--------------
non-qualified retirement plan, insurance, medical and other similar welfare
plans as may from time to time be adopted by the Company as and to the extent
determined by the Board and in accordance with the terms of any such plan. Other
miscellaneous fringe benefits e.g., vacation and expense reimbursement, shall be
established by Company policy as in effect from time to time.
(c) Bonuses. The Executive shall be entitled to receive an annual
-------
performance bonus equal to fifteen percent (15%) of the Company's earnings
before taxes (determined without deduction of interest on monies borrowed to
finance the acquisition of business and assets of the Company from its former
owner pursuant to a closing of even date herewith (the "Purchase Agreement"),
determined in accordance with generally accepted accounting principles by the
accountants servicing the Company, which shall be received within ninety (90)
days after the end of each calendar year of the Company.
5. Stock Options. The Executive shall receive options from TCI pursuant to
-------------
a Stock Option Agreement for 50,000 shares of TCI common stock which option
shall vest at the rate of 10,000 shares for each contract year of employment
hereunder and the exercise price shall be the closing stock market price
("asked") as of the day prior to the date of the Purchase Agreement.
6. Amounts Due Upon Termination. In the event that this Agreement and the
----------------------------
Executive's employment by the Company hereunder is terminated for any reason
prior to the expiration of the Employment Period, the Executive shall retain all
benefits to which he is entitled under any severance policies of the Company
then in effect. In addition:
(a) Upon termination of this Agreement under Paragraphs 3(a) or 3(c), the
Executive shall be entitled to any unpaid base salary accrued through the date
of termination, but shall be entitled to no bonus or other payments or benefits
(excluding any rights under the stock option agreement) as described above
provided however that if termination results under 3(c),
3
<PAGE>
executive shall be entitled to a bonus based on the profits for the current
fiscal year up until the day of termination.
(b) Upon termination pursuant to Paragraph 3(b), the Executive shall be
entitled to (i) continued payments of base salary for six (6) months or until
the Executive's death, whichever occurs first, equal to 100% of the base salary
in effect as of the date of termination (less any disability payments received
by the Executive, from plans sponsored by the Company, in case of termination
for disability).
7. Covenant Not to Compete.
-----------------------
(a) The Executive hereby acknowledges and recognizes the highly competitive
nature of the Company's business and accordingly agrees that, during the
Employment Period, and for a period of three (3) years following expiration or
termination of this Agreement under Paragraphs 3(a) or 3(b) the Executive 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 or TCI is
engaged during the Employment Period; 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 or TCI is engaged during the Employment Period.
(b) For purposes of this Section 7: (i) the phrases "Company's
business" or "activity in which the Company or TCI is engaged during the
Employment Period" 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 or chemicals (including,
without limitation, gasoline, gasohol and oil) from underground storage tanks to
above ground product dispensers or machinery and equipment which uses such
fuels, (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 of the Company or TCI or of any of their
subsidiaries or affiliates are sold during the Employment Period.
(c) Executive, in connection with this Section 7, represents and
acknowledges that he is fully familiar with all the existing products and
services of the Company and TCI, products under development and the general
business of the Company and TCI.
8. No Disclosure of Confidential Information. The Executive acknowledges that
-----------------------------------------
the Company's and TCI's trade secrets as they may exist from time to time and
confidential information concerning the Company's and TCI'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 and TCI, access to and
knowledge of which are essential to the performance of the Executive's duties
under this
4
<PAGE>
Agreement. In light of the highly competitive nature of the industry in which
the business of the Company and TCI is conducted, the Executive further agrees
that all knowledge and information described in the preceding sentence not in
the public domain and heretofore or in the future known by the Executive as a
result of employment by the Company shall be considered confidential
information. In recognition of this fact, the Executive agrees that the
Executive will not, during or after the Employment Period, disclose any of such
confidential information to any person or other entity for any reason or purpose
whatsoever, except as necessary in the performance of the Executive's duties as
an employee of or consultant to the Company or TCI and then only upon execution
by the recipient of a written confidentiality agreement in such form and content
as requested by the Company or TCI from time to time, nor shall the Executive
make use of any such confidential information for the Executive's own purposes
or for the benefit of any person or other entity (except the Company or TCI and
their affiliates or subsidiaries, if any) under any circumstances during or
after the Employment Period. For purposes of this Section 8, trade secrets and
confidential information of the Company and TCI shall be deemed to include all
trade secrets and confidential information of the Company, TCI and their
affiliates or subsidiaries.
9. Non-solicitation of Employees. In the event that Executive's employment is
-----------------------------
terminated prior to the expiration of the Employment Period for any reason or
expires by its terms, the Executive hereby agrees that he shall not solicit or
hire any employees of the Company, TCI or their affiliates or subsidiaries for a
period of three (3) years after such termination, or expiration.
10. Company Right to Inventions. The Executive shall 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 products of the Company or TCI or any affiliate of the
Company or TCI or capable of beneficial use by customers to whom products of the
Company or any affiliate of the Company are sold (collectively the "Concepts"),
which the Executive has in the past, during his employment with the Company,
conceived, developed or acquired or which the Employee may conceive, develop or
acquire during the Employment Period (whether or not during usual working
hours), and reissues thereof that may at any time be granted for or upon any
such invention, improvement or technical information. Therefore, the Executive
shall promptly at all times during and after the Employment Period:
(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 it 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
Concepts.
11. Remedies.
--------
5
<PAGE>
(a) The Executive acknowledges and agrees that the Company's remedy at law
for a breach or threatened breach of the provisions of Section 7, 8, 9 or 10 of
this Agreement would be inadequate and, in recognition of this fact, in the
event of a breach or threatened breach by the Executive of any of the provisions
of Section 7, 8, 9 or 10 of this 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
permanent injunction, or any other equitable remedy which may then be available,
and the Executive 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 covenants or agreements contained in Sections 7, 8, 9
or 10 of this Agreement, or if such covenants or agreements are otherwise the
subject of litigation between the parties, then the terms of such covenants and
agreements 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 covenants and agreements is scheduled to
terminate or (2) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(b) It is expressly understood and agreed that although the Executive and
the Company consider the restrictions contained in Sections 7, 8, 9 and 10 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 restriction contained in Sections 7, 8, 9 and 10 of
this Agreement is an unreasonable or otherwise unenforceable restriction against
the Executive, the provisions of Sections 7, 8, 9 and 10 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.
12. Notices. Any notice required or permitted under this Agreement shall be
-------
sufficient if it is in writing and shall be deemed given (i) at the time of
personal delivery to the addressee, or (ii) at the time sent in the U.S. mail,
postage prepaid, certified mail, with return receipt requested, addressed as
follows:
If to the Executive:
Richard Dimaggio
15540 Strebor Drive
Bakersfield, CA 93312
6
<PAGE>
If to the Company:
American Containment, Inc.
422 Business Center
A-130 North Drive
P.O. Box 939
Oaks, PA 19456
13. No Waiver. Failure of any party to this Agreement at any time or times
---------
hereafter to require strict performance by any other party of any of the
provisions, terms, or conditions contained in this Agreement shall not waive,
affect, or diminish any right of any party at any time or times thereafter to
demand strict performance therewith, and with respect to any other provisions,
terms, or conditions contained in this Agreement. Any waiver of such provision,
term, or condition shall not waive or affect any other failure to perform a
provision, term or condition of this Agreement, whether prior or subsequent
thereto, and whether of the same or a different type. None of the provisions,
terms, or conditions of this Agreement shall be deemed to have been waived by
any act or knowledge of a party hereto except by an instrument in writing signed
by that party and directed to the other party specifying such waiver.
14. Arbitration. To the extent permitted by applicable law, any controversy
-----------
or dispute arising out of, or relating to this Agreement or any alleged breach
hereof shall be settled by arbitration in the Borough of West Chester, Chester
County, Pennsylvania, in accordance with the Rules of the American Arbitration
Association then in existence, it being understood and agreed that the
arbitration panel shall consist of three (3) individuals acceptable to the
parties hereto. In the event that the parties cannot agree on three arbitrators
within twenty (20) days following receipt by one party of a demand for
arbitration from the other party, then Executive and the Company each shall
designate one arbitrator and the two arbitrators so selected shall select the
third arbitrator. The arbitration panel so selected shall convene a hearing no
later than sixty (60) days following the selection of the panel. The arbitration
award shall be final and binding upon the parties, and judgment may be entered
thereon in the Pennsylvania Court of Common Pleas or in any other court of
competent jurisdiction. Each party shall be responsible for his or its expenses
and attorneys' fees incurred in connection with any arbitration; provided that
the arbitrators shall have the authority to award expenses and legal fees to the
prevailing party at their discretion. The arbitrators' fees shall be split
equally by the parties.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall in no event affect the validity or enforceability of any
other provision.
16. Binding Effect and Benefit. The provisions of this Agreement shall be
--------------------------
binding upon, and shall inure to the benefit of, the Company and its successors
and assigns, and Executive and his heirs, and legal representatives; provided,
however, Executive may not assign his duties hereunder.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements, con-
7
<PAGE>
tracts or understandings with respect thereto. This Agreement may be amended
only by an instrument in writing executed by all parties hereto.
18. No Assignment. This Agreement shall not be assignable by either
-------------
party hereof, except by the Company to any affiliate, subsidiary or successor.
19. Captions. The captions of the several Sections and Paragraphs of
--------
this Agreement are inserted for convenience of reference only. They constitute
no part of this Agreement and are not to be considered in the construction
hereof.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed one and the same instrument which may
be sufficiently evidenced by any one counterpart.
21. Applicable Law. Except to the extent preempted by federal law, the
--------------
provisions of this Agreement are to be construed, administered and enforced in
accordance with the domestic, internal law of the Commonwealth of Pennsylvania,
without regard to its conflicts of laws principles.
22. Return of Materials. In the event of termination of employment, for
-------------------
any reason, all information, files and materials of the Company which are in the
possession of the Executive shall be returned to the Company.
23. Gender. The words "he", "his" or "him" when used herein with
------
reference to the Executive shall refer to the Executive irrespective of the
gender of the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN CONTAINMENT, INC.
By: /s/ Bernard Gouin
------------------
Attest: /s/ Jeffrey Boehmer
--------------------
[Corp. Seal]
EXECUTIVE:
/s/ Vicki DiMaggio /s/ Richard DiMaggio
- ------------------ --------------------
WITNESS Richard Dimaggio
8
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of this 12 day of June, 1997, by and
among TOTAL CONTAINMENT, INC. (the "Company"), a Pennsylvania corporation having
its principal office at 422 Business Center, A-130 North Drive, Oaks,
Pennsylvania 19456, and John R. Wright, Jr. (the "Executive"), an individual
residing at 172 Beaumont Road, Devon, Pennsylvania 19333.
BACKGROUND
----------
The Company currently employs the Executive and wishes to formalize
such employment by a written agreement. In connection with the foregoing, the
Company has agreed to employ the Executive, and the Executive has agreed to
accept employment by the Company, on the terms and conditions set forth in this
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby employs the Executive, as Vice
----------
President Operations and the Executive hereby accepts such employment, on the
terms and conditions set forth in this Agreement.
2. Duties of Employee.
------------------
(a) The Executive shall perform and discharge well and
faithfully such duties as an executive officer of the Company as may be assigned
to the Executive from time to time by the Board of Directors of the Company (the
"Board"). The Executive shall devote his full time attention, and energies to
the business of the Company and shall not, during the Employment Period (as
defined in Section 3 of this Agreement), be employed or involved in any other
business activity, whether or not such activity is pursued for gain, profit, or
other pecuniary advantage, without the consent of the Company, which consent
shall not be unreasonably withheld.
<PAGE>
(b) This Section 2 shall not be construed as preventing the
Executive from investing the Executive's personal assets in businesses (1) which
do not compete with the Company or any affiliate of the Company (2) where the
form or manner of such investments will not require services on the part of the
Executive in the operation of the affairs of the business in which such
investments are made, and (3) in which the Executive's participation is solely
that of a private investor. Notwithstanding the foregoing, the purchase by the
Executive of any class of publicly traded securities of any entity which
competes with the Company or any affiliate or subsidiary of the Company, which
securities constitute less than 5% of the aggregate securities of such class of
such entity, shall not be a violation of clause (1) hereof.
3. Term of Agreement; Termination. This Agreement shall continue for
------------------------------
a term commencing on the date hereof and terminating on that date which is three
(3) years after the date hereof (the "Employment Period"), provided that on the
first and each subsequent anniversary date hereof, and unless any party has
given the other party written notice at least one hundred twenty (120) days
prior to such anniversary date that such party does not agree to renew this
Agreement, the term of this Agreement and the Employment Period shall be deemed
renewed for a term ending three (3) years subsequent to such anniversary date,
unless sooner terminated in accordance with this Section 3. Notwithstanding the
foregoing, this Agreement and the Executive's employment hereunder shall
terminate:
(a) at any time by action of the Board, without cause, upon
sixty (60) days' written notice to the Executive;
(b) at any time, for Cause, by action of the Board upon thirty
(30) days' written notice to the Executive;
(1) "Cause" shall mean any of the following:
(A) the Executive's conviction of or plea of guilty
or nolo contendere to a felony, a crime of falsehood, or a
crime involving moral turpitude, or the actual incarceration
of the Executive for a period of thirty (30) days or more;
2
<PAGE>
(B) the Executive's commission or omission of an act
or course of conduct constituting willful or intentional
misconduct, embezzlement, fraud or malfeasance as to the
Company and/or the Executive's employment hereunder;
(C) The Executive's material failure to follow the
good faith instructions of the Board or Chief Executive or
Operating Officer, with respect to the Company or its
operations, following notice of such good faith
instructions;
(D) the Executive's breach of this Agreement;
(E) the Executive's intentional failure to comply in
any material respect with the Company's written policies and
procedures of which he has actual notice (For purposes of
this clause, any failure of the Executive to comply with a
particular policy or procedure following written notice to
the Executive of a failure to comply with such policy or
procedure, and any failure of the Executive to comply with a
policy or procedure which has been designated by written
notice to the Executive to be of sufficient materiality to
the operation supervised by the Executive that such failure,
if unintentional, constituted a reckless disregard for such
policy or procedure, shall be deemed to be an intentional
failure.); or
(F) The Executive's failure, whether intentional or
unintentional, on two (2) or more occasions during any
twelve (12) month period (after the first of which the
Executive was notified in writing of such failure) to comply
in all material respects with all of the Company's written
policies and procedures of which he has actual notice.
(c) at any time, immediately upon giving the Executive notice of
a determination by the Board that the Executive has been incapacitated by
accident, sickness, or otherwise so as to
3
<PAGE>
render the Executive mentally or physically incapable of performing the services
required of the Executive under this Agreement for an aggregate of one hundred
eighty (180) days or one hundred twenty (120) consecutive days during any period
of twelve (12) months, upon the expiration of either such periods or at any time
thereafter;
(d) immediately upon the Executive's death; or
(e) at any time by the Executive, upon one hundred eighty (180)
days' written notice to the Company;
4. Employment Period Compensation.
------------------------------
(a) Base Salary. For the services rendered by the Executive
-----------
under this Agreement, the Company shall pay the Executive a base salary during
the Employment Period at the rate of One Hundred Ten Thousand Dollars
($110,000.00) per year, payable bi-monthly. The Board, (or, for purposes of this
paragraph 4, the Compensation Committee of the Board) shall, at least annually,
review the Executive's base salary for possible increases, although nothing
contained herein shall be construed as obligating the Board to increase the
Executive's base salary at any time. Notwithstanding the foregoing, in the event
that at any time the Company institutes across-the-board salary reductions for
substantially all senior executives (excluding those whose salaries are fixed by
contract and are not subject to reduction without the consent of the affected
executive), the Executive's base salary shall be so reduced. Any and all such
increases or decreases in base salary shall be deemed to constitute amendments
to this Section 4(a) to reflect the increased or decreased amounts effective as
of the dates established by the Board for such increases or decreases in the
resolutions authorizing such increases or decreases.
(b) Other Benefits. The Executive shall participate in any
--------------
qualified or non-qualified retirement plan, insurance, medical and other similar
welfare plans as may from time to time be adopted by the Company as and to the
extent determined by the Board and in accordance with the terms of any such
plan. Other miscellaneous fringe benefits e.g., vacation and expense
----
4
<PAGE>
reimbursement, shall be established by Company policy as in effect from time to
time with the exception of three (3) weeks vacation annually.
(c) Bonuses. The Executive shall be entitled to receive such
-------
bonuses as may be directed by the Board and which shall be received at the end
of each calendar year of the Company, although nothing contained herein shall be
construed as obligating the Board to pay any bonuses.
(d) Car Allowance. Executive shall be entitled to a car
-------------
allowance of Five Hundred Dollars ($500.00) per month.
5. Stock Options. During the term of this Agreement, the Executive
-------------
shall be eligible to participate in the Company's Stock Compensation Plan
established January 14, 1994, pursuant to the terms thereof and shall in this
connection be entitled to receive such awards under such Plan, if any, as the
Stock Compensation Committee of the Board may from time to time determine, in
its sole and absolute discretion, to be appropriate. The Executive will be
granted 20,000 shares as option at the next Board Meeting at the closing price
that day.
6. Amounts Due Upon Termination. In the event that this Agreement and
----------------------------
the Executive's employment by the Company hereunder is terminated for any reason
prior to the expiration of the Employment Period, the Executive shall retain all
benefits to which he is entitled under any severance policies of the Company
then in effect. In addition:
(a) Upon termination of this Agreement under Paragraphs 3(b),
3(d) or 3(e), the Executive shall be entitled to any unpaid base salary accrued
through the date of termination, but shall be entitled to no bonus or other
payments or benefits as described above.
(b) Upon termination pursuant to Paragraphs 3(a) or 3(c), the
Executive shall be entitled to (i) continued payments of base salary for six (6)
months or until the Executive's death, whichever occurs first, (less any
disability payments received by the Executive, from plans sponsored by the
Company, in case of termination for disability).
5
<PAGE>
(c) The Executive hereby agrees that his sole remedy for any
breach by the Company of this Agreement under Section 3(e) shall be to terminate
this Agreement hereof and receive payment of amounts then due under Section 6
hereof.
7. Covenant Not to Compete.
-----------------------
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the Company's business and accordingly agrees that, during
the Employment Period, and for a period of (i) three (3) years following
termination of this Agreement under Paragraphs 3(b), 3(c), or 3(e), or (ii) one
(1) year following termination of this Agreement under Paragraph 3(a) the
Executive 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 is engaged during the Employment Period; 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 is engaged during the Employment Period.
(b) For purposes of this Section 7: (i) the phrases "Company's
business" or "activity in which the Company is engaged during the Employment
Period" 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 machinery and equipment which uses such fuels, (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 of the Company or of any of its subsidiaries are sold during
the Employment Period.
6
<PAGE>
(c) Executive, in connection with this Section 7, 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.
8. No Disclosure of Confidential Information. The Executive
-----------------------------------------
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 are essential to the performance of the Executive's duties under this
Agreement. In light of the highly competitive nature of the industry in which
the business of the Company is conducted, the Executive further agrees that all
knowledge and information described in the preceding sentence not in the public
domain and heretofore or in the future known by the Executive as a result of
employment by the Company shall be considered confidential information. In
recognition of this fact, the Executive agrees that the Executive will not,
during or after the Employment Period, disclose any of such confidential
information, unless required by law, to any person or other entity for any
reason or purpose whatsoever, except as necessary in the performance of the
Executive's duties as an employee of or consultant to the Company and then only
upon execution by the recipient of a written confidentiality agreement in such
form and content as requested by the Company from time to time, nor shall the
Executive make use of any such confidential information for the Executive's own
purposes or for the benefit of any person or other entity (except the Company
and its affiliates or subsidiaries, if any) under any circumstances during or
after the Employment Period. For purposes of this Section 8, 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.
9. Non-solicitation of Employees. In the event that Executive's
-----------------------------
employment is terminated prior to the expiration of the Employment Period for
any reason, the Executive hereby agrees that he shall not solicit or hire any
employees of the Company,
7
<PAGE>
or its affiliates or subsidiaries for a period of three (3) years after such
termination.
10. Company Right to Inventions. The Executive shall 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 products 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 (collectively the "Concepts"),
which the Executive has in the past, during his employment with the Company,
conceived, developed or acquired or which the Employee may conceive, develop or
acquire during the Employment Period (whether or not during usual working
hours), and reissues thereof that may at any time be granted for or upon any
such invention, improvement or technical information. Therefore, the Executive
shall promptly at all times during and after the Employment Period:
(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 it 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 Concepts.
11. Remedies.
--------
(a) The Executive acknowledges and agrees that the Company's
remedy at law for a breach or threatened breach of the provisions of Section 7,
8, 9 or 10 of this Agreement would be inadequate and, in recognition of this
fact, in the event of a breach or threatened breach by the Executive of any of
the
8
<PAGE>
provisions of Section 7, 8, 9 or 10 of this 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 permanent injunction, or any other equitable remedy which
may then be available, and the Executive 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 covenants or agreements contained in Sections
7, 8, 9 or 10 of this Agreement, or if such covenants or agreements are
otherwise the subject of litigation between the parties, then the terms of such
covenants and agreements 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 covenants and agreements is
scheduled to terminate or (2) the date of the final court order (without further
right of appeal) enforcing such covenant or agreement.
(b) It is expressly understood and agreed that although the
Executive and the Company consider the restrictions contained in Sections 7, 8,
9 and 10 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 restriction contained in
Sections 7, 8, 9 and 10 of this Agreement is an unreasonable or otherwise
unenforceable restriction against the Executive, the provisions of Sections 7,
8, 9 and 10 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.
12. Notices. Any notice required or permitted under this Agreement
-------
shall be sufficient if it is in writing and shall be deemed given (i) at the
time of personal delivery to the addressee, or (ii) at the time sent in the U.S.
mail, postage prepaid,
9
<PAGE>
certified mail, with return receipt requested, addressed as follows:
If to the Executive:
John R. Wright, Jr.
172 Beaumont Road
Devon, PA 19333
If to the Company:
Total Containment, Inc.
422 Business Center
A-130 North Drive
P.O. Box 939
Oaks, PA 19456
With a copy to:
Steven G. Brown, Esquire
Petrikin, Wellman, Damico, Carney & Brown
The William Penn Building
109 Chesley Drive
Media, PA 19063
13. No Waiver. Failure of any party to this Agreement at any time or
---------
times hereafter to require strict performance by any other party of any of the
provisions, terms, or conditions contained in this Agreement shall not waive,
affect, or diminish any right of any party at any time or times thereafter to
demand strict performance therewith, and with respect to any other provisions,
terms, or conditions contained in this Agreement. Any waiver of such provision,
term, or condition shall not waive or affect any other failure to perform a
provision, term or condition of this Agreement, whether prior or subsequent
thereto, and whether of the same or a different type. None of the provisions,
terms, or conditions of this Agreement shall be deemed to have been waived by
any act or knowledge of a party hereto except by an instrument in writing signed
by that party and directed to the other party specifying such waiver.
10
<PAGE>
14. Arbitration. To the extent permitted by applicable law, any
-----------
controversy or dispute arising out of, or relating to this Agreement or any
alleged breach hereof shall be settled by arbitration in the Borough of West
Chester, Chester County, Pennsylvania, in accordance with the Rules of the
American Arbitration Association then in existence, it being understood and
agreed that the arbitration panel shall consist of three (3) individuals
acceptable to the parties hereto. In the event that the parties cannot agree on
three arbitrators within twenty (20) days following receipt by one party of a
demand for arbitration from the other party, then Executive and the Company each
shall designate one arbitrator and the two arbitrators so selected shall select
the third arbitrator. The arbitration panel so selected shall convene a hearing
no later than sixty (60) days following the selection of the panel. The
arbitration award shall be final and binding upon the parties, and judgment may
be entered thereon in the Pennsylvania Court of Common Pleas or in any other
court of competent jurisdiction. Each party shall be responsible for his or its
expenses and attorneys' fees incurred in connection with any arbitration;
provided that the arbitrators shall have the authority to award expenses and
legal fees to the prevailing party at their discretion. The arbitrators' fees
shall be split equally by the parties.
15. Severability. The invalidity or unenforceability of any provision
------------
of this Agreement shall in no event affect the validity or enforceability of any
other provision.
16. Binding Effect and Benefit. The provisions of this Agreement shall
--------------------------
be binding upon, and shall inure to the benefit of, the Company and its
successors and assigns, and Executive and his heirs, and legal representatives.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements, contracts or understandings with respect thereto. This
Agreement may be amended only by an instrument in writing executed by all
parties hereto.
11
<PAGE>
18. No Assignment. This Agreement shall not be assignable by either
-------------
party hereof, except by the Company to any affiliate, subsidiary or successor.
19. Captions. The captions of the several Sections and Paragraphs of
--------
this Agreement are inserted for convenience of reference only. They constitute
no part of this Agreement and are not to be considered in the construction
hereof.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed one and the same instrument which may
be sufficiently evidenced by any one counterpart.
12
<PAGE>
21. Applicable Law. Except to the extent preempted by federal law, the
--------------
provisions of this Agreement are to be construed, administered and enforced in
accordance with the domestic, internal law of the Commonwealth of Pennsylvania,
without regard to its conflicts of laws principles.
22. Return of Materials. In the event of termination of employment,
-------------------
for any reason, all information, files and materials of the Company which are in
the possession of the Executive shall be returned to the Company.
23. Gender. The words "he", "his" or "him" when used herein with
------
reference to the Executive shall refer to the Executive irrespective of the
gender of the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TOTAL CONTAINMENT, INC.
By: /s/ Pierre Desjardins
Attest: /s/ Jeffrey Boehmer
[Corp. Seal]
EXECUTIVE:
/s/ John R. Wright, Jr.
- ------------------------------- John R. Wright, Jr.
WITNESS
13
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of this 16th day of July, 1998, by and
among TOTAL CONTAINMENT, INC. (the "Company"), a Pennsylvania corporation having
its principal office at 422 Business Center, A-130 North Drive, Oaks,
Pennsylvania 19456, and Keith R. Ruck (the "Executive"), an individual residing
at 14 Florence Drive, Richboro, PA 18954.
BACKGROUND
----------
The Company currently employs the Executive and wishes to formalize such
employment by a written agreement. In connection with the foregoing, the Company
has agreed to employ the Executive, and the Executive has agreed to accept
employment by the Company, on the terms and conditions set forth in this
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby employs the Executive, as Vice President
----------
Finance and the Executive hereby accepts such employment, on the terms and
conditions set forth in this Agreement.
2. Duties of Employee.
------------------
(a) The Executive shall perform and discharge well and faithfully such
duties as an executive officer of the Company as may be assigned to the
Executive from time to time by the President of the Company. The Executive shall
devote his full time attention, and energies to the business of the Company and
shall not, during the Employment Period (as defined in Section 3 of this
Agreement), be employed or involved in any other business activity, whether or
not such activity is pursued for gain, profit, or other pecuniary advantage,
without the consent of the Company, which consent shall not be unreasonably
withheld.
<PAGE>
(b) This Section 2 shall not be construed as preventing the
Executive from investing the Executive's personal assets in businesses (1) which
do not compete with the Company or any affiliate of the Company (2) where the
form or manner of such investments will not require services on the part of the
Executive in the operation of the affairs of the business in which such
investments are made, and (3) in which the Executive's participation is solely
that of a private investor. Notwithstanding the foregoing, the purchase by the
Executive of any class of publicly traded securities of any entity which
competes with the Company or any affiliate or subsidiary of the Company, which
securities constitute less than 5% of the aggregate securities of such class of
such entity, shall not be a violation of clause (1) hereof.
3. Term of Agreement; Termination. This Agreement shall continue for a
------------------------------
term commencing on the date hereof and terminating on that date which is three
(3) years after the date hereof (the "Employment Period"), provided that on the
first and each subsequent anniversary date hereof, and unless any party has
given the other party written notice at least one hundred twenty (120) days
prior to such anniversary date that such party does not agree to renew this
Agreement, the term of this Agreement and the Employment Period shall be deemed
renewed for a term ending three (3) years subsequent to such anniversary date,
unless sooner terminated in accordance with this Section 3. Notwithstanding the
foregoing, this Agreement and the Executive's employment hereunder shall
terminate:
(a) at any time by the Company, without cause, upon sixty (60) days'
written notice to the Executive;
(b) at any time, for Cause, by the Company upon thirty (30) days' written
notice to the Executive;
(1) "Cause" shall mean any of the following:
(A) the Executive's conviction of or plea of guilty or nolo
contendere to a felony, a crime of falsehood, or a crime involving
moral turpitude, or the actual incarceration of the Executive for a
period of thirty (30) days or more;
2
<PAGE>
(B) the Executive's commission or omission of an act or course
of conduct constituting gross negligence, willful or intentional
misconduct, embezzlement, fraud or malfeasance as to the Company and/or
the Executive's employment hereunder;
(C) The Executive's material failure to follow the good faith
instructions of the Board or Chief Executive or Operating Officer, with
respect to the Company or its operations, following notice of such good
faith instructions;
(D) the Executive's breach of this Agreement; after providing
the Executive a written notice and a 10-day notice within which to cure
such breach.
(E) the Executive's intentional failure to comply in any
material respect with the Company's written policies and procedures of
which he has actual notice (For purposes of this clause, any failure of
the Executive to comply with a particular policy or procedure following
written notice to the Executive of a failure to comply with such policy
or procedure, and any failure of the Executive to comply with a policy
or procedure which has been designated by written notice to the
Executive to be of sufficient materiality to the operation supervised by
the Executive that such failure, if unintentional, constituted a
reckless disregard for such policy or procedure, shall be deemed to be
an intentional failure.); or
(F) The Executive's failure, whether intentional or
unintentional, on two (2) or more occasions during any
twelve (12) month period (after the first of which the
Executive was notified in writing of such failure) to
comply in all material respects with all of the Company's
3
<PAGE>
written policies and procedures of which he has actual
notice.
(c) at any time, immediately upon giving the Executive notice of a
determination by the Company that the Executive has been incapacitated by
accident, sickness, or otherwise so as to render the Executive mentally or
physically incapable of performing the services required of the Executive under
this Agreement for an aggregate of one hundred eighty (180) days or one hundred
twenty (120) consecutive days during any period of twelve (12) consecutive
months, upon the expiration of either such periods or at any time thereafter;
(d) immediately upon the Executive's death; or
(e) at any time by the Executive, upon sixty (60) days' written notice
to the Company;
4. Employment Period Compensation.
------------------------------
(a) Base Salary. For the services rendered by the Executive
-----------
under this Agreement, the Company shall pay the Executive a base salary during
the Employment Period at the rate of (U.S.) $110,000 per year, payable
semi-monthly. The Company shall, at least annually, review the Executive's base
salary for possible increases, although nothing contained herein shall be
construed as obligating the Company to increase the Executive's base salary at
any time. Notwithstanding the foregoing, in the event that at any time the
Company institutes across-the-board salary reductions for substantially all
senior executives (excluding those whose salaries are fixed by contract and are
not subject to reduction without the consent of the affected executive), the
Executive's base salary shall be so reduced. Any and all such increases or
decreases in base salary shall be deemed to constitute amendments to this
Section 4(a) to reflect the increased or decreased amounts effective as of the
dates established by the Board for such increases or decreases in the
resolutions authorizing such increases or decreases.
(b) Other Benefits. The Executive shall participate in any qualified or
--------------
non-qualified retirement plan, insur-
4
<PAGE>
ance, medical and other similar welfare plans as may from time to time be
adopted by the Company as and to the extent determined by the Board and in
accordance with the terms of any such plan. Other miscellaneous fringe benefits
e.g., vacation and expense reimbursement, shall be established by Company policy
- ----
as in effect from time to time. Executive initial entitlement will be three (3)
weeks of vacation per year.
(c) Bonuses. The Executive shall be entitled to receive such bonuses as
-------
may be directed by the Board and which shall be received at the end of each
calendar year of the Company, although nothing contained herein shall be
construed as obligating the Board to pay any bonuses.
(d) Car Allowance. Executive shall be entitled to a car allowance of
-------------
Five Hundred Dollars ($500.00) per month.
5. Stock Options. During the term of this Agreement, the Executive shall be
-------------
eligible to participate in the Company's Stock Compensation Plan established
January 14, 1994, pursuant to the terms thereof and shall in this connection be
entitled to receive such awards under such Plan, if any, as the Stock
Compensation Committee of the Board may from time to time determine, in its sole
and absolute discretion, to be appropriate. The Executive will be granted 30,000
shares of option at the next Board Meeting at the closing price that day.
6. Amounts Due Upon Termination. In the event that this Agreement and the
----------------------------
Executive's employment by the Company hereunder is terminated for any reason
prior to the expiration of the Employment Period, the Executive shall retain all
benefits to which he is entitled under any severance policies of the Company
then in effect. In addition:
(a) Upon termination of this Agreement under Paragraphs 3(b), 3(d) or
3(e), the Executive shall be entitled to any unpaid base salary accrued through
the date of termination, but shall be entitled to no bonus or other payments or
benefits as described above.
(b) Upon termination pursuant to Paragraphs 3(a) or 3(c), the Executive
shall be entitled to (i) continued payments
5
<PAGE>
of base salary for six (6) months or until the Executive's death, whichever
occurs first (less any disability payments received by the Executive, from plans
sponsored by the Company, in case of termination for disability).
(c) The Executive hereby agrees that his sole remedy for any breach by
the Company of this Agreement shall be to terminate this Agreement under Section
3(e) hereof and receive payment of amounts then due under Section 6 hereof.
7. Covenant Not to Compete.
-----------------------
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the Company's business and accordingly agrees that, during
the Employment Period, and for a period of (i) three (3) years, following
termination of this Agreement under Paragraphs 3(b), 3(c), or 3(e), or (ii) one
(1) year following termination of this Agreement under Paragraph 3(a) the
Executive 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 service station pipe and tank and accessories industry, in any
activity in which the Company is engaged during the Employment Period; or
(ii) render financial or other assistance to any person, firm,
corporation, or enterprise engaged, within the service station pipe and tank and
accessories industry, in any activity in which the Company is engaged during the
Employment Period.
(b) For purposes of this Section 7: (i) the phrases "Company's business"
or "activity in which the Company is engaged during the Employment Period" 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
6
<PAGE>
tanks to above ground product dispensers or machinery and equipment which uses
such fuels, (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 of the Company or of any of its
subsidiaries are sold during the Employment Period.
(c) Executive, in connection with this Section 7, 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.
8. No Disclosure of Confidential Information. The Executive 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 are
essential to the performance of the Executive's duties under this Agreement. In
light of the highly competitive nature of the industry in which the business of
the Company is conducted, the Executive further agrees that all knowledge and
information described in the preceding sentence not in the public domain and
heretofore or in the future known by the Executive as a result of employment by
the Company shall be considered confidential information. In recognition of this
fact, the Executive agrees that the Executive will not, during or after the
Employment Period, disclose any of such confidential information to any person
or other entity for any reason or purpose whatsoever, except as necessary in the
performance of the Executive's duties as an employee of or consultant to the
Company and then only upon execution by the recipient of a written
confidentiality agreement in such form and content as requested by the Company
from time to time, nor shall the Executive make use of any such confidential
information for the Executive's own purposes or for the benefit of any person or
other entity (except the Company and its affiliates or subsidiaries, if any)
under any circumstances during or after the Employment Period. For purposes of
this Section 8, trade secrets and confidential information of the Company shall
be deemed to include all trade secrets and
7
<PAGE>
confidential information of the Company and its affiliates or subsidiaries.
9. Non-solicitation of Employees. In the event that Executive's
-----------------------------
employment is terminated prior to the expiration of the Employment Period for
any reason, the Executive hereby agrees that he shall not solicit or hire any
employees of the Company, or its affiliates or subsidiaries for a period of
three (3) years after such termination.
10. Company Right to Inventions. The Executive shall 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 products 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 (collectively the "Concepts"),
which the Executive has in the past, during his employment with the Company,
conceived, developed or acquired or which the Employee may conceive, develop or
acquire during the Employment Period (whether or not during usual working
hours), and reissues thereof that may at any time be granted for or upon any
such invention, improvement or technical information. Therefore, the Executive
shall promptly at all times during and after the Employment Period:
(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 it 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
Concepts.
11. Remedies.
--------
8
<PAGE>
(a) The Executive acknowledges and agrees that the Company's remedy at law
for a breach or threatened breach of the provisions of Section 7, 8, 9 or 10 of
this Agreement would be inadequate and, in recognition of this fact, in the
event of a breach or threatened breach by the Executive of any of the provisions
of Section 7, 8, 9 or 10 of this 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
permanent injunction, or any other equitable remedy which may then be available,
and the Executive 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 covenants or agreements contained in Sections 7, 8, 9
or 10 of this Agreement, or if such covenants or agreements are otherwise the
subject of litigation between the parties, then the terms of such covenants and
agreements 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 covenants and agreements is scheduled to
terminate or (2) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(b) It is expressly understood and agreed that although the Executive and
the Company consider the restrictions contained in Sections 7, 8, 9 and 10 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 restriction contained in Sections 7, 8, 9 and 10 of
this Agreement is an unreasonable or otherwise unenforceable restriction against
the Executive, the provisions of Sections 7, 8, 9 and 10 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.
9
<PAGE>
12. Notices. Any notice required or permitted under this Agreement shall be
-------
sufficient if it is in writing and shall be deemed given (i) at the time of
personal delivery to the addressee, or (ii) at the time sent in the U.S. mail,
postage prepaid, certified mail, with return receipt requested, addressed as
follows:
If to the Executive:
Keith R. Ruck
14 Florence Drive
Richboro, PA 18954
If to the Company:
Total Containment, Inc.
422 Business Center
A-130 North Drive
P.O. Box 939
Oaks, PA 19456
13. No Waiver. Failure of any party to this Agreement at any time or
---------
times hereafter to require strict performance by any other party of any of the
provisions, terms, or conditions contained in this Agreement shall not waive,
affect, or diminish any right of any party at any time or times thereafter to
demand strict performance therewith, and with respect to any other provisions,
terms, or conditions contained in this Agreement. Any waiver of such provision,
term, or condition shall not waive or affect any other failure to perform a
provision, term or condition of this Agreement, whether prior or subsequent
thereto, and whether of the same or a different type. None of the provisions,
terms, or conditions of this Agreement shall be deemed to have been waived by
any act or knowledge of a party hereto except by an instrument in writing signed
by that party and directed to the other party specifying such waiver.
14. Arbitration. To the extent permitted by applicable law, any
-----------
controversy or dispute arising out of, or relating to this Agreement or any
alleged breach hereof shall be settled by arbitration in the Borough of West
Chester, Chester County, Pennsylvania, in accordance with the Rules of the
American
10
<PAGE>
Arbitration Association then in existence, it being understood and agreed that
the arbitration panel shall consist of three (3) individuals acceptable to the
parties hereto. In the event that the parties cannot agree on three arbitrators
within twenty (20) days following receipt by one party of a demand for
arbitration from the other party, then Executive and the Company each shall
designate one arbitrator and the two arbitrators so selected shall select the
third arbitrator. The arbitration panel so selected shall convene a hearing no
later than sixty (60) days following the selection of the panel. The arbitration
award shall be final and binding upon the parties, and judgment may be entered
thereon in the Pennsylvania Court of Common Pleas or in any other court of
competent jurisdiction. Each party shall be responsible for his or its expenses
and attorneys' fees incurred in connection with any arbitration; provided that
the arbitrators shall have the authority to award expenses and legal fees to the
prevailing party at their discretion. The arbitrators' fees shall be split
equally by the parties.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall in no event affect the validity or enforceability of any
other provision.
16. Binding Effect and Benefit. The provisions of this Agreement shall be
--------------------------
binding upon, and shall inure to the benefit of, the Company and its successors
and assigns, and Executive and his heirs, and legal representatives.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements, contracts or understandings with respect thereto. This
Agreement may be amended only by an instrument in writing executed by all
parties hereto.
18. No Assignment. This Agreement shall not be assignable by either party
-------------
hereof, except by the Company to any affiliate, subsidiary or successor.
19. Captions. The captions of the several Sections and Paragraphs of this
--------
Agreement are inserted for convenience of
11
<PAGE>
reference only. They constitute no part of this Agreement and are not to be
considered in the construction hereof.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed one and the same instrument which may
be sufficiently evidenced by any one counterpart.
21. Applicable Law. Except to the extent preempted by federal law, the
--------------
provisions of this Agreement are to be construed, administered and enforced in
accordance with the domestic, internal law of the Commonwealth of Pennsylvania,
without regard to its conflicts of laws principles.
22. Return of Materials. In the event of termination of employment, for any
-------------------
reason, all information, files and materials of the Company which are in the
possession of the Executive shall be returned to the Company.
23. Gender. The words "he", "his" or "him" when used herein with reference
------
to the Executive shall refer to the Executive irrespective of the gender of the
Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TOTAL CONTAINMENT, INC.
By: /s/ Pierre Desjardins
Attest:
-----------------------
[Corp. Seal]
EXECUTIVE:
/s/ Keith R. Ruck
- ------------------------------ Keith R. Ruck
WITNESS
12
<PAGE>
LOAN MODIFICATION AGREEMENT
--------------------------
THIS LOAN MODIFICATION AGREEMENT (the "AMENDMENT") is made this 23rd day of
December, 1998, by and among TOTAL CONTAINMENT, INC., TCI ENVIRONMENT NV/SA,
RENE MORIN, INC., AMERICAN CONTAINMENT, INC., (collectively "BORROWERS"), and
FIRST UNION NATIONAL BANK, successor by merger to CoreStates Bank, N.A. (the
"BANK").
BACKGROUND
----------
A. Pursuant to the Amended and Restated Loan and Security Agreement among
Borrowers and Bank dated April 3, 1998 (the foregoing agreement, as modified and
amended hereby, shall be referred to as the "LOAN AGREEMENT"), Bank agreed to
(i) increase the WC Line to Ten Million Dollars ($10,000,000.00); (ii) extend
the term of the Acquisition Line; and (iii) amend and modify various terms of
existing loan documents.
B. Borrowers' obligations under the Loan Agreement and the Notes evidencing
the Loans are secured, inter alia, by the Collateral.
C. Capitalized terms not otherwise defined herein will have the meanings set
forth therefor in the Loan Agreement.
D. At Borrowers' request, Bank has agreed to enter into this Agreement, inter
alia, to (i) make LIBOR rate pricing available to Borrowers for advances under
the WC Line; (ii) ratify and confirm the respective obligations and liabilities
of Obligors to Bank under the Loan Documents, and (iii) reaffirm, ratify and
continue Bank's liens on, and security interests in, certain assets of
Borrowers.'
NOW, THEREFORE, in consideration of the foregoing premises and intending to
be legally bound hereby, the parties hereto agree as follows:
TERMS
-----
1. MODIFICATION OF CAPITALIZED TERMS. The following terms set forth in the
---------------------------------
Loan Agreement shall be modified as provided below:
(a) "LOAN DOCUMENTS" shall be amended to include the Loan Agreement, as amended
--------------
and modified pursuant to the terms hereof and as the same may be modified,
revised, supplemented, replaced and/or amended from time to time.
(b) "WC LINE NOTE" means a certain Amended and Restated Line Note dated April
------------
3, 1998, given by Borrowers to Bank in the original principal amount of
$10,000,000.00, as amended by the Allonge dated of even date herewith.
2. GENERAL ACKNOWLEDGMENTS. Each Borrower hereby ratifies, confirms and
-----------------------
acknowledges that:
<PAGE>
(a) The statements contained in the foregoing Background are true and complete
in all material respects and that the Loan Documents are valid, binding and in
full force and effect as of the date hereof and fully enforceable against the
Borrowers and their respective assets in accordance with the terms thereof;
(b) Neither this Agreement nor any other agreement entered in connection
herewith or pursuant to the terms hereof shall be deemed or construed to be a
compromise, satisfaction, reinstatement, accord and satisfaction, novation or
release of any of the Loan Documents, or any rights or obligations thereunder,
or a waiver by Bank of any of its rights under the Loan Documents or at law or
in equity;
(c) All liens, security interests, rights and remedies granted to the Bank in
the Loan Documents are hereby renewed, confirmed and continued, and shall also
secure the performance by Borrowers of their obligations hereunder;
(d) None of them has any defense, set-off, counterclaim or challenge against
the payment of any sums owing under the Loan Documents, or the enforcement of
any of the terms or conditions thereof; and
(e) All references in the Loan Documents to the "Bank" shall mean, unless
otherwise provided herein or therein, First Union National Bank.
3. AMENDMENTS. The Loan Agreement shall be and is hereby amended as follows:
----------
(a) INTEREST ON THE WC LINE. SECTION 2.2 of the Loan Agreement is hereby
------------------------ -----------
amended to read in its entirety as follows:
"2.2 INTEREST ON THE WC LINE
-----------------------
(a) Provided that no Event of Default has occurred and is
continuing, interest on the unpaid principal balance of the WC
Line will accrue from the date of advance until final payment
thereof at a rate or rates selected by Borrowers from one of the
two (2) interest rate options set forth below, subject to the
restrictions and in accordance with the procedures set forth
herein:
i. the Prime Rate; or
ii. the LIBOR Based Rate.
(b) LIBOR RATE OPTION. Provided that no Event of Default
-----------------
shall have occurred and is continuing, Borrowers may request, in
accordance with the procedures provided herein or established by
Bank from time to time, that cash advances
<PAGE>
outstanding under the WC Line, or to be advanced under the WC
Line, accrue interest at the LIBOR Based Rate; provided, however,
that Borrowers shall at all times maintain a minimum of
$100,000.00 of the outstanding balance of the WC Line accruing at
the Prime Rate (the "Minimum Prime Rate Balance"). The Minimum
Prime Rate Balance can be waived by Bank at any time, in Bank's
sole discretion. To evidence such request, Borrowers shall
deliver to Bank a LIBOR Rate Notification. Upon delivery by
Borrowers to Bank of a LIBOR Rate Notification, that portion of
the principal balance outstanding under the WC Line identified in
such LIBOR Rate Notification shall accrue interest at the LIBOR
Based Rate as follows: (i) with respect to the principal amount
of any new cash advance under the WC Line, from the date of such
advance until the end of the Rate Period specified in such LIBOR
Rate Notification; and/or (ii) with respect to the principal
amount of any portion of the WC Line outstanding and accruing
interest at another LIBOR Rate at the time of the LIBOR Rate
Notification related to such principal amount, from the
expiration of the then current Rate Period related to such
principal amount until the end of the Rate Period specified in
such LIBOR Rate Notification; and/or (iii) with respect to all or
any portion of the principal amount of the WC Line outstanding
and accruing interest at the Prime Based Rate at the time of such
LIBOR Rate Notification, from the date set forth in such LIBOR
Rate Notification until the end of the Rate Period specified in
such LIBOR Rate Notification.
(c) APPLICATION OF RATES. Borrowers and Bank understand and
--------------------
agree that: (i) subject to the provisions of this Agreement, the
LIBOR Based Rate may apply simultaneously to different parts of
the outstanding principal balance of the WC Line, (ii) Borrowers
shall not make a request for a LIBOR Based Rate to apply to any
new or existing advance under the WC Line at any time when three
(3) previously requested LIBOR Based Rate requests are in effect
(regardless of whether any one or more of the LIBOR Based Rates
then in effect are actually the same rate or whether a new LIBOR
Based Rate would be the same rate as being charged under any of
the three (3) existing rates); (iii) no LIBOR Based Rate may be
elected or continued at any time when an Event of Default has
occurred and is continuing, but shall be automatically converted
to the Prime Rate or the Default Rate, if applicable; (iv) no
LIBOR Based Rate shall be available for a Rate Period which
extends beyond the Contract Period; (v) the LIBOR Based Rate may
apply simultaneously to various portions of the outstanding
principal balance of the WC Line for various Rate
<PAGE>
Periods; (vi) the LIBOR Based Rate applicable to any portion of
the outstanding principal balance of the WC Line may be different
from the LIBOR Based Rate applicable to any other portion of the
outstanding principal balance of the WC Line; and (vii) each
advance under the WC Line accruing interest at the LIBOR Based
Rate must be in a minimum amount of Five Hundred Thousand Dollars
($500,000.00).
(d) FALL BACK RATE. After expiration of any Rate Period for a
--------------
LIBOR Based Rate, any principal portion of the WC Line
corresponding to such Rate Period which has not been converted or
renewed in accordance with the terms of this Agreement shall
accrue interest automatically at the Prime Rate in effect from
time to time, from the date of expiration of such Rate Period
until paid in full, unless and until Borrowers request a
conversion to a LIBOR Based Rate in accordance with the terms of
this Agreement. With respect to any principal amount of the WC
Line (whether an advance of new funds or an already outstanding
amount), if Borrowers fail to properly request a LIBOR Based Rate
such principal amount shall be deemed to earn interest at the
Prime Rate.
(e) UNAVAILABILITY OF LIBOR. If, at any time, (i) Bank shall
-----------------------
determine that, by reason of circumstances affecting foreign
exchange and interbank markets generally, LIBOR deposits in the
applicable amounts are not being offered to Bank; or (ii) a new
law, a revision in any existing law, or interpretation or
administration (including reversals) thereof by any government
authority, central bank or comparable agency shall make it
unlawful or impossible for Bank to honor its obligations under
this Agreement to provide the LIBOR Based Rate, then (A) Bank's
obligation to make or maintain a LIBOR-based rate shall be
suspended, and (B) all LIBOR-based rates shall immediately be
converted to the Prime Rate. The rate of interest charged under
the Loan Agreement following conversion to the Prime Rate shall
change automatically and immediately as of the date of any change
in the Prime Rate without notice to the Borrowers."
(b) PERFORMANCE PRICING FOR WC LINE. SECTION 2.3 of the Loan Agreement is
------------------------------- -----------
hereby deleted and replaced with the following:
"2.3 PERFORMANCE PRICING FOR WC LINE. In the event Borrowers
-------------------------------
have a consolidated EBITDA of not less than $4,000,000 for the six-
month period ending June 30, 1999, the LIBOR Based Rate shall be
reduced for advances or outstanding balances which are the subject of
<PAGE>
any future LIBOR Based Rate requests, within five business days after
Bank's receipt of Borrowers' financial statement reflecting compliance
with such EBITDA, subject to the provisions of SECTION 2.2, to a rate
------------
of interest equal to the applicable LIBOR plus 225 basis points.
(c) INTEREST PAYMENTS ON THE WC LINE. SECTION 3.2 of the Loan Agreement is
-------------------------------- -----------
hereby deleted and replaced with the following:
"3.2 INTEREST PAYMENTS ON THE WC LINE. Borrowers will pay
--------------------------------
interest on the principal balance of the WC Line monthly, in arrears,
on the first day of each calendar month commencing the first day of
the first calendar month following the date hereof and, as applicable,
at the end of each Rate Period and, with respect to any Rate Period in
excess of 90 days, an interest payment shall also be due on the 90th
day after the date of the applicable advance."
(d) INDEMNITY FOR LIBOR PORTION. The following is hereby added to and made a
---------------------------
part of the Loan Agreement as SECTION 3.16 thereof:
------------
"3.16 INDEMNIFICATION. Borrowers shall indemnify Bank and any
---------------
affiliate of Bank against any loss or expense incurred in
employing deposits as a consequence of any payment of sums
outstanding under the WC Line accruing interest at a LIBOR Base
Rate on a date other than the last day of the applicable Rate
Period ("INDEMNIFIED LOSS OR EXPENSE"). The amount of such
Indemnified Loss or Expense shall be determined, in Bank's sole
discretion, based upon the assumption that Bank funded 100% of
that portion of the WC Line to which the LIBOR Based Rate applies
in the applicable London interbank market."
(e) ADDITIONAL DEFINITIONS. The following definitions are hereby added to and
----------------------
made a part of the Loan Agreement as the SECTIONS described below:
--------
"14.19A "GOOD BUSINESS DAY" means any Business Day when banks in
London, England, Philadelphia, Pennsylvania and Charlotte, North
Carolina are open for business.
14.20A "LIBOR" means, with respect to each day during each Rate
Period, the rate for U.S. dollar deposits with a maturity comparable
to such Rate Period as reported on Telerate page 3750 as of 11:00
a.m., London time, on the second London business day before the
relevant Rate Period begins (or if not so reported, then as determined
by the Lender from another recognized source or interbank quotation),
adjusted for reserves by dividing that rate by 1.00 minus the LIBOR
Reserve. LIBOR shall be rounded to the next higher 1/100 of 1%.
<PAGE>
14.20B "LIBOR BASED RATE" means a rate of interest equal to the
applicable LIBOR plus 250 basis points. The LIBOR Based Rate shall
remain in effect, subject to the provisions hereof, for the entire
Rate Period for the WC Line advance for which it is determined.
14.20C "LIBOR RATE NOTIFICATION" means an irrevocable written
notice requesting a LIBOR Based Rate which must be provided to Bank
prior to 11:00 a.m. Philadelphia time on a Business Day which is at
least two (2) Good Business Days prior to the date on which such rate
is requested to take effect, specifying:
(1) The principal amount which is to accrue interest at such
rate;
(2) The date on which such rate is to take effect;
(3) Whether such principal amount is a new advance, a
conversion from another interest rate, a renewal of another
interest rate or a combination thereof; and
(4) The Rate Period.
14.20D "LIBOR RESERVE" means the maximum percentage reserve
requirement (rounded to the next higher 1/100 of 1% and expressed as a
decimal) in effect for any day during the applicable rate under the
Federal Reserve Board's Regulation D for Eurocurrency liabilities as
defined therein.
14.30A "RATE PERIOD" shall mean for any portion of the WC Line
for which Borrower elects a LIBOR Based Rate, the period of time for
which such rate shall apply to such principal portions. The Rate
Period for a LIBOR Based Rate shall be for periods of 30, 60, 90, or
180 days. If any Rate Period would otherwise end on a day which is
not a Business Day, that Rate Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Rate Period into another calendar month, in which event
such Rate Period shall end on the immediately preceding Business Day;
and any Rate Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Rate Period) shall end on the
last Business Day of a calendar month."
<PAGE>
4. CONDITIONS. Without in any manner limiting the other requirements
----------
contained herein, Bank's agreement to amend the Loan Documents in accordance
with this Amendment, as determined by Bank, shall be subject to each of the
following:
(a) Delivery to Bank, in form and content acceptable to Bank, of an Allonge to
the WC Line Note evidencing the interest rate options made available
herein.
(b) Delivery of evidence of Borrowers' authorization to execute and deliver
this Agreement; and
(c) Delivery of such other searches, corporate records, incumbency
certificates, insurance policies, documents, agreements, statements and
information as Bank may reasonably require to consummate the transactions
contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES. Borrowers hereby represent and warrant to
------------------------------
Bank, which representations and warranties shall survive until all Bank
Indebtedness and all other obligations of Borrowers to Bank are paid and
satisfied in full, as follows:
(a) Except as previously disclosed to Bank in writing, all representations and
warranties of Borrowers set forth in the Loan Documents are true and
complete as of the date hereof.
(b) No condition or event exists or has occurred which would constitute an
Event of Default under the Loan Documents (or would, upon the giving of
notice or the passage of time, or both constitute an event of default).
(c) The execution and delivery of this Amendment by Borrowers and all documents
and agreements to be executed and delivered pursuant to the terms hereof;
(i) has been duly authorized by all requisite corporate action by
Borrowers; (ii) will not conflict with or result in the breach of or
constitute a default (upon the passage of time, delivery of notice or both)
under Borrowers' Articles of Incorporation or By-Laws or any applicable
statute, law, rule, regulation or ordinance or any indenture, mortgage,
loan or other document or agreement to which any Borrower is a party or by
which any of them is bound or affected; or (iii) will not result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of Borrowers, except liens in
favor of the Bank or as permitted hereunder or under the Loan Documents.
6. EVENT OF DEFAULT. Borrowers covenant and agree that Borrowers' failure to
----------------
comply with any of the terms of this Amendment or any other instrument or
agreement executed in connection with or pursuant to the terms of this
Amendment, shall constitute an Event of Default under the Loan Agreement and
each of the other Loan Documents.
7. CERTAIN FEES, COSTS, EXPENSES AND EXPENDITURES. Borrowers will pay all of
----------------------------------------------
the Bank's reasonable expenses in connection with the review, preparation,
negotiation, documentation and closing of this Amendment and the consummation of
the transactions
<PAGE>
contemplated hereunder, including without limitation, fees, disbursements,
expenses, appraisal costs and fees and expenses of counsel retained by Bank and
all fees related to filings, recording of documents and searches, whether or not
the transactions contemplated hereunder are consummated. Nothing contained
herein shall limit in any manner whatsoever Bank's right to reimbursement under
any of the Loan Documents.
8. INCONSISTENCIES. TO THE EXTENT OF ANY INCONSISTENCY BETWEEN THE TERMS AND
---------------
CONDITIONS OF THIS AMENDMENT AND THE TERMS AND CONDITIONS OF THE LOAN DOCUMENTS,
THE TERMS AND CONDITIONS OF THIS AMENDMENT SHALL PREVAIL. All terms and
conditions of the Loan Documents not inconsistent herewith shall remain in full
force and effect and are hereby ratified and confirmed by Borrowers.
9. BINDING EFFECT. This Amendment and all rights and powers granted hereby
--------------
will bind and inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
10. SEVERABILITY. The provisions of this Amendment and all other Loan
------------
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not affect or impair the remaining provisions which shall
continue in full force and effect.
11. NO THIRD PARTY BENEFICIARIES. The rights and benefits of this Amendment
----------------------------
and the Loan Documents shall not inure to the benefit of any third party.
12. MODIFICATIONS. No modification of this Amendment or any of the Loan
-------------
Documents shall be binding or enforceable unless in writing and signed by or on
behalf of the party against whom enforcement is sought.
13. INTERPRETATION. All references herein and in any of the Loan Documents to
--------------
the Loan Amendment shall be deemed to refer to the Loan Agreement as amended
hereby.
14. LAW GOVERNING. This Amendment has been made, executed and delivered in the
-------------
Commonwealth of Pennsylvania and will be construed in accordance with and
governed by the laws of such Commonwealth.
15. EXHIBITS AND SCHEDULES. All exhibits and schedules attached hereto are
----------------------
hereby made a part of this Amendment.
16. HEADINGS. The headings of the Articles, Sections, paragraphs and clauses
--------
of this Amendment are inserted for convenience only and shall not be deemed to
constitute a part of this Amendment.
17. COUNTERPARTS. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
<PAGE>
18. ACKNOWLEDGMENT OF CONFESSION OF JUDGMENT PROVISIONS. EACH BORROWER
---------------------------------------------------
ACKNOWLEDGES AND AGREES THAT THE NOTES AND THE LOAN DOCUMENTS CONTAIN PROVISIONS
WHEREBY BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST BORROWERS. BEING FULLY
AWARE OF THEIR RESPECTIVE RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF
THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THEM BY BANK UNDER THE
NOTES AND LOAN DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWERS HEREBY WAIVE
THESE RIGHTS AND AGREE AND CONSENT TO BANK ENTERING JUDGMENT AGAINST BORROWERS
BY CONFESSION. ANY PROVISION IN A CONFESSION OF JUDGMENT IN ANY OF THE LOAN
DOCUMENTS FOR AN ATTORNEY'S COLLECTION COMMISSION SHALL IN NO WAY LIMIT
BORROWERS' LIABILITY TO REIMBURSE BANK FOR ALL LEGAL FEES ACTUALLY INCURRED BY
BANK, EVEN IF SUCH FEES ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION
PROVIDED FOR IN SUCH CONFESSION OF JUDGMENT. '
1.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
TOTAL CONTAINMENT, INC.
By: /s/ Pierre Desjardins
---------------------
Pierre Desjardins, President
TCI ENVIRONMENT NV/SA
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
RENE MORIN, INC.
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
AMERICAN CONTAINMENT, INC.
<PAGE>
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
FIRST UNION NATIONAL BANK,
successor by merger to CoreStates Bank, N.A.
By: /s/ Charles O'Donnell
---------------------
Charles O'Donnell, Vice President
<PAGE>
ALLONGE
-------
THIS ALLONGE is made this 23 day of December, 1998, by and between TOTAL
CONTAINMENT, INC., TCI ENVIRONMENT NV/SA, RENE MORIN, INC., AMERICAN
CONTAINMENT, INC., (collectively "BORROWERS"), and FIRST UNION NATIONAL BANK,
successor by merger to CoreStates Bank, N.A. (the "BANK").
BACKGROUND
----------
A. By an Amended and Restated Loan and Security Agreement dated April 3,
1998, by and among Borrowers and Bank, as amended ( the "LOAN AGREEMENT"), Bank
agreed, inter alia, to increase the WC Line to Ten Million Dollars
($10,000,000.00), as evidenced by Borrowers' Amended and Restated Line Note
dated April 3, 1998 (the "NOTE") in the original principal amount of Ten Million
Dollars ($10,000,000.00).
B. By a Loan Modification Agreement of even date herewith by and among
Borrowers and Bank (the "MODIFICATION"), Bank agreed, inter alia, to provide
certain interest rate options for sums outstanding under the Note.
D. Borrowers and Bank desire that the terms of the Note be modified to
reflect the terms and conditions of the Modification.
NOW, THEREFORE, in consideration of the mutual benefits inuring to
Borrowers and Bank, and intending to be legally bound hereby, it is agreed that
the Note is hereby modified as described below.
TERMS
-----
1. NOTE. The Note, as modified hereby, is the "WC LINE NOTE," as defined in
----
the Loan Agreement.
2. AMENDMENTS TO NOTE.
------------------
a. SECTION 2 of the Note is hereby amended to be as follows:
---------
"2. INTEREST RATE. Interest on the unpaid principal balance
-------------
hereof will accrue interest as provided in SECTION 2.2 of the Loan
-----------
Agreement, as amended."
b. SECTION 6 of the Note is hereby amended to be as follows:
---------
"6. INTEREST PAYMENTS. Interest which accrues on the
-----------------
outstanding principal balance hereof shall be due and payable as
provided in Section 3.2 of the Loan Agreement, as amended."
-----------
3. EFFECT OF MODIFICATION. All other provisions of the Note, and all other
----------------------
agreements and instruments executed in connection therewith, shall not be
modified hereby, except as expressly set forth below, and this Allonge shall not
be construed as a waiver of any of Bank's rights under the Note as heretofore
existing or as hereafter modified by this Allonge.
<PAGE>
4. CONFIRMATION OF DEBT. Borrowers hereby further confirm and ratify the Note,
--------------------
as modified hereby, and acknowledge that they have no defense, setoff,
counterclaim, or challenge against the payment of all sums as set forth in the
Note, as modified hereby, the enforcement of any of the terms thereof, or the
validity of the provisions hereof.
5. SINGLE INSTRUMENT. Borrowers hereby direct Bank to affix this Allonge to
-----------------
the Note, whereupon the Note and this Allonge will become and constitute a
single instrument.
IN WITNESS WHEREOF, Bank and Borrowers have executed this Allonge under
seal on the date first above written.
TOTAL CONTAINMENT, INC.
By: /s/ Pierre Desjardins
---------------------
Pierre Desjardins, President
TCI ENVIRONMENT NV/SA
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
RENE MORIN, INC.
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
AMERICAN CONTAINMENT, INC.
By: /s/ Jeffrey Boehmer
-------------------
Jeffrey Boehmer, Secretary
[signatures continued on following page]
[signatures continued from previous page]
FIRST UNION NATIONAL BANK,
successor by merger to
CoreStates Bank, N.A.
2
<PAGE>
By: /s/ Charles O'Donnell
---------------------
Charles O'Donnell, Vice President
3
<PAGE>
Exhibit 21
Subsidiaries of Total Containment, Inc.
Company State or Country of Incorporation
- ------- ---------------------------------
American Containment, Inc. Delaware
FMW Inc. Delaware
Total Containment FSC, Inc. Barbados
Rene Morin, Inc. Delaware
TCI-Environment N.V. Belgium
<PAGE>
EXHIBIT 23.1 CONSENT OF GRANT THORNTON LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 19, 1999, accompanying the
consolidated financial statements incorporated by reference or included in the
1998 Annual Report of Total Containment, Inc. on Form 10-K for the year ended
December 31, 1998. We hereby consent to the incorporation by reference of said
report in the Registration Statements of Total Containment, Inc. on Forms S-8
(Registration No. 333-56707 and Registration No. 333-61747).
Philadelphia, Pennsylvania
March 19, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-56707 and 333-61747) of Total Containment, Inc.
of our report dated March 7, 1997 appearing on page 13 in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, PA
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 132
<SECURITIES> 0
<RECEIVABLES> 13,749
<ALLOWANCES> 420
<INVENTORY> 7,623
<CURRENT-ASSETS> 24,702
<PP&E> 8,305
<DEPRECIATION> 3,480
<TOTAL-ASSETS> 37,155
<CURRENT-LIABILITIES> 19,940
<BONDS> 0
0
4,000
<COMMON> 47
<OTHER-SE> 10,774
<TOTAL-LIABILITY-AND-EQUITY> 37,155
<SALES> 53,582
<TOTAL-REVENUES> 53,582
<CGS> 29,280
<TOTAL-COSTS> 15,989
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 7,347
<INCOME-TAX> 2,759
<INCOME-CONTINUING> 4,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 4,588
<EPS-PRIMARY> .93
<EPS-DILUTED> .89
</TABLE>
