PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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TOTAL CONTAINMENT, INC.
_______________________________________________________________________________
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LOGO
March 25, 1998
Dear Stockholder:
Total Containment, Inc.'s Annual Meeting of Stockholders will be held
on Friday, April 17, 1998, at 12:00 p.m., Eastern Time. The Annual Meeting will
be held at the Company's offices located at 422 Business Center, A130 North
Drive, Oaks, Pennsylvania 19456.
The matters to be acted on at the Annual Meeting are: (a) the
election of two Class I directors, and (b) the ratification of the appointment
by the Board of Directors of TCI of Grant Thornton LLP as its independent
auditors for 1998. These matters are described in the enclosed Notice of Annual
Meeting of Stockholders and Proxy Statement.
Thank you for your interest in TCI. I look forward to seeing you at
the Annual Meeting.
Sincerely,
/s/ Pierre Desjardins
Pierre Desjardins,
Chairman of the Board
PLEASE SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE.
LOGO
422 Business Center
A130 North Drive
P.O. Box 939
Oaks, Pennsylvania 19456
____________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 17, 1998
____________________________________
To the Stockholders of Total Containment, Inc.:
Notice is hereby given that the Annual Meeting (the "Annual Meeting")
of the holders of common stock, $0.01 par value (the "Common Stock"), of Total
Containment, Inc. (the "Company") will be held at the offices of the Company
located at 422 Business Center, A130 North Drive, P.O. Box 939, Oaks,
Pennsylvania 19456 on Friday, April 17, 1998, at 12:00 p.m., Eastern Time:
1. To elect two Class I directors to hold office until the 2001
Annual Meeting of Stockholders and until their successors shall have been
elected and qualified (Matter No. 1);
2. To ratify the appointment, by the Company's Board of Directors, of
Grant Thornton LLP as the Company's independent auditors for the fiscal year
ending December 31, 1998 (Matter No. 2); and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Holders of record of issued and outstanding shares of Common Stock at
the close of business on February 27, 1998, are entitled to notice of, and to
vote at, the Annual Meeting. Such stockholders may vote in person or by proxy.
The stock transfer books of the Company will not be closed.
The Board of Directors of the Company cordially invites you to attend
the Annual Meeting. Whether or not you are personally present, your shares
should be represented at the Annual Meeting. Accordingly, please sign and return
your proxy in the enclosed envelope.
By Order of the Board of Directors,
/s/ Jeffrey A. Boehmer
Jeffrey A. Boehmer, Secretary
Dated: Oaks, Pennsylvania
March 25, 1998
STOCKHOLDERS ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY IN THE ACCOMPANYING ENVELOPE. THE PROXY IS REVOCABLE AT ANY TIME BY A
WRITTEN INSTRUMENT, INCLUDING A LATER DATED PROXY, SIGNED IN THE SAME MANNER AS
THE PROXY AND RECEIVED BY THE SECRETARY OF THE COMPANY AT OR BEFORE THE ANNUAL
MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR
PROXY BY VOTING IN PERSON.
TOTAL CONTAINMENT, INC.
422 Business Center
A130 North Drive
P.O. Box 939
Oaks, Pennsylvania 19456
________________________________
PROXY STATEMENT
FOR ANNUAL MEETING
________________________________
GENERAL
INTRODUCTION
Total Containment, Inc. (the "Company") is a Pennsylvania business
corporation headquartered at 422 Business Center, A130 North Drive, Oaks,
Pennsylvania 19456.
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of the Company to be used at the Annual
Meeting (the "Annual Meeting") of holders of Common Stock, $0.01 par value (the
"Common Stock"), of the Company to be held at the offices of the Company located
at 422 Business Center, A130 North Drive, P.O. Box 939, Oaks, Pennsylvania
19456, at 12:00 p.m., Eastern Time, on Friday, April 17, 1998, and at any
adjournment or adjournments thereof. The approximate date upon which this Proxy
Statement and the accompanying proxy were first sent, given or otherwise made
available to shareholders was March __, 1998. In addition to the use of the
mails, proxies may be solicited by personal interview and telephone by
directors, officers and employees of the Company and its subsidiaries. The
Company will pay all costs of soliciting proxies.
VOTING SECURITIES
Holders of record of the Common Stock at the close of business on
February 27, 1998 (the "Record Date"), are entitled to notice of, and to vote
at, the Annual Meeting.
At the Annual Meeting, each stockholder is entitled to one vote for
each share of the Common Stock registered in the stockholder's name at the close
of business on February 27, 1998. On February 27, 1998, there were 4,641,600
shares of the Common Stock outstanding and, accordingly, holders of the Common
Stock are entitled to cast a total of 4,641,600 votes at the Annual Meeting.
Holders of the Common Stock are not entitled to cumulate votes for the election
of directors.
Of the 4,641,600 shares of Common Stock outstanding, 2,649,000 shares,
representing 57.07% of the issued and outstanding shares of Common Stock, are
owned beneficially by Mr. Marcel Dutil, a
6
director of the Company (see "Principal Stockholder," herein) indirectly. Mr.
Dutil has informed the Board that he intends to cause all of the 2,649,000
shares of Common Stock of the Company to be voted "FOR" the election of the
nominees of the Board of Directors of the Company ("Matter No. 1"), and "FOR"
the ratification of the appointment of Grant Thornton LLP as the Company's
independent auditors for 1998 ("Matter No. 2").
If the enclosed form of proxy is appropriately marked, signed and
returned in time to be voted at the Annual Meeting, the shares represented by
the proxy will be voted in accordance with the instructions marked thereon.
Signed proxies not marked to the contrary will be voted "FOR" Matter No. 1, and
"FOR" Matter No. 2. Signed proxies will be voted "FOR" or "AGAINST" each other
matter which properly comes before the Annual Meeting or any adjournment or
adjournments thereof, at the discretion of the persons named as proxyholders.
With respect to the election of directors (Matter No. 1), each
stockholder may cast such holder's votes "FOR" all the nominees or may "WITHHOLD
AUTHORITY" to vote for all or for any individual nominee. Votes which are
withheld will not be counted for purposes of the election of directors or for
the purpose of establishing a quorum.
With respect to the ratification of the appointment of auditors
(Matter No. 2), each stockholder may cast all of such holder's votes "FOR" or
"AGAINST" such proposal, or may "ABSTAIN" from voting. Abstentions will be
counted as present for purposes of determining the existence of a quorum.
However, because the ratification of auditors requires the affirmative vote of a
majority of shares present, in person or by proxy, and entitled to vote,
abstentions will have the effect of a negative vote.
Under applicable Pennsylvania law, broker non-votes will be counted as
present for purposes of determining whether a quorum exists at the Annual
Meeting, but a broker non-vote with respect to Matters No. 1 or 2 will not be
counted as present for purposes of such Matters and, as a result, will have no
effect on the outcome of such Matters because approval of such Matters requires
only the affirmative vote of a majority of shares present, in person or by
proxy.
RIGHT OF REVOCATION
Any stockholder giving a proxy has the power to revoke it by a written
instrument, including a later dated proxy, signed in the same manner as the
proxy and received by the Secretary of the Company prior to its exercise. Any
stockholder attending the Annual Meeting may also revoke his proxy by voting in
person at the Annual Meeting.
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QUORUM
Under the Company's Bylaws, holders of a majority of the shares
entitled to vote at the Annual Meeting must be present, in person or by proxy,
to constitute a quorum for the transaction of business at the Annual Meeting.
Mr. Dutil (see "Principal Stockholder," herein) has informed the Board that he
intends to be present, either in person or by proxy, at the Annual Meeting so
that a quorum will be present.
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of February 27, 1998,
as to beneficial owners, either directly or indirectly, of 5% or more of the
outstanding shares of the Common Stock.
Percent
Name and Address of Amount and Nature of of
Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- --------
Marcel Dutil(1)(2)...... 2,649,000 57.07%
270 Chemin du Tremblay
Boucherville, Quebec
J43 5X9
___________________
(1) Marcel Dutil is a director of the Company and exercises sole voting and
investing power with respect to these shares.
(2) Information in this table is based upon information filed by Mr. Dutil with
the Securities Exchange Commission under the Securities Exchange Act of
1934 and representations made by Mr. Dutil to the Company.
Because Mr. Dutil beneficially owns a majority of the outstanding
shares of Common Stock, Mr. Dutil will be able to elect the two Class I nominees
as directors, and ratify the appointment of Grant Thornton LLP regardless of how
other stockholders of the Company may vote at the Annual Meeting.
8
MATTER NO. 1
ELECTION OF DIRECTORS
GENERAL
The Bylaws of the Company provide that the Company's business shall be
managed by a Board of Directors. The number of directors shall be determined by
the Board of Directors. The Company's Board, as provided in its Articles of
Incorporation, is divided into three classes: Class I, Class II and Class III,
each class being as nearly equal in number as possible. Under the Company's
Articles, a person elected to fill a vacancy on the Board of Directors serves as
a director for the remaining term of office of the Class to which he or she was
elected. The directors in each Class serve terms of three years each and until
their successors are elected and qualified.
The Board of Directors has fixed the number of directors in Class I at
two and has nominated Mr. Paul Gobeil and Ms. Nycol Pageau-Goyette for election
as Class I directors. Mr. Gobeil and Ms. Pageau-Goyette are presently directors
of the Company.
Charles Frey, Sr., has advised the Board that he intends to retire as
a director effective at the end of his term on the date of the Annual Meeting.
The Bylaws of the Company permit nominations for election to the Board
of Directors to be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. All nominations are referred to the
Board of Directors for consideration. In determining the nominees for director
for 1999, the Board will consider nominees recommended by stockholders. Such
stockholder recommendations should be made in writing no later than January 1,
1999, addressed to Corporate Secretary, 422 Business Center, A130 North Drive,
P.O. Box 939, Oaks, Pennsylvania 19456.
Under the Bylaws, nominations for director to be made at the Annual
Meeting by stockholders entitled to vote for the election of directors must be
preceded by notice in writing, delivered or mailed and received at the principal
executive office of the Company not less than 90 days prior to the Annual
Meeting. Such notice must contain certain information specified in the Bylaws.
Such notice should be delivered or mailed to the attention of the Secretary of
the Company. No notice of nomination for election as a director has been
received from any stockholder as of the date of this Proxy Statement. If a
nomination is attempted at the Annual Meeting which does not comply with the
procedures required by the Bylaws or if any votes are cast at the Annual Meeting
for any candidate not duly nominated, then such nomination and/or such votes may
be disregarded.
The two nominees who receive the highest number of votes at the Annual
Meeting will be elected as Class I directors. Shares represented by properly
executed proxies will be voted for the two
9
Class I nominees listed below unless otherwise specified on a stockholder's
proxy card. Any stockholder who wishes to withhold authority from the
proxyholders to vote for the election of directors, or to withhold authority to
vote for any individual nominee, may do so by marking the proxy to that effect.
No proxy may be voted for a greater number of persons than the number of
nominees named.
If any of the nominees listed below become unable to accept the
nomination or election, the proxyholders may exercise their voting power in
favor of such other person or persons as the Board of Directors may recommend.
The Company, however, at present has no reason to believe that any nominee
listed below will be unable to serve as a director, if elected.
NOMINEES AND CONTINUING DIRECTORS FOR ELECTION AS DIRECTOR
The following tables set forth, as to each of the nominees for
election as Class I directors and as to each of the continuing Class II and
Class III directors, his or her age and the period during which he or she has
served as a director of the Company. There are no family relationships between
any of the persons listed below.
Director
Name Age Since
- ---- --- --------
NOMINEES FOR ELECTION IN 1998 AS
CLASS I DIRECTORS TO SERVE UNTIL
2001
Paul Gobeil............................... 55 1994
Nycol Pageau-Goyette...................... 53 1994
CONTINUING CLASS II DIRECTORS TO SERVE
UNTIL 1999
Pierre Desjardins......................... 56 1996
Marcel Dutil.............................. 55 1990
Bernard Gouin............................. 45 1996
CONTINUING CLASS III DIRECTORS TO SERVE
UNTIL 2000
Jean-Claude Arpin......................... 51 1994
Marc Guindon.............................. 54 1990
The principal occupation and business experience during the last five
years of each nominee for election as a director of the Company and of each
continuing director of the Company is as follows:
Jean-Claude Arpin. Since 1988, Mr. Arpin has been a Vice President of
Royal Bank Capital Corporation, a wholly-owned subsidiary of the Royal Bank of
Canada.
10
Pierre Desjardins. Since September 1996, Mr. Desjardins has served as
President and Chief Executive Officer of the Company. From 1990 to 1994, he was
President and Chief Executive Officer of Domtar, Inc., a publicly owned Canadian
pulp and paper manufacturer. He is currently a director of Discreet Logic, a
publicly owned Canadian company that develops, assembles, markets and supports
systems for creating, editing and compositing imagery and special effects for
film and video and also of 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.
Marcel Dutil. Since 1973, Mr. Dutil has been Chairman of the Board
and Chief Executive Officer of Canam Manac Group, Inc. Mr. Dutil serves as a
director of The National Bank of Canada, Quebec Telephone, Pharmacies Jean Coutu
and Vauquelin Mines Ltd., each of which is a publicly owned company. Mr. Dutil
also owns and/or controls Finloc and Placement CMI, two holding companies.
Paul Gobeil. Since October 1990, Mr. Gobeil has served as Vice
Chairman of the Board of Directors of Metro-Richelieu, Inc., a publicly owned
Canadian food corporation. From December 1989 through September 1993, Mr.
Gobeil served as Chairman of the Board of Royal Trust Company, a Canadian trust
corporation. He also served as Chairman of the Board of Domtar Inc, a publicly
owned Canadian pulp and paper manufacturer, from April 1993 through October
1994. Mr. Gobeil is currently a director of Canam Manac Group, Inc.,
Alimentation CoucheTard Inc. (a food corporation), Mines Vauquelin Ltee (a
mining company), DiagnoCure Inc. (a biotechnology company), and the National
Bank of Canada, all of which are publicly owned Canadian corporations.
Bernard Gouin. Since February 1997, Mr. Gouin has been Chief
Financial Officer of the Canam Manac Group, for which Mr. Gouin served as Chief
Financial Officer from 1991 to 1992. From 1994 to early 1997, he was President
of Belgo Corporation, a distributor of electricity-saving products and a
provider of financial management services. From 1992 to 1994, he served as
Executive Vice President of Canam Steel Corporation, a manufacturer of
construction steel components and the American subsidiary of The Canam Manac
Group.
Nycol Pageau-Goyette. Since 1977, Ms. Pageau-Goyette has served as
President and Chief Executive Officer of Pageau-Goyette Associates, a Canadian
management company.
Marc Guindon. Mr. Guindon was co-founder of the Company and has
served as Chairman of the Board and as a director of the Company since 1990, and
as Chief Executive Officer from May 1993 to September 1996. From 1985 to 1991,
Mr. Guindon served as President and Chief Executive Officer of a privately-held
Canadian corporation which, until February 13, 1996, held a majority of the
Common Stock of the Company. Mr. Guindon is, at present, the Chief Executive
Officer of Thermonic, Inc., a chrome waste recovery manufacturer.
11
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the number of
shares of Common Stock held as of February 27, 1998 by each nominee for
director, each present director, each executive officer named in the
compensation table set forth elsewhere herein, and all directors and executive
officers as a group.
Amount and Nature of Beneficial Ownership
---------------------------------------------------------
Total Sole Voting Shared Voting Percent
Beneficial or Dispositive or Dispositive of
Ownership Power Power Class(1)
----------- ------------- ----------------- ----------
Name of Beneficial Owner
- ------------------------
Jean-Claude Arpin............... 5,000 5,000 -- --
Pierre Desjardins(3)............ 146,000 145,000 1,000(4) 3.10%
Marcel Dutil(5).............. 2,649,000 2,649,000 -- 56.28%
Paul Gobeil(2).................. 7,000 7,000 -- --
Bernard Gouin................... -- -- -- --
Marc Guindon.................... -- -- -- --
Nycol Pageau-Goyette(2)......... -- -- -- --
Other Named Executive Officers
- --------------------------------
Randolph B. Braun(7)............ 13,000 13,000 -- --
David L. Gilbert(8)............. -- -- -- --
Homer N. Holden(6).............. 52,000 52,000 -- 1.10%
All directors and named
executive officers as
a group (10 persons)....... 2,872,000 2,871,000 1,000 61.00%
_______________________
(1) Unless otherwise indicated, amount owned does not exceed 1% of the total
number of shares of Common Stock outstanding as of February 27, 1998.
(2) Indicates a nominee for election as a Class I director at the Annual
Meeting.
(3) Consists of 75,000 shares which may be acquired by Mr. Desjardins upon the
exercise of options granted to Mr. Desjardins by the Company and which are
vested and presently exercisable or exercisable within 60 days after
February 27, 1998. Does not include 150,000 shares which may be acquired
by Mr. Desjardins in the future in connection with options granted to him
by the Company which are not vested and are not exercisable within 60 days
after February 27, 1998.
(4) Includes 1,000 shares of Common Stock owned by Mr. Desjardins' spouse with
respect to which Mr. Desjardins disclaims beneficial ownership.
(5) Consists of 2,649,000 shares of Common Stock owned by a Canadian
Corporation controlled by Marcel Dutil. Mr. Dutil
12
possesses sole voting and investment control with respect to these shares
(see "Principal Stockholder," herein).
(6) Consists of 52,000 shares which may be acquired by Mr. Holden upon the
exercise of options granted to Mr. Holden by the Company and which are
vested and presently exercisable or exercisable within 60 days after
February 27, 1998. Does not include 28,000 shares which may be acquired by
Mr. Holden in the future in connection with options granted to him by the
Company which are not vested and are not exercisable within 60 days after
February 27, 1998.
(7) Includes 13,000 shares which may be acquired by Mr. Braun upon the exercise
of options granted to him by the Company. Does not include 27,000 shares
which may be acquired by Mr. Braun in the future in connection with options
granted to him by the Company which are not vested and are not exercisable
within 60 days after February 27, 1998.
(8) Does not include 20,000 shares which may be acquired by Mr. Gilbert in the
future in connection with options granted to him by the Company which are
not vested and are not exercisable within 60 days after February 27, 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has a standing Audit Committee
and Compensation Committee. The entire Board of Directors of the Company
assumes the role of a nominating committee. Pursuant to the Company's Bylaws,
the Board of Directors is authorized to create such other permanent or temporary
committees as it deems necessary. The Chief Executive Officer of the Company is
an ex-officio member of all committees of the Board of Directors.
The Audit Committee serves as the principal liaison among the Board of
Directors, the Company's independent accountants and the Company's internal
staff in connection with the Company's audit function. In addition, the Audit
Committee makes recommendations to the Board of Directors concerning the
selection of independent accountants to audit the books and accounts of the
Company and the performance of nonaudit services. The present members of the
Audit Committee are Messrs. Desjardins, Gobeil, Gouin, and Guindon. The Audit
Committee met four times during 1997.
The Compensation Committee makes recommendations to the Board of
Directors with respect to compensation of members of the Company's executive
staff. The members of the Compensation Committee are Messrs. Arpin, Dutil,
Gobeil and Desjardins. The Compensation Committee met two times during 1997.
13
BOARD MEETINGS
During 1997, the Board of Directors held six regular meetings. Seven
members of the Board attended all, and one member attended all but one, of the
aggregate number of meetings of the Board and of committees of which he or she
is a member.
COMPENSATION PAID TO DIRECTORS
Directors of the Company who are not executive officers of the Company
are paid a quarterly retainer of $2,500, plus $500 per Board meeting attended.
In addition, outside directors receive $250 for each regular committee meeting
they attend.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
ROLE OF THE COMPENSATION COMMITTEE
The role of the Compensation Committee of the Board of Directors of
the Company is to establish the compensation philosophy of the Company and
monitor compensation plans and amounts for conformity with the philosophy.
The Compensation Committee's role includes establishing company-wide
compensation and benefits plans, reviewing and passing upon the Chief Executive
Officer's (the "CEO") recommendations for compensation for executive and other
senior officers, and reviewing and determining the compensation for the CEO.
The Compensation Committee generally meets once a year. All actions
of the Compensation Committee are reported to the full Board of Directors for
review and approval. The CEO is a member of the Compensation Committee but does
not vote on any matters impacting the CEO's compensation or employment status.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive officer compensation program is predicated on
a pay for performance philosophy, and as such, a substantial part of the
executives' compensation is performance based. Within this framework, the total
compensation program must enable the Company to attract, retain, motivate, and
reward executive officers who are critical to the success of the Company.
Total compensation for executive officers at the Company is a mixture
of non-variable elements such as salary and benefits and variable elements such
as short-term and long-term incentives. Total compensation can vary from year
to year given the Company's considerable emphasis on the incentive compensation
programs. Therefore, total compensation for executive officers at the Company
is highly contingent on incentive plans which are themselves tied to the
Company's financial performance.
14
The Revenue Reconciliation Act of 1993 imposes a limit of $1,000,000
on annual compensation to certain executives or the corporation loses the
ability to deduct compensation in excess of such amount, subject to certain
exceptions. The Compensation Committee did not specifically design the
Company's compensation program for 1998 to meet the requirements of the Act
because the Compensation Committee does not believe that compensation payable to
any executive officer during 1998 will result in any loss of deduction to the
Company.
SPECIFIC EXECUTIVE COMPENSATION PROGRAMS
In connection with setting executive compensation, the Compensation
Committee reviews (a) the compensation paid to the executive in the preceding
year against the executive officer's performance as outlined by the CEO and the
President of the Company, (b) the results of operations of the Company for the
year against the projected results of operations of the Company for the period,
and (c) any other factor which the Committee deems relevant, in any applicable
year, in assessing the performance of an executive (the "Compensation
Criteria").
The components of total compensation at the Company include salary,
short-term and long-term incentives, benefits, and perquisites. The following
commentary identifies the practices for each of these components.
SALARY
Salary serves as the foundation for the Company's total compensation
program. Salaries have been established for all positions including executive
officers. Salaries are based on competitive pay practices and on the Company's
assessment of the importance of the position. Certain executive officers have
entered into employment agreements with the Company which provide for the
payment of a pre-established base salary that is subject to an annual review by
the entire Board for the purpose of considering possible increases in such
salaries. See "Employment Contracts, Termination of Employment and Change-in-
Control Arrangements" herein. Salary adjustments for all positions are
considered at the beginning of each calendar year and are based on the
Compensation Criteria.
INCENTIVE PLANS
The Company awards cash bonuses to its executive officers as its
short-term incentive plan. The cash bonus plan for executive officers is
designed to reward the accomplishment of specific annual financial objectives.
Awards, in the form of cash compensation, are made to plan participants based
upon the Company's pre-tax income and discretionary objectives. Under the cash
bonus plan, each executive officer is entitled to receive a cash bonus ranging
from zero to 18.75% of base salary and could be as high as 37.5% for exceptional
results if the Company earned a
15
pre-determined target amount of pre-tax income (the "Target Income") for the
year ended December 31, 1997, as well as zero to 12.5% of base salary earned by
meeting certain discretionary objectives. In addition, executive officers are
entitled to receive an aggregate cash bonus in an amount equal to 15% of pre-tax
income after such bonuses in excess of the Target Income.
The Company uses a stock compensation plan as its long-term incentive
plan. The purpose of this plan is to motivate and reward long-term performance
defined as the creation of stockholder value and the achievement of consistent,
long-term return on equity goals.
The stock option plan relates a significant portion of executive
compensation to increases in stockholder value. The plan promotes increased
ownership of Common Stock by executives, as well as providing a meaningful
compensation opportunity when shares are sold at a price in excess of the
exercise price.
All grants under the option plan are made at fair market value as of
the date of grant. The number of options granted to each executive officer is
based on the Compensation Criteria and on the potential long-term value of any
options granted and the total number of options to be granted in any year as a
percentage of total shares outstanding.
BENEFITS AND PERQUISITES
The Company's executives participate in the same benefit program as
applies to all employees of the Company. There are no additional insurance
programs or welfare benefits for executives. Any perquisites for executives are
business related and are intended to allow the executive to operate in as
efficient a manner as possible.
SUMMARY
The Compensation Committee believes that the Company's overall
executive compensation program has performed well in attracting, retaining and
rewarding executives.
COMPENSATION COMMITTEE
Jean-Claude Arpin, Marcel Dutil,
Pierre Desjardins, Paul Gobeil
16
EXECUTIVE COMPENSATION
The following table sets forth information for each of the three years
ended December 31, 1997, 1996 and 1995 concerning compensation for services in
all capacities awarded to, earned by or paid to (i) the chief executive officer,
and (ii) the other executive officers of the Company who earned more than
$100,000 during 1997 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------- ----------------------- ---------
Other Securities
Annual Underlying
Compen- Restricted Options/ All Other
sation(1) Stock SARs LTIP Compen-
Position Year Salary($) Bonus($) $ Awards($) (2)(#) Payouts($) sation($)
-------- ---- --------- --------- --------- ---------- -------- --------- --------
Pierre Desjardins............ 1997 $300,000 N/A N/A N/A 225,000 N/A N/A
Chairman of the Board, 1996 100,000 N/A N/A N/A -- N/A N/A
President and Chief 1995 0 0 N/A N/A -- N/A N/A
Executive Officer
Homer N. Holden.............. 1997 $113,000 5,510 A N/A -- N/A N/A
Vice President-Research 1996 110,000 0 A N/A 30,000 N/A N/A
and Product Development 1995 110,000 0 A N/A -- N/A N/A
Executive Officer
Randolph Braun.............. 1997 $110,000 4,672 A N/A -- N/A N/A
Vice President-Sales and 1996 95,000 0 A N/A 40,000 N/A N/A
Marketing 1995 79,167 0 A N/A -- N/A N/A
David Gilbert............... 1997 $105,000 3,540 A N/A 20,000 N/A N/A
Vice President-Research 1996 97,300 0 A N/A -- N/A N/A
and Product Development 1995 0 0 A N/A -- N/A N/A
________________________
"N/A" indicates that the column is not applicable because no compensation of the
category required to be disclosed in the column was received.
"A" indicates that the column is applicable but that no amount is required to be
disclosed.
(1) The costs of certain perquisites and other personal benefits are not
included because they did not exceed, in the case of each Named Executive,
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported in the columns above.
(2) Indicates number of shares for which options were granted under the Stock
Compensation Plan during the applicable periods. See "OPTION/SAR GRANTS IN
LAST FISCAL YEAR."
17
The following table sets forth information concerning grants of stock
options for the fiscal year ended December 31, 1997 to the named executive
officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
% of Total
Number of Options Potential Realizable
Securities /SARs Value at Assumed
Underlying Granted to Annual Rates of Price
Options Employees Exercise Appreciation for Option
/SARs in or Base Term
Granted Fiscal Price(2) Expiration ------------------------
(1)(#) Year ($/Sh) Date 5% ($)(3) 10% ($)(3)
------- ---------- -------- ---------- -------- ----------
Pierre Desjardins.. 225,000 76.27% $2.88 9/3/01 $179,030 $395,610
Homer N. Holden.... 0 N/A N/A N/A N/A N/A
Randolph Braun..... 0 N/A N/A N/A N/A N/A
David Gilbert(4)... 20,000 6.78% $2.75 8/7/07 $ 89,589 $142,656
- -------------------------
(1) All amounts represent incentive stock options; no SARs or SARs granted in
tandem with options were granted during 1997. Options are not exercisable
following an optionee's voluntary termination of employment other than by
reason of retirement or disability. The options granted to Mr. Desjardins
and to Mr. Gilbert were granted under the 1997 Plan. In connection with
such grant, Mr. Desjardins relinquished his rights to options granted to
him in 1996 outside of the 1994 Plan. All the characteristics of options
granted to Mr. Desjardins in 1997 were substantially similar to
characteristics of options granted to him in 1996.
(2) In the case of each option grant, the exercise price per share is equal to
the fair market value on the date the option was granted. The exercise
price may be paid in cash, in shares of Common Stock valued at fair market
value on the date of exercise or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(3) The dollar amounts set forth under these columns are the result of
calculations made at the 5% and 10% appreciation rates set forth in
Securities and Exchange Commission regulations and are not intended to
indicate future price appreciation, if any, of the Common Stock.
(4) Options have a term of ten years from the date of grant. Options vest at
the rate of 20% per year for five consecutive years beginning one year from
the date of grant.
18
The following table sets forth information concerning the exercise of
options to purchase shares of Common Stock by the Named Executives during the
fiscal year ended December 31, 1997, as well as the number of securities
underlying unexercised options and potential value of unexercised options (both
options which are presently exercisable and options which are not presently
exercisable) as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE(1)
Value of
Number of Unexercised
Securities In-the-Money
Underlying Options/SARs
Options/SARs at
Shares at Fiscal Fiscal Year-
Acquired Value Year-End(#) End ($)(2)
on Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
- ------------------- ----------- --------- --------------- -----------------
Pierre Desjardins.. 0 0 75,000/150,000 0/0
Homer N. Holden.... 0 0 36,000/44,000 1,500/6,000
Randolph Braun..... 0 0 8,000/32,000 1,250/5,000
David Gilbert...... 0 0 0/20,000 0/0
- ------------------------
(1) All amounts represent stock options. No SARs or SARs granted in tandem
with stock options were either exercised during 1997 or outstanding at
fiscal year-end 1997.
(2) "In-the-money options" are stock options with respect to which the market
value of the underlying shares of Common Stock exceeded the exercise price
at December 31, 1997. The value of such options is determined by
subtracting the aggregate exercise price for such options from the
aggregate fair market value of the underlying shares of Common Stock.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
As of September 3, 1996, the Company entered into an Employment Agreement
with Pierre Desjardins under which Mr. Desjardins serves as President and Chief
Executive Officer of the Company. The initial term of the Employment Agreement
is three years, subject to an automatic one year extension on each anniversary
date thereof, unless the Company gives written notice to Mr. Desjardins of an
intention not to renew. Mr. Desjardins will receive an annual base salary of
$300,000 per year under the Employment Agreement. The Employment Agreement also
provides for the award of options to purchase 225,000 shares of Common Stock.
The Company may terminate the Employment Agreement for cause. In the event the
Company terminates the Employment Agreement without cause (as defined in the
Employment Agreement), Mr. Desjardins is
19
entitled to, among other things, an amount equal to the total salary due for the
unexpired term of the Employment Agreement.
In 1994, the Company entered into Employment Agreements with Homer N.
Holden. In 1996, the Company entered into Employment Agreements with Randolph
Braun and David Gilbert. Under their Employment Agreements, Homer N. Holden
serves as Vice President of Research and Product Development, Randolph Braun
serves as Vice President Sales and Marketing and David Gilbert serves as Vice
President Engineering. The initial term of each Employment Agreement is three
years, subject to an automatic one year extension on each anniversary date
thereof, unless either party gives notice to the other of an intention not to
renew. In accordance with the terms of the Employment Agreements, the Company
paid, in 1997, an annual base salary of $113,000 to Mr. Holden, $110,000 to Mr.
Braun, and $105,000 to Mr. Gilbert. The Employment Agreements provide for an
annual review by the Board of the executives' base salaries for purposes of
considering possible increases thereto. The Employment Agreements also provide
for the payment of bonuses and the award of stock options in such amounts as
shall be determined by the Board. In addition, in the event of termination by
the Company of an executive as a result of disability or without cause (as
defined in the Employment Agreements), the terminated executive is entitled to
continued payments of his base salary for a period not to exceed the lesser of:
(a) six (6) months or (b) the date of the executive's death, which amount will
be offset by any payments received by the executive under any disability plan
sponsored by the Company. The Employment Agreements also contain certain
confidentiality, non-competition and non-solicitation provisions. None of the
above Employment Agreements contain a change-in-control provision.
ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and any persons
beneficially owning ten percent or more of the Common Stock, to file in their
personal capacities initial statements of beneficial ownership, statements of
changes in beneficial ownership and annual statements of beneficial ownership
with the Securities and Exchange Commission (the "SEC"). Persons filing such
beneficial ownership statements are required by SEC regulation to furnish the
Company with copies of all such statements filed with the SEC. The rules of the
SEC regarding the filing of such statements require that "late filings" of such
statements be disclosed in the Company's proxy statement. Based solely on the
Company's review of any copies of such statements it received and on written
representations from directors and officers, the Company believes that all such
statements were timely filed in 1997.
20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Pierre Desjardins, President and Chief Executive Officer of the
Company, serves as a member of the Compensation Committee, although he does not
participate in or vote on matters concerning his own benefits or awards. The
Board of Directors believes that Mr. Desjardins' position with the Company
provides him with
perspective valuable to the Compensation Committee in connection with
performance of the Committee's duties.
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return on the Nasdaq Market Value Index and the Peer Group Index for the periods
indicated. Because there was no public market for the Common Stock prior to the
Offering, information is presented only for the period from February 25, 1994
(the date the Common Stock commenced trading on the Nasdaq Stock Market) through
December 31, 1997. The graph assumes an initial investment of $100.00 with
dividends, if any, reinvested over the periods indicated.
PERFORMANCE CHART
Fiscal Year Ended
-------------------------------------
1994 1994 1995 1996 1997
------ ----- ------ ------ ------
The Company................. 100.00 86.42 39.51 33.33 27.16
Peer Group Index(1)......... 100.00 86.53 100.31 145.22 223.70
NASDAQ Market Value Index. 100.00 97.21 126.09 156.68 191.60
________________________
(1) The Peer Group Index consists of those companies that comprise Media
General Industry Group Index 083 - Other Business and Institutional
Equipment. The composition of the Peer Group Index is as follows:
Educational Development CP, Geographics Inc., Hon Industries, Inc., Kimball
International B, Knoll Inc., Lear Corp., Miller Herman, Inc., Mity Lite,
Inc., Norwood Promotional Prod., Open Plan Systems, Inc., Polyvision Corp.,
Tab Products Co., Virco Manufacturing CP., Winsloew Furniture, Inc.
CERTAIN TRANSACTIONS
The Company's net loss for 1997, caused by the Company's charge to
income in the third quarter to increase the Company's warranty reserve, resulted
in the Company's net tangible assets (total assets less goodwill and less
----
liabilities) dropping below
21
the dollar amount necessary for the Company to maintain the listing of the
Company's common stock on NASDAQ's National Market System.
The Company's Board of Directors and principal shareholder (see
"Principal Stockholders" herein) believe that continued listing is important to
the Company and to its shareholders. To accomplish this objective, the
Company's principal shareholder purchased from the Company in March 1998, 400
shares of authorized perpetual Class A Floating Rate Preferred Stock of the
Company at $10,000, cash, per share (the "Preferred Stock"). This $4 million
equity infusion is expected to cause the Company to meet the NASDAQ's net
tangible asset test and is expected to allow the Company to maintain its NASDAQ
National Market listing over the foreseeable future.
The perpetual 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 payable 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 the extent the
Company's net tangible assets at the end of any fiscal quarter exceeded $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.
The terms of the Preferred Stock were determined between the Company
and the principal shareholder as the result of arms length negotiation. The
issuance of the Preferred Stock was approved by the Company's independent and
disinterested directors after consulting with an investment banker. The Company
believes that the terms and conditions of the Preferred Stock are at least
comparable to those terms and conditions which would be available to the Company
from unrelated parties.
22
MATTER NO. 2
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed on January 12, 1998,
the firm of Grant Thornton LLP, independent accountants, to provide auditing and
accounting services for the Company and its subsidiaries during fiscal year
1998. Such appointment is being submitted to stockholders for ratification.
Grant Thornton LLP replaced Price Waterhouse LLP, which firm, on December 3,
1997, resigned as the Company's independent accountants in the midst of a
disagreement with the Company relating to the recoverability of a $6.8 million
deferred tax asset recorded by the Company during the 3rd quarter, 1997.
During the third quarter of 1997, the Company sustained a $20 million
operating loss due in large measure to an $18 million warranty charge and
certain other charges of $2.6 million. Based on its review of all evidence and
other information available to it at September 30, 1997, the Company recorded,
as an asset, a $6.8 million tax benefit represented by deferred taxes which
management believed were fully realizable, based on the Company's historical
results of operations, 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 that the Company should record a substantial
valuation allowance (thus decreasing the amount of the deferred tax asset)
because, in its view, the objective evidence indicated it is more likely than
not that such deferred asset would not be fully realized in the future. A
substantial increase in the valuation allowance would have reduced the Company's
assets, net worth and net income by the amount of the increase in the valuation
allowance. This matter was discussed by the Company's Audit Committee with
representatives of Price Waterhouse LLP and was not resolved at the time of
Price Waterhouse's resignation or the appointment of Grant Thornton LLP prior to
the commencement of the 1997 year-end audit.
The Company has evaluated whether a valuation allowance is appropriate
under all the facts and circumstances existing at December 31, 1997, in
connection with the 1997 audit process and has concluded that a valuation
allowance of approximately $275,000 is 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 is required. The Company is unable to quantify the amount
of a valuation allowance Price Waterhouse LLP would have required.
The Company authorized Price Waterhouse LLP to respond fully to all
inquiries of Grant Thornton LLP concerning the subject matter of the
disagreement referenced above.
23
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE 1998 FISCAL YEAR. The affirmative vote of a majority of the shares
present, in person or by proxy, at the Annual Meeting is required to ratify the
appointment. All proxies will be voted "FOR" ratification of the appointment
unless a stockholder specifies to the contrary on such stockholder's proxy card.
STOCKHOLDER PROPOSALS FOR 1999
Stockholders may propose matters for consideration at annual meetings of
stockholders by notice in writing, delivered to or mailed and received by the
Secretary of the Company or the Pennsylvania Corporation, as the case may be,
not less than 30 days prior to such annual meeting, which notice must contain
certain information specified in the Bylaws or the New Bylaws, as the case may
be.
The 1999 Annual Meeting of Stockholders of the Company or the Pennsylvania
Corporation, as the case may be, will be held on or about April 16, 1999. Any
stockholder desiring to submit a proposal to be considered for inclusion in the
1998 proxy materials must submit such proposal or proposals in writing,
addressed to the Company or the Pennsylvania Corporation, as the case may be, at
422 Business Center, A130 North Drive, Oaks, Pennsylvania 19456, Attention:
Secretary, on or before December 1, 1998.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before the
Annual Meeting and is not presently informed of any other business which others
may bring before the Annual Meeting. If any other matters should properly come
before the Annual Meeting, or any adjournment or adjournments thereof,
24
however, it is the intention of the persons named in the accompanying proxy to
vote on such matters as they, in their discretion, may determine.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jeffrey A. Boehmer
Jeffrey A. Boehmer, Secretary
March 25, 1998
PLEASE SIGN, DATE AND MAIL YOUR PROXY NOW.
25
LOGO
NOTICE OF 1998 ANNUAL MEETING
AND PROXY STATEMENT
26