SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1996
[ ] 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 0-9253
--------------------------
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Name of small business issuer in its charter)
VIRGINIA 54-0720128
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
POST OFFICE BOX 9379, RICHMOND, VIRGINIA 23227
- ---------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
Issuer's Telephone Number: (804) 746-4120
Securities registered pursuant to Section 12(g) of the Securities Exchange Act:
Common Stock, $1.00 par value per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer had revenues in the amount of $5,205,237 for fiscal year
ended December 31, 1996.
The aggregate market value of the voting stock of the registrant held
by stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately $908,808
as of March 28, 1997 (based on the average closing bid and asked prices). At
March 28, 1997, the registrant had an aggregate of 1,011,200 shares of its
common stock issued and outstanding.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
YES X NO
---- -----
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in Items 9, 10, 11 and 12 of this Form 10-KSB has been
incorporated by reference from the issuer's proxy statement relating to its 1997
annual shareholders meeting, to be filed with the Securities and Exchange
Commission.
This document contains ___ pages. The Exhibit Index is found at
sequential page __.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
Corporate Offices Mailing Address
----------------- ---------------
8407 Erle Road Post Office Box 9379
Mechanicsville, Virginia 23116 Richmond, Virginia 23227
(804) 746-4120
<TABLE>
<CAPTION>
Table of Contents
Item Page
<S> <C>
1. DESCRIPTION OF BUSINESS..................................................................................... 4
2. DESCRIPTION OF PROPERTY..................................................................................... 9
3. LEGAL PROCEEDINGS........................................................................................... 9
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................... 9
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................................... 11
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................................. 11
7. FINANCIAL STATEMENTS....................................................................................... 14
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 15
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS............................................... 15
10. EXECUTIVE COMPENSATION..................................................................................... 15
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 16
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 16
13. EXHIBITS AND REPORTS ON FORM 8-K.......................................................................... 16
</TABLE>
PART I
1. DESCRIPTION OF BUSINESS
Business Development
Consumat Environmental Systems, Inc. (the "Company"), was incorporated
in Virginia in 1960. The original name of the Company was Electrol Corporation.
The Company name was changed to Waste Combustion Corporation in 1965 and to
Consumat Systems, Inc. in 1973. On March 12, 1996, the name of the Company
changed to Reorganized Consumat Systems, Inc., and on December 12, 1996, the
name of the Company changed to Consumat Environmental Systems, Inc.
On October 6, 1995, the Company filed for Chapter 11 bankruptcy relief
in the United States Bankruptcy Court for the Eastern District of Virginia,
Richmond Division (the "Bankruptcy Court"). The Company filed with the
Bankruptcy Court on January 4, 1996, a Second Amended Plan of Reorganization. On
February 28, 1996, the Bankruptcy Court confirmed the Second Amended Plan of
Reorganization, as amended by a Modification to Second Amended Plan of
Reorganization dated February 27, 1996 (jointly, the "Plan"). On March 12, 1996
(the "Effective Date"), the Company commenced making the distributions required
under the Plan, including distributions of promissory notes and cash and
distributions of the new common stock of the Company.
On March 28, 1996, the Bankruptcy Court entered a Final Decree closing
the Company's Chapter 11 bankruptcy proceeding.
Pursuant to the Plan, the Company was recapitalized with 5,000,000
authorized shares of new common stock and 1,000,000 authorized shares of
preferred stock, with a total of 1,010,000 shares of new common stock of the
Company issued and outstanding after consummation of the Plan. All shares of the
Company's old common stock and all other equity interests, including all
options, warrants or other agreements requiring the issuance of equity in the
Company, were canceled under the Plan. In addition, the Company was discharged
under the Plan of all of its debts that existed as of the date of the
commencement of its Chapter 11 bankruptcy proceeding.
In order to operate in its Chapter 11 bankruptcy proceeding and to
consummate the Plan, the Company borrowed $1,500,000 from Sirrom Capital
Corporation ("Sirrom Capital"), pursuant to the terms of Loan Agreements dated
October 11, 1995, January 16, 1996, and March 12, 1996, and with the approval of
the Bankruptcy Court.
The following is a summary of the principal terms and conditions of the
Loan Agreements:
Payments. Interest only is payable for the first 59 months of each
respective loan, with principal and accrued and unpaid interest payable on the
fifth anniversary of each respective loan.
Interest Rate. The loans bear interest at a rate of fourteen
percent (14%) per annum.
Stock Warrants. Sirrom received a warrant to purchase up to
32% of the fully diluted shares of the common stock
of the Company at $0.01 per share. The warrant is
exerciseable beginning on and after March 31, 1998, until
April 30, 2001.
Collateral. The credit facility is secured by liens on all
real and personal property of the Company, including but not
limited to accounts receivable, inventory, equipment, and
general intangibles.
(Sirrom Capital subsequently assigned the Loan Agreements to its wholly-owned
subsidiary, Sirrom Investments, Inc., which is hereinafter referred to as Sirrom
Investments. Sirrom Investments also loaned an additional $500,000 to the
Company for working capital purposes on March 26, 1997.)
In accordance with the Plan, the Company executed and delivered to
Lighthouse Investments, L.L.C., a promissory note in the principal amount of
$192,306.29. The promissory note is payable by the Company with interest at a
rate per annum of ten percent (10%) in twelve (12) equal quarter-annual payments
of principal and interest beginning on March 31, 1996, and continuing on the
last day of each successive calendar quarter through December 31, 1998. The
promissory note is secured by a subordinated interest in certain of the
Company's intellectual property.
Also in accordance with the Plan, certain other creditors received cash
and/or a pro rata portion of 150,000 shares of the new common stock of the
Company. Holders of the old common stock of the Company received a pro rata
portion of 500,000 shares of the new common stock of the Company. Assignees of
Sirrom purchased 260,000 shares of the new common stock of the Company for a
price of $39,000 ($0.15 per share). In addition, certain managers and
consultants of the Company consisting of Robert L. Massey, Robert S. Lee, Mark
E. Hills, James K. Fishback, and William O. Wiley each received 20,000 shares of
the new common stock of the Company.
As of the Effective Date and in accordance with the Plan, the
management, control and operation of the Company became the general
responsibility of its Board of Directors consisting of Robert L. Massey,
Alexander Y. Hoff, and Peter T. Socha. Messrs. Massey and Hoff were directors
of the Company at the time the Company commenced its Chapter 11 bankruptcy
proceedings and at all times since. Mr. Socha was an officer of Sirrom Capital
at that time. At a meeting of the Board of Directors on March 27, 1996, Mr.
Massey was elected as Chairman.
Each of the officers of the Company immediately prior to the Effective
Date continued in his or her positions as the officers of the Company on and
after the Effective Date. Set forth below is the name, age, and position with
the Company of each such officer:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C>
Robert L. Massey 62 President and Chief Executive Officer
Patricia B. Bradley 54 Corporate Secretary
Mark E. Hills 37 Chief Financial Officer
</TABLE>
Mr. Massey was elected Vice President of the Company in 1968 and was
elected President in March 1985, Executive Vice President and Chief Operating
Officer in 1991, and President and Chief Executive Officer in June 1992. Mr.
Massey also was elected as Chairman of the Board of Directors at the first
meeting of the new Board of Directors on March 27, 1996. He is a graduate of
Greenville College, Greenville, Illinois, and has more than 35 years experience
in finance and sales.
Ms. Bradley joined the Company in 1971 and has held various
administrative positions, including Human Resources Manager. She was elected
Corporate Secretary in 1992. Ms. Bradley has over 20 years of experience in
office administration and management.
Mr. Hills joined the Company as the Controller in early 1993 and was
elected Treasurer in October 1993, and was elected Chief Financial Officer in
June 1995. Mr. Hills is a graduate of the University of Virginia and has over 15
years of experience in public accounting and manufacturing management.
At a Board of Directors meeting held on June 14, 1996, Mr. Robert S.
Lee was elected Vice President of the Company. Mr. Lee joined the Company in
1986 as Project Manager, was promoted to Plant Operations Manager in 1987 and
elected Vice-President-Operations in 1989. Prior to joining the Company, Mr.
Lee was employed by RECO Industries, Inc. Mr. Lee has over twenty years
experience in steel fabrication, manufacturing and field erection.
James W. Bohlig joined the Company's Board of Directors effective April
12, 1996. Mr. Bohlig was and is an officer of New England Waste Services, Inc.,
which owns 107,318 shares of the common stock of the Company (approximately
10.6% of the issued and outstanding shares of the Company's common stock).
At the annual meeting of the shareholders of the Company held on June
14, 1996, the Shareholders elected four directors, Messrs. Massey, Hoff, and
Bohlig, and D. Randolph Graham, an Executive Vice President - Administration of
the Case Management Division of Maxxim Medical, Inc. Mr. Socha elected not to
stand for election as a director. Charles E. Horner was added to the Board of
Directors at a directors meeting also held on June 14, 1996. Mr. Horner was
formerly a director of manufacturing with Philip Morris.
At a special meeting of directors held on January 14, 1997, Mr. Socha
was re-elected as a director and elected as Chairman of the Board of Directors.
Mr. Socha's primary responsibilities include strategic planning, acquisitions,
and capital structure/dividend policy.
Business of Issuer
General
The business of the Company is the design and manufacture of
incineration and pollution control equipment.
Historically, a majority of the Company's revenues have been derived
from the manufacture and sale of specialized incineration systems to dispose of
solid wastes. The Company's line of products consists of solid waste disposal
equipment which can recover the energy released by incineration, and other units
without the energy recovery feature. During 1989, the Company began
manufacturing and selling its own line of small flue gas cleaning equipment both
as a part of new orders and as retrofits of existing systems. Sales of
manufactured and related equipment are made throughout the United States and in
foreign countries, primarily to hospitals, industry and local governments.
Waste Incineration Systems
The Company's regular product line includes continuous and intermittent
feed processing systems. The Consumat(R) system employs a modular design. The
fabrication and installation of standard modules permits rapid repair or
replacement without lengthy periods of facility down time. Modules are
fabricated at the Company's factory and assembled, wired, plumbed, and
pre-checked in the factory's controlled environment before shipment for
reassembly at the customer's site.
Installation of Company systems at the customer's location is generally
the responsibility of other parties under its contract with the Company. The
Company provides technical support during installation.
The Company believes the modular approach, which permits the Company to
match multiple standard modules to the variable needs of its customers, is the
most cost effective method to convert solid waste to energy. This approach
allows economically sized units to be located in close proximity to both the
energy user and the source of solid waste; thus, solid waste can be processed
and energy produced and used without the requirement for long distance
transportation of waste or long distance transmission of the energy produced.
Systems equipped with energy conversion features permit utilization of heat
generated by waste incineration to produce usable energy in the form of steam,
hot air, hot water, or electricity. Large systems are typically composed of
multiple units which can each produce 2,700 to 32,000 pounds of steam per hour
for typical hospital or industrial waste and 1,940 to 23,400 pounds per hour for
typical municipal waste.
The Company's systems are designed to accept unprepared hospital,
industrial or municipal wastes. Continuous systems incorporate automatic loading
and ash removal and are designed for continuous 24 hour-a-day operation at
burning rates of 720 to 10,420 pounds per hour. The Company also manufactures
and sells non-continuous models which are sold without automatic ash removal
equipment and, accordingly, are not designed for continuous 24 hour-a-day
operation. These units are typically used by smaller hospitals, veterinarians or
other low volume applications.
The three significant domestic markets for the Company's products are
local governments, hospitals, and private industry.
The Company has directed resources to meet the needs of hospitals,
industry and local governments whose typical solid waste disposal requirements
are up to 500 tons per day. Federal, state, and local air pollution laws,
designed to protect ambient air quality, in many instances specify emissions
standards that require the Company to supplement its equipment with
emission-reducing equipment. In response, the Company has developed a dry
scrubber fabric filter emissions control system to match its incinerator model
line and actively markets both systems. Management believes that the development
of its own flue gas cleaning equipment allows the Company to increase
manufacturing volume, control quality and provide equipment in a more cost
effective manner. Historically the Company has purchased and will continue, when
appropriate, to purchase certain other flue gas cleaning equipment from other
suppliers.
The Company has granted a licensing arrangement to manufacture its
products in Colombia.
Marketing
The Company markets its systems through sales representatives. The
Company's employees service the orders placed by those representatives and
follow up leads for direct sales. From time to time, project developers have
purchased equipment and systems from the Company and assumed certain financial
risks such as bonding and construction financing.
Sales arrangements generally provide for progress payments beginning at
the signing of the contract. The Company and the end-user purchasing a system
generally agree to use the percentage of completion method or establish a
payment schedule based upon completion of components upon which periodic
progress payments are based. As the system is manufactured, the Company receives
periodic progress payments in accordance with the contract. If retainage is
included in the negotiated payment structure, typically a portion is due at
mechanical completion and final payment is due upon final testing of the system
or at the conclusion of such period as is specified by contract. Testing may be
involved in satisfying contract specifications respecting performance.
The Company believes that a significant portion of its future revenues
will come from international markets. Since the Company's emergence from
bankruptcy, a major portion of its renewed marketing effort has been directed to
these markets. The Company is targeting several areas, including the Pacific
Rim, Thailand, India and Turkey, to direct its international marketing
resources. Direct sales to international customers are usually made only after
the receipt of an irrevocable letter of credit.
The Company pays sales commissions to its sales representatives.
Commissions are intended to compensate representatives for services in
connection with such sales. These services typically involve locating customers
with a need for Consumat(R) equipment, assistance in coordinating installation
after a sale is made, furnishing information to the purchaser's staff and
maintaining contact with customers and potential customers.
Competition
The Company conducts its business under competitive conditions. There
are a number of organizations that offer equipment to produce energy from solid
waste. The Company chooses to compete in the small systems markets in which the
principal existing competitors for the systems the Company sells are Crawford
Equipment and Engineering, International Waste Industries, and Simonds
Manufacturing Corporation. Internationally, the Company is encountering
additional competition from foreign companies. The Company believes that the
principal bases for competition in this market are product performance and
price. The Company believes that its ability to engineer its products to the
specific needs of customers is a competitive advantage. The Company's relative
small size and limited financial resources pose competitive disadvantages which
the Company seeks to counter by aligning itself with other companies which act
as suppliers or developers.
The Company's products also may be subject to competition from
alternative medical waste treatment technologies such as autoclaving and
microwaving.
Raw Materials
The principal raw materials and supplies purchased by the Company are
steel, refractory material, pressure vessels, and electrical and hydraulic
components, all of which are readily available from several suppliers. The
Company has not experienced any shortage of raw materials in the past five
years. The Company has no special long-term arrangements with any suppliers of
raw materials needed to produce its products.
Dependence on Large Customers
Because of the dollar amount of a contract for a large hospital,
municipal or industrial system in relation to the Company's size, in any year or
financial period, the sale may account for a substantial percentage (10% or
greater) of the Company's sales. In 1996, 25.2% of the Company's sales were made
to one customer.
The Company devotes substantially all of its manufacturing capacity to
a large contract when the equipment for that contract is being built. In
addition, since the Company is presently unable to obtain bonding on large
projects, the Company has and will need to continue to arrange surety bonds and
financial guarantees through entities having an interest in those projects.
Historically, a significant portion of the Company's revenues have been
comprised of a relatively small number of large sales, generally not to the same
customer, resulting from the manufacture of large waste disposal and energy
conversion systems.
Patents and Trademarks
The controlled air technology basic to the Company's system of solid
waste disposal and energy recovery is not protected by patents. Management of
the Company believes that the lack of patents has not increased competition
since competitors use a variety of processes to incinerate waste.
Seasonal Considerations
The Company's manufacturing business is not subject to seasonal
considerations. Occasionally, a customer will ask the Company to defer testing
until the weather improves, and bad weather in winter occasionally delays
installation of equipment.
Backlog
The nature of the Company's business is such that it does not maintain
inventories of its principal products and manufactures only pursuant to purchase
orders or contracts. At December 31, 1996, and December 31, 1995, the Company
had manufacturing and related backlog of $1,130,950 and $3,155,000,
respectively.
The Company believes that backlog that can be filled in approximately a
six to nine month period is the most satisfactory level attainable. See Item 6:
Backlog. Additional orders must be received in order to maintain
operations through the end of 1997. The Company's backlog at any one time is not
necessarily indicative of anticipated revenues for any fiscal period.
Environmental Matters
The uncertain regulatory environment strongly influenced the Company's
business during 1996. Almost every state as well as the federal government was
either in the process of tightening quality standards or had recently tightened
them. The air quality changes included more stringent particulate emission
standards and control over acid gas and other emissions. In addition, pending
federal and other regulations affecting the disposal of ash residue remain
uncertain. New or pending regulations affect both the permitting process for
installation of the Company's equipment and the design of the equipment itself.
Customers are reluctant to order equipment and regulators are slow to
issue permits while laws are being changed. In order for an installation to be
made, environmental permit(s) must be obtained. This complex process sometimes
requires analysis of site background data in addition to the technical analysis
of the proposed equipment to be installed. Management believes that the slower
permit process which caused many companies to delay capital expenditures,
resulted in a slowdown in orders for equipment fabrication during 1996 and 1995.
Prior to recent changes in regulations of air quality, Consumat(R)
equipment met most regulations without additional complex emissions control
equipment. New laws often require system design changes to include the addition
of emissions control devices. When appropriate, the Company has incorporated
these required changes into its design.
The Company's manufacturing operations are regulated by certain
federal, state, and local clean air and water laws now in effect or anticipated
to be in effect. Because the Company's manufacturing operations discharge no
waste into the air or water in its manufacturing process and produce no
regulated quantities or types of solid waste, the effects of such regulation
have been minimal to date.
Research and Development
The Company has no dedicated research and development effort. However,
in connection with modifying the Company's products to meet the specified needs
of particular customers, the Company conducts engineering and research efforts
at its facility in Mechanicsville, Virginia. This activity fosters the
improvement and development of the Company's existing products and the
broadening of the Company's product line. Research and development costs, which
are not material to the Company's operations, are included in product overhead.
Employees
At December 31, 1996, the Company employed 38 full-time employees. In
the opinion of management, the Company's labor relations are satisfactory. The
Company's workforce is not unionized.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's manufacturing plant is located in Mechanicsville, Hanover
County, Virginia, near Richmond. The Company's facilities are located on a site
of 15.5 acres. This facility, which was owned by the Company prior to 1992, was
sold in July 1992 as part of a sale-leaseback transaction. The Company has a ten
year lease on the property with two five year renewal options. In addition, the
Company has the option to repurchase the property after the third year of the
lease at a predetermined price. Approximately fifty percent of this acreage is
used for buildings, streets, and utilities. The remaining portion is vacant land
available for expansion and development. The Company's plant facility,
engineering offices and shops, sales offices, and main administrative offices
are located on this site. The buildings currently utilize a total of
approximately 78,000 square feet. See Note 8 to the Audited Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
As of March 28, 1997, the Company is not a party to any pending legal
proceeding and the property of the Company is not the subject of any pending
legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were five (5) matters submitted to a vote of security holders
through the solicitation of proxies during the fourth quarter of the Company's
1996 fiscal year.
On December 12, 1996, a special meeting of the Company's shareholders
was held at which the shareholders adopted four (4) proposed amendments to the
Company's articles of incorporation and ratified the Company's selection of KPMG
Peat Marwick LLP, certified public accountants, as the Company's auditors for
the fiscal year ending December 31, 1996. On the record date, October 31, 1996,
the total number of shares of Common Stock outstanding (the only class of shares
outstanding) and entitled to vote on the proposed amendments and the
ratification of KPMG Peat Marwick LLP, certified public accountants, as the
Company's auditors, was 1,010,000. The shareholders voted as follows:
(a) Proposal to change the name of the Company from
Reorganized Consumat Systems, Inc., to Consumat Environmental
Systems, Inc.:
Votes For Votes Against Votes Not Cast
-------- ------------- --------------
863,093 12 146,895
(b) Proposal to increase authorized capital stock of the
Company from 5,000,000 common shares to 25,000,000 common
shares and from 1,000,000 preferred shares to 5,000,000
preferred shares:
Votes For Votes Against Votes Not Cast
-------- ------------- --------------
870,322 45,611 94,067
(c) Proposal to remove prohibition of issuance of
nonvoting equity securities, to remove the provision giving
voting rights to preferred stock, and to add a provision
confirming that the holders of common stock are entitled to
one vote per share on all matters as to which a shareholder
vote is taken:
Votes For Votes Against Votes Not Cast
-------- ------------- --------------
778,062 47,381 184,557
(d) Proposal to add a new provision decreasing the shareholder
vote required to approve certain significant corporate actions
to a majority of the shares entitled to be cast, provided that
two-thirds of the members of the Board of Directors then in
office have approved and recommended the corporate action:
Votes For Votes Against Votes Not Cast
-------- ------------- --------------
746,048 63,243 200,709
(e) Engagement of KPMG Peat Marwick LLP, certified public
accountants, as the Company's auditors for fiscal year ending
December 31, 1996:
Votes For Votes Against Votes Not Cast
-------- ------------- --------------
914,141 35 95,824
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ Bulletin Board. The
following table shows the high and low bid prices for the Company's common stock
for each quarterly period during the two-year period ended December 31, 1996.
Such high and low bid quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The stated prices for the 1995 quarterly periods and the first
quarter of 1996 are for the Company's old common stock which was cancelled
pursuant to the Company's Chapter 11 bankruptcy plan (see Item 1) and the prices
stated for the second, third, and fourth quarters of 1996 are for the Company's
new common stock.
Bid Price
---------
1995 - Predecessor High Low
- ------------------ ---- ---
First Quarter $ 3/8 $ 1/4
Second Quarter 7/16 1/4
Third Quarter 7/16 1/4
Fourth Quarter 7/16 3/16
1996 - Predecessor
- ------------------
First Quarter $ 1 1/4 $ 3/16
1996 - Successor
- ----------------
Second Quarter $ 3 $ 3/4
Third Quarter 3 7/8
Fourth Quarter 1 3/8 7/8
There were 459 record holders of the Company's common stock as of
December 31, 1996.
The Company has not previously paid any dividends on its common stock,
and there is no expectation that the Company will pay dividends in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
As discussed in Item 1, the Company concluded the fiscal year ending
December 31, 1995 operating as a debtor-in-possession in its Chapter 11
bankruptcy proceeding. The Company's Chapter 11 reorganization plan was
confirmed on February 28, 1996, and the Effective Date of the Plan was March 12,
1996. As is detailed further in Note 2 to the Audited Financial Statements the
Company accounted for its reorganization using fresh-start reporting. This
reporting allowed the Company to eliminate the retained deficit of the Company
as of the Effective Date and to restate the balance sheet at that time to
reflect fair market value.
This reporting also enabled the Company to emerge from its Chapter 11
bankruptcy proceeding in a financial position stronger than its financial
position prior to the commencement of its Chapter 11 bankruptcy proceeding.
In addition, the Company was able to obtain a loan in the amount of
$1,500,000 from Sirrom Capital. The loan proceeds, received both during and in
conjunction with the Company's emergence from its Chapter 11 bankruptcy
proceeding, were used to provide working capital for operations and to
consummate the Plan. On March 26, 1997, Sirrom Investments loaned an additional
$500,000 to the Company, for working capital purposes.
The periods and dates prior to the Effective Date are referred to as
those of the predecessor Company (the "Predecessor") while the period and dates
subsequent to the Effective Date are referred to as those of the successor
Company (the "Successor"). To facilitate a more meaningful comparison of the
1996 operating performance, the following discussion of the results of
operations is presented on a combined basis for the fiscal year ended December
31, 1996. The following table shows the 1996 combined results of the Predecessor
for the period January 1, 1996, through March 11, 1996, and the Successor for
the period March 12, 1996, through December 31, 1996.
The effects of the consummation of the Plan and the fresh-start reporting
allowed the Company to emerge from its Chapter 11 bankruptcy proceeding with a
working capital surplus of approximately $1,074,000 and a net capital surplus of
$1,010,000.
Results of Operations
<TABLE>
<CAPTION>
(Combined) (Predecessor)
Year Ended Year Ended
December 31, December 31,
1996 Percent 1995 Percent
---- ------- --------- -------
<S> <C>
Revenues $ 5,205,237 100.00% $ 4,399,309 100.00%
Cost of goods sold 3,573,296 68.65% 3,246,326 73.79%
--------- ------ --------- ------
Gross profit 1,631,941 31.35% 1,152,983 26.21%
Selling, general and administrative
expenses 968,138 18.60% 992,110 22.55%
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 43,066 .83% -- --
------- ------ ------- ------
Operating income 620,737 11.93% 160,873 3.66%
Other income (expense):
Investment income 20,192 0.39% 5,264 0.12%
Interest expense (291,367) -5.60% (107,217) -2.44%
Other 66,685 1.28% 30,318 0.69%
------ ----- ------- -----
(204,490) -3.93% (71,635) -1.63%
Income before fresh-start revaluation, income
taxes and extraordinary item 416,247 8.00% 89,238 2.03%
Income tax expense (160,000) -3.07% -- 0.00%
--------- ------ ---------- ----
Net income before fresh-start revaluation and
extraordinary item $ 256,247 4.92% $ 89,238 2.03%
=========== ===== =========== =====
</TABLE>
Results of Operations -- 1996 Compared with 1995
Revenues (Successor/Predecessor Combined vs. Predecessor Historical).
Total revenues increased $806,000 or 18.3% to $5.2 million in 1996 from $4.4
million in 1995. The increase was primarily the result of two major
international contracts which accounted for approximately 32% of the 1996
revenue. The Company is focusing a significant amount of its new marketing
effort on the international marketplace.
Cost of Goods Sold (Successor/Predecessor Combined v. Predecessor
Historical). Cost of goods increased $327,000 or 10.1% to $3.57 million in 1996
from $3.25 million in 1995. Gross profit increased $480,000 to $1.63 million in
1996 from $1.15 million in 1995. The gross profit rate of 31.35% in 1996
compares to a gross profit rate of 26.21% for 1995. The 1996 improvement is the
result of having sufficient working capital to improve the purchasing and work
flow efficiency of the manufacturing operation. In addition, the increased
manufacturing level allowed for an improved absorption of the fixed
manufacturing overhead.
Selling, general and administrative expenses (Successor/Predecessor
Combined v. Predecessor Historical). Selling, general and administrative
expenses decreased $24,000 or 2.4% to $968,000 in 1996 from $992,000 in 1995. As
a percentage of revenue, selling, general and administrative expenses decreased
to 18.6% in 1996 from 22.55% in 1995. Total selling expenses increased $161,000
as the result of the Company's renewed marketing effort, including the hiring of
a new Director of International Business Development and a new Director of Sales
and Marketing in mid-1996. The increase was more than offset by significant
decreases in administrative professional fees (legal and accounting) of
$134,000, depreciation expense of $43,000, and tax penalties of $18,000.
Interest expense (Successor/Predecessor Combined v. Predecessor
Historical). Interest expense increased $184,000 to $291,000 in 1996 from
$107,000 in 1995. The increase in interest expense resulted primarily from the
interest cost on the $1,500,000 of senior long-term debt incurred during and
subsequent to the Chapter 11 bankruptcy filing. The funds from this debt were
used by the Company to satisfy the claims in its Chapter 11 Plan and to provide
the Company with the working capital it needed in 1996 to improve the efficiency
of its manufacturing operation and increase its marketing effort as described
above.
Income taxes (Successor/Predecessor Combined v. Predecessor Historical).
The Company recorded current income tax expense of $160,000 in 1996. The Company
recorded no income tax expense in 1995. The income tax expense for 1996 is
solely related to the successor income. The Company has approximately $3.4
million of net operating losses available from the Predecessor operation.
Generally accepted accounting principles require that the Successor record any
utilization of benefits of net operating losses that existed on the Effective
Date as a reduction to the "Reorganization in excess of amount allocable to
identifiable assets." The net operating losses are available to reduce the
amount actually paid but not the expense.
Net Income and earnings per share (Successor/Predecessor Combined v.
Predecessor Historical). The Successor's historical net income for the period
March 12, 1996, to December 31, 1996, was $218,000. The Predecessor's historical
net income for the period January 1, 1996, to March 11, 1996, was $587,000. Of
this amount, $538,000 was the gain recorded as the result of the adoption of
fresh-start reporting. The Predecessor's net income for the year ended December
31, 1995, was $89,000. The Predecessor's net income for the periods presented
were significantly impacted by the Company's Chapter 11 proceedings and the
adoption of fresh-start reporting. If the Company had emerged from its Chapter
11 proceedings on December 31, 1995, the net income for the year ended December
31, 1996 would have been $256,000. Additionally, the primary earnings per share
for 1996 would have been $.20 per common share.
Backlog
The Company manufactures only pursuant to purchase orders or contracts.
At December 31, 1996, the Company had backlog orders with a market value of
$1,130,950. Backlog levels indicate the expected near-term manufacturing and
related sales. Total backlog orders as of December 31, 1996, are expected to be
filled during the first three months of 1997. Obtaining more orders is essential
to maintaining manufacturing operations at levels necessary to permit continued
operations.
Since the Company's sales are generally composed of a relatively small
number of large contracts, backlog levels have varied widely. Backlog levels are
not necessarily indicative of the continued success or failure of the Company in
obtaining further orders. Economic circumstances as they relate to capital
expenditures in general and sales negotiations in progress are a better
indicator for probable new business.
Governmental Regulation
In some cases, tighter government regulations on incineration work in the
Company's favor because the Company generally uses the latest technology
developed by the Company and others. However, the Company has experienced and
may experience in the future significant periods of inactivity in the domestic
markets because of significant pending legislation. Potential customers of the
Company's products tend to delay purchases when significant environmental
regulations or legislation are proposed or known to be under consideration in
order to assure that any equipment purchased will satisfy all government
regulations.
Many waste processing entities have experienced some public opposition.
Public opposition to waste processing is usually localized to the site where the
processing will occur and is focused on the location of the facility.
Bonding
In the Company's principal business of manufacturing controlled air
incineration systems, the Company's customers may require the Company to provide
supply bonds. Bonds and retainage are used to protect the customer in the event
of non-delivery. The Company at various times in the past has arranged surety
bonds through certain affiliated entities and others who have demonstrated an
interest and capability to bond projects for the Company. The Company will be
required to seek outside help for bonding as long as its capital remains limited
and will seek such help from affiliated entities and others as long as
management believes it is in the best interests of the Company and its
shareholders.
Inflation
It is the Company's policy to increase sales prices as costs increase
over time. The Company also attempts to offset these increases with efficiencies
which allow the Company to be more competitive. Inflation affects inventories,
labor and services throughout the Company.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued several standards
which the Company adopted in 1996. They are Financial Accounting Standards 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
disposed of" and Standard 123, "Accounting for Stock Based Compensation." As
discussed in Note 1 to the Audited Financial Statements, the adoption of these
standards did not materially affect the Company's financial condition.
ITEM 7. FINANCIAL STATEMENTS
The Audited Financial Statements of the Company listed on Item 13(a)
are incorporated herein by reference and are filed as part of this report.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of Directors dismissed Parham, P.C., as the Company's auditors
effective October 18, 1996. Parham, P.C., served as independent auditors of the
Company for the fiscal years ended December 31, 1995, and December 31, 1994. The
engagement of Parham, P.C., had previously been ratified on June 14, 1996, by
the shareholders of the Company.
The report of Parham, P.C., on the financial statements of the Company for
the years ended December 31, 1995, and December 31, 1994, did not contain an
adverse opinion, disclaimer of opinion or a qualification or modification as to
certainty, audit scope or accounting principles, except that the report
contained an explanatory paragraph related to the Predecessor's reorganization
and emergence from Chapter 11 bankruptcy.
There were no disagreements between the Company and Parham, P.C., 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 Parham, P.C., would have caused Parham, P.C., to make reference
to the subject matter of the disagreement(s) in connection with its reports, and
there have been no "reportable events" during such period as such term is
defined in Item 304(a) of Regulation S-B promulgated by the Securities and
Exchange Commission.
The Company furnished Parham, P.C., with a copy of the disclosure
contained in this Form 10-KSB, and advised Parham, P.C., that if it believed
that the statements made by the Company in response to Item 304(a) of Regulation
S-B were incomplete or incorrect, the accounting firm could present its views in
a brief statement to be included in this Form 10-KSB. Parham, P.C. did not
submit such statement of views to the Company.
KPMG Peat Marwick LLP, independent certified public accountants, was
selected by the Board of Directors as accountants and auditors for the Company
for the fiscal year ended December 31, 1996, and such selection was ratified by
the shareholders at a special meeting of shareholders held on December 12, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information required by this Item 9 is incorporated herein by
reference from the Company's proxy statement relating to the Company's 1997
annual meeting of shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is incorporated herein by
reference from the Company's proxy statement relating to the Company's 1997
annual meeting of shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 is incorporated herein by
reference from the Company's proxy statement relating to the Company's 1997
annual meeting of shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is incorporated herein by
reference from the Company's proxy statement relating to the Company's 1997
annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents
(i) Financial Statements
The financial statements filed as part of this report
are listed in the Index to Financial Statements and
Schedules on page F-1 hereof.
(ii) Financial Statement Schedules
NONE REQUIRED
(iii) Exhibits filed or incorporated by reference
An Exhibit Index appears immediately after the
signatures to this report.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated October 18, 1996, concerning "Item
4. Change in Registrant's Certifying Accountant" and "Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits."
(ii) Current Report on Form 8-K, dated February 20, 1997, concerning
"Item 5. Other Events."
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSUMAT ENVIRONMENTAL
SYSTEMS, INC. (Registrant)
Date: March 28, 1997 By:/s/ ROBERT L. MASSEY
--------------------
Robert L. Massey
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ PETER T. SOCHA Chairman of the Board of Directors March 28, 1997
- ----------------------------
Peter T. Socha
/s/ ROBERT L. MASSEY Director, Chief Executive Officer, March 28, 1997
- --------------------------
Robert L. Massey and President
/s/ MARK E. HILLS Chief Financial Officer March 28, 1997
- ------------------------------
Mark E. Hills
/s/ ALEXANDER Y. HOFF Director March 28, 1997
- ------------------------
Alexander Y. Hoff
/s/ JAMES W. BOHLIG Director March 28, 1997
- ----------------------------
James W. Bohlig
/s/ D. RANDOLPH GRAHAM Director March 28, 1997
- ----------------------
D. Randolph Graham
/s/ CHARLES E. HORNER Director March 28, 1997
- --------------------------
Charles E. Horner
</TABLE>
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Consumat Environmental Systems, Inc.:
We have audited the accompanying balance sheet of Consumat Environmental
Systems, Inc. (the "Successor" or the "Company") (formerly "Reorganized Consumat
Systems, Inc.") as of December 31, 1996, and the related statements of income,
changes in stockholders' equity, and cash flows for the period from March 12 to
December 31, 1996. We also have audited the accompanying statements of income,
changes in stockholders' equity (deficit) and cash flows for the period from
January 1 to March 11, 1996 of Consumat Systems, Inc. (the "Predecessor"). 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Successor as of December
31, 1996, and the Successor's results of operations and cash flows for the
period from March 12, 1996 to December 31, 1996, and the Predecessor's results
of operations and cash flows for the period from January 1, 1996 to March 11,
1996, in conformity with generally accepted accounting principles.
On March 12, 1996, the Company emerged from Chapter 11 reorganization. As
discussed in note 2 to the financial statements, the Company accounted for the
reorganization as of March 11, 1996 and adopted fresh start reporting. As a
result, the financial statements for the period from March 12, 1996 to December
31, 1996, which present the financial condition, results of operations and cash
flows of the reorganized entity, are not generally comparable to the financial
statements as of and for prior periods.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
March 14, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Reorganized Consumat Systems, Inc.
We have audited the consolidated financial statements and financial statement
schedule of Reorganized Consumat Systems, Inc. (the "Company")(previously
Consumat Systems, Inc. and subsidiaries) as of December 31, 1995 and for the
years ended December 31, 1995 and 1994, respectively, listed in the index on
page F-1 of the Form 10-KSB. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statements schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 3, Reorganized Consumat Systems, Inc.'s plan of
reorganization was confirmed on February 28, 1996 and became effective on March
12, 1996. The Company has implemented the guidance as to the accounting for
entities emerging from Chapter 11 set forth in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("Fresh Start Reporting") as of March 12, 1996. The impact of this Fresh Start
Reporting is presented in Note 3. The implementation of Fresh Start Reporting
as a result of the Company's emergence from Chapter 11 materially changed the
amounts reported in the financial statements of the Company as of and for
periods ending subsequent to March 12, 1996. As a result of the reorganization
and the implementation of Fresh Start Reporting, assets and liabilities are
recorded at fair values and outstanding obligations relating to the claims of
creditors have been discharged in exchange for cash, new indebtedness and
equity. The accompanying consolidated financial statements as of December 31,
1995 and for the years ended December 31, 1995 and 1994 do not give effect to
any adjustments that were made as a result of the Company's reorganization and
emergence from Chapter 11.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Reorganized Consumat Systems, Inc. as of December 31, 1995, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1995 and 1994, respectively, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
/s/ Parham P.C.
Richmond, Virginia
March 27, 1996
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
Assets Successor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 684,262
Short-term investment 92,500
Accounts receivable and contract costs (net of allowance for doubtful accounts of $10,000) (note 4) 696,613
Inventories (note 5) 226,351
Other current assets 70,812
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,770,538
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (note 6 and 8) 669,893
Note receivable from officer (note 3) 19,028
Debt issuance costs, net of accumulated amortization 79,111
Deferred income taxes (note 11) 154,921
Reorganization value in excess of amounts allocable to identifiable
assets, net of accumulated amortization (note 2) 1,045,372
- ------------------------------------------------------------------------------------------------------------------------
$ 3,738,863
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of capital lease obligation (note 8) $ 75,082
Current maturities of long-term debt (note 7) 59,578
Accounts payable 63,764
Accrued warranty costs 61,400
Other accrued expenses 164,498
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 424,322
- ------------------------------------------------------------------------------------------------------------------------
Senior debt (note 9) 1,500,000
Long-term debt (note 7) 85,311
Capitalized lease obligation, excluding current maturities (note 8) 501,668
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,511,301
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Stockholders' equity (note 10):
Preferred stock, $1 par value: authorized - 5,000,000 shares,
issued and outstanding shares - none -
Common stock, $1 par value: authorized - 25,000,000 shares;
issued and outstanding shares - 1,010,000 1,010,000
Retained earnings 217,562
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,227,562
- ------------------------------------------------------------------------------------------------------------------------
$ 3,738,863
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
<TABLE>
<CAPTION>
Statements of Income
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Successor Predecessor
----------------- ------------------------------------
Period from Period from
March 12 to January 1 to Year ended
December 31, March 11, December 31,
1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenues $ 4,282,194 923,043 4,399,309
Cost of revenues 2,866,987 706,309 3,246,326
- -------------------------------------------------------------------------------------------------------------------
Gross profit 1,415,207 216,734 1,152,983
Selling, general and administrative expenses 790,428 177,710 992,110
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 43,066 - -
- -------------------------------------------------------------------------------------------------------------------
Operating income 581,713 39,024 160,873
Other income (expense):
Investment income 20,192 - 5,264
Interest expense (242,369) (48,998) (107,217)
Other 18,026 48,660 30,318
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense), net (204,151) (338) (71,635)
- -------------------------------------------------------------------------------------------------------------------
Income before fresh start revaluation, income tax
expense and extraordinary item 377,562 38,686 89,238
Fresh start revaluation (note 2) - 538,480 -
- -------------------------------------------------------------------------------------------------------------------
Income before income tax expense and
extraordinary item 377,562 577,166 89,238
Income tax expense 160,000 - -
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 217,562 577,166 89,238
Extraordinary item-gain on debt discharge,
net of income taxes - 9,907 -
- -------------------------------------------------------------------------------------------------------------------
Net income $ 217,562 587,073 89,238
- -------------------------------------------------------------------------------------------------------------------
Income per common share:
Primary $ 0.17 0.38 0.06
Fully diluted $ 0.15 0.38 0.06
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
<TABLE>
<CAPTION>
Statements of Changes in Stockholders' Equity (Deficit)
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Additional Retained
Common stock paid-in earnings
--------------------------------
Shares Amounts capital (deficit) Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Predecessor:
Balances as of December 31, 1994 1,557,832 $ 4,673,496 5,227,559 (10,618,366) (717,311)
Adjustment for stock conversion (133) (399) 399 - -
Net income - - - 89,238 89,238
Compensatory stock issued 7,000 21,000 (19,000) - 2,000
- ----------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1995 1,564,699 4,694,097 5,208,958 (10,529,128) (626,073)
Net income for period from
January 1 to March 11, 1996 - - - 587,073 587,073
Effects of reorganization and fresh
start reporting (1,564,699) (4,694,097) (5,208,958) 9,942,055 39,000
- ----------------------------------------------------------------------------------------------------------------------------
Balances as of March 11, 1996 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Successor:
Issuance of common stock on
March 12, 1996 1,010,000 1,010,000 - - 1,010,000
Net income for period from March 12
to December 31, 1996 - - - 217,562 217,562
- ----------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1996 1,010,000 $ 1,010,000 - 217,562 1,227,562
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
<TABLE>
<CAPTION>
Statements of Cash Flows
December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
Successor Predecessor
--------------- -------------------------------
Period from Period from
March 12 to January 1 to Year ended
December 31, March 11, December 31,
1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities
Net income $ 217,562 587,073 89,238
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 131,823 18,011 131,759
Non-cash compensation costs - - 2,000
Deferred income taxes 155,121 - -
Fresh start revaluation - (538,480) -
Extraordinary item - gain on debt discharge - (9,907) -
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts receivable 433,776 (584,543) (283,893)
Inventories (53,203) 49,504 4,064
Other current assets 3,695 (4,939) 17,767
Accounts payable 19,918 (12,275) (243,666)
Other current liabilities (254,896) 127,274 (322,740)
Net change of liabilities subject to compromise - (342,889) 288,789
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 653,796 (711,171) (316,682)
Cash flows from investing activities:
Purchase of short-term investment (92,500) - -
Purchases of property, plant and equipment (129,039) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (221,539) - -
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from senior debt - 931,135 471,818
Proceeds from other borrowings 16,000 - -
Repayments on borrowings and capital lease obligations (124,211) (37,496) (75,571)
Sale of new stock - 39,000 -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (108,211) 932,639 396,247
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 324,046 221,468 79,565
Cash and cash equivalents at beginning of period 360,216 138,748 59,183
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 684,262 360,216 138,748
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 232,868 47,193 107,217
Income taxes - - -
Noncash activities:
Reduction of reorganization value in excess
of identifiable assets to recognize additional
deferred tax benefit 60,000 - -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
December 31, 1996
================================================================================
(1) Summary of Significant Accounting Policies
Description of Business
Consumat Environmental Systems, Inc. (the "Company"), incorporated in
1960, manufactures and sells incineration systems comprised of multiple
modular components and individual units of waste disposal equipment.
Beginning October 6, 1995, the Company operated as a
Debtor-In-Possession in its Chapter 11 bankruptcy proceedings (Note 2).
The Second Amended Plan of Reorganization (the "Plan") was confirmed on
February 28, 1996 and the Effective Date of the Plan with modifications
was March 12, 1996 (the "Effective Date"). The Company accounted for
its reorganization using fresh start reporting. In accordance with the
Plan, the articles of incorporation and bylaws of the Company were
amended and restated effective on the Effective Date, to change the
name of the Company from Consumat Systems, Inc. to Reorganized Consumat
Systems, Inc. and effectuate the provisions of the Plan. On December
12, 1996, the Company's name was changed to Consumat Environmental
Systems, Inc.
Cash and Cash Equivalents and Short-term Investment
Cash equivalents totaled approximately $684,000 at December 31, 1996,
and consists of an overnight repurchase agreement. For purposes of the
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
The short-term investment consists of a certificate of deposit with a
bank that has an initial term of six months.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method for all inventories.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Property and plant
under capital leases are stated at the present value of minimum lease
payments.
Depreciation on equipment is calculated on the straight-line method
over the estimated useful lives of the assets. Plant held under capital
lease and leasehold improvements are amortized on a straight line basis
over the shorter of the lease term or estimated useful life of the
asset.
The costs of major renewals and replacements are capitalized while the
costs of maintenance and repairs are charged to operations as incurred.
When assets are sold or retired, their costs and the related
accumulated depreciation are removed from the accounts and the gains or
losses are reflected in operations.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(1) Continued
Revenue Recognition
Waste systems are manufactured under customer contracts which provide
for the manufacture and delivery of modular units comprising the
system. Revenue is recognized on these systems using the percentage of
completion method. The percentage of completion is based primarily on
contract manufacturing costs incurred to date compared with total
estimated manufacturing costs. Changes in estimated contract costs and
anticipated contract losses, if any, are recognized in the period they
are determined. Recognized revenues in excess of billings are included
in accounts receivable and contract costs.
Cost of Revenues
Cost of revenues include manufacturing, engineering and field service
costs. The Company accrues estimated warranty and other costs related
to completed contracts.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Income Per Common Share
Primary income per common share is computed based on the weighted
average number of common and common equivalent shares outstanding
during the year to the extent the equivalents have a dilutive effect on
income per common share. The number of shares used in computing primary
income per share was 1,258,462 shares for the period from March 12,
1996 to December 31, 1996; 1,564,699 shares for the period from January
1, 1996 to March 11, 1996; and 1,560,348 shares in 1995. Fully diluted
income per share was calculated utilizing 1,481,384 shares for the
period from March 12, 1996 to December 31, 1996; 1,564,699 shares for
the period from January 1, 1996 to March 11, 1996; and 1,560,348 shares
in 1995.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(1) Continued
Stock Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense, over the vesting period, the fair
value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
Business Risks
Because of the dollar amount of a contract for a large hospital,
municipal or industrial system in relation to the Company's size, in
any year or financial period, the sale may account for a substantial
percentage (10% or greater) of the Company's revenues.
The Company devotes substantially all of its manufacturing capacity to
a large contract when the equipment for that contract is being built.
In addition, since the Company is presently unable to obtain bonding on
large projects, the Company has and will need to continue to arrange
surety bonds and financial guarantees through entities having an
interest in those projects. Historically, a significant portion of the
Company's revenues have been comprised of a relatively small number of
large sales, generally not to the same customer, resulting from the
manufacture of large waste disposal and energy conversion systems.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(1) Continued
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this statement did
not have a material impact on the Company's financial position, results
of operations, or liquidity.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with
the current period's presentation.
(2) Reorganization Under Chapter 11
On October 6, 1995, the Company filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Virginia, Richmond
Division. Under Chapter 11, certain claims of the Debtor in existence
prior to the filing of the petition were stayed while the Debtor
continued business operations as Debtor-In-Possession ("DIP").
The Debtor received approval from the Bankruptcy Court ("the Court") on
October 26, 1995 to incur up to $500,000 in Debtor-In-Possession
financing during the bankruptcy proceeding. The Court approved an
additional $500,000 in DIP financing, which was received in January
1996.
On February 28, 1996, the Court confirmed the Company's Second Amended
Plan of Reorganization, with Modifications. The Effective Date of the
Plan was March 12, 1996 ("Effective Date").
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(2) Continued
The Plan provided for the following:
Secured Debt
Secured debts totalling $166,401 were assumed as part of the Plan. A
new note, in the amount of $192,306, was issued to Lighthouse
Investments, LLC, in settlement of its secured debt ($213,673 as of
March 12, 1996).
Tax and Other Priority Claims
All Tax and Other Priority Claims, as defined, totaling $24,984 were
paid on the Effective Date.
Unsecured Trade Claimants
The holders of all trade claims, totaling $82,559 were paid fifty
percent (50%) of their claims on the
Effective Date.
Unsecured Miscellaneous Claimants
The holders of all other miscellaneous claims were paid twenty-five
percent of their claims in cash and received a pro-rata share of
150,000 shares (14.85%) of the common stock in the reorganized company.
This class totalled approximately $309,000 of recorded liabilities and
approximately $615,000 of previously contingent liabilities.
Common Stock
The holders of approximately 1,565,000 outstanding shares of the
Company's existing common stock received, in exchange for their shares,
500,000 shares or 49.5% of the shares in the reorganized company.
As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable
assets of $1,148,438 as of the effective date. This intangible asset is
being amortized on a straight-line method over a twenty year period.
Fresh Start Revaluation
The fresh start revaluation of $538,480 reflects a net gain in
recording assets at their fair values and liabilities at their present
values and to record reorganization value in excess of amounts
allocable to identifiable assets.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(2) Continued
Reorganization Value
The estimated reorganization value (the approximate fair value) of the
assets of the Company upon emergence was determined by consideration of
a number of factors, including discounted cash flow and price/earnings
and other applicable ratios believed by management to be representative
of the Company's business and industry.
The adjustments to the Company's balance sheet as of March 11, 1996 to
reflect the consummation of the Plan, including the related discharge
for liabilities subject to compromise under reorganization cases and to
record (i) assets at their fair values including an adjustment for the
excess of reorganization value over total fair value of assets and (ii)
liabilities at their present values are presented below:
<TABLE>
<CAPTION>
Reorganized
Pre Confirmation Fresh balance
confirmation activities start sheet
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 222,078 138,138 - 360,216
Accounts receivable 1,112,756 - - 1,112,756
Inventories 173,148 - - 173,148
Prepaid expenses and other 74,507 17,633 - 92,140
====================================================================================================================
Total current assets 1,582,489 155,771 - 1,738,260
Property, plant and equipment, at cost, net 614,418 - - 614,418
Notes receivable from officer 38,000 (18,972) - 19,028
Debt issuance costs, net of accumulated
amortization 56,359 37,945 - 94,304
Deferred income taxes - - 250,042 250,042
Reorganization value in excess of amounts
allocable to identifiable assets - - 1,148,438 1,148,438
- --------------------------------------------------------------------------------------------------------------------
$2,291,266 174,744 1,398,480 3,864,490
====================================================================================================================
</TABLE>
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
================================================================================
(2) Continued
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES
Current liabilities:
Accounts $ 43,846 - - 43,846
Other liabilities 570,114 (89,320) - 480,794
Current portion of indebtedness 78,424 60,708 - 139,132
- -------------------------------------------------------------------------------------------------------
Total current liabilities 692,384 (28,612) - 663,772
Liabilities subject to compromise 627,149 (627,149) - -
Indebtedness:
Senior debt 1,000,000 500,000 - 1,500,000
Long-term debt less current portion - 131,598 - 131,598
Capitalized lease obligation less current
portion 559,120 - - 559,120
Stockholder's Equity (Deficit)
Common stock - old 4,694,097 (4,694,097) - -
Common stock - new - 1,010,000 - 1,010,000
Capital in excess of par value 5,208,958 3,873,097 (9,082,055) -
Retained earnings (deficit) (10,490,442) 9,907 10,480,535 -
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) $ (587,387) 198,907 1,398,480 $ 1,010,000
- -------------------------------------------------------------------------------------------------------
$ 2,291,266 174,744 1,398,480 $ 3,864,490
=======================================================================================================
(3) Related-Party Transactions
During 1994, the Company issued a 10% note in the amount of $170,000
to Lighthouse Investments LLC, a limited liability corporation
which is principally owned by several of the Company's dealers.
The balance outstanding was $131,627 (Note 7) as of December 31, 1996.
Note receivable from officer consists of an interest free loan to an
officer in conjunction with his employment contract provided by the
Company. The loan is to be repaid out of bonuses during the officer's
employment or one year thereafter.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
====================================================================================
(4) Accounts Receivable and Contract Costs
Accounts receivable consist of the following as of December 31, 1996:
</TABLE>
<TABLE>
<S> <C>
Billed accounts receivable $ 210,412
Revenue recognized in excess of billings 473,009
Accounts receivable - other 23,192
- -------------------------------------------------------------------------------------
$ 706,613
Allowance for doubtful accounts (10,000)
- -------------------------------------------------------------------------------------
Accounts receivable and contract costs, net $ 696,613
=====================================================================================
</TABLE>
Revenues recognized for uncompleted contracts totaled $1,984,626 and
$2,551,630 at December 31, 1996 and 1995, respectively and progress
billings on these contracts totaled $1,620,911 and $2,521,228 at
December 31, 1996 and 1995, respectively.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral except for international
distributors where the Company obtains irrevocable letters of credit
for portions of the contract amount. Significant concentrations of
billed accounts receivable are as follows at December 31, 1996:
Equipment distributors located throughout the United States $118,462
Equipment distributors located outside the United States 91,950
================================================================================
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(5) Inventories
Inventories consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Raw materials $ 222,262
Work in process 4,089
- -------------------------------------------------------------------------------------
Total $ 226,351
=====================================================================================
(6) Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31,
1996:
</TABLE>
<TABLE>
<S> <C>
Land improvements $ 148,008
Buildings 1,411,751
Machinery and equipment 2,285,525
- ---------------------------------------------------------------------------------------
3,845,284
Less accumulated depreciation and amortization 3,333,587
- ---------------------------------------------------------------------------------------
511,697
Land 158,196
- ---------------------------------------------------------------------------------------
$ 669,893
=======================================================================================
</TABLE>
Depreciation and amortization expense on property, plant and equipment
was $73,564, $13,384 and $130,820 for the periods March 12 to December
31, 1996, January 1 to March 11, 1996 and year ended December 31, 1995,
respectively. See Note 8 regarding the sale and leaseback of the
Company's manufacturing facility in 1992.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
=========================================================
(7) Long-Term Debt
Long-term debt consists of the following as of December 31, 1996:
Long-term debt $144,889
Less current maturities 59,578
- ---------------------------------------------------------
Total $ 85,311
=========================================================
Long-term debt at December 31, 1996 consists of two installment notes
bearing interest at rates of 9.5% and 10% per annum, payable through
December 31, 1998 and June 1, 1999, and secured by certain assets and
intellectual properties of the Company.
The maturities of long-term debt for each of the five years subsequent
to December 31, 1996 are as follows: 1997, $59,578; 1998, $85,311.
(8) Capital Lease Obligations
The Company sold its manufacturing facility for $800,000 on July 1,
1992 in a sale-leaseback transaction. The book value of the land and
buildings exceeded the net sales proceeds and the Company recognized a
loss of $495,706. The lease has an initial term of 10 years with two
five-year renewal options. The Company currently can repurchase the
property for an approximate price of $975,000, increasing annually
thereafter to approximately $1,044,000 in 2002.
Pursuant to the lease, the Company pays monthly rent, property taxes,
insurance, repairs and other executory costs related to the property.
The lease meets the criteria for a capital lease and has been included
in property, plant and equipment in the accompanying balance sheet.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
================================================================================
(8) Continued
At December 31, 1996, the gross amount of property and plant and
related accumulated amortization recorded under capital leases were as
follows:
<TABLE>
<S> <C>
Land $ 158,196
Buildings 620,454
Leasehold improvements 21,350
- -------------------------------------------------------------------------------------
800,000
Less accumulated amortization 276,288
- -------------------------------------------------------------------------------------
Total $ 523,712
=====================================================================================
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense in the accompanying statements of income.
Minimum lease payments for the five years subsequent to 1996 and in the
aggregate are:
<TABLE>
<S> <C>
1997 $ 127,948
1998 131,787
1999 135,740
2000 139,812
2001 144,007
Thereafter 73,068
- -------------------------------------------------------------------------------------
752,362
Less amount representing interest 175,612
- -------------------------------------------------------------------------------------
Present value of net minimum
lease payments 576,750
- -------------------------------------------------------------------------------------
Less current maturities 75,082
- -------------------------------------------------------------------------------------
Amount due after one year $ 501,668
=====================================================================================
</TABLE>
(9) Senior Debt
During the Bankruptcy proceedings and approved by the Court, the
Company incurred Senior Debt in the amount of $500,000 as of December
31, 1995. The debt is at an interest rate of 14%. The interest is
payable monthly in arrears. The principal is due in a balloon payment
in 2000. Additionally, the Company borrowed $500,000 in January 1996
and $500,000 in March 1996 in Senior Debt, interest payable monthly in
arrears and the principal due in balloon payments in 2001. This debt is
secured by liens on all real and personal property of the Company,
including accounts receivable, inventory, equipment and general
intangibles. In conjunction with this last borrowing and the Company's
emergence from bankruptcy, the lender was granted a stock purchase
warrant to purchase at least 250,000 shares in the reorganized company.
This warrant may increase up to 475,000 shares contingent upon when the
senior debt is repaid. This warrant may be exercised over a period of
approximately three years commencing March 31, 1998 at an exercise
price of $.01 per share.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
=============================================================================
(10) Stock Compensation
As of the Effective Date all options, warrants and other agreements
requiring the issuance of equity interests of the Company were
disallowed and cancelled under the Plan. As a result, stock options
of 215,333 were cancelled. Option activity for 1995 and the period
January 1 to March 11, 1996 was insignificant.
In 1996, the Company adopted a stock option plan (the "Plan 1")
pursuant to which the Company grants stock options to non-employee
directors. Plan 1 authorizes grants of options to purchase up to
100,000 shares of authorized but unissued common stock. Stock options
are granted with an exercise price equal to the stock's fair market
value at the date of grant. Terms and vesting schedules of all stock
options are at the discretion of the Company's Board of Directors.
50,000 stock options were granted and vest over a three-year period
under Plan 1 as of December 31, 1996.
In 1996, the Company adopted a stock option plan (the "Plan 2")
pursuant to which the Company's Board of Directors may grant stock
options to management employees. Plan 2 authorizes grants of options to
purchase up to 200,000 shares of authorized but unissued common stock.
Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. Terms and vesting schedules of
all stock options are at the discretion of the Company's Board of
Directors. 97,500 stock options were granted and vest over a three-year
period under Plan 2 as of December 31, 1996.
In 1996, the Company adopted a stock option plan (the "Plan 3")
pursuant to which the Company's Board of Directors may grant stock
options to non-management employees. Plan 3 authorizes grants of
options to purchase up to 15,000 shares of authorized but unissued
common stock. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant. Terms and vesting
schedules of all stock options are at the discretion of the Company's
Board of Directors. 15,000 stock options were granted and vest over a
three-year period under Plan 3 as of December 31, 1996.
At December 31, 1996, there were no shares exercisable and there were
152,500 additional shares available for grant under the plans. The per
share weighted-average fair value of stock options granted during 1996
was $1.98 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1996 - expected
dividend yield 0%, risk-free interest rate of 6.72%, expected
volatility of .76, and an expected life of 10 years.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(10) Continued
The Company applies APB Opinion No. 25 in accounting for its stock
option plans and, accordingly, no compensation cost has been recognized
for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the period
March 12 to
December 31, 1996
- --------------------------------------------------------------------------------------------------
<S> <C>
Net income:
As reported $217,562
Pro forma 198,696
Primary earnings per share:
As reported 0.17
Pro forma 0.16
==================================================================================================
</TABLE>
Pro forma net income reflects only options granted in 1996. Therefore,
the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the
options' vesting period of 3 years and compensation cost for options
granted prior to January 1, 1996 is not considered.
Stock option activity during the period indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
shares exercise price
- ------------------------------------------------------------------------------------------------
<S> <C>
Balance at March 11, 1996 -
Granted 162,500 $1.98
Exercised -
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1996 162,500 $1.98
================================================================================================
</TABLE>
At December 31, 1996, the range of exercise prices was 112,500 shares
at $1.56 and 50,000 shares at $3.50. The contractual life of all
options is 10 years.
At December 31, 1996, there were no options exercisable.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(11) Income Taxes
Income tax expense for the period from March 12 to December 31, 1996
consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
- ------------------------------------------------------------------------------------
<S> <C>
U.S. Federal $ 5,000 131,000 136,000
State and local - 24,000 24,000
- ------------------------------------------------------------------------------------
$ 5,000 155,000 160,000
====================================================================================
</TABLE>
There was no income tax expense for the period from January 1 to March
11, 1996 and the year ended December 31, 1995 due to the Company's
utilization of net operating loss carryforwards.
Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax income as a result of the
following:
<TABLE>
<CAPTION>
Period from Period from
March 12 to January 1 to
December 31, March 11, Year ended
1996 1996 1995
- ------------------------------------------------------------------------------------
<S> <C>
Computed "expected" tax expense $ 128,371 196,236 30,341
Increase (reduction) in income taxes
resulting from:
Change in the beginning-of-the-year balance of
the valuation allowance for deferred tax assets
allocated to income tax expense - (213,757) (42,319)
State and local income taxes, net of federal
income tax benefit 12,402 22,856 3,534
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 16,348 - -
Other, net 2,879 (5,335) 8,444
- ------------------------------------------------------------------------------------
$ 160,000 - -
====================================================================================
</TABLE>
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(11) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 are presented below.
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Accounts receivable principally due to
allowance for doubtful accounts $ 3,796
Inventories 7,592
Reserve for warranty expense 23,307
Compensated absences, principally due to
accrual for financial reporting purposes 15,095
Net operating loss carryforwards 1,302,787
Capital leases obligations, principally due to
operating lease treatment for tax purposes 218,934
- --------------------------------------------------------------------------------------
Total gross deferred tax assets 1,571,511
Less valuation allowance 1,221,031
- --------------------------------------------------------------------------------------
Net deferred tax assets 350,480
- --------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation (195,559)
- --------------------------------------------------------------------------------------
Total gross deferred liabilities (195,559)
- --------------------------------------------------------------------------------------
Net deferred tax assets $ 154,921
======================================================================================
</TABLE>
The net change in the total valuation allowance for the period from
January 1 to March 11, 1996 and March 12 to December 31, 1996 was a
decrease of $467,000 and $60,000, respectively. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. In order to fully realize the
deferred tax asset, the Company will need to generate future taxable
income of approximately $408,000 prior to the expiration of the net
operating loss carryforwards in 2008. Based upon the level of
historical taxable income, projections of future taxable income, and
available tax planning strategies over the periods which the deferred
tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31,
1996. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
===============================================================================
(11) Continued
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1996 would first
serve to reduce the reorganization value in excess of amount allocable
to identifiable assets. Any additional amounts recognized would be
treated as a contribution to additional paid-in capital.
For the period from March 12 to December 31, 1996, the Company reduced
reorganization value in excess of amounts allocable to identifiable
assets by $60,000. This amount represents a corresponding decrease in
the Company's valuation allowance.
At December 31, 1996, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $3,432,000 which are
available to offset future federal taxable income, if any, through
2008. Of this amount, approximately $2,257,000 is subject to an annual
limitation of approximately $205,000 due to a change in ownership of
the Company which occurred in 1992.
(12) Major Customers
Three major customers accounted for approximately 18%, 19% and 30% and
19%, 55% and 0%, respectively of the Company's revenues from continuing
operations for the periods March 12 to December 31, 1996 and January 1
to March 11, 1996. For the year-ended December 31, 1995, one customer
accounted for approximately 25% of revenues.
(13) Commitments and Contingencies
The Company has employment contracts with certain of its executive
officers and other management personnel. Under the terms of such
agreements, severance payments would become payable in the event of
specified terminations. The maximum contingent liability of the Company
pursuant to all such agreements was approximately $427,500 at December
31, 1996.
(14) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term
investment, accounts receivable and contract costs, accounts payable,
accrued liabilities approximate fair value because of the short
maturities of those instruments.
(Continued)
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Notes to Financial Statements
(14) Continued
Based on borrowing rates currently available for long-term debt and
senior debt with similar terms and maturities and its recent issuance,
management believes that the carrying amount of debt approximates fair
value.
EXHIBIT INDEX
Exhibit No. Description
2(a) Second Amended Plan of Reorganization
of Company and Modification to Second
Amended Plan of Reorganization filed
by Company and confirmed by the
United States Bankruptcy Court for
the Eastern District of Virginia,
Richmond Division, on February 28,
1996 (Incorporated by reference to
Exhibits 2(a) and 2(b) on the
Company's Current Report on Form 8-K
filed on February 28, 1996)
2(b) Mutual General Release dated March 12, 1996, by
and among the Company, Lighthouse Investment,
L.L.C., Sirrom Capital Corporation,
Environmental Systems Company, and Thomas A.
Pearson and T. Jackson Lawson, Trustees.
(Incorporated by reference to Exhibit 2(b) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
3(a) Articles of Amendment and Restatement to the
Amended and Restated Articles of Incorporation
of the Company.
3(b) Amended and Restated Bylaws of the Company.
4(a) Instruments defining rights of security holders
(See Exhibits 3 (a) and 3 (b))
4(b) Specimen certificate for the Company's common
stock, par value $1.00 per share.
4(c) Promissory Note dated March 12, 1996, in the
original principal amount of $192,306.29
payable to Lighthouse Investments, L.L.C.
(Incorporated by reference to Exhibit 4(c) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
4(d) Loan Agreement with Sirrom Capital Corporation
dated October 11, 1995. (Incorporated by
reference to Exhibit 4(e) to the Company's
Annual Report on Form 10-KSB filed on March 29,
1996)
4(e) Amendment to Loan Agreement with Sirrom Capital
Corporation dated October 26, 1995.
(Incorporated by reference to Exhibit 4(f) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
4(f) Amended and Restated Secured
Promissory Note dated October 26,
1995, in the original principal
amount of $500,000 payable to Sirrom
Capital Corporation. (Incorporated by
reference to Exhibit 4(g) to the
Company's Annual Report on Form
10-KSB filed on March 29, 1996)
4(g) Loan Agreement with Sirrom Capital Corporation
dated January 16, 1996. (Incorporated by
reference to Exhibit 4(h) to the Company's
Annual Report on Form 10-KSB filed on March 29,
1996)
4(h) Secured Promissory Note dated January 16, 1996,
in the original principal amount of $500,000
payable to Sirrom Capital Corporation.
(Incorporated by reference to Exhibit 4(i) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
4(i) Loan Agreement with Sirrom Capital Corporation
dated March 12, 1996. (Incorporated by
reference to Exhibit 4(j) to the Company's
Annual Report on Form 10-KSB filed on March 29,
1996)
4(j) Secured Promissory Note dated March 12, 1996,
in the original principal amount of $500,000
payable to Sirrom Capital Corporation.
(Incorporated by reference to Exhibit 4(k) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
4(k) Stock Purchase Warrant dated March 12, 1996,
granted to Sirrom Capital Corporation.
(Incorporated by reference to Exhibit 4(l) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
10(a) Promissory Note dated December 11, 1985, in the
amount of $75,000 from Robert L. Massey to the
Company (Incorporated by reference to Exhibit
10 (e) to the Company's Annual Report on Form
10-K filed on March 31, 1986)
10(b) Employment Contract with Robert S. Lee dated
February 12, 1991. (Incorporated by reference
to Exhibit 10 (g) to the Company's Annual
Report filed on March 31, 1993)
10(c) Purchase and Lease Agreements
relating to the sale and leaseback of
the Company's headquarters and
manufacturing facility in
Mechanicsville, Virginia
(Incorporated by reference to Exhibit
6(a)(2) of the Company's Quarterly
Report on Form 10-Q filed August 7,
1992)
10(d) Employment Contract dated February 12, 1991,
between the Company and Robert L. Massey.
(Incorporated by reference to Exhibit 10(d) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
10(e) Employment Contract dated June 14, 1995,
between the Company and Mark E. Hills.
(Incorporated by reference to Exhibit 10(e) to
the Company's Annual Report on Form 10-KSB
filed on March 29, 1996)
10(f) Reorganized Consumat Systems, Inc. 1996
Non-Employee Directors Stock
Option Plan dated April 19, 1996
10(g) Consumat Environmental Systems, Inc. 1996 Stock
Option Plan, as amended and restated as of
December 13, 1996
10(h) Consumat Environmental Systems, Inc. 1996 Stock
Option Plan For Nonmanagement Employees dated
December 13, 1996
10(i) Consumat Environmental Systems, Inc. Peter T.
Socha Stock Option Plan dated January 14, 1997
Exhibit 3(a)
ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
REORGANIZED CONSUMAT SYSTEMS, INC.
1. The name of the Corporation is Reorganized Consumat Systems,
Inc.
2. The articles of incorporation of the Corporation are amended
and restated to read as Exhibit A attached hereto.
3. The Board of Directors at a meeting on October 18, 1996, found that
the amendments to the articles of incorporation that are reflected in the
Amended and Restated Articles of Incorporation attached hereto as Exhibit A to
be in the best interest of the Corporation and directed that such amendments be
submitted to a vote of the shareholders of the Corporation at a special meeting
of the shareholders.
4. Notice of a special meeting of shareholders of the Corporation,
together with a copy of the proposed amendments, was given in the manner
prescribed by the Virginia Stock Corporation Act (Va. Code ss. 13.1-601 et seq.)
to all shareholders of record entitled to such notice. On the record date,
October 31, 1996, the total number of shares of Common Stock outstanding (the
only class of shares outstanding) and entitled to vote on the proposed
amendments was 1,010,000. On December 12, 1996, the special meeting was held and
the proposed amendments were adopted. The shareholders voted as follows:
<PAGE>
(a) Proposal to change the name of the Corporation:
Votes For Votes Against Votes Not Cast
863,093 12 146,895
(b) Proposal to increase authorized capital stock:
Votes For Votes Against Votes Not Cast
870,322 45,611 94,067
(c) Proposal to remove prohibition of issuance of
nonvoting equity securities, to remove the provision
giving voting rights to Preferred Stock, and to add a
provision confirming that the holders of Common Stock
are entitled to one vote per share on all matters as
to which a shareholder vote is taken:
Votes For Votes Against Votes Not Cast
778,062 47,381 184,557
(d) Proposal to add a new provision decreasing the
shareholder vote required to approve certain
significant corporate actions to a majority of the
shares entitled to be cast, provided that two-thirds
of the members of the Board of Directors then in
office have approved and recommended the corporate
action:
Votes For Votes Against Votes Not Cast
746,048 63,243 200,709
IN WITNESS WHEREOF, Reorganized Consumat Systems, Inc., has caused this
instrument to be executed in its name and on its behalf by its President, who
warrants and represents that the foregoing statements are true and correct, this
12th day of December, 1996.
REORGANIZED CONSUMAT SYSTEMS, INC.
By: /S/ ROBERT L. MASSEY
---------------------------
Robert L. Massey, President
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
ARTICLE I
NAME
The name of the Corporation is CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful business not
required by the Virginia Stock Corporation Act (the "Act," which term shall be
deemed to include the Act or any successor statute or section thereof, as now
written or hereafter amended) to be stated in the articles of incorporation.
ARTICLE III
CAPITAL STOCK
A. Authorized Shares. The number and designation of shares that
the Corporation shall have authority to issue and the par value per share are as
follows:
Class No. of Shares Par Value
----- ------------- ---------
Common 25,000,000 $1.00
Preferred 5,000,000 $1.00
B. Preemptive Rights. No holder of outstanding shares of any
class of stock shall have any preemptive right with respect to (1) any shares of
any class of stock of the Corporation whether now or hereafter authorized, (2)
any warrants, rights or options to purchase any such stock, or (3) any
obligations convertible into any such stock or into warrants, rights or options
to purchase such stock.
C. Preferred Stock.
(1) Except as otherwise provided herein, the Board of
Directors is authorized, without any further stockholder action, to issue the
Preferred Stock from time to time in one or more series and to provide for the
relative rights and preferences of each series by the adoption of a resolution
or resolutions fixing:
(a) the maximum number of shares in a series and the
designation of the series, which designation shall distinguish the
shares thereof from the shares of any other series or class;
(b) the rate of dividends, the time of payment,
whether dividends shall be cumulative, and, if so, the dates from which
they shall be cumulative, and the extent of participation rights, if
any;
(c) any right to vote with holders of shares of any
other series or class and any right to vote as a class, either
generally or as a condition to specified corporate action;
(d) the price at and the terms and conditions on
which such shares may be redeemed;
(e) the amount payable upon shares in the event of
involuntary liquidation;
(f) the amount payable upon shares in the event of
voluntary liquidation;
(g) sinking fund provisions for the redemption or
purchase of shares;
(h) the terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion; and
(i) any other designations, rights, preferences or
limitations that are now or hereafter permitted by the laws of the
Commonwealth of Virginia and are not inconsistent with the provisions
of this Paragraph C(1).
(2) Before the issuance of any shares of a series of the
Preferred Stock, the amendment to these Amended and Restated Articles of
Incorporation creating the series shall be set forth in articles of amendment
which may be adopted by the Board of Directors without stockholder action and
filed with, and made effective by, the State Corporation Commission of Virginia,
as required by law.
(3) All shares of the Preferred Stock, regardless of series,
shall be identical with each other in all respects except as otherwise provided
in the description of the series.
<PAGE>
D. Common Stock. (1) Subject to the provisions contained
in the articles of amendment for any series of the Preferred Stock, the holders
of outstanding shares of the Common Stock shall be entitled to receive dividends
if, when and as declared by the Board of Directors out of funds legally
available therefor.
(2) The holders of outstanding shares of the Common Stock
shall, to the exclusion of the holders of any other class of stock of the
Corporation, have the sole and full power to vote for the election of directors
and for all other purposes without limitation, except (i) as otherwise provided
with respect to the articles of amendment applicable to any series of the
Preferred Stock, or (ii) as may be required by law. The holders of outstanding
shares of Common Stock shall be entitled to one vote on each matter to be voted
upon by the stockholders for each share of the Common Stock which they hold.
ARTICLE IV
DIRECTORS
The number of directors shall be fixed by the bylaws and, in the
absence of any bylaw fixing the number, the number shall be three.
ARTICLE V
INDEMNIFICATION
A. Definitions. For purposes of this Article, the following
definitions shall apply: "Corporation" means this Corporation
only and no predecessor entity or other legal entity.
"Expenses" include counsel fees, expert witness fees, and
costs of investigation, litigation and appeal, as well as any amounts extended
in asserting a claim for indemnification.
"Legal Entity" means a corporation, partnership, joint
venturer, trust, employee benefit plan or other enterprise. A person is
considered to be serving an employee benefit plan at the Corporation's request
if his duties to the Corporation also impose duties on, or otherwise involve
services by him, to the plan or to participants in or beneficiaries of the plan.
"Liability" means the obligation to pay a judgment,
settlement, penalty, fine, or other such obligation, including, without
limitation, any excise tax assessed with respect to an employee benefit plan.
"Predecessor Entity" means a legal entity the existence of
which ceased upon its acquisition by the Corporation in a merger or otherwise.
"Proceedings" means any threatened, pending, or completed
action, suit, proceeding or appeal, whether civil, criminal, administrative or
investigative and whether formal or informal.
B. Indemnification of Directors and Officers. The Corporation shall
indemnify, and may contract in advance to indemnify, an individual who is, was
or is threatened to be made a party to a Proceeding (regardless of whether the
Proceeding is by or in the right of the Corporation) because he is or was a
director or officer of the Corporation or while a director or officer of the
Corporation served any other Legal Entity in any capacity at the request of the
Corporation against all Liabilities and reasonable Expenses incurred in the
Proceeding except such Liabilities and Expenses as are incurred through June 30,
1987 because of his gross negligence or willful misconduct, and, from and after
July 1, 1987 because of his willful misconduct or knowing violation of criminal
law. The determination that indemnification under this Paragraph B is
permissible and the evaluation as to the reasonableness of Expenses in a
specific case shall be made, in the case of a director, as provided by law, and
in the case of an officer, as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before or
after a claim for indemnification is made, or as otherwise provided by law.
Unless a determination has been made that indemnification is not permissible,
the Corporation shall, at the request of the director or officer, make advances
and reimbursements for Expenses incurred by a director or officer in a
Proceeding upon receipt of an undertaking from him to repay the same if it is
ultimately determined that he is not entitled to indemnification. Such
undertaking shall be an unlimited, unsecured general obligation of the director
or officer and shall be accepted without reference to his ability to make
repayment. The termination of a Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that a director or officer acted in such a manner
as to make him ineligible for indemnification.
C. Indemnification of Others. If not required to do so under Paragraph
B of this Article, the Corporation may, to a lesser extent or to the same extent
that the Corporation is required to provide indemnification and made advances
and reimbursements for Expenses to its directors and officers, provide
indemnification and make advances and reimbursements for Expenses to its
employees and agents, the directors, officers, employees and agents of its
subsidiaries and Predecessor Entities, and any person serving any other Legal
Entity in any capacity at the request of the Corporation, or, if authorized by
general or specific action of the Board of Directors, may contract in advance to
do so. The determination that indemnification under this Paragraph C is
permissible, the authorization of such indemnification and the evaluation as to
the reasonableness of Expenses in a specific case shall be made as authorized
from time to time by general or specific action of the Board of Directors, which
action may be taken before or after a claim for indemnification is made, or as
otherwise provided by law.
D. Miscellaneous. Every reference in this Article to persons who are or
may be entitled to indemnification shall include all persons who formerly
occupied any of the positions referred to and their respective heirs, executors
and administrators. Indemnification pursuant to this Article shall not be
exclusive of any other right of indemnification to which any person may be
entitled, including indemnification pursuant to a valid contract,
indemnification by Legal Entities other than the Corporation and indemnification
under policies of insurance purchased and maintained by the Corporation or
others. However, no person shall be entitled to indemnification by the
Corporation to the extent he is indemnified by another, including an insurer.
The provisions of this Article shall not be deemed to prohibit the Corporation
from entering into contracts otherwise permitted by law with any individuals or
Legal Entities, including those named above, for the purpose of conducting the
business of the Corporation.
ARTICLE VI
LIMIT ON LIABILITY
In every instance in which the Act, as it exists on the date hereof or
may hereafter be amended, permits the limitation or elimination of liability of
directors or officers of a corporation to the corporation or its shareholders,
the directors and officers of the Corporation shall not be liable to the
Corporation or its shareholders.
ARTICLE VII
SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
Any amendment of the Corporation's Articles of Incorporation, a plan of
merger or exchange, a transaction involving the sale of all or substantially all
the Corporation's assets other than in the regular course of business and a plan
of dissolution shall be approved by the vote of a majority of all the votes
entitled to be cast on such transactions by each voting group entitled to vote
on the transaction at a meeting at which a quorum of the voting group is
present, provided that the transaction has been approved and recommended by at
least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of eighty percent (80%) or more of all
votes entitled to be cast on such transactions by each voting group, entitled to
vote on the transaction.
Exhibit 3(b)
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
AMENDED AND RESTATED
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, and at
such time, as may be provided in the notice of the meeting and approved by the
Chairman of the Board of Directors (the "Chairman"), the President or the Board
of Directors.
1.2 Organization and Order of Business. The Chairman or, in his
absence, the President shall serve as chairman at all meetings of the
shareholders. In the absence of both of the foregoing officers or if both of
them decline to serve, a majority of the shares entitled to vote at a meeting,
may appoint any person entitled to vote at the meeting to act as chairman. The
secretary of the Corporation or, in his absence, an assistant secretary, shall
act as secretary at all meetings of the shareholders. In the event that neither
the secretary nor any assistant secretary is present, the chairman of the
meeting may appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he may deem
necessary or desirable for the proper conduct of each meeting of the
shareholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing of business not properly
presented, (ii) maintaining of order and safety, (iii) placing limitations on
the time allotted to questions or comments on the affairs of the Corporation,
(iv) placing restrictions on attendance at a meeting by persons or classes of
persons who are not shareholders or their proxies, (v) restricting entry to a
meeting after the time prescribed for the commencement thereof and (vi)
commencing, conducting and closing voting on any matters.
1.3 Annual Meeting. The annual meeting of shareholders shall be
held each year on a date to be fixed by the Directors.
At each annual meeting of shareholders, only such business shall be
conducted as is proper to consider and has been brought before the meeting (i)
pursuant to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors or (iii) by a shareholder who is a shareholder of
record of a class of shares entitled to vote on the business such shareholder is
proposing, both at the time of the giving of the shareholder's notice
hereinafter described in this Section 1.3 and on the record date for such annual
meeting, and who complies with the notice procedures set forth in this Section
1.3.
In order to bring before an annual meeting of shareholders any business
which may properly be considered and which a shareholder has not sought to have
included in the Corporation's proxy statement for the meeting, a shareholder who
meets the requirements set forth in the preceding paragraph must give the
Corporation timely written notice. To be timely, a shareholder's notice must be
given, either by personal delivery to the Secretary or an Assistant Secretary of
the Corporation at the principal office of the Corporation, or by first class
United States mail, with postage thereon prepaid, addressed to the Secretary of
the Corporation at the principal office of the Corporation. Any such notice must
be received not less than 60 days before the date of the meeting.
Each such shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
shareholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such shareholder, (iii) a representation
that such shareholder is a shareholder of record at the time of the giving of
the notice and intends to appear in person or by proxy at the meeting to present
the business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business, and (v) any interest which the shareholder may have in such business.
The Secretary or Assistant Secretary of the Corporation shall deliver
each shareholder's notice that has been timely received to the Chairman for
review.
Notwithstanding the foregoing provisions of this Section 1.3, a
shareholder seeking to have a proposal included in the Corporation's proxy
statement for an annual meeting of shareholders shall comply with the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended from time to time, or with any successor regulation.
1.4 Special Meetings. Special meetings of the shareholders may be
called only by the Chairman, the President or the Board of Directors. Only
business within the purpose or purposes described in the notice for a special
meeting of shareholders may be conducted at the meeting.
1.5 Record Dates. The Board of Directors shall fix, in advance, a
record date to make a determination of shareholders entitled to notice of, or to
vote at, any meeting of shareholders, to receive any dividend or for any
purpose, such date to be not more than 70 days before the meeting or action
requiring a determination of shareholders. If no such record date is set the
record date shall be the close of business on the day before the date on which
the first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
1.6 Notice of Meetings. Written notice stating the place, day and hour
of each meeting of shareholders and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than 60 days before the date of the meeting (except when a
different time is required in these Bylaws or by law) either personally or by
mail, telephone, telegraph, teletype, telecopy or other form of wire or wireless
communication, or by private courier, to each shareholder of record entitled to
vote at such meeting and to such nonvoting shareholders as may be required by
law. If mailed, such notice shall be deemed to be effective when deposited in
first class United States mail with postage thereon prepaid, addressed to the
shareholder at his address as it appears on the share transfer books of the
Corporation. If given in any other manner, such notice shall be deemed effective
when (i) given personally or by telephone, (ii) sent by telegraph, teletype,
telecopy or other form of wire or wireless communication or (iii) given to a
private courier to be delivered.
Notice of a shareholder's meeting to act on (i) an amendment of the
Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business, or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of merger or share exchange, or (z) a summary of the agreement
pursuant to which the proposed transaction will be effected. If only a summary
of the agreement is sent to the shareholders, the Corporation shall also send a
copy of the agreement to any shareholder who requests it.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date, unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of shareholders
need be given to a shareholder if (i) an annual report and proxy statements for
two consecutive annual meetings of shareholders or (ii) all, and at least two,
checks in payment of dividends or interest on securities during a 12-month
period, have been sent by first-class United States mail, with postage thereon
prepaid, addressed to the shareholder at his address as it appears on the share
transfer books of the Corporation, and returned undeliverable. The obligation of
the Corporation to give notice of meetings of shareholders to any such
shareholder shall be reinstated once the Corporation has received a new address
for such shareholder for entry on its share transfer books.
1.7 Waiver of Notice; Attendance at Meeting. A shareholder may waive
any notice required by law, the Articles of Incorporation or these Bylaws before
or after the date and time of the meeting that is the subject of such notice.
The waiver shall be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the Secretary of the Corporation for inclusion in
the minutes or filing with the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
1.8 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a greater number of
affirmative votes is required by law. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. Less than a quorum may adjourn a meeting.
1.9 Proxies. A shareholder may vote his shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form, either personally or by his attorney-in-fact. An appointment
of a proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes and is valid for eleven (11) months unless a longer
period is expressly provided in the appointment form. An appointment of a proxy
is revocable by the shareholder unless the appointment form conspicuously states
that it is irrevocable and the appointment is coupled with an interest.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment. An irrevocable appointment is revoked when the interest
with which it is coupled is extinguished. A transferee for value of shares
subject to an irrevocable appointment may revoke the appointment if he did not
know of its existence when he acquired the shares and the existence of the
irrevocable appointment was not noted conspicuously on the certificate
representing the shares. Subject to any legal limitations on the right of the
Corporation to accept the vote or other action of a proxy and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, the Corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment. Any fiduciary who is entitled to
vote any shares may vote such shares by proxy.
1.10 Voting List. The officer or agent having charge of the share
transfer books of the Corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number of
shares held by each. For a period of ten days prior to the meeting such list
shall be kept on file at the registered office of the Corporation or at its
principal office or at the office of its transfer agent or registrar and shall
be subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purpose thereof. The original share transfer
books shall be prima facia evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of the
shareholders. The right of a shareholder to inspect such list prior to the
meeting shall be subject to the conditions and limitations set forth by law. If
the requirements of this section have not been substantially complied with, the
meeting shall, on the demand of any shareholder in person or by proxy, be
adjourned until such requirements are met. Refusal or failure to prepare or make
available the shareholders' list does not affect the validity of action taken at
the meeting prior to the making of any such demand, but any action taken by the
shareholders after the making of any such demand shall be invalid and of no
effect.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors.
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number and Term. The number of directors of the Corporation
shall be not less than three nor more than nine. The number of directors may be
changed from time to time, within the minimum and maximum, by the shareholders
or by the Board of Directors. Only the shareholders may change the range for the
size of the Board of Directors or change from a variable range to a fixed size
board or vice versa. No decrease in number shall have the effect of shortening
the term of any incumbent director. Each director shall hold office until his
death, resignation or removal or until his successor is elected.
2.3 Nomination of Directors. No person shall be eligible for
election as a director at a meeting of shareholders unless nominated (i) by the
Board of Directors or (ii) by a shareholder who is a shareholder of record of a
class of shares entitled to vote for the election of directors, both at the time
of the giving of the shareholder's notice hereinafter described in this Section
2.3 and on the record date for the meeting at which directors will be elected,
and who complies with the notice procedures set forth in this Section 2.3.
In order to nominate for election as directors at a meeting of
shareholders any persons who are not listed as nominees in the Corporation's
proxy statement for the meeting, a shareholder who meets the requirements set
forth in the preceding paragraph must give the Corporation timely written
notice. To be timely, a shareholder's notice must be given, either by personal
delivery to the Secretary or an Assistant Secretary of the Corporation at the
principal office of the Corporation, or by first class United States mail, with
postage thereon prepaid, addressed to the Secretary of the Corporation at the
principal office of the Corporation. Any such notice must be received (i) not
less than 60 days before an annual meeting, or (ii) not later than the close of
business on the tenth day following the day on which notice of a special meeting
of shareholders called for the purpose of electing directors is first given to
shareholders.
Each such shareholder's notice shall set forth the following: (i) as to
the shareholder giving the notice, (a) the name and address of such shareholder
as they appear on the Corporation's stock transfer books, (b) the class and
number of shares of the Corporation beneficially owned by such shareholder, (c)
a representation that such shareholder is a shareholder of record at the time of
giving the notice and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, and (d) a description of
all arrangements or understandings, if any, between such shareholder and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made; and (ii) as to each
person whom the shareholder wishes to nominate for election as a director, (a)
the name, age, business address and residence address of such person, (b) the
principal occupation or employment of such person, (c) the class and number of
shares of the Corporation which are beneficially owned by such person, and (d)
all other information that is required to be disclosed about nominees for
election as directors in solicitations of proxies for the election of directors
under the rules and regulations of the Securities and Exchange Commission. In
addition, each such notice shall be accompanied by the written consent of each
proposed nominee to serve as a director if elected and such consent shall
contain a statement from the proposed nominee to the effect that the information
about him contained in the notice is correct.
2.4 Election. Except as provided in Section 2.5 the directors (other
than initial directors) shall be elected by the holders of the Common shares at
each annual meeting of shareholders and those persons who receive the greatest
number of votes shall be deemed elected even though they do not receive a
majority of the votes cast. No individual shall be named or elected as a
director without his prior consent.
2.5 Removal; Vacancies. The shareholders may remove one or more
directors with or without cause. If a director is elected by a voting group,
only the shareholders of that voting group may elect to remove him. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove him constitutes a majority of the votes
entitled to be cast at an election of directors of the voting group or voting
groups by which such director was elected. A director may be removed by the
stockholders only at a meeting called for the purpose of removing him and the
meeting notice must state that the purpose, or one of the purposes of the
meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from
the removal of a director or an increase in the number of directors, may be
filled by (i) the shareholders, (ii) the Board of Directors or (iii) the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and may, in the case of a resignation that
will become effective at a specified later date, be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
2.6 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.7 Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman, the President or a majority of the Directors of the
Corporation, and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 Notice of Meetings. No notice need be given of regular meetings
of the Board of Directors. Notices of special meetings of the Board of Directors
shall be given to each director in person or delivered to his residence or
business address (or such other place as he may have directed in writing) not
less than twenty-four (24) hours before the meeting by mail, messenger,
telecopy, telegraph, or other means of written communication or by telephoning
such notice to him. Any such notice shall set forth the time and place of the
meeting and state the purpose for which it is called.
2.9 Waiver of Notice; Attendance at Meeting. A director may waive
any notice required by law, the Articles of Incorporation, or these Bylaws
before or after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.10 Quorum; Voting. A majority of the number of directors fixed in
these Bylaws shall constitute a quorum for the transaction of business at a
meeting of the Board of Directors. If a quorum is present when a vote is taken,
the affirmative vote of a majority of the directors present is the act of the
Board of Directors. A director who is present at a meeting of the Board of
Directors or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless (i) he objects at
the beginning of the meeting, or promptly upon his arrival, to holding it or
transacting specified business at the meeting; or (ii) he votes against, or
abstains from, the action taken.
2.11 Telephonic Meetings. The Board of Directors may permit any or
all directors to participate in a regular or special meeting by, or conduct the
meting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 Action Without Meeting. Action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board. The action shall be evidenced
by one or more written consents stating the action taken, signed by each
director either before or after the action taken, and included in the minutes or
filed with the corporate records reflecting the action taken. Action taken under
this section shall be effective when the last director signs the consent unless
the consent specifies a different effective date in which event the action taken
is effective as of the date specified therein provided the consent states the
date of execution by each director.
2.13 Compensation. The Board of Directors may fix the compensation
of directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees. The Board of Directors may create one or more
committees and appoint members of the Board of Directors to serve on them.
Unless otherwise provided in these Bylaws, each committee shall have two or more
members who serve at the pleasure of the Board of Directors. The creation of a
committee and appointment of members to it shall be approved by the number of
directors required to take action under Section 2.10 of these Bylaws.
3.2 Authority of Committees. To the extent specified by the Board of
Directors, each committee may exercise the authority of the Board of Directors,
except that a committee may not (i) approve or recommend to shareholders action
that is required by law to be approved by shareholders; (ii) fill vacancies on
the Board of Directors or on any of its committees; (iii) amend the Articles of
Incorporation; (iv) adopt, amend, or repeal these Bylaws; (v) approve a plan of
merger not requiring shareholder approval; (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors; or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee, or a senior executive officer of
the Corporation, to do so within limits specifically prescribed by the Board of
Directors.
3.3 Committee Meetings; Miscellaneous. The provisions of these Bylaws
which govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall be in a Chairman
of the Board of Directors, a President, one of whom shall be designated as Chief
Executive Officer, a Secretary, a Treasurer, and a Chief Financial Officer, and,
in the discretion of the Board of Directors one or more Vice-Presidents and such
other officers as may be deemed necessary or advisable to carry on the business
of the Corporation. Any two or more offices may be held by the same person.
4.2 Election; Term. Officers shall be elected at the annual meeting of
the Board of Directors and may be elected at such other time or times as the
Board of Directors shall determine. Officers shall hold office, unless sooner
removed, until the next annual meeting of the Board of Directors or until their
successors are elected. Any officer may resign at any time upon written notice
to the Board of Directors, and such resignation shall be effective when notice
is delivered unless the notice specifies a later effective date.
4.3 Removal of Officers. The Board of Directors may remove any
officer at any time, with or without cause.
4.4 Duties of the Officers. The Chairman and the other Officers shall
have such powers and duties as generally pertain to their respective offices as
well as such powers and duties as may be delegated to them from time to time by
the Board of Directors.
4.5 Voting Securities of Other Corporations. Any one of the Chairman,
the President or the Treasurer shall have the power to act for and vote on
behalf of the Corporation at all meetings of the shareholders of any corporation
in which this Corporation holds stock, or in connection with any consent of
shareholders in lieu of any such meeting.
4.6 Bonds. The Board of Directors may require that any or all
officers, employees and agents of the Corporation give bond to the Corporation,
with sufficient sureties, conditioned upon the faithful performance of the
duties of their respective offices or positions.
ARTICLE V
SHARE CERTIFICATES
5.1 Form. Shares of the Corporation shall, when fully paid, be
evidenced by certificates containing such information as is required by law and
approved by the Board of Directors. Certificates shall be signed by the
President and the Secretary and may (but need not) be sealed with the seal of
the Corporation. The seal of the Corporation and any or all of the signatures on
a share certificate may be facsimile. If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar on the date
of issue.
5.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of he Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
5.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
5.4 Lost or Destroyed Share Certificates. The Corporation may issue a
new share certificate in the place of any certificate theretofore issued which
is alleged to have been lost or destroyed and may require the owner of such
certificate, or his legal representative, to give the Corporation a bond, with
or without surety, or such other agreement, undertaking or security as the Board
of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Corporate Seal. The corporate seal of the Corporation shall be
circular and shall have inscribed thereon, within and around the circumference
"CONSUMAT ENVIRONMENTAL SYSTEMS, INC." In the center shall be the word "SEAL".
6.2 Fiscal Year. The fiscal year of the Corporation shall be
determined in the discretion of the Board of Directors, but in the absence of
any such determination it shall be the calendar year.
6.3 Amendments. These Bylaws may be amended or repealed, and new
Bylaws may be made, at any regular or special meeting of the Board of Directors.
Bylaws made by the Board of Directors may be repealed or changed and new Bylaws
may be made by the shareholders, and the shareholders may prescribe that any
Bylaw made by them shall not be altered, amended or repealed by the Board of
Directors.
Exhibit 4(b)
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
NUMBER NUMBER
[ ] [ ]
COMMON STOCK CUSIP 210476 10 7
$1.00 PAR VALUE SEE REVERSE FOR CERTAIN DEFINITIONS
- -------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$1.00 PAR VALUE PER SHARE,OF
CONSUMAT ENVIRONMENTAL SYSTEMS, INC., transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be subject to all of the
provisions of the Declaration of Trust and By-Laws of the Corporation, each as
from time to time amended,(copies of which are on file with the Transfer Agent),
to all of which the holder by acceptance hereof assents.
This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
[SEAL]
/s/ Patricia B. Bradley /s/ Robert L. Massey
----------------------- ---------------------
Patricia B. Bradley Robert L. Massey
Secretary President
COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
By
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM-as tenants in common UNIF GIFT MIN ACT----------- Custodian ------------------
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
surviorship and not as tenants
in common Act----------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
-------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
- --------------------------------------------------------------------------Shares
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said shares on the books of the within named
- -------------------------------------------------------------------------------
with full power of substitution in the premises.
Dated
--------------- ---------------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement or any change whatever.
SIGNATURE(S) GURANTEED:
--------------------------------------------------
THE SIGNATURE(S) SHOULD BE GURANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM),PURSUANT TO S.E.C.
RULE 17Ad-15.
Exhibit 10(f)
REORGANIZED CONSUMAT SYSTEMS, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose
The purpose of this Reorganized Consumat Systems, Inc. 1996 Non-Employee
Directors Stock Option Plan (the "Plan") is to encourage ownership in the
Company by non-employee members of the Board in order to promote long-term
stockholder value and to provide non-employee members of the Board with an
incentive to continue as directors of the Company.
2. Definitions
As used in the Plan, the following terms have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Reorganized Consumat Systems, Inc., a
Virginia corporation.
(c) "Company Stock" means the Common Stock, $1.00 par value,
of the Company. If the par value of the Company Stock is changed, or in
the event of a change in the capital structure of the Company (as
provided in Section 12), the shares resulting from such change shall be
deemed to be Company Stock within the meaning of the Plan.
(d) "Date of Grant" means the date on which an Option is
automatically awarded pursuant to Section 7.
(e) "Effective Date" means April 12, 1996.
(f) "Eligible Director" means a director described in
Section 4 who has not been awarded an Option under the Plan.
(g) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(h) "Fair Market Value" means, on any given date, the value of
a share of Company Stock based upon the average of the highest and
lowest reported sales prices per share of the Company Stock on such day
on the NASDAQ Bulletin Board (or, if there have been no transactions,
the average of the bid and asked prices).
(i) "Insider" means a person subject to Section 16(b) of
the Exchange Act.
(j) "Option" means a right to purchase Company Stock
pursuant to the provisions of Section 7.
(k) "Subsidiary" means, with respect to any corporation, a
corporation more than 50% of whose voting shares are owned directly or
indirectly by the Company.
3. Administration
The Plan shall be administered by the Board. Options shall be granted
as described in Section 7. However, the Board shall have all powers vested in it
by the terms of the Plan, including, without limitation, the authority (within
the limitations described herein) to prescribe the form of the agreement
embodying the grant of Options under the Plan, to construe the Plan, to
determine all questions arising under the Plan, and to adopt and amend rules and
regulations for the administration of the Plan as it may deem desirable. Any
decision of the Board in the administration of the Plan, as described herein,
shall be binding and conclusive. The Board may act only by a majority of its
members in office, except that members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Board. No member of the Board shall be liable for anything done or
omitted to be done by him or any other member of the Board in connection with
the Plan, except for his own willful misconduct or as expressly provided by
statute.
4. Participation in the Plan
Each director of the Company who (a) does not own or control, directly
or indirectly, more than 5% of the outstanding shares of Company Stock, and (b)
is not otherwise an employee of the Company or any Subsidiary and was not an
employee of the Company or any Subsidiary for a period of at least one year
before the Date of Grant shall be eligible to participate in the Plan.
5. Stock Subject to the Plan
The maximum number of shares of Company Stock that may be issued upon
exercise of Options granted pursuant to the Plan shall be 100,000, subject to
adjustment as provided in Section 12. Shares allocable to Options or portions
thereof that expire or terminate unexercised may again be subject to an Option.
6. Non-Statutory Stock Options
All options granted under the Plan shall be non-statutory in nature and
shall not be entitled to special tax treatment under Internal Revenue Code
section 422.
7. Award, Terms, Conditions and Form of Options
Each Option shall be evidenced by a written agreement in such form as
the Board shall from time to time approve, which agreement shall comply with and
be subject to the following terms and conditions:
(a) Automatic Award of Option. Each Eligible Director on the
Effective Date shall automatically receive an Option to purchase 25,000
shares of Company Stock as of the Effective Date. After the Effective
Date, each director newly elected for the first time who is an Eligible
Director on the date of his election shall automatically receive an
Option to purchase 25,000 shares of Company Stock as of the date of
such election. If at any time there are not sufficient shares available
to fully permit the automatic Option grants described in this
paragraph, the Option grants shall be reduced pro rata (to zero if
necessary) so as not to exceed the number of shares available.
(b) Option Exercise Price. The Option exercise price shall
be the Fair Market Value of the shares of Company Stock subject to such
Option on the Date of Grant.
(c) Options Not Transferable. An Option shall not be
transferable by the optionee otherwise than by will, or by the laws of
descent and distribution, and shall be exercisable during the lifetime
of the optionee only by him. An Option transferred by will or by the
laws of descent and distribution may be exercised by the optionee's
estate, or the person to whom the rights under the Option shall have
passed by will or the laws of descent and distribution, within one year
of the date of the optionee's death (but not after the date described
in paragraph (d)(iii) below) to the extent the optionee could have
exercised the Option on the date of his death. No Option or interest
therein may be transferred, assigned, pledged or hypothecated by the
optionee during his lifetime, whether by operation of law or otherwise,
or be made subject to execution, attachment or similar process.
(d) Exercise of Options. The Option shall become exercisable
in full on the later of (i) six months from the Date of Grant, and (ii)
six months from the date of approval of the Plan by stockholders of the
Company; provided, however, that no Option may be exercised:
(i) before the Plan is approved by stockholders of
the Company;
(ii) unless at such time the optionee is a director,
except that he may exercise the Option within twelve months of
the date he ceases to be a director of the Company to the
extent the Option was exercisable on the date he ceases to be
a director;
(iii) after the expiration of ten (10) years from the
Date of Grant; and
(iv) except by written notice to the Company at its
principal office, stating the number of shares the optionee
has elected to purchase, accompanied by payment in cash and/or
by delivery to the Company of shares of Company Stock (valued
at Fair Market Value on the date of exercise) in the amount of
the full Option exercise price for the shares of Company Stock
being acquired thereunder.
8. Withholding
If the Company is required by law to withhold federal or state income
taxes when an Option is exercised, the Company shall have the right to retain or
sell without notice shares of Company Stock having a Fair Market Value
sufficient on such date or dates as may be determined by the Board (but not more
than five business days prior to the date on which such shares would otherwise
have been delivered) to cover the amount of any federal or state income tax
required to be withheld or otherwise deducted and paid with respect to the
exercise of the Option, remitting any balance to the optionee; provided,
however, that the optionee shall have the right to make other arrangements
satisfactory to the Company or to provide the Company with the funds to enable
it to pay such tax. Notwithstanding the foregoing, the Company shall not sell
shares of Company Stock if the optionee is an Insider and such sale would cause
the optionee to incur a liability under Section 16(b) of the Exchange Act.
9. Modification, Extension and Renewal of Options
The Board shall have the power to modify, extend or renew outstanding
Options and to authorize the grant of new Options in substitution therefor,
provided that any such action may not enhance the rights of the director without
stockholder approval or have the effect of altering, enhancing or impairing any
rights or obligations of any person under any Option previously granted without
the consent of the optionee.
10. Termination
The Plan shall terminate upon the earlier of:
(a) the adoption of a resolution of the Board terminating the
Plan; or
(b) April 11, 2006.
No termination of the Plan shall without his consent materially and adversely
affect any of the rights or obligations of any person under any Option
previously granted under the Plan.
11. Limitation of Rights
(a) No Right to Continue as a Director. Neither the Plan nor
the granting of an Option nor any other action taken pursuant to the
Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain any
person as a director for any period of time.
(b) No Stockholders Rights Under Options. An optionee shall
have no rights as a stockholder with respect to shares covered by his
Option until the date of exercise of the Option, and, except as
provided in Section 12, no adjustment will be made for dividends or
other rights for which the record date is before the date of such
exercise.
12. Changes in Capital Structure
(a) If the number of outstanding shares of Company Stock is
increased or decreased as a result of a subdivision or consolidation of
shares, the payment of a stock dividend, stock split, or any other
change in capitalization effected without receipt of consideration by
the Company (including, but not limited to, the creation or issuance to
stockholders generally of rights, options or warrants for the purchase
of common or preferred stock of the Company), the number and kind of
shares of stock or securities of the Company to be subject to the Plan
and to Options, the maximum number of shares or securities which may be
delivered under the Plan, and other relevant provisions shall be
appropriately adjusted by the Board, whose determination shall be
binding and conclusive on all persons.
(b) If the Company is a party to a consolidation or a merger
in which the Company is not the surviving corporation, a transaction
that results in the acquisition of substantially all of the Company's
outstanding stock by a single person or entity, or a sale or transfer
of substantially all of the Company's assets, the Board may take such
actions with respect to outstanding unexercised Options as the Board
deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the
Board may take the foregoing actions without the consent of any
optionee, and the Board's determination shall be conclusive and binding
on all persons for all purposes.
13. Amendment of the Plan
The Board (except as provided below) may suspend or discontinue the
Plan or revise or amend the Plan in any respect; provided, however, that without
approval of the stockholders no revision or amendment shall increase the number
of shares subject to the Plan (except as provided in Section 12) or materially
increase the benefits accruing to participants under the Plan. The Plan shall
not be amended more than once every six months; provided, however, that this
restriction shall not apply to an amendment required to comply with changes in
the Internal Revenue Code or the Employee Retirement Income Security Act of 1974
or regulations thereunder.
14. Notice
All notices and other communications required or permitted to be given
under this Plan shall be in writing and shall be deemed to have been duly given
if delivered personally or mailed first class, postage prepaid, as follows: (a)
if to the Company - at its principal business address to the attention of the
Chief Financial Officer; (b) if to any optionee - at the last address of the
optionee known to the sender at the time the notice or other communication is
sent.
15. Construction
The terms of this Plan shall be governed by the laws of the
Commonwealth of Virginia.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
12th day of April, 1996.
REORGANIZED CONSUMAT SYSTEMS, INC.
By:/S/ ROBERT L. MASSEY
--------------------
Chairman, President, and
Chief Executive Officer
Exhibit 10(g)
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
1996 STOCK OPTION PLAN
(as amended and restated as of December 13, 1996)
1. Purpose. The purpose of this Consumat Environmental Systems, Inc.
1996 Stock Option Plan (the "Plan") is to further the long term stability and
financial success of Consumat Environmental Systems, Inc., (the "Company") by
attracting and retaining key employees through the use of stock incentives. It
is believed that ownership of Company Stock will stimulate the efforts of those
employees upon whose judgment and interest the Company is and will be largely
dependent for the successful conduct of its business. It is also believed that
Incentive Awards granted to such employees under this Plan will strengthen their
desire to remain with the Company and will further the identification of those
employees' interests with those of the Company's shareholders. The Plan is
intended to conform to the provisions of Securities and Exchange Commission Rule
16b-3.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Agreement" means a written agreement (including any
amendment or supplement thereto) between the Company and a Participant
specifying the terms and conditions of an Incentive Award granted to
such Participant.
(c) "Applicable Withholding Taxes" means the aggregate amount
of federal, state and local income and payroll taxes that the Company
is required to withhold in connection with any exercise of a
Nonstatutory Stock Option, Stock Appreciation Right, or Tax Offset
Right, any lapse of restrictions on Restricted Stock, or any grant of
Incentive Stock.
(d) "Affiliate" means any "parent" or "subsidiary" corporation
(within the meaning of Code section 424) of the Company.
(e) "Board" means the board of directors of the Company.
(f) "Change of Control" means:
(i) The acquisition, other than from the Company, by
any individual, entity or group (within the meaning of Section
13(d)(3) or 14 (d)(2) of the Act), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act)
of 20% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, but excluding for this
purpose, any such acquisition by the Company or any of its
subsidiaries, or any employee benefit plan (or related trust)
of the Company or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners, respectively, of
the common stock and voting securities of the Company
immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of common stock of
the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, as the case may be; or
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote
of at least a majority of the directors comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the Directors of the
Company (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Act); or
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
reorganization, merger or consolidation, or a complete
liquidation or dissolution of the Company or of its sale or
other disposition of all or substantially all of the assets of
the Company.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the committee appointed by the Board as
described under Section 16.
(i) "Company" means Consumat Environmental Systems, Inc., a
Virginia corporation.
(j) "Company Stock" means Common Stock, $1.00 par value, of
the Company. If the par value of the Company Stock is changed, or in
the event of a change in the capital structure of the Company (as
provided in Section 15), the shares resulting from such a change shall
be deemed to be Company Stock within the meaning of the Plan.
(k) "Date of Grant" means the date on which an Incentive Award
is granted by the Committee.
(l) "Disability" or "Disabled" means, as to an Incentive Stock
Option, a Disability within the meaning of Code section 22(e)(3). As to
all other Incentive Awards, the Committee shall determine whether a
Disability exists and such determination shall be conclusive.
(m) "Fair Market Value" means, on any given date, the value of
a share of Company Stock based upon the average of the highest and
lowest reported sales prices per share of the Company Stock on such day
on the NASDAQ Bulletin Board (or, if there have been no transactions,
the average of the bid and asked prices).
(n) "Incentive Award" means, collectively, the award of an
Option, Stock Appreciation Right, Incentive Stock, or Restricted Stock,
or Tax Offset Right under the Plan.
(o) "Incentive Stock" means Company Stock awarded when
performance goals are achieved pursuant to an incentive program as
provided in Section 7.
(p) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment, under Code section 422.
(q) "Insider" means a person subject to Section 16(b) of the
Act.
(r) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code section 422, or, even if meeting the
requirements of Code section 422, is not intended to be an Incentive
Stock Option and is so designated.
(s) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan and
set forth in an Agreement.
(t) "Participant" means any employee who receives an
Incentive Award under the Plan.
(u) "Plan" means the Consumat Environmental Systems, Inc.
1996 Stock Option Plan.
(v) "Reload Feature" means a feature of an Option
described in an Agreement that authorizes the automatic grant of a
Reload Option in accordance with the provisions of Section 10(d).
(w) "Reload Option" means an Option automatically granted to a
Participant equal to the number of shares of already owned Company
Stock delivered by the Participant to exercise an Option having a
Reload Feature.
(x) "Restricted Stock" means Company Stock awarded upon the
terms and subject to the restrictions set forth in Section 6.
(y) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Act. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or
number redesignation) of any amendments to Rule 16b-3 enacted after the
effective date of the Plan's adoption.
(z) "Stock Appreciation Right" means a right to receive
amounts from the Company granted under the Plan.
(aa) "10% Shareholder" means an individual who owns, directly
or indirectly, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of an Affiliate.
Indirect ownership of stock shall be determined in accordance with Code
section 424(d).
(bb) "Tax Offset Right" means a right to receive amounts in
cash from the Company as described in Section 12 of the Plan.
(cc) "Window Period" means the period beginning on the
third business day and ending on the twelfth business day following the
release for publication of quarterly or annual summary statements of
the Company's sales and earnings. The release for publication shall be
deemed to have occurred if the specified financial data (i) appears on
a wire service, (ii) appears in a financial news service, (iii) appears
in a newspaper of general circulation, or (iv) is otherwise made
publicly available.
3. General. The following types of Incentive Awards may be granted
under the Plan: Options, Stock appreciation Rights, Incentive Stock and
Restricted Stock. Options granted under the Plan may be Incentive Stock Options
or Nonstatutory Stock Options.
4. Stock. Subject to Section 15 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 200,000 shares of Company Stock,
which shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or otherwise terminate
unexercised may again be subjected to an Incentive Award under the Plan. For
purposes of determining the number of shares that are available for Incentive
Awards under the Plan, such number shall, to the extent permissible under Rule
16b-3, include the number of shares surrendered by an optionee or retained by
the Company in payment of Applicable Withholding Taxes.
5. Eligibility.
(a) Any employee of the Company (or any Affiliate including a
corporation that becomes an Affiliate after the adoption of this Plan) who holds
a position with management repsonsibilities of the Company is eligible to
participate in the Plan. An eligible employee becomes a Participant only if the
Committee, in its sole discretion, selects the employee to receive an Incentive
Award. The Committee has the sole discretion to determine for each employee the
terms and conditions, the nature of the award and the number of shares to be
allocated to each employee as part of each Incentive Award. Any Incentive Award
granted under this Plan shall be evidenced by an Agreement which shall be
subject to the applicable provisions of this Plan and to other such provisions
as the Committee may impose.
(b) The grant of an Incentive Award shall not obligate the Company or
any Affiliate to pay an employee any particular amount of renumeration, to
continue the employment of the employee after the grant or to make further
grants to the employee at any time thereafter.
6. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant Restricted
Stock, notice shall be given to the Participant stating the number of shares of
Restricted Stock granted and the terms and conditions to which the Restricted
Stock is subject. This notice, when accepted in writing by the Participant shall
become an Agreement and certificates representing the shares shall be issued and
delivered to the Participant. Restricted Stock may be awarded by the Committee
in its discretion without cash consideration.
(b) Restricted Stock issued pursuant to the Plan shall be subject to
the following restrictions:
(i) No shares of Restricted Stock may be sold, assigned,
transferred or disposed of by an Insider within a six-month period
beginning on the Date of Grant, and Restricted Stock may not be
pledged, hypothecated or otherwise encumbered within a six-month period
beginning on the Date of Grant if such action would be treated as a
sale or disposition under Rule 16b-3.
(ii) No shares of Restricted Stock may be sold, assigned,
transferred, pledged, hypothecated, or otherwise encumbered or disposed
of until the restrictions on such shares as set forth in the
Participant's Agreement have lapsed or been removed pursuant to
paragraph (d) or (e) below.
(iii) if a Participant ceases to be employed by the Company or
an Affiliate, the Participant shall forfeit to the Company any shares
of Restricted Stock on which the restrictions have not lapsed or been
removed pursuant to paragraph (d) or (e) below on the date such
Participant shall cease to be so employed.
(c) Upon the acceptance by a Participant of an award of Restricted
Stock, such Participant shall, subject to the restrictions set forth in
paragraph (b) above, have all the rights of a shareholder with respect to such
shares of Restricted Stock, including, but not limited to, the right to vote
such shares of Restricted Stock and the right to receive all dividends and other
distributions paid thereon. Certificates representing Restricted Stock shall
bear a legend referring to the restrictions set forth in the Plan and the
Participant's Agreement.
(d) The Committee shall establish as to each award of Restricted Stock
the terms and conditions upon which the restrictions set forth in paragraph (b)
above shall lapse. Such terms and conditions may include, without limitation,
the lapsing of such restrictions as a result of the Disability, death or
retirement of the Participant or the occurrence of a Change of Control.
(e) Notwithstanding the provisions of paragraphs (b)(ii) and (iii)
above, the Committee may at any time, in its sole discretion, accelerate the
time at which any or all restrictions will lapse or remove any and all such
restrictions.
(f) Each Participant shall agree at the time his Restricted Stock is
granted, and as a condition thereof, to pay to the Company, or make arrangements
satisfactory to the Company regarding the payment to the Company of, Applicable
Withholding Taxes. Until such amount had been paid or arrangements satisfactory
to the Company have been made, no stock certificate free of a legend reflecting
the restrictions set forth in paragraph (b) above shall be issued to such
Participant.
7. Incentive Stock Awards.
(a) Incentive Stock may be issued pursuant to the Plan in connection
with incentive programs established from time to time by the Committee when
performance criteria established by the Committee as part of the incentive
program have been achieved.
(b) Whenever the Committee deems it appropriate, the Committee may
establish an incentive program and notify Participants of their participation in
and the terms of the incentive program. More than one incentive program may be
established by the Committee and they may operate concurrently or for varied
periods of time and a Participant may be permitted to participate in more than
one incentive program at the same time. Incentive Stock will be issued only
subject to the incentive program and the Plan and consistent with meeting the
performance goals set by the Committee. A Participant in an incentive program
shall have no rights as a shareholder until Incentive Stock is issued. Incentive
Stock may be issued without cash consideration.
(c) A Participant's interest in an incentive program may not be
sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(d) Each Participant shall agree as a condition of his participation in
an incentive program and the receipt of Incentive Stock, to pay to the Company,
or make arrangements satisfactory to the Company regarding the payment to the
Company of, Applicable Withholding Taxes. Until such amount has been paid or
arrangements satisfactory to the Company have been made, no stock certificate
shall be issued to such Participant.
8. Stock Options.
(a) Whenever the Committee deems it appropriate to grant Options,
notice shall be given to the Participant stating the number of shares for which
Options are granted, the Option price per share, whether the Options are
Incentive Stock Options or Nonstatutory Stock Options, the extent to which Stock
Appreciation Rights are granted (as provided in Section 9), and the conditions
to which the grant and exercise of the Options are subject. This notice, when
duly accepted in writing by the Participant, shall become an Agreement.
(b) The exercise price of shares of Company Stock covered by an
Incentive Stock Option shall be not less than 100% of the Fair Market Value of
such shares on the Date of Grant; provided that if an Incentive Stock Option is
granted to a Participant who, at the time of the grant, is a 10% Shareholder,
then the exercise price of the shares covered by the Incentive Stock Option
shall be not less than 110% of the Fair Market Value of such shares on the Date
of Grant.
(c) The exercise price of shares covered by a Nonstatutory Stock Option
shall be not less than 85% of the Fair Market Value of such shares on the Date
of Grant.
(d) Options may be exercised in whole or in part at such times as may
be specified by the Committee in the Participant's Agreement; provided that, the
exercise provisions for Incentive Stock Options shall in all events not be more
liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after the first
to occur of (x) ten years (or, in the case of an Incentive Stock Option
granted to a 10% Shareholder, five years) from the Date of Grant, (y)
three months following the date of the Participant's retirement or
termination of employment with the Company and all Affiliates for
reasons other than Disability or death, or (z) one year following the
date of the Participant's termination of employment on account of
Disability or death.
(ii) Except as otherwise provided in this paragraph, no
Incentive Stock Option may be exercised unless the Participant is
employed by the Company or an Affiliate at the time of the exercise and
has been employed by the Company or an Affiliate of the Company at all
times since the Date of Grant. If a Participant's employment is
terminated other than by reason of his Disability or death at a time
when the Participant holds an Incentive Stock Option that is
exercisable (in whole or in part), the Participant may exercise any or
all of the exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of termination) within three months
after the Participant's termination of employment. If a Participant's
employment is terminated by reason of his Disability at a time when the
Participant holds an Incentive Stock Option that is exercisable (in
whole or in part), the Participant may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of Disability) within one year after the
Participant's termination of employment. If a Participant's employment
is terminated by reason of his death at a time when the Participant
holds an Incentive Stock Option that is exercisable (in whole or in
part), the Incentive Stock Option may be exercised (to the extent
exercisable on the date of death) within one year after the
Participant's death by the person to whom the Participant's rights
under the Incentive Stock Option shall have passed by will or by the
laws of descent and distribution.
(iii) An Incentive Stock Option by its terms, shall be
exercisable in any calendar year only to the extent that the aggregate
Fair Market Value (determined at the Date of Grant) of the Company
Stock with respect to which Incentive Stock Options are exercisable for
the first time during the calendar year does not exceed $100,000 (the
"Limitation Amount"). Incentive Stock Options granted after 1986 under
the Plan and all other plans of the Company and any Affiliate shall be
aggregated for purposes of determining whether the Limitation Amount
has been exceeded. The Board may imposed such conditions as it deems
appropriate on an Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options that first become
exercisable in a calendar year exceed the Limitation Amount, the excess
Options will be treated as Nonstatutory Stock Options to the extent
permitted by law.
(e) Notwithstanding the foregoing, no Option shall be exercisable
within the first six months after it is granted; provided that, this restriction
shall not apply if the Participant becomes Disabled or dies during the six-month
period.
(f) The Committee may, in its sole discretion, grant Options that by
their terms become fully exercisable upon a Change of Control, notwithstanding
other conditions on exercisability in the Agreement.
9. Stock Appreciation Rights.
(a) Whenever the Committee deems it appropriate, Stock Appreciation
Rights may be granted in connection with all or any part of an Incentive Stock
Option. At the discretion of the Committee, Stock Appreciation Rights may also
be granted in connection with all or any part of a Nonstatutory Stock Option,
either concurrently with the grant of the Nonstatutory Stock Option or at any
time thereafter during the term of the Nonstatutory Stock Option. Stock
Appreciation Rights shall be evidenced in writing as part of the Agreement to
which they pertain. The following provisions apply to all Stock Appreciation
Rights that are granted in connection with Options:
(i) Stock Appreciation Rights shall entitle the Participant,
upon exercise of all or any part of the Stock Appreciation Rights, to
surrender to the Company unexercised that portion of the underlying
Option relating to the same number of shares of Company Stock as is
covered by the Stock Appreciation Rights (or the portion of the Stock
Appreciation Rights so exercised) and to receive in exchange from the
Company an amount equal to the excess of (x) the Fair Market Value on
the date of exercise of the Company Stock covered by the surrendered
portion of the underlying Option over (y) the exercise price of the
Company Stock covered by the surrendered portion of the underlying
Option. The Committee may limit the amount that the Participant will be
entitled to receive upon exercise of the Stock Appreciation Right.
(ii) Upon the exercise of a Stock Appreciation Right and
surrender of the related portion of the underlying Option, the Option,
to the extent surrendered, shall not thereafter be exercisable.
(iii) Subject to any further conditions upon exercise imposed
by the Board, a Stock Appreciation Right shall be exercisable only to
the extent that the related Option is exercisable, except that in no
event shall a Stock Appreciation Right held by an Insider be
exercisable within the first six months after it is awarded even though
the related Option is or becomes exercisable, and a Stock Appreciation
Right shall expire no later than the date on which the related Option
expires.
(iv) A Stock Appreciation Right may only be exercised at a
time when the Fair Market Value of the Company Stock covered by the
Stock Appreciation Right exceeds the exercise price of the Company
Stock covered by the underlying Option.
(b) The manner in which the Company's obligation arising upon the
exercise of a Stock Appreciation Right shall be paid shall be determined by the
Committee and shall be set forth in the Participant's Agreement. The Committee
may provide for payment in Company Stock or cash, or a fixed combination of
Company Stock or cash, or the Committee may reserve the right to determine the
manner of payment at the time the Stock Appreciation Right is exercised. Shares
of Company Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at their Fair Market Value on the date of exercise.
(c) An Insider may only exercise a Stock Appreciation Right during a
Window Period.
10. Method of Exercise of Options and Stock Appreciation Rights.
(a) Options and Stock Appreciation Rights may be exercised by the
Participant giving written notice of the exercise to the Company, stating the
number of shares the Participant has elected to purchase under the Option or the
number of Stock Appreciation Rights the Participant has elected to exercise. In
the case of the purchase of shares under an Option, such notice shall be
effective only if accompanied by the exercise price in full in cash; provided
that, if the terms of an Option so permit, the Participant may (i) deliver, or
cause to be withheld from the Option shares, shares of Company Stock (valued at
their Fair Market Value on the date of exercise) in satisfaction of all or any
part of the exercise price, (ii) deliver a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company, from the sale or loan proceeds with respect to the sale of Company
Stock or a loan secured by Company Stock, the amount necessary to pay the
exercise price and, if required by the Committee, Applicable Withholding Taxes,
or (iii) deliver an interest bearing promissory note, payable to the Company, in
payment of all or part of the exercise price together with such collateral as
may be required by the Committee at the time of exercise. The interest rate
under any such promissory note shall be established by the Committee and shall
be at least equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
(b) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option or Stock Appreciation Right any legend
deemed desirable by the Company's counsel to comply with federal or state
securities laws, and the Company may require a customary written indication of
the Participant's investment intent. Until the Participant has made any required
payment, including any Applicable Withholding Taxes, and has had issued a
certificate for the shares of Company Stock acquired, he shall possess no
shareholder rights with respect to the shares.
(c) As an alternative to making a cash payment to the Company to
satisfy Applicable Withholding Taxes, if the Agreement so provides, the
Participant may, subject to the provisions set forth below, elect to (i) deliver
shares of already owned Company Stock or (ii) have the Company retain that
number of shares of Company Stock that would satisfy all or a specified portion
of the Applicable Withholding Taxes. The Committee shall have sole discretion to
approve or disapprove any such election. If the Participant is an Insider, the
following provisions apply to elections to satisfy Applicable Withholding Taxes,
to the extent required by Rule 16b-3:
(i) The Participant's election to have the Company retain from
the shares of Company Stock to be issued upon exercise of an Option of
Stock Appreciation Right the number of shares of Company Stock that
would satisfy Applicable Withholding Taxes must be made at least six
months after the Option or SAR was granted, and either:
(x) during a Window Period; or
(y) at least six months before the amount of
Applicable Withholding Taxes is calculated.
(ii) The Participant's election must be irrevocable.
(iii) Notwithstanding any of the foregoing provisions, the
manner and timing of elections may be varied from those provided, and
elections previously made as irrevocable may be revoked, if such
variance or revocation is permissible under Rule 16b-3.
(d) If a Participant exercises an Option that has a Reload Feature by
delivering already owned shares of Company Stock in payment of the exercise
price, the Committee shall grant to the Participant a Reload Option. The
Committee shall grant the Reload Option in the same manner as set forth in
paragraph 8(a). The Reload Option shall be subject to the following
restrictions:
(i) The exercise price of shares of Company Stock covered by a
Reload Option shall be not less than 100% of the Fair Market Value of
such shares on the Date of Grant of the Reload Option;
(ii) If and to the extent required by Rule 16b-3, a Reload
Option shall not be exercisable within the first six months after it is
granted; provided that this restriction shall not apply if the
Participant becomes Disabled or dies during the six-month period;
(iii) The Reload Option shall be subject to the same
restrictions on exercisability imposed on the underlying option
(possessing the Reload Feature) delivered unless the Committee
specifies different limitations;
(iv) The Reload Option shall not be exercisable until the
expiration of any retention holding period imposed on the disposition
of any shares of Company Stock covered by the underlying Option
(possessing the Reload Feature) delivered; and
(v) The Reload Option shall not have a Reload Feature.
The Committee may, in its sole discretion, cause the Company to place
on any certificate representing Company Stock issued to a Participant upon the
exercise of an underlying Option (possessing a Reload Feature as evidenced by
the Agreement for such Option) delivered pursuant to this subsection (d), a
legend restricting the sale or other disposition of such Company Stock.
(e) Notwithstanding anything herein to the contrary, Options and Stock
Appreciation Rights shall always be granted and exercised in such a manner as to
conform to the provisions of Rule 16b-3.
11. Nontransferability of Options and Stock Appreciation Rights.
Options and Stock Appreciation Rights by their terms, shall not be transferable
except by will or by the laws of descent and distribution or, if permitted by
Rule 16b-3, pursuant to a qualified domestic relations order (as defined in Code
section 414(p)) ("QDRO") and shall be exercisable, during the Participant's
lifetime, only by the Participant or, if permitted by Rule 16b-3, an alternative
payee under a QDRO, or by his guardian, duly authorized attorney-in-fact or
other legal representative.
12. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax Offset Rights may
be granted in connection with Nonstatutory Stock Options, Stock Appreciation
Rights, Incentive Stock or Restricted Stock. Tax Offset Rights shall be
evidenced in writing as part of the Agreement to which they pertain.
(b) Tax Offset Rights shall entitle the Participant, upon exercise of
all or any part of Nonstatutory Stock Option, Stock Appreciation Right, or Tax
Offset Right, upon grant of Incentive Stock, or upon the lapse of restrictions
on Restricted Stock, to receive in cash from the Company an amount equal to or
approximating the Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by giving the
Committee written notice of exercise simultaneously with the exercise of a
Nonstatutory Stock Option or Stock Appreciation Right, the receipt of an award
of Incentive Stock or the lapse of restrictions on Restricted Stock. To the
extent exercised, the Tax Offset Right shall lapse.
(d) The Committee may limit the amount the Participant will be entitled
to receive in connection with a Tax Offset Right and may include any provisions
in a Tax Offset Right that the Committee deems appropriate to ensure that the
Tax Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the Act and the rules and
regulations thereunder.
13. Effective Date of the Plan. This Plan shall be effective on April
12, 1996, and shall be submitted to the shareholders of the Company for
approval. Until (i) the Plan has been approved by the Company's shareholders,
and (ii) the requirements of any applicable State securities laws have been met,
no Restricted Stock shall be awarded, no Incentive Stock shall be issued and no
Option or Stock Appreciation Right shall be exercisable.
14. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on April 11, 2006. No
Incentive Awards shall be made under the Plan after its termination. The Board
may terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided that, if and to the extent required by the Code or Rule
16b-3, no change shall be made that increases the total number of shares of
Company Stock reserved for issuance pursuant to Incentive Awards granted under
the Plan (except pursuant to Section 15), materially modifies the requirements
as to eligibility for participation in the Plan, or materially increases the
benefits accruing to Participants under the Plan, or unless such change is
authorized by the shareholders of the Company. Notwithstanding the foregoing,
the Board may unilaterally amend the Plan and Incentive Awards as it deems
appropriate to ensure compliance with Rule 16b-3 and to cause Incentive Stock
Options to meet the requirements of the Code and regulations thereunder. Except
as provided in the preceding sentence, a termination or amendment of the Plan
shall not, without the consent of the Participant, adversely affect a
Participant's rights under an Incentive Award previously granted to him.
15. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but not
limited to, the creation or issuance to shareholders generally of rights,
options or warrants for the purchase of common stock or preferred stock of the
Company), the number and kind of shares of stock or securities of the Company to
be subject to the Plan and to Options then outstanding or to be granted
thereunder, the maximum number of shares or securities which may be delivered
under the Plan, the exercise price and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be binding on
all persons. If the adjustment would produce fractional shares with respect to
any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding
Incentive Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
16. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two members of the Board, who
shall be appointed by the Board. Subject to paragraph (d) below, the Committee
shall be the Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have general authority to
impose any limitation or condition upon an Incentive Award the Committee deems
appropriate to achieve the objectives of the Incentive Award and the Plan and,
without limitation and in addition to powers set forth elsewhere in the Plan,
shall have the following specific authority:
(a) The Committee shall have the power and sole and complete
discretion to determine (i) which eligible employees shall receive
Incentive Awards and the nature of each Incentive Award, (ii) the
number of shares of Company Stock to be covered by each Incentive
Award, (iii) whether Options shall be Incentive Stock Options or
Nonstatutory Stock Options, (iv) when, whether and to what extent Stock
Appreciation Rights shall be granted in connection with Options, (v)
when, whether and to what extent Tax Offset Rights shall be granted and
the terms thereof, (vi) the Fair Market Value of Company Stock, (vii)
the time or times when an Incentive Award shall be granted, (viii)
whether an Incentive Award shall become vested over a period of time
and when it shall be fully vested, (ix) when Options and Stock
Appreciation Rights may be exercised, (x) whether a Disability exists,
(xi) the manner in which payment will be made upon the exercise of
Options or Stock Appreciation Rights, (xii) conditions relating to the
length of time before disposition of Company Stock received upon the
exercise of Options or Stock Appreciation Rights is permitted, (xiii)
whether to approve a Participant's election (A) to deliver shares of
already owned Company Stock to satisfy Applicable Withholding Taxes or
(B) to have the Company withhold from the shares to be issued upon the
exercise of a Nonstatutory Stock Option or Stock Appreciation Right the
number of shares necessary to satisfy Applicable Withholding Taxes,
(xiv) the terms and conditions applicable to Restricted Stock Awards,
(xv) the terms and conditions on which restrictions upon Restricted
Stock shall lapse, (xvi) whether to accelerate the time at which any or
all restrictions with respect to Restricted Stock will lapse or be
removed, (xvii) notice provisions relating to the sale of Company Stock
acquired under the Plan, (xviii) the terms of incentive programs,
performance criteria and other factors relevant to the issuance of
Incentive Stock, and (xix) any additional requirements relating to
Incentive Awards that the Committee deems appropriate. Notwithstanding
the foregoing, no "tandem stock options" (where two stock options are
issued together and the exercise of one option affects the right to
exercise the other option) may be issued in connection with Incentive
Stock Options. The Committee shall have the power to amend the terms of
previously granted Incentive Awards so long as the terms as amended are
consistent with the terms of the Plan and provided that the consent of
the Participant is obtained with respect to any amendment that would be
detrimental to him, except that such consent will not be required if
such amendment is for the purpose of complying with Rule 16b-3 or any
requirement of the Code applicable to the Incentive Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of
the Plan by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
Insofar as it is necessary to satisfy the requirements of Section 16(b)
of the Act, (i) no member of the Committee shall be granted or awarded
equity securities pursuant to the Plan or any other plan of the Company
or any Affiliate that entitles participants to acquire stock, stock
options or stock appreciation rights of the Company or Affiliate, and
(ii) no person shall become a member of the Committee if, within the
preceding one-year period, the person shall have been granted or
awarded equity securities pursuant to such a plan; provided, however,
that the foregoing prohibitions on Committee membership shall be
subject to the exception set forth in clauses (A) through (D) of Rule
16b-3(c)(2)(i) and (ii)).
17. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at its principal business address to the
attention of the Treasurer; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
18. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect. The terms of
this Plan shall be governed by the laws of the Commonwealth of Virginia.
19. Effective Date. This Plan shall be effective as of April 12, 1996.
IN WITNESS WHEREOF, the Company has caused this Plan to be amended and
restated as set forth herein this 13th day of December, 1996.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
By:/S/ ROBERT L. MASSEY
--------------------
Chairman, President, and
Chief Executive Officer
Exhibit 10(h)
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
1996 STOCK OPTION PLAN
FOR NONMANAGEMENT EMPLOYEES
(adopted as of December 13, 1996)
1. Purpose. The purpose of this Consumat Environmental Systems, Inc.
1996 Stock Option Plan for Nonmanagement Employees (the "Plan") is to further
the long term stability and financial success of Consumat Environmental Systems,
Inc., (the "Company") by attracting and retaining key employees through the use
of stock incentives. It is believed that ownership of Company Stock will
stimulate the efforts of those employees upon whose judgment and interest the
Company is and will be largely dependent for the successful conduct of its
business. It is also believed that Incentive Awards granted to such employees
under this Plan will strengthen their desire to remain with the Company and will
further the identification of those employees' interests with those of the
Company's shareholders.
2. Definitions. As used in the Plan, the following terms have
the meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Agreement" means a written agreement (including any
amendment or supplement thereto) between the Company and a Participant
specifying the terms and conditions of an Incentive Award granted to
such Participant.
(c) "Applicable Withholding Taxes" means the aggregate amount
of federal, state and local income and payroll taxes that the Company
is required to withhold in connection with any exercise of a
Nonstatutory Stock Option, Stock Appreciation Right, or Tax Offset
Right, any lapse of restrictions on Restricted Stock, or any grant of
Incentive Stock.
(d) "Affiliate" means any "parent" or "subsidiary"
corporation (within the meaning of Code section 424) of the Company.
(e) "Board" means the board of directors of the Company.
(f) "Change of Control" means:
(i) The acquisition, other than from the Company, by
any individual, entity or group (within the meaning of Section
13(d)(3) or 14 (d)(2) of the Act), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act)
of 20% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, but excluding for this
purpose, any such acquisition by the Company or any of its
subsidiaries, or any employee benefit plan (or related trust)
of the Company or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners, respectively, of
the common stock and voting securities of the Company
immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of common stock of
the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, as the case may be; or
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote
of at least a majority of the directors comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the Directors of the
Company (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Act); or
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
reorganization, merger or consolidation, or a complete
liquidation or dissolution of the Company or of its sale or
other disposition of all or substantially all of the assets of
the Company.
(g) "Code"means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the committee appointed by the Board as
described under Section 16.
(i) "Company" means Consumat Environmental Systems, Inc., a
Virginia corporation.
(j) "Company Stock" means Common Stock, $1.00 par value, of
the Company. If the par value the Company Stock is changed, or in the
event of a ofchange in the capital structure of the Company (as
provided in Section 15), the shares resulting from such a change shall
be deemed to be Company Stock within the meaning of the Plan.
(k) "Date of Grant" means the date on which an Incentive
Award is granted by the Committee.
(l) "Disability" or "Disabled" means, as to an Incentive
Stock Option, a Disability within the meaning of Code section 22(e)(3).
As to all other Incentive Awards, the Committee shall determine whether
a Disability exists and such determination shall be conclusive.
(m) "Fair Market Value" means, on any given date, the value
of a share of Company Stock based upon the average of the highest and
lowest reported sales prices per share of the Company Stock on such day
on the NASDAQ Bulletin Board (or, if there have been no transactions,
the average of the bid and asked prices).
(n) "Incentive Award" means, collectively, the award of an
Option, Stock Appreciation Right, Incentive Stock, or Restricted Stock,
or Tax Offset Right under the Plan.
(o) "Incentive Stock" means Company Stock awarded when
performance goals are achieved pursuant to an incentive program as
provided in Section 7.
(p) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment, under Code section 422.
(q) "Insider" means a person subject to Section 16(b) of the
Act.
(r) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code section 422, or, even if meeting the
requirements of Code section 422, is not intended to be an Incentive
Stock Option and is so designated.
(s) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan and
set forth in an Agreement.
(t) "Participant" means any employee who receives an
Incentive Award under the Plan.
(u) "Plan" means the Consumat Environmental Systems, Inc.
1996 Stock Option Plan.
(v) "Reload Feature" means a feature of an Option described
in an Agreement that authorizes the automatic grant of a Reload Option
in accordance with the provisions of Section 10(d).
(w) "Reload Option" means an Option automatically granted to
a Participant equal to the number of shares of already owned Company
Stock delivered by the Participant to exercise an Option having a
Reload Feature.
(x) "Restricted Stock" means Company Stock awarded upon the
terms and subject to the restrictions set forth in Section 6.
(y) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Act. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or
number redesignation) of any amendments to Rule 16b-3 enacted after the
effective date of the Plan's adoption.
(z) "Stock Appreciation Right" means a right to receive
amounts from the Company granted under the Plan.
(aa) "10% Shareholder" means an individual who owns, directly
or indirectly, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of an Affiliate.
Indirect ownership of stock shall be determined in accordance with Code
section 424(d).
(bb) "Tax Offset Right" means a right to receive amounts in
cash from the Company as described in Section 12 of the Plan.
(cc) "Window Period" means the period beginning on the third
business day and ending on the twelfth business day following the
release for publication of quarterly or annual summary statements of
the Company's sales and earnings. The release for publication shall be
deemed to have occurred if the specified financial data (i) appears on
a wire service, (ii) appears in a financial news service, (iii) appears
in a newspaper of general circulation, or (iv) is otherwise made
publicly available.
3. General. The following types of Incentive Awards may be granted
under the Plan: Options, Stock Appreciation Rights, Incentive Stock and
Restricted Stock. Options granted under the Plan may be Incentive Stock Options
or Nonstatutory Stock Options.
4. Stock. Subject to Section 15 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 15,000 shares of Company Stock,
which shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or otherwise terminate
unexercised may again be subjected to an Incentive Award under the Plan. For
purposes of determining the number of shares that are available for Incentive
Awards under the Plan, such number shall include the number of shares
surrendered by an optionee or retained by the Company in payment of Applicable
Withholding Taxes.
5. Eligibility.
(a) Any employee of the Company (or any Affiliate including a
corporation that becomes an Affiliate after the adoption of this Plan) is
eligible to participate in the Plan. An eligible employee becomes a Participant
only if the Committee, in its sole discretion, selects the employee to receive
an Incentive Award. The Committee has the sole discretion to determine for each
employee the terms and conditions, the nature of the award and the number of
shares to be allocated to each employee as part of each Incentive Award. Any
Incentive Award granted under this Plan shall be evidenced by an Agreement which
shall be subject to the applicable provisions of this Plan and to other such
provisions as the Committee may impose.
(b) The grant of an Incentive Award shall not obligate the Company or
any Affiliate to pay an employee any particular amount of renumeration, to
continue the employment of the employee after the grant or to make further
grants to the employee at any time thereafter.
6. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant Restricted
Stock, notice shall be given to the Participant stating the number of shares of
Restricted Stock granted and the terms and conditions to which the Restricted
Stock is subject. This notice, when accepted in writing by the Participant shall
become an Agreement and certificates representing the shares shall be issued and
delivered to the Participant. Restricted Stock may be awarded by the Committee
in its discretion without cash consideration.
(b) Restricted Stock issued pursuant to the Plan shall be subject
to the following restrictions:
(i) No shares of Restricted Stock may be sold, assigned,
transferred or disposed of by an Insider within a six-month period
beginning on the Date of Grant, and Restricted Stock may not be
pledged, hypothecated or otherwise encumbered within a six-month period
beginning on the Date of Grant if such action would be treated as a
sale or disposition under Rule 16b-3.
(ii) No shares of Restricted Stock may be sold, assigned,
transferred, pledged, hypothecated, or otherwise encumbered or disposed
of until the restrictions on such shares as set forth in the
Participant's Agreement have lapsed or been removed pursuant to
paragraph (d) or (e) below.
(iii) if a Participant ceases to be employed by the Company or
an Affiliate, the Participant shall forfeit to the Company any shares
of Restricted Stock on which the restrictions have not lapsed or been
removed pursuant to paragraph (d) or (e) below on the date such
Participant shall cease to be so employed.
(c) Upon the acceptance by a Participant of an award of Restricted
Stock, such Participant shall, subject to the restrictions set forth in
paragraph (b) above, have all the rights of a shareholder with respect to such
shares of Restricted Stock, including, but not limited to, the right to vote
such shares of Restricted Stock and the right to receive all dividends and other
distributions paid thereon. Certificates representing Restricted Stock shall
bear a legend referring to the restrictions set forth in the Plan and the
Participant's Agreement.
(d) The Committee shall establish as to each award of Restricted Stock
the terms and conditions upon which the restrictions set forth in paragraph (b)
above shall lapse. Such terms and conditions may include, without limitation,
the lapsing of such restrictions as a result of the Disability, death or
retirement of the Participant or the occurrence of a Change of Control.
(e) Notwithstanding the provisions of paragraphs (b)(ii) and (iii)
above, the Committee may at any time, in its sole discretion, accelerate the
time at which any or all restrictions will lapse or remove any and all such
restrictions.
(f) Each Participant shall agree at the time his Restricted Stock is
granted, and as a condition thereof, to pay to the Company, or make arrangements
satisfactory to the Company regarding the payment to the Company of, Applicable
Withholding Taxes. Until such amount had been paid or arrangements satisfactory
to the Company have been made, no stock certificate free of a legend reflecting
the restrictions set forth in paragraph (b) above shall be issued to such
Participant.
7. Incentive Stock Awards.
(a) Incentive Stock may be issued pursuant to the Plan in connection
with incentive programs established from time to time by the Committee when
performance criteria established by the Committee as part of the incentive
program have been achieved.
(b) Whenever the Committee deems it appropriate, the Committee may
establish an incentive program and notify Participants of their participation in
and the terms of the incentive program. More than one incentive program may be
established by the Committee and they may operate concurrently or for varied
periods of time and a Participant may be permitted to participate in more than
one incentive program at the same time. Incentive Stock will be issued only
subject to the incentive program and the Plan and consistent with meeting the
performance goals set by the Committee. A Participant in an incentive program
shall have no rights as a shareholder until Incentive Stock is issued. Incentive
Stock may be issued without cash consideration.
(c) A Participant's interest in an incentive program may not be
sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(d) Each Participant shall agree as a condition of his participation in
an incentive program and the receipt of Incentive Stock, to pay to the Company,
or make arrangements satisfactory to the Company regarding the payment to the
Company of, Applicable Withholding Taxes. Until such amount has been paid or
arrangements satisfactory to the Company have been made, no stock certificate
shall be issued to such Participant.
8. Stock Options.
(a) Whenever the Committee deems it appropriate to grant Options,
notice shall be given to the Participant stating the number of shares for which
Options are granted, the Option price per share, whether the Options are
Incentive Stock Options or Nonstatutory Stock Options, the extent to which Stock
Appreciation Rights are granted (as provided in Section 9), and the conditions
to which the grant and exercise of the Options are subject. This notice, when
duly accepted in writing by the Participant, shall become an Agreement.
(b) The exercise price of shares of Company Stock covered by an
Incentive Stock Option shall be not less than 100% of the Fair Market Value of
such shares on the Date of Grant; provided that if an Incentive Stock Option is
granted to a Participant who, at the time of the grant, is a 10% Shareholder,
then the exercise price of the shares covered by the Incentive Stock Option
shall be not less than 110% of the Fair Market Value of such shares on the Date
of Grant.
(c) The exercise price of shares covered by a Nonstatutory Stock Option
shall be not less than 85% of the Fair Market Value of such shares on the Date
of Grant.
(d) Options may be exercised in whole or in part at such times as may
be specified by the Committee in the Participant's Agreement; provided that, the
exercise provisions for Incentive Stock Options shall in all events not be more
liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after the first
to occur of (x) ten years (or, in the case of an Incentive Stock Option
granted to a 10% Shareholder, five years) from the Date of Grant, (y)
three months following the date of the Participant's retirement or
termination of employment with the Company and all Affiliates for
reasons other than Disability or death, or (z) one year following the
date of the Participant's termination of employment on account of
Disability or death.
(ii) Except as otherwise provided in this paragraph, no
Incentive Stock Option may be exercised unless the Participant is
employed by the Company or an Affiliate at the time of the exercise and
has been employed by the Company or an Affiliate of the Company at all
times since the Date of Grant. If a Participant's employment is
terminated other than by reason of his Disability or death at a time
when the Participant holds an Incentive Stock Option that is
exercisable (in whole or in part), the Participant may exercise any or
all of the exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of termination) within three months
after the Participant's termination of employment. If a Participant's
employment is terminated by reason of his Disability at a time when the
Participant holds an Incentive Stock Option that is exercisable (in
whole or in part), the Participant may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of Disability) within one year after the
Participant's termination of employment. If a Participant's employment
is terminated by reason of his death at a time when the Participant
holds an Incentive Stock Option that is exercisable (in whole or in
part), the Incentive Stock Option may be exercised (to the extent
exercisable on the date of death) within one year after the
Participant's death by the person to whom the Participant's rights
under the Incentive Stock Option shall have passed by will or by the
laws of descent and distribution.
(iii) An Incentive Stock Option by its terms, shall be
exercisable in any calendar year only to the extent that the aggregate
Fair Market Value (determined at the Date of Grant) of the Company
Stock with respect to which Incentive Stock Options are exercisable for
the first time during the calendar year does not exceed $100,000 (the
"Limitation Amount"). Incentive Stock Options granted after 1986 under
the Plan and all other plans of the Company and any Affiliate shall be
aggregated for purposes of determining whether the Limitation Amount
has been exceeded. The Board may imposed such conditions as it deems
appropriate on an Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options that first become
exercisable in a calendar year exceed the Limitation Amount, the excess
Options will be treated as Nonstatutory Stock Options to the extent
permitted by law.
(e) Notwithstanding the foregoing, no Option shall be exercisable
within the first six months after it is granted; provided that, this restriction
shall not apply if the Participant becomes Disabled or dies during the six-month
period.
(f) The Committee may, in its sole discretion, grant Options that by
their terms become fully exercisable upon a Change of Control, notwithstanding
other conditions on exercisability in the Agreement.
9. Stock Appreciation Rights.
(a) Whenever the Committee deems it appropriate, Stock Appreciation
Rights may be granted in connection with all or any part of an Incentive Stock
Option. At the discretion of the Committee, Stock Appreciation Rights may also
be granted in connection with all or any part of a Nonstatutory Stock Option,
either concurrently with the grant of the Nonstatutory Stock Option or at any
time thereafter during the term of the Nonstatutory Stock Option. Stock
Appreciation Rights shall be evidenced in writing as part of the Agreement to
which they pertain. The following provisions apply to all Stock Appreciation
Rights that are granted in connection with Options:
(i) Stock Appreciation Rights shall entitle the Participant,
upon exercise of all or any part of the Stock Appreciation Rights, to
surrender to the Company unexercised that portion of the underlying
Option relating to the same number of shares of Company Stock as is
covered by the Stock Appreciation Rights (or the portion of the Stock
Appreciation Rights so exercised) and to receive in exchange from the
Company an amount equal to the excess of (x) the Fair Market Value on
the date of exercise of the Company Stock covered by the surrendered
portion of the underlying Option over (y) the exercise price of the
Company Stock covered by the surrendered portion of the underlying
Option. The Committee may limit the amount that the Participant will be
entitled to receive upon exercise of the Stock Appreciation Right.
(ii) Upon the exercise of a Stock Appreciation Right and
surrender of the related portion of the underlying Option, the Option,
to the extent surrendered, shall not thereafter be exercisable.
(iii) Subject to any further conditions upon exercise imposed
by the Board, a Stock Appreciation Right shall be exercisable only to
the extent that the related Option is exercisable, except that in no
event shall a Stock Appreciation Right held by an Insider be
exercisable within the first six months after it is awarded even though
the related Option is or becomes exercisable, and a Stock Appreciation
Right shall expire no later than the date on which the related Option
expires.
(iv) A Stock Appreciation Right may only be exercised at a
time when the Fair Market Value of the Company Stock covered by the
Stock Appreciation Right exceeds the exercise price of the Company
Stock covered by the underlying Option.
(b) The manner in which the Company's obligation arising upon the
exercise of a Stock Appreciation Right shall be paid shall be determined by the
Committee and shall be set forth in the Participant's Agreement. The Committee
may provide for payment in Company Stock or cash, or a fixed combination of
Company Stock or cash, or the Committee may reserve the right to determine the
manner of payment at the time the Stock Appreciation Right is exercised. Shares
of Company Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at their Fair Market Value on the date of exercise.
(c) An Insider may only exercise a Stock Appreciation Right during
a Window Period.
10. Method of Exercise of Options and Stock Appreciation Rights.
(a) Options and Stock Appreciation Rights may be exercised by the
Participant giving written notice of the exercise to the Company, stating the
number of shares the Participant has elected to purchase under the Option or the
number of Stock Appreciation Rights the Participant has elected to exercise. In
the case of the purchase of shares under an Option, such notice shall be
effective only if accompanied by the exercise price in full in cash; provided
that, if the terms of an Option so permit, the Participant may (i) deliver, or
cause to be withheld from the Option shares, shares of Company Stock (valued at
their Fair Market Value on the date of exercise) in satisfaction of all or any
part of the exercise price, (ii) deliver a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company, from the sale or loan proceeds with respect to the sale of Company
Stock or a loan secured by Company Stock, the amount necessary to pay the
exercise price and, if required by the Committee, Applicable Withholding Taxes,
or (iii) deliver an interest bearing promissory note, payable to the Company, in
payment of all or part of the exercise price together with such collateral as
may be required by the Committee at the time of exercise. The interest rate
under any such promissory note shall be established by the Committee and shall
be at least equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
(b) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option or Stock Appreciation Right any legend
deemed desirable by the Company's counsel to comply with federal or state
securities laws, and the Company may require a customary written indication of
the Participant's investment intent. Until the Participant has made any required
payment, including any Applicable Withholding Taxes, and has had issued a
certificate for the shares of Company Stock acquired, he shall possess no
shareholder rights with respect to the shares.
(c) As an alternative to making a cash payment to the Company to
satisfy Applicable Withholding Taxes, if the Agreement so provides, the
Participant may elect to (i) deliver shares of already owned Company Stock or
(ii) have the Company retain that number of shares of Company Stock that would
satisfy all or a specified portion of the Applicable Withholding Taxes. The
Committee shall have sole discretion to approve or disapprove any such election.
(d) If a Participant exercises an Option that has a Reload Feature by
delivering already owned shares of Company Stock in payment of the exercise
price, the Committee shall grant to the Participant a Reload Option. The
Committee shall grant the Reload Option in the same manner as set forth in
paragraph 8(a). The Reload Option shall be subject to the following
restrictions:
(i) The exercise price of shares of Company Stock covered by a
Reload Option shall be not less than 100% of the Fair Market Value of
such shares on the Date of Grant of the Reload Option;
(ii) If and to the extent required by Rule 16b-3, a Reload
Option shall not be exercisable within the first six months after it is
granted; provided that this restriction shall not apply if the
Participant becomes Disabled or dies during the six-month period;
(iii) The Reload Option shall be subject to the same
restrictions on exercisability imposed on the underlying option
(possessing the Reload Feature) delivered unless the Committee
specifies different limitations;
(iv) The Reload Option shall not be exercisable until the
expiration of any retention holding period imposed on the disposition
of any shares of Company Stock covered by the underlying Option
(possessing the Reload Feature) delivered; and
(v) The Reload Option shall not have a Reload Feature.
The Committee may, in its sole discretion, cause the Company to place
on any certificate representing Company Stock issued to a Participant upon the
exercise of an underlying Option (possessing a Reload Feature as evidenced by
the Agreement for such Option) delivered pursuant to this subsection (d), a
legend restricting the sale or other disposition of such Company Stock.
11. Nontransferability of Options and Stock Appreciation Rights.
Options and Stock Appreciation Rights by their terms, shall not be transferable
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in Code section 414(p)) ("QDRO")
and shall be exercisable, during the Participant's lifetime, only by the
Participant or an alternative payee under a QDRO, or by his guardian, duly
authorized attorney-in-fact or other legal representative.
12. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax Offset Rights may
be granted in connection with Nonstatutory Stock Options, Stock Appreciation
Rights, Incentive Stock or Restricted Stock. Tax Offset Rights shall be
evidenced in writing as part of the Agreement to which they pertain.
(b) Tax Offset Rights shall entitle the Participant, upon exercise of
all or any part of Nonstatutory Stock Option, Stock Appreciation Right, or Tax
Offset Right, upon grant of Incentive Stock, or upon the lapse of restrictions
on Restricted Stock, to receive in cash from the Company an amount equal to or
approximating the Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by giving the
Committee written notice of exercise simultaneously with the exercise of a
Nonstatutory Stock Option or Stock Appreciation Right, the receipt of an award
of Incentive Stock or the lapse of restrictions on Restricted Stock. To the
extent exercised, the Tax Offset Right shall lapse.
(d) The Committee may limit the amount the Participant will be entitled
to receive in connection with a Tax Offset Right and may include any provisions
in a Tax Offset Right that the Committee deems appropriate to ensure that the
Tax Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the Act and the rules and
regulations thereunder.
13. Effective Date of the Plan. This Plan shall be effective as
of December 13, 1996. However, until the Plan has been approved by the
Company's shareholders no Incentive Stock Option shall be awarded.
14. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on December 12, 2006.
No Incentive Awards shall be made under the Plan after its termination. The
Board may terminate the Plan or may amend the Plan in such respects as it shall
deem advisable; provided that, if and to the extent required by the Code, no
change shall be made that increases the total number of shares of Company Stock
reserved for issuance pursuant to Incentive Awards granted under the Plan
(except pursuant to Section 15), materially modifies the requirements as to
eligibility for participation in the Plan, or materially increases the benefits
accruing to Participants under the Plan, or unless such change is authorized by
the shareholders of the Company. Notwithstanding the foregoing, the Board may
unilaterally amend the Plan and Incentive Awards as it deems appropriate to
cause Incentive Stock Options to meet the requirements of the Code and
regulations thereunder. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a Participant's rights under an Incentive Award
previously granted to him.
15. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but not
limited to, the creation or issuance to shareholders generally of rights,
options or warrants for the purchase of common stock or preferred stock of the
Company), the number and kind of shares of stock or securities of the Company to
be subject to the Plan and to Options then outstanding or to be granted
thereunder, the maximum number of shares or securities which may be delivered
under the Plan, the exercise price and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be binding on
all persons. If the adjustment would produce fractional shares with respect to
any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding
Incentive Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
16. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two members of the Board, who
shall be appointed by the Board. Subject to paragraph (d) below, the Committee
shall be the Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have general authority to
impose any limitation or condition upon an Incentive Award the Committee deems
appropriate to achieve the objectives of the Incentive Award and the Plan and,
without limitation and in addition to powers set forth elsewhere in the Plan,
shall have the following specific authority:
(a) The Committee shall have the power and sole and complete
discretion to determine (i) which eligible employees shall receive
Incentive Awards and the nature of each Incentive Award, (ii) the
number of shares of Company Stock to be covered by each Incentive
Award, (iii) whether Options shall be Incentive Stock Options or
Nonstatutory Stock Options, (iv) when, whether and to what extent Stock
Appreciation Rights shall be granted in connection with Options, (v)
when, whether and to what extent Tax Offset Rights shall be granted and
the terms thereof, (vi) the Fair Market Value of Company Stock, (vii)
the time or times when an Incentive Award shall be granted, (viii)
whether an Incentive Award shall become vested over a period of time
and when it shall be fully vested, (ix) when Options and Stock
Appreciation Rights may be exercised, (x) whether a Disability exists,
(xi) the manner in which payment will be made upon the exercise of
Options or Stock Appreciation Rights, (xii) conditions relating to the
length of time before disposition of Company Stock received upon the
exercise of Options or Stock Appreciation Rights is permitted, (xiii)
whether to approve a Participant's election (A) to deliver shares of
already owned Company Stock to satisfy Applicable Withholding Taxes or
(B) to have the Company withhold from the shares to be issued upon the
exercise of a Nonstatutory Stock Option or Stock Appreciation Right the
number of shares necessary to satisfy Applicable Withholding Taxes,
(xiv) the terms and conditions applicable to Restricted Stock Awards,
(xv) the terms and conditions on which restrictions upon Restricted
Stock shall lapse, (xvi) whether to accelerate the time at which any or
all restrictions with respect to Restricted Stock will lapse or be
removed, (xvii) notice provisions relating to the sale of Company Stock
acquired under the Plan, (xviii) the terms of incentive programs,
performance criteria and other factors relevant to the issuance of
Incentive Stock, and (xix) any additional requirements relating to
Incentive Awards that the Committee deems appropriate. Notwithstanding
the foregoing, no "tandem stock options" (where two stock options are
issued together and the exercise of one option affects the right to
exercise the other option) may be issued in connection with Incentive
Stock Options. The Committee shall have the power to amend the terms of
previously granted Incentive Awards so long as the terms as amended are
consistent with the terms of the Plan and provided that the consent of
the Participant is obtained with respect to any amendment that would be
detrimental to him, except that such consent will not be required if
such amendment is for the purpose of complying with any requirement of
the Code applicable to the Incentive Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of
the Plan by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(d) The Board from time to time may appoint members
previously appointed and may fill vacancies, however caused, in the
Committee.
17. Notice. All notices and other communications required or
permitted to be given under this Plan shall be in writing and shall be deemed to
have been duly given if delivered personally or mailed first class, postage
prepaid, as follows (a) if to the Company - at its principal business address to
the attention of the Treasurer; (b) if to any Participant - at the last address
of the Participant known to the sender at the time the notice or other
communication is sent.
18. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect. The terms of
this Plan shall be governed by the laws of the Commonwealth of Virginia.
19. Effective Date. This Plan shall be effective as of December
13, 1996.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted as
set forth herein this 13th day of December, 1996.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
By:/S/ ROBERT L. MASSEY
--------------------
Robert L. Massey, President
Exhibit 10(i)
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
PETER T. SOCHA STOCK OPTION PLAN
1. Purpose. The purpose of this Consumat Environmental Systems,
Inc. Peter T. Socha Stock Option Plan (the "Plan") is to provide incentive to
Peter T. Socha to improve the long term stability and financial success of
Consumat Environmental Systems, Inc., (the "Company"). The Plan is intended to
conform to the provisions of Securities and Exchange Commission Rule 16b-3.
2. Definitions. As used in the Plan, the following terms have
the meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Agreement" means a written agreement (including any
amendment or supplement thereto) between the Company and the
Participant specifying the terms and conditions of an Option granted to
such Participant.
(c) "Applicable Withholding Taxes" means the aggregate amount
of federal, state and local income and payroll taxes that the Company
is required to withhold in connection with any exercise of a
Nonstatutory Stock Option.
(d) "Affiliate" means any "parent" or "subsidiary"
corporation (within the meaning of Code Section 424) of the Company.
(e) "Board" means the board of directors of the Company.
(f) "Change of Control" means:
(i) The acquisition, other than from the Company, by
any individual, entity or group (within the meaning of Section
13(d)(3) or 14 (d)(2) of the Act), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act)
of 20% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, but excluding for this
purpose, any such acquisition by the Company or any of its
subsidiaries, or any employee benefit plan (or related trust)
of the Company or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners, respectively, of
the common stock and voting securities of the Company
immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of common stock of
the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors, as the case may be; or
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote
of at least a majority of the directors comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the Directors of the
Company (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Act); or
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
reorganization, merger or consolidation, or a complete
liquidation or dissolution of the Company or of its sale or
other disposition of all or substantially all of the assets of
the Company.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the committee appointed by the
Board as described under Section 16.
(i) "Company" means Consumat Environmental Systems, Inc., a
Virginia corporation.
(j) "Company Stock" means Common Stock, $1.00 par value,
of the Company. If the par value of the Company Stock is changed, or
in the event of a change in the capital structure of the Company (as
provided in Section 15), the shares resulting from such a change shall
be deemed to be Company Stock within the meaning of the Plan.
(k) "Date of Grant" means the date on which an Option is
granted by the Committee.
(l) "Disability" or "Disabled" means a Disability within
the meaning of Code Section 22(e)(3).
(m) "Fair Market Value" means, on any given date, the value of
a share of Company Stock based upon the average of the highest and
lowest reported sales prices per share of the Company Stock on such day
on the NASDAQ Bulletin Board (or, if there have been no transactions,
the bid price).
(o) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment, under Code Section 422.
(p) "Insider" means a person subject to Section 16(b) of
the Act.
(q) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code Section 422, or, even if meeting the
requirements of Code Section 422, is not intended to be an Incentive
Stock Option and is so designated.
(r) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan and
set forth in an Agreement.
(s) "Participant" means any employee who receives an
Option under the Plan.
(t) "Plan" means the Consumat Environmental Systems, Inc.
Peter T. Socha Stock Option Plan.
(u) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Act. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or
number redesignation) of any amendments to Rule 16b-3 enacted after the
effective date of the Plan's adoption.
(v) "10% Shareholder" means an individual who owns, directly
or indirectly, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of an Affiliate.
Indirect ownership of stock shall be determined in accordance with Code
Section 424(d).
(w) "Tax Offset Right" means a right to receive amounts in
cash from the Company as described in Section 9 of the Plan.
(x) "Window Period" means the period beginning on the third
business day and ending on the twelfth business day following the
release for publication of quarterly or annual summary statements of
the Company's sales and earnings. The release for publication shall be
deemed to have occurred if the specified financial data (i) appears on
a wire service, (ii) appears in a financial news service, (iii) appears
in a newspaper of general circulation, or (iv) is otherwise made
publicly available.
3. General. The sole type of incentive awards that may be granted under
the Plan are Incentive Stock Options and Nonstatutory Stock Options.
4. Stock. Subject to Section 15 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 100,000 shares of Company Stock,
which shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or otherwise terminate
unexercised may again be subjected to an award under the Plan. For purposes of
determining the number of shares that are available for award as Options under
the Plan, such number shall, to the extent permissible under Rule 16b-3, include
the number of shares surrendered by an optionee or retained by the Company in
payment of Applicable Withholding Taxes.
5. Eligibility.
(a) Peter T. Socha is the sole employee of the Company who is eligible
to participate in the Plan. Mr. Socha will become a Participant only if the
Committee, in its sole discretion, selects him to receive an Option. The
Committee has the sole discretion to determine for Mr. Socha the terms and
conditions, the nature of the award and the number of shares to be allocated to
each employee as part of each Option. Any Option granted under this Plan shall
be evidenced by an Agreement which shall be subject to the applicable provisions
of this Plan and to other such provisions as the Committee may impose.
(b) The grant of an Option shall not obligate the Company or any
Affiliate to pay an employee any particular amount of remuneration, to continue
the employment of the employee after the grant or to make further grants to the
employee at any time thereafter.
6. Stock Options.
(a) Whenever the Committee deems it appropriate to grant Options,
notice shall be given to the Participant stating the number of shares for which
Options are granted, the Option price per share, whether the Options are
Incentive Stock Options or Nonstatutory Stock Options, and the conditions to
which the grant and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become an Agreement.
(b) The exercise price of shares of Company Stock covered by an Option
shall be not less than 100% of the Fair Market Value of such shares on the Date
of Grant; provided that if an Option is granted to a Participant who, at the
time of the grant, is a 10% Shareholder, then the exercise price of the shares
covered by the Option shall be not less than 110% of the Fair Market Value of
such shares on the Date of Grant.
(c) Options may be exercised in whole or in part at such times as may
be specified by the Committee in the Participant's Agreement; provided that, the
exercise provisions for Incentive Stock Options shall in all events not be more
liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after the first
to occur of (x) ten years (or, in the case of an Incentive Stock Option
granted to a 10% Shareholder, five years) from the Date of Grant, (y)
three months following the date of the Participant's retirement or
termination of employment with the Company and all Affiliates for
reasons other than Disability or death, or (z) one year following the
date of the Participant's termination of employment on account of
Disability or death.
(ii) Except as otherwise provided in this paragraph, no
Incentive Stock Option may be exercised unless the Participant is
employed by the Company or an Affiliate at the time of the exercise and
has been employed by the Company or an Affiliate of the Company at all
times since the Date of Grant. If a Participant's employment is
terminated other than by reason of his Disability or death at a time
when the Participant holds an Incentive Stock Option that is
exercisable (in whole or in part), the Participant may exercise any or
all of the exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of termination) within three months
after the Participant's termination of employment. If a Participant's
employment is terminated by reason of his Disability at a time when the
Participant holds an Incentive Stock Option that is exercisable (in
whole or in part), the Participant may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of Disability) within one year after the
Participant's termination of employment. If a Participant's employment
is terminated by reason of his death at a time when the Participant
holds an Incentive Stock Option that is exercisable (in whole or in
part), the Incentive Stock Option may be exercised (to the extent
exercisable on the date of death) within one year after the
Participant's death by the person to whom the Participant's rights
under the Incentive Stock Option shall have passed by will or by the
laws of descent and distribution.
(iii) An Incentive Stock Option by its terms, shall be
exercisable in any calendar year only to the extent that the aggregate
Fair Market Value (determined at the Date of Grant) of the Company
Stock with respect to which Incentive Stock Options are exercisable for
the first time during the calendar year does not exceed $100,000 (the
"Limitation Amount"). Incentive Stock Options granted after 1986 under
the Plan and all other plans of the Company and any Affiliate shall be
aggregated for purposes of determining whether the Limitation Amount
has been exceeded. The Board may impose such conditions as it deems
appropriate on an Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options that first become
exercisable in a calendar year exceed the Limitation Amount, the excess
Options will be treated as Nonstatutory Stock Options to the extent
permitted by law.
(e) Notwithstanding the foregoing, no Option shall be exercisable
within the first six months after it is granted; provided that, this restriction
shall not apply if the Participant becomes Disabled or dies during the six-month
period.
(f) The Committee may, in its sole discretion, grant Options that by
their terms become fully exercisable upon a Change of Control, notwithstanding
other conditions on exercisability in the Agreement.
7. Method of Exercise of Options.
(a) Options may be exercised by the Participant giving written notice
of the exercise to the Company, stating the number of shares the Participant has
elected to purchase under the Option. Such notice shall be effective only if
accompanied by the exercise price in full in cash; provided that, if the terms
of an Option so permit, the Participant may (i) deliver, or cause to be withheld
from the Option shares, shares of Company Stock (valued at their Fair Market
Value on the date of exercise) in satisfaction of all or any part of the
exercise price, (ii) deliver a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company, from
the sale or loan proceeds with respect to the sale of Company Stock or a loan
secured by Company Stock, the amount necessary to pay the exercise price and, if
required by the Committee, Applicable Withholding Taxes, or (iii) deliver an
interest bearing promissory note, payable to the Company, in payment of all or
part of the exercise price together with such collateral as may be required by
the Committee at the time of exercise. The interest rate under any such
promissory note shall be established by the Committee and shall be at least
equal to the minimum interest rate required at the time to avoid imputed
interest under the Code.
(b) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued a certificate for
the shares of Company Stock acquired, he shall possess no shareholder rights
with respect to the shares.
(c) As an alternative to making a cash payment to the Company to
satisfy Applicable Withholding Taxes, if the Agreement so provides, the
Participant may, subject to the provisions set forth below, elect to (i) deliver
shares of already owned Company Stock or (ii) have the Company retain that
number of shares of Company Stock that would satisfy all or a specified portion
of the Applicable Withholding Taxes. The Committee shall have sole discretion to
approve or disapprove any such election. If the Participant is an Insider, the
following provisions apply to elections to satisfy Applicable Withholding Taxes,
to the extent required by Rule 16b-3:
(i) The Participant's election to have the Company retain from
the shares of Company Stock to be issued upon exercise of an Option the
number of shares of Company Stock that would satisfy Applicable
Withholding Taxes must be made at least six months after the Option was
granted, and either:
(x) during a Window Period; or
(y) at least six months before the amount of
Applicable Withholding Taxes is calculated.
(ii) The Participant's election must be irrevocable.
(iii) Notwithstanding any of the foregoing
provisions, the manner and timing of elections may be varied from those
provided, and elections previously made as irrevocable may be revoked,
if such variance or revocation is permissible under Rule 16b-3.
(d) Notwithstanding anything herein to the contrary, Options shall
always be granted and exercised in such a manner as to conform to the provisions
of Rule 16b-3.
8. Nontransferability of Options. Options by their terms, shall not be
transferable except by will or by the laws of descent and distribution or, if
permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as
defined in Code Section 414(p)) ("QDRO") and shall be exercisable, during the
Participant's lifetime, only by the Participant or, if permitted by Rule 16b-3,
an alternative payee under a QDRO, or by his guardian, duly authorized
attorney-in-fact or other legal representative.
9. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax Offset Rights may
be granted in connection with Nonstatutory Stock Options. Tax Offset Rights
shall be evidenced in writing as part of the Agreement to which they pertain.
(b) Tax Offset Rights shall entitle the Participant, upon exercise of
all or any part of Nonstatutory Stock Option to receive in cash from the Company
an amount equal to or approximating the Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by giving the
Committee written notice of exercise simultaneously with the exercise of a
Nonstatutory Stock Option. To the extent exercised, the Tax Offset Right shall
lapse.
(d) The Committee may limit the amount the Participant will be entitled
to receive in connection with a Tax Offset Right and may include any provisions
in a Tax Offset Right that the Committee deems appropriate to ensure that the
Tax Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the Act and the rules and
regulations thereunder.
10. Effective Date of the Plan. This Plan shall be effective on January
14, 1997, and shall be submitted to the shareholders of the Company for
approval. Until (i) the Plan has been approved by the Company's shareholders,
and (ii) the requirements of any applicable State securities laws have been met,
no Option shall be exercisable.
11. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on January 13, 2007.
No Option awards shall be made under the Plan after its termination. The Board
may terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided that, if and to the extent required by the Code or Rule
16b-3, no change shall be made that increases the total number of shares of
Company Stock reserved for issuance pursuant to Option awards granted under the
Plan (except pursuant to Section 12), materially modifies the requirements as to
eligibility for participation in the Plan, or materially increases the benefits
accruing to Participants under the Plan, or unless such change is authorized by
the shareholders of the Company. Notwithstanding the foregoing, the Board may
unilaterally amend the Plan and Option awards as it deems appropriate to ensure
compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the
requirements of the Code and regulations thereunder. Except as provided in the
preceding sentence, a termination or amendment of the Plan shall not, without
the consent of the Participant, adversely affect a Participant's rights under an
Option previously granted to him.
12. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but not
limited to, the creation or issuance to shareholders generally of rights,
options or warrants for the purchase of common stock or preferred stock of the
Company), the number and kind of shares of stock or securities of the Company to
be subject to the Plan and to Options then outstanding or to be granted
thereunder, the maximum number of shares or securities which may be delivered
under the Plan, the exercise price and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be binding on
all persons. If the adjustment would produce fractional shares with respect to
any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding Options
as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
13. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two members of the Board, who
shall be appointed by the Board. Subject to paragraph (d) below, the Committee
shall be the Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have general authority to
impose any limitation or condition upon an Option the Committee deems
appropriate to achieve the objectives of the Option and the Plan and, without
limitation and in addition to powers set forth elsewhere in the Plan, shall have
the following specific authority:
(a) The Committee shall have the power and sole and complete
discretion to determine (i) which eligible employees shall receive
Option and the nature of each Option, (ii) the number of shares of
Company Stock to be covered by each Option, (iii) whether Options shall
be Incentive Stock Options or Nonstatutory Stock Options, (iv) when,
whether and to what extent Tax Offset Rights shall be granted and the
terms thereof, (v) the Fair Market Value of Company Stock, (vi) the
time or times when an Option shall be granted, (vii) whether an Option
shall become vested over a period of time or upon the attainment of
financial performance goals, or a combination thereof, (viii) when
Options may be exercised, (ix) whether a Disability exists, (x) the
manner in which payment will be made upon the exercise of Options, (xi)
conditions relating to the length of time before disposition of Company
Stock received upon the exercise of Options is permitted, (xii) whether
to approve a Participant's election (A) to deliver shares of already
owned Company Stock to satisfy Applicable Withholding Taxes or (B) to
have the Company withhold from the shares to be issued upon the
exercise of a Nonstatutory Stock Option the number of shares necessary
to satisfy Applicable Withholding Taxes, (xiii) notice provisions
relating to the sale of Company Stock acquired under the Plan, and
(xiv) any additional requirements relating to Options that the
Committee deems appropriate. Notwithstanding the foregoing, no "tandem
stock options" (where two stock options are issued together and the
exercise of one option affects the right to exercise the other option)
may be issued in connection with Incentive Stock Options. The Committee
shall have the power to amend the terms of previously granted Options
so long as the terms as amended are consistent with the terms of the
Plan and provided that the consent of the Participant is obtained with
respect to any amendment that would be detrimental to him, except that
such consent will not be required if such amendment is for the purpose
of complying with Rule 16b-3 or any requirement of the Code applicable
to the Option.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of
the Plan by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(d) The Board from time to time may appoint members
previously appointed and may fill vacancies, however caused, in the
Committee. Insofar as it is necessary to satisfy the requirements of
Section 16(b) of the Act, (i) no member of the Committee shall be
granted or awarded equity securities pursuant to the Plan or any other
plan of the Company or any Affiliate that entitles participants to
acquire stock, stock options or stock appreciation rights of the
Company or Affiliate, and (ii) no person shall become a member of the
Committee if, within the preceding one-year period, the person shall
have been granted or awarded equity securities pursuant to such a plan;
provided, however, that the foregoing prohibitions on Committee
membership shall be subject to the exception set forth in clauses (A)
through (D) of Rule 16b-3(c)(2)(i) and (ii)).
14. Notice. All notices and other communications required or
permitted to be given under this Plan shall be in writing and shall be deemed to
have been duly given if delivered personally or mailed first class, postage
prepaid, as follows (a) if to the Company - at its principal business address to
the attention of the Treasurer; (b) if to any Participant - at the last address
of the Participant known to the sender at the time the notice or other
communication is sent.
15. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect. The terms of
this Plan shall be governed by the laws of the Commonwealth of Virginia.
16. Effective Date. This Plan shall be effective as of January 14,
1997.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this 14th day of January, 1997.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
By: /S/ ROBERT L.MASSEY
-------------------
President, and
Chief Executive Officer
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