SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of Commission
Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
COMMODORE ENVIRONMENTAL SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
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(Names of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
of the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[COMMODORE ENVIRONMENTAL LETTERHEAD]
May 8, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Commodore Environmental Services, Inc. (the "Company") to be held on
Wednesday, June 3, 1998, at 9:00 a.m., local time, at The Links Club, 36 East
62nd Street, New York, New York 10021. Enclosed is a formal Notice of Annual
Meeting and Proxy Statement, together with a proxy card and return envelope for
use of stockholders who are unable to be present in person at the Annual
Meeting. Also enclosed for your review is the Company's 1997 Annual Report to
Stockholders.
The formal Notice of Annual Meeting and Proxy Statement describe the
specific business to be acted upon at the Annual Meeting, and we urge you to
read these materials carefully. In addition to electing directors, stockholders
will be entitled to vote upon the ratification of the selection of Price
Waterhouse LLP as the Company's independent auditors for the ensuing year. Your
Board of Directors unanimously believes that the election of the nominees named
in the Proxy Statement as directors of the Company, and the ratification of the
appointment of Price Waterhouse LLP as the Company's independent auditors for
the year ending December 31, 1998 are in the best interests of the Company and
its stockholders and, accordingly, recommends a vote "FOR" the foregoing
proposals.
Whether or not you plan to attend the Annual Meeting in person, and
regardless of the size of your holdings, it is very important that your shares
be represented and voted at the Annual Meeting. After reading the enclosed
Notice of Annual Meeting and Proxy Statement, please complete, sign, date and
return the enclosed proxy card in the self-addressed, postage paid envelope
provided for your convenience. Because mail delays occur frequently, it is
important that the enclosed proxy card be returned well in advance of the Annual
Meeting. If the address on the accompanying material is incorrect, please advise
our Transfer Agent, The Bank of New York, in writing, at 101 Barclay Street, New
York, New York 10286. If, after returning your proxy card, you find that you are
able to attend the Annual Meeting in person and wish to personally vote your
shares, you may revoke your proxy at that time and personally vote your shares
at the Annual Meeting.
I hope to see you at the Annual Meeting and to have the opportunity to
introduce you to our management team and the other members of the Board of
Directors. On behalf of your Board of Directors, we greatly appreciate your
continued support.
Sincerely yours,
/s/ PAUL E. HANNESSON
PAUL E. HANNESSON
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC.
150 East 58th Street, Suite 3400
New York, New York 10155
----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 3, 1998
----------------------------
To the Stockholders of COMMODORE ENVIRONMENTAL SERVICES, INC. :
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Commodore Environmental Services, Inc., a Delaware corporation (the
"Company"), will be held at 9:00 a.m., local time, on Wednesday, June 3, 1998,
at The Links Club, 36 East 62nd Street, New York, New York 10021, for the
following purposes:
1. To elect five directors to hold office until the Annual Meeting of
Stockholders to be held in 1999, and until their respective successors
are duly elected and have qualified;
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent auditors for the year ending December 31, 1998; and
3. To consider and transact such other business as may properly come
before the Annual Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 27, 1998,
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or any adjournment thereof. A list of stockholders
entitled to vote at the Annual Meeting will be open for examination for ten days
preceding the Annual Meeting, during ordinary business hours, at the location of
the principal executive offices of the Company set forth above and will also be
available for inspection at the Annual Meeting.
By Order of the Board of Directors
/s/ MICHAEL D. FULLWOOD
MICHAEL D. FULLWOOD
Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel
New York, New York
May 8, 1998
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YOUR VOTE IS IMPORTANT
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares you hold. Therefore, whether or not you plan
to attend the Annual Meeting, please complete, sign, date and return the
enclosed proxy card promptly in the enclosed self-addressed, postage-paid
envelope provided for your convenience. Proxies may be revoked at any time
before the shares subject to the proxy are voted, and stockholders who are
present at the Annual Meeting may revoke their proxies at that time and vote in
person if they desire.
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<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC.
150 East 58th Street, Suite 3400
New York, New York 10155
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PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 3, 1998
This Proxy Statement is being furnished to the stockholders of Commodore
Environmental Services, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors" or the "Board") from holders of outstanding
shares of common stock, par value $0.01 per share, of the Company (the "Common
Stock"), for use at the Annual Meeting of Stockholders to be held on Wednesday,
June 3, 1998, and at any adjournment or postponement thereof (the "Annual
Meeting").
The costs of preparing, assembling and mailing the proxy material will be
borne by the Company. Solicitations will be made only by use of the mail except
that, if deemed desirable, officers and other employees of the Company may
solicit proxies by telephone, facsimile and/or other means of communication.
Such persons will receive no compensation therefor in addition to their regular
salaries, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will be made with banks, brokers
and other custodians, nominees and fiduciaries to forward copies of the proxy
material to the beneficial owners of the stock held of record by such persons
and to request authority for the execution of proxies. The Company will
reimburse such persons for their reasonable expenses incurred in this
connection.
It is anticipated that the mailing to stockholders of this Proxy Statement,
the attached Notice of Annual Meeting and the enclosed proxy card will commence
on or about May 8, 1998. The Company's 1997 Annual Report to Stockholders
accompanies but does not constitute a part of this Proxy Statement.
The purpose of the Annual Meeting, and the matters to be acted upon are set
forth in the attached Notice of Annual Meeting. As of the date of this Proxy
Statement, the Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting. A stockholder who executes a
proxy may revoke such proxy, at any time before the shares subject to the proxy
are voted, by: (i) filing with the Secretary of the Company at the Company's
principal executive offices (a) a written notice of revocation bearing a later
date than the proxy, or (b) a duly executed proxy relating to the same shares
bearing a later date than the original proxy; or (ii) attending the Annual
Meeting, withdrawing the proxy and voting in person. Attendance at the Annual
Meeting will not in and of itself constitute revocation of a proxy. No
revocation of a previously delivered proxy shall be effective unless it is
received by the Secretary of the Company before the shares subject to the proxy
are voted at the Annual Meeting.
Unless contrary instructions are indicated on the proxy cards, all shares
represented by valid proxies received pursuant to this solicitation (and which
have not been revoked in accordance with the procedures set forth above) will be
voted "FOR" the election of the five nominees for director named herein, and
"FOR" the ratification of the appointment of Price Waterhouse LLP as the
Company's independent auditors for the year ending December 31, 1998. If any
other business shall properly come before the Annual Meeting, votes will be cast
pursuant to said proxies in respect of any such other business in accordance
with the judgment and in the discretion of the persons acting thereunder.
The Company's principal executive offices are located at 150 East 58th
Street, Suite 3400, New York, New York 10155, and its telephone number at that
address is (212) 308-5800.
<PAGE>
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has set the close of business on April 27, 1998 as
the record date (the "Record Date") for determining the stockholders of the
Company entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. As of the Record Date there were 60,966,294 shares of
Common Stock issued and outstanding, all of which are entitled to be voted at
the Annual Meeting. There was no beneficial owner (as defined under the rules of
the Securities and Exchange Commission) of more than 5% of the outstanding
shares of Common Stock known to the Company at the Record Date, other than as
set forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" below. Each share of Common Stock entitles the holder to one vote on
each matter submitted to stockholders for a vote at the Annual Meeting.
A quorum of stockholders is necessary to take action at the Annual Meeting.
A quorum is established if at least a majority of the outstanding shares of
Common Stock as of the Record Date is present in person or represented by proxy
at the Annual Meeting. Directors will be elected by a plurality of the votes of
the shares of Common Stock present in person or represented by proxy at the
Annual Meeting. Ratification of the appointment of Price Waterhouse LLP as the
Company's independent auditors for the year ending December 31, 1998 requires
the affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting. All other matters at the
meeting will be decided by the affirmative vote of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the subject matter. Votes cast in person or by proxy at the
Annual Meeting will be counted and certified by two Inspectors of Election, of
which one is expected to be an employee of the Company and the other is expected
to be an employee of The Bank of New York, the Company's transfer agent. The
Inspectors of Election will also determine whether or not a quorum is present at
the Annual Meeting.
In accordance with Delaware law, abstentions and "broker non-votes" (which
occur when a broker or other nominee holding shares for a beneficial owner does
not vote on a particular proposal, because such broker or other nominee does not
have discretionary voting power with respect to that matter and has not received
instructions from the beneficial owner) will be treated as present for purposes
of determining the presence of a quorum at the Annual Meeting. Directions to
withhold authority will have no effect on the election of directors at the
Annual Meeting, because directors are elected by a plurality of votes cast. For
purposes of determining approval of a matter presented at the Annual Meeting,
abstentions will be deemed present and entitled to vote and will, therefore,
have the same legal effect as a vote "against" a matter presented at the Annual
Meeting. Broker non-votes will be deemed not entitled to vote on the subject
matter as to which the non-vote is indicated and, consequently, will not affect
the outcome of the matter. If less than a majority of the outstanding shares of
Common Stock as of the Record Date are represented at the Annual Meeting, a
majority of the shares so represented may adjourn the Annual Meeting from time
to time without further notice.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of the Record Date by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director, (iii)
each individual listed in the Summary Compensation Table herein, and (iv) all
executive officers and directors of the Company as a group, as reported by such
persons. Unless otherwise indicated, the owners have sole voting and investment
power with respect to their respective shares.
<TABLE>
<CAPTION>
Number of Shares Percentage of Outstanding
of Common Stock Common Stock
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Beneficially Owned
- --------------------------------------- ---------------------- ----- ------------------
<S> <C> <C>
Bentley J. Blum............................. 30,479,737(3) 49.4%
Paul E. Hannesson........................... 7,750,000(4) 12.1%
Credit Agricole Deux Sevres................. 6,000,000(5) 9.4%
Michael D. Fullwood......................... 200,000(6) *
Kenneth L. Adelman.......................... 385,000(7) *
Herbert A. Cohen............................ 105,000(8) *
David L. Mitchell........................... 105,000(8) *
All executive officers
and directors as
a group (6 persons)....................... 39,024,737 60.1%
</TABLE>
- -----------------------------------
Percentage ownership is less than 1%.
(1) The address of each of Bentley J. Blum, Paul E. Hannesson, Michael D.
Fullwood, Kenneth L. Adelman, Herbert A. Cohen and David L. Mitchell is 150
East 58th Street, Suite 3400, New York, New York 10155. The address of
Credit Agricole Deux Sevres is 4 Boulevard Louis Tardy, 79000 Niort,
France. Bentley J. Blum and Paul E. Hannesson are brothers-in-law.
(2) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Exchange Act as consisting of sole or
shared voting power (including the power to vote or direct the disposition
of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire such
power(s) during the next 60 days. Unless otherwise noted, beneficial
ownership consists of sole ownership, voting and investment rights.
(3) Represents Mr. Blum's beneficial ownership of 28,479,737 shares and his
spouse's ownership of 2,000,000 shares of Common Stock of the Company,
representing together 49.4% of the outstanding shares of Company Common
Stock. Does not include 450,400 shares of Common Stock owned by Simone
Blum, the mother of Mr. Blum, and 385,000 shares of Common Stock owned by
Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any beneficial
interest in the shares of Common Stock owned by his spouse, mother and
father.
(4) Consists of an aggregate of: (i) 2,650,000 shares of Company Common Stock
owned by Suzanne Hannesson, the spouse of Mr. Hannesson; (ii) 2,650,000
shares of Company Common Stock owned by the Hannesson Family Trust (Suzanne
Hannesson and John D. Hannesson, trustees) for the benefit of Mr.
Hannesson's spouse; and (iii) currently exercisable options to purchase
500,000 and 1,950,000 shares of Company Common Stock at $0.53 per share and
$0.84 per share, respectively, representing collectively 12.1% of the
outstanding
3
<PAGE>
shares of Company Common Stock. Does not include 1,000,000 shares of
Company Common Stock owned by each of Jon Paul and Krista Hannesson, the
adult children of Mr. Hannesson, and additional stock options to purchase
1,500,000 shares of Company Common Stock at $0.84 per share, which vest and
become exercisable ratably on November 18 of each of 1998 through 2000. Mr.
Hannesson disclaims any beneficial interest in the shares of Company Common
Stock owned by or for the benefit of his spouse and children.
(5) Consists of: (i) the number of shares of Company Common Stock which could
be acquired at any time upon the conversion into Common Stock of $4,000,000
principal amount of outstanding convertible bonds (4,000,000 shares of
Common Stock) and 500,000 shares of Series AA Preferred Stock (500,000
shares of Common Stock); and (ii) the number of share of Company Common
Stock which could be acquired at any time upon the exercise of outstanding
warrants to acquire 1,500,000 shares of Company Common Stock at $0.10 per
share.
(6) Represents shares of Company Common Stock underlying currently exercisable
stock options granted to Mr. Fullwood by the Company under the Company's
1997 Stock Option Plan (the "Plan") .
(7) Consists of: (i) 105,000 shares of Company Common Stock underlying
currently exercisable stock options granted to Dr. Adelman by the Company
under the Plan in his capacity as a director of the Company; and (ii)
280,000 shares of Company Common Stock underlying currently exercisable
stock options granted to Dr. Adelman by the Company in his capacity as an
executive officer of Applied.
(8) Represents 105,000 shares of Company Common Stock underlying currently
exercisable stock options granted to each of Messrs. Mitchell and Cohen by
the Company.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
At this year's Annual Meeting, five directors will be elected to hold
office for a term expiring at the Annual Meeting of Stockholders to be held in
1999, and until their respective successors are duly elected and have qualified.
The Executive Committee of the Board of Directors has nominated the individuals
listed below as directors to be elected at the Annual Meeting, each of whom is
presently serving as a director of the Company. Each director shall be elected
by a plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting. The persons named in the enclosed
proxy card intend to vote the shares represented by valid proxies for the
election of the persons listed below as directors of the Company, unless the
vote for such persons is expressly withheld.
The Board of Directors has no reason to believe that any nominee will
refuse or be unable to accept election; however, in the event that a nominee for
director is unable to accept election or if any other unforeseen contingencies
should arise, it is intended that proxies will be voted for the remaining
nominees and for such other person or persons as may be designated by the Board
of Directors, unless the proxies instruct otherwise.
The following information, including principal occupation or employment for
the past five or more years, is furnished with respect to the following nominees
for directors:
Paul E. Hannesson--Age 57
Director since February 1993
Mr. Hannesson has been a director of the Company since February 1993 and
was appointed its Chairman of the Board and Chief Executive Officer in November
1996. Mr. Hannesson also served as President of the Company from February 1993
to July 1996 and was re-appointed President in May 1997. Mr. Hannesson has also
served as a director of Commodore Applied Technologies, Inc. ("Applied") since
March 1996 and was appointed its Chairman of the Board in November 1996. Mr.
Hannesson also served as Chief Executive Officer of Applied from March to
October 1996 and as President from March to September 1996, and was re-appointed
Chief Executive Officer in November 1996 and President in May 1997. Mr.
Hannesson also currently serves as the Chairman of the Board and Chief Executive
Officer of Commodore Separation Technologies, Inc. ("Separation"), Commodore
Solution Technologies, Inc., a wholly-owned subsidiary of Applied ("Solution")
and Commodore CFC Technologies, Inc., a wholly-owned subsidiary of Applied ("CFC
Technologies"). Mr. Hannesson was a private investor and business consultant
from 1990 to 1993, and was also an officer and director of Specialty Retail
Services, Inc. from 1989 to August 1991. He served as Chairman of the Board of
Lanxide Corporation, a research and development company developing metal and
ceramic materials ("Lanxide"), from 1983 to February 1998. Mr. Hannesson is the
brother-in-law of Bentley J. Blum, a director and principal stockholder of the
Company.
Kenneth L. Adelman, Ph.D.--Age 49
Director since July 1996
Dr. Adelman joined the Board of Directors of the Company and Applied in
July 1996 and was appointed Executive Vice President--Marketing and
International Development of Applied in May 1997. Dr. Adelman was appointed
President and Chief Operating Officer of Solution in November 1997. Dr. Adelman
also joined the Board of Directors of Separation in April 1997. Since 1987, Dr.
Adelman has been an independent consultant on international issues to various
corporations, including Lockheed Martin Marietta Corporation and Loral
Corporation. Previously, Dr. Adelman held positions of responsibility in arms
control during most of the Reagan Administration. From 1983 to the end of 1987,
he was Director of the United States Arms Control and Disarmament Agency. Dr.
Adelman was a Professor at Georgetown University and writer for Washingtonian
Magazine from 1987 to 1991. Dr. Adelman accompanied President Ronald Reagan on
summits with Mikhail Gorbachev, and negotiated with Soviet diplomats on nuclear
and chemical weapons control issues, from 1985 to 1987. He also headed the
United States team on annual arms control discussions with top-level officials
of the People's Republic of China from 1983 through 1986. From 1981
5
<PAGE>
to 1983, he served as Deputy United States Representative to the United Nations
with the rank of Ambassador Extraordinary and Plenipotentiary. Dr. Adelman holds
M.A. and Ph.D. degrees from Georgetown University.
Bentley J. Blum--Age 56
Director since 1984
Mr. Blum has served as a director of the Company since 1984 and served as
the Chairman of the Board from 1984 to November 1996. Mr. Blum has served as a
director of Applied since March 1996 and served as its Chairman of the Board
from March to November 1996. Mr. Blum also currently serves as a director of
Separation, Solution and CFC Technologies. For more than 15 years, Mr. Blum has
been actively engaged in real estate acquisitions and currently is the sole
stockholder and director of a number of corporations which hold real estate
interests, oil drilling interests and other corporate interests. Mr. Blum is a
director of Lanxide; Federal Resources Corporation, a company formerly engaged
in manufacturing, retail distribution and natural resources development;
Specialty Retail Services, Inc., a former distributor of professional beauty
products; and North Valley Development Corp., an inactive real estate
development company. Mr. Blum is a principal stockholder of the Company and is
the brother-in-law of Paul E. Hannesson, the Chairman of the Board, President
and Chief Executive Officer of the Company.
Herbert A. Cohen--Age 64
Director since July 1996
Mr. Cohen has served as a director of the Company and Applied since July
1996 and joined the Board of Directors of Separation in March 1998. Mr. Cohen
has been a practicing negotiator for the past three decades acting in an
advisory capacity in hostage negotiations and crisis management. He has been an
advisor to Presidents Carter and Reagan in the Iranian hostage crisis, the
government's response to the skyjacking of TWA Flight 847 and the seizure of
Achille Lauro. Mr. Cohen's clients have included large corporations and
government agencies such as the Department of State, the Federal Bureau of
Investigation, the Conference of Mayors, the Bureau of Land Management, Lands
and Natural Resources Division in conjunction with the EPA, and the United
States Department of Justice. In addition, Mr. Cohen was an advisor and
consultant to the Strategic Arms Reduction Talks negotiating team. Mr. Cohen
holds a law degree from New York University School of Law, and has lectured at
numerous academic institutions.
David L. Mitchell--Age 76
Director since July 1996
Mr. Mitchell has served as a director of the Company and Applied since July
1996 and as a director of Separation since April 1997. Mr. Mitchell has also
served as a consultant to Applied since July 1997. For the past thirteen years,
Mr. Mitchell has been President and co-founder of Mitchell & Associates, Inc., a
banking firm providing financial advisory services in connection with corporate
mergers, acquisitions and diversities. Prior to forming Mitchell & Associates in
1982, Mr. Mitchell was a Managing Director of Shearson/American Express Inc.
from 1979 to 1982, a Managing Director of First Boston Corporation from 1976 to
1978, and a Managing Director of the investment banking firm of S.G. Warburg &
Company from 1965 to 1976. Mr. Mitchell holds a bachelor's degree from Yale
University.
Messrs. Hannesson and Blum are brothers-in-law. No family relationship
exists among any other directors or executive officers of the Company. No
arrangement or understanding exists between any director and any other person
pursuant to which any director was selected as a director of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTORS LISTED ABOVE.
6
<PAGE>
INFORMATION REGARDING BOARD
MEETINGS, COMMITTEES AND MANAGEMENT
The Board of Directors held ten meetings and took certain actions by
written consent during the year ended December 31, 1997. Each incumbent director
attended, either in person or by telephone, at least 75 percent of the aggregate
of (i) the total number of meetings of the Board of Directors (held during the
period for which he has been a director) and (ii) the total number of meetings
held by all committees of the Board on which he served (during the periods that
he served).
Committees of the Board
Audit Committee. The Board of Directors has a standing Audit Committee that
is presently composed of Herbert A. Cohen (Chairman) and David L. Mitchell, each
of whom is not an employee of the Company. The Audit Committee held two meetings
during 1997. The responsibilities of the Audit Committee include recommending to
the Board of Directors the firm of independent accountants to be retained by the
Company, reviewing with the Company's independent accountants the scope and
results of their audits, reviewing with the independent accountants and
management the Company's accounting and reporting principles, policies and
practices, as well as the Company's accounting, financial and operating controls
and staff, supervising the Company's policies relating to business conduct and
dealing with conflicts of interest relating to officers and directors of the
Company.
Compensation, Stock Option and Benefits Committee. The Board of Directors
also has a standing Compensation, Stock Option and Benefits Committee (the
"Compensation Committee") that is presently composed of David L. Mitchell
(Chairman) and Herbert A. Cohen, each of whom is not an employee of the Company.
The Compensation Committee held three meetings during 1997. The responsibilities
of the Compensation Committee include establishing and reviewing employee and
consultant/advisor compensation, bonuses and incentive compensation awards,
administering and interpreting the Plan, and determining the recipients, amounts
and other terms (subject to the requirements of the Plan) of options which may
be granted under the Plan from time to time and providing guidance to management
in connection with establishing additional benefit plans.
Executive and Finance Committee. The Board of Directors, during 1997,
created an Executive and Finance Committee that is presently composed of Paul E.
Hannesson, Bentley J. Blum and David L. Mitchell. Mr. Hannesson is the Chairman
of the Board, President and Chief Executive Officer of the Company. Messrs. Blum
and Mitchell are not employees of the Company. The Executive and Finance
Committee held one meeting during 1997. The Executive and Finance Committee has
the authority and responsibility of the full Board of Directors to supervise and
oversee the financial practices and policies of the Company, to oversee the
adoption of significant accounting policies, and to manage the Company between
meetings of the Board of Directors, subject to certain limitations. The
Executive and Finance Committee also has the authority and responsibility for
making recommendations to the Board of Directors regarding nominees to serve as
directors of the Company. The Executive and Finance Committee will consider
nominees for directors recommended by stockholders.
Nominating Committee. The Board of Directors does not have a standing
nominating committee. The functions of a nominating committee are performed by
the Executive and Finance Committee of the Board of Directors.
Compensation of Directors
Non-management directors of the Company receive director's fees of $500 per
meeting for attendance at Board of Directors meetings, and are reimbursed for
actual expenses incurred in respect of such attendance. The Company does not
separately compensate employees for serving as directors.
7
<PAGE>
Management
The names and ages of the executive officers of the Company, and their
positions with the Company, are as follows:
Name Age Position
- ---- --- --------
Paul E. Hannesson 57 Chairman of the Board, President and
Chief Executive Officer
Michael D. Fullwood 51 Senior Vice President, Chief Financial and
Administrative Officer, Secretary and
General Counsel
- -------------------------
See "Proposal 1--Election of Directors" above for certain biographical
information concerning Paul E. Hannesson.
Michael D. Fullwood was appointed Senior Vice President, Chief Financial
and Administrative Officer, Secretary and General Counsel of the Company,
Applied, Solution, Separation and CFC Technologies in May 1997. Mr. Fullwood
served as a director and the Senior Vice President, Chief Financial and
Administrative Officer and General Counsel of Lanxide from July 1997 to February
1998. From 1987 to August 1996, Mr. Fullwood held numerous positions ranging
from Senior Attorney to Executive Vice President and Chief Financial Officer of
Witco Corporation, a worldwide specialty chemicals company. From 1983 to 1987,
Mr. Fullwood served as Senior Attorney at Scallop Corporation (Royal Dutch/Shell
Group), where he specialized in corporate matters, mass tort litigation and
international law. Mr. Fullwood also previously served as Senior Attorney of
Caltex Petroleum and Arabian American Oil Company, handling corporate,
contractual and transnational matters. Mr. Fullwood holds a law degree from
Harvard Law School.
The Company's officers are elected by, and serve at the pleasure of, the
Board of Directors, subject to the terms of any employment agreements. Messrs.
Hannesson and Blum are brothers-in-law. No family relationship exists among any
other directors or executive officers of the Company. No arrangement or
understanding exists between any executive officer and any other person pursuant
to which any executive officer was selected as an executive officer of the
Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the outstanding shares
of the Company's Common Stock, to file initial reports of beneficial ownership
and reports of changes in beneficial ownership of shares of Common Stock with
the Securities and Exchange Commission (the "Commission") and each securities
exchange on which the Company's Common Stock is traded. Such persons are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended December 31, 1997, and upon a
review of Forms 5 and amendments thereto furnished to the Company with respect
to the year ended December 31, 1997, or upon written representations received by
the Company from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that no director, executive officer or
holder of more than 10% of the outstanding shares of Common Stock failed to file
on a timely basis the reports required by Section 16(a) of the Exchange Act
during, or with respect to, the year ended December 31, 1997, except the
following: (i) Edwin L. Harper, Ph.D., a former director of the Company, who
inadvertently failed to timely file a Form 5 with respect to a grant of stock
options by the Company to Dr. Harper in May 1997 (such transaction was reported
on a Form 5 filed late with the Commission on February 18, 1998); and (ii)
Kenneth L. Adelman, Ph.D., a director of the Company, who inadvertently failed
to timely file a Form 5 with respect to a grant of stock options by the Company
to Dr. Adelman in May 1997 (such transaction was reported on a Form 5 filed late
with the Commission on February 18, 1998).
8
<PAGE>
EXECUTIVE COMPENSATION AND RELATED MATTERS
Summary Compensation
The following table sets forth the amount of all compensation paid by the
Company and/or its affiliates and allocated to the Company's operations for
services rendered during each of 1997, 1996, and 1995 to the person serving as
the Company's current Chief Executive Officer, to each of the Company's most
highly compensated executive officers other than the Chief Executive Offer whose
total salary and bonus compensation exceeded $100,000 during any such year, and
to one additional individual who served as an executive officer of the Company
during 1997, but not at December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------- -------------------------------------
Other Securities
Annual Restricted Under- All Other
Compen- Stock lying LTIP Compen-
Name and Principal Salary Bonus sation Award(s) Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- -------- -------- ------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul E. Hannesson 1997 15,302(1) 3,874(2) 930(3) -0- 3,450,000(4) -0- -0-
Chief Executive Officer 1996 44,791(1) 150,000(2) -0- -0- 500,000(4) -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
Michael D. Fullwood 1997 7,775(5) 4,358(6) -0- -0- 500,000 -0- -0-
Senior Vice President 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
Edwin L. Harper(7) 1997 15,730(8) 6,479(9) -0- -0- 750,000(10) -0- -0-
Former Vice Chairman, 1996 14,583 100,000 -0- -0- 560,000 -0- -0-
President and Chief 1995 -0- -0- -0- -0- -0- -0- -0-
Operating Officer
</TABLE>
- --------------------------------
(1) Represents the amount of Mr. Hannesson's base salary paid by the Company.
Mr. Hannesson's total base salary for 1996 and 1997 was $310,627 and
$395,000, respectively. Certain portions of such base salaries were also
paid by Applied and Separation. See "Certain Relationships and Related
Transactions--Services Agreement."
(2) Represents the amount of Mr. Hannesson's annual incentive bonus paid by the
Company. Mr. Hannesson's total annual incentive bonus for 1996 and 1997 was
$200,000 and $100,000, respectively. Certain portions of such annual
incentive bonuses were also paid by Applied and Separation.
(3) Represents the amount of Mr. Hannesson's automobile allowance paid by the
Company. Mr. Hannesson's total automobile allowance for 1997 was $24,000,
certain portions of which were also paid by Applied and Separation.
(4) In November 1996, Mr. Hannesson was granted options to purchase 3,450,000
shares of Company Common Stock, which options were rescinded and re-issued
in June 1997.
(5) Represents the amount of Mr. Fullwood's base salary paid by the Company.
Mr. Fullwood's total base salary for 1997 was $133,805. Certain portions of
such base salary were also paid by Applied and Separation.
9
<PAGE>
(6) Represents the amount of Mr. Fullwood's annual incentive bonus paid by the
Company. Mr. Fullwood's total annual incentive bonus for 1997 was $75,000.
Certain portions of such annual incentive bonus were also paid by Applied
and Separation.
(7) Dr. Harper served as a director of the Company and Applied from November
1996 to March 1998, as the President and Chief Operating Officer of both
the Company and Applied from November 1996 to April 1997, and as Vice
Chairman of the Company and Applied from April to December 1997. Dr. Harper
also served as Chairman of the Board and Chief Executive Officer of
Separation, Solution and CFC Technologies from January to April 1997, and
as a private consultant to the Company and certain of its affiliates from
May to December 1997.
(8) Represents the amount of Dr. Harper's base salary paid by the Company. Dr.
Harper's total base salary for 1997 was $354,076. Of such base salary,
$257,512 was paid to Dr. Harper in his capacity as a consultant to the
Company and its affiliates. Certain portions of such base salary were also
paid by Applied and Separation.
(9) Represents the amount of Dr. Harper's annual incentive bonus paid by the
Company. Dr. Harper's total annual incentive bonus for 1997 was $145,833.
Of such annual incentive bonus, $106,064 was paid to Dr. Harper in his
capacity as a consultant to the Company and its affiliates. Certain
portions of such annual incentive bonus were also paid by Applied and
Separation.
(10) Represents shares of the Company's Common Stock underlying stock options
granted to Dr. Harper by the Company in his capacity as a consultant to the
Company and its affiliates.
10
<PAGE>
Stock Options
The following table sets forth certain information concerning options
granted during the year ended December 31, 1997 to the individuals listed in the
Summary Compensation Table pursuant to the Plan and otherwise. The Company has
no outstanding stock appreciation rights and granted no stock appreciation
rights during the year ended December 31, 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted Exercise of Option Term
Options To Employees Base Price Expiration -------------------------------
Name Granted (#) In Fiscal Year(4) ($/Sh) Date 5% ($) 10% ($)
---- ----------- ----------------- ------ ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paul E. Hannesson 3,450,000(1) 56.1% 0.84 11/30/06 414,000 2,139,000
Michael D. Fullwood 500,000(2) 8.1% 0.84 05/31/07 85,000 385,000
Edwin L. Harper 750,000(3) 12.2% 0.29 05/31/07 540,000 990,000
</TABLE>
- -------------------------
(1) Options were originally granted to Mr. Hannesson in November 1996 and are
exercisable at the rate of 20% in each of calendar year 1996 through 2000,
inclusive, beginning in November 1996 and, unless exercised, expire on
November 30, 2006 (subject to prior termination in accordance with the
applicable stock option agreements). Upon announcement of a Change in
Control (pursuant to and as defined in the Plan), such options will become
immediately exercisable. Upon consummation of a Change in Control, all
unexercised options will terminate. Such options were rescinded and
re-issued to Mr. Hannesson in June 1997.
(2) Options were granted to Mr. Fullwood in May 1997 pursuant to the Plan and
are exercisable at the rate of 20% in each of calendar year 1997 through
2001, inclusive, beginning in May 1997 and, unless exercised, expire on May
31, 2007 (subject to prior termination in accordance with the applicable
stock option agreements). Upon announcement of a Change in Control
(pursuant to and as defined in the Plan), such options will become
immediately exercisable. Upon consummation of a Change in Control, all
unexercised options will terminate.
(3) Options were granted to Dr. Harper in May 1997 in his capacity as a
consultant to the Company and its affiliates. Such options were not granted
pursuant to the Plan, and all of such options vested immediately upon grant
in May 1997.
(4) Percentages based on 6,155,000 stock options granted during the year ended
December 31, 1997.
11
<PAGE>
The following table sets forth certain information concerning the exercise
of options and the value of unexercised options held under the Plan and
otherwise at December 31, 1997 by the individuals listed in the Summary
Compensation Table.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number Of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options
Options At Fiscal Year-
Shares Value At Fiscal Year-End(#) End($)
Name Acquired On Realized Exercisable/ Exercisable/
Exercise (#) ($)(1) Unexercisable Unexercisable(2)
------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
Paul E. Hannesson -0- -0- 2,450,000/1,500,000 45,000/-0-
Michael D. Fullwood -0- -0- 100,000/400,000 -0-/-0-
Edwin L. Harper -0- -0- 1,310,000/-0- 247,500/-0-
</TABLE>
- ------------
(1) Represents the difference between the exercise price and the closing price
on the date of exercise, multiplied by the number of shares acquired.
(2) Represents the difference between the last reported sale price of the
Common Stock on December 31, 1997, and the exercise price of the option
multiplied by the applicable number of options exercised.
Employment Agreements
Paul E. Hannesson, the Company's Chairman of the Board, President and Chief
Executive Officer, entered into an employment agreement with the Company on
November 18, 1996 for a term expiring on December 31, 1999. Pursuant to such
employment agreement, Mr. Hannesson agreed to devote his business and
professional time and efforts to the business of the Company as a senior
executive officer, and to serve in senior executive positions with one or more
of the Company's subsidiaries at the time, including Applied and Separation. The
employment agreement provides that Mr. Hannesson shall receive, among other
things, a base salary at an annual rate of $395,000 through December 31, 1997,
and will receive not less than $434,500 through December 31, 1998 and not less
than $477,950 through December 31, 1999, for services rendered to the Company
and certain of its affiliates, including Applied and Separation. Pursuant to the
employment agreement, Mr. Hannesson received, among other things: (i) a signing
bonus of (a) $150,000 cash and (b) options to purchase 950,000 shares of Common
Stock of the Company, which options vested on the date of his employment
agreement; and (ii) options to purchase an aggregate of 2,500,000 shares of
Company Common Stock, exercisable in installments over a period of five years
commencing on the date of his employment agreement. Mr. Hannesson also received
options to purchase common stock of Applied and Separation in the amount of 1.0%
of each company's total outstanding shares of common stock on the date of grant,
and is eligible to receive incentive compensation of up to $225,000 per year for
achieving certain goals.
Michael D. Fullwood, the Company's Senior Vice President, Chief Financial
and Administrative Officer, Secretary and General Counsel, entered into an
employment agreement with the Company on May 7, 1997 for an initial term
expiring on April 30, 1999. Pursuant to such employment agreement, Mr. Fullwood
agreed to devote his business and professional time and efforts to the business
of the Company as its Senior Vice President, Chief Financial and Administrative
Officer, Secretary and General Counsel, and to serve as a senior executive
officer of certain of the Company's subsidiaries at the time, including Applied
and Separation. The employment agreement
12
<PAGE>
provides that Mr. Fullwood shall receive, among other things, a base salary at
an annual rate of $225,000 for services rendered to the Company and certain of
its affiliates, including Applied and Separation, which base salary shall be
increased by not less than 5% per year during the term of his agreement.
Pursuant to the employment agreement, Mr. Fullwood received options to purchase
an aggregate of 500,000 shares of Company Common Stock, exercisable in
installments over a period of five years commencing on the date of his
employment agreement. Mr. Fullwood also received options to purchase 125,000
shares of Applied common stock, par value $0.001 per share, and 67,500 shares of
Separation common stock, exercisable in installments over a period of five years
commencing on the date of his employment agreement. Mr. Fullwood is also
eligible to receive incentive compensation of up to $75,000 per year for
achieving certain goals, which incentive compensation shall be increased by 5%
per year during the term of his agreement.
Each of the foregoing employment agreements require the full-time services
of the employees, subject to permitted service with professional-related service
organizations and other outside activities that do not materially interfere with
the individual's duties to the Company. The agreements also contain covenants
(a) restricting the employee from engaging in any activities competitive with
the business of the Company during the term of such employment agreements and
one year thereafter, (b) prohibiting the employee from disclosure of
confidential information regarding the Company, and (c) confirming that all
intellectual property developed by the employee and relating to the business of
the Company constitutes the sole property of the Company. See "Certain
Relationships and Related Transactions--Services Agreement."
Compensation Committee Interlocks and Insider Participation
The individuals who served as members of the Compensation Committee during
the year ended December 31, 1997 were David L. Mitchell (Chairman), Herbert A
Cohen, and Edwin L. Harper, Ph.D. Dr. Harper was appointed to the Compensation
Committee on December 16, 1997. Messrs. Mitchell, Cohen and Harper also
constituted the Compensation, Stock Option and Benefits Committee of Applied,
and Messrs. Mitchell and Harper also constituted two-thirds of the Compensation,
Stock Option and Benefits Committee of Separation at December 31, 1997. Dr.
Harper served as the President and Chief Operating Officer of the Company and
Applied from November 1996 to April 1997, as Vice Chairman of the Company and
Applied from April to December 1997, and as the Chairman of the Board and Chief
Executive Officer of Solution, Separation and CFC Technologies from January to
April 1997. Dr. Harper also served as a consultant to the Company and its
affiliates from May to December 1997. Dr. Harper resigned as an executive
officer of, and as a consultant to, the Company and each of its subsidiaries and
affiliates effective upon his appointment to the Compensation Committee on
December 16, 1997, and resigned as a director of the Company and each of its
affiliates on March 13, 1998. Mr. Mitchell has served as a consultant to Applied
since July 15, 1997 and receives compensation in the amount of $10,000 per month
for services rendered to Applied in such capacity.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee was established in July 1996 and is responsible
for, among other things, establishing the compensation policies applicable to
executive officers of the Company. The Compensation Committee was composed of
David L. Mitchell (Chairman), Herbert A. Cohen and Edwin L. Harper, Ph.D. at
December 31, 1997, all of whom were non-employee directors of the Company.
Messrs. Mitchell, Cohen and Harper also constituted the Compensation, Stock
Option and Benefits Committee of Applied, and Messrs. Mitchell and Harper also
constituted two-thirds of the Compensation, Stock Option and Benefits Committee
of Separation at December 31, 1997. Decisions on compensation of the executives
officers of Applied and Separation were made by such individuals in their
capacities as members of the Compensation, Stock Option and Benefits Committees
of such companies. All decisions of the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by, and are
subject to the final approval of, the full Board of Directors of the Company.
Set forth below is a report prepared by Messrs. Mitchell, Cohen and Harper, in
their capacities as members of the Compensation Committee at December 31, 1997,
addressing the Company's compensation policies for 1997 as they affected the
Company's executive officers.
13
<PAGE>
Overview and Philosophy
The Company's executive compensation program is designed to be linked to
corporate performance and returns to stockholders. Of particular importance to
the Company is its ability to grow and enhance its competitiveness for the rest
of the decade and beyond. Shorter-term performance, although scrutinized by the
Compensation Committee, stands behind the issue of furthering the Company's
strategic goals. To this end, the Company has developed an overall compensation
strategy and specific compensation plans that tie a significant portion of
executive compensation to the Company's success in meeting specified performance
goals.
The objectives of the Company's executive compensation program are to:
o attract, motivate and retain the highest quality executives;
o motivate them to achieve tactical and strategic objectives in a manner
consistent with the Company's corporate values; and
o link executive and stockholder interest through equity-based plans and
provide a compensation package that recognizes individual
contributions as well as overall business results.
To achieve these objectives, the Company's executive compensation program
is designed to:
o focus participants on high priority goals to increase stockholder
value;
o encourage behavior that exemplifies the Company's values relating to
customers, quality of performance, employees, integrity, teamwork and
good citizenship;
o assess performance based on results and pre-set goals that link the
business activities of each individual to the goals of the Company;
and
o increase stock ownership to promote a proprietary interest in the
success of the Company.
Executive Officer Compensation
Each year the Compensation Committee conducts a full review of the
Company's executive compensation program. This review includes a comprehensive
evaluation of the competitiveness of the Company's compensation program and a
comparison of the Company's executive compensation to certain other public
companies which, in the view of the Compensation Committee, represent the
Company's most direct competitors for executive talent. It is the Compensation
Committee's policy to target overall compensation for executive officers of the
Company taking into account the levels of compensation paid for such positions
by such other public companies. A variety of other factors, however, including
position and time in position, experience, and both Company performance and
individual performance, will have an impact on individual compensation amounts.
The key elements of the Company's executive compensation program in 1997
consisted of base salary, annual incentive compensation and long-term incentive
compensation in the form of stock options. The Compensation Committee's policies
with respect to each of these elements, including the basis for the compensation
awarded to the Company's Chief Executive Officer, are discussed below.
Base Salaries. Base salaries for executive officers are established by
evaluating, on an annual basis, the performance of such individuals (which
evaluation involves management's consideration of such factors as
responsibilities of the positions held, contribution toward achievement of the
Company's strategic plans, attainment of specific individual objectives and
interpersonal managerial skills), and by reference to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions at other similar public companies.
In 1997, total compensation was paid to executives primarily based upon the
terms of their employment agreements with the Company, if any, and upon
individual performance and the extent to which the business plans
14
<PAGE>
for their areas of responsibility were achieved or exceeded. On balance,
performance goals were substantially met or exceeded and therefore compensation
was paid accordingly.
Mr. Hannesson, the Chairman of the Board, President and Chief Executive
Officer of the Company and Applied, and the Chairman of the Board and Chief
Executive Officer of Solution, Separation and CFC Technologies, receives annual
compensation based upon, among other things, the terms of his employment
agreement with the Company. Pursuant to the terms of his employment agreement,
Mr. Hannesson is entitled to receive a base salary at an annual rate of not less
than $395,000 through December 31, 1997, not less than $434,500 through December
31, 1998 and not less than $477,950 through December 31, 1999 for services
rendered to the Company and certain of its affiliates, including Applied and
Separation.
The amount actually received by Mr. Hannesson each year as base salary for
services rendered to the Company and its affiliates is established by the
members of the Compensation Committee who, as set forth above, also constituted
the Compensation, Stock Option and Benefits Committee of Applied at December 31,
1997. In establishing Mr. Hannesson's base salary for 1997, the Compensation
Committee took into account the salaries of chief executive officers at other
similar public companies, future objectives and challenges, and Mr. Hannesson's
individual performance, contributions and leadership. The Compensation Committee
reviewed in detail Mr. Hannesson's achievement of his 1996 goals and his
individual contributions to the Company and its affiliates. The Compensation
Committee concluded that he had achieved his 1996 goals and had provided a
leadership role in achieving the Company's and its affiliates' strategic
priorities for 1996. The Compensation Committee also considered Mr. Hannesson's
decisive management of operational and strategic issues, his drive to reinforce
a culture of innovation and his ability and dedication to enhance the long-term
value of the Company and its affiliates for their respective stockholders. In
making its salary decisions with respect to Mr. Hannesson, the Compensation
Committee exercised its discretion and judgement based on the above factors, and
no specific formula was applied to determine the weight of each factor.
Mr. Hannesson's base salary increased from $310,627 for 1996 to $395,000
for 1997, representing an increase of approximately 27%. Certain portions of
such base salary were paid by the Company, Applied and Separation based upon the
amount of time and effort devoted by Mr. Hannesson to the respective businesses
of such companies. Consequently, the Company, Applied and Separation paid
$15,302, $250,256 and $129,442, respectively, of such salary.
Annual Incentive Bonus. Annual incentive bonuses for executive officers are
intended to reflect the Compensation Committee's belief that a significant
portion of the annual compensation of each executive officer should be
contingent upon the performance of the Company.
For 1997, annual incentive bonuses were paid to the individuals named in
the Summary Compensation Table and certain other officers and employees of the
Company in part based upon recommendations of senior executive officers of the
Company as to appropriate levels of incentive compensation. The Compensation
Committee exercised its discretion to determine the final value of each 1997
incentive award, which values were then reviewed and approved by the full Board
of Directors. The Compensation Committee assessed performance against goals and
leadership performance, with each of these two categories weighted equally. The
goal category included an evaluation of performance areas such as increase in
stockholder value, operations development and employee satisfaction. The
leadership category was evaluated based upon the Compensation Committee's
judgment of leadership performance, including factors such as innovation,
strategic vision, marketplace orientation, customer focus, collaboration and
managing change.
Pursuant to his employment agreement with the Company, Mr. Hannesson is
eligible to receive incentive compensation of up to $225,000 per year for
achieving certain of the performance goals set forth above. For 1997, Mr.
Hannesson was awarded an incentive bonus of $100,000. Certain portions of such
bonus were paid by the Company, Applied and Separation based upon the amount of
time and effort devoted by Mr. Hannesson to the respective businesses of such
companies. Consequently, the Company, Applied and Separation paid $3,874,
$63,356 and $32,770, respectively, of such bonus.
Stock Options. The Compensation Committee has the power to grant stock
options under the Plan. With respect to executive officers, it has been the
Compensation Committee's practice to grant, on an annual basis, stock
15
<PAGE>
options that vest at the rate of 20% upon grant and 20% in each calendar year
thereafter for four years, and that are exercisable over a ten-year period at
exercise prices per share set at the fair market value per share on the date of
grant. Generally, the executives must be employed by the Company at the time the
options vest in order to exercise the options and, upon announcement of a Change
in Control (pursuant to and as defined in the Plan), such options become
immediately exercisable. The Compensation Committee believes that stock option
grants provide an incentive that focuses the executives' attention on managing
the Company from the perspective of an owner with an equity stake in the
business. The Company's stock options are tied to the future performance of the
Company's stock and will provide value to the recipient only when the price of
the Company's stock increases above the option grant price.
A total of 6,155,000 stock options were granted in 1997, of which 3,450,000
were granted to Mr. Hannesson and 1,250,000 were granted (in the aggregate) to
the two other individuals named in the Summary Compensation Table. The number of
stock options granted in 1997 were determined by reference to the long-term
compensation for comparable positions at other similar public companies and
based upon an assessment of individual performance.
Impact of Section 162(m) of the Internal Revenue Code
The Compensation Committee's policy is to structure compensation awards for
executive officers that will be consistent with the requirements of Section
162(m) of the U.S. Internal Revenue Code of 1986 (the "Code"). Section 162(m)
limits the Company's tax deduction to $1.0 million per year for certain
compensation paid in a given year to the Chief Executive Officer and the four
highest compensated executives other than the Chief Executive Officer named in
the Summary Compensation Table. According to the Code and corresponding
regulations, compensation that is based on attainment of pre-established,
objective performance goals and complies with certain other requirements will be
excluded from the $1.0 million deduction limitation. The Company's policy is to
structure compensation awards for covered executives that will be fully
deductible where doing so will further the purposes of the Company's executive
compensation program. However, the Compensation Committee also considers it
important to retain flexibility to design compensation programs that recognize a
full range of performance criteria important to the Company's success, even
where compensation payable under such programs may not be fully deductible. The
Company expects that all compensation payments in 1997 to the individuals listed
in the Summary Compensation Table will be fully deductible by the Company.
Conclusion
The Compensation Committee believes that the quality of executive
leadership significantly affects the long-term performance of the Company and
that it is in the best interest of the stockholders to compensate fairly
executive leadership for achievement meeting or exceeding the high standards set
by the Compensation Committee, so long as there is a corresponding risk when
performance falls short of such standards. A primary goal of the Compensation
Committee is to relate compensation to corporate performance. Based on the
Company's performance in 1997, the Compensation Committee believes that the
Company's current executive compensation program meets such standards and has
contributed, and will continue to contribute, to the Company's and its
stockholders' long-term success.
COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE
David L. Mitchell (Chairman)
Herbert A. Cohen
Edwin L. Harper
The Report of the Compensation Committee on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act, or
under the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.
16
<PAGE>
Stockholder Return Performance Presentation
The following line graph compares the value of $100 invested in the
Company's Common Stock from December 31, 1992 to December 31, 1997, with a
similar investment in the S & P SmallCap 600 Index and the Dow Jones Pollution
Control/Waste Management Index.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
COMODORE ENVIRONMENTAL SERVICES, INC. 100 300 5310 3430 13750 6250
STANDARD & POOR'S SMALLCAP 600 100 119 113 147 178 224
DOW JONES POLLUTION CONTROL/WASTE MANAGEMENT 100 74 76 86 92 99
</TABLE>
17
<PAGE>
Certain Relationships and Related Transactions
Organization and Capitalization of Applied
Since its acquisition of the capital stock of Commodore Laboratories, Inc.
(formerly A.L. Sandpiper Corporation) in 1993, the Company has advanced an
aggregate of $8,925,426 to Applied, which has been used to finance the
development of SET, including salaries of personnel, equipment, facilities and
patent prosecution. These cash advances by the Company were evidenced by
successive unsecured 8% promissory notes of Applied's predecessors, and, at
December 31, 1995, by the Company Funding Note. Kraft Capital Corporation
("Kraft"), a corporation wholly owned by Bentley J. Blum, a principal
stockholder of the Company and a director of the Company, Applied, Separation,
Solution and CFC Technologies, provided approximately $656,000 of such financing
to the Company. The Company provided additional advances to Applied of $978,896
for the first fiscal quarter of 1996, which were repaid by Applied subsequent to
its obtaining a line of credit from a commercial bank in April 1996.
In March 1996, Applied was formed as a wholly-owned subsidiary of the
Company. Prior to Applied's initial public offering (the "Applied IPO"), in
exchange for the issuance of 15,000,000 shares of Applied common stock
(representing 100% of the outstanding shares of Applied common stock at the
time), the Company contributed to Applied (i) all of the assets and properties
(including joint working proposals, quotations and bids in respect to projects
and contracts awarded for feasibility studies), subject to all of the
liabilities, of its operating divisions relating to SET and the exploitation of
the SET technology and processes in all commercial and governmental
applications; (ii) all of the outstanding shares of the capital stock of each of
Commodore Laboratories, Inc., Commodore Remediation Technologies, Inc.,
Commodore Government Environmental Technologies, Inc., Commodore Technologies,
Inc. and Sandpiper Properties, Inc. (except for a 9.95% minority interest in
Commodore Laboratories, which at the time was held by Albert E. Abel); and (iii)
a portion of the Company Funding Note in the amount of $3.0 million.
In April 1996, Bentley J. Blum personally guaranteed a $2.0 million line of
credit for Applied from a commercial bank. The initial borrowings under the line
of credit, in the approximate amount of $1.0 million, were utilized to repay
advances made by the Company to Applied in 1996, and the Company, in turn,
utilized such funds to repay Kraft the funds provided by Kraft to the Company
for purposes of the advances to Applied. Applied utilized $2.0 million of the
net proceeds of the Applied IPO to repay the line of credit, and Mr. Blum's
guarantee was released at such time.
Upon completion of the Applied IPO in June 1996, the Company acquired from
Albert E. Abel the remaining 9.95% of the outstanding shares of common stock of
Commodore Laboratories, Inc. and contributed such shares to Applied for no
additional consideration. To acquire the remaining shares of Commodore
Laboratories, the Company paid Mr. Abel the sum of $750,000 in cash, and issued
a ten-year, 8% promissory note to Mr. Abel in the principal amount of
$2,250,000, payable as to interest only until the maturity of the note on the
tenth anniversary of the date of issuance. Simultaneously, Applied settled all
outstanding obligations for accrued compensation payable to Mr. Abel and for
amounts receivable by Applied from Mr. Abel, and the net payment to Mr. Abel
arising therefrom approximated $120,000. Applied paid such amount to Mr. Abel
from the proceeds of the Applied IPO.
In December 1996, as part of a corporate restructuring to consolidate all
of its current environmental technology businesses within Applied, the Company
transferred to Applied all of the capital stock of Separation and CFC
Technologies. In addition, the Company assigned to Applied notes aggregating
$976,200 at December 2, 1996, representing advances previously made by the
Company to Separation. Such advances have been capitalized by Applied as its
capital contribution to Separation. In consideration for such transfers, Applied
paid the Company $3.0 million in cash and issued to the Company a warrant
expiring December 2, 2003 to purchase 7,500,000 shares of Applied common stock
at an exercise price of $15.00 per share, valued at $2.4 million. Such warrant
was subsequently amended to, among other things, reduce the exercise price
thereof from $15.00 per share to $10.00 per share. See "--February 1998
Intercompany Note."
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Services Agreement
In September 1997, the Company, Applied, Separation, Advanced Sciences, and
certain other affiliates of the Company (the "Affiliated Parties") entered into
a services agreement, dated as of September 1, 1997 (the "Services Agreement"),
whereby the Company and the Affiliated Parties agreed to cooperate in sharing,
where appropriate, costs related to accounting services, financial management,
human resources and personnel management and administration, information
systems, executive management, sales and marketing, research and development,
engineering, technical assistance, patenting, and other areas of service as are
appropriately and necessarily required in the operations of the Company and the
Affiliated Parties (collectively, the "Services"). Pursuant to the Services
Agreement, services provided by professional employees of the Company and the
Affiliated Parties to one another are charged on the basis of time actually
worked as a percentage of salary (including cost of benefits) attributable to
that professional. In addition, charges for rent, utilities, office services and
other routine charges regularly incurred in the normal course of business are
apportioned to the professionals working in the office on the basis of salary,
and then charged to any party in respect of whom the professional devoted such
time based upon time actually worked. Furthermore, charges from third parties,
including, without limitation, consultants, attorneys and accountants, are
levied against the party actually receiving the benefit of such services.
Pursuant to the Services Agreement, Applied acts as the coordinator of billings
and payments for Services on behalf of itself, the Company and the other
Affiliated Parties.
February 1998 Private Placement
In February 1998, the Company sold (i) 1,381,692 shares of Applied common
stock held in its account and (ii) three-year warrants to purchase an aggregate
of 150,000 shares of Applied common stock held in its account at an exercise
price equal to $6.00 per share, for an aggregate purchase price of $6.0 million
(the "First Tranche Sale") in a private placement (the "February 1998 Private
Placement") to certain "accredited investors" as defined in Rule 501 of the
Securities Act of 1933, as amended (the "Securities Act"). After deduction of
fees and transaction costs associated with the First Tranche Sale totaling
approximately $550,000, the Company received aggregate net proceeds of
approximately $5,450,000 from the First Tranche Sale. Immediately prior to the
First Tranche Sale, the Company owned approximately 52% of the outstanding
shares of Applied common stock. As of March 26, 1998, the Company owned
approximately 43% of the outstanding shares of Applied common stock.
Pursuant to the terms of the February 1998 Private Placement, the Company
may be required to issue up to a maximum of 1,618,308 additional shares of
Applied common stock to the investors, for no additional consideration, in the
event that 90% of the average closing bid price of Applied common stock for a
certain period of time is less than the $4.3425 per share purchase price of the
Applied common stock sold in the First Tranche Sale. The Company will, for a
certain period of time, have the right and option (but not the obligation) to
require the investors to purchase (i) an aggregate amount of additional shares
of Applied common stock equal to 4,000,000 divided by 90% of the average closing
price per share of Applied common stock for the five trading days immediately
prior to the closing date of such sale and (ii) warrants to purchase an
aggregate of 100,000 shares of Applied common stock at an exercise price per
share equal to the greater of $6.00 or 125% of the per share purchase price of
the shares of Applied common stock sold pursuant to (i) above, for an aggregate
purchase price of $4.0 million (the "Second Tranche Sale"). As in the case of
the First Tranche Sale, the Company may be required to transfer additional
shares of Applied common stock to the investors in connection with the Second
Tranche Sale, for no additional consideration, in the event that 90% of the
average closing bid price of Applied common stock for a certain period of time
is less than the per share purchase price of the Applied common stock sold in
the Second Tranche Sale.
Pursuant to the terms of the February 1998 Private Placement, if during a
certain period of time the Company sells, or Applied issues, any shares of
Applied common stock ("First Future Shares") at a price per share that is less
than the per share purchase price of the Applied common stock sold in the First
Tranche Sale or the Company sells, or Applied issues, any shares of Applied
common stock ("Second Future Shares") at a price per share that is less than the
per share purchase price of the Applied common stock sold in the Second Tranche
Sale, the Company will issue to the investors, for no additional consideration,
a number of additional shares of Applied common stock equal to (a) with respect
to First Future Shares, an amount equal to the difference between (i) 6,000,000
divided by the price at which the First Future Shares were sold or issued and
(ii) 1,381,692, and (b) with respect to Second Future Shares, an amount equal to
the difference between (i) 4,000,000 divided by the price at which the Second
Future Shares were sold or issued and (ii) the amount equal to the number of
shares of Applied
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common stock sold in the Second Tranche Sale. Notwithstanding the foregoing, the
terms "First Future Shares" and "Second Future Shares" do not include any shares
of Applied common stock which may be issued in the future upon conversion or
exercise of, or pursuant to the terms of any agreement entered into by the
Company or Applied in respect of, securities of the Company and/or Applied which
have been issued prior to February 9, 1998.
Avalon Group, Inc. ("Avalon") was retained by the Company as a finder in
connection with the February 1998 Private Placement and has, as of March 26,
1998, received fees of approximately $510,000 in connection therewith.
Applied has agreed to file registration statements (the "Registration
Statements") on Form S-3, or other applicable form of registration statement,
under the Securities Act covering all of the shares of Applied common stock
issued and to be issued to the investors in the February 1998 Private Placement
and to keep such Registration Statements continuously effective under the
Securities Act for a period of two years after their respective effective dates
or such earlier date when all shares covered by the Registration Statements have
been sold or may be sold without volume restrictions under the Securities Act
(the "Effective Period").
February 1998 Intercompany Note
Upon receipt of the net proceeds from the February 1998 Private Placement,
the Company provided a $5,450,000 unsecured loan to Applied, evidenced by
Applied's 8% non-convertible note (the "Intercompany Note"). Pursuant to the
terms of the Intercompany Note, interest on the unpaid principal balance of the
Intercompany Note is payable at the rate of 8% per annum semiannually in cash.
The unpaid principal amount of the Intercompany Note is due and payable,
together with accrued and unpaid interest, on the earlier to occur of (a)
December 31, 1999, or (b) consummation of any public offering or private
placement of securities of Applied with net proceeds aggregating in excess of
$6.0 million, other than in respect of working capital financing or secured
financing of assets received by Applied in the ordinary course of business from
any bank or other lending institution, provided that if such funds are raised in
a private placement during the period commencing on February 9, 1998 and ending
on the last day of the Effective Period, then the Intercompany Note will not be
payable unless a Registration Statement has been effective for 75 consecutive
days and is effective on the date of such repayment. Applied will use the net
proceeds of the loan solely for working capital and general corporate purposes
and not for the satisfaction of any portion of Applied debt or to redeem any
Applied equity or equity-equivalent securities. See "--February 1998 Private
Placement."
In connection with the loan, Applied amended and restated in its entirety a
five-year warrant to purchase 7,500,000 shares of Applied common stock issued to
the Company on December 2, 1996 to, among other things, reduce the exercise
price of the warrant from $15.00 per share to $10.00 per share. In addition,
Applied issued to the Company an additional five-year warrant to purchase
1,500,000 shares of Applied common stock at an exercise price of $10.00 per
share.
1997 Private Placement
In May and August 1997, the Company sold an aggregate of 88,000 shares of
its Series D Preferred Stock in a private placement (the "1997 Private
Placement") to certain "accredited investors" as defined in Rule 501 of the
Securities Act. After deduction of fees and transaction costs associated with
the 1997 Private Placement totaling approximately $968,000, the Company received
aggregate net proceeds of approximately $7.8 million from the 1997 Private
Placement. The Series D Preferred Stock is convertible into shares of Applied
common stock held by the Company, at a conversion price equal to 85% of the
lower of (a) the average of the low prices, or (b) the average of the closing
bid prices of Applied common stock for the previous five business days ending on
the day prior to conversion (the "Average Closing Bid Price"). The conversion
price of the Series D Preferred Stock will be equal to certain amounts set forth
in the Certificate of Designation, Rights and Preferences for the Series D
Preferred Stock if the Average Closing Bid Price of Applied common stock for any
consecutive 30 days is equal to or less than $2.00, provided that in no event
will the conversion price of the Series D Preferred Stock be less than $1.50.
The purchasers of the Series D Preferred Stock also received five-year
warrants to purchase an aggregate of 1,175,000 shares of Applied common stock
held by the Company at exercise prices ranging from $5.15 per share to $7.14 per
share. Such exercise prices are (in addition to customary anti-dilution
adjustments) subject to reset on
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August 18, 1998 to an exercise price equal to the lesser of (i) the exercise
price in effect immediately prior to August 18, 1998, or (ii) 110% of the
closing bid price of Applied common stock on August 17, 1998. In addition, if
Applied common stock trades at less than 50% of the August 17, 1998 closing bid
price for any 10 consecutive trading days, the exercise price is subject to
further reset (on one occasion only) to 50% of such August 17, 1998 closing bid
price.
As of March 26, 1998, an aggregate of 3,794,669 shares of Applied common
stock have been transferred from the Company's account to certain investors as a
result of their conversion of shares of Series D Preferred Stock. Such shares of
Applied common stock were transferred based upon conversion prices ranging from
$1.50 per share to $3.98 per share. An aggregate of 52,113 shares of Applied
common stock are transferable by the Company to certain investors as accrued
dividends on certain of their converted shares of Series D Preferred Stock.
Approximately 267,500 shares of Applied common stock will be transferable by the
Company upon conversion of the remaining 5,000 shares of Series D Preferred
Stock. Such number of shares of Applied common stock is an estimate that assumes
a conversion price of $2.00 per share, which is subject to adjustment, and also
includes an estimate of the number of shares of Applied common stock which may
be transferred by the Company as accrued dividends for one year on the Series D
Preferred Stock. The actual number of shares of Applied common stock to be
received by the investors upon conversion of the remaining shares of Series D
Preferred Stock could be materially less or more than such estimated amount
depending upon factors which cannot be predicted at this time, including, among
others, the actual conversion prices of the Series D Preferred Stock.
Avalon was retained by the Company as a finder in connection with the 1997
Private Placement and received fees aggregating $792,000 in connection
therewith. In addition, affiliates of Avalon received warrants to purchase an
aggregate of 85,000 shares of Applied common stock held by the Company at
exercise prices ranging from $5.15 per share to $7.14 per share.
Applied has an effective registration statement on file with the Commission
covering the shares of Applied common stock into which the shares of Series D
Preferred Stock are convertible, as well as the 1,260,000 shares of Applied
common stock transferable upon exercise of the warrants issued in the 1997
Private Placement.
The above transactions were deemed exempt from the registration
requirements of the Securities Act in reliance on Section 4(2) thereof as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate restrictive legends were affixed
to the warrants and the certificates representing the shares issued in such
transactions. The Company and Applied made available to all recipients of
securities written information about the Company and Applied in accordance with
Rule 502 of the Securities Act and advised such recipients of the limitations on
resale of such securities. In addition, all recipients were offered the
opportunity, prior to purchasing any securities, to ask questions of, and
receive answers from, the Company and Applied concerning the terms and
conditions of the transactions and to obtain additional relevant information
about the Company and Applied.
September 1997 Intercompany Convertible Note
In September 1997, the Company provided a $4.0 million unsecured loan to
Applied, evidenced by Applied's 8% convertible subordinated note (the
"Convertible Note"). Pursuant to the terms of the Convertible Note, Applied is
obligated to pay the Company interest only at the rate of 8% per annum, payable
quarterly. Unless converted into Applied common stock at any time, the unpaid
principal amount of the Convertible Note is due and payable, together with
accrued and unpaid interest, on August 31, 2002. Payments of principal and
accrued interest under the Convertible Note is subordinated to all other
indebtedness for money borrowed of Applied. The Company has the right to convert
the Convertible Note into shares of Applied common stock at a conversion price
of $3.89 per share. Such conversion price was fixed at approximately 85% of the
five day average closing bid price of Applied common stock ($4.575 per share)
prior to August 22, 1997, the date that the executive committees of the
respective Boards of Directors of the Company and Applied authorized such loan.
In connection with the $4.0 million loan, Applied issued the Company a five-year
warrant to purchase 1,000,000 shares of Applied common stock at an exercise
price of $5.0325 per share (approximately 110% of the $4.575 five day average
closing bid price of Applied common stock prior to August 22, 1997).
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In March 1998, Applied prepaid $2.0 million of the Convertible Note by (i)
paying the Company the sum of $500,000 in cash and (ii) transferring to the
Company a promissory note, dated August 30, 1996, in the principal amount of
$1.5 million, which evidenced a $1.5 million loan from Applied to LPM, a
wholly-owned subsidiary of Lanxide. To induce the Company to accept Applied's
prepayment of $2.0 million of the Convertible Note (and thereby give up the
right to convert $2.0 million of the Convertible Note into Applied common
stock), Applied issued to the Company an additional warrant to purchase up to
514,000 shares of Applied common stock at an exercise price of $4.50 per share.
Such exercise price was fixed at approximately 110% of the closing sale price of
Applied common stock on February 20, 1998, the trading day immediately prior to
the date the Board of Directors of the Company approved such prepayment. The
estimated fair value of such warrant is approximately $340,000. See
"--Transactions with Lanxide."
Transactions With Lanxide
In November 1996, the Company loaned $3.0 million to Lanxide Performance
Materials, Inc. ("LPM"), a wholly-owned subsidiary of Lanxide. Lanxide is
affiliated with the Company by significant common beneficial ownership. The loan
was evidenced by a promissory note, dated November 13, 1996, in the principal
amount of $3.0 million (the "LPM Note"), which was collateralized by the assets
of LPM and guaranteed by Lanxide. The LPM Note became due on February 28, 1998.
In July 1997, the Company obtained effective control of Lanxide pursuant to
a voting agreement (the "Voting Agreement") among Lanxide, certain of its
stockholders, Bentley J. Blum, a director and principal stockholder of the
Company, Paul E. Hannesson, the Chairman of the Board, President and Chief
Executive Officer of the Company, and David L. Mitchell, Herbert A. Cohen and
Kenneth L. Adelman, each of whom are directors of the Company (Messrs. Blum,
Hannesson, Mitchell, Cohen and Adelman are collectively referred to as the
"Proxy Holders"), which was executed in connection with the transactions
contemplated by the Securities Purchase Agreement, dated July 3, 1997, between
the Company and Lanxide (the "Securities Purchase Agreement"). Pursuant to the
Voting Agreement, stockholders of Lanxide owning 50.1% of the outstanding shares
of Lanxide common stock (which included Messrs. Blum and Hannesson and certain
of their family members) granted proxies to the Proxy Holders to vote all shares
of Lanxide common stock held by each such stockholder until December 31, 1998.
Pursuant to the Securities Purchase Agreement, the Company purchased 20,000
shares of Lanxide Series G Preferred Stock for $2.0 million. In addition,
pursuant to the Securities Purchase Agreement, Lanxide issued to the Company a
warrant to purchase up to 250,000 shares of Lanxide Series F Preferred Stock at
an exercise price of $100 per share (the "Series F Warrant"). The Series F
Warrant was exercisable, in part, by the exchange of the 20,000 shares of
Lanxide Series G Preferred Stock for a like number of shares of Lanxide Series F
Preferred Stock. The Securities Purchase Agreement further provided that if
prior to August 27, 1997, the Company received $10.5 million in financing, the
Company would purchase an additional 85,000 shares of Lanxide Series G Preferred
Stock for an aggregate purchase price of $8.5 million comprised of (i) $4.0
million in cash and (ii) the cancellation of LPM's outstanding indebtedness to
the Company and Applied in the aggregate amount of $4.5 million. On August 27,
1997, the Company informed Lanxide that it had not completed the required
financing and that it would not purchase the additional 85,000 shares of Lanxide
Series G Preferred Stock.
The Lanxide Series G Preferred Stock was not convertible and was not
entitled to vote or to receive dividends. The Lanxide Series G Preferred Stock
was redeemable by Lanxide after December 31, 1998 to the extent such shares were
not used to exercise the Series F Warrant. The terms of the Lanxide Series F
Preferred Stock included, among other things: (i) the right to convert the
Lanxide Series F Preferred Stock into shares of Lanxide common stock at a rate,
subject to adjustment, of 13.5 shares of Lanxide common stock for each share of
Lanxide Series F Preferred Stock; (ii) a mandatory conversion by the holders
upon certain events, including the sale by Lanxide of at least $10.0 million of
Lanxide securities in a private placement prior to the time that the Company
exercised at least $10.0 million of the Series F Warrant; and (iii) the right to
elect four of the seven members of the Lanxide board of directors.
In March 1998, as partial prepayment of the Convertible Note, Applied paid
the Company $500,000 in cash and transferred to the Company the promissory note
evidencing the $1.5 million loan from Applied to LPM in August 1996. See "--1997
Intercompany Convertible Note." Upon receipt thereof, the Company and Lanxide
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entered into a series of transactions pursuant to which, among other things, the
Company paid to a subsidiary of Lanxide the $500,000 in cash it received from
Applied and cancelled the $3.0 million LPM Note and the $1.5 million
indebtedness of LPM to Applied (which was guaranteed by Lanxide) in exchange for
the CERASET Business, CERASET License and CERASET Trademark.
Pursuant to the terms of the CERASET License, Polymer Technologies has
agreed to pay a subsidiary of Lanxide a royalty equal to 4% of the net sales
price of all products sold by Polymer Technologies and any of its sublicensees,
which are manufactured using the CERASET technology until the aggregate royalty
payments equal $4.0 million. Thereafter, Lanxide's subsidiary will be entitled
to receive a royalty equal to 2% of the net sales price of all products sold by
Polymer Technologies and its sublicensees, which are manufactured using the
CERASET technology.
In connection with the Company's acquisition of the CERASET Business,
CERASET License and CERASET Trademark, the Company and Lanxide amended the
Securities Purchase Agreement, pursuant to which, among other things, (i) the
Company and Lanxide each agreed to exchange all of the issued and outstanding
shares of Lanxide Series G Preferred Stock held by the Company for an equal
number of Lanxide Series H Preferred Stock, (ii) the Company's right to purchase
additional shares of Lanxide Series G Preferred Stock pursuant to the Securities
Purchase Agreement was cancelled, (iii) Lanxide issued a warrant to the Company
for the purchase of up to 270,000 shares of Lanxide common stock, at an exercise
price of $7.41 per share, which exercise price may be paid by the tender of
shares of Lanxide Series H Preferred Stock (the "Lanxide Warrant"), and (iv) the
Company's right to purchase 250,000 shares of Lanxide Series F Preferred Stock
pursuant to the Series F Warrant was cancelled. The Lanxide Series H Preferred
Stock is not convertible and is not entitled to vote or to receive dividends.
The Lanxide Series H Preferred Stock is redeemable by Lanxide after December 31,
1998 to the extent such shares are not used to exercise the Lanxide Warrant.
In addition, the Company, Applied, Lanxide and LPM entered into a
settlement and release agreement pursuant to which, among other things, the
parties acknowledged and agreed that the Voting Agreement was terminated on
February 5, 1998, and the parties released each other from any and all claims
arising out of the $3.0 million loan from the Company to LPM, the $1.5 million
loan from Applied to LPM, the Securities Purchase Agreement, and the Voting
Agreement.
License of SET Technology
As a result of its acquisitions of the capital stock of Commodore
Laboratories, Applied acquired all patents, discoveries, technology and other
intellectual property in connection with the SET process which it later
transferred to Solution in December 1996. The Company licenses from Solution the
exclusive worldwide right with the right to sublicense, to make, use, sell and
exploit, itself or jointly with other third parties, for the life of all patents
now or hereafter owned by Solution, the SET process and all related technology
underlying such patents and intellectual property in all domestic and
international commercial and industrial applications, in connection with the
destruction of CFCs and other ozone-depleting substances (the "CFC Business");
provided that such license expressly limits the rights of the licensee(s) and
others who may be sub-licensees or users of Solution's patents and technologies
to the CFC Business.
CFC Technology and Support Agreement
The Company has entered into a five-year technology and technical support
agreement with Applied and CFC Technologies. Pursuant to such agreement, Applied
will provide certain research and development, equipment engineering and
technical support to enable the Company and CFC Technologies to exploit the CFC
Business. Under such agreement, Applied will provide the Company and CFC
Technologies the services of certain Applied personnel and equipment. Applied
will charge CFC Technologies and the Company a fee equal to the sum of (a) the
actual costs of all materials and equipment utilized in connection with such
services; and (b) an hourly rate allocable to the services rendered by all
Applied personnel which shall be equal to 120% of the average hourly rate of
compensation then payable by Applied to such persons (based on a 35-hour work
week). Under the terms of the technology and technical services agreement, in no
event will the employees of the Applied be required to expend in excess of 25%
of their business and professional time in any 90-day period in rendering
services to the Company or CFC Technologies, without the majority approval or
consent of Herbert A. Cohen and David L. Mitchell, or such
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other members of the Board of Directors of the Company not otherwise affiliated
with or employed by the Company, Applied or any of their respective
subsidiaries.
Future Transactions
In June 1996, the Company's Board of Directors adopted a policy whereby any
future transactions between the Company and any of its subsidiaries, affiliates,
officers, directors and principal stockholders, or any affiliates of the
foregoing, be on terms no less favorable to the Company than could reasonably be
obtained in "arm's-length" transactions with independent third parties, and any
such transactions also be approved by a majority of the Company's disinterested
non-management directors.
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On December 11, 1996, the Company and its former auditors, Tanner + Co.
("Tanner"), mutually agreed to terminate the client-auditor relationship between
the Company and Tanner effective as of such date. Additionally, as of December
19, 1996, the Company retained Price Waterhouse LLP to serve as independent
accountants. The decision to terminate the Company's client-auditor relationship
with Tanner and to retain Price Waterhouse LLP was recommended by the Audit
Committee of the Board of Directors and unanimously approved by the Board of
Directors of the Company.
During the Company's fiscal year ended December 31, 1995, Tanner's report
on the Company's financial statements neither contained any adverse opinion or
disclaimer of opinion, nor was qualified or modified as to any uncertainty,
audit scope or accounting principles, except that Tanner's auditors report on
the Company's consolidated financial statements for the year ended December 31,
1995 contained an additional paragraph relating to the Company continuing as a
going concern, due to significant losses and a deficit in working capital.
During the Company's fiscal year ended December 31, 1995, there were no
disagreements between the Company and Tanner on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Tanner,
would have caused Tanner to make reference to the subject matter of the
disagreements in connection with its report.
No "reportable events" as described under Item 304(a)(1)(v) of Regulation
S-K occurred during the Company's fiscal year ended December 31, 1995.
Prior to engaging Price Waterhouse LLP, the Company did not consult Price
Waterhouse LLP regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
The Board of Directors has selected Price Waterhouse LLP, which served as
the Company's independent auditors for the years ended December 31, 1997 and
1996, to serve as the Company's independent auditors for the year ending
December 31, 1998. The Board of Directors is submitting its selection of Price
Waterhouse LLP as the Company's independent auditors for ratification at the
Annual Meeting in order to ascertain the views of stockholders of the Company
regarding such selection. If the appointment of Price Waterhouse LLP is not
ratified, the Board of Directors will reconsider its selection and, if
practicable, retain another firm to serve as the Company's independent auditors.
The Board of Directors reserves the right to select new independent auditors at
any time which it may deem advisable or necessary.
Ratification of this proposal requires the affirmative vote of a majority
of the shares of Common Stock present in person or represented by proxy at the
Annual Meeting. Unless contrary instructions are indicated on the proxy cards,
all shares represented by valid proxies received pursuant to this solicitation
(and which have not been revoked in accordance with the procedures set forth
herein) will be voted "FOR" the ratification of the appointment of Price
Waterhouse LLP as the Company's independent auditors for the year ending
December 31, 1998.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDED DECEMBER 31, 1998.
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STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders who wish to present proposals appropriate for consideration at
the Company's Annual Meeting of Stockholders to be held in 1999 must submit the
proposal in proper form to the Secretary of the Company at the Company's address
set forth on the first page of this Proxy Statement not later than January 8,
1998, in order for the proposal to be considered for inclusion in the Company's
proxy statement and form of proxy relating to such annual meeting. It is
suggested that such proposal be sent by Certified Mail, Return Receipt
Requested.
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournment thereof, it
is the intention of the persons named in the accompanying proxy card to vote the
same in accordance with their own judgment and their discretion.
OTHER INFORMATION
A copy of the Company's 1997 Annual Report to Stockholders is being
furnished herewith to each stockholder of record as of the Record Date.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON, A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER
31, 1997. SUCH REQUEST SHOULD BE ADDRESSED TO MICHAEL D. FULLWOOD, SENIOR VICE
PRESIDENT, CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER, SECRETARY AND GENERAL
COUNSEL, COMMODORE ENVIRONMENTAL SERVICES, INC., 150 EAST 58TH STREET, SUITE
3400, NEW YORK, NEW YORK 10155.
By Order of the Board of Directors
MICHAEL D. FULLWOOD
Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel
New York, New York
May 8, 1998
26
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FORM OF PROXY
COMMODORE ENVIRONMENTAL SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned, a stockholder of COMMODORE ENVIRONMENTAL SERVICES, INC., a
Delaware corporation (the "Company"), hereby appoints Paul E. Hannesson and
Michael D. Fullwood, and each of them, as proxies for the undersigned, each with
full power of substitution, and hereby authorizes them to represent and to vote,
as designated below, all of the shares of Common Stock of the Company held of
record by the undersigned at the close of business on April 27, 1998 at the
Annual Meeting of Stockholders of the Company to be held on Wednesday, June 3,
1998, at 9:00 a.m., local time, at The Links Club, 36 East 62nd Street, New
York, New York 10021, and at any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR PROPOSAL 2
SET FORTH BELOW.
1. To elect the following nominees as directors of the Company to hold office
until the Annual Meeting of Stockholders to be held in 1999, and until
their respective successors are duly elected and have qualified: Paul E.
Hannesson, Bentley J. Blum, Herbert A. Cohen, David L. Mitchell, and
Kenneth L. Adelman, Ph.D.
FOR ALL NOMINEES WITHHOLD ALL NOMINEES
(except as marked to the contrary)
( ) ( )
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD
BE INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE
NOMINEE.
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent auditors for the year ending December 31, 1998.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. Upon such other matters as may properly come before such Annual Meeting and
any adjournments or postponement thereof. In their discretion, the proxies
are authorized to vote upon such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
(See reverse side)
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(Continued from other side)
The undersigned hereby acknowledges receipt of (1) the Notice of Annual
Meeting for the 1998 Annual Meeting, (2) the Proxy Statement and (3) the
Company's 1997 Annual Report to Stockholders.
Dated: ______________________, 1998 ---------------------------------
Signature
---------------------------------
Print Name
---------------------------------
Signature, if Jointly Held
---------------------------------
Print Name
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREIN. If signing as
attorney, executor, administrator,
trustee or guardian, indicate such
capacity. All joint tenants must
sign. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
The Board of Directors requests that
you fill in the date and sign the
proxy and return it in the enclosed
envelope.
IF THE PROXY IS NOT DATED IN THE
ABOVE SPACE, IT IS DEEMED TO BE
DATED ON THE DAY ON WHICH IT WAS
MAILED BY THE CORPORATION.
