<PAGE>
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY KNOWN AS CANONIE ENVIRONMENTAL SERVICES CORP.)
GALLERIA TOWER II
13455 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
October 13, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Smith Environmental Technologies Corporation, to be held on November 17,
1995, at 9:00 a.m. at the offices of the Company located at 2080 South
Carboy, Mt. Prospect, Illinois 60056.
The formal Notice of Annual Meeting and Proxy Statement accompanying
this letter describe the business to be acted upon at the meeting.
It is important that your shares be represented at the meeting,
regardless of the number you hold. Therefore, please mark, date, and sign
the enclosed proxy and return it in the envelope provided for that purpose,
whether or not you plan to attend the meeting. Stockholders who attend the
meeting may vote in person even though they have previously mailed their
proxies.
Sincerely,
E. Brian Smith
Chairman, President and
Chief Executive Officer
<PAGE>
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY KNOWN AS CANONIE ENVIRONMENTAL SERVICES CORP.)
GALLERIA TOWER II
13455 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 1995
The Annual Meeting of Stockholders of Smith Environmental Technologies
Corporation (the "Company") will be held at the offices of the Company
located at 2080 South Carboy, Mt. Prospect, Illinois on Friday, November 17,
1995, at 9:00 a.m. C.S.T. for the following purposes:
(1) To elect two (2) Class C directors, each director to serve
for a term of three years.
(2) To ratify the issuance of the Convertible Senior Subordinated
Note and the Convertible Senior Note of the Company, each
convertible into preferred stock, and then into common stock
of the Company.
(3) To ratify the appointment by the Board of Directors of the firm
of Ernst & Young LLP as independent auditors of the Company for
the fiscal year ended September 30, 1995 and for the fiscal year
ending September 30, 1996.
The Board of Directors has fixed the close of business on September 29,
1995 as the record date for the determination of stockholders entitled to
receive notice of, and to vote at, the Annual Meeting of Stockholders or any
adjournment thereof, and only stockholders of record at said time and on said
date are entitled to notice of, and to vote at, the Annual Meeting of
Stockholders. The holders of a majority of the outstanding shares entitled
to vote at the meeting are required for a quorum. A list of stockholders will
be available for examination by any stockholder for any purpose germane to
the meeting, during normal business hours, for a period of ten days prior to
the meeting, at the office of Smith Environmental Technologies Corporation
located at Galleria Tower II, 13455 Noel Road, Suite 1500, Dallas, Texas.
Management sincerely desires your presence at the meeting. However, so
that we may be sure that your vote will be included, please sign and return
the enclosed proxy promptly. If you attend this meeting, you may revoke your
proxy and vote in person.
By Order of the Board of Directors
W.D. Nelson
Secretary
Dallas, Texas
October 13, 1995
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN, AND MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE PROMPTLY, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE MEETING. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY KNOWN AS CANONIE ENVIRONMENTAL SERVICES CORP.)
GALLERIA TOWER II
13455 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
PROXY STATEMENT
OCTOBER 13, 1995
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation by the Board of Directors of Smith
Environmental Technologies Corporation, formerly known as Canonie
Environmental Services Corp. (the "Company"), of proxies to be voted at the
Annual Meeting of Stockholders to be held on November 17, 1995, or any
adjournment thereof, for the purposes set forth in the foregoing Notice of
Annual Meeting of Stockholders. Proxies properly executed and returned in a
timely manner will be voted at the meeting in accordance with the directions
set forth thereon. If no instructions are indicated, they will be voted as
follows:
FOR the election of the nominees for directors named herein;
FOR ratification of the issuance to 399 Venture Partners, Inc.
of the $10,000,000 Convertible Senior Subordinated Note and
the $2,000,000 Convertible Senior Note; and
FOR ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ended
September 30, 1995 and for the fiscal year ending September
30, 1996.
The Company has received written representations from the holders of a
majority of the outstanding common stock that they will vote FOR ratification
of the issuance to 399 Venture Partners of the Convertible Senior
Subordinated Note and the Convertible Senior Note and, therefore, approval of
this item is assured. If other matters are presented for a vote, the proxies
shall be voted in accordance with the best judgment of the persons acting
thereunder. Any proxy given by a stockholder may be revoked by the
stockholder at any time prior to its use by providing the Secretary of the
Company at its offices located at Galleria Tower II, 13455 Noel Road, Suite
1500, Dallas, Texas 75240, with a written revocation, by submitting a
properly executed proxy bearing a later date, or by attending the meeting and
voting in person. It is expected that proxy materials will be mailed to
stockholders on or about October 13, 1995.
Holders of record of common stock, $0.01 par value per share, of the
Company at the close of business on September 29, 1995, the record date for
those entitled to notice of the meeting, will be entitled to vote at the
Annual Meeting. On such date, the Company had outstanding and entitled to
vote 5,857,015 shares of common stock. The holders of common stock as of the
record date will be entitled to one vote per share. Other than common stock,
the Company had no class of voting securities outstanding on the record date.
The presence at the meeting in person or by proxy of the holders of a
majority of the outstanding shares entitled to vote is necessary to
constitute a quorum.
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the election inspectors appointed for the meeting and will determine
whether or not a quorum is present. A proxy submitted by a stockholder may
indicate that all or a portion of the shares represented by
<PAGE>
such proxy are not being voted by such shareholder with respect to a
particular matter. This could occur, for example, when a broker is not
permitted to vote shares held in street name on certain matters in the
absence of instructions from the beneficial owner of such shares. The shares
subject to any such proxy which are not being voted with respect to a
particular matter (the "non-voted shares") will be considered shares not
present and entitled to vote on such matter, although such shares may be
considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum. (Shares voted to abstain
as to a particular matter, and directions to "withhold authority" to vote for
directors, will not be considered non-voted shares.) Directors will be
elected by a plurality of the votes of the shares present or represented by
proxy at the meeting and entitled to vote on the election of directors. All
other matters put to a stockholder vote will be decided by the affirmative
vote of a majority of the votes cast on the matter.
PRINCIPAL STOCKHOLDERS
The following tables set forth information as of September 29, 1995 with
respect to (a) any person who is known to the Company to be the beneficial
owner of more than five percent of the Company's common stock, and (b) the
ownership of the Company's common stock by the Company's Chief Executive
Officer and the four other most highly compensated executive officers, and
all executive officers and directors as a group. Except as otherwise
indicated, such persons have sole voting and investment power with respect to
the shares indicated below.
<TABLE>
<CAPTION>
Number of
Shares Owned Percent of
Name and Address of Beneficial Holder Beneficially Class
- -----------------------------------------------------------------------------
<S> <C> <C>
Smith Holding Corporation 2,653,720 (1)45.31%
51 Montecito Drive
Corona Del Mar, CA 92625
Dimensional Fund Advisors Inc. 389,300 (2) 6.65%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
J.J. Cramer & Co. 577,600 (3) 9.86%
56 Beaver Street, Suite 701
New York, NY 10004
399 Venture Partners, Inc. 3,714,430 (4)38.81%
399 Park Avenue
New York, NY 10043
E. Brian Smith 2,653,720 (5)45.31%
Richard A. Zartler 244 *
Anthony J. Dury 10,000 (6) *
Wilfrid D. Nelson 10,000 (6) *
William T. Campbell 6,250 (6) *
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
All executive officers and directors
as a group 2,893,304 (7)47.53%
<FN>
- --------------------------
* Less than one percent.
(1) Based upon information contained in a Form 3, dated January 5, 1994.
(2) Based upon information obtained from Dimensional Fund Advisors, Inc.
Schedule 13G dated January 30, 1995 and upon the Report of Ownership by
Major Institutions as of June 1995 reported by the NASDAQ Stock Market,
Inc. Dimensional Fund Advisors, Inc., a registered investment advisor,
is deemed to have beneficial ownership of 389,300 shares of the Company's
common stock as of June 1995, all of which shares are held in portfolios
of DFA Investment Dimensions Group, Inc., a registered open-end investment
company, or in series of The DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and the DFA Participating Group
Trust, investment vehicles for qualified employee benefit plans.
Dimensional Fund Advisors, Inc. serves as investment manager for all of
the Dimension and DFA entities, and Dimensional Fund Advisors, Inc.
disclaims beneficial ownership of all such shares.
(3) Based upon information contained in amendment number 4 to Schedule 13D,
dated February 6, 1995 and upon the Report of Ownership by Major
Institutions as of June 1995 reported by the NASDAQ Stock Market, Inc.
(4) This number reflects shares represented by the conversion rights of the
Convertible Senior Subordinated Note and the Convertible Senior Note,
including 371,443 shares represented by portions of the Notes distributed
to individual investors in 399 Venture Partners, Inc., one of whom is a
director of the Company.
(5) These shares are owned of record and included in the shares reported by
Smith Holding Corporation, which has sole power over voting and
disposition thereof. E. Brian Smith is the Chairman, President and Chief
Executive Officer and controls majority ownership of Smith Holding
Corporation.
(6) Includes options for shares subject to acquisition within 60 days held by
Messrs. Dury, Nelson, and Campbell for 10,000, 10,000 and 6,250 shares,
respectively.
(7) Includes 100,760 options to acquire shares which are vested or will vest
within 60 days and 129,880 shares represented by conversion rights
granted to 399 Venture Partners, Inc., which are attributable to a
director of the Company, and included in the shares reported by 399
Venture Partners, Inc.
</TABLE>
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three distinct classes.
The directors in Class A and Class B named below have terms which expire in
1996 and 1997, respectively. Two members of the Board of Directors are to be
elected as Class C directors to serve until the Annual Meeting of
Stockholders of the Company in 1998. Mr. John Paul Jones, Jr., whose term
expires with the annual meeting to which this Proxy Statement relates, is
standing for re-election. Mr. Byron Lee, Jr. has determined, for personal
reasons, not to stand for re-election for a full three year term and to
resign his position as a Class C director effective November 17, 1995. Mr.
E. Brian Smith has been nominated for election as a Class C director to fill
the vacancy which will be created by the resignation of Mr. Lee. The two
persons receiving pluralities of the votes cast will be elected as Class C
directors. If elected as a Class C director, Mr. Smith intends to resign his
Class A directorship, and the Board of Directors has indicated its intention
to appoint Mr. Lee to complete the remaining term of the Class A directorship
to be vacated by Mr. Smith. Mr. Lee has indicated his willingness to accept
this appointment.
-3-
<PAGE>
The Board of Directors recommends that stockholders vote FOR
the election of the nominees as directors. The following table
contains certain information regarding the nominees and other
directors, including the number of shares of common stock of the
Company "beneficially" owned by them at September 29, 1995, as
determined pursuant to the rules of the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Year
First Number of Percent of
Name, Age, Occupation and Elected Shares Owned Outstanding
Business Experience Director Beneficially Shares
- ------------------------- -------- -------------- -----------
<S> <C> <C> <C>
NOMINEES TO SERVE UNTIL ANNUAL MEETING IN
1998 (CLASS C)
REAR ADMIRAL JOHN PAUL JONES, JR.
(RET.), 63, (1), (8), (9) 1994 6,000 (13) *
Independent Consultant since
1988. Retired as Chief of Navy
Civil Engineers and Commander,
Naval Facilities Engineering
Command in September 1987.
E. BRIAN SMITH, 57, (2), (9) 1994 2,653,720 (10) 45.31%
Chairman and Chief Executive Officer
of the Company since January 1994
and President of the Company
since February 1995.
Chairman, President and Chief
Executive Officer of Smith
Holding Corporation, a company
formed by Mr. Smith to seek
investments in environmental
consulting and remediation firms,
since August 1993. Consultant
to International Technology
Corporation ("IT"), a company
engaged in environmental remediation
and consulting, from July 1992 to
August 1993. President and
Chief Operating Officer of
IT from 1988 to July 1992.
DIRECTORS SERVING UNTIL ANNUAL MEETING IN 1997 (CLASS B)
MELVIN H. CHIOGIOJI, PH.D.,
REAR ADMIRAL, U.S. NAVAL RESERVE
(RET.), 56, (3), (7), (9) 1994 6,000 (13) *
President of Intemco, Ltd.,
an independent power producing
company, since June 1992, and
President of EFC, Inc. an
automobile body repair business,
since June 1980. Construction
Manager and Deputy Director,
Office of New Production Reactors,
U.S. Department of Energy from
June 1989 to January 1993.
Commander, Second Naval
Construction Brigade, Civil Engineer
Corps., U.S. Naval Reserve from
1987 to 1993.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Year
First Number of Percent of
Name, Age, Occupation and Elected Shares Owned Outstanding
Business Experience Director Beneficially Shares
- ------------------------- -------- -------------- -----------
<S> <C> <C> <C>
ROBERT L. GUYETT, 58, (4), (7), (8) 1994 13,500 (13) *
Consultant to, since May 1995,
and formerly Senior Vice President
and Chief Financial Officer of
Engelhard Corporation, a
specialty chemicals and
precious metals management
company, from September 1991.
Senior Vice President, Chief
Financial Officer and Director
of Fluor Corporation, an
international engineering and
construction company, from
1987 to 1991. Director of
Newport Corporation.
MAJOR GENERAL HUGH G. ROBINSON
(RET.), 63, (5), (7), (8) 1994 6,000 (13) *
Chairman and Chief Executive
Officer of the Tetra Group,
Inc., a construction management
consulting company, since April
1989, and Senior Vice President
of Grigsby Brandford & Co., Inc.,
an investment banking firm, since
October 1988. Director of A.H. Belo
Corporation, Columbus Realty Trust,
Texas Utilities Electric Company,
Lomas Financial Corporation and
Guaranty Federal Savings Bank.
Director of Federal Reserve Bank of
Dallas from 1985 to 1991 (Chairman 1991).
DIRECTORS SERVING UNTIL ANNUAL MEETING IN 1996 (CLASS A)
BYRON LEE, JR., 66, (8) 1986 16,200 (11) *
Retired as President and
Chief Executive Officer of
the Nuclear Management and
Resources Council (NUMARAC),
a nuclear power industry
organization, in July 1992.
Prior to May 1, 1987, served
as Executive Vice President of
Commonwealth Edison Company, an
electric utility, for seven
years. Director of Unicom Corporation
(formerly known as Commonwealth Edison
Company.)
ARTHUR A. RIEDEL, 64 1995 0 0
Chairman of the Board and
President of Riedel Resources,
Inc. since 1979; Chairman of the
Board of Columbia Western, Inc. since
1986; Director of ESCO Corporation,
Acordia/Pettit-Morry Co.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Year
First Number of Percent of
Name, Age, Occupation and Elected Shares Owned Outstanding
Business Experience Director Beneficially Shares
- ------------------------- -------- -------------- -----------
<S> <C> <C> <C>
RICHARD M. CASHIN, JR., 42, (6) (7) 1994 133,880 (12) 2.23%
Managing Director,
Citicorp Venture Capital, Ltd.,
a company that provides debt
and equity financing to businesses
in the U.S., from 1980 to present;
Director, Levitz Furniture Co.;
Titan Wheel International; Hoover
Group; Autostyle Plastics;
Copes-Vulcan; Delco Remy America;
Freedom Forge; JAC Products.
<FN>
_________________________
* Less than one percent.
(1) Mr. Jones was elected to the Board of Directors effective
January 28, 1994 to fill the unexpired term of Charles E.
Johnson, II, who resigned effective as of January 28, 1994.
(2) Mr. Smith was elected to the Board of Directors effective as
of January 16, 1994 to fill the unexpired term of Joseph R.
Wright, Jr., who resigned effective as of January 16, 1994.
(3) Mr. Chiogioji was elected to the Board of Directors
effective as of January 16, 1994 to fill the unexpired term
of J. Peter Grace, who resigned effective as of January 16,
1994.
(4) Mr. Guyett was elected to the Board of Directors effective
as of January 16, 1994 to fill the unexpired term of Richard
A. Zartler, who resigned effective as of January 16, 1994.
(5) Mr. Robinson was elected to the Board of Directors effective
as of January 16, 1994 to fill the unexpired term of D.
Walter Robbins, Jr., who resigned effective as of January
16, 1994.
(6) Mr. Cashin was elected to the Board of Directors effective
as of November 21, 1994 by a vote of a majority of the board
to fill an existing vacancy in the Class A directors.
(7) Member of the Audit and Finance Committee.
(8) Member of the Compensation Committee.
(9) Member of the Nominating and Insurance Committee.
(10) These shares are owned of record by Smith Holding
Corporation, which has sole power over voting and
disposition thereof. E. Brian Smith is the Chairman,
President and Chief Executive Officer and controls majority
ownership of Smith Holding Corporation.
(11) Includes 6,000 shares for which Mr. Lee holds an option
granted under the 1992 Non-employee Directors Stock Option
Plan and options for 9,000 shares granted under the 1994 Non-
employee Directors Stock Option Plan exercisable within 60
days.
(12) Includes 129,880 shares subject to issuance based upon the
conversion rights of the Convertible Senior Subordinated
Note and the Convertible Senior Note issued by the Company
to 399 Venture Partners, Inc. in November 1994 and options
for 4,000 shares granted under the 1994 Non-Employee
Directors Stock Option Plan exercisable within 60 days.
</TABLE>
-6-
<PAGE>
<TABLE>
<C> <S>
(13) Includes options for 2,000 shares granted under the 1992 Non-
Employee Directors Stock Option Plan and options for 4,000
shares granted under the 1994 Non-Employee Directors Stock
Option Plan exercisable within 60 days.
</TABLE>
Should any nominee become unable to accept nomination or
election (which management has no reason to expect), it is the
intention of persons named in the enclosed proxy to vote for a
substitute.
EXECUTIVE OFFICERS
Information with respect to the Executive Officers of the
Company is set forth in the Company's Annual Report on Form 10-K,
as amended, under the heading "Directors and Executive Officers
of the Registrant," filed with the Commission on May 30, 1995 and
June 28, 1995, and delivered to the Stockholders of the Company
with this Proxy Statement, and is incorporated herein by
reference.
BOARD MEETINGS, COMMITTEES, AND COMMITTEE MEETINGS
The Company's Board of Directors met fourteen (14) times
during the fiscal year ended February 28, 1995.
The Board of Directors' standing Audit and Finance Committee
at the beginning of the fiscal year ended February 28, 1995 was
composed of Messrs. Robert L. Guyett (Chairman), Melvin H.
Chiogioji, and Hugh G. Robinson. On November 21, 1994, Mr.
Richard M. Cashin, Jr. was appointed to serve on the Audit and
Finance Committee. The Audit and Finance Committee met eight (8)
times during the fiscal year ended February 28, 1995. The Audit
and Finance Committee makes recommendations to the Board of
Directors regarding the engagement of independent auditors,
reviews with the auditors the plan, scope, timing, and results of
their annual audit, reviews other professional services performed
by the auditors, reviews the Company's policies and systems of
internal accounting controls, reviews the Company's filings with
the Securities and Exchange Commission, and develops, reviews,
and advises the Company on financing and acquisition strategies.
At the beginning of the fiscal year ended February 28, 1995,
the Board of Directors had a separate standing Compensation
Committee composed of Messrs. Hugh G. Robinson (Chairman), Robert
L. Guyett, John Paul Jones, Jr. and Byron Lee, Jr. The
Compensation Committee met sixteen (16) times during the fiscal
year ended February 28, 1995. The Compensation Committee reviews
management compensation levels, administers the Company's short-
and long-term incentive plans, evaluates management performance,
and considers management succession and related matters.
At the beginning of the fiscal year ended February 28, 1995,
the Board of Directors had a separate standing Nominating and
Insurance Committee composed of Messrs. E. Brian Smith
(Chairman), Melvin H. Chiogioji, and John Paul Jones, Jr., which
met four (4) times during the fiscal year ended February 28,
1995. The Nominating and Insurance Committee reviews and
nominates candidates for positions on the Board of Directors and
reviews the Company's insurance and surety programs and the
activities of its insurance brokers. Any stockholder who wishes
to recommend a prospective nominee for the Board of Directors for
the committee's consideration may write to E. Brian Smith,
Nominating and Insurance Committee, c/o Smith Environmental
Technologies Corporation, Galleria Tower II, 13455 Noel Road,
Suite 1500, Dallas, Texas 75240.
-7-
<PAGE>
Each existing director attended during the period he served
on the Board of Directors greater than 75% of the meetings of the
Board of Directors and greater than 75% of the meetings held by
all Committees on which he served.
DIRECTOR COMPENSATION
The Company, on January 28, 1994, terminated the cash
compensation plan for members of the Board of Directors and
provided for options to be granted under the Company's 1994 Non-
employee Directors Stock Option Plan in lieu of accepting cash
pursuant to the cash compensation plan. The directors are also
reimbursed for expenses incurred in attending all board meetings.
Prior to January 28, 1994, in addition to payments under a
cash compensation plan, each member of the Board of Directors who
was not an employee of the Company or an individual designated to
serve on the Board of Directors by W.R. Grace & Co. was entitled
under the Company's 1992 Non-employee Director Stock Option Plan
to receive an option for 6,000 shares of common stock upon his
initial election to the Board of Directors. Each of Messrs. Lee,
Chiogioji, Guyett, Jones, and Robinson received such grants upon
their election to the Board of Directors. The options issued to
Messrs. Lee, Chiogioji, Guyett, Jones and Robinson are
exercisable at a rate not exceeding 2,000 shares per year,
commencing one year after the date of grant of the option at an
exercise price equal to 100% of the fair market value of the
underlying common stock on the date of the grant. Options
granted under the 1992 Non-employee Director Stock Option Plan
expire five years after the grant. The 1992 Non-employee
Director Stock Option Plan was terminated in 1994 and replaced by
the 1994 Non-employee Director Stock Option Plan. The 1992 plan
remains in effect only to the extent of any unexercised options
granted under that plan.
In replacement of the former cash compensation plan and the
1992 Non-employee Director Stock Option Plan, the new 1994 Non-
employee Director Stock Option Plan provides that each non-
employee director will receive an initial option for 12,000
shares of common stock and an additional annual option for 5,000
shares of common stock on each anniversary of his election to the
Board of Directors so long as he remains a non-employee director.
The exercise price of the options is equal to 100% of the fair
market value of the underlying common stock on the date of the
grant. The terms of the options are for ten years. The initial
options will vest in equal annual increments over three years and
each annual option for 5,000 shares will vest after one year.
The non-employee directors (Messrs. Chiogioji, Guyett, Jones,
Lee, Robinson, Cashin and Riedel) were granted their initial
12,000 share options during the fiscal year ended February 28,
1995 pursuant to the terms of the plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with
respect to the compensation of the Company's Chief Executive
Officer and the four other most highly compensated executive
officers during the fiscal year ended February 28, 1995 and the
two preceding fiscal years. (1)
-8-
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
---------------------------------- --------------
Securities
Fiscal Underlying
Name & Principal Position Year Salary Bonus Options/SARs
- ------------------------- ------ -------- ------- --------------
<S> <C> <C> <C> <C>
E. BRIAN SMITH 1995 $250,704 115,000 0
Chairman, 1994 $ 23,077(2) 0 0
Chief Executive Officer and 1993 0 0 0
President
RICHARD A. ZARTLER 1995 $202,016 0 0
Vice President - Construction 1994 $200,000 0 0
and Remediation Division (3) 1993 $ 9,231(4) $65,000(5) 75,000
ANTHONY J. DURY 1995 $136,873 0 0
Vice President - 1994 12,981(6) 0 30,000
Chief Administrative 1993 0 0 0
Officer
WILFRID D. NELSON 1995 $126,602 0 0
Vice President, 1994 48,077(7) 0 20,000
General Counsel and Secretary 1993 0 0 0
WILLIAM T. CAMPBELL 1995 $118,127(8) 0 25,000
Vice President - 1994 0 0 0
Finance and Assistant 1993 0 0 0
Secretary
<FN>
_____________________
(1) The column showing Other Annual Compensation has been
omitted because, during the periods covered, no named
executive officer received any "other annual compensation"
other than certain perquisites and other personal benefits
the dollar value of which was less than the established
reporting thresholds. The column showing Restricted Stock
Awards has been omitted because there have been no
Restricted Stock Awards during the periods covered and there
are no outstanding shares of Restricted Stock held by the
named executive officers. The column showing Long Term
Incentive Plan Payouts has been omitted because as of
February 28, 1995, the Company had no Long Term Incentive
Plans under which compensation can be earned. The column
showing All Other Compensation has been omitted because,
during the periods covered, no named executive officer
received any "other compensation."
(2) Reflects Mr. Smith's salary for the period from January 1,
1994 through February 28, 1994.
(3) Mr. Zartler served as President and Chief Executive Officer
of the Company from January 29, 1993 through December 31,
1993 and as President from January 29, 1993 through February
23, 1995.
(4) Reflects Mr. Zartler's salary for the period from January
29, 1993 through February 28, 1993.
(5) Represents a signing bonus paid to Mr. Zartler as an
incentive to join the Company.
</TABLE>
-9-
<PAGE>
<TABLE>
<C> <S>
<FN>
(6) Reflects Mr. Dury's salary for the period from January 24,
1994 through February 28, 1994.
(7) Reflects Mr. Nelson's salary for the period from October 11,
1993 through February 28, 1994.
(8) Reflects Mr. Campbell's salary for the period from March 7,
1994 through February 28, 1995.
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Prior to his retirement on June 9, 1995, Mr. Richard A.
Zartler was employed by the Company pursuant to an Employment
Agreement dated effective January 1, 1994. The Employment
Agreement was for a term of one year and continuing thereafter
subject to termination by the employee or employer. The
agreement provided for a minimum base annual salary of $200,000,
and for severance benefits, equal to twelve months minimum base
salary, in the event of termination for a reason other than for
"Cause," as that term was defined in the Employment Agreement or
in the event Mr. Zartler was asked to relocate or assume lesser
duties. The Employment Agreement contained provisions for a
limited period of non-solicitation and non-disclosure of
confidential information following termination of employment. As
a result of Mr. Zartler's retirement, the Employment Agreement
was terminated as of June 9, 1995.
TABLES OF OPTION GRANTS IN THE FISCAL YEAR ENDED FEBRUARY 28, 1995
The following table sets forth, as to the Chief Executive
Officer and the four other most highly compensated executive
officers of the Company, information with respect to stock option
grants in the fiscal year ended February 28, 1995 and the
hypothetical values of such options. The Company has not granted
any stock appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Grant Date
Individual Grants Value(1)
- ----------------------------------------------------------------------------------- -------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration Grant Date
Name Granted(2) Fiscal Year Price ($/Sh) Date Present Value
- ------------------ ------------ ------------- ---------------- -------- -------------
<S> <C> <C> <C> <C> <C>
E. Brian Smith 0 0 -- -- --
Richard A. Zartler 0 0 -- -- --
Anthony J. Dury 0 0 -- -- --
William T. Campbell 25,000 6% $4,625 3/7/04 79,500
Wilfrid D. Nelson 0 0 -- -- --
</TABLE>
-10-
<PAGE>
<TABLE>
<C> <S>
<FN>
____________________
(1) Grant Date Present Values were calculated using the Black-
Scholes option pricing model. Use of this model should not
be viewed in any way as a forecast of the future
performance of the Company's stock. The estimated Grant
Date Present Value of the stock option is $3.18 based on
the following inputs:
Stock Price (Fair Market Value) at Grant $4.625
Exercise Price $4.625
Expected Option Term 10 years
Risk-Free Interest Rate 7.11%
Stock Price Volatility 0.47
Dividend Yield 0.0%
The model assumes: (a) an Option Term of ten years which
reflects the actual ten-year life of the option and is not
discounted for factors such as the expected time until
exercise and the risk of forfeiture; (b) a Risk-Free
Interest Rate that represents the interest rate on a U.S.
Treasury Note with a maturity date corresponding to that of
the Expected Option Term; (c) Stock Price Volatility is
calculated using monthly stock prices over a three-year
period from March 1, 1991 to February 28, 1994; and (d) zero
Dividend Yield. Notwithstanding the fact that these options
are non-transferable, no discount for lack of marketability
was applied.
(2) Granted under the Company's 1994 Employee Stock Incentive
Plan. Under the terms of the 1994 Employee Stock Incentive
Plan, the options will become exercisable in four equal
annual increments commencing one year after the date of
grant.
</TABLE>
TABLE OF OPTION EXERCISES IN THE FISCAL YEAR ENDED FEBRUARY 28, 1995 AND
YEAR-END OPTION VALUES
The following table sets forth, as to the Chief Executive
Officer and the four other most highly compensated executive
officers of the Company, information concerning exercised and
unexercised options held as of February 28, 1995. The Company
has not granted any stock appreciation rights.
-11-
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money Options/
Shares at February 28, 1995 SARs at February 28, 1995(1)
Acquired Value ------------------------------ ------------------------------
Name on Exercise Realized Exercisable(2) Unexercisable Exercisable(2) Unexercisable
- ------------------ ------------ -------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Brian Smith 0 0 0 0 0
Richard A. Zartler 0 75,000 0 $223,125 0
Anthony J. Dury 0 10,000 20,000 $30,000 $60,000
Wilfrid D. Nelson 5,000 $21,691 15,000 0 $52,500 0
William T. Campbell 0 0 25,000 0 $43,750
<FN>
_______________
(1) The value of unexercised in-the-money options at February
28, 1995 is calculated by subtracting the total exercise
price from the market value of the underlying securities as
of February 28, 1995 (closing bid price of $6.375).
(2) All unexercisable options held by the named executive
officers prior to January 16, 1994 became vested effective
December 30, 1993 under the terms of the 1986 Employee Stock
Option Plan due to a change in control (as defined in the
plan).
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is
currently composed of four non-employee directors. The Committee
reviews management compensation levels, administers the Company's
short- and long-term incentive plans, evaluates management
performance, and considers management succession and related
matters. The Committee has retained an outside advisor to
conduct an independent review of the Company's compensation
programs and to advise the Committee on executive compensation
matters.
This report describes the Company's compensation philosophy
and programs and the compensation actions for the fiscal year
ended February 28, 1995 with respect to executive officers.
COMPENSATION PROGRAM PHILOSOPHY AND OBJECTIVES
As a result of the independent review of the compensation
programs, the Compensation Committee adopted a new compensation
philosophy with related policies, plans, and programs which are
designed to attract, retain, and motivate key management and to
align the financial interests of the Company's management with
those of stockholders. The management compensation programs are
designed to provide:
- levels of base salary that are competitive with
environmental service companies and general industry;
- competitive total annual cash compensation which
is comprised of base salary and annual incentive
compensation that relates directly to the financial
performance of the Company; and
- long-term incentive compensation that directs
management's efforts to building stockholder value
through attainment of longer-term financial and
strategic goals.
-12-
<PAGE>
It is the intent of the Company to qualify compensation paid
to the named executive officers under the incentive compensation
plans according to the provisions of section 162m of the Internal
Revenue Code of 1986, as amended (the "Code") (the $1 million
limitation), where appropriate.
Base salaries generally have been set at competitive levels
and reflect individual contributions to Company performance to
enhance the pay for performance feature of the program. However,
greater reliance has been placed on annual and long-term
incentives which are highly variable and closely tied to Company,
business unit and individual performance. It is intended that a
substantial portion of an executive officer's compensation is "at
risk" under the annual and long-term incentive plans.
The Company's reference to the Compensation Comparison Group
includes the companies listed in the new Peer Group Index, as set
forth below in "Comparison of Total Shareholder Return," as well
as more than 50 other environmental service companies and general
industry companies, data with respect to which was derived from
compensation survey sources.
The Company attempts to achieve an appropriate balance among
the various elements of compensation, relative to the performance
of the Company. Each element is discussed in grater detail
below.
BASE SALARY
The Company has established a base salary program that is
consistent with the practices of the Compensation Comparison
Group. Base salary levels for management are intended to reflect
individual performance, the Company's overall financial
performance, and competitive practice.
In recognition of the Company's improved financial
performance during the fiscal year ended February 28, 1995, the
Committee approved salary increases for certain officers
effective March 1, 1995.
ANNUAL INCENTIVE COMPENSATION
The Annual Incentive Compensation Plan, as approved by the
Committee, is designed to reward management and all other
employees on an annual basis, contingent on achievement of
Company and business unit objectives, and individual performance.
A special Turnaround Incentive Plan was adopted for the fiscal
year ended February 28, 1995 that encompasses all employees.
Each eligible employee's incentive award is expressed as a
percentage of the individual's base salary at the beginning of
each fiscal year or a fixed dollar amount. Incentive award
targets vary for each employee level and reflect competitive
practices at the Compensation Comparison Group companies. The
incentive award targets equate to the Company's annual
objectives. The target incentive is leveraged and, predicated on
Company performance, actual incentive awards can range from 0% to
200% of the target incentive. Those employees with greater
influence on stockholder value have greater amounts of
compensation "at risk."
Company objectives are measured by the following performance
criteria: pre-tax and net income, operating margins, and cash
flow. The Committee believes that these performance measures
correlate with share price over a period of time. Company
objectives are expressed in specific financial targets that are
established as part of the annual budgeting process, which takes
into account the Company's prior year performance and the
performance of the Compensation Comparison Group (excluding the
general industry companies).
An incentive compensation fund is generated as a percentage
of pre-tax, pre-bonus profit. The distribution of incentive
awards from the incentive fund is determined by the Committee's
-13-
<PAGE>
assessment of Company, business unit, and individual performance
in relation to preestablished objectives.
As a result of the Company's improved financial performance
for the fiscal year ended February 28, 1995, incentive bonuses
were paid to nonofficer employees under the 1995 improved Bonus
Plan. The incentive bonus pool for eligible management positions
was reduced in order to increase the incentive gain sharing pool
for non-management employees.
TOTAL ANNUAL CASH COMPENSATION (BASE SALARY PLUS BONUS)
When the Company's annual objectives and targets are
achieved, total annual cash compensation is set at the 50th
percentile of competitive compensation at the Compensation
Comparison Group companies. To provide further motivation to
management to excel, the total amount of cash compensation can
reach the top quartile of competitive pay levels if business
results significantly exceed Company objectives.
LONG-TERM INCENTIVE COMPENSATION PROGRAM
The Company's long-term incentive program is comprised of
employee stock option plans. The 1986 Employee Stock Plan, which
governs options granted and remaining outstanding under that
plan, terminated June 21, 1994. On June 21, 1994, the
stockholders approved the 1994 Stock Incentive Plan, which was
adopted by the Company's Board of Directors on April 28, 1994.
The long-term incentive program is intended to:
- directly link management to building stockholder
value;
- focus management on long-term corporate
objectives;
- attract, retain, and motivate key employees;
- encourage employee stock ownership; and
- balance long-term and short-term decision making.
The 1994 Stock Incentive Plan authorizes the Compensation
Committee to grant various stock- and cash-based incentive awards
to officers and all other employees of the Company. Awards are
not restricted to any specified form or structure and may
include, without limitation, stock options, stock awards or
payments, reload stock options, stock appreciation rights, other
rights to acquire stock, performance units, or performance
shares. The Committee has determined that Non-qualified Stock
Options and Incentive Stock Options will be the primary awards to
be issued under this plan. It is the Committee's policy that
each year it will consider the grant of stock-based awards to
officers and other employees under the 1994 Stock Incentive Plan.
The Committee considers the performance of the Company and the
individual in determining if a grant will be made and the
magnitude of the award. The Committee has adopted award
guidelines by employee level, derived from competitive practices,
for determining the range of stock-based awards. In determining
individual awards, the Committee considers the performance,
potential, and value of the employee as well as the performance
of the Company.
During the fiscal year ended February 28, 1995, the
Committee issued stock option awards to selected key employees of
the Company in consideration of their individual performance and
to encourage them to remain with the Company.
-14-
<PAGE>
COMPENSATION ACTIONS FOR THE CHIEF EXECUTIVE OFFICER
Effective January 1, 1994, the Company elected E. Brian
Smith Chairman and Chief Executive Officer and Mr. Zartler,
formerly the Chief Executive Officer and President, President.
In February 1995 the Company elected Mr. Smith President.
Mr. Smith's base salary was set at $280,000 for the fiscal
year ended February 28, 1995 which approximates the 50th
percentile of salaries for Chief Executive Officers at similar
environmental services and general industry companies. Mr. Smith
waived a total of $13,995 of his base salary through February 28,
1994. The variance between Mr. Smith's annual salary of $280,000
and the $250,704 paid during the fiscal year ended February 28,
1995 has been deferred and not waived. On February 23, 1995, Mr.
Smith's base salary was increased to $300,000 per annum effective
March 1, 1995. The salary increase reflected the Company's
growth and improved financial results and competitive base salary
levels at the 50th percentile for Chief Executive Officers of the
Compensation Comparison Group.
The Chief Executive Officer participates in the Company's
Annual Incentive Compensation Plan. During the fiscal year ended
February 28, 1995, the Compensation Committee approved selected
financial (earnings based) and nonfinancial performance goals for
the Chief Executive Officer under the plan. The Committee also
approved two additional performance goals for the Chief Executive
Officer focusing on growth through acquisition and improvement in
shareholder value. An incentive cash bonus and stock option
award were established contingent upon achievement of the
performance goals. A cash incentive bonus of $115,000 was earned
by Mr. Smith in connection with the successful completion of two
major acquisitions. Although a significant increase in
shareholder value was realized during the fiscal year ended
February 28, 1995, the shareholder value goals were not achieved.
Therefore, no stock option award was granted.
During the fiscal year ended February 28, 1995, the
Committee approved an unsecured, full-recourse loan to the Chief
Executive Officer in connection with certain acquisition
expenses.
Compensation Committee of the Board
of Directors
Hugh G. Robinson, Chairman
Robert L. Guyett
John Paul Jones, Jr.
Byron Lee, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John Paul Jones, Jr., a director and member of the
Compensation Committee received an aggregate of $4,000
compensation for consulting services provided to the Company
during the fiscal year ended February 28, 1995.
COMPARISON OF TOTAL STOCKHOLDER RETURN
The following performance graph compares the market
performance of the Company's common stock over a five year
period, beginning February 28, 1990 and ending February 28, 1995,
to the NASDAQ Stock Market Value Index and the Company's Peer
Group Index. The graph assumes that the value of the investment
in the Company's common stock and each index was $100 at February
28, 1990 and that all dividends were reinvested.
-15-
<PAGE>
[GRAPH]
<TABLE>
<CAPTION>
---------------------------------------------------------
a) Value of $100 Invested 2/28/90 2/28/91 2/28/92 2/26/93 2/28/94 2/28/95
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock Market Index
(US Companies) $100 $110.15 $157.20 $167.25 $196.79 $200.05
---------------------------------------------------------
Smith Environmental
Technology NA (25.93%) (12.50%) (45.71%) (2.63%) 45.95%
---------------------------------------------------------
Self-Determined Peer Group $100 $137.70 $119.80 $104.50 $94.42 $75.44
---------------------------------------------------------
Smith Environmental
Technology $100 $74.07 $64.82 $35.19 $34.36 $50.00
---------------------------------------------------------
---------------------------------------------------------
b) Annualized Return 2/28/90 2/28/91 2/28/92 2/26/93 2/28/94 2/28/95
---------------------------------------------------------
Nasdaq Stock Market Index
(US Companies) NA 10.15% 42.71% 6.39% 17.66% 1.66%
---------------------------------------------------------
Self-Determined Peer Group NA 37.70% (12.99%) (12.77%) (9.64%) (20.10%)
---------------------------------------------------------
Smith Environmental
Technology NA (25.93%) (12.50%) (45.71%) (2.63%) 45.95%
---------------------------------------------------------
</TABLE>
-16-
<PAGE>
The Peer Group Index (market capitalization weighted) is
comprised of 13 companies. The criteria used in selecting the
Peer Group companies included lines of business, types and
numbers of employees, and size characteristics such as revenues
and market capitalization. The companies include: Geraghty &
Miller, Inc., Groundwater Technology, Inc., Harding Associates,
Inc., ICF International, Inc., International Technology
Corporation, OHM Corporation, Riedel Environmental
Technologies, Inc., Sevenson Environmental Services, Inc.,
Tetra Tech, Inc., TRC Companies, Inc., URS Corporation, Versar,
Inc., and Roy F. Weston, Inc.
During 1994, two of the companies were deleted from the
index. Geraghty & Miller, Inc. merged with Heidemij N.V., and
is no longer a publicly-traded company. The major assets of
Riedel Environmental Technologies, Inc. were acquired by the
Company as of December 1, 1994. Riedel Environmental
Technologies, Inc. is no longer a publicly-traded company.
The following performance graph compares the market
performance of the Company's common stock for the period
beginning December 30, 1993 - the date of the change in the
Company's management - and ending February 28, 1995, to the
NASDAQ Stock Market Value Index and the Company's Peer Group
Index. The graph assumes that the value of the investment in
the Company's common stock and each index was $100 at December
30, 1993 and that all dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
------------------------------
a) Value of $100 Invested 12/30/93 2/28/94 2/28/95
------------------------------
<S> <C> <C> <C>
Nasdaq Stock Market Index
(US Companies) $100 $102.88 $104.59
------------------------------
Self-Determined Peer Group $100 $110.31 $88.14
------------------------------
Smith Environmental
Technology $100 $154.17 $225.00
------------------------------
</TABLE>
-17-
<PAGE>
----------------------------
b) ANNUALIZED RETURN 12/30/93 2/28/94 2/28/95
----------------------------
NASDAQ STOCK MARKET INDEX (US COMPANIES) NA 2.88% 1.66%
----------------------------
SELF-DETERMINED PEER GROUP NA 10.31% (20.10%)
----------------------------
SMITH ENVIRONMENTAL TECHNOLOGY NA 54.17% 45.95%
----------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS
The Company loaned E. Brian Smith the principal amount of $95,000, as of
June 20, 1994, to pay certain expenses incurred by Smith Holding Corporation
in the development of an acquisition strategy and information for the benefit
of the Company. The loan is documented by a promissory note bearing interest
at a fluctuating rate based on the Federal short-term rate consistent with the
applicable Internal Revenue Service Regulations governing imputed interest and
provides that all principal and accrued interest shall be payable upon demand
and not later than March 31, 1996. The interest rate at the date of issuance
was 5.56% and is 5.91% as of the date hereof. The principal and accrued
interest remain outstanding.
LEASE OF OFFICE BUILDINGS FROM AFFILIATE
Prior to June 30, 1995, the Company's wholly owned subsidiary Riedel
Environmental Services, Inc. was the month to month tenant of an office
facility from Columbia Western, Inc., whose principal stockholder is Arthur
A. Riedel who serves as a director of the Company. The annualized lease
payment for the facility was $220,049. The office facility was vacated by the
Company on June 30, 1995, except for a 3,875 square foot area which was
retained on a monthly tenancy directly from Celtic Investment Co., an assumed
business name for Arthur A. Riedel. The aggregate annualized lease payment
for the remaining area is $35,700. The subsidiary also leases additional
office and yard space from Celtic Investment Co. under a lease which expires
October 31, 1995. The aggregate annualized lease payment for these facilities
is $62,184. The subsidiary is also a tenant of a warehouse and marine yard
facility owned by Wilamette-Western Corporation, whose principal shareholder
and Chairman is Arthur A. Riedel. The aggregate annualized lease payment on
these facilities is $90,000. The Company believes the terms of the lease
arrangements described above are at least as favorable as could be obtained
from unrelated third parties.
ACQUISITION OF ASSETS FROM EXECUTIVE OFFICER
The Company has agreed to acquire the assets, technology, trade secrets
and customer lists of a company owned by C. Robert Conner, and to obtain
restrictions on competition from Mr. Conner upon his appointment as the
Company's Vice President-Engineering Services Division and as President of the
Company's wholly owned subsidiary BCM Engineers Inc. The agreements with Mr.
Conner provide for the payment to him of $360,000 over a period of three
years, with a portion of the consideration conditioned upon the continued
employment of Mr. Conner by the Company during that time. The principal terms
of this transaction were negotiated with Mr. Conner prior to his employment by
the Company and, therefore, are as favorable as terms which could have been
obtained from an unrelated third party.
-18-
<PAGE>
PROPOSAL TO RATIFY ISSUANCE OF CONVERTIBLE NOTES
The Company is required, pursuant to Section 6(i) of Schedule D to the
Bylaws of the National Association of Securities Dealers, Inc. ("NASD"), to
obtain stockholder approval of any transaction which could result in the sale
or issuance of the Company's common stock (or securities convertible into or
exercisable for common stock) equal to 20% or more of the common stock, or 20%
or more of the voting power, outstanding before the issuance of such
securities. In November 1994, the Company issued a Convertible Senior
Subordinated Note in the principal amount of $10 million (the "Subordinated
Note") and a Convertible Senior Note in the principal amount of $2 million
(the "Bridge Note"; collectively the Subordinated Note and Bridge Note are
referred to herein as the "Notes"). The Notes are convertible into junior
convertible preferred stock of the Company ("Junior Convertible Preferred"),
which in turn is convertible into shares of the Company's common stock. If
the full amount of the Notes were converted into Junior Convertible Preferred
and then into common shares, the total issuance of common stock would be
approximately 38.99% of the issued and outstanding common stock of the Company
after such issuance and 63.29% of the Company's common stock outstanding prior
to such issuance. Therefore, under the NASD rules, the issuance of the Notes
is subject to shareholder approval.
THE NOTES
On November 21, 1994, the Company issued to 399 Venture Partners, Inc.,
a Delaware corporation ("399 Venture Partners"), the Subordinated Note and the
Bridge Note pursuant to an Amended and Restated Note Purchase Agreement
between the Company and 399 Venture Partners, dated November 15, 1994 (the
"Note Agreement"). The Note Agreement provides that proceeds from the Notes
are to be used by the Company for sound financing, growth, modernization or
expansion. More specifically, under the Note Agreement, the Note proceeds
were to be, and in fact were, used to finance the Company's acquisition of the
stock of Riedel Environmental Services, Inc., an Oregon corporation, from its
parent Riedel Environmental Technologies, Inc., an Oregon corporation.
The Subordinated Note is subject to annual interest on the unpaid
principal (and any Deferred Payment, as defined below) at a rate of 10%.
Interest on the Subordinated Note is payable in arrears semi-annually in cash,
provided that the Company may defer the first two semi-annual interest
payments (the "Deferred Payments") until the maturity of the Subordinated
Note. The Bridge Note is subject to annual interest on the unpaid principal
amount at a rate of the higher of (i) 10% or (ii) the prime commercial lending
rate of Chemical Bank, New York, plus 1.75%. Interest on the Bridge Note is
payable after October 21, 1995, if not previously paid, in cash in an amount
equal to the then outstanding principal plus accrued and unpaid interest as of
October 21, 1995. The Bridge Note interest payments are also to be made semi-
annually in arrears. Both Notes may be prepaid, subject to certain
limitations, prepayment penalties, and premiums.
The Subordinated Note is convertible at any time and from time to time,
prior to its maturity date on November 21, 2004, at the option of the holder.
The Bridge Note, which also matures on November 21, 2004, is convertible at
any time and from time to time at the option of the holder after October 21,
1995. Both Notes are convertible into Junior Convertible Preferred at the
rate of 30.4878 shares for each $1,000 of principal, in the case of the
Subordinated Notes, and principal and accrued and unpaid interest at
November 21, 1995, in the case of the Bridge Notes. The conversion rate on
both Notes is subject to adjustment for price anti-dilution based on the
market price of the Company's common stock and for any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the assets of the Company, or other transactions which
would affect the holders of the Junior Convertible Preferred. The Notes are
currently convertible into an estimated 3,714,430 shares of the Company's
common stock.
-19-
<PAGE>
In addition to the conversion rights provided in the Notes as described
above, each of the Notes provides that the holder is entitled to purchase from
the Company a specified number of shares of Junior Convertible Preferred at an
exercise price based on the conversion rate as adjusted. This exercise right
is only triggered if the Company repays the Notes within certain time periods
prior to the maturity date.
The holders of the Notes are not entitled to voting rights or any other
rights of a stockholder of the Company unless and until the holder converts
the Notes to Junior Convertible Preferred.
JUNIOR CONVERTIBLE PREFERRED STOCK
Designations, rights and preferences of the Junior Convertible Preferred
were authorized and approved by the Company's Board of Directors on November
15, 1994 creating a new series of 371,500 shares of preferred stock of the
Company. Each share of Junior Convertible Preferred is convertible, at the
option of the holder, into ten fully paid and nonassessable shares of common
stock of the Company.
The Junior Convertible Preferred is entitled to dividends on a pro rata
basis with the common stock, if and when declared by the Company, based on the
number of shares of common stock into which such Junior Convertible Preferred
is convertible at that time. The Junior Convertible Preferred is also
entitled to the number of votes equal to the lesser of (i) the largest number
of shares of common stock into which such Junior Convertible Preferred is
convertible and (ii) 19.9% of the aggregate voting power of all shares of
capital stock of the Company which are then entitled to vote, divided by the
number of shares of Junior Convertible Preferred then outstanding. The
holders of the Junior Convertible Preferred are entitled to vote as a class on
all matters submitted to a vote of shareholders of the Company.
In the event of liquidation, dissolution or winding up of the Company
the holders of the Junior Convertible Preferred shall be entitled to
distributions on a pro rata basis with the common stock, based on the number
of shares of common stock into which the Junior Convertible Preferred is then
convertible.
STOCKHOLDER APPROVAL
The NASD permitted the issuance of the Notes prior to the approval of
the Notes by the stockholders of the Company based upon the Company's
assurance that, prior to the conversion of the Notes into Junior Convertible
Preferred or common stock, the Company would obtain written representations
from the holders of more than one-half of the outstanding common stock of the
Company approving the issuance of the Notes. Such representations were
obtained and submitted to the NASD in March 1995, along with the Company's
undertaking to seek ratification of the issuance of the Notes at the 1995
Annual Meeting. Since the holders of more than a majority of the outstanding
common stock of the Company have committed to vote in favor of the issuance of
the Notes, the issuance of the Notes will be ratified at the Annual Meeting.
The Board of Directors recommends that stockholders vote FOR the ratification
of the issuance by the Company of the Notes and the terms set forth therein,
including the issuance of the Junior Convertible Preferred, convertible into
common stock of the Company, which may be issued pursuant to such terms.
INDEPENDENT AUDITORS
On January 28, 1994, upon advice of the Audit and Finance Committee,
the Board of Directors, subject to stockholder approval which was received at
the Company's 1994 Annual Meeting on June 21, 1994, selected Ernst & Young LLP
to serve as the Company's independent
-20-
<PAGE>
auditors for the fiscal year ended February 28, 1995 and the fiscal year
ending February 28, 1996. The Company's former independent certified public
accounting firm, BDO Seidman was dismissed effective January 31, 1994.
The reports of BDO Seidman on the Company's financial statements for the
past three years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles nor have there been any "reportable events," as that term is
defined for purposes of the federal securities law, or any disagreement
between the Company and BDO Seidman which, if not resolved, would have caused
BDO Seidman to make reference to the disagreement in their report on the
financial statements for such years.
Representatives of Ernst & Young LLP are expected to be present at the
1995 Annual Meeting of Stockholders. They will have the opportunity to make a
statement, if they desire to do so, and will be available to respond to
appropriate questions presented at the meeting by stockholders.
The Board of Directors recommends that the stockholders vote FOR
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended September 30, 1995 and for the
fiscal year ending September 30, 1996.
OTHER BUSINESS
Management knows of no other matters which will be brought before the
meeting. However, if other matters are properly brought before the meeting,
the persons named in the enclosed proxy will vote in accordance with their
judgment on such matters.
ADDITIONAL INFORMATION
FINANCIAL STATEMENTS
The Company has enclosed with this Proxy Statement its Annual Report on
Form 10-K for the year ended February 28, 1995, as amended, filed with the
Commission on May 30, 1995 and June 28, 1995. Stockholders are referred to
the report for financial and other information about the Company. The
financial statements in the 1995 Annual Report on Form 10-K, as amended, filed
with the Commission on May 30, 1995 and June 28, 1995, and the Form 10-Q filed
as of July 17, 1995 are incorporated herein by reference.
PROPOSALS BY STOCKHOLDERS
The Company recently changed its fiscal year end from February 28 to
September 30. The date for stockholders to submit proposals for inclusion in
the proxy materials for the 1996 Annual Meeting of Stockholders has passed.
The Company has established November 30, 1995 as the deadline for receipt of
stockholder proposals for inclusion in the Company's proxy materials for its
fiscal year ended September 30, 1995. The deadline for receipt of stockholder
proposals for inclusion in the Company's proxy materials for the 1997 Annual
Meeting of Stockholders is August 30, 1996.
COST AND METHOD OF PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. Proxies
will be solicited by mail. Proxies may also be solicited by directors,
officers, and a small number of regular employees of the Company personally or
by mail, telephone, or telegraph, but such persons will not be
-21-
<PAGE>
specially compensated for such services. Brokerage houses, nominees, and
other custodians and fiduciaries will be requested to send the proxy material
to beneficial holders and the Company will reimburse them for their
reasonable expenses in doing so.
OTHER MATTERS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires certain persons, including the Company's directors and executive
officers, to file reports with the Securities and Exchange Commission
regarding beneficial ownership of certain equity securities of Company.
During the fiscal year ended February 28, 1995, Byron Lee, Jr. failed to file
one Form 4 report relating to the grant of stock options, which transaction
was reported late on Form 5.
By the Order of the Board of Directors
W.D. Nelson
SECRETARY
Dallas, Texas
-22-
<PAGE>
(Front of Card)
PROXY PROXY
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(formerly known as Canonie Environmental Services Corp.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 17, 1995
The undersigned hereby appoints Anthony J. Dury and William T. Campbell,
and each of them, with full power of substitution and resubstitution, to vote
on behalf of the undersigned at the Annual Meeting of Stockholders to be held
at the offices of the Company located at 2080 South Carboy, Mt. Prospect,
Illinois 60056 on November 17, 1995, at 9:00 a.m. local time, or any adjourn-
ment thereof, as designated below. The proxies are authorized to vote in
their discretion upon such other business as may properly come before the
Annual Meeting.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors recommends a vote FOR the election of the following
directors and FOR Proposals 2 and 3.
<TABLE>
<S> <C> <C>
1. Election of two (2) Class C Directors, FOR WITHHOLD FOR ALL (Except Nominee(s) written below)
each director to serve for a term / / / / / /
of three years - _________________________________
Nominees: John Paul Jones, Jr. and
E. Brian Smith
2. Ratification of issuance of the FOR AGAINST ABSTAIN
Convertible Senior Subordinated / / / / / /
Note and the Convertible Senior
Note of the Company, each
convertible into preferred stock,
and then into common stock of the
Company.
3. Ratification of the appointment by the FOR AGAINST ABSTAIN If no direction is indicated on a properly
Board of Directors of the firm of / / / / / / executed proxy, it will be voted "FOR"
Ernst & Young LLP as independent each of the proposals set forth above,
auditors of the Company for the fiscal including "FOR" each nominee for director.
year ended September 30, 1995 and for
the fiscal year ending September 30, 1996. Dated: _________________, 1995
Signature(s): ____________________________
__________________________________________
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as an attorney, as executor,
administrator, trustee or guardian, please
give full title as such. If a
corporation, please sign name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
</TABLE>
(Back of Card)
-2-
