<PAGE>
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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant at Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2), or
item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
______________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
2,653,720
______________________________________________________________________
(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.)
$5.5625 per share, calculated as the average of the high and low
prices on the NASDAQ NMS as of May 16, 1995.
______________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
$14,761,317
______________________________________________________________________
(5) Total fee paid: 2,952.26
______________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] 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,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
______________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
(3) Filing Party:
______________________________________________________________________
(4) Date Filed:
______________________________________________________________________
<PAGE>
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY KNOWN AS CANONIE ENVIRONMENTAL SERVICES CORP.)
GALLERIA TOWER II
13455 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
May 30, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Smith Environmental Technologies Corporation, to be held on June 20, 1995, at
9:00 a.m. at the Westin Hotel Galleria located at 13340 Dallas Parkway, Dallas,
Texas 75240.
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
JUNE 20, 1995
The Annual Meeting of Stockholders of Smith Environmental Technologies
Corporation (the "Company") will be held at the Westin Hotel Galleria, 13340
Dallas Parkway, Dallas, Texas on Tuesday, June 20, 1995, at 9:00 a.m. C.D.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 consider and vote upon the merger of Smith Holding Corporation with
and into the Company.
(4) To ratify the appointment by the Board of Directors of the firm of
Ernst & Young as independent auditors of the Company for the fiscal
year ended February 28, 1996.
The Board of Directors has fixed the close of business on May 12, 1994 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
May 30, 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
MAY 30, 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 June 20, 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 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; FOR approval of the Agreement and Plan of Merger and
merger of Smith Holding Corporation with and into the Company; FOR ratification
of the appointment of Ernst & Young as independent auditors of the Company for
the fiscal year ended February 28, 1995 and for the fiscal year ending February
28, 1996 or any abbreviated fiscal year ending prior to such date. 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 May 30, 1995.
Holders of record of common stock, $0.01 par value per share, of the
Company at the close of business on May 12, 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
5,811,105 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 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
<PAGE>
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. The approval of the Agreement
and Plan of Merger and the Merger of Smith Holding Corporation with and into the
Company will be decided by a majority vote of the disinterested stockholders.
For purposes of this vote, Smith Holding is an interested stockholder. 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 May 12, 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 (8)
- - --------------------------------------------------------------------------------
<S> <C> <C>
Smith Holding Corporation 2,653,720 (1) 45.67%
51 Montecito Drive
Corona Del Mar, CA 92625
Dimensional Fund Advisors Inc. 404,900 (2) 6.97%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
J.J. Cramer & Co. 520,100 (3) 8.95%
56 Beaver Street, Suite 701
New York, NY 10004
399 Venture Partners, Inc. 3,714,430 (4) 38.99%
399 Park Avenue
New York, NY 10043
E. Brian Smith 2,653,720 (5) 45.67%
Richard A. Zartler 82,000 (6) 1.39%
Anthony J. Dury 10,000 (6) *
Wilfrid D. Nelson 15,000 (6) *
William T. Campbell 6,250 (6) *
All executive officers and directors
as a group 2,941,060 (7) 48.36%
<FN>
_____________________________
* Less than one percent.
-2-
<PAGE>
(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. Dimensional Fund Advisors, Inc., a
registered investment advisor, is deemed to have beneficial ownership of
404,900 shares of the Company's common stock as of January 30, 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.
(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 holds majority ownership of Smith Holding Corporation.
(6) Includes options for shares subject to acquisition within 60 days held by
Messrs. Zartler, Dury, Nelson, and Campbell for 75,000, 10,000, 15,000 and
6,250 shares, respectively.
(7) Includes 140,667 options to acquire shares 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 June 20, 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 one year
term of the Class A directorship to be vacated by Mr. Smith. Mr. Lee has
indicated his willingness to accept this appointment.
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"
-3-
<PAGE>
owned by them at May 12, 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.), 62, (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, (5), (9) 1994 2,653,720 (11) 45.67%
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. President and
Chief Operating Officer of
International Technology Corporation
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.), 54, (2), (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.
-4-
<PAGE>
<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, (3), (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 from
1987 to 1991. Director of
Engelhard Corporation and
Newport Corporation.
MAJOR GENERAL HUGH G. ROBINSON
(RET.), 62, (4), (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., 65, (8) 1986 11,200 (10) *
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 1994 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.
-5-
<PAGE>
<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 129,880 (12) 2.19%
Managing Director,
Citicorp Venture Capital, Ltd.
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. 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.
(3) 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.
(4) 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.
(5) 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.
(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) Includes 6,000 shares for which Mr. Lee holds an option 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.
(11) 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 holds majority
ownership of Smith Holding Corporation.
(12) Includes 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.
-6-
<PAGE>
(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.
BOARD MEETINGS, COMMITTEES, AND COMMITTEE MEETINGS
The Company's Board of Directors met fourteen (14) times during the fiscal
year ended February 28, 1995 (fiscal year 1995).
The Board of Directors' standing Audit and Finance Committee at the
beginning of fiscal year 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 fiscal
year 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 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 fiscal year 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 fiscal year 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 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.
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.
-7-
<PAGE>
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 fiscal year 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
NAME & PRINCIPAL POSITION FISCAL UNDERLYING
- - ------------------------- 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
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.
-9-
<PAGE>
(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
Mr. Richard A. Zartler is employed by the Company pursuant to an Employment
Agreement dated effective January 1, 1994. The Employment Agreement is for a
term of one year and continuing thereafter subject to termination by the
employee or employer. The agreement provides for a minimum base annual salary
of $200,000. Should the Company elect to terminate the Employment Agreement for
a reason other than for "Cause," as that term is defined in the Employment
Agreement, Mr. Zartler would be entitled to severance benefits equal to twelve
months salary based on the minimum base salary rate. The severance payments are
also triggered should Mr. Zartler be asked to relocate or assume lesser duties.
The Employment Agreement contains provisions for a limited period of non-
solicitation and non-disclosure of confidential information following
termination of employment. Mr. Zartler may terminate the Employment Agreement
by giving the Company thirty days notice.
TABLES OF OPTION GRANTS IN FISCAL YEAR 1995
The following table sets forth, as to the Chief Executive Officer and the
four most highly compensated other executive officers of the Company,
information with respect to stock option grants in fiscal year 1995 and the
hypothetical values of such options. The Company has not granted any stock
appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Great Date
Individual Grants Value(1)
- - ---------------------------------------------------------------------------------------------------- ----------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration Grant Date
Name Granted (2) Fiscal Year Price($/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 - - -
-10-
<PAGE>
<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 FISCAL YEAR 1995 AND YEAR-END OPTION VALUES
The following table sets forth, as to the Chief Executive Officer and the
four most highly compensated other 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 fiscal year 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 comparable environmental services companies
includes the companies listed in the new Peer Group Index, set forth below, used
for comparison of total stockholder return in addition to other companies in the
environmental services industry.
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 practice of comparable environmental services and general industry
companies. 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
fiscal year 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
fiscal year 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
similar size 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 a comparable
group of environmental services 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 assessment of Company, business unit, and
individual performance in relation to preestablished objectives.
-13-
<PAGE>
As a result of the Company's improved financial performance for fiscal year
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
comparable environmental services and general industry 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 fiscal year 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.
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.
-14-
<PAGE>
Mr. Smith's base salary was set at $280,000 for fiscal year 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
fiscal year 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 Company's peer group and other environmental services
and general industry companies of similar size.
The Chief Executive Officer participates in the Company's Annual Incentive
Compensation Plan. During fiscal year 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 fiscal
year 1995, the shareholder value goals were not achieved. Therefore, no stock
option award was granted.
During fiscal year 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 fiscal year 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
------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------
b) Annualized Return 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) 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>
The Peer Group Index (market capitalization weighted) is comprised of 13
companies. 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
-16-
<PAGE>
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
------------------------------------
<CAPTION>
------------------------------------
b) Annualized Return 12/30/93 2/28/94 2/28/95
------------------------------------
<S> <C> <C> <C>
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%
------------------------------------
</TABLE>
-17-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS
The Company loaned E. Brian Smith the principal amount of $95,000. The
loan is documented by a promissory note bearing interest at 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 principal
and accrued interest remain outstanding.
LEASE OF EMPLOYEE OWNED OFFICE BUILDINGS
The Company's wholly owned subsidiary Riedel Environmental Services, Inc.
is 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 office facility, which will be
vacated by the Company on or before June 30, 1995, is $220,049. 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 subsidiary also leases office and yard space from Celtic Investment Co., an
assumed business name for Arthur A. Riedel. The aggregate annualized lease
payment for these facilities is $62,184 and the lease expires October 31, 1995.
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 Charles R. 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 agreement with Mr.
Conner provides 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.
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.
-18-
<PAGE>
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 Reidel
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.
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 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.
-19-
<PAGE>
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.
APPROVAL OF MERGER
INTRODUCTION
The Board of Directors of the Company has authorized an Agreement and Plan
of Merger (the "Merger Agreement"), a copy of which is attached hereto as Annex
A, pursuant to which Smith Holding Corporation, a Delaware corporation ("Smith
Holding"), will merge with and into the Company (the "Merger"), subject to the
approval by the stockholders of the Company of the Merger and Merger Agreement.
The Merger is also subject to approval by the stockholders of Smith Holding, 399
Venture Partners pursuant to the terms of the Note Agreement and LaSalle
Business Credit, Inc. ("LaSalle") pursuant to the Loan and Security Agreement,
dated as of November 15, 1994, among the Company, its subsidiaries BCM
Pennsylvania and BCM Alabama, and LaSalle Business Credit, Inc. (the "Loan
Agreement"). The Company anticipates having the consent of the stockholders of
Smith Holding, 399 Venture Partners and LaSalle prior to the 1995 Annual
Meeting.
BACKGROUND AND REASONS FOR THE MERGER
Smith Holding was incorporated in Delaware on December 29, 1993 for the
purpose of acquiring from W.R. Grace & Co. ("Grace") 2,653,720 shares of the
common stock of the Company. All of the common stock of Smith Holding is owned
by the members of the family of E. Brian Smith, the Chairman, Chief Executive
Officer and President of the Company, trusts for the benefit of Mr. Smith's
family, and S-A Capital L.L.C. ("SAC") (collectively the "Smith Parties").
-20-
<PAGE>
Grace owns all of the issued and outstanding preferred stock of Smith Holding
and a warrant for the purchase of 50% of the common stock of Smith Holding. The
only significant asset of Smith Holding is the 2,653,720 shares of common stock
of the Company.
At the time of the acquisition of the Company's common stock from Grace,
Smith Holding entered into certain agreements with Grace which prohibit the
shares of the Company's common stock owned by Smith Holding from being pledged
or sold, except for the purpose of repurchasing the preferred stock of Smith
Holding held by Grace. LaSalle, as agent for the lenders under the Loan
Agreement, agreed to modify the Loan Agreement to make an additional $4 million
of credit capacity available to the Company, provided that (i) the Smith Parties
pledge not less than 800,000 shares of the Company's common stock owned by Smith
Holding to secure such extension of credit to the Company and (ii) Mr. Smith
personally guarantee the $4 million credit capacity pending the pledge of the
shares. In order to make the pledge by the Smith Parties of the Company's
common stock to LaSalle possible, Smith Holding has proposed a merger of Smith
Holding into the Company pursuant to the terms and conditions of the Merger
Agreement being proposed to the stockholders of the Company for approval.
The Merger Agreement provides that (i) the Smith Parties receive from the
Company 853,720 shares of newly issued common stock of the Company, (ii) Grace
receive 1.8 million shares of newly issued common stock of the Company, and
(iii) the outstanding 2,653,720 shares of common stock of the Company now owned
by Smith Holding be cancelled. Upon the Merger, the Smith Parties will have the
record and beneficial ownership of not less than 800,000 shares of the Company's
common stock available to pledge to LaSalle to secure its extension of credit of
an additional $4 million to the Company. All of the outstanding common and
preferred stock of Smith Holding and the Grace warrant will be cancelled as a
result of the Merger. The Board of Directors of the Company has determined that
the Merger Agreement proposed by the Smith Parties is a direct and substantial
benefit to the Company and its stockholders because it facilitates the pledge of
not less than 800,000 shares of the common stock of the Company to LaSalle and
provides that Mr. Smith personally guarantee the additional LaSalle indebtedness
pending completion of the Merger.
The Merger will benefit Mr. Smith, and the other Smith Parties, because it
will result in their direct ownership of no more than 853,720 shares of common
stock of the Company without any further obligations to Grace under the terms of
Smith Holding's preferred stock and the Grace warrant. The Merger will also
result in Grace having direct ownership of not less than 1.8 million shares of
the Company's common stock.
TERMS OF THE MERGER
Pursuant to the Merger Agreement, the Company will be the surviving
corporation and Smith Holding's separate corporate existence will cease. The
existing certificate of incorporation and bylaws of the Company will continue in
full force and effect. The officers and directors of the Company will continue
to be the officers and directors of the surviving corporation. The preferred
stock and common stock, including any accrued and unpaid dividends thereon, of
Smith Holding will be cancelled and an aggregate of 2,653,720 newly issued
shares of the Company will be issued to the Smith Parties and Grace. The
2,653,720 shares of the Company currently held by Smith Holding will be
simultaneously cancelled.
Pursuant to the Merger Agreement and by operation of law, the Company will
assume all of the liabilities of Smith Holding; provided, however, E. Brian
Smith has agreed to be responsible for and fully indemnify the Company against
any liabilities of Smith Holding over and above $230,000 (the estimated total
liabilities of Smith Holding). Further, the Company will have the right to
offset the maximum assumed liabilities ($230,000) against the number of shares
to be delivered by the Company in the Merger which have an aggregate value equal
to the assumed liabilities. The value
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of such shares will be based on the average of the NASDAQ bid and asked prices
of the Company's common stock on the day preceding the Merger, but in no event
shall the value be less than the average closing price of the common stock of
the Company for the most recent 20 trading days. The shares to be offset
against the liabilities will be deducted from the shares of the Company
deliverable pursuant to the Merger. In the event this offset results in any
fractional shares of Company common stock being issuable, the fractional shares
will be cashed out.
The Company is a party with Smith Holding to a Standstill Agreement, dated
December 30, 1993 (the "Standstill Agreement"), which limits the right of Smith
Holding and certain of its affiliates to purchase stock of the Company and
restricts certain business combinations between the Company and Smith Holding
and certain of its affiliates. Under the terms of the Standstill Agreement, the
affirmative vote of disinterested stockholders holding a majority of the
Company's common stock is required to approve the Merger and any amendment to
the Standstill Agreement. Pursuant to the terms of the Standstill Agreement,
Smith Holding is an interested stockholder. Therefore, an affirmative vote of
the holders of a majority of the common stock held by all stockholders other
than Smith Holding is required to approve the Merger. Upon the effectiveness of
the Merger, the Standstill Agreement will terminate by its terms.
Smith Holding is also a party to a Registration Rights Agreement, dated
November 15, 1994 among 399 Venture Partners, the Company and Smith Holding (the
"Registration Rights Agreement") pursuant to which 399 Venture Partners and
Smith Holding have certain rights to cause the Company to register, under the
Securities Act of 1933, as amended, stock of the Company held by those parties.
Upon the effectiveness of the Merger, the Company has agreed to amend the
Registration Rights Agreement to grant registration rights to Grace and the
Smith Parties in place of Smith Holding. This substitution will be subject to
the agreement of 399 Venture Partners, and E. Brian Smith has agreed to use his
best efforts to cause 399 Venture Partners to agree to the grant of registration
rights to the substitute parties.
The other security holders of the Company should not be affected by the
Merger transaction since the Merger will result in no greater number of shares
of common stock of the Company outstanding after the Merger than before the
Merger, and the liabilities assumed by the Company as a result of the Merger
will actually reduce the number of issued and outstanding shares of common stock
of the Company. Further, Grace and the Smith Parties will be subject to the
same limitations and should receive the same rights and privileges under the
existing Registration Rights Agreement and Standstill Agreement as Smith Holding
prior to the Merger.
Except for the filing of a Certificate of Merger with the Secretary of the
State of Delaware pursuant to Delaware General Corporation Law, no compliance
with federal or state regulatory requirements is necessary and no federal or
state regulatory approval is required to be obtained in connection with the
Merger.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Company will not recognize any taxable income or suffer any adverse tax
consequences as a result of the Merger. Smith Holding, the Smith Parties and
Grace have independently determined the tax consequences of the Merger for each
of them and have not relied on, nor are they looking to, the Company for tax
advice in relation to the Merger.
EXPENSES
All costs and expenses, including legal fees, related to the Merger will be
paid by the Company.
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APPROVAL OF MERGER
The Board of Directors recommends that the stockholders vote FOR the
approval of the Merger and Merger Agreement.
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 to serve
as the Company's independent auditors for the fiscal year ended February 28,
1995 and the fiscal year ended 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 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 as the Company's independent
auditors for the fiscal year ended February 1996 or any abbreviated fiscal year
ending prior to such date.
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. Stockholders are referred to
the report for financial and other information about the Company, but such
information is not incorporated in this Proxy Statement and is not a part of the
proxy-soliciting material.
PROPOSALS BY STOCKHOLDERS
The deadline for receipt of stockholder proposals for inclusion in the
Company's 1996 proxy materials is January 29, 1996.
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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 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 fiscal year 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
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DRAFT OF MAY 15, 1995
ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement and Plan of
Merger"), dated as of __________ __, 1995, is made and entered into by and
between Smith Holding Corporation, a Delaware corporation ("Holdco"), and Smith
Environmental Technologies Corporation, a Delaware corporation formerly known as
Canonie Environmental Services Corp. ("SETC").
RECITALS
WHEREAS, the authorized capital stock of Holdco consists of the
following: (a) 4,000,000 shares of common stock, par value $.001 per share (the
"Holdco Common Stock"), of which at the date hereof 1,500,000 shares are issued
and outstanding and (b) 3,000,000 shares of Series A preferred stock, par value
$.01 per share (the "Holdco Series A Preferred Stock"), of which at the date
hereof 2,653,720 shares are issued and outstanding; and
WHEREAS, the authorized capital stock of SETC consists of the
following: (a) 20,000,000 shares of common stock, par value $.01 per share (the
"SETC Common Stock"), of which at the date hereof 5,811,105 shares are issued
and outstanding and 2,653,720 of such shares are owned by Holdco; (b) 1,000,000
shares of Preferred Stock, par value $.01 per share (the "SETC Preferred
Stock"), of which at the date hereof 78,000 shares are issued and outstanding;
and (c) 1,000,000 shares of Preference Stock, par value $.01 per share (the
"SETC Preference Stock"), of which no shares are issued and outstanding on the
date hereof; and
WHEREAS, Holdco and SETC desire to effect a merger of Holdco with and
into SETC pursuant to the provisions of the Delaware General Corporation Act
(the "DGCL"); and
WHEREAS, the respective Boards of Directors of Holdco and SETC have
determined that it is advisable and in the best interests of each of the
corporations that Holdco merge with and into SETC upon the terms and subject to
the conditions herein provided; and
WHEREAS, the respective Boards of Directors of Holdco and SETC have,
by resolutions duly adopted, approved this Agreement and Plan of Merger and
directed that it be executed by the undersigned officers; and
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WHEREAS, the shareholders of Holdco have, by unanimous written
consent, approved this Agreement and Plan of Merger and directed that it be
executed by the undersigned Holdco officers; and
WHEREAS, the shareholders of SETC have, by resolutions duly adopted at
the annual meeting held on June 20, 1995, approved this Agreement and Plan of
Merger and directed that it be executed by the undersigned SETC officers.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I. THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and Plan of Merger and in accordance with the applicable provisions of
the DGCL, at the Effective Time (as hereinafter defined), Holdco shall be merged
with and into SETC (the "Merger"), whereupon Holdco's separate corporate
existence shall cease, and SETC shall be the surviving corporation (the
"Surviving Corporation").
1.2 EFFECTIVE TIME. Provided that this Agreement and Plan of Merger
has not been terminated or the Merger abandoned pursuant to Section 6.1 hereof,
the Merger shall become effective as to Holdco and SETC upon the filing with the
Secretary of State of the State of Delaware of a certificate of merger complying
with the provisions of Sections 103 and 251 of the DGCL.
1.3 EFFECT OF THE MERGER. At the Effective Time, the Merger shall
have the effects provided for in Sections 251 and 259 of the DGCL. The
Surviving Corporation shall assume all the rights and obligations of Holdco
(such obligations having been estimated not to exceed $230,000); PROVIDED,
HOWEVER that E. Brian Smith shall, by due execution and delivery of the
Assumption and Indemnification Agreement dated _____________, 1995 between
himself and SETC (the "Assumption and Indemnification Agreement"), indemnify the
Surviving Corporation from and against any and all liabilities of Holdco over
and above that amount (the "Assumed Liabilities"), whenever incurred.
1.4 REGISTERED OFFICE OF SURVIVING CORPORATION. The Surviving
Corporation's registered office in the State of Delaware is located at 1209
Orange Street, Wilmington, Delaware, County of New Castle, and the name of its
registered agent in the State of Delaware is The Corporation Trust Company.
1.5 CERTIFICATE OF INCORPORATION. As of the Effective Time, the
Certificate of Incorporation of SETC, as in effect immediately prior to the
Effective Time, shall become the Certificate of Incorporation of the Surviving
Corporation until
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thereafter duly altered, amended or repealed in accordance with the provisions
thereof and applicable law.
1.6 BYLAWS. As of the Effective Time, the Bylaws of SETC, as in
effect immediately prior to the Effective Time, shall become the Bylaws of the
Surviving Corporation until thereafter duly altered, amended or repealed in
accordance with the provisions thereof, the Certificate of Incorporation and
applicable law.
1.7 DIRECTORS OF THE SURVIVING CORPORATION. At the Effective Time,
each person who is a director of SETC immediately prior to the Effective Time
shall become a director of the Surviving Corporation and each such person shall
serve as a director of the Surviving Corporation for the balance of the term for
which such person was elected a director of SETC and until his successor is duly
elected and qualified in the manner provided in the Bylaws of the Surviving
Corporation or as otherwise provided by law or until his earlier death,
resignation or removal in the manner provided in the Bylaws of the Surviving
Corporation or as otherwise provided by law.
1.8 OFFICERS OF THE SURVIVING CORPORATION. At the Effective Time,
each person who is a officer of SETC immediately prior to the Effective Time
shall become an officer of the Surviving Corporation with each such person to
hold the same office in the Surviving Corporation, in accordance with the Bylaws
thereof, as he or she held in SETC immediately prior to the Effective Time.
ARTICLE II. CONVERSION AND CANCELLATION OF SHARES
2.1 HOLDCO CAPITAL STOCK.
(a) HOLDCO COMMON STOCK. At the Effective Time, the shares of
Holdco Common Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted, on an aggregate basis, into 853,720 shares of
common stock, par value $.01 per share, of the Surviving Corporation (the
"Surviving Corporation Common Shares") and all shares of Holdco Common Stock
shall be cancelled and cease to exist.
(b) HOLDCO SERIES A PREFERRED STOCK. At the Effective Time, the
shares of Holdco Series A Preferred Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted, on an aggregate basis,
into 1,800,000 shares of Surviving Corporation Common Shares and all shares of
Holdco Series A Preferred Stock shall be cancelled and cease to exist.
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(c) ADJUSTMENT FOR ASSUMED LIABILITIES. The number of Surviving
Corporation Common Shares to be delivered pursuant to Section 2.1(a) to those
persons or entities who held Holdco Common Stock immediately prior to the
Effective Time shall be reduced based on the total amount of Assumed
Liabilities; PROVIDED, HOWEVER, that the total amount of such Assumed
Liabilities shall not exceed, in the aggregate, $230,000. The reduction in the
number of Surviving Corporation Common Shares to be delivered (the "Offset
Shares") shall be determined by dividing: (i) the total dollar amount of Assumed
Liabilities by (ii) the value of the Surviving Corporation Common Shares, based
on the average of the NASDAQ bid and asked prices for SETC Common Stock at the
close of trading on the trading day immediately preceding the Effective Time,
PROVIDED, HOWEVER that in no event shall the value of the Surviving Corporation
Common Shares be determined to be less than the average closing price for SETC
Common Stock during the 20 trading days immediately preceding the Effective
Time.
(d) HOLDCO WARRANT. At the Effective Time, the warrant to
purchase 1,500,000 shares of Holdco Common Stock issued to W.R. Grace & Co.
("Grace") pursuant to the Preferred Stock Purchase Agreement, dated December 30,
1993, by and between Grace and Holdco shall, by virtue of the Merger and without
any action on the part of the holder thereof, cease to be outstanding, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
2.2 SETC CAPITAL STOCK.
(a) SETC COMMON STOCK. At the Effective Time, each share of
SETC Common Stock issued and outstanding and owned by Holdco immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of Holdco, cease to be outstanding, shall be retired and shall be
deemed to be authorized and not outstanding.
2.3 CLOSING OF STOCK TRANSFER BOOKS. The stock transfer books of
Holdco and SETC shall be closed at the close of business on the business day
immediately preceding the Effective Time.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF HOLDCO. Holdco hereby
represents and warrants to SETC that:
(a) CORPORATE EXISTENCE AND QUALIFICATION. Holdco is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as now conducted. Holdco is
qualified or licensed to do business in each jurisdiction in which the
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properties owned, leased or operated by it or the nature of the businesses
conducted by it makes such qualification or licensing necessary, except where
the failure to be so qualified will not have a material adverse effect on the
business, financial condition or results of operations of SETC.
(b) AUTHORITY. Holdco has full corporate power and authority
and has taken all corporate action necessary to enter into this Agreement and
Plan of Merger and to consummate the transactions contemplated hereby. This
Agreement and Plan of Merger has been duly and validly executed and delivered by
Holdco, and this Agreement and Plan of Merger constitutes a valid and binding
obligation of Holdco enforceable against Holdco in accordance with its terms.
(c) APPROVALS. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Authority is
required to be obtained or made by or with respect to Holdco in connection with
the execution and delivery of this Agreement and Plan of Merger by Holdco or the
performance by Holdco of the transactions contemplated hereby except (i)
pursuant to the Exchange Act, (ii) the filing of the certificate of merger
pursuant to the DGCL, or (iii) any required filings under the securities or blue
sky laws of the various states.
3.2 REPRESENTATIONS AND WARRANTIES OF SETC. SETC hereby represents
and warrants to Holdco that:
(a) CORPORATE EXISTENCE AND QUALIFICATION. SETC is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as now conducted. SETC is
qualified or licensed to do business in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the businesses
conducted by it makes such qualification or licensing necessary, except where
the failure to be so qualified will not have a material adverse effect on the
business, financial condition or results of operations of SETC.
(b) AUTHORITY. SETC has full corporate power and authority and
has taken all corporate action necessary to enter into this Agreement and Plan
of Merger and to consummate the transactions contemplated hereby. This
Agreement and Plan of Merger has been duly and validly executed and delivered by
SETC, and this Agreement and Plan of Merger constitutes a valid and binding
obligation of SETC enforceable against SETC in accordance with its terms.
(c) CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to SETC in
connection with
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the execution and delivery of this Agreement and Plan of Merger by SETC or the
performance by SETC of the transactions contemplated hereby, except (i) pursuant
to the Exchange Act, (ii) the filing of the certificate of merger pursuant to
the DGCL, or (iii) any required filings under the securities or blue sky laws of
the various states.
ARTICLE IV. COVENANTS
4.1 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. Subject to agreement
by 399 Venture Partners, Inc., a Delaware corporation (the "399 Venture
Partners"), SETC shall amend the Registration Rights Agreement, dated November
15, 1994, among 399 Venture Partners, Holdco and SETC (the "Registration Rights
Agreement") to grant to Grace and the Smith Parties registration rights
substantially the same as those held by Holdco prior to the Effective Time.
ARTICLE V. CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of Holdco and SETC to consummate the Merger are subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions, as applicable thereto:
(a) BOARD APPROVAL. The respective Boards of Directors of
Holdco and SETC have, by resolutions duly adopted, approved this Agreement and
Plan of Merger.
(b) SHAREHOLDER APPROVAL. The shareholders of Holdco have
approved this Agreement and Plan of Merger by unanimous written consent, and the
shareholders of SETC have approved this Agreement and Plan of Merger by
resolutions duly adopted at the annual stockholders meeting held on June 20,
1995.
(c) CONSENT OF LENDERS. 399 Venture Partners and LaSalle
Business Credit, Inc., as agent for certain lenders to SETC, will have duly
approved the Merger.
(d) INJUNCTIONS; ILLEGALITY. The consummation of the Merger
will not be precluded by an order, injunction, decree or ruling of a court of
competent jurisdiction or any other Governmental Entity (each party agreeing to
use its best efforts to rectify any such occurrence), and there will not have
been any action taken or any Law enacted, promulgated or deemed applicable to
the Merger by any Governmental Entity which would prevent the consummation of
the Merger.
5.2 CONDITIONS PRECEDENT TO HOLDCO'S OBLIGATION TO CLOSE. The
obligations of Holdco to consummate the Merger are
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further subject to the satisfaction, at or prior to the Effective Time, of the
following conditions:
(a) SETC CLOSING CERTIFICATE. The representations and
warranties of SETC in this Agreement and Plan of Merger are true and correct,
and SETC has satisfied, performed and complied in all material respects with
each covenant, agreement and obligation to be performed by it pursuant to this
Agreement and Plan of Merger, and Holdco will have received certificates to that
effect executed on behalf of SETC by its chief executive officers.
5.3 CONDITIONS PRECEDENT TO SETC'S OBLIGATION TO CLOSE. The
obligations of SETC to consummate the Merger are further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) ASSUMPTION AND INDEMNIFICATION AGREEMENT. E. Brian Smith
will have duly executed and delivered the Assumption and Indemnification
Agreement.
(b) HOLDCO CLOSING CERTIFICATE. The representations and
warranties of Holdco in this Agreement and Plan of Merger are true and correct,
and Holdco has satisfied, performed and complied in all material respects with
each covenant, agreement and obligation to be performed by it pursuant to this
Agreement and Plan of Merger, and SETC will have received certificates to that
effect executed on behalf of Holdco by its chief executive officers.
ARTICLE VI. TERMINATION
6.1 TERMINATION. This Agreement and Plan of Merger may be terminated
and the Merger abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of Holdco and SETC:
(a) by either Holdco or SETC, if the Board of Directors of
either corporation determines that termination and abandonment is, for any
reason, necessary or advisable;
(b) by Holdco, if SETC breaches in any material respect any of
its representations, warranties, covenants or agreements contained in this
Agreement and Plan of Merger;
(c) by SETC, if Holdco breaches in any material respect any of
its representations, warranties, covenants or agreements contained in this
Agreement and Plan of Merger;
(d) by either Holdco or SETC, if the Merger is not consummated
on or before one year after the date of this Agreement and Plan of Merger;
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(e) by either Holdco or SETC, if there exists or is enacted,
promulgated, issued or entered any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction, order
or decree enjoining Holdco or SETC from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and nonappealable.
6.2 EFFECT OF TERMINATION. In the event of any termination and
abandonment pursuant to Section 6.1 above, this Agreement and Plan of Merger
shall become void and of no effect. No party hereto (or any of its directors or
officers) will have any liability or further obligation to any other party under
this Agreement and Plan of Merger, except that nothing herein shall relieve any
party from liability for any breach of any representation, warranty, covenant or
agreement contained in this Agreement and Plan of Merger.
ARTICLE VII. MISCELLANEOUS
7.1 ADDITIONAL ACTIONS.
(a) Subject to Section 6.1 above, if either party hereto shall
so request prior to the Effective Time, the other party hereto shall from time
to time and at any reasonable time execute and deliver to the other such other
and further documents, instruments and assurances and take such other actions as
may be reasonably necessary, appropriate or convenient in order to carry out the
purpose and intent of this Agreement and Plan of Merger and the transactions
contemplated hereby.
(b) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that the execution and delivery of any
further documents, instruments or assurances or the taking of any other actions
as may be necessary, appropriate or convenient to (i) vest, perfect or confirm,
of record or otherwise, in the Surviving Corporation, title to and possession of
any property or right of Holdco acquired or to be acquired by reason of, or as a
result of, the Merger or (ii) otherwise carry out the purpose and intent of this
Agreement and Plan of Merger and the transactions contemplated hereby, Holdco
and its proper officers and directors shall be deemed to have granted hereby to
the Surviving Corporation an irrevocable power of attorney to execute and
deliver all such documents, instruments and assurances and to take all actions
necessary, appropriate or convenient to vest, perfect or confirm title to and
the possession of such property or rights in the Surviving Corporation and
otherwise to carry out the purpose and intent of this Agreement and Plan of
Merger and the transactions contemplated hereby and the proper officers and
directors of the Surviving Corporation are hereby fully authorized in the name
of Holdco or otherwise to take any and all such action.
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7.2 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and, unless otherwise provided in this
Agreement and Plan of Merger, shall be deemed to have been duly given when
delivered to the addressees at the addresses specified below:
(a) If to Holdco:
Smith Holding Corporation
51 Montecito Drive
Corona Del Mar, California 92625
Attention: E. Brian Smith
(b) If to SETC:
Smith Environmental Technologies Corporation
Galleria Tower II
13455 Noel Road, Suite 1500
Dallas, Texas 75240
Attention: W.D. Nelson
or to such other address or addresses as either party may from time to time
designate as to itself by like notice.
7.3 WAIVER. Holdco, on the one hand, and SETC, on the other hand, by
written notice to the other, may waive, modify or extend the time for
performance of any of the obligations or other actions of the other under this
Agreement and Plan of Merger; PROVIDED, HOWEVER, that neither party may without
the consent of the other make or grant such extension of time, waiver or
modification of performance with respect to its own obligations hereunder.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement and Plan of Merger shall be deemed to constitute a waiver of either
party's rights hereunder and shall not operate or be construed as a waiver of
any subsequent breach, whether of a similar or dissimilar nature.
7.4 LIMITATIONS ON RIGHTS OF THE PARTIES. Nothing expressed or
implied in this Agreement and Plan of Merger is intended or shall be construed
to confer upon or give any person, firm or corporation other than the parties
hereto and their successors and permitted assigns any rights or remedies under
or by reason of this Agreement and Plan of Merger or any transaction
contemplated hereby.
7.5 ENTIRE AGREEMENT. This Agreement and Plan of Merger supersedes
any other agreement, whether written or oral, that may have been made or entered
into by Holdco or SETC (or by any director, officer or representative of such
parties) relating to the matters contemplated hereby. This Agreement and Plan
of Merger constitutes the entire agreement by and between the parties on the
subject hereof and there are no agreements or commitments except as expressly
set forth herein.
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7.6 APPLICABLE LAW. This Agreement and Plan of Merger and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to the principles of conflict of laws thereof.
7.7 CAPTIONS. The captions and headings to articles and sections
herein are inserted for convenience only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement and Plan of Merger.
7.8 EXECUTION IN COUNTERPARTS. This Agreement and Plan of Merger may
be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
7.9 PARTIAL INVALIDITY. If any term or provision of this Agreement
and Plan of Merger or the application hereof to any party or circumstance shall,
to any extent, be held invalid and unenforceable, the remainder of this
Agreement and Plan of Merger, or the application of such term or provision to
persons or circumstances other than those as to whom or which it is held invalid
or unenforceable, shall not be affected thereby, and each term and provision of
this Agreement and Plan of Merger shall be valid and enforceable to the fullest
extent permitted by law.
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IN WITNESS WHEREOF, Holdco and SETC have caused this Agreement and
Plan of Merger to be executed by their respective duly authorized officers
effective as of the date first above written.
SMITH HOLDING CORPORATION
By:
-------------------------
Name: E. Brian Smith
Title: President and Chief
Executive Officer
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
By:
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Name:
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Title:
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A-11
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(Front of Card)
PROXY DRAFT 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 JUNE 20, 1995
The undersigned hereby appoints W.D. Nelson 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 Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas 75240 on June 20,
1995, at 9:00 a.m. local time, or any adjournment 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.)
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The Board of Directors recommends a vote FOR the election of the following
directors and FOR Proposals 2, 3 and 4.
1. Election of two (2) Class C Directors, each director to serve for a term of
three years:
John Paul Jones, Jr.
E. Brian Smith
2. Ratification of the appointment by the Board of Directors of the firm of
Ernst & Young as independent auditors of the Company for the fiscal year
ended February 28, 1995 and for the fiscal year ending February 28, 1996
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3. Ratification of 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.
4. Approval of the merger of Smith Holding Corporation with and into the
Company, and amendment of the Standstill Agreement.
If no direction is indicated on a properly executed proxy, it will be voted
"FOR" each of the proposals set forth above, including "FOR" each nominee for
director.
Dated: ______________________________
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.
(Back of Card)
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