<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1 )
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) an 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided in
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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
3600 WEST SEGERSTROM AVENUE
SANTA ANA, CALIFORNIA 92704
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH 20, 1997
Dear Stockholders:
A Special Meeting of Stockholders of Wahlco Environmental Systems, Inc. will be
held at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One
Financial Center, 41st Floor, Boston, Massachusetts on Thursday, March 20, 1997,
at 12:00 noon, local time, for the following purposes:
1. To consider the approval of the 1996 Stock Option Plan.
2. To authorize the Company to issue in excess of 20% of the number of
shares of common stock outstanding on the date hereof upon the
conversion of certain preferred stock.
3. To authorize the Company to issue or reserve for issuance a number of
shares of common stock that is in excess of 20% of the number of
shares of common stock outstanding prior to such issuance.
The Board of Directors fixed the close of business on February 21, 1997 as the
record date for the determination of stockholders who are entitled to notice of,
and to vote at, the Special Meeting or any adjournments or postponements
thereof. Each stockholder is cordially invited to attend and vote in person.
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED. THE EXECUTION OF A PROXY
WILL NOT AFFECT A RECORD HOLDER'S RIGHT TO VOTE
IN PERSON IF PRESENT AT THE MEETING.
By Order of the Board of Directors,
Roger M. Barzun, SECRETARY
Santa Ana, California
February 24, 1997
<PAGE>
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
3600 WEST SEGERSTROM AVENUE
SANTA ANA, CALIFORNIA 92704
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders of Wahlco Environmental
Systems, Inc., a Delaware corporation (the "COMPANY"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at a
Special Meeting of Stockholders that will be held on March 20, 1997 at the
offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, 41st Floor, Boston, Massachusetts at 12:00 noon local time, and at any
adjournments or postponements thereof.
Proxies in the form enclosed will be voted at the meeting if they are properly
executed, dated and returned to the Company prior to the meeting and are not
revoked prior to the voting. A stockholder of record who grants a proxy has the
power to revoke it at any time before it is exercised (i) by delivering to the
Secretary of the Company an instrument revoking the proxy; (ii) by delivering to
the Company a duly executed proxy bearing a later date, or (iii) by attending
the Special Meeting and voting in person.
This Notice of Special Meeting and Proxy Statement are being mailed to
stockholders of record on or about February 24, 1997.
MATTERS TO BE CONSIDERED
The Special Meeting has been called for the following purposes:
1. To consider the approval of the 1996 Stock Option Plan.
2. To authorize the Company to issue in excess of 20% of the number of
shares of common stock outstanding on the date hereof upon the
conversion of certain preferred stock.
3. To authorize the Company to issue or reserve for issuance a number of
shares of common stock that is in excess of 20% of the number of
shares of common stock outstanding prior to such issuance.
If a proxy in the accompanying form is duly executed and returned, the shares
represented thereby will be voted in accordance with the instructions contained
in it; if no instructions are given, the shares will be voted FOR items 1, 2,
and 3 listed above.
OUTSTANDING SHARES AND VOTING RIGHTS AND PROCEDURES
Stockholders on the Record Date are eligible to receive notice of, and to vote
at, the Special Meeting in person or by proxy. The Company has one class of
common stock, par value $.01 per share (the "COMMON STOCK"), and on February 21,
1997, 17,649,000 shares were issued and outstanding. Each share entitles the
holder to one vote. The holders of a majority of the outstanding common stock,
present in person or represented by proxy, will constitute a quorum for the
Special Meeting. Abstentions are counted for purposes of determining whether
the quorum requirement is satisfied, but as not voted for purposes of
determining the approval of any matter submitted to the stockholders for a vote.
Common stock represented by a "broker non-votes" will also be treated as present
for purposes of determining a quorum, but will not be treated as a negative
vote. A broker non-vote relates to shares of Common Stock held in the name of a
nominee as to which (i) the nominee has not received instructions from the
beneficial owner or person entitled to vote and the nominee does not have
discretionary voting power under applicable rules or the instrument under which
it serves as a nominee; or (ii) the record holder has indicated on the proxy
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card or has executed a proxy and otherwise notified the Company that the nominee
does not have authority to vote such shares on a given matter.
Item 1 requires the approval of the holders of a majority of those entitled to
vote in person or by proxy at the meeting. Consequently, abstentions will have
the effect of a no vote, but broker non-votes will have no effect on the voting.
Items 2 and 3 require the approval of the holders of a majority of the shares of
Common Stock voted on the matter in person or by proxy provided a quorum is
present. Consequently, abstentions and broker non-votes will have no effect on
the voting.
PROPOSAL 1
ADOPTION OF THE 1996 STOCK OPTION PLAN
The 1996 Employee Stock Option Plan (the "PLAN") was adopted by the Board of
Directors on November 15, 1996 contemporaneously with the termination of the
Second Amended and Restated Incentive Stock Plan (the "INCENTIVE STOCK PLAN").
The Incentive Stock Plan was terminated (a) because it was to expire by its
terms in April 1997; (b) because of recent major changes in the securities laws
and rules affecting stock plans; and (c) because the Incentive Stock Plan does
not permit the discretionary grant of options to non-employee directors.
PURPOSE. The purpose of the Plan is to provide directors, officers, key
employees and consultants with additional incentives by increasing their
ownership interest in the Company. The Plan provides for the issuance of
500,000 shares on Common Stock pursuant to stock options grants, subject to
adjustment in the case of certain reorganizations, reclassifications and the
like of the Common Stock. The Plan provides for the grant of incentive stock
options ("ISOS") to employees and the grant of non-statutory stock options
("NSOS") to employees, officers, directors and consultants of the Company and
its subsidiaries. Any employee of the Company or of any subsidiary who is
considered in the judgement of the committee that administers the Plan a key
contributor to the overall success of the consolidated enterprise is an eligible
participant in the Plan. The maximum number of shares with respect to which
options may be granted under the Plan to any one employee in any one year is
300,000 shares. Grants will be made based on the recommendation of senior
management and in the case of executive officers, based on the recommendations
of the Compensation Committee.
GENERAL. The Plan is administered by a committee of the Board of Directors made
up of non-employee directors (the "Committee"). Subject to the provisions of
the Plan itself, the Committee has the authority to select the optionees and
determine the terms of the options granted, including: (i) the number of shares;
(ii) the term of the option (which may not exceed ten years or five years in the
case of an ISO granted to a 10% stockholder of the Company); (iii) the exercise
or purchase price (which in the case of an ISO cannot be less than the fair
market value of the Common Stock on the date of grant or 110% if the employee is
an owner of 10% or more of the total combined voting power of all classes of
stock of the Company); (iv) the type and duration of any transfer or other
restrictions; and (v) the time and form of payment for stock upon exercise of
options. Options are not transferable by the option holder except by will, by
the laws of descent and distribution, pursuant to a qualified domestic relations
order or to immediate family members. The Committee also determines the period,
if any, during which the option may continue beyond termination of employment,
except that upon a grantee's termination of employment for cause, all of his or
her options terminate immediately. Generally, no incentive stock option may be
exercised as such more than three months following termination of employment.
However, in the event that termination is due to death or disability, an
incentive stock option is exercisable as such for a maximum of one year after
such termination. The Plan will remain in effect until terminated by the Board
of Directors and may be amended by the Board of Directors without the consent of
the stockholders of the
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Company, except that any amendment, although effective when made, will be
subject to stockholder approval if required by any federal or state law or
regulation or by the rules of any stock exchange or automated quotation system
on which the Common Stock may then be listed or quoted. On February 1, 1997,
the closing per share market price of the Common Stock was $0.344.
FEDERAL INCOME TAX INFORMATION. Set forth below is a general summary of the
federal income tax consequences to the Company and to recipients who receive
options under the Plan. The following summary is not intended to be exhaustive,
does not address certain special federal tax provisions, and does not address
state, municipal or foreign tax laws.
TAX TREATMENT OF NON-STATUTORY STOCK OPTIONS. Under Section 83 of the Code,
optionees realize no taxable income when a non-statutory stock option is
granted. Instead, the difference between the fair market value of the stock and
the option price paid is taxed as ordinary compensation income. The difference
is measured and taxed as of the date of exercise if the stock is not subject at
that time to a "substantial risk of forfeiture," as defined in Section 83.
The Company receives no tax deduction on the grant of an NSO, but is entitled to
a tax deduction when the optionee recognizes taxable income on or after exercise
of the option, in the same amount as the income recognized by the optionee.
TAX TREATMENT OF INCENTIVE STOCK OPTIONS. Under Section 422 of the Code, an
optionee incurs no federal income tax liability on either the grant or exercise
of an incentive stock option ("ISO"). Provided that the stock is held for at
least one year after the date of exercise of the option and at least two years
after its date of grant, any gain realized on the subsequent sale of the stock
will be taxed as long-term capital gain. If the stock is disposed of within a
shorter period, the optionee will be taxed, with respect to the gain realized,
as if he or she had then received ordinary compensation income in an amount
equal to the difference between the fair market value of the stock on the date
of exercise of the option and its fair market value on the date on which the
option was granted. The balance of the gain realized will be taxed as capital
gain, long-term or short-term depending on the holding period since the date of
exercise.
The Company receives no tax deduction on the grant or exercise of an ISO, but is
entitled to a tax deduction if the optionee recognizes ordinary compensation
income on account of a premature disposition of ISO stock in the same amount and
at the same time as the optionee's recognition of income.
INTEREST OF CERTAIN PERSONS. Because the directors and executive officers of
the Company are eligible to receive stock option grants under the Plan, they
(and their respective associates) may be deemed to have an interest in the
approval of the Plan.
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<PAGE>
NEW PLAN BENEFITS TABLE - 1996 STOCK OPTION PLAN
The following table sets forth in tabular format option grants covering 75,000
shares made to the date of this Proxy Statement under the Plan, all of which
were made to non-employee directors . No grants were made to executive officers
named in the "Summary Compensation Table," below, or to other employees of the
Company. Like the Plan itself, these grants are subject to stockholder
approval. All of the option grants were made on November 15, 1996 at $0.49 per
share, in excess of the $0.406 per share fair market value of a shares of Common
Stock on that date. These options are exercisable in three installments as
follows: as to fifty percent (50%) of the shares covered by the option after
the expiration of six months from the grant date; as to an additional twenty-
five percent (25%) of such shares on the first anniversary of the grant date;
and as to the remaining twenty-five percent (25%) of such shares on the second
anniversary of the grant date;
NAME SHARES SUBJECT TO OPTION
Charles E. Davidson 15,000
Robert M. Davies 15,000
Maarten D. Hemsley 15,000
Paul H. Hunn 15,000
Mark L. Plaumann 15,000
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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PROPOSAL 2
TO AUTHORIZE THE COMPANY TO ISSUE IN EXCESS OF 20% OF THE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING UPON THE CONVERSION OF CERTAIN PREFERRED STOCK
THE RESTRUCTURING. The Board of Directors intends to employ two strategies to
improve the Company's financial condition. The first is to convert $5 million
of the Company's outstanding debt (with the consent of the lender) into shares
of preferred stock that will be convertible into shares of Common Stock. The
second is described in Proposal 3, below.
ISSUANCE OF PREFERRED STOCK. Article IV authorizes the Board of Directors to
issue shares of preferred stock from time to time in one or more series; to fix
the designations and the powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including the dividend rate, conversion rights, redemption
price and liquidation preference; and to fix the number of shares constituting
any such series.
SERIES A PREFERRED STOCK. The Company's majority stockholder and primary
lender, WES Acquisition Corp. ("WESAC"), has agreed to convert $5 million of
outstanding debt of the Company into 50,000 shares of Series A Preferred Stock
to be issued by the Company in accordance with Article IV of the Company's
Restated Certificate of Incorporation (the "SERIES A PREFERRED STOCK"). The
Series A Preferred Stock will have a liquidation preference of $100 per share;
will pay a 12% quarterly dividend which can be paid in kind (that is, in
additional shares of Series A Preferred Stock); and will be convertible into
shares of Common Stock at a conversion price of $0.45625 per share of Common
Stock, subject to adjustment for stock splits, stock combinations and the like.
Each share of Series A Preferred Stock will entitle the holder
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thereof to one vote on all matters submitted to the stockholders of the Company
for approval. Holders of the Common Stock and the Series A Preferred Stock
will vote as a single class, except that matters affecting the rights and
preferences of holders of the Series A Preferred Stock will require the vote of
the holders of a majority of such stock voting as a single class. The holders
of the Series A Preferred Stock will not have preemptive rights. If all of
the Series A Preferred Stock is converted into Common Stock, approximately 10.96
million shares of Common Stock, exclusive of any in-kind dividends, will be
issued and the percentage of the Common Stock of the Company owned by the
Company's majority stockholder will increase from approximately 80.8% to
approximately 88.2%.
REQUIREMENT FOR STOCKHOLDER APPROVAL. Rule 312.03 of the New York Stock
Exchange requires the Company to obtain the approval of stockholders for the
issuance of shares of Common Stock directly or pursuant to the conversion of a
security (such as the Series A Preferred) into Common Stock if the Common Stock
to be issued or reserved for issuance will exceed 20% of the shares outstanding
just prior to issuance. The Company is not seeking stockholder approval of any
aspect of the proposed transaction except the reservation for issuance and
issuance upon conversion of a number of shares that is in excess of 20% of the
issued and outstanding shares immediately prior to the issuance of the Series A
Preferred Stock. There will be approximately 17,649,000 shares of Common Stock
outstanding on the date of the issuance of the Series A Preferred Stock, the
number of shares that is outstanding on the date of this Proxy Statement. The
Board of Directors is authorized to issue up to 10 million shares of preferred
stock and to designate the rights and preferences thereof. There are no shares
of preferred stock outstanding on the date hereof.
CONSEQUENCES OF NON-APPROVAL. If this proposal is not approved, the Company
will be unable to convert the $5 million of debt into equity, will be unable
thereby to increase its stockholders' equity by that amount and believes that it
will be unable to proceed with the improvement of the Company's financial
condition.
BOARD RECOMMENDATION. The conversion of $5 million of the Company's long-term
debt into shares of Series A Preferred Stock would increase the Company's per-
share Common Stock book value, on a fully diluted basis assuming that all of the
shares of Series A Preferred Stock are converted into Common Stock, and would
eliminate the interest expense otherwise payable by the Company on that debt.
In the opinion of the Board of Directors, the effect of the debt conversion on
the Company's financial condition is likely to make it easier for the Company to
attract additional capital. Accordingly the Board of Directors strongly
recommends the approval of the issuance of the Series A Preferred Stock.
Reference should be made to the financial statements of the Company and the
notes thereto set forth in the Company's Annual Report for the fiscal year ended
December 31, 1995 and the quarterly reports on Form 10-Q for the first three
quarters of 1996.
INTEREST OF CERTAIN PERSONS. Because WESAC is the holder of the $5 million of
debt that may be converted into Series A Preferred Stock, it and its associates
may be deemed to have an interest in the approval of this Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3
TO AUTHORIZE THE COMPANY TO ISSUE OR RESERVE FOR ISSUANCE A NUMBER OF SHARES OF
COMMON STOCK THAT IS IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING PRIOR TO SUCH ISSUANCE
With the improvement in the Company's financial condition that would arise from
the conversion of debt into stockholders' equity described under Proposal 2,
above, the Company believes that it may then be in a position to raise working
capital through further conversion of debt into equity and/or the sale of
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securities of the Company in either a public or a private offering. Such
securities could be either additional shares of Series A Preferred Stock,
described in Proposal 2, above; another security convertible into Common Stock;
Common Stock; or a combination of all of the foregoing. If adequate funds are
to be raised by any one or more of such transactions, it is anticipated that in
any event in excess of 20% of the shares then outstanding would be issued or, in
the case of a convertible security, reserved for issuance. The Company
anticipates that in connection with any further financing it would make a
combination (reverse stock split) of its Common Stock to reduce the number of
shares outstanding and thereby attempt to increase the market value per share to
a level that will attract the interest of institutional investors.
At this time, the Company does not know the number or kind of securities that
would be issued or the price at which they would be sold, matters that would be
in the discretion of the Board of Directors. However, the holders of any newly
issued Common Stock or other security convertible into Common Stock would not
have preemptive rights.
REQUIREMENT FOR STOCKHOLDER APPROVAL. The Company is required to seek
shareholder approval of any such issuances for the same reasons as are set forth
above in Proposal 2. The Company is not seeking stockholder approval of any
aspect of any transaction except the issuance and/or reservation for issuance of
a number of shares that is in excess of 20% of the issued and outstanding shares
immediately prior thereto. The shares reserved for issuance pursuant to the
conversion of the Series A Preferred Stock are not counted as outstanding for
computation of the 20% threshold. Accordingly, unless the Series A Preferred
Stock is converted into Common Stock, for purposes of the calculation of the 20%
threshold, there will be approximately 17,649,000 shares of Common Stock
outstanding, the number of shares outstanding on the date of this Proxy
Statement.
CONSEQUENCES OF NON-APPROVAL. The Company does not believe that it would be
able to raise additional working capital to fund operations from any lender
other than the Company's majority stockholder, and there can be no assurance
that additional loans from the majority stockholder would be available in the
future or if available, that the terms thereof would be acceptable to the
Company. Without the sale of additional securities, the Company believes that
it is unlikely to be able to raise working capital in the near term. However,
there can be no assurance that any funds raised through the issuance of
securities of the Company would be sufficient for the Company's needs or that
the Company would be successful in accomplishing any of the transactions
described in this Proposal 3.
BOARD RECOMMENDATION. Although the sale of additional shares securities may
have a dilutive effect on the Company's current stockholders, the Board of
Directors believes that it represents the best source of working capital at this
time. Accordingly, the Board of Directors strongly recommends the approval of
the issuance of the additional shares of Common Stock.
Reference should be made to the financial statements of the Company and the
notes thereto set forth in the Company's Annual Report for the fiscal year ended
December 31, 1995 and the quarterly reports on Form 10-Q for the first three
quarters of 1996.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OF THE COMPANY. NONE OF THE SECURITIES REFERRED TO IN
THIS PROXY STATEMENT AS PROPOSED TO BE SOLD OR ISSUED HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO US PERSONS ABSENT REGISTRATION UNDER
SUCH ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS THEREOF.
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table contains certain information as of February 1, 1997,
regarding the beneficial ownership of the Company's Common Stock by (i) the
Company's Chief Executive Officer and the other executive officers named in the
Summary Compensation Table, below; (ii) all of the directors and executive
officers as a group; and (iii) each person or entity who, to the knowledge of
the Company, is the beneficial owner of five percent or more of the outstanding
shares of Common Stock. The numbers and percentages assume for each person or
group listed, the exercise of all stock options held by such person or group
that are exercisable within 60 days of February 1, 1997, in accordance with Rule
13d-3(d)(1) of the Securities Exchange Act of 1934, but not the exercise of such
stock options owned by any other person. Unless otherwise noted, beneficial
ownership includes both sole voting and dispositive powers with respect to the
shares shown.
NUMBER OF SHARES PERCENT OF
NAME (1) BENEFICIALLY OWNED (2) CLASS
WES Acquisition Corp. ("WESAC") 14,260,000 (3) 81%
C. Stephen Beal 397,103 (4) 2.2%
James J. Ferrigan 58,506 (5) *
Henry N. Huta 666,838 (6) 3.6%
Barry J. Southam 63,196 (7) *
R. J. Mudd 32,325 (7) *
A. Noel DeWinter 8,075 (7) *
Mark L. Plaumann -0- --
All directors and executive officers as
a group (11 persons) 15,504,403 (8) 82%
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* Less than 1%.
(1) The address of WESAC is 411 West Putnam Avenue, Greenwich, Connecticut
06830. The address of all of the individuals is the address of the
Company's headquarters set forth on the first page of this Proxy Statement.
(2) Based upon information furnished by the stockholders.
(3) Pursuant to a Stock Purchase Agreement dated as of May 15, 1995, WESAC, an
affiliate of Wexford Management LLC ("WEXFORD") purchased all of the shares
of the Company's Common Stock (14,260,000 shares) held by Pacific
Diversified Capital Company ("PDC"), which represent approximately 81% of
the outstanding Common Stock, together with $4.9 million out of
approximately $20 million of debt owed by the Company to PDC for a total
purchase price of $5 million. PDC contributed the remainder of the debt to
the capital of the Company. The annual interest rate on the note
evidencing the $4.9 million debt is 13%. The purchase by WESAC was funded
through the sale of 94% of its shares to two of Wexford's private
investment funds and the balance to Messrs. Huta, Beal and Hemsley as
follows:
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER SHARES OF WESAC HELD PERCENTAGE OF OUTSTANDING WESAC SHARES
<S> <C> <C>
Wexford Capital Partners II L.P. 9,411,600 66%
Wexford Overseas Partners I L.P. 4,033,543 28%
Henry N. Huta 356,500 2.5%
C. Stephen Beal 356,500 2.5%
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Rebecca Hemsley 50,928.5 0.3%
Debra Hemsley 50,928.5 0.3%
</TABLE>
(4) These shares are purchasable within 60 days of February 1, 1997 under an
outstanding stock option at an option price of $0.49 per share. Mr. Beal
is also a minority shareholder in WESAC. See footnote (3), above.
(5) Of these shares, 56,506 are purchasable within 60 days of February 1, 1997
under an outstanding stock option at an option price of $0.49 per share.
(6) Of these shares, 661,838 shares are purchasable within 60 days of
February 1, 1997 under an outstanding stock option at an option price of
$0.49 per share. The remaining 5,000 shares are held in trust by Mr. Huta
and Sharon L. Huta, co-trustees under a declaration of trust dated
November 20, 1989, who share both voting and investment power with respect
to such shares. Mr. Huta is also a minority shareholder in WESAC. See
footnote (3), above. Mr. Huta resigned from the Company in May 1996.
(7) These shares are purchasable within 60 days of February 1, 1997 under an
outstanding stock option at an option price of $0.49 per share.
(8) This number includes 1,237,043 shares that are purchasable within 60 days
of February 1, 1997 under outstanding stock options at option prices
ranging from $0.49 to $1.875 per share and the 14,,260,000 shares owned by
WESAC by reason of the fact that a director of the Company, Charles E.
Davidson, is a director of WESAC and therefore has shared voting and
dispositive powers over such shares.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation for the fiscal years ended
December 31, 1996, 1995 and 1994 allocated or paid on or before December 31,
1996 to the Company's Chief Executive Officers and to the other most highly
compensated executive officers of the Company whose compensation exceeded
$100,000 in 1996 and who were serving at the end of the 1996 fiscal year for
services rendered in all capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------------------------------------
OTHER
ANNUAL SECURITIES ALL
COMP- UNDERLYING OTHER
NAME AND PRINCIPAL BONUS ENSATION OPTIONS/SAR'S COMPENSA-
POSITION YEAR SALARY ($) ($) ($)** (#) TION ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HENRY N. HUTA* 1996 319,149 -0- -0- -0- 3,461 (1)
President and 1995 263,288 377,216 170,387 882,450 3,795
Chief Executive Officer 1994 247,122 -0- -0- -0- 731
C. STEPHEN BEAL * 1996 212,497 -0- -0- -0- 307 (2)
President, Engineered 1995 186,117 -0- 145,282 529,470 348
Products Group 1994 147,220 -0- 46,808 -0- 731
JAMES J. FERRIGAN 1996 156,787 -0- -0- -15,008 1,663 (3)
Senior Vice President of North 1995 162,081 -0- -0- 175,000 3,703
American Sales & Marketing 1994 206,347 -0- -0- -0- 2,687
BARRY J. SOUTHAM 1996 179,311 -0- -0- 15,525 4,696 (4)
Senior Vice President of 1995 154,248 -0- 39,813 200,000 4,995
International Sales & Marketing 1994 150,136 -0- -0- -0- 3,930
A. NOEL DEWINTER 1996 100,176 -0- -0- 59,500 1,132 (5)
Vice President and Chief 1995 -0-
Financial Officer 1994 -0-
R. J. MUDD 1996 137,570 -0- -0- 14,500 2,271 (6)
Senior Vice President Operations 1995 151,880 -0- -0- 80,000 4,300
1994 138,818 -0- -0- -0- 1,972
MARK L. PLAUMANN*
President 1996 * * * 50,000 *
</TABLE>
- ---------------
* Mr. Huta resigned as President and Chief Executive Officer in May 1996.
From May to October, Mark L. Plaumann served as Chief Executive Officer
(and a director) of the Company under a management agreement between the
Company and his employer, Wexford Management LLC, an affiliate of WESAC.
The Company did not make any salary or other payments to Mr. Plaumann for
his services, but did grant him a stock option to purchase 50,000 shares in
August 1996. See "Option/SAR Grants Table" below. Mr. Beal was elected
President and Chief Executive Officer in October 1996.
** Excludes perquisites and other personal benefits if the aggregate amount of
such items of compensation was less than the lesser of either $50,000 or
10% of the total annual salary and bonus of the named executive officer.
(1) This amount consists of employer matching contributions under the Company's
401(k) Plan.
-9-
<PAGE>
(2) This amount consists of premiums paid on excess life insurance.
(3) This amount consists of premiums paid on excess life insurance ($361) and
employer matching contributions under the Company's 401(k) Plan ($1,302).
(4) This amount consists of premiums paid on excess life insurance ($2,454) and
employer matching contributions under the Company's 401(k) Plan ($2,242).
(5) This amount consists of premiums paid on excess life insurance ($199) and
employer matching contributions under the Company's 401(k) Plan ($933).
(6) This amount consists of premiums paid on excess life insurance ($1,019) and
employer matching contributions under the Company's 401(k) Plan ($1,259).
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for service as a member of the Board or of any of its committees.
During the first three quarters of 1996, non-employee directors each received a
retainer at the rate of $3,000 per quarter and a fee of $500 for each Board and
committee meeting attended. No fees were paid for telephone conference call
meetings.
In addition, each non-employee director was automatically granted on the date of
his election to the Board a ten-year stock option to purchase 8,000 shares of
Common Stock under the Second Amended and Restated Stock Incentive Plan (the
"INCENTIVE STOCK PLAN") at a per-share purchase price equal to the fair market
value of a share of Common Stock on the grant date. The option was exercisable
as to one-half of the shares from and after the grant date and as to an
additional one-quarter of the shares on each of the next two anniversaries of
the grant date. Mr. Davies waived the grant of this option by reason of his
affiliation at the time with WESAC and its affiliates.
In October 1996, directors reduced their fees to $2,000 per quarter and $500 for
each day spent in attendance at Board and/or Committee meetings and in November
1996, agreed to the cancellation of the 8,000-share stock options, and by way of
partial compensation, were granted options under the 1996 Stock Option Plan,
which is the subject of Proposal 1. See "New Plan Benefits Table," below. All
directors, whether or not employees, are reimbursed for expenses incurred by
them in attending Board and committee meetings.
-------------------------
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<PAGE>
OPTION/SAR TABLES
OPTION/SAR GRANTS TABLE
The following table sets forth certain information with respect to stock options
granted to the executive officers named in the Summary Compensation Table,
above, during the fiscal year ended December 31, 1996. All options have a term
of ten years from the grant date subject cases to earlier termination in the
event the optionee's employment terminates, except as noted. No SARs were
granted during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM (3)
-------------------------------------------------------------------- ------------------------------------
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED TO GRANT
SECURITIES EMPLOYEES DATE EXPI-
UNDERLYING IN EXERCISE MARKET RATION
NAME OPTIONS FISCAL YEAR PRICE VALUE DATE 0% 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry N. Huta -- -- -- -- --
C. Stephen Beal -- -- -- -- --
James J. Ferrigan 15,008 5.92% $0.49 $1.00 06/01/06 (1) $7,654 $16,888 $30,938
Barry J. Southam 15,525 6.12% $0.49 $1.00 06/01/06 (1) $7,918 $17,469 $32,004
A. Noel DeWinter 9,500 3.75% $0.49 $1.00 06/01/06 (1) $4,845 $10,689 $19,583
50,000 19.72% $0.49 $0.437 10/17/06 (2) -0- $11,172 $32,302
R. J. Mudd 14,500 5.72% $0.49 $1.00 06/01/06 (1) $7,395 $16,315 $29,890
Mark L. Plaumann 50,000 19.72% $0.49 $0.375 08/02/96 (2) -0- $6,041 $24,133
</TABLE>
- ---------------
(1) These options become exercisable in twelve approximately equal installments
commencing April 1, 1996, but no vested shares may be exercisable on or
prior March 31, 1997. The options expire on the earlier to occur of (i)
April 1, 2006; (ii) three years after termination of employment for other
than cause; and (iii) on the date of termination of employment if
termination is for cause.
(2) This option vests in four equal installments on the first four
anniversaries of the grant date and expires ten years from the grant date.
(3) The "potential realizable value" is calculated based on the term of the
option (ten years) at its date of grant. It is calculated by ASSUMING that
the stock price on the date of grant appreciates at the indicated annual
percentage rates, compounded annually, for the entire term of the option.
However, the optionee will not actually be able to realize any benefit from
the option unless the market value of the Common Stock is in fact greater
than the option price.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
The following two tables set forth certain information based on the fair market
value per share ($0.375) of the Common Stock at December 31, 1996, the last day
of the Company's 1996 fiscal year, with respect to stock options held at that
date by each of the individuals named in the Summary Compensation Table,
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<PAGE>
above. The "value" of unexercised in-the-money options is the difference
between the market value of the Common Stock subject to the options at December
31, 1996 and the exercise price, assuming the option is exercised. No SARs were
held during 1996 and none are now held by any of the individuals named in the
Summary Compensation Table, above.
During 1996, there were no option exercises by any of the executive officers
named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-THE-MONEY
YEAR END OPTIONS AT FISCAL YEAR END
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry N. Huta 661,838 -0- -0- -0-
C. Stephen Beal 397,103 132,367 -0- -0-
James J. Ferrigan 54,255 135,752 -0- -0-
Barry J. Southam 60,867 154,657 -0- -0-
A. Noel DeWinter 6,650 52,850 -0- -0-
R. J. Mudd 30,150 64,350 -0- -0-
Mark L. Plaumann -0- 50,000 -0- -0-
</TABLE>
EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS.
EMPLOYMENT AGREEMENTS. Effective as of May 5, 1995, Messrs. Huta and Beal
entered into employment agreements with the Company substantially on the terms
agreed to at the time WES Acquisition Corp. ("WESAC") acquired an 81% stock
interest in the Company and certain Company debt from Pacific Diversified
Capital Company ("PDC"). See footnote (3) to "SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT." The initial term of the agreements expires on May
5, 1997, but the agreements continue in effect thereafter unless terminated by
either party on sixty days' prior notice. The agreements provide that Mr. Huta
is to be elected President and Chief Executive Officer of the Company at a
salary of $25,000 per month and Mr. Beal is to be elected President of the
Company's Engineered Products Group at a salary of $16,700 per month. Each of
the executives is entitled to participate in the Company's benefit programs made
available to other executives generally and in addition, to receive
reimbursement on a tax grossed-up basis for premiums paid to maintain $2 million
of life insurance coverage; reimbursement for country club membership, and
reimbursement for monthly auto lease payments not to exceed $750 per month when
their current company vehicle leases expire. The agreements provide that the
Compensation Committee of the Board of Directors will establish an appropriate
bonus plan for each executive, but as of the date hereof, no such plan had yet
been established. In the event that the employment of either of the officers is
terminated without cause, whether during the initial term or thereafter, the
Company is obliged to continue to pay him his salary for a period of eighteen
months following such termination and, at the Company's expense, to continue to
provide the benefits described above for the same period. If termination is for
cause, only accrued salary and unused vacation is paid. In May 1996, Mr. Huta
resigned from the Company and his employment agreement terminated.
In addition, in connection with the WESAC stock acquisition, the Company (i)
forgave debt owed by Mr. Huta to the Company in the amount of $147,268 and paid
him a special bonus of $377,316; (ii) paid
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<PAGE>
Mr. Beal the final installment of his relocation payments in the amount of
$124,596; and (iii) conveyed to each of Messrs. Huta and Beal a Company
membership in a local country club.
SEVERANCE AGREEMENTS. The Company has an agreement with each of James J.
Ferrigan, Barry J. Southam, R. J. Mudd and A. Noel DeWinter that provides for
the continued payment to each of them of his salary for a period of twelve
months after his employment terminates unless termination is for cause or by
reason of his resignation.
INDEMNIFICATION AGREEMENTS. The Company has entered into indemnification
agreements with each of the executive officers named in the Summary Compensation
Table, above, that provide contractual indemnification rights similar in scope
to the applicable sections of the Company's Bylaws. Each agreement applies
retroactively as well as prospectively to any actions taken by the indemnified
officer while serving as an officer and/or director of the Company. The
indemnification agreements also provide that the Company will indemnify such
persons to the fullest extent permitted by law, notwithstanding that the
indemnification is not specifically authorized by the indemnification agreement,
the Company's Certificate of Incorporation, the Company's Bylaws or by statute.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee during 1996 (David R. A.
Steadman, Maarten D. Hemsley and Paul H. Hunn) is or was an employee of the
Company or any of its subsidiaries. In April 1996, the Company retained
Atlantic Management Associates, Inc., of which Mr. Steadman is President, to
obtain Mr. Steadman's services as a management consultant for a fee of $8,000
per month. In connection with these consulting services, in June 1996, Mr.
Steadman was granted an option under the Second Amended and Restated Stock
Incentive Plan to purchase 50,000 shares of Common Stock at an option price of
$0.49 per share that vests in two equal installments on the first and second
anniversary of the grant date. During 1996, no executive officer of the Company
served as a director or member of a compensation committee of any entity with
which any director of the Company had any relationship as a director or officer.
-------------------------
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<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION
COMMITTEE, AND THE PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report has been prepared by the members of the Compensation Committee of
the Board and addresses the Company's compensation policies with respect to the
Chief Executive Officer and other executive officers of the Company for the 1996
fiscal year.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The terms of the Chief Executive Officer's salary, benefits and stock option
grant from and after May 5, 1995 were the subject of a negotiated agreement
between Mr. Huta and WESAC in connection with its purchase of the 81% of the
Company's shares and certain debt of the Company held by Pacific Diversified
Capital Company and takes into consideration the $200,000 investment made by Mr.
Huta in WESAC and his assistance in consummating the transaction. See
"EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS," above.
Mr. Beal's compensation was negotiated on a similar basis and at the same time
in connection with his investment of $200,000 in WESAC. See "EMPLOYMENT,
SEVERANCE AND OTHER AGREEMENTS," above.
COMPENSATION OF OTHER EXECUTIVES
The executive compensation philosophy of the Company with respect to its
executive officers is to provide a total compensation package, in which base
salary, bonus, incentives and benefits are structured and administered in a
manner designed to align compensation with the Company's business strategy and
performance, to be reasonable in comparison to competitive practice, and to
motivate and reward executives on the basis of Company and individual
performance. In view of the poor financial performance of the Company during
1995 and 1996, each of the Executive Officers of the Company agreed to a 10% pay
cut effective in the second quarter of 1996.
COMPONENTS OF COMPENSATION
The Company's executive compensation is composed of base salary, incentive
compensation and stock incentive awards.
BASE SALARIES. The base salaries of executive officers are reviewed
periodically and are based primarily on the base salaries paid by comparable
related-industry companies to executives in similar positions and is targeted at
the median. In addition, the Committee considers a number of subjective
criteria, including individual and Company performance, levels of responsibility
and prior experience. The Committee does not make individual base salary
decisions according to specific criteria and does not ascribe specific weights
to the factors it considers.
INCENTIVE COMPENSATION. In 1996, the Company had no incentive program in
effect.
STOCK INCENTIVE AWARDS. In 1996, stock incentive awards in the form of stock
options were made to Executive Officers under the Company's Second Amended and
Restated Stock Incentive Plan in connection with the 10% salary cut instituted
by the Committee and in one case, in connection with a promotion.
THE COMPENSATION COMMITTEE: David R. A. Steadman
Maarten D. Hemsley
Paul H. Hunn
-14-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's cumulative
total stockholder return on Common Stock for the last five years with the
performances of the Standard & Poor's 500 Index (a broad market index) and New
York Stock Exchange stocks in Sanitary Services, SIC 4950-4959, (a peer group
index), over the same period. Because there are a limited number of air
pollution control companies that may be included in an index, the industry group
index includes companies engaged in hazardous waste, water treatment and air
pollution control.
The returns are calculated assuming the value of the investment in the Company's
stock and each index was $100 on December 31, 1991, and that all dividends were
reinvested; however, the Company paid no dividends during the period shown. The
graph lines merely connect the beginning and end of the measuring periods and do
not reflect fluctuations between those dates. The historical stock performance
shown on the graph is not intended to, and may not be indicative of, future
stock performance.
[GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Wahlco Environmental Systems, Inc. 100 53.64 31.82 14.55 10 2.73
Peer Group (NYSE Stocks-SIC 4950-4959) 100 98.32 72.34 73.55 84.45 90.35
(US Companies-Sanitary Services)
Broad Market Index (S&P 500) 100 107.84 118.5 120.06 165.18 203.11
</TABLE>
-15-
<PAGE>
SOLICITATION OF PROXIES
The expenses of this solicitation will be borne by the Company. In addition to
use of the mails, proxies may be solicited by officers, directors and regular
employees of the Company personally, by telephone or by mail. The Company will
reimburse persons holding shares in their own names or in the names of nominees
for expenses they incur in obtaining instructions from beneficial owners of such
shares.
OTHER MATTERS
The Company has filed its Annual Report on Form 10-K for the year ended
December 31, 1995, as amended, with the Securities and Exchange Commission as
well as quarterly reports on Form 10-Q for each of the first three fiscal
quarters of 1996. These reports contains detailed information concerning the
Company and its operations, supplementary financial information and certain
schedules.
A copy of the Form 10-K, Form 10-K/A and 10-Q reports, without exhibits, will be
furnished to stockholders free of charge upon written request to:
Wahlco Environmental Systems, Inc.
3600 West Segerstrom Avenue
Santa Ana, California 92704.
Attention: Investor Relations
A copy of any exhibit will be furnished to any stockholder upon written request
to the same address and payment to the Company of a copying charge of twenty-
five cents per page.
February 24, 1997 By Order of the Board of Directors,
Roger M. Barzun, SECRETARY
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<PAGE>
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) revokes previous proxies given with respect to the
shares of the common stock of Wahlco Environmental Systems, Inc. (the
"Company") noted on the reverse side hereof and registered in the name of the
undersigned (the "Shares"); (ii) acknowledges receipt of the Notice and Proxy
Statement dated February 24, 1997 in connection with a Special Meeting of
Stockholders of the Company to be held on March 20, 1997 at 12:00 noon at the
offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, 41st Floor, Boston, Massachusetts or any adjournment thereof; and
(iii) appoints David R. A. Steadman, Robert M. Davies and Roger M. Barzun, or
any one of them, each with full power to act alone, the attorneys and proxies
of the undersigned with power of substitution to each, to vote all of the
Shares that the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company, and at any adjournment thereof, with all the
powers the undersigned would have had if personally present at said meeting.
Without limiting the generality of the authorization hereby given, said
proxies are, and each of them is instructed to vote or act as follows on the
matters to be voted upon set forth in said Proxy Statement:
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS, YOU NEED ONLY SIGN AND DATE THIS PROXY ON THE REVERSE SIDE -- YOU
NEED NOT MARK ANY BOXES.
CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE
[SEE REVERSE SIDE]
- -----------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE>
<TABLE>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
ITEM 1. Approval of the / / / / / / ITEM 2. Approval of the issuance of / / / / / /
1996 Stock Option Plan. in excess of 20% of the outstanding
common stock on conversion of certain
preferred stock.
FOR AGAINST ABSTAIN
ITEM 3. Approval of the issuance or / / / / / /
reservation for issuance of in excess
of 20% of the outstanding common stock.
Signature(s)_________________________________________________________ Date:_______________________, 1996
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing in a representative
capacity, please give full title. Corporations should sign in the corporate name by an authorized officer;
partnerships in the partnership name by an authorized person.
- -------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
