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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 2 )
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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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] 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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WAHLCO ENVIRONMENTAL SYSTEMS, INC.
3600 WEST SEGERSTROM AVENUE
SANTA ANA, CALIFORNIA 92704
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 6, 1997
To The Stockholders:
The Annual Meeting of Stockholders of Wahlco Environmental Systems, Inc. will be
held at the offices of Wexford Management LLC, 411 West Putnam Avenue,
Greenwich, Connecticut 06830, on Friday June 6, 1997 at 9:00 a.m. local time,
for the following purposes:
1. To elect five directors to serve for a one-year term and until their
successors are elected and qualified.
2. To consider the approval of the 1996 Stock Option Plan.
3. To authorize the Company to issue securities of the Company that are
convertible into a number of shares of common stock of the Company
that is in excess of 20% of the number of shares of common stock
outstanding on the date hereof.
4. 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.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The Board of Directors fixed the close of business on April 28, 1997 as the
record date for the determination of stockholders who are entitled to notice of,
and to vote at, the Annual 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
May 6, 1997
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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 the
1997 Annual Meeting of Stockholders that will be held at the offices of Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830 on Friday,
June 6, 1997 at 9:00 a.m. 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 may
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
Annual Meeting and voting in person.
The Company's Annual Report for the year ended December 31, 1996 is being mailed
on or about May 6, 1997 with this Notice of Annual Meeting, Proxy Statement and
Proxy to stockholders of record on April 28, 1997 (the "RECORD DATE").
Stockholders on the Record Date are eligible to receive notice of, and to vote
at, the Annual Meeting in person or by proxy.
MATTERS TO BE CONSIDERED
The Annual Meeting has been called for the following purposes:
1. To elect five directors to serve for a one-year term and until their
successors are elected and qualified.
2. To consider the approval of the 1996 Stock Option Plan.
3. To authorize the Company to issue securities of the Company that are
convertible into a number of shares of common stock of the Company
that is in excess of 20% of the number of shares of common stock
outstanding on the date hereof.
4. 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.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
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 the Board's
nominees, and FOR Proposals 2, 3 and 4, listed above. As to any other matter
that may properly come before the Annual Meeting, the proxy holders will vote in
accordance with their best judgment, although the Company does not currently
know of any such matters.
OUTSTANDING SHARES, QUORUM AND VOTING RIGHTS AND PROCEDURES
The Company has one class of common stock, par value $.01 per share (the "COMMON
STOCK"), and on the Record Date, 17,649,000 shares were issued and outstanding.
Each share entitles the holder
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to one vote. The presence at the meeting, in person or represented by proxy, of
the holders of a majority of the outstanding common stock is necessary to
constitute a quorum for the Annual 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 "broker non-votes" will
also be treated as present for purposes of determining a quorum. 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 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.
Because directors are elected by the affirmative vote of the holders of a
plurality of the shares of Common Stock present and entitled to vote, in person
or by proxy, abstentions and broker non-votes will not affect their election.
Proposal 2 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. Proposals 3 and 4 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 on those proposals.
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PROPOSAL 1 - ELECTION OF DIRECTORS
The following section contains certain information about the nominees for
director and the Board of Directors generally. Directors are elected to serve
for a one-year term and until their successors are elected and qualified.
Pursuant to the Company's Bylaws, the number of directors is established by the
Board from time to time, provided that the authorized number of directors may
not be less than five nor more than nine. The Board has set the number of
directors at five.
DIRECTOR
NAME AGE SINCE
C. Stephen Beal 49 1995
Maarten D. Hemsley 46 1995
Paul H. Hunn 62 1995
Mark L. Plaumann 41 1996
David R. A. Steadman 59 1995
All nominees have stated that they are willing to serve as directors, but if any
of them should be unable to serve, or for good cause will not serve, the proxy
holders will vote for the election of another person or persons that they, in
the exercise of their discretionary authority, may choose. The Board of
Directors has no reason to believe that any of the nominees will be unable or
unwilling to serve. The proxy solicited by this Proxy Statement cannot be voted
for more than the number of nominees named in this Proxy Statement.
ADDITIONAL INFORMATION CONCERNING THE COMPANY'S DIRECTORS
C. STEPHEN BEAL. Mr. Beal has been President and Chief Executive Officer of the
Company since October 1996 and President of the Company's Engineered Products
Group since 1991. Prior to joining the Company, pursuant to the acquisition of
Pentney Engineering, Ltd. by the Company in 1991, Mr. Beal served as Managing
Director and was a joint owner of the Pentney Group since 1974.
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MAARTEN D. HEMSLEY. Mr. Hemsley has been President of Bryanston Management,
Ltd., a financial consulting and advisory firm, since January 1993. Since its
founding in April 1991 until December 1995, Mr. Hemsley served in various
executive capacities and as a director of Oakhurst Company, Inc., a holding
company in the automotive after-market products business, most recently as
Chairman and Chief Executive Officer. From January 1989 until December 1995,
Mr. Hemsley served in various executive capacities and as a director of Steel
City Products, Inc., a majority owned, publicly traded subsidiary of Oakhurst,
most recently as Chief Financial Officer. From 1990 until March 1994, Mr.
Hemsley was Chief Financial Officer and from January 1992 until March 1994 also
President and a director of Integra -- A Hotel and Restaurant Company.
PAUL H. HUNN. Mr. Hunn was Chief Executive Officer of Reliance Bank in White
Plains, New York from 1995 to 1996 and has been its Chairman since 1995. He
retired as Managing Director of Manufacturers Hanover Trust in May 1991 after
thirty-two years.
MARK L. PLAUMANN. Mr. Plaumann has been a Senior Vice President of Wexford
Management LLC ("WEXFORD") since January 1996 and a director and Vice President
of the General Partner of _______________ since March 1995. From June 1996 to
October 1996, he served as interim President of the Company. Mr. Plaumann
joined the predecessor entities of Wexford in February 1995. Prior to joining
Wexford, Mr. Plaumann was a Managing Director of Alvarez & Marsal, Inc., a
crisis management consulting firm, from 1990 to 1995, and from 1985 to 1990 he
was with American Healthcare Management, Inc., an owner and operator of
hospitals, where he served in a variety of capacities, most recently as its
President. Prior to that he was with Ernst & Young LLP in its auditing and
consulting divisions for eleven years.
DAVID R. A. STEADMAN. Mr. Steadman has been President of Atlantic Management
Associates, Inc., a management services firm, since 1988. From 1990 to 1994,
Mr. Steadman served as President and Chief Executive Officer of Integra -- A
Hotel and Restaurant Company and from 1987 to 1988 as Chairman and Chief
Executive Officer of GCA Corporation, a manufacturer of automated semiconductor
capital equipment. From 1980 to 1987 Mr. Steadman was a Vice President of
Raytheon Company, a defense electronics manufacturer, and served in various
management positions, most recently as President of its venture capital
division. Mr. Steadman is Chairman of the Board of Directors of Technology
Service Group, Inc., a manufacturer of high technology pay telephone components.
He is also a director of Aavid Thermal Technologies, Inc., which manufactures
thermal management products and produces computational fluid dynamics software;
Kurzweil Applied Intelligence, Inc., a voice recognition software company; and
Vitronics Corporation, a manufacturer of reflow soldering ovens.
Messrs. Hemsley, Hunn and Steadman were designated by WES Acquisition Corp.
("WESAC"), which holds approximately 81% of the Common Stock, to be appointed to
the Board to replace the directors who resigned pursuant to an understanding
relating to WESAC's purchase of stock and debt of the Company from Pacific
Diversified Capital Company in June 1995. Mr. Plaumann was appointed a director
in connection with his election as President of the Company in June 1996, upon
the request of WESAC. Mr. Beal was appointed pursuant to the terms of a letter
agreement dated May 5, 1995 between Mr. Beal and WESAC. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1996, the Board of Directors held 10 meetings
and each incumbent director attended at least 75% of the meetings held while he
was a director except for Mr. Hemsley, who was unable to attend three of the
meetings.
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The Board of Directors has four standing committees: an Executive Committee, an
Audit Committee, a Compensation Committee and a Stock Plans Committee.
THE EXECUTIVE COMMITTEE is currently composed of Messrs. Steadman, Beal and
Plaumann and may exercise all the powers of the Board of Directors when the
Board is not meeting, subject to certain limitations imposed by the Certificate
of Incorporation, the Bylaws and Delaware law. The Executive Committee held one
meeting in 1996 that was attended by all the members thereof.
THE AUDIT COMMITTEE is currently composed of Messrs. Hemsley, Hunn and Steadman
and makes recommendations to the Board of Directors on the engagement and
discharge of the Company's independent auditors; reviews the performance of the
Company's independent auditors; reviews the independent auditors' fees; and
reviews the adequacy of the Company's system of internal accounting controls.
During 1996 the Audit Committee held six meetings and all then incumbent members
attended at least 75% of such meetings except Mr. Steadman, who was unable to
attend two of the meetings.
THE COMPENSATION COMMITTEE is currently composed of Messrs. Hemsley, Hunn and
Steadman and makes recommendations with respect to the compensation of officers
and employees of the Company and periodically reviews the compensation structure
of the Company. During 1996 the Compensation Committee held no meetings.
THE STOCK PLANS COMMITTEE in 1996 was composed of Charles Davidson, a director
who is not standing for re-election, and Mr. Hunn. Upon its establishment in
April 1996, this committee assumed from the Compensation Committee the
administration of the Company's Second Amended and Restated Stock Incentive Plan
and will administer the 1996 Stock Option Plan that is the subject of Proposal
2, if approved by stockholders. During 1996 the Stock Plans Committee held two
meetings and all then incumbent members attended all such meetings.
COMPENSATION OF DIRECTORS
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.
From January through September 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.
Each non-employee director on the date of his election to the Board was
automatically granted 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 exercise 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.
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, by way of partial compensation for the reduction of their fees and an
agreement to cancel their outstanding stock options, directors were granted
options under the 1996 Stock Option Plan, subject, however, to the approval of
stockholders. See Proposal 2. "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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PROPOSAL 2
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 of Common Stock pursuant to stock option 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.
GENERAL. The Plan is to be 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 a 10% stockholder 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 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 April 1, 1997, the
closing per share market price of the Common Stock was $0.1875.
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
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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 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 of an ISO, and is only
entitled to a tax deduction upon the exercise of an ISO if the optionee
recognizes ordinary compensation income on account of a premature disposition of
ISO stock, in which case the deduction is equal to the amount and occurs 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.
NEW PLAN BENEFITS TABLE - 1996 STOCK OPTION PLAN
The following table sets forth in tabular format option grants made under the
Plan prior to the date of this Proxy Statement, 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 an exercise price of $0.49 per
share, which was in excess of the $0.406 per share market value of a share of
Common Stock on that date. These options are exercisable in three installments
as follows: as to fifty percent of the shares covered by the option after the
expiration of six months from the grant date; as to an additional twenty-five
percent of such shares on the first anniversary of the grant date; and as to the
remaining twenty-five percent of such shares on the second anniversary of the
grant date;
NAME SHARES SUBJECT TO OPTION
Charles E. Davidson 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 THE APPROVAL OF THE PLAN.
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PROPOSAL 3
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, through the issuance of additional shares of Common Stock, is described
in Proposal 4, below.
ISSUANCE OF PREFERRED STOCK. Article IV of the Company's Restated Certificate
of Incorporation authorizes the Board of Directors to issue up to 10 million
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 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 Stock) 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. Accordingly, the Company is not seeking
stockholder approval of any aspect of the proposed transaction except the
reservation for issuance and the 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. There are no shares of Series A 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.
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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, notwithstanding the additional
dilution that would occur from the payment of dividends on the Series A
Preferred Stock in additional shares of that stock, is likely to make it easier
for the Company to attract additional capital. Accordingly the Board of
Directors strongly recommends the approval of this Proposal.
Reference should be made to the financial statements of the Company and the
notes thereto set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 which, as stated below, is incorporated into
this Proxy Statement by reference thereto.
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 4
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 as described under Proposal 3,
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
securities of the Company in either a public or a private offering. Such equity
securities could be either shares of Common Stock; additional shares of the
Series A Preferred Stock described in Proposal 3, above; a different security
convertible into Common Stock; or a combination of all of the foregoing. If
adequate funds are to be raised by the issuance of a security of the Company, it
is anticipated that in any event in excess of 20% of the shares outstanding
immediately prior to the issuance 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; these matters 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 3. 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 (described in Proposal 3, above) 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.
-8-
<PAGE>
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 4.
BOARD RECOMMENDATION. Although the sale of additional securities of the Company
may have a dilutive effect on the Company's current stockholders, the Board of
Directors believes that it represents the most likely 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 on Form 10-K for the
fiscal year ended December 31, 1996 which, as stated below, is incorporated into
this Proxy Statement by reference thereto.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
--------------------------------------------
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 BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THEY 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.
--------------------------------------------
-9-
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table contains certain information as of April 1, 1997, regarding
the beneficial ownership of the Company's Common Stock (i) by the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table, below; (ii) by all of the directors and executive officers
as a group; and (iii) by 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 April 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. Except as otherwise noted, beneficial
ownership includes both sole voting and dispositive powers with respect to the
shares shown.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED (2) CLASS
WES Acquisition Corp.(1) 14,260,000 (3) 81%
C. Stephen Beal 529,470 (4) 2.9%
Maarten D. Hemsley 6,000 (5) *
Paul H. Hunn 6,000 (5) *
Mark L. Plaumann -0- --
David R. A. Steadman 6,000 (5) *
James J. Ferrigan 58,758 (6) *
Barry J. Southam 65,525 (7) *
A. Noel DeWinter 9,500 (7) *
Henry N. Huta 666,838 (8) 3.6%
All directors and
executive officers as 1,384,591 (9)(10) 7.1%
a group (9 persons)
- -------------------
* Less than 1%.
1. The address of WESAC is 411 West Putnam Avenue, Greenwich, Connecticut
06830.
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 two of Mr.
Hemsley's children. See footnote (10), below.
4. These shares are purchasable within 60 days of April 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 (10), below.
5. These shares are purchasable within 60 days of April 1, 1997 under an
outstanding stock option at an option price of $1.875 per share.
6. Of these shares, 56,506 are purchasable within 60 days of April 1, 1997
under outstanding stock options at option prices ranging from $0.49 to
$0.99 per share.
-10-
<PAGE>
7. These shares are purchasable within 60 days of April 1, 1997 under
outstanding stock options at option prices ranging from $0.49 to $0.99 per
share.
8. Of these shares, 661,838 shares are purchasable within 60 days of April 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 (10),
below. Mr. Huta resigned from the Company in May 1996.
9. This number includes 1,377,591 shares that are purchasable within 60 days
of April 1, 1997 under outstanding stock options at option prices ranging
from $0.49 to $1.875 per share.
10. The ownership of WESAC is as follows:
SHARES OF PERCENTAGE OF OUTSTANDING
NAME OF SHAREHOLDER WESAC HELD WESAC SHARES
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%
Rebecca Hemsley 50,928 0.3%
Debra Hemsley 50,929 0.3%
---------------------------------------
-11-
<PAGE>
COMPENSATION OF 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 those who served as the Company's Chief Executive Officer during 1996
and to the other most highly compensated executive officers of the Company whose
compensation exceeded $100,000 in 1996 and who were serving at the end of the
1996 fiscal year for services rendered in all capacities to the Company and its
subsidiaries.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------------------
OTHER
ANNUAL SECURITIES ALL
COM- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION BONUS PENSATION OPTIONS/SARS COMPENSA-
YEAR SALARY($) ($) ($)(2) (#) TION($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
C. STEPHEN BEAL(1) 1996 212,497 -0- -0- -0- 307(3)
President and Chief 1995 186,117 -0- 145,282 529,470 348
Executive Officer 1994 147,220 -0- 46,808 -0- 731
JAMES J. FERRIGAN 1996 158,089 -0- -0- 15,008 1,663(4)
Senior Vice President 1995 162,081 -0- -0- 175,000 3,703
of North American 1994 206,347 -0- -0- -0- 2,687
Sales & Marketing
BARRY J. SOUTHAM 1996 181,553 -0- -0- 15,525 4,696(5)
Senior Vice President 1995 154,248 -0- 39,813 200,000 4,995
of International 1994 150,136 -0- -0- -0- 3,930
Sales & Marketing
A. NOEL DEWINTER 1996 101,276 -0- -0- 59,500 1,132(6)
Vice President and 1995 120,328 -0- -0- -0- 2,231
Chief Financial Officer 1994 110,472 -0- -0- -0- 1,141
MARK L. PLAUMANN(7) 1996 * * * 50,000 --
Former President
HENRY N. HUTA(8) 1996 319,149 -0- -0- -0- 3,461(9)
Former President and 1995 263,288 377,216 170,387 882,450 3,795
Chief Executive Officer 1994 247,122 -0- -0- -0- 731
</TABLE>
- ----------------------
1. Mr. Beal was elected President and Chief Executive Officer in October 1996.
2. 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.
3. This amount consists of premiums paid on excess life insurance.
4. This amount consists of premiums paid on excess life insurance ($361) and
employer matching contributions under the Company's 401(k) Plan ($1,302).
5. 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).
-12-
<PAGE>
6. This amount consists of premiums paid on excess life insurance ($199) and
employer matching contributions under the Company's 401(k) Plan ($933).
7. From May to October, 1996, Mr. 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 of
Common Stock in August 1996. See "Option/SAR Grants Table," below.
8. Mr. Huta resigned as President and Chief Executive Officer in May 1996.
9. This amount consists of employer matching contributions under the Company's
401(k) Plan.
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
NUMBER OF OPTIONS GRANT
SECURITIES GRANTED TO DATE EXPI-
UNDERLYING EMPLOYEES IN EXERCISE MARKET RATION
NAME OPTIONS FISCAL YEAR PRICE VALUE DATE 0% 5% 10%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Stephen Beal None
James J. Ferrigan 15,008(1) 5.92% $0.49 $1.00 06/01/06 $7,654 $16,888 $30,938
Barry J. Southam 15,525(1) 6.12% $0.49 $1.00 06/01/06 $7,918 $17,469 $32,004
A. Noel DeWinter 9,500(1) 3.75% $0.49 $1.00 06/01/06 $4,845 $10,689 $19,583
50,000(2) 19.72% $0.49 $0.437 10/17/06 N/A $11,172 $32,302
Mark L. Plaumann 50,000(2) 19.72% $0.49 $0.375 08/02/96 N/A $6,041 $24,133
Henry N. Huta None
</TABLE>
- ------------------
1. These options vest in twelve approximately equal installments commencing
April 1, 1996, but no vested shares may be exercised prior to April 1,
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
-13-
<PAGE>
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 table sets 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, above.
No SARs were held during 1996 and none are now held by any of such persons. 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.
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>
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-
Mark L. Plaumann -0- 50,000 -0- -0-
Henry N. Huta 661,838 -0- -0- -0-
</TABLE>
EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS.
EMPLOYMENT AGREEMENTS. Effective as of May 5, 1995, Mr. Beal entered into an
employment agreement with the Company substantially on the terms agreed to at
the time WES Acquisition Corp. acquired an 81% stock interest in the Company and
certain Company debt from Pacific Diversified Capital Company. See "SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT," footnote (10). The initial
term of the agreement expires on May 5, 1997, but the agreement continues in
effect thereafter unless terminated by either party on sixty days' prior notice.
The agreement provides (i) that Mr. Beal is to be elected President of the
Company's Engineered Products Group at a salary of $16,700 per month; (ii) for
payment by the Company of the final installment of his relocation payments in
the amount of $124,596; and (iii) for conveyance to him of a Company membership
in a local country club. Mr. Beal 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 his Company vehicle lease expires. The agreement provides that
the Compensation Committee of the Board of Directors will establish an
appropriate bonus plan for Mr. Beal, but as of the date of this Proxy Statement,
no such plan has been established. In the event that Mr. Beal's employment is
terminated without cause, whether during the initial term or thereafter, the
Company is obliged to continue to pay
-14-
<PAGE>
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.
Mr. Huta, who resigned from the Company in May 1996, had a similar agreement
except that it provided for (i) his election as President and Chief Executive
Officer of the Company at a salary of $25,000 per month; (ii) the forgiveness of
debt owed to the Company of $147,268; and (iii) payment of a one-time bonus of
$377,316.
SEVERANCE AGREEMENTS. The Company has an agreement with each of Messrs.
Ferrigan, Southam and 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 (Messrs. Steadman,
Hemsley and Hunn) is or was an employee of the Company or any of its
subsidiaries, and 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.
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.
From May to October, 1996, Mr. 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 Wexford Acquisition Corp
("WESAC"). The Company paid WESAC a monthly management fee of $20,000 and did
not make any salary or other payments to Mr. Plaumann for his services. In
August 1996, the Company granted Mr. Plaumann a stock option to purchase 50,000
shares of Common Stock. See "Option/SAR Grants Table," above.
----------------------------------
-15-
<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
Mr. Beal's compensation in 1996 was determined according to an employment
agreement between him and the Company dated as of May 5, 1995. See "EMPLOYMENT,
SEVERANCE AND OTHER AGREEMENTS," above. Mr. Huta, who was Chief Executive
Officer of the Company for a portion of 1996, was also compensated pursuant to
an employment agreement entered into in 1995. 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
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, in general, composed of base salary,
incentive compensation and stock incentive awards.
BASE SALARIES. The base salaries of executive officers are reviewed
periodically and are designed to be competitive within the industries in which
the Company competes, subject however, to the Company's financial resources,
which in 1996 were severely limited. In addition, the Committee considers a
number of subjective criteria, including individual 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. The Company had no incentive program in effect during
1996.
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 Company and in one case, in connection with a promotion in title and
responsibilities.
THE COMPENSATION COMMITTEE: David R. A. Steadman
Maarten D. Hemsley
Paul H. Hunn
-16-
<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 periods 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>
- -----------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Wahlco Environmental Systems, Inc. 100 53.64 31.82 14.65 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) 100 107.64 118.5 120.06 165.18 203.11
- -----------------------------------------------------------------------------------------------------
</TABLE>
-17-
<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.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal intended to be presented by a stockholder at the 1998 Annual
Meeting of Stockholders, including nominations for director, must be received by
the Secretary of the Company at the Company's principal office not later than
January 6, 1998 in order to be considered for inclusion in the Company's proxy
statement and form of proxy for that meeting. Pursuant to the Company's Bylaws,
any stockholder wishing to nominate a director or bring other business to the
next annual meeting must give written notice to the Secretary of the Company not
less than 30 nor more than 60 days prior to the annual meeting; provided,
however, that if less than 40 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice must be received by
the Company not later than the 10th day following the date of such notice or
disclosure of the date of the annual meeting. The required content of this
notice is set forth in the Company's Bylaws, a copy of which may be obtained by
writing to the Secretary of the Company.
INCORPORATION OF FORM 10-K BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 is hereby incorporated into this Proxy Statement by reference thereto.
A COPY OF THE FORM 10-K WITHOUT EXHIBITS WILL BE FURNISHED TO STOCKHOLDERS FREE
OF CHARGE UPON WRITTEN REQUEST TO THE ADDRESS SET FORTH BELOW. A COPY OF ANY
EXHIBIT TO THE FORM 10-K 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:
Wahlco Environmental Systems, Inc.
Investor Relations Department
3600 West Segerstrom Avenue
Santa Ana, California 92704
May 6, 1997 By Order of the Board of Directors,
Roger M. Barzun, SECRETARY
-18-
<PAGE>
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
June 6, 1997
ANNUAL 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 May 6, 1997 in connection with the Annual Meeting of Stockholders of the
Company to be held on June 6, 1997 at 9:00 a.m. at the offices of Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830 or any
adjournment thereof; and (iii) appoints David R. A. Steadman, Mark L. Plaumann
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 1997
Annual 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:
Election of five directors (or if any nominee is not available for election,
such substitute as the Board of Directors may designate).
NOMINEES: C. Stephen Beal
Maarten D. Hemsley
Paul H. Hunn
Mark L. Plaumann
David R. A. Steadman
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]
<PAGE>
[REVERSE SIDE]
Please mark /X/
votes as in
this example
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSAL 1. ELECTION OF DIRECTORS: PROPOSAL 2. Approval of the FOR AGAINST ABSTAIN
NOMINEES: 1996 Stock Option Plan
C. Stephen Beal Maarten D. Hemsley / / / / / /
Paul H. Hunn Mark L. Plaumann
David R. A. Steadman
FOR ALL NOMINEES / / PROPOSAL 3. Approval of the FOR AGAINST ABSTAIN
issuance of a security convertible
WITHHOLD FROM ALL NOMINEES / / into in excess of 20% of the / / / / / /
outstanding common stock.
______________________________________ PROPOSAL 4. Approval of the FOR AGAINST ABSTAIN
To WITHHOLD authority for one or more issuance or reservation for
nominees, write his name on the line issuance of in excess of 20% of / / / / / /
above. the outstanding common stock.
</TABLE>
Signature(s)_____________________________________________ Date:___________
________ 1997
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.
