THERMATRIX INC, DEF 14A, 1999-09-07

THERMATRIX INC
DEF 14A, 1999-09-07
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

THERMATRIX INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

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) and 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:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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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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Notes:

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September 10, 1999

Dear Stockholder:

Enclosed are the proxy materials for the 1999 Annual Meeting
of Stockholders. I hope you will be able to join us on October
12, 1999, and take the opportunity to meet members of the team
who have contributed to the success of the Company.

In the meantime, I would urge you to carefully review all of
the proposals in the proxy statement and I solicit your support
of the Board's recommendations on these proposals.

Sincerely,

John T. Schofield
Chairman, President
and Chief Executive Officer

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THERMATRIX INC.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

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TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Thermatrix
Inc., a Delaware corporation ("the Company") will be held on Tuesday, October
12, 1999 at 10:30 A.M. at the offices of McDermott Will & Emery,
50 Rockefeller Plaza, New York, New York 10020, for the following purposes:

1. To elect two (2) Class III directors to serve for a three-year term or
until their successors are elected and qualified (Proposal 1);

2. To approve an amendment to the Company's 1996 Stock Plan to increase the
number of shares of Common Stock of the Company reserved for issuance
thereunder by 300,000 shares (Proposal 2);

3. To approve an amendment to the Company's 1996 Director Option Plan to
increase the number of shares of Common Stock of the Company reserved
thereunder by 20,000 shares (Proposal 3);

4. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved thereunder by
60,000 shares (Proposal 4);

5. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1999
(Proposal 5);

6. To transact such other business as may properly be brought before the
meeting and any adjournment(s) thereof.

Stockholders of record at the close of business on August 13, 1999 shall be
entitled to notice of and to vote at the Annual Meeting.

All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy card as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a proxy.

Sincerely,

John T. Schofield
-------------------------------------
Chairman, President
and Chief Executive Officer

San Jose, California

September 10, 1999

YOUR VOTE IS IMPORTANT

In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy card as promptly as possible and
return it in the enclosed envelope.

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THERMATRIX INC.
2025 Gateway Place, Suite 132
San Jose, California 95110

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PROXY STATEMENT

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INFORMATION CONCERNING SOLICITATION AND VOTING

General

The enclosed Proxy is solicited on behalf of the Board of Directors of
Thermatrix Inc. (the "Company") for use at the Annual Meeting of Stockholders
to be held on October 12, 1999 at 10:30 A.M. at the offices of McDermott Will
& Emery, 50 Rockefeller Plaza, New York, New York 10020, and at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Company's principal
office is located at 2025 Gateway Place, Suite 132, San Jose, California 95110
and its telephone number is (408) 453-0490. These proxy solicitation materials
were mailed on or about September 10, 1999 to all stockholders entitled to
vote at the meeting.

Record Date and Share Ownership

Stockholders of record at the close of business on August 13, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting and at any
adjournment(s) thereof. At the Record Date, 7,797,985 shares of the Company's
Common Stock, $.001 par value were issued and outstanding.

Revocability of Proxies

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Edward E. Greene) a written notice of revocation or a duly executed proxy
bearing a later date or by attending the meeting and voting in person.

Voting and Solicitation

Each share of Common Stock has one vote on all matters. The cost of this
solicitation will be borne by the Company. The Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone or facsimile.

Quorum; Abstentions; Broker Non-Votes

The Company's Bylaws provide that stockholders holding a majority of the
outstanding shares of the corporation entitled to vote on the Record Date and
represented in person or by proxy shall constitute a quorum at meetings of
stockholders for the transaction of business. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD" on a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as
"entitled to vote on the subject matter" (the "Votes Cast") at the Annual
Meeting with respect to such matter.

While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with

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respect to a particular matter (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, with the exception of the proposal
for the election of directors, abstentions will have the same effect as a vote
against the proposal. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.

In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining
the number of Votes Cast with respect to the particular proposal on which the
broker has expressly not voted. Broker non-votes with respect to proposals set
forth in this Proxy Statement will therefore not be considered Votes Cast and,
accordingly, will not affect the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.

Deadline for Receipt of Stockholder Proposals

Proposals of stockholders of the Company that are intended to be presented
at the 2000 Annual Meeting of Stockholders must be received by the Company no
later than January 10, 2000 and must otherwise be in compliance with
applicable laws and regulations in order to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all forms
that they file pursuant to Section 16(a). Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no filings were required for such persons, the Company
believes that all Section 16(a) filing requirements applicable to its
officers, directors and ten-percent stockholders were timely filed.

Stockholder Information

A copy of the Company's Annual Report on Form 10K/A, including financial
statements and schedules is enclosed with these proxy solicitation materials.
In compliance with Rule 14a-3 promulgated under the Securities Exchange Act of
1934, the Company hereby undertakes to provide without charge to each person
upon written request, a copy of the Company's Annual Report on Form 10-K,
including the financial statements and financial schedules thereto. Requests
for such copies should be directed to Thermatrix Inc., 2025 Gateway Place,
Suite 132, San Jose, California 95110, Attention: Investor Relations.

<PAGE>

PROPOSAL ONE

ELECTION OF CLASS III DIRECTORS

Nominees

The Company has a classified Board of Directors consisting of three Class I
directors (Robi Blumenstein, Joseph W. Sutton, and John T. Schofield), two
Class II directors (Charles R. Kokesh and John M. Toups) and two Class III
directors (Frank R. Pope and James M. Strock), who will serve until the annual
meetings of stockholders to be held in 2000, 2001 and 1999, respectively, or
until their respective successors are duly elected and qualified. At each
annual meeting of stockholders, directors are elected for a full term of three
years to succeed those directors whose terms expire at the annual meeting.

The terms of the two directors in Class III will expire on the date of the
upcoming annual meeting. Two persons are to be elected to Class III at the
meeting. The nominees for election by the stockholders to these two positions
are Frank R. Pope and James M. Strock, both current members of the Board of
Directors in Class III. If elected, the nominees will serve as directors until
the Company's annual meeting of stockholders in 2002, or until their
successors are elected and qualified. If any of the nominees declines to serve
or becomes unavailable for any reason, or if a vacancy occurs before the
election, the Proxies may be voted for such substitute nominees as management
may designate. The proxy holders have also been advised that in the event any
of the nominees shall not be available for election, a circumstance that is
not currently expected, they may vote for the election of substitute nominees
in accordance with their judgment.

There are no arrangements or understandings between any director or
executive officer and any other person pursuant to which he is or was to be
selected as a director or officer of the Company.

The names of the nominees and other information about members of the Board
of Directors, are set forth below:

<TABLE>
<CAPTION>
Name of Nominees Age
- ---------------- ---
<S> <C>
Frank R. Pope(1)(2).............. 49
James M. Strock(2)............... 42
</TABLE>
<TABLE>
<CAPTION>
Principal Occupation Director
-------------------- Since
--------
<S> <C>
Managing Director, Verdigris Capital 1995
Principal, Strock Enterprises
- -------- Inc. 1997
</TABLE>
(1)Member of the Audit Committee
(2)Member of the Compensation Committee

John T. Schofield (age 61). Mr. Schofield has been President and Chief
Executive Officer of the Company since April 1992, and Chairman of the Board
since December 1993. From April 1981 to September 1991, Mr. Schofield served
in various executive positions at International Technology Corporation, an
environmental management company, where he directed technical services,
business activities, strategic planning and development. Mr. Schofield holds a
B.Sc. Honours in Chemistry from the University of Manchester, England.

Robi Blumenstein (age 42). Mr. Blumenstein has been a Director of the
Company since November 1994. Mr. Blumenstein has been with CIBC Capital
Partners, the merchant banking division of the Canadian Imperial Bank of
Commerce, since January 1994, most recently as a Managing Director. Mr.
Blumenstein holds a B.A. and an LL.B. from the University of Toronto and an
M.B.A from Harvard Business School.

Charles R. Kokesh (age 51). Mr. Kokesh has been a Director of the Company
since March 1998. Mr. Kokesh is the founder and managing general partner of
Technology Funding, a professional venture capital firm

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headquartered in Silicon Valley. He has served in this capacity since 1979.
Mr. Kokesh also serves on the board of directors of Adesso Specialty Services
Inc. Mr. Kokesh received an A.B. from Harvard College, an M.B.A. from Harvard
Business School, and a J.D. from Boalt Hall School of Law, University of
California at Berkeley.

Frank R. Pope (age 49). Mr. Pope has been a Director of the Company since
1994. Mr. Pope has been the Managing Director of Verdigris Capital, an
environmental investment banking firm since October 1996. From 1981 until
October 1996, Mr. Pope was a general partner of Technology Funding, a
professional venture capital firm. Mr. Pope currently serves on the board of
directors of Medstone International, Inc. and Advanced BioCatalytics Corp.
where Mr. Pope also serves as Vice President, Corporate Development. Mr. Pope
holds a B.A. from Stanford University, an M.B.A. from the University of Santa
Clara Graduate School of Business and a J.D. from the University of Santa
Clara School of Law.

James M. Strock (age 42). Mr. Strock has been a Director of the Company
since October 1997. Since June 1997, Mr. Strock has been the Principal of
Strock Enterprises Inc., a management and public affairs consultancy based in
San Francisco. Mr. Strock served as California's first Secretary for
Environmental Protection from 1991-1997. He was chief law enforcement officer
of the U.S. Environmental Protection Agency from 1989 to 1991. Mr. Strock is a
member of the Council on Foreign Relations. He holds an A.B. and J.D. from
Harvard University.

Joseph W. Sutton (age 51). Mr. Sutton has been a Director of the Company
since September 1998. Since 1992, Mr. Sutton has been with Enron
International, the international developing markets arm of Enron Corp., most
recently as President and Chief Executive Officer. Mr. Sutton serves on the
board of directors of National Bureau of Research and the US-India Business
Council, among several others. Mr. Sutton also serves on several Enron
affiliate boards of directors throughout the world and is a member of the
Management Committee of Entrol Corp. Prior to joining Enron Mr. Sutton was a
career army officer. Mr. Sutton obtained a B.B.A. from Ohio University and
holds an M.S. and M.B.A. from Indiana and Long Island Universities.

John M. Toups (age 73). Mr. Toups has been a Director of the Company since
November 1994. From January 1978 until his retirement in February 1987, Mr.
Toups was the Chief Executive Officer of Planning Research Corporation (PRC),
an information technology services company. Mr. Toups currently serves on the
board of directors of CACI International Inc., NVR, Inc., Halifax Corporation,
Government Technology Services, Inc., and Telepad Corporation. Mr. Toups holds
a B.S. in Civil Engineering from the University of California at Berkeley.

Executive Officers of the Registrant

As of December 31, 1998, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, are as
follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John T. Schofield..... 61 Chairman, President and Chief Executive Officer
Daniel S. Tedone...... 50 Executive Vice President and Chief Financial Officer
Edward E. Greene...... 50 Vice President, Administration and Secretary
Richard J. Goodier.... 52 Director, European Engineering and Operations
</TABLE>

John T. Schofield. Mr. Schofield has been President and Chief Executive
Officer of the Company since April 1992, and Chairman of the Board since
December 1993. From April 1981 to September 1991, Mr. Schofield served in
various executive positions at International Technology Corporation, an
environmental management company, where he directed technical services,
business activities, strategic planning and development. Mr. Schofield holds a
B.Sc. Honours in Chemistry from the University of Manchester, England.

Daniel S. Tedone. Mr. Tedone joined the Company in April 1998 as Executive
Vice President and assumed responsibility for the operation of the Company's
core VOC business. In June 1998 Mr. Tedone assumed the additional
responsibilities of Chief Financial Officer. From 1992, Mr. Tedone was CEO of
Pollution Control Technologies Inc., which was acquired by TRC Companies, Inc.
in 1995 and where he served as President and CEO of TRC Process Engineering,
Inc. from 1995 until joining Thermatrix. Previously, Mr. Tedone served as
President of Vericon Corporation and held positions at Connecticut Resources
Recovery Authority and Hartford National Bank & Trust Company. Mr. Tedone
holds a Bachelor of Arts degree and an M.B.A. in Finance from the University
of Connecticut.

<PAGE>

Edward E. Greene. Mr. Greene has been Vice President, Administration of
Thermatrix Inc. since December 1998. He was appointed Secretary of the Company
in July 1998 and has been Director of Administrative Services since June 1996.
Between 1970 and 1996 Mr. Greene was a serving career Regular Army Officer.
Mr. Greene holds a Bachelor of Science degree in Economics from Gannon College
and a Master of Arts in Economics from the University of Oklahoma.

Richard J. Goodier. Mr. Goodier joined the Company as Director, European
Engineering and Operations, in February 1997 and manages the European
engineering and operations. Prior to joining Thermatrix, he held a variety of
senior management positions in Hickson International PLC, A.H. Marks & Co.
Ltd., AE&CI (South Africa), Amoco Europe and Shell Chemicals. Mr. Goodier
holds a B.Sc. Honours in Mechanical Engineering and is a Chartered Engineer
with the Institution of Mechanical Engineers in London.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten-
percent (10%) of a registered class of the Company's equity securities, to
file reports of ownership on Form 3 and changes in ownership on Form 4 and
Form 5 with the SEC. Such officers and ten-percent stockholders are also
required by the SEC rules to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, the Company believes that, during fiscal 1998, all filing
requirements pursuant to Section 16(a) were made by applicable officers,
directors and ten-percent stockholders.

Significant Employees of the Registrant

As of August 13, 1999 significant employees of the Company were:

Alexander G. Baldwin (age 46), Director of Projects, United States and Asia.
Mr. Baldwin has over twenty years industrial management experience. Since
1992, Mr. Baldwin has been employed by the Company in a variety of senior
management roles. From 1990 until joining the Company he was employed by the
Pollution Control Systems Division of International Technology Corporation as
Director of Projects. Mr. Baldwin is a certified Project Manager and has a BS
and MS from UC Berkeley in Civil Engineering.

Michael W. Bradley (age 47), Executive Director, Thermatrix Division (UK).
Mr. Bradley joined the Company in June 1999. He has over twenty five years
industrial management experience. Since 1978 he has served in varying
management roles within Kvaerner project, proposal and sales management
groups, culminating in his appointment as Operations Director for Kvaerner
Water in 1992. Mr. Bradley is a chartered engineer and holds a B. Eng.
(honors) in Chemical Engineering from Bradford University.

James Clark (age 49), Executive Vice President, Wahlco Air Systems Division.
Mr. Clark joined the Company in April 1999 and has over twenty-six (26) years
of experience with environmental firms supplying software and hardware
products and services in the industrial air pollution control field. In 1996,
he was appointed general manager of KVB, a leading worldwide provider of
industrial emissions monitoring and control systems following a variety of
marketing and operations management roles held since joining KVB in 1992.
Previously, Mr. Clark gained extensive experience from Western Precipitation,
JOY Manufacturing Company, a leading supplier of industrial air pollution
control equipment, where he held various R&D, engineering, and marketing
positions since 1972. Mr. Clark received his MBA from Loyola Marymount
University and a BSE from California State University at Long Beach.

John C. Delk (age 50), Executive Vice President, Thermatrix Diesel Systems
Division. Mr. Delk joined the Company in June 1999 and has over twenty five
years of management experience. From 1979 until joining the Company he was
employed in various management roles by Bendix Corporation. Following their
takeover by Seimens he served as Product Group Manager/Director with Seimens
Automotive Corporation and Vice President and General Manager of Seimens
Automotive Emissions Components Division. Mr. Delk holds a BS in Industrial
Engineering from the General Motors Institute and an MBA from Xavier
University.

<PAGE>

Richard J. Goodier (age 52), Executive Director Thermatrix (UK). Mr. Goodier
joined the Company in 1997 to manage the operations of the European branch. In
the more than 20 years proceeding his joining Thermatrix he has held a variety
of senior management positions at Hickson International plc, A.H. Marks & Co.
Ltd, AE&CI, Amoco Europe and Shell Chemicals. Mr. Goodier holds a B.Sc. Honors
in Mechanical Engineering and is a Chartered Engineer.

Brookman P. March (age 54), Executive Vice President Wahlco Metroflex
Division (US). Mr. March has more than twenty five years of management
experience. Prior to joining Wahlco-Metroflex in 1994, Mr. March served as the
Vice President of Operations for the IT-McGill Division of International
Technology, Inc. He has also served in various management roles for The
Standard Oil Corporation, and Foster Wheeler Corporation. Mr. March holds a BS
in Mechanical Engineering from Lafayette College.

Alex Widerman (age 46), Executive Director Treste Services Division.
Mr. Widerman has been employed by Treste since 1971. Over the past 27 years
Mr. Widerman has been involved in various types of management roles including
general manufacturing, contract management, procurement, estimating and
production control. Mr. Widerman holds an ONC in Mechanical Engineering.

David R. Wright (age 60), Executive Director Teddington Bellows Division.
Mr. Wright has over thirty five years experience in industrial management and
has been serving as a paid consultant to the Company since July 1997. From
March 1994 until July 1997 he was employed by the Company in various executive
roles in Europe. From January 1989 through November 1993 Mr. Wright served in
various executive positions at International Technology Corporation Europe,
plc and as a consultant to Waste Management International plc. Mr. Wright was
trained as an electrical controls engineer at High Wycombe College of
Technology.

Required Vote

If a quorum is present and voting, the two nominees for Class III director
receiving the highest number of votes will be elected as Class III directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present in determining if a quorum is
present but because directors are elected by a plurality vote, will have no
impact once a quorum is present. See "Information Concerning Solicitation and
Voting--Quorum; Abstentions; Broker Non-Votes."

<PAGE>

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES LISTED ABOVE

Board Meetings and Committees

The Board of Directors of the Company held a total of seven (7) meetings and
took a total of one (1) action by written consent during the fiscal year ended
December 31, 1998. No director serving during such fiscal year attended fewer
than 75% of the aggregate of all meetings of the Board of Directors and the
committees of the Board upon which such director served. The Board of
Directors has two committees, the Audit Committee and the Compensation
Committee.

The Audit Committee of the Board of Directors, which consists of Messrs.
Kokesh, Pope, and Toups, held one (1) meeting during the last fiscal year. The
Audit Committee reviews and advises the Board of Directors regarding the
Company's accounting matters and is responsible for reviewing and recommending
the engagement of the Company's independent public accountants and the
services to be performed by them, and reviewing and evaluating the accounting
principles being applied to the Company's financial reports.

The Compensation Committee of the Board of Directors, which consists of
Messrs. Blumenstein, Healer and Strock, held two (2) meetings during the last
fiscal year. The Compensation Committee establishes the overall executive
compensation strategies of the Company and approves compensation elements for
the chief executive officer, other executive officers, and employees earning
in excess of $100,000 per year.

The Compensation Committee is responsible for reviewing and approving
management recommendations regarding the granting or sale of any stock
options, stock purchase rights or shares to any employee or consultant of the
Company. The Committee may act on such recommendations or refer them to the
Board for final authorization.

The Board of Directors has no nominating committee or any committee
performing such functions.

Director Compensation

Directors are not paid any cash compensation from the Company for their
services as members of the Board or any committee thereof, although they are
reimbursed for reasonable out-of-pocket expenses incurred by them in attending
such meetings.

The Company's 1996 Director Option Plan (the "Director Plan") was adopted by
the Board of Directors in March 1996 and was approved by the stockholders in
April 1996. The Director Plan provides for the automatic and non-discretionary
grant of nonqualified stock options to purchase 6,667 shares of the Company's
Common Stock to directors who are not employed by the Company ("Outside
Directors") on the date upon which such person first becomes an Outside
Director ("Initial Option"). Thereafter, each Outside Director is
automatically granted an option to purchase 1,667 shares of Common Stock on
January 1 of each year, beginning January 1, 1997 ("Subsequent Option"),
provided he or she has served as a director for at least six months as of such
date. The exercise price of options granted under the Director Plan is 100% of
the fair market value of the Company's Common Stock on the date of grant.
Initial Options vest and become exercisable as to 12% of the shares subject to
the option six months after the date of grant and as to an additional 12% of
the shares at the end of each six-month period thereafter, provided the
optionee continues to serve as a director on such date. Subsequent Options
vest and become exercisable as to 50% of the shares subject to the Subsequent
Option six months after the date of grant and as to the remaining 50% one year
after the date of grant, provided the optionee continues to serve as a
director on such date.

On January 1, 1998, a Subsequent Option to purchase 1,667 shares of Common
Stock was automatically granted to Messrs. Blumenstein, Healer, Pope and Toups
and to Ms. Mark at an exercise price of $1.625 per share. In March 1998, Mr.
Kokesh was granted an Initial Option to purchase 6,667 shares of Common Stock
at an exercise price of $2.50 per share. In June 1998, Mr. Sutton was granted
an Initial Option to purchase 6,667 shares of Common Stock at an exercise
price of $4.375 per share. On January 1, 1999, a Subsequent Option to purchase
1,667 share of Common Stock was automatically granted to Messrs. Blumenstein,
Healer, Kokesh, Pope, Strock, Sutton and Toups at an exercise price of $3.625
per share.

<PAGE>

A total of 83,334 shares of Common Stock has been reserved for issuance
under the Director Plan. As of August 13, 1999, no shares of Common Stock had
been issued upon the exercise of options granted under the Director Plan,
options to purchase 60,006 shares of Common Stock at a weighted average
exercise price of $6.75 per share were outstanding, 35,841 options were
exercisable and 23,328 shares were available for future issuance.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Messrs. Blumenstein, Pope and Strock.
Mr. Schofield also participates in discussions regarding salaries and
incentive compensation for all employees (including officers) and consultants
to the Company, except that Mr. Schofield is excluded from discussions
regarding his own salary and incentive compensation. No director or executive
officer of the Company is a director or executive officer of any other
corporation that has a director or executive officer who is also a director or
a board committee member of the Company.

<PAGE>

PROPOSAL TWO

APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE 1996 STOCK OPTION PLAN

General

This plan is designed to attract and retain the best available personnel for
positions of significant responsibility within the Company and to provide
additional incentive to employees and consultants to promote the success of
the Company's business. If approved, the Proposal will increase the number of
shares reserved by 300,000 shares. A total of 333,334 shares have been
reserved under this Plan and as of August 13, 1999, 29,557 shares remain
available for granting. With approval of the proposed additional reserved
shares it is anticipated that sufficient shares will be available for two
years. 13,542 shares of Common Stock have been issued as a result of the
exercise of grants under this Plan. Options to purchase 290,235 shares of
common stock at a weighted average exercise price of $4.21 per share are
outstanding with 96,149 options exercisable.

Reasons For the Proposed Amendment

Each year the Company reviews the number of shares available for issuance
under this program and estimates the number of shares expected to be consumed
in operation during the following two years. The Board of Directors believes
that the shares remaining available for issuance pursuant to this program are
not sufficient to meet expected requirements over the next two years.
Accordingly, at the Annual Meeting, the stockholders are being requested to
consider and to approve the amendment of this program to increase the number
of shares of Common Stock reserved for issuance.

Summary of the 1996 Stock Option Plan

The material features of the plan are summarized below. A complete copy of
the plan is available from the Company upon request.

Administration. With respect to grants to employees who are also officers
and Directors, subject to Section 16 of the Exchange Act, the Plan is
administered by the Board of Directors in such a manner as to comply with Rule
16b-3, in that all grants or share purchases are reviewed by the Compensation
Committee, consisting of two or more non-employee Directors, prior to being
reviewed by the Board as a whole. For all other employees and consultants the
Plan is administered by the Board.

Plan Summary. The 1996 Plan provides that options and stock purchase rights
may be granted to employees and consultants to the Company. Options granted
under the 1996 Plan may be either incentive stock options or non-statutory
stock options. The Company may also grant stock purchase rights under the 1996
Plan. The Compensation Committee is responsible for reviewing and approving
management recommendations regarding the granting or sale of any stock
options, stock purchase rights or shares to any employee or consultant of the
Company. The Committee may act on such recommendations or refer them to the
Board for final authorization. The exercise price and vesting of all grants
are determined by the Board of Directors or its designee. All grants vest over
four years with initial grants vesting 25% after the first anniversary of the
grant and the remainder of the grant vesting in equal portions over the
remaining 36 months of the vesting period. Subsequent grants vest in equal
portions over the 48 month term of the vesting period. Options granted under
the 1996 Plan expire 10 years from the date of grant. The 1996 Plan will
terminate in 2006. The Board of Directors adopted a sub-plan of the 1996 Plan
for the purpose of qualifying for preferred tax treatment under UK tax laws.
The UK Inland Revenue approved the sub-plan effective January 30, 1998.

Certain Federal Income Tax Information

An optionee who is granted an incentive stock option will not recognize
taxable income either at the time of the grant or exercise, although the
exercise may subject the optionee to the alternative minimum tax. Upon the
sale or exchange of the shares more than two years after the grant of the
option and one year after the exercise, any gain or loss will be treated as a
long term capital gain or loss. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of the sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise, or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a

<PAGE>

premature disposition may apply if the optionee is subject to Section 16 of
the Exchange Act. Any gain or loss recognized on such a premature disposition
in excess of the amount treated as ordinary income will be characterized as
short-term or long- term capital gain or loss, depending on the holding
period. The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by an optionee with respect to shares acquired
upon exercise of an option.

All of the options, which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any
taxable income at the time he is granted a nonstatutory option. However, upon
its exercise, the optionee will recognize taxable income generally measured as
the excess of the then fair market value of the shares purchased over the
purchase price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company. The Company will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the
optionee. Upon disposition of such shares by the optionee, any difference
between the sales price and the optionee's purchase price, to the extent not
recognized as taxable income as described above, will be treated as long-term
or short-term capital gain or loss, depending the holding period.

The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding
period by timely filing an election pursuant to Section 83(b) of the code. In
such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock
on the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% Stockholder of the Company.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION. IT
DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE
APPLICABLE PROVISIONS OF THE TAX CODE. IN ADDITION, THIS SUMMARY DOES NOT
DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.

Required Vote

The stockholders are being asked to approve such amendment. The affirmative
vote of a majority of the outstanding shares of Common Stock will be required
to approve PROPOSAL TWO. The effect of an abstention and broker non-vote is
the same as that of a vote against the proposal. See "Information Concerning
Solicitation and Voting--Quorum; Abstentions; Broker Non-Votes."

Potential Conflict of Interest

The Board of Directors has a potential conflict of interest in recommending
this proposal because the Plan permits participation by members of the Board
who are employees or consultants of the Company. The Board does not normally
make grants to a member, except to the Ceo, who is both a member of the Board
and an employee of the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE 1996 STOCK OPTION PLAN.

<PAGE>

PROPOSAL THREE

APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE 1996 DIRECTOR OPTION PLAN

General

The Director Option Plan is designed to attract and retain the best
available personnel for service as outside Directors of the Company. If
approved, the Proposal will increase the number of shares reserved by 20,000
shares. A total of 83,334 shares had been reserved under this Plan. As of
August 13, 1999, no shares of Common Stock had been issued upon the exercise
of options granted under the Director Plan, options to purchase 60,006 shares
of Common Stock at a weighted average exercise price of $6.75 per share were
outstanding, 35,841 options were exercisable and 23,328 shares were available
for future issuance.

Reasons For the Proposed Amendment

Each year the Company reviews the number of shares available for issuance
under this program and estimates the number of shares expected to be consumed
in operation during the following two years. The Board of Directors believes
that the shares remaining available for issuance pursuant to this program is
not sufficient to meet expected requirements over the next two years.
Accordingly, at the Annual Meeting, the stockholders are being requested to
consider and to approve the amendment of this program to increase the number
of shares of Common Stock reserved for issuance.

Summary of the Directors Stock Option Plan

The material features of the plan are summarized below. A complete copy of
the plan is available from the Company upon request.

Administration. The plan is designed to be effective automatically, without
requiring administration. However, to the extent administration is required,
it is provided by the Board.

Plan Summary. The Directors Plan provides for an automatic grant to each
director of an initial option to purchase 6,667 shares of common stock ("First
Option") upon the date on which such person becomes a non-employee director,
and an additional option to purchase 1,667 shares of common stock ("Subsequent
Option") each year, if the director has served on the Company's Board of
Directors for at least six months. Options granted under the Directors Plan
expire ten years after the date of grant. Twelve and one-half percent of the
shares subject to a First Option will vest six months after its date of grant
and an additional twelve and one-half percent will vest at the end of each
six-month period thereafter. One-half of the shares subject to a Subsequent
Option will vest six months after the date of the option grant and as to the
remaining one-half, one year after the date of grant. The exercise price per
share of all options shall be equal to the fair market value of the Company's
common stock on the date of grant. The Directors Plan will terminate in 2006.

Material Federal Income Tax Information

Options granted under the Directors Plan are non-statutory options. An
optionee will not recognize any taxable income at the time of the grant of a
non-statutory stock option. However, upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the exercise price. Because the optionee
is a Director of the Company and therefore subject to Section 16 of the
Exchange Act, the date of taxation (and the date of measurement of taxable
ordinary income) may be deferred unless the optionee files an election under
Section 83(b) of the Code. Upon resale of such shares by the optionee, any
difference between the sale price and the exercise price, to the extent not
recognized as ordinary income as provided above, will be treated as a capital
gain or loss. The Company will be entitled to a tax deduction in the amount
and at the time that the optionee recognizes ordinary income with respect to
shares acquired upon exercise of an option.

<PAGE>

Required Vote

The stockholders are being asked to approve such amendment. The affirmative
vote of a majority of the outstanding shares of Common Stock will be required
to approve PROPOSAL THREE. The effect of an abstention and broker non-vote is
the same as that of a vote against the proposal. See "Information Concerning
Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes."

Potential Conflict of Interest

Participation in this plan is limited to those non-employee members of the
Board of Directors and each may benefit now, and in the future, from the
provisions of this Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE 1996 DIRECTOR OPTION PLAN.

<PAGE>

PROPOSAL FOUR

APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE EMPLOYEE STOCK PURCHASE PLAN

General

The purpose of the ESPP is to provide employees of the Company with an
opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. If approved, the Proposal will increase the number of
shares reserved by 60,000 shares. A total of 116,667 shares were initially
reserved under this Plan and at the Annual Shareholders Meeting in 1998 an
additional 100,000 shares were reserved. As of August 13, 1999, 106,412 shares
of Common stock had been issued under the ESPP at an average price of $2.32
per share and 110,255 shares remain available for purchase.

Reasons For the Proposed Amendment

Each year the Company reviews the number of shares available for issuance
under this program and estimates the number of shares expected to be consumed
in operation during the following two years. The Board of Directors believes
that the shares remaining available for issuance pursuant to this program is
not sufficient to meet expected requirements over the next two years.
Accordingly, at the Annual Meeting, the stockholders are being requested to
consider and to approve the amendment of this program to increase the number
of shares of Common Stock reserved for issuance.

Summary of the Employee Stock Purchase Plan

The material features of the plan are summarized below. A complete copy of
the plan is available from the Company upon request.

Administration. The Compensation Committee of the Board of Directors is
responsible for administering the Plan and for ensuring that management
operates the Plan in accordance with the Plan documents. All questions of
interpretation or application of the ESPP are determined by the Board or its
committee, whose decisions are final and binding upon all participants.
Members of the Board who are eligible employees are permitted to participate
in the ESPP but may not vote on any matter affecting the administration
thereof or the grant of any option pursuant thereto. No director who is
eligible to participate in the ESPP may be a member of the committee appointed
to administer it. No charges for administrative or other costs may be made
against the payroll deductions of a participant in the ESPP. Members of the
Board receive no additional compensation for their services in connection with
the administration of the ESPP.

Eligibility and Participation. Any person who is employed by the Company (or
any of its majority-owned subsidiaries) for 20 hours per week and more than
five months in a calendar year is eligible to participate in the ESPP,
provided that the employee is employed on the first day of an offering period.

Offering Dates. The ESPP is generally implemented during consecutive six-
month offering periods. The offering periods commence on May 1 and November 1
of each year.

Purchase Price. The purchase price per share at which shares will be sold
under the ESPP is the lower of 85% of the fair market value of the Common
Stock on the first day of each offering period or 85% of the fair market value
of the Common Stock on the Exercise Date.

The purchase price of the shares is accumulated by payroll deductions during
the offering period. The deductions may not exceed 15% of a participant's
eligible compensation, which is defined in the ESPP to include the regular
straight time gross salary (including authorized paid time off) in effect at
the beginning of the offering period, but excluding overtime, shift premium,
incentive compensation and payments, bonuses, commissions and other
compensation.

Withdrawal. A participant's interest in a given offering may be terminated
in whole, but not in part, by signing and delivering to the Company a notice
of withdrawal from the ESPP.

<PAGE>

Capital Changes. In the event any change is made in the Company's
capitalization, such as a stock split or stock dividend, which results in an
increase or decrease in the number of outstanding shares of Common Stock
without receipt of consideration by the Company, appropriate adjustments will
be made in the shares subject to purchase under the ESPP and in the purchase
price per share, subject to any required action by stockholders of the
Company.

Material Federal Income Tax Information

The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
sale or other disposition of the shares purchased under the ESPP. Upon such
sale or disposition, the participant will generally be subject to tax in an
amount that depends upon the holding period. If the shares are sold or
disposed of more than two years from the first day of the offering period, the
participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price or (b) an amount equal to 15% of the fair
market value of the shares as of the first day of the offering period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of this holding period,
the participant will recognize ordinary income generally measured as the
excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. The Company is not entitled to a deduction for amounts
taxed as ordinary income or capital gain to a participant except to the extent
of ordinary income recognized upon a sale or disposition of shares prior to
the expiration of the holding periods described above.

Plan Benefits

The Company cannot now determine the number of shares to be purchased in the
future by the named executive officers, all current executive officers as a
group or all employees (excluding executive officers) as a group. In the
fiscal year ended December 31, 1998, however, the following shares of Common
Stock were purchased by such persons pursuant to the ESPP:

<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
John T. Schofield....................................... 4,878
Alexander G. Baldwin.................................... 520
Edward E. Greene........................................ 1,983
Richard J. Goodier...................................... 0
Barbara E. Krimsky...................................... 8,741
Daniel S. Tedone........................................ 0
All current executive officers (6 persons).............. 16,122
All employees (excluding current executive officers).... 31,610
</TABLE>

Required Vote

The stockholders are being asked to approve such amendment. The affirmative
vote of a majority of the outstanding shares of Common Stock will be required
to approve PROPOSAL FOUR. The effect of an abstention and broker non-vote is
the same as that of a vote against the proposal. See "Information Concerning
Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes."

<PAGE>

Potential Conflict of Interest

Any member of the Board of Directors who is now, or becomes in the future, an
employee of the Company, would be eligible to participate in this Plan and
could benefit from its provisions.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE EMPLOYEE STOCK PURCHASE PLAN.

<PAGE>

PROPOSAL FIVE

RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has selected Arthur Andersen LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
December 31, 1999, and recommends that stockholders vote for ratification of
such appointment. If there is a negative vote on such ratification, the Board
of Directors will reconsider its selection. Representatives of Arthur Andersen
LLP are expected to be present at the meeting with the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.

Required Vote

The ratification of the appointment of Arthur Andersen LLP requires the
affirmative vote of a majority of the shares of the Company's Common Stock
present or represented and entitled to vote on this subject matter at the
meeting. An abstention is not an affirmative vote and, therefore, will have
the same effect as a vote against the proposal. A broker non-vote will not be
treated as entitled to vote on this subject matter at the meeting. See
"Information Concerning Solicitation and Voting-Quorum; Abstentions; Broker
Non-Votes."

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each of
the Company's executive officers named in the Summary Compensation Table
appearing herein (the "Named Executive Officers"), (ii) each director, (iii)
all of the Company's executive officers and directors as a group, and (iv)
each person (or group of affiliated persons) known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock. The Company
knows of no agreements among its stockholders that relate to voting or
investment power of its shares of Common Stock.

Named Executive Officers, Directors, and All Directors and Named Executive
Officers as a Group
<TABLE>
<CAPTION>
Beneficial Ownership(1)
------------------------
Number of Percent of
Shares Total
------------- ----------
<S> <C> <C>
John T. Schofield(2).............................. 453,614 5.58
Daniel S. Tedone(3)............................... 19,708 *
Alexander G. Baldwin(4)........................... 10,347 *
Richard J. Goodier(5)............................. 5,312 *
Edward E. Greene(6)............................... 8,200 *
Barbara E. Krimsky(7)............................. 15,444 *
Robi Blumenstein(8)(9)............................ 841,074 10.68
Charles R. Kokesh(10)(11)......................... 1,210,152 15.44
Frank R. Pope(12)................................. 96,354 1.23
James M. Strock(13)............................... 3,335 *
Joseph W. Sutton(14).............................. 2,501 *
John M. Toups(15)................................. 49,969 *
All named executive officers and directors as a
group (12 persons)(16)........................... 2,716,010 32.64
</TABLE>

5% Stockholders:
<TABLE>
<S> <C> <C>
Charles River Partnerships VI, L.P. and Charles River
Partnership VI-A, L.P. .................................... 417,939 5.36
10 Post Office Square, Suite 1330, Boston, MA 02109
CIBC WMV Inc.(8)............................................ 831,906 10.57
425 Lexington Ave., 2nd Floor, New York, NY 10017-3903
Denise Hale, George T. Cronin and Thomas M. Peterson as
Successor Co-trustees of the Prentis Cobb Hale Trust U/A
dated 7/13/93, as amended.................................. 420,863 5.40
Brobeck Phelger & Harrison L.L.P., Attn: Thomas M. Peterson
One Market Plaza, Spear Street Tower, San Francisco, CA 94105
Technology Funding Partners III, L.P. and Technology Funding
Venture Partners IV, an Aggressive Growth Fund, L.P.(10)... 1,206,817 15.41
2000 Alamada de las Pulgas, Suite 250, San Mateo, CA 94403
Newco, Vencap, Inc., and Onex Corporation(17)
240-222 Baseline Road, Suite 9B........................... 394,329 5.06
Sherwood Park, Alberta T8H 1S8, CANADA
The Venture Capital Fund of New England II, L.P. and
The Venture Capital Fund of New England III, L.P.(18)..... 639,304 8.20
160 Federal Street, 23rd Floor, Boston, MA 02110
Ventana Environmental Partnership L.P.
18881 Van Karman Ave. Tower 17, Suite 350................. 533,429 6.84
Irvine, CA 92715
Wexford Management LLC,
411 W. Putnam Ave., Greenwich, CT 06830(19)............... 450,000 5.46
</TABLE>
- --------
*Less than 1%

<PAGE>

(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Options
to purchase shares of Common Stock which are currently exercisable or
will become exercisable within 60 days of the Record Date, are deemed to
be outstanding for purposes of computing the percentage of the shares
held by an individual but are not outstanding for purposes of computing
the percentage of any other person. Except as indicated otherwise in the
footnotes below, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
(2) Includes 344,256 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(3) Includes 17,708 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(4) Includes 10,347 shares subject to stock options that are exercisable
within 60 days of August 13, 1999. Mr. Baldwin ceased being an executive
officer of the Company as of August 31, 1997 although he is still an
employee of the Company.
(5) Includes 5,312 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(6) Includes 3,875 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(7) Ms. Krimsky ceased being an executive officer of the Company as of
October 31, 1998, and left the Company effective April 30, 1999.
(8) Mr. Blumenstein is a director and officer of CIBC WMV Inc. and,
therefore, may be deemed to beneficially own the shares held by CIBC WMV
Inc. (831,906). Mr. Blumenstein disclaims beneficial ownership of the
761,906 shares. This total includes 70,000 warrants but does not include
2000 shares of Series E Preferred Stock.
(9) Includes 9,168 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(10) Mr. Kokesh is a managing general partner of Technology Funding and,
therefore, may be deemed to beneficially own the shares held by
Technology Funding Partners. Includes 62,772 shares held by Technology
Funding Partners, which pursuant to an agreement between Mr. Pope and
Technology Funding Partners, Mr. Pope is entitled to receive at such time
as Technology Funding Partners distributes the assets of the partnership
to its limited partners. See footnote (12). This total (1,206,817)
includes 35,000 warrants but does not include 1000 shares of Series E
Preferred Stock.
(11) Includes 3,335 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(12) Includes 9,168 shares subject to stock options that are exercisable
within 60 days of August 13, 1999 but does not include 62,772 shares held
by Technology Funding Partners and which Mr. Pope is entitled to receive
upon distribution. See footnote (10).
(13) All 3,885 shares are subject to stock options that are exercisable within
60 days of August 13, 1999.
(14) All 2,501 shares are subject to stock options that are exercisable within
60 days of August 13, 1999.
(15) Includes 19,169 shares subject to stock options that are exercisable
within 60 days of August 13, 1999.
(16) Includes 418,174 shares subject to stock options and warrants that are
exercisable within 60 days of August 13, 1999.
(17) Based on information provided pursuant to Schedule 13G filed with the
Securities and Exchange Commission on February 12, 1999. The Company has
become aware of the fact that all 394,329 shares have been purchased by
Landmark Secondary Partners L.P. of Simsbury, CT. Effective July 22,
1999.
(18) Includes 4,000 shares of common stock and 9,168 shares of common stock
subject to options that are exercisable within 60 days of August 13, 1999
belonging to Mr. Harry J. Healer, Jr., a former Director of the Company
and a general partner of the Venture Capital Fund of New England. Also
includes warrants to purchase 2,726 common shares.
(19) Includes 450,000 warrants exercisable for 450,000 shares of the Company's
common stock at any time prior to 5:00 p.m (EST) February 25, 2004.

<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation

The following table shows, as to the Chief Executive Officer and each of the
other five most highly compensated executive officers, information concerning
compensation awarded to, earned by or paid for services to the Company in all
capacities during the three years ended December 31, 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------- -------------
Securities
Name and Principal All Other Underlying
Position Year Salary Bonus(1) Compensation(2) Options(#)(3)
------------------ ---- -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
John T. Schofield......... 1998 $220,000 $ -- $ 5,280 150,000
Chairman, President and 1997 220,000 -- 1,636 --
Chief Executive Officer 1996 215,625 -- 3,235 33,334
Daniel S. Tedone(4)....... 1998 137,890 -- 24,909 50,000
Executive Vice President, 1997 -- -- -- --
Chief Financial Officer 1996 -- -- -- --
Alexander G. Baldwin(5)... 1998 121,250 -- 2,910 2,500
Director, Engineering and 1997 125,000 -- 952 --
Operations, US and Asia 1996 123,542 -- 900 10,000
Richard J. Goodier(6)..... 1998 138,050 -- 3,313 5,000
Director, Engineering & 1997 120,546 -- 768 5,000
Operations, Europe 1996 -- -- -- --
Edward E. Greene(7)....... 1998 95,000 -- 2,280 10,000
Vice President, 1997 -- -- -- --
Administration 1996 -- -- -- 7,000
and Secretary
Barbara E. Krimsky(8)..... 1998 125,000 -- 28,500 10,000
Vice President, 1997 120,000 -- 916 --
Administration 1996 115,625 833 11,667

</TABLE>
- --------
(1) No Bonuses were granted.
(2) "All Other Compensation" includes premiums for life insurance policies, a
non-qualified relocation payment to Mr. Tedone, and a severance payment to
Ms. Krimsky in the amount of $25,000 related to the termination of her
employment.
(3) These shares are subject to exercise under stock options granted under the
Company's stock option plans.
(4) Mr. Tedone joined the Company April 13, 1998 and, therefore, his salary
from April 13, 1998 to December 31, 1998 reflects less than a full year.
(5) Mr. Baldwin ceased being an executive officer of the Company as of August
31, 1997 although he is still an employee of the Company.
(6) Mr. Goodier is paid in pounds sterling which have been converted into U.S.
dollars at the exchange rate for the applicable fiscal year of $1.65.
(7) Mr. Greene was appointed Secretary of the Corporation on September 15,
1998 and became Vice President, Administration on December 1, 1998.
(8) Mr. Krimsky ceased being an executive officer of the Company as of October
31, 1998 and will leave the Company as of April 30, 1999.

19
<PAGE>

Stock Option Grants and Exercises

The following table shows, as to the Named Executive Officers, information
concerning stock options granted during the fiscal year ended December 31,
1998.

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term($)(1)
------------------------------------------------- ----------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Per Expiration
Name Granted(#)(2) in Fiscal Year Shares($) Date(3) 5% 10%
---- ------------- -------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John T. Schofield....... 37,500 12.36% $4.50 06/12/2008 $ 106,126 $ 268,944
37,500 12.36% 5.00 06/12/2008 87,376 250,194
37,500 12.36% 5.50 06/12/2008 68,626 231,444
37,500 12.36% 6.00 06/12/2008 49,876 212,694
Daniel S. Tedone........ 50,000 16.48% 2.63 04/14/2008 92,723 225,390
Alexander G. Baldwin.... 2,500 0.82% 4.50 06/12/2008 7,075 17,930
Richard J. Goodier...... 5,000 1.65% 1.50 01/30/2008 4,717 11,953
Edward E. Greene........ 3,000 1.00% 1.50 01/30/2008 2,830 7,172
7,000 2.31% 2.50 03/17/2008 11,006 27,890
Barbara E. Krimsky...... 10,000 3.30% 1.50 01/30/2008 9,433 23,906
</TABLE>
- --------
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten-year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission. Actual gains, if
any, on option exercises are dependent on the future performance of the
Company's Common Stock and overall market conditions.

(2) Option grants generally vest over a 48-month period. Initial grants vest
and become exercisable as to 1/48th of the shares subject to the grant
twelve months after the vesting commencement date and as to an additional
1/48th of the shares at the end of each month thereafter provided the
optionee continues to serve as an employee on such date. Subsequent grants
vest and become exercisable as to 1/48th of the shares subject to the
subsequent grant one month after the vesting commencement date and as to
an additional 1/48th of the shares at the end of each month thereafter,
provided the optionee continues to serve as an employee on such date.

(3) Options may terminate before their expiration date if the optionee's
status as an employee is terminated.

The following table shows, as to the Named Executive Officers, information
concerning stock options exercised during the fiscal year ended December 31,
1998 and the value of unexercised options at such date.

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options/SARs at December 31, 1998
December 31, 1998(#) ($)(1)
--------------- ------------ ---------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
John T. Schofield....... -- -- 278,005/164,584 $647,022/20,834
Daniel S. Tedone........ -- -- 0/50,000 0/50,000
Alexander G. Baldwin.... 5,833 $15,276 8,855/5,728 7,318/3,463
Richard J. Goodier...... -- -- 3,438/6,562 2,435/8,190
Edward E. Greene........ -- -- 2,001/7,999 2,939/11,311
Barbara E. Krimsky...... -- -- 36,668/0 70,420/0
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock at December
31, 1998 of $3.625 per share, less the exercise price to be paid for such
shares.

20
<PAGE>

Employment Agreements

The Company has no employment contracts with any of its officers and has no
compensatory plan or arrangement which is activated upon resignation,
termination or retirement of any such officer upon a change in control of the
Company other than required by law. Under certain circumstances both the 1996
Stock Plan and the Director Plan provide for the accelerated vesting of all
outstanding options upon a change in control.

Other Employee Benefit Plans

1987 Incentive Stock Plan

The Company's 1987 Incentive Stock Plan, as amended (the "1987 Stock Plan")
was adopted by the Board of Directors in August 1987 and approved by the
stockholders in February 1988. The 1987 Stock Plan provided for grants of
incentive stock options to employees (including officers and employee
directors) and non-statutory stock options to non-employees (including non-
employee directors) and consultants of the Company. A total of 907,651 shares
of Common Stock was reserved for issuance under the 1987 Stock Plan. As of
August 13, 1999, 374,556, shares of Common Stock had been issued upon the
exercise of options granted under the 1987 Stock Plan and options to purchase
372,935 shares of Common Stock at a weighted average exercise price of $1.47
per share were outstanding. The Plan terminated in 1997 and no further options
will be granted under the 1987 Stock Plan. Options under the 1987 Stock Plan
become exercisable at varying rates over vesting periods determined by the
Board of Directors (generally one to ten years), and as of August 13, 1999,
339,380 options were exercisable.

1996 Stock Plan

The Company's 1996 Stock Plan (the "1996 Plan") was adopted by the Board of
Directors in March 1996 and approved by the stockholders in April 1996. The
Board of Directors adopted a sub-plan of the 1996 Plan for the purpose of
qualifying for preferred tax treatment under UK tax laws. The UK Inland
Revenue approved the sub-plan effective January 30, 1998. A total of 333,334
shares of Common Stock has been reserved for issuance under the 1996 Plan. As
of August 13, 1999, 13,542 shares of Common Stock had been issued upon the
exercise of options granted under the 1996 Plan, options to purchase 290,235
shares of Common Stock at a weighted average exercise price of $4.21 per share
were outstanding, 96,149 options were exercisable and 29,557 shares were
available for issuance.

401(k) Savings Plan

The Company maintains the Thermatrix Inc. 401(k) Plan, a defined
contribution retirement plan with a cash or deferred arrangement as described
in Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k)
Plan is intended to be qualified under Section 401(a) of the Code. All
employees of the Company are eligible to participate in the 401(k) Plan. The
401(k) Plan provides that each participant make elective contributions of a
percentage of his or her compensation, subject to statutory limits.

REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Exchange Act of 1933, as amended, or the
Securities Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph on page 26 shall not be incorporated by reference into
any such filings.

<PAGE>

General

The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the chief executive officer, other
executive officers, and employees earning in excess of $100,000 per year. The
Committee also recommends stock option awards for employees to the Board. The
Committee is comprised of three of the independent, non-employee members of
the Board of Directors, none of whom have interlocking relationships as
defined by the Securities and Exchange Commission. The Committee has available
to it such external compensation advice and data as the Committee deems
appropriate to obtain.

The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is tailored to the
Company's accomplishment of business strategies, objectives and initiatives.
Accordingly, the Committee follows a compensation strategy which utilizes
vesting terms to incentivize and reward executives as the Company addresses
the challenges associated with growth. As the Committee applies this
compensation philosophy in determining appropriate executive compensation
levels and other compensation factors, the Committee reaches its decisions
with a view towards the Company's overall financial performance. The Committee
strives to structure each officer's overall compensation package to enable the
Company to attract, retain and reward personnel who contribute to the success
of the Company.

Executive Officer Compensation

The Committee's executive compensation policies are designed to enhance the
financial performance of the Company and thus stockholder value, by aligning
the financial interests of the key executives with those of the stockholders.
The executive compensation program is viewed in total considering all of its
component parts: an annual compensation component, which consists of base
salaries that are generally competitive with those offered by other companies
in the industry at similar phases of growth, and a long-term incentive
component, which consists of stock options and stock ownership. In determining
individual salaries, the Committee considers the individual experience,
performance and breadth of responsibilities of each executive officer within
the Company in light of the accomplishment of business strategies, objectives
and initiatives set forth by the Board periodically. These factors are
reviewed for each executive officer annually.

The Company's 1996 Stock Plan and the ESPP are long-term incentive plans for
all employees. These plans are intended to align stockholder and employee
interest by creating a direct link between long-term rewards and the value of
the Company's shares. The Committee believes that long-term stock ownership by
executive officers and all employees is an important factor in achieving both
above average growth in share value and retaining valued employees. Since the
value of an option bears a direct relationship to the Company's stock price,
the Committee believes that options motivate executive officers to manage the
Company in a manner which will benefit all stockholders.

The Option Plans authorize the Committee to award available stock options to
employees at any time. Options for executive officers are generally granted at
the time of initial employment with the Company, and at later dates at the
discretion of the Committee. The size of the initial and later grants are
determined by a number of factors including comparable grants to executive
officers and employees by other companies which compete in the Company's
industry. The exercise price per share of the stock options is normally equal
to the prevailing market value of a share of the Company's Common Stock on the
date the options are granted.

The Company has adopted certain broad-based employee benefit plans in which
all employees, including the executive officers, are permitted to participate
on the same terms and conditions relating to eligibility and generally subject
to the same limitations on the amounts that may be contributed or the benefits
payable under those plans. See "Other Employee Benefit Plans--401(k) Savings
Plan."

<PAGE>

CEO Compensation

Compensation for the Chief Executive Officer aligns with the philosophies
and practices described above for executive officers in general. Mr.
Schofield's base salary was increased to $220,000 from $205,000 in April 1996.
Mr. Schofield received no salary increase in 1998. Mr. Schofield received
option grants totaling 150,000 shares on June 12, 1998. This was the first
grant of options to Mr. Schofield since January 1996. The Company currently
does not have a bonus plan for its Chief Executive Officer or any of its other
executive officers.

COMPENSATION COMMITTEE
Robi Blumenstein
Frank R. Pope
James M. Strock

<PAGE>

COMPANY STOCK PRICE PERFORMANCE

The following graph demonstrates a comparison of cumulative total
stockholder returns, calculated on a dividend reinvestment basis and based
upon an initial investment of $100 in the Company's Common Stock as compared
with the Russell 2000 Index and the Dow Jones Industrial Technology Index. No
dividends have been declared or paid on the Company's Common Stock during such
period. The stock price performance shown on the graph below is not
necessarily indicative of future price performance. The Company's Common Stock
began trading on the NASDAQ National Market on June 20, 1996. The graph
reflects the Company's stock price performance from the initial public
offering through the end of fiscal 1998.

COMPARISON OF 30 MONTH CUMULATIVE TOTAL RETURN*
AMONG THERMATRIX INC., THE RUSSELL 2000
INDEX AND THE DOW JONES INDUSTRIAL TECHNOLOGY INDEX

[GRAPH APPEARS HERE]

Cumulative Total Return

- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
6/20/96 6/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
------- ---- ---- ----- ---- ---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thermatrix Inc.......... 100 102 67 72 44 24 15 13 21 32 21 29
Russell 2000............ 100 96 96 101 96 112 128 124 136 133 106 123
Dow Jones Industrial
Technology............. 100 92 96 93 89 99 112 99 98 87 73 90
</TABLE>

24
<PAGE>

$6 Million Convertible Redeemable Preferred Stock, Series E

On June 30, 1999 the Company closed a private placement of 6,000 shares of
Series E 8% Convertible Preferred Stock (the "Series E Stock") at a purchase
price of $1,000 per share in the aggregate amount of $6,000,000. The two
largest existing shareholders of the Company's common stock combined to
purchase $3 million of the Series E Stock and a single new investor purchased
the remainder (the "Investors"). The Series E Stock is convertible into common
stock of the Company on certain terms and at a conversion price to be
determined at the time of conversion in accordance with the Company's
Certificate of Designation. The issuance of the Series E Stock was made
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended, provided by Section 4(2) thereof. On July 9, 1999,
the 10-day notification period to shareholders was completed and the Company
received net proceeds of approximately $5.6 million after costs of issuance
totaling approximately $400,000.

Under the Certificate of Designation, at the option of an Investor, the
Series E Stock is convertible into shares of the common stock of the Company
based upon a conversion price of $5.00 per share, or if lower, 85% of the
arithmetic mean of the 15 lowest closing bid prices during the 30 trading days
preceding such date of conversion. Fifty percent of the Series E Stock may be
converted after November 27, 1999 and any remaining Series E Stock may be
converted after January 26, 2000. On June 30, 2002 the Series E Stock will
automatically convert into shares of common stock based upon a conversion
price of the lesser of $5.00 or 85% of the market price, as defined. The
Company has the right to redeem the Series E Stock at any time for 130% of the
original purchase price together with any accrued and unpaid dividends. The
Series E Stock bears a dividend of 8% payable in cash or stock at the option
of the Company. Under the Common Stock Purchase Warrant dated June 30, 1999
between the Company and each of the Investors, the Company issued warrants to
purchase common stock equivalent to 35,000 shares of common stock per $1
million of Series E Stock purchased (the "Warrants"). The Warrants may be
exercised at $5.31 per share prior to June 30, 2002.

<PAGE>

Additional Financial Information

The following additional financial information, with the accompanying notes,
is provided to supplement and update the financial information provided in the
Company's Form 10K/A for the year ending December 31, 1998:

. Pro Forma (Unaudited) Condensed Combined Balance Sheet of Thermatrix
Inc. and Wahlco Environmental Systems, Inc. as of December 31, 1998

. Pro Forma (Unaudited) Condensed Combined Statement of Income of
Thermatrix Inc. and Wahlco Environmental Systems, Inc. as of December
31, 1998

. Condensed Consolidated Balance Sheet (Unaudited) of Thermatrix Inc. for
the six months ended June 30, 1999.

. Condensed Consolidated Statement of Operations (Unaudited) of Thermatrix
Inc. for the six months ended June 30, 1999.

. Condensed Consolidated Statement of Cash Flows (Unaudited) of Thermatrix
Inc. for the six months ended June 30, 1999.

<PAGE>

THERMATRIX INC. AND WAHLCO ENVIRONMENTAL SYSTEM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THERMATRIX WAHLCO ADJUSTMENTS COMBINED
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents...... $ 3,214 $ 491 $ (2,232)(a) $ 1,473
Accounts receivable, net....... 4,668 7,430 (681)(b) 11,417
Cost of uncompleted contracts.. 1,033 1,033
Inventories.................... 2,835 2,835
Prepaid expenses and other
current assets................ 232 553 785
-------- --------- --------- --------
Total current assets.......... 8,114 12,342 (2,913) 17,543
-------- --------- --------- --------
Property and equipment, net..... 572 6,368 6,940
Goodwill........................ 9,985 (c) 9,985
Patents and other intangible
assets......................... 1,406 250 250
Other assets.................... 285 1,691
-------- --------- --------- --------
Total other assets.............. 1,978 6,903 9,985 18,866
-------- --------- --------- --------
Total Assets.................... $ 10,092 $ 19,245 $ 7,072 $ 36,409
======== ========= ========= ========
Current liabilities:
Notes payable.................. $ 3,949 $ 3,949
Accounts payable and accrued
liabilities................... $ 4,881 5,185 10,066
Accrued payroll and payroll-
related expenses.............. 970 970
Billings on uncompleted
contracts..................... 409 1,287 1,696
Income taxes payable........... 49 286 335
Current portion of long-term
debt.......................... 301 301
Other accrued liabilities...... 507 6,160 $ 4,040 (d) 10,707
-------- --------- --------- --------
Total current liabilities..... 5,837 18,138 4,040 28,024
-------- --------- --------- --------
Long-term debt.................. 187 187
Other liabilities............... 3,952 3,952
--------- --------
Total long-term liabilities... 4,139 4,139
--------- --------
Stockholders' equity

Common stock and additional
paid-in capital............... 48,803 105,264 (105,264)(e) 48,803
Retained earnings (accumulated
deficit)...................... (44,576) (109,804) 109,804 (e) (44,576)
Revaluation reserve............ 1,662 (1,662)(e) 0
Foreign currency translation
adjustment.................... 19 (154) 154 (e) 19
-------- --------- --------- --------
Total stockholders' equity.... 4,246 (3,032) 3,032 4,246
-------- --------- --------- --------
Total Liabilities and
stockholders' equity........... $ 10,092 $ 19,245 $ 7,072 $ 36,409
======== ========= ========= ========
</TABLE>

See accompanying notes to unaudited pro forma condensed combined financials.

<PAGE>

THERMATRIX INC. AND WAHLCO ENVIRONMENTAL SYSTEM, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THERMATRIX WAHLCO ADJUSTMENTS COMBINED
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $13,614 $ 37,366 $ 50,980
Cost of revenues................. 13,056 31,617 44,673
------- -------- --------
Gross margin................... 558 5,749 6,307

Expenses Research and
Development..................... 1,658 1,658
Sales, general and
administrative................ 7,108 17,151 24,259
Amortization of Goodwill $ 499 (c) 499
------- -------- ------ --------

Loss from operations............. (8,208) (11,402) (499) (20,109)
Other income, net................ 401 (1,300) (102)(f) (1,001)
------- -------- ------ --------
Income (loss) before Income
Taxes........................... (7,807) (12,702) (601) (21,110)
Provision (credit) for Income
Taxes........................... 66 66
------- -------- ------ --------

Net loss......................... $(7,873) $(12,702) $(601) $(21,176)
======= ======== ====== ========

Basic and diluted net loss per
share........................... $ (1.03) $ (2.76)
Basic and diluted weighted
average common shares And
equivalents..................... 7,677 7,677
======= ========
</TABLE>

See accompanying notes to unaudited pro forma condensed combined financials.

28
<PAGE>

ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIALS

Certain pro forma adjustments have been made to the accompanying pro forma
condensed combined consolidated balance sheet and statements of operations as
described below.

(a) Reflects the purchase price that was paid with cash of approximately
$1.9 million and other acquisition related expenditures.

(b) Reflects increased allowances for doubtful accounts for acquired
receivables.

(d) Reflects estimated exit and involuntary employee termination costs
associated with the Merger.

(e) Reflects the elimination of Wahlco's stockholders' equity accounts.

(f) Reflects the incremental interest relating to Wexford's payoff of
Wahlco's borrowings from Chase Manhattan Bank ("Chase") under a credit
facility in connection with the Merger. The debt assumed due to Wexford
bears annual interest at 13% compared to the Chase rate of 9.5%.
Average borrowings for the year ended December 31, 1998 amounted to
$2,900,000.

<PAGE>

THERMATRIX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash, short-term investments and restricted cash...... $ 6,780 $ 3,214
Accounts receivable, net.............................. 10,759 4,668
Costs of uncompleted contracts, net................... 442 --
Inventories........................................... 2,209 --
Prepaid expenses and other current assets............. 1,592 232
-------- --------
Total current assets................................. 21,782 8,114
PROPERTY AND EQUIPMENT, net........................... 5,662 572
GOODWILL, net......................................... 9,739 --
PATENTS and Other Assets, net......................... 1,641 1,406
-------- --------
TOTAL ASSETS........................................... $ 38,824 $ 10,092
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable......................................... $ 5,721 $ --
Current Portion of Long Term Debt..................... 295 --
Accounts Payable...................................... 13,223 4,881
Accrued Payroll & Related Expenses.................... 704 --
Accrued Liabilities and Reserves...................... 10,598 965
-------- --------
Total current liabilities............................ 30,541 5,846
LONG TERM LIABILITIES
Other Liabilities..................................... 1,820 --
-------- --------
TOTAL LONG-TERM LIABILITIES........................... 1,820 --

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value........................ 8 8
Series "E" convertible preferred, .001 par value...... -- --
Additional paid-in capital............................ 54,776 48,795
Accumulated Deficit................................... (47,604) (44,576)
Other Accumulated Comprehensive (Loss) Income......... (717) 19
-------- --------
Total stockholders' equity............................ 6,463 4,246
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY................ $ 38,824 $ 10,092
======== ========
</TABLE>

See notes to condensed consolidated financial statements.

30
<PAGE>

THERMATRIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars except for per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1999 1998 1999 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
REVENUES................................... $ 9,964 $ 2,796 $20,865 $5,678
COST OF REVENUES........................... 7,802 2,620 17,234 5,147
------- ------- ------- ------
Gross margin.............................. 2,162 176 3,631 531

OPERATING EXPENSES
Research and development.................. 189 407 400 662
Selling, general and administrative....... 3,131 1,436 6,518 2,866
------- ------- ------- ------
Total operating expenses................. 3,320 1,843 6,918 3,528
------- ------- ------- ------
Loss from operations..................... (1,158) (1,667) (3,287) 2,997

OTHER INCOME
Interest income (expense), net............ (295) 105 (336) 210
Other income (expense), net............... 349 42 612 42
------- ------- ------- ------
Total other income....................... 54 147 276 252
------- ------- ------- ------
Net loss before income taxes............. (1,104) (1,520) (3,011) 2,745

PROVISION FOR INCOME TAXES................. (18) (17) (17) (33)
------- ------- ------- ------
Net loss.................................. $(1,122) $(1,537) $(3,028) $2,778
======= ======= ======= ======

BASIC NET LOSS PER SHARE................... $ (0.15) $ (0.20) $ (0.39) $(0.36)
======= ======= ======= ======

BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................... 7,737 7,671 7,725 7,653
======= ======= ======= ======
</TABLE>

See notes to condensed consolidated financial statements.

31
<PAGE>

THERMATRIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)

<TABLE>
<CAPTION>
Six Months Ended
------------------
June 30, June 30,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $ (3,028) $(2,778)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 13,916 379
Provision for doubtful accounts........................... 1,095 129
Changes in assets and liabilities net of effects from
purchase of Wahlco Environmental Systems, Inc.:
(Increase) decrease in accounts receivable................ (437) (900)
(Increase) decrease in costs of uncompleted contracts..... 591 197
(Increase) decrease in inventory.......................... 626 --
(Increase) decrease in prepaid expenses and other......... (522) 28
(Increase) decrease in goodwill........................... -- --
Increase (decrease) in accounts payable................... (8,300) 1,360
Increase (decrease) in accrued liabilities................ 9,410 (49)
Increase (decrease) in billings on uncompleted contracts
in excess of costs....................................... (913) 253
-------- -------
Net cash provided by (used in) operating activities...... 12,438 (1,381)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of short-term investments............................ 1,670 1,962
Purchases of property and equipment....................... (12,094) (65)
Increase in patents and other assets...................... (283) (162)
Purchase of Wahlco Environmental Systems, Inc. net of cash
acquired................................................. (1,740) --
-------- -------
Net cash provided by (used) in investing activities...... (12,447) 1,735
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock..................... 389 105
Proceeds from issuance of preferred stock.................. 5,592 --
-------- -------
Net cash provided by financing activities................ 5,981 105
-------- -------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS.............. 5,972 459
-------- -------
CUMULATIVE EFFECT OF FOREIGN EXCHANGE RATES ON CASH......... (736) 10
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 1,544 3,990
-------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD..................... $ 6,780 $ 4,459
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)...................... 213 10
Income taxes.............................................. 40 42
</TABLE>

See notes to condensed consolidated financial statements.

<PAGE>

THERMATRIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The condensed
consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary to state fairly the results
for the three months and six months ended June 30, 1999 and 1998. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The results for the three
months and six months ended June 30, 1999 are not necessarily indicative of
the results expected for the full fiscal year.

In addition, the Company currently intends to finance its ongoing operations
and strategic growth plan by raising a combination of up to $27 million in
equity and debt during fiscal 1999. The Company has engaged an investment
advisory firm on an exclusive basis to assist with the placement of up to $15
million in equity and is in the due diligence process with two credit
institutions concerning the placement of a senior term and revolving credit
facility of up to $12 million. This financing is also intended to pay the
outstanding debt pursuant to the terms of the 1999 Credit Agreement. The debt
matures on August 24, 1999, and may, with the payment of an additional fee of
$100,000, be extended until November 22, 1999. The Company's financing is
dependent upon the ability to attract additional equity investors and to
provide sufficient security for credit facilities. There can be no assurances
as to the timing or ultimate outcome of this financing.

The Company is also pursuing other alternatives to fund its remaining fiscal
1999 cash requirements. Such alternatives include, among other things,
consideration of divestiture of a portion or portions of the Company's
business or real estate assets. These strategies are dependent upon the
Company's ability to meet its forecasts, to develop increased sales and
generate positive gross margins, to achieve the timely collection of amounts
due to the Company and to identify parties willing and able to purchase a
portion or portions of the Company's business. There can be no assurances as
to the timing or ultimate outcome of any of these alternatives. The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
ability to continue as a going concern is dependent upon completing the
contemplated equity and debt transactions in fiscal 1999. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

2. BASIC NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. No diluted loss per share information has
been presented in the accompanying statements of operations since potential
common shares from conversion of stock options and warrants are antidilutive.

33
<PAGE>

3. COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
(SFAS 130), "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. The following table reconciles comprehensive income under the
provisions of SFAS 130 for the three months and six months ended June 30, 1999
and 1998.

<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
($000)
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net Loss................................................ $(1,122) $(1,537)
Other Comprehensive Income (Loss), net of tax Unrealized
Currency Gain (Loss)................................... $ (93) $ (7)
Comprehensive Income (Loss)............................. $(1,215) $(1,544)
</TABLE>

<TABLE>
<CAPTION>
For the
Six Months Ended
June 30,
($000)
------------------
1999 1998
-------- --------
<S> <C> <C>
Net Loss.................................................. $(3,028) $(2,778)
Other Comprehensive Income (Loss), net of tax Unrealized
Currency Gain (Loss)..................................... $ (717) $ 13
Comprehensive Income (Loss)............................... $(3,745) $(2,765)
</TABLE>

4. NONCASH INVESTING AND FINANCING ACTIVITIES

The Company purchased all of the capital stock of Wahlco Environmental
Systems, Inc. for $2,231,000. In conjunction with the acquisition, liabilities
were assumed as follows:

<TABLE>
<S> <C>
Fair value of assets acquired................................... $28,549,000
Purchase of capital stock....................................... 2,231,000
-----------
Liabilities assumed............................................. $26,318,000
===========
</TABLE>

The purchase price is composed of $1,582,000 paid at closing for the
acquisition of the capital stock, $350,000 paid at closing for fees and
expenses related to the acquisition, and $299,000 for other expenses related
to the transaction.

Cash acquired in the acquisition was $491,000.

Reconciliation of amounts paid and the debt assumed to the total purchase
price is as follows:

<TABLE>
<S> <C>
Current assets.................................................. $11,661,000
Property, plant and equipment................................... 6,368,000
Other assets.................................................... 535,000
Goodwill........................................................ 9,985,000
-----------
$28,549,000
-----------
Current liabilities............................................. $22,179,000
Long-term liabilities........................................... 4,139,000
-----------
$26,318,000
-----------
Purchase price.................................................. $ 2,231,000
===========
</TABLE>

34
<PAGE>

5. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheets as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Statement 133 is effective for fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does
not expect the adoption of Statement 133 to have a material effect on the its
financial position or results of operations.

6. ACQUISITION OF WAHLCO ENVIRONMENTAL SYSTEMS, INC.

On January 13, 1999, the Company completed the acquisition of Wahlco
Environmental Systems, Inc. ("Wahlco"). Wahlco designs, manufactures, and
sells combined cycle gas turbine products, metallic and fabric bellows, air
pollution control equipment, and related products and services to electric
utilities, independent power producers, co-generation plants, and industrial
manufacturers worldwide. The Company acquired all of the outstanding common
shares and warrants of Wahlco for the payment of approximately $1.9 million in
cash. If certain other conditions are met, the Company will be required to
make additional payments of up to approximately $2.0 million to Wahlco
shareholders. As of June 30, 1999, the conditions related to the additional
payments have not been met. Also, in conjunction with the acquisition, the
Company agreed to guarantee repayment by Wahlco of approximately $4.6 million
of debt owed to affiliates of Wexford Management, LLC ("Wexford"), Wahlco's
largest shareholder at the time of the acquisition, or guaranteed by Wexford
to other parties. The Company had subsequently entered into a new credit
agreement with Wexford (See Note 8). The acquisition was accounted for as a
purchase and the results of Wahlco have been included in the accompanying
condensed financial statements from the date of acquisition. As of the
acquisition date, the Company has embarked on the formulation and
implementation of a plan to close duplicate and/or inefficient Wahlco
facilities and is reducing headcount accordingly. The costs involved to close
facilities and terminate employees have been recognized as liabilities assumed
at the time of the Wahlco acquisition. The types and amounts of exit
liabilities included in the purchase price recorded in connection with the
acquisition are:

<TABLE>
<S> <C>
Personnel Terminations and Relocations........................... $1,996,000
Facility Closures and Relocations................................ 1,720,000
Company Closures................................................. 324,000
----------
Total............................................................ $4,040,000
==========
</TABLE>

As of June 30, 1999, a total amount of $626,347 has been charged against the
foregoing liabilities. At the present time the Company does not believe that
there are any unresolved issues that may result in additional liabilities
leading to an adjustment of the purchase price.

The allocation of the purchase price to the net assets acquired is
preliminary based on management's estimate of fair value. Any changes in the
allocation of purchase price will have an effect on the amount of goodwill
that has been initially recorded. The amount of goodwill recorded on the
preliminary allocation of purchase price is $9,985,000, which will be
amortized on a straight-line basis over a 20-year period.

The Company is providing the following unaudited pro forma operating data as
if the acquisition occurred on January 1, 1998. The pro forma information for
the three months and six months ended June 30, 1999 is not provided as the
results of Wahlco for the period from January 1, 1999 to January 13, 1999 are
not material to results of operations for the three months and six months
ended June 30, 1999.

The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transaction and
adjustment reflected therein had been consummated in the period

35
<PAGE>

presented, or at any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash
flows for future periods.

<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, 1998 June 30, 1998
---------------------------- ----------------------------
($000 except per share data) ($000 except per share data)
<S> <C> <C>
Revenue................. $13,120 $25,218
Net Loss................ $(2,293) $(4,953)
Basic Net Loss Per
Share.................. $ (0.30) $ (0.65)
</TABLE>

7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information regarding quantitative and qualitative disclosures about market
risks is included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 in Item 1-Description of Business, Item 7-Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
in Note 2 to the Consolidated Financial Statements. Information regarding
quantitative and qualitative disclosures about market risks is also included
in Management's Discussion and Analysis of Financial Condition and Results of
Operations contained herein.

8. SEGMENTS

During 1998, the Company adopted Statement of Financial Accounting Standards
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS 131 requires a new basis of determining reportable business
segments, i.e. the management approach. This approach requires that business
segment information used by management to assess performance and manage
company resources be the source for information disclosure. Although the
Company is currently being organized operationally into eight divisions, at
the present time management is reviewing financial information on a geographic
basis. The Company incurred approximately $189,000 and $400,000, respectively,
in research and development expenses during the three months and six months
ended June 30, 1999 relating to its diesel engine emission reduction
technology.

The Company's operations by geographic area are as follows:

<TABLE>
<CAPTION>
For the three months ended United United Adjustments &
June 30, 1999 States Kingdom Eliminations Consolidated
------------------------------- -------- ------- ------------- ------------
($000)
<S> <C> <C> <C> <C>
Revenues........................ $ 4,266 $ 5,698 $ 9,964
Gain (Loss) from Operations..... $ 269 $(1,427) $ 1,158
<CAPTION>
For the six months ended United United Adjustments &
June 30, 1999 States Kingdom Eliminations Consolidated
----------------------------- -------- ------- ------------- ------------
($000)
<S> <C> <C> <C> <C>
Revenues........................ $ 10,024 $10,841 $20,865
Loss from Operations............ $ (2,899) $ (388) $(3,287)
Total Identifiable Assets....... $132,187 $ 6,456 $(99,794) $38,849
</TABLE>

9. 1999 CREDIT AGREEMENT

On February 25, 1999 the Company entered into the Second Amended and
Restated Credit Agreement among Wahlco and the Company, as Borrowers, and the
Lenders and Wexford as Agent for the Lenders (the "1999 Credit Agreement"). As
of June 30, 1999, the debt outstanding was $5.7 million and bears interest at
the rate of 13% per annum, payable monthly in advance. The debt matures on
August 24, 1999, and may, with the payment of an additional fee of $100,000,
be extended until November 22, 1999. As a further condition to the Lenders'
execution and delivery of the 1999 Credit Agreement, the Company agreed to
confirm its grant to the Lenders of a security interest in all existing and
future assets and to cause all its significant subsidiaries to enter into
guarantees and grant to the Lenders additional security interests and
mortgages in all existing and future assets of the Borrowers and significant
subsidiaries.

36
<PAGE>

As a further condition to the 1999 Credit Agreement, the Company issued to
Wexford a warrant to acquire 450,000 shares of common stock. The warrants can
be exercised at any time on or before February 25, 2004 at an exercise price
of $3.05 per share. The fair value of the warrant at the date of issuance was
recorded as additional interest cost and this amount is being recognized as
interest expense over the period that the Wexford debt is outstanding.

10. ACQUISITION OF FERGUSON INTERNATIONAL, INC.

Pursuant to an Asset Purchase Agreement dated April 30, 1999 between
InAmerica Corporation and the Company, the Company acquired the assets of
Ferguson International Inc., a supplier of ammonia storage and handling
systems used by power companies to reduce emissions of NOx, a major
contributor to smog formation. The Company accounted for the acquisition of
the Ferguson business as a purchase and the results of the Ferguson business
are included in the accompanying condensed financial statements from the date
of acquisition. The Ferguson business was combined with and is operating as
part of the Wahlco Air Systems Division in Santa Ana, California. In full
consideration for the transfer of the assets, the Company will pay InAmerica
Corporation a royalty of 4% of the aggregate net invoice value of gross sales
until the earlier of (i) 5 years from the closing date, or (ii) InAmerica
Corporation has received $5 million in aggregate royalty payments. Given that
no consideration was exchanged or liabilities assumed in connection with this
acquisition, the only accounting for this acquisition will be the recognition
of royalty expense as incurred.

11. ISSUANCE OF CONVERTIBLE PREFERRED STOCK, SERIES E

37
<PAGE>

OTHER MATTERS

The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent
as the Board of Directors may recommend.

THE BOARD OF DIRECTORS

Dated: September 10, 1999

<PAGE>

1535-PS-99

<PAGE>

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THERMATRIX INC.

1999 ANNUAL MEETING OF STOCKHOLDERS

October 12, 1999

The undersigned stockholder of Thermatrix Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated September 10, 1999, and hereby appoints John T. Schofield
and Daniel S. Tedone, or either of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of Thermatrix Inc., to be held on October 12, 1999, at 10:30 a.m.,
at the offices of McDermott Will & Emery, 50 Rockefeller Plaza, New York, New
York 10020, and at any adjournment(s) thereof and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below:

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE AMENDMENT TO THE
1996 STOCK PLAN, FOR THE APPROVAL OF THE AMENDMENT TO THE 1996 DIRECTOR OPTION
PLAN AND FOR THE APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
AND FOR RATIFICATION OF THE APPOINTMENT OF THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.

- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------

<PAGE>

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THERMATRIX INC.

1999 ANNUAL MEETING OF STOCKHOLDERS
October 12, 1999

1. ELECTION OF CLASS III DIRECTORS:

Nominees: Frank R. Pope and James M. Strock

FOR WITHHELD
BOTH FROM BOTH
NOMINEES [_] [_] NOMINEES

[_]
---------------------------------------
For all nominees except as noted above

2. PROPOSAL TO AMEND THE 1996 STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK OF THE COMPANY RESERVED FOR ISSUANCE THEREUNDER BY 300,000:

[_] FOR [_] AGAINST [_] ABSTAIN

3. PROPOSAL TO AMEND THE 1996 DIRECTOR OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK OF THE COMPANY RESERVED FOR ISSUANCE THEREUNDER BY
20,000:

[_] FOR [_] AGAINST [_] ABSTAIN

4. PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK OF THE COMPANY RESERVED FOR ISSUANCE THEREUNDER BY
60,000:

[_] FOR [_] AGAINST [_] ABSTAIN

5. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS:

[_] FOR [_] AGAINST [_] ABSTAIN

MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]

(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)

Signature Date:
----------------------------------------------- --------------