SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
--------------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number 0-25970
CONSOLIDATED ECO-SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
IDAHO 82-0464589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4294 Lakeland Drive
Suite 200
Jackson, Mississippi 39208
(Address of principal executive offices)
Registrant's telephone number, including area code: (601) 936-4440
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock,
Par value $.001
The Issuer hereby amends its Annual Report on Form 10-K for the year ended
December 31, 1996 to include the information required by Part III, Items 11, 12
and 13.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Item 11. Executive Compensation.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee was composed of various two
member panels consisting of: Charles E. Chunn, Jr. and Floyd Leland Ogle;
Charles E. Chunn, Jr. and Sam Sexton III; Edward L. Schrader and Sam Sexton III;
and Robert D. Vick and James J. Connors, Jr.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation paid to the person who
served as the Company's Chief Executive Officer at the end of fiscal 1996 and
other highly compensated executive officers of the Company at the end of such
fiscal year whose total annual compensation for such year was in excess of
$100,000:
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------ ----------------------------------
Annual Compensation Long Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Name and principal Year Salary Bonus Other Restricted Securities LTIP All other
position ($) ($) annual stock and payouts compensation
compensation award(s) underlying ($) ($)
($) ($) Options/
SARs (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floyd L. Ogle(1) 1996 33,333 -- -- -- -- -- 75,000(3)
President 1995 -- -- -- -- 50,000(2) -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Charles Chunn, Jr.(4) 1996 160,000 -- -- -- -- -- 210,000(5)
CFO 1995 3,627 -- -- 50,000(2) -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Edward L. Schrader(6) 1996 121,434 -- 50,000(7) -- 100,000 -- --
President 1995 -- -- -- -- 10,000 -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
James Connors, Jr.(8) 1996 130,000(9) -- -- -- -- -- --
President 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Robert D. Vick 1996 130,000(9) -- -- -- -- -- --
Exec. Vice-Pres 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Caleb H. Dana 1996 130,000(9) -- -- -- -- -- --
Exec. Vice-Pres 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Mr. Ogle served as President of the Company from March 21, 1995 until
February 21, 1996. As of February 21, 1996, he was no longer an executive
officer of the Company.
2
<PAGE>
(2) This figure represents stock options granted to certain officers and
employees of the Company during 1995. The Company believes that these
options, which were not part of a shareholder approved plan, were issued
in contravention of Idaho Code Section 30-1-20 and, accordingly, are null
and void ab initio.
(3) This amounts represents $75,000 provided to Mr. Ogle on or about January
31, 1996 as deferred compensation for prior services.
(4) Mr. Chunn served as Chief Financial Officer of the Company during fiscal
1996. Mr. Chunn also served as President from February 21, 1996 to April
1, 1996. On December 10, 1996, Mr. Chunn was placed on paid administrative
leave by the Company. Mr. Chunn's services were terminated by the Company
and, accordingly, he is no longer an executive officer of the Company. In
March 1997, the Company commenced litigation against Mr. Chunn. See "Part
I -- Legal Proceedings."
(5) This amount represents an amount of $110,000 provided to Mr. Chunn on or
about January 31, 1996 as deferred compensation for prior services and
$100,000 provided as an incentive payment to Mr. Chunn on or about May 15,
1996.
(6) Dr. Schrader served as an Executive Vice-President of the Company from
January 1996 to April 1, 1996. From April 1, 1996 to February 7, 1997, he
served as President of the Company. Since February 7, 1997, he has been
serving as Chairman of the Board of the Company.
(7) This amount represents a $100,000 contractual signing bonus provided to
Dr. Schrader.
(8) Mr. Connors served as an Executive Vice-President of the Company from
April 1, 1996 to February 7, 1997. On February 7, 1997, he was named
President of the Company and continues to serve in that capacity.
(9) The amount paid to Mr. Connors, Mr. Vick, and Mr. Dana, all of whom became
executive officers of the Company on April 1, 1996, include only amounts
paid to each after the acquisition of Eco-Systems by the Company. Funds
paid by Eco-Systems prior to the acquisition are not included.
Option/SAR Grants in Last Fiscal Year
The following table summarizes all individual grants of stock options
made during fiscal 1996 to each of the named executive officers of the Company.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
----------------- ---------------
Number of
Securities
Underlying % of Total
Options/ Options/SARs Exercise
SARs Granted to or Base Expiration
Granted Employees in Price Date
Name (#) Fiscal Year ($/SH)e 0%($) 5%($) 10%($)
- -------- -------- --------- ------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward L. 100,000(1) 65.3%(2) 0.25 1/31/06 662,500 1,095,000 1,758,000
Schrader
Executive
Vice President
</TABLE>
- ----------
(1) This amount represents 100,000 shares of common stock provided to Dr.
Schrader in connection with an employment agreement in existence prior to
Dr. Schrader's becoming a member of the Board of Directors of the Company.
3
<PAGE>
(2) This percentage takes into account only those stock options issued to
actual employees and not those options issued in connection with
acquisitions to persons who became employees at the same time. This figure
also does not include any stock options given to employees who ultimately
agreed to rescind such options.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table shows aggregate exercises of options (or tandem stock
appreciation rights) and free-standing stock appreciation rights during the year
ended December 31, 1996, by each of the named executive officers.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options/ In-the-Money
SARs at Options/SARs at
December 31, 1996 December 31, 1996
Shares Acquired (#)(1) ($)(1)(2)
on Exercise Exercisable (E)/ Exercisable (E)/
Name (#) Unexercisable (U) Unexercisable (U)
- ---- ---------------- ----------------- -----------------
<S> <C> <C> <C>
James J. Connors, Jr. 8,889 0 E 0 E
President/CEO 0 U 0 U
Robert D. Vick 8,889 0 E 0 E
Executive Vice-President 0 U 0 U
Caleb H. Dana 8,889 0 E 0 E
Executive Vice-President 0 U 0 U
Edward L. Schrader --- 110,000 E 110,000 E
Chairman of the Board 0 E 0 E
</TABLE>
- ----------
(1) The Company has not made any grants of SARs. The figures listed do not
reflect any stock options issued to any executive officers which have been
voluntarily rescinded or which the Company has determined were improperly
issued.
(2) Amounts shown are based upon the closing price of the Company's Common
Stock on March 31, 1997 which was $1 1/4.
Employment Agreements
Set forth below are descriptions of the Company's employment agreements
with James J. Connors, Jr., Caleb H. Dana, Jr., Kenneth R. McDonald, Edward M.
Penick, Jr., Dr. Edward L. Schrader, Sam Sexton III, Robert D. Vick and Larry
Woodcock and his wife, Marilyn Woodcock.
On September 27, 1995, the Company entered into an employment agreement
with Edward M. Penick, Jr. On December 8, 1995, the Company entered into
employment agreements with James J. Connors, Jr., Caleb H. Dana, Jr., Edward M.
Penick, Jr. and Robert D. Vick. Each employment agreement is for a period of
five years. Messrs. Connors, Dana and Vick's employment agreements each provide
for an annual salary of $130,000. Mr.
4
<PAGE>
Penick's employment agreement provides for an annual salary of $75,000, but was
modified by the Company on February 24, 1997 to $100,000 due to increased
duties. All salaries will be adjusted annually for increases in the cost of
living. Additionally, Messrs. Connors, Dana and Vick were each given an option
to acquire up to 8,889 shares of Common Stock for a price of $.001 per share.
Each of these individuals exercised these options during the 1996 fiscal year.
On May 15, 1996, the Company entered into employment agreements with
Charles E. Chunn, Jr., the Company's former Chief Financial Officer, as well as
Dr. Edward L. Schrader and Sam Sexton III. Mr. Chunn's employment agreement
supersedes a previous employment agreement that was effective January 1, 1996.
Dr. Schrader's employment agreement supersedes a previous employment agreement
that was effective January 31, 1996. Mr. Sexton's employment agreement
supersedes a previous employment agreement dated April 1, 1996.
On March 10, 1997, Dr. Schrader voluntarily rescinded his May 15, 1996
employment agreement and is currently operating under the terms of the January
31, 1996 agreement. That agreement is for a period of five years at an annual
salary of $75,000, subject to annual cost of living increases, plus an
automobile allowance. Dr. Schrader was also granted an option to acquire 100,000
shares of Common Stock of the Company at an exercise price of $0.25. A separate
agreement with Dr. Schrader provides that the Company will make an inducement
payment to him in the amount of $50,000 a year for four years for a total of
$200,000. The employment agreement provides for immediate payment of the entire
$200,000 if any of four events occurs: (i) termination of employment with the
Company; (ii) severe financial difficulties of the Company involving potential
litigation; (iii) a change in control of the Company; or (iv) a resolution by
the Board of Directors requiring an immediate payment.
Mr. Chunn's employment agreements, dated January 1, 1996 and of May 15,
1996, provided for an annual salary of $160,000, subject to annual cost of
living increases. Mr. Chunn was put on administrative leave on December 10,
1996. In the first quarter of 1997 the Company terminated his services and
commenced litigation against him in the Chancery Court of Sebastian County,
Arkansas. Although Mr. Chunn's agreements provided that he was to receive
certain payments from the Company in the event of a "change in control" as
defined in said agreements, the Company is of the view that no event
constituting such a change in control occurred prior to the termination of his
employment.
Incentive Award Plan
In 1995 the Board of Directors adopted, and the Company's shareholders
approved, the 1995 Incentive Award Plan of Exsorbet Industries, Inc. (the
"Incentive Plan") pursuant to which options and awards may be granted for up to
1,800,000 shares of Common Stock of the Company. To date, no stock awards have
been granted under the Incentive Plan, but options to purchase 891,500 shares of
Common Stock have been granted pursuant to a prior plan which is still in
effect. Such number of outstanding options reflects adjustments to exclude
5
<PAGE>
options which were granted and mutually rescinded by agreement between the
parties and options which have expired as of the date of this report.
According to its terms, the general administration of the Incentive Plan
is the responsibility of a committee consisting of two or more "outside
directors," as defined by the plan, appointed by the Board of Directors (the
"Plan Committee"). The Plan Committee has the absolute discretion to determine
which employees of the Company are key employees, and to select from among the
key employees, those who will receive options and/or performance bonuses awards,
which may include stock or cash. Each Optionee is required to enter into an
agreement to remain in the employ of the Company or a subsidiary of the Company
for a period of time to be determined by the Plan Committee after the stock
option or performance award is granted. The Plan Committee also has the
discretion to make loans to key employees with respect to the exercise or
receipt of outstanding options or performance awards granted under the Incentive
Plan.
Pursuant to the Incentive Plan, the Plan Committee may grant incentive
stock options pursuant to section 422 of the Internal Revenue Code of 1986, as
amended, or the Plan Committee may grant non-qualified options. The purchase
price of each share of stock issued pursuant to the exercise of an incentive
stock option may not be less than the fair market value of the stock on the date
of the grant of the option. Incentive stock options may be exercised by the
grantee six months after the date the option is granted but the options will
expire ten years after the grant date. The purchase price of each share of stock
issued pursuant to a nonqualified option will be set by the Plan Committee, and
it may be less than the fair market value of the stock on the date of grant, but
may not be less than the par value of the stock.
The period after which the right to exercise an option vests in a grantee
will be set by the Plan Committee, but, at any time, the Plan Committee may
accelerate the period in which options vest. Options may be exercised in whole
or in part. Options granted under the Incentive Plan are exercisable only while
the recipient is an employee of the Company, but the Plan Committee may provide
that the option may be exercised within a year after the employee's death or
disability, or within three months after termination of employment for any other
reason.
The Incentive Plan provides that the Company may grant options to purchase
Common Stock to employee-directors. The employee-directors may receive, on a
yearly basis beginning on March 31 of each year, options to purchase Common
Stock of the Company in an amount equal to 10,000 shares for each $1,000,000 of
net income of the Company for the preceding year, as reflected in the Company's
audited financial statements prepared by the Company's independent auditors. The
exercise price for the options will be 80% of the fair market value of the
Common Stock on the date the option was granted. Options granted to employee
directors are exercisable only after six months from the date of grant, and the
options expire ten years after the date of grant.
Restricted stock may be awarded to any key employee designated by the Plan
Committee pursuant to a restricted stock agreement, which shall be executed by
the key employee and an authorized officer of the Company. Restricted shares are
subject to such
6
<PAGE>
restrictions as the Plan Committee shall provide, including restrictions based
on duration of employment with the Company, Company performance, or individual
performance. The holders of restricted shares, however, will be entitled to vote
their restricted shares and to receive dividend payments. The Plan Committee
retains the right, after restricted stock is issued, to remove any and all
restrictions imposed by the restricted stock agreement.
The Incentive Plan may be wholly or partially amended, suspended or
terminated at any time by the Board of Directors of the Company, except that no
action will be taken by the Board which would otherwise require stockholder
approval. In the event of any change in the outstanding shares of the Company
through merger, consolidation, reorganization, recapitalization, stock split,
stock dividend, or other like change in capital structure, the Plan Committee
may make an appropriate adjustment to increase the maximum number and type of
shares that may be issued pursuant to the Incentive Plan. In the event of such a
change or exchange of outstanding shares, other than for securities of another
corporation or by reorganization, the Plan Committee will make an appropriate
adjustment to maintain the proportionate interest if the holders of options
under the Incentive Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 31, 1997 (except as otherwise
indicated) by: (a) each director and named executive officer of the Company; (b)
all current executive officers and directors of the Company as a group; and (c)
each person known to the Company who is a beneficial holder of more than five
percent of the shares of its Common Stock.
<TABLE>
<CAPTION>
Shares Directly or Percent of
Name and Address Beneficially Owned (1) Class
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
James J. Connors, Jr. . . . . . . . . . . . . . . . . . . . .120,000 .78%
President/Director
10539 County Road 1
Fairhope, AL 36532
Caleb H. Dana. . . . . . . . . . . . . . . . .. . . . . . 120,000 .78%
Executive Vice-President
103 Pinetrail Place
Madison, MS 39110
Kenneth R. McDonald. . . . . . . . . . . . . . . . . . . . . .545,338(2) 3.57%
Executive Vice-President
Highway 195 North
Double Springs, AL 35553
Edward M. Penick, Jr.. . . . . . . . . . . . . . . . . . . . .158,940(3) .97%
Chief Financial Officer/Director
10 Longfellow Place
Little Rock, AR 72207
Robert D. Vick . . . . . . . . . . . . . . . . . . . . . . . .120,000 .78%
Executive Vice-President/Director
111 Meadowview
Brandon, MS 39042
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Shares Directly or Percent of
Name and Address Beneficially Owned (1) Class
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Edward L. Schrader. . . . . . . . . . . . . . . . . . . . .118,000(4) .77%
Director/Executive Vice President
504 Merganser Trail
Clinton, MS 39056
Sam Sexton III. . . . . . . . . . . . . . . . . . . . . . . . . .5,000 .03%
Director/President
6807 West 12th Street
Little Rock, AR 72204
Larry J. Woodcock. . . . . . . . . . . . . . . . . . . . . . 1,352,021(5) 8.73%
Director/Executive Vice-President
4909 Common Street
Lake Charles, LA 70607
Charles E. Chunn, Jr.. . . . . . . . . . . . . . . . . . . . . 110,000(6) .72%
Director, President/Treas.
9704 Bridgeford
Fort Smith, AR 72903
Directors and Executive . . . . . . . . . . . . . . . . . . .2,649,299(7) 16.9%
</TABLE>
Officers as a Group (10 persons)
- ----------
(1) All shares are owned directly with voting and dispositive powers unless
otherwise stated.
(2) This figure does not include an option to acquire 257,235 shares of Common
Stock of the Company, first exercisable on June 27, 1997, nor does it
include an option to acquire 257,234 shares of Common Stock of the
Company, first exercisable on June 27, 1998.
(3) Includes 60,000 shares of Common Stock issuable upon options exercisable
within 60 days.
(4) Includes 110,000 shares of Common Stock issuable upon options exercisable
within 60 days.
(5) This figure includes 576,011 shares owned by Marilyn Woodcock. The figure
includes 200,000 shares of common stock of the Company to be issued by
virtue of a stock option exercise. The figure does not include an option
to acquire a total of 200,000 shares each held by Mr. Woodcock and Ms.
Woodcock, first exercisable in part on June 26, 1997.
(6) Includes 25,000 shares of Common Stock issuable to Brenda Ollie, spouse of
Mr. Chunn, upon options exercisable within 60 days.
(7) Includes 395,000 shares of Common Stock issuable upon options exercisable
within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and 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
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
8
<PAGE>
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that all Section 16(a) filing requirements applicable to its officers
and directors were complied with except with respect to one report regarding one
transaction for each of Kenneth R. Mcdonald, Edward L. Schrader and Larry J.
Woodcock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of Larco Environmental Services, Inc.
On June 26, 1996, the "Company" entered into an Agreement and Plan of
Merger (the "Larco Agreement") between the Company, Larco Acquisition, Inc., an
Arkansas corporation and wholly-owned subsidiary of the Company, Larco, and
Larry Woodcock and his wife, Marilyn Woodcock. Pursuant to the Larco Agreement,
the Company beneficially acquired all of the outstanding common stock of Larco
from its sole shareholders, Mr. and Mrs. Woodcock. In return, Mr. and Mrs.
Woodcock received 1,152,021 shares of Common Stock. The Board of Directors of
the Company determined this consideration to be fair and reasonable by
determining the fair market value of Larco to be, at a minimum, $4,500,000. The
value of the Common Stock at closing, based on a five day closing price prior to
closing, was approximately $3.89. The amount of Common Stock provided, the Board
believed, was representative of the fair market value of Larco. The Company also
purchased real estate used by Larco from Mr. and Mrs. Woodcock for $1,388,000.
In connection with the transaction Mr. and Mrs. Woodcock entered into employment
agreements and will receive cash compensation of $125,000 and $60,000,
respectively, per year for the next five years. In addition, they received
options to acquire up to 600,000 shares of Common Stock. For a more complete
description of Mr. and Mrs. Woodcock's employment agreements, see "Executive
Compensation--Employment Agreements."
Acquisition of KR Industrial Services of Alabama, Inc.
On June 27, 1996, the Company entered into a Stock Exchange Agreement (the
"KR Agreement") by and between the Company, KR Acquisition, Inc., an Arkansas
corporation and wholly owned subsidiary of the Company, KR Industrial Service of
Alabama, Inc., an Alabama corporation ("KR Industrial"), Kenneth R. McDonald,
his wife, Carolyn McDonald, and Kenneth A. Flatt, Jr. Pursuant to the terms of
the KR Agreement, the Company beneficially acquired all of the outstanding
common stock of KR Industrial from its sole shareholders, Mr. and Mrs. McDonald
and Mr. Flatt. In return, Mr. and Mrs. McDonald received 545,338 shares of
Common Stock. The Board of Directors of the Company determined this
consideration to be fair and reasonable by determining the fair market value of
KR Industrial to be $2,120,000. The value of the Common Stock at closing, based
on a five day closing price prior to closing, was approximately $3.89. The
amount of Common Stock provided was representative of the fair market value of
KR Industrial. In connection with this transaction, Mr. McDonald was elected
Executive Vice President of the Company and entered into an employment agreement
with the Company which has a term of five years and that provides for an annual
salary of
9
<PAGE>
$100,000 and options for up to 514,469 shares of Common Stock. See "Executive
Compensation--Employment Agreements."
Additionally, in connection with this transaction, the Company loaned
$500,000 to Mr. McDonald and his wife, Carolyn, on June 27, 1996 and has agreed
to loan them an additional $250,000 on June 27, 1997. The loan bears interest at
a 5.5% annual rate. The Company took a security interest in, and possession of
288,103 shares of Common Stock to secure the debt. The loan is due on June 27,
1998, but may be extended, at Mr. and Mrs. McDonald's option, for an additional
six months.
Loans to Former Shareholders of Eco-Acquisition, Inc.
In connection with the acquisition by the Company of Eco-Systems, Inc. in
1996, the Company lent to each of James Connors, Jr., Robert D. Vick and Caleb
H. Dana the respective amounts of $250,000 each, secured by shares of Common
Stock of the Company owned by each of such individuals. Each promissory note
provides that the principal amount of $50,000 plus accumulated interest is to be
forgiven for each year during which the recipient of such loan continues to be
employed by the Company.
COMPENSATION OF DIRECTORS
Each director of the Company has also served as an officer and the Company
has executed employment agreements with each director to govern such employment
relationships. The directors of the Company receive no additional compensation
for their service as directors.
PERFORMANCE OF THE COMMON STOCK
The graph below compares the cumulative total return of the Company's
Common Stock to the Nasdaq Market Index and the Sanitation Services, N.E.C.
Index assuming a $100 investment on January 3, 1995.
[THE FOLLOWING DATA WAS DEPICTED IN A LINE GRAPH IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
- ----------------------------------------FISCAL YEAR ENDING-------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPANY 1995 1995 1995 1996 1996
CONSOLIDATED ECO-SYSTEMS 100.00 78.38 90.59 40.54 15.57
INDUSTRY INDEX 100.00 97.49 85.67 84.17 78.21
BROAD MARKET 100.00 112.63 124.48 139.88 150.50
</TABLE>
THE INDUSTRY INDEX CHOSEN WAS:
SIC CODE 4959 - SANITARY SERVICES, N.E.C.
THE BROAD MARKET INDEX CHOSEN WAS:
NASDAQ MARKET INDEX
10
<PAGE>
THE CURRENT COMPOSITION OF THE INDUSTRY INDEX
IS AS FOLLOWS:
CONSOLIDATED ECO-SYSTEMS
FLUOR DANIEL/GTI INC
GZA GEOENVIRON TECH
HARDING LAWSON ASSOC GRP
ICF KAISER INTERNAT
INTERNAT TECHNOLOGY CORP
NEW HORIZONS WORLDWIDE
NSC CORP
OHM CORP
TRC COMPANIES INC
VALLEY SYSTEMS INC
VERSAR INC.
WATSON GENERAL CORP
WESTON, ROY F. INC CL A
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Compensation Policies Applicable To Executive Officers
The purpose of the Company's executive compensation program is to attract,
retain and motivate qualified executives to manage the business of the Company
so as to maximize profits and shareholder value. Executive compensation in the
aggregate is made up principally of the executive's annual base salary, a bonus
which may be awarded by the Company's Compensation Committee and awards of
Company stock or stock options under the Company's Stock Option Plans. The
Company's Compensation Committee annually considers and makes recommendations to
the Board of Directors as to executive compensation including changes in base
salary, bonuses and awards of Company stock or stock options.
Consistent with the above-noted purpose of the executive compensation
program, it is the policy of the Compensation Committee, in recommending the
aggregate annual compensation of executive officers of the Company, to consider
the overall performance of the Company, the performance of the division of the
Company for which the executive has responsibility and the individual
contribution and performance of the executive. The performance of the Company
and of the division for which the executive has responsibility are significant
factors in determining aggregate compensation although they are not necessarily
determinative. While shareholders' total return is important and is considered
by the Compensation Committee, it is subject to the vagaries of the public
market place and the Company's compensation program focuses on the Company's
strategic plans, corporate performance measures, and specific corporate goals
which should lead to a favorable stock price. The corporate performance measures
which the Compensation Committee considers
11
<PAGE>
include sales, earnings, return on equity and comparisons of sales and earnings
with prior years and with budgets.
The Compensation Committee does not rely on any fixed formulae or specific
numerical criteria in determining an executive's aggregate compensation. It
considers both corporate and personal performance criteria, competitive
compensation levels, the economic environment and changes in the cost of living
as well as the recommendations of management. The Compensation Committee then
exercises business judgment based on all of these criteria and the purposes of
the executive compensation program.
Compensation of the Chief Executive Officer
Dr. Schrader's base salary of $165,000 for 1996 was based principally on
his rights under his employment agreement with the Company. The Compensation
Committee in determining Dr. Schrader's compensation gave consideration to Dr.
Schrader's efforts in guiding the Company through a period of expansion through
acquisition and believes that these efforts will lead in future periods to
enhanced performance and stockholder value.
Section 162(m) of the Internal Revenue Code of 1996, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's chief executive officer and
four other most highly compensated executive officers, unless the compensation
is considered performance based. The compensation disclosed in this Report does
not exceed the $1 million limit, and executive compensation for 1997 is also
expected to qualify for deductibility. The Company currently intends to
structure the performance-based portion of its executive officers' compensation
to achieve maximum deductibility under Section 162(m) of the code with minimal
sacrifices in flexibility and corporate objective.
12
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly authorized and caused the undersigned to sign this
Report on the Registrant's behalf.
CONSOLIDATED ECO-SYSTEMS, INC.
By: /s/ James J. Connors, Jr.
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James J. Connors, Jr., Chief Executive Officer
Dated: April 29, 1997
