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:
_X_ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
___ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CET ENVIRONMENTAL SEVICES, INC.
(Name of Registrant as Specified in Its Charter)
CET ENVIRONMENTAL SERVICE, INC.
(Name of Person(s) Filing Proxy Statement)
<PAGE>
PRELIMINARY COPY
CET ENVIRONMENTAL SERVICES, INC.
7670 South Vaughn Court
Englewood, Colorado 80112
(303) 708-1360
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1998
TO THE SHAREHOLDERS OF CET ENVIRONMENTAL SERVICES, INC.:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of CET
Environmental Services, Inc., a California corporation (the "Company"), will
be held at the Adam's Mark Hotel, 1550 Court Place, Denver, Colorado, on
Tuesday, June 2, 1998, at 9:00 a.m., Mountain Time, and at any and all
adjournments thereof, for the purpose of considering and acting upon the
following matters.
1. The election of five (5) Directors of the Company to serve until
the next Annual Meeting of Shareholders and until their successors have been
duly elected and qualified;
2. The ratification of the appointment of Grant Thornton LLP, as the
Company's independent auditors; and
3. The approval of an amendment to the Company's Articles of
Incorporation to authorize the issuance of up to 5,000,000 shares of no par
value Preferred Stock in such amounts, in one or more series, and with such
designations, preferences, limitations and relative rights for each series as
the Board of Directors shall determine.
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of the no par value common stock of the Company of record
at the close of business on April 27, 1998, will be entitled to notice of and
to vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Company.
All shareholders, whether or not they expect to attend the Annual
Meeting of Shareholders in person, are urged to sign and date the enclosed
Proxy and return it promptly in the enclosed postage-paid envelope which
requires no additional postage if mailed in the United States. The giving of
a proxy will not affect your right to vote in person if you attend the
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
STEVEN H. DAVIS, PRESIDENT
Englewood, Colorado
April 27, 1998
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
7670 South Vaughn Court
Englewood, Colorado 80112
(303) 708-1360
______________________________
PROXY STATEMENT
______________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1998
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of CET Environmental Services, Inc., a California corporation (the
"Company"), for use at the Company's Annual Meeting of Shareholders to be held
at the Adam's Mark Hotel, 1550 Court Place, Denver, Colorado, on Tuesday, June
2, 1998, at 9:00 a.m., Mountain Time, and at any adjournment thereof. It is
anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's shareholders on or about May 7, 1998.
Any person signing and returning the enclosed Proxy may revoke it at any
time before it is voted by giving written notice of such revocation to the
Company, or by voting in person at the Meeting. The expense of soliciting
proxies, including the cost of preparing, assembling and mailing this proxy
material to shareholders, will be borne by the Company. It is anticipated
that solicitations of proxies for the Meeting will be made only by use of the
mails; however, the Company may use the services of its Directors, Officers
and employees to solicit proxies personally or by telephone, without
additional salary or compensation to them. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the proxy soliciting
materials to the beneficial owners of the Company's shares held of record by
such persons, and the Company will reimburse such persons for their reasonable
out-of-pocket expenses incurred by them in that connection.
All shares represented by valid proxies will be voted in accordance
therewith at the Meeting.
The Company's Annual Report for the year ended December 31, 1997, is
being simultaneously mailed to the Company's shareholders, but does not
constitute part of these proxy soliciting materials.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Company's
no par value common stock, with each share entitled to one vote. Only
shareholders of record at the close of business on April 27, 1998, are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
On April 27, 1998, the Company had 5,809,485 shares of its no par value common
stock outstanding, each share of which is entitled to one vote on all matters
to be voted upon at the Meeting. Under California law, shareholders are
permitted to cumulate votes for the election of directors whose names have
been placed in nomination. Therefore, in voting for directors, each
outstanding share of Common Stock would be entitled to five votes which may be
cast for one candidate or distributed in any manner among the nominees for
director. However, the right to cumulate votes in favor of one or more
candidates may not be exercised until
<PAGE>
the candidate or candidates have been nominated and any shareholder has given
notice at the Annual Meeting of the intention to cumulate votes.
The proxy holders (if authority to vote for one or more nominees is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the Board of Directors nominees as they may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld.
A majority of the Company's outstanding common stock represented in
person or by proxy shall constitute a quorum at the Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
the Company's no par value common stock owned beneficially, as of April 10,
1998, by any person, who is known to the Company to be the beneficial owner of
5% or more of such common stock, and, in addition, by each Director of the
Company, and Nominee for Director, and by all Directors, Nominees for Director
and Officers of the Company as a group. Information as to beneficial owner-
ship is based upon statements furnished to the Company by such persons.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ -------------------- --------
Craig C. Barto 703,554 12.1%
2440 Bayshore Drive
Newport Beach, CA 92663
Douglas W. Cotton 635,314 (1) 11.0%
Four Bowditch
Irvine, CA 92720
Steven H. Davis 1,262,563 (2) 21.7%
7625 S. Yampa Street
Aurora, CO 80016
John G. L. Hopkins 550,125 9.5%
120 West Dayton #A-7
Edmonds, WA 98020
Robert A. Taylor 10,496 0.2%
9870 East Alameda
Denver, CO 80231
Rick C. Townsend 20,000 (3) 0.3%
10816 Eagle Crest Court
Parker, CO 80134
All directors, nominees for 3,182,052 54.6%
director and executive officers
as a group (6 persons)
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<PAGE>
__________________
(1) Includes 1,000 shares underlying stock options exercisable within 60
days held by Mr. Cotton's wife.
(2) Includes 1,000 shares held by the wife of Mr. Davis. Also includes
73,656 shares held by relatives of Mr. Davis of which he disclaims beneficial
ownership.
(3) Represents shares underlying stock options exercisable within 60 days
held by Mr. Townsend.
There are no known agreements, the operation of which may at a
subsequent date result in a change in control of the Company.
ELECTION OF DIRECTORS
Effective at the Annual Meeting of Shareholders the number of Directors
of the Company will be set at five members. The Board of Directors recommends
the election as Directors of the five (5) nominees listed below, to hold
office until the next Annual Meeting of Shareholders and until their succes-
sors are elected and qualified or until their earlier death, resignation or
removal. Each of the current members of the present Board of Directors has
been nominated for reelection, except for John G. L. Hopkins who has requested
that his term as a Director end at the Annual Meeting of Shareholders. The
persons named as "Proxies" in the enclosed form of Proxy will vote the shares
represented by all valid returned proxies in accordance with the speci-
fications of the shareholders returning such proxies. If at the time of the
Meeting any of the nominees named below should be unable to serve, which event
is not expected to occur, the discretionary authority provided in the Proxy
will be exercised to vote for such substitute nominee or nominees, if any, as
shall be designated by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company presently
held, and the period during which each person has served as a Director:
POSITIONS AND OFFICES
NAME AGE HELD AND TERM AS A DIRECTOR
- ----------------- ---- ------------------------------------------
Craig C. Barto 39 Director since 1991
Douglas W. Cotton 47 Executive Vice President, Chief Operating
Officer, Secretary and Director since 1991
Steven H. Davis 44 Chief Executive Officer, President
and Director since 1991
Robert A. Taylor 52 Director since 1996
Rick C. Townsend 47 Executive Vice President, Chief Financial
Officer, Secretary and Director since 1997
There is no family relationship between any Director, Nominee for
Director or Executive Officer of the Company.
The Company has no Nominating Committee, but does have an Audit
Committee, an Executive Committee and a Compensation Committee.
-3-
<PAGE>
The Audit Committee presently consists of Craig C. Barto and Robert A.
Taylor. The Audit Committee reviews financial statements and data with the
Company's independent accountants before the information and data are released
to the public. During 1997, the Audit Committee met two (2) times.
The Executive Committee consists of Steven H. Davis, John G.L. Hopkins,
Douglas W. Cotton and Rick C. Townsend. The Executive Committee has
authority, during the intervals between the meetings of the Board of
Directors, in the management of the business and affairs of the Company not
contrary to the specific direction of the Board of Directors and except as
provided by the Company's Bylaws. During 1997, the Executive Committee held
in excess of ten(10) meetings.
The Compensation Committee presently consists of Craig C. Barto and
Robert A. Taylor. The Compensation Committee reviews compensation matters
relating to the Executive Officers of the Company and makes recommendations to
the Board of Directors, and administers the Company's Incentive Stock Option
Plan. The Compensation Committee was formed in December 1997, and did not
meet during the year ended December 31, 1997.
Rick C. Townsend currently serves as an advisor to the Audit Committee,
and Steven H. Davis serves as an advisor to the Compensation Committee.
Set forth below are the names of all directors, nominees for director
and executive officers of the Company, all positions and offices with the
Company held by each such person, the period during which he has served as
such, and the principal occupations and employment of such persons during at
least the last five years:
CRAIG C. BARTO has been a Director of the Company since 1991. He is
also the President and Chairman of the Board of Directors of Signal Hill
Petroleum, Inc., Barto/Signal Petroleum, Inc., Signal Hill Operating, Inc.,
and Signal Oil and Refining, Inc., which operate businesses such as Paramount
and Fletcher oil refineries. A graduate of UCLA with a degree in Economics,
Mr. Barto was instrumental in the growth of the Signal Hill Petroleum
companies in the oil business in 1979 with the reclamation of a marginal
operation in the West Newport Oil Field in Orange County, California. In
addition to the oil and gas operations, Mr. Barto is also responsible for the
commercial and residential development of over 100 acres of some of the last
undeveloped hilltop property in Southern California.
DOUGLAS W. COTTON has served as the Company's Executive Vice President
and a Director since 1991 and is responsible for all aspects of the Company's
operations in the Southwest, and provides guidance for marketing and sales to
commercial clients nationwide. He was appointed Chief Operating Officer in
October, 1996. Prior to joining the Company, Mr. Cotton served as Vice
President of Ecova Corporation and worked for 13 years at IT Corporation where
he held various positions culminating in serving as General Manager for the
Gulf Coast Region. He has more than 20 years of experience managing on-site
biological, chemical and physical remediation of hazardous wastes in sludge,
soil and groundwater using a variety of innovative technologies. His knowledge
of the industry has been gained at more than 100 remediation projects ranging
from $100,000 to $45 million, including Superfund sites, emergency response
cleanups and large excavation/on-site treatment projects.
STEVEN H. DAVIS has served as the Company's Chief Executive Officer,
President and a Director since 1991. Prior to that time he was operating
partner of Lincoln Property Company which developed over 3 million square feet
of
-4-
<PAGE>
buildings in California, Nevada and Colorado. He has almost 20 years of
experience in construction, financing and developing industrial real estate.
Mr. Davis graduated from Brown University with an emphasis in Economics and
obtained an MBA from the University of Southern California. As President,
Mr. Davis manages the Company's business affairs and has been instrumental in
securing financing, negotiating bonding agreements, projecting and analyzing
the feasibility of expansion, mergers and acquisitions, and formulating
business relationships with customers, financial entities and the legal
community.
ROBERT A. TAYLOR has been a Director of the Company since 1996. He is
a veterinarian and manages the Alameda East Veterinary Hospital in Denver,
Colorado which he started in 1971. Currently, Alameda East Veterinary
Hospital employs 55 persons and provides a small animal practice specializing
in orthopedic and rehabilitation services. Dr. Taylor received a B.S. degree
in Animal Science from Texas A&M University in 1969, a D.V.M. degree from
Texas A&M University in 1970, and a M.S. degree in Veterinary Surgery from
Colorado State University in 1978.
RICK C. TOWNSEND has been Executive Vice President and Chief Financial
Officer of the Company since November 1996, a Director since May 1997, and
Secretary since January 1998. From 1992 until October 1996, Mr. Townsend held
the position of Vice President and Chief Financial Officer for the
international operations of CH2M HILL, a major environmental consulting and
engineering firm. In that role, Mr. Townsend managed all financial and
administrative affairs for the unit. He also assisted in securing financing
for international environmental and infrastructure projects, including water
and wastewater treatment systems in Brazil and Canada. From 1990 until 1992,
Mr. Townsend served as Vice President for The Futures Corporation, a business
development and management services company. From 1974 until 1988, Mr.
Townsend was employed by Morrison Knudsen Corporation where he held several
positions including General Director and Group Business Manager of Morrison
Knudsen Technologies. In these positions, he was exposed to several business
sectors relevant to the Company's environmental contracting operations. Mr.
Townsend received a degree in Economics from the University of California at
Los Angeles in 1973.
JOHN G.L. HOPKINS served as the Company's Senior Vice President-Federal
Programs and General Manager since 1990 and as a Director since 1991. Mr.
Hopkins has advised the Company that effective July 1, 1998, he will retire as
an officer. He has agreed to continue to provide services to the Company on a
consulting basis, as needed. From 1990 to October 1996, he was also Chief
Operating Officer. Since October 1996 he has been Senior Vice President -
Federal Programs. With more than 20 years of experience in managing
large-scale hazardous waste remediation projects, Mr. Hopkins is presently
responsible for the Company's operations in the Northwest and all Federal
government programs. Previously, he held senior management positions with
Hydro-Search, Inc., Riedel Environmental Services, Inc. and IT Corporation.
Mr. Hopkins has managed more than 500 remedial action projects in 24 states
and has negotiated and managed three large multi-year indefinite delivery
contracts with the EPA totaling more than $350 million. Mr. Hopkins graduated
from the University of Southern California in 1973 with a Bachelor of Science
degree in Chemistry and Biological Sciences. His publications include work
involving sampling protocols and emergency response. He is 49 years old.
The Company's Board of Directors held four (4) meetings during the year
ended December 31, 1997. Each Director attended at least 75% of the aggregate
number of meetings held by the Board of Directors and its Committees during
the time each such Director was a member of the Board or of any Committee of
the Board.
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<PAGE>
The Company's executive officers hold office until the next annual
meeting of directors of the Company, which currently is scheduled for June 2,
1998. There are no known arrangements or understandings between any director
or executive officer and any other person pursuant to which any of the above-
named executive officers or directors was selected as an officer or director
of the Company.
No event occurred during the past five years which is material to an
evaluation of the ability or integrity of any Director or person nominated to
be Director or Executive Officer of the Company.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, four persons who were
officers and directors of the Company failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year. Steven H. Davis and John G. L. Hopkins each filed two late reports each
of which reported one transaction; Douglas W. Cotton filed two late reports
which reported a total of four transactions; and Craig C. Barto filed one late
report reporting one transaction.
COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered in all capacities to the Company for the years
ended December 31, 1997, 1996 and 1995, by the Company's President and each
other executive officer whose compensation exceeded $100,000 during such
years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ----------------- ---------------
SECURI-
TIES
OTHER UNDERLY-
ANNUAL RE- ING ALL
COMPEN- STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL SATION STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS <FN1> AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------ ----- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven H. Davis, 1997 $ 84,907 $ 0 $1,003 0 0 0 $0
Chief Executive 1996 $ 79,150 $ 0 $ 951 0 0 0 $0
Officer 1995 $126,160 $ 0 $1,027 0 0 0 $0
John G.L. Hopkins, 1997 $123,183 $ 0 $ 0 0 0 0 $0
Senior Vice Presi- 1996 $125,000 $ 0 $ 0 0 0 0 $0
dent - Federal 1995 $124,923 $ 0 $ 0 0 0 0 $0
Programs
Douglas W. Cotton, 1997 $ 32,147 $ 0 $ 425 0 0 0 $0
Executive Vice 1996 $ 63,831 $ 0 $1,038 0 0 0 $0
President and 1995 $124,000 $5,652 $1,873 0 0 0 $0
Chief Operating
Officer
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<PAGE>
Rick C. Townsend, 1997 $125,587 $ 0 $ 958 0 0 0 $0
Chief Financial 1996 $ 16,827 $ 0 $ 0 0 60,000 0 $0
Officer
_______________
<FN>
<FN1>
Includes matching 401K contributions by the Company and automobile expenses.
</FN>
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- -------------- ---------------
Steven H. Davis -0- -0- 0/0 $0 / $0
John G. L. Hopkins -0- -0- 0/0 $0 / $0
Douglas W. Cotton -0- -0- 0/0 $0 / $0
Rick C. Townsend -0- -0- 20,000/40,000 $53,750/$107,500
The Company has no formal employment agreements with any of its
Executive Officers. The Company does have a letter agreement with Rick C.
Townsend, the Company's Chief Financial Officer, regarding his employment
which provides that he is to receive an annual salary of $125,000 and bonuses
based on certain net profit levels achieved by the Company. Either the
Company or Mr. Townsend may terminate his employment without notice. However,
Mr. Townsend is entitled to six months' severance pay on termination by the
Company.
401K PLAN
The Company has a Non-standardized Cash or Deferred Profit Sharing Plan
pursuant to which all eligible employees may contribute a portion of their
income. Company contributions to the Profit Sharing Plan are discretionary.
The Company does, however, make a matching contribution in the amount of 25
percent of the first six percent of all elective deferrals.
STOCK OPTION PLAN
On March 1, 1995, the Company adopted an Incentive Stock Option Plan
(the "Plan") for key personnel. A total of 550,000 shares of Common Stock are
reserved for issuance pursuant to the exercise of stock options (the
"Options") which may be granted to full-time employees of the Company. The
Plan is currently administered by the Board of Directors. In addition to
determining who will be granted Options, the Board of Directors has the
authority and discretion to determine when Options will be granted and the
number of Options to be granted. The Board of Directors may grant Options
intended to qualify for special treatment under the Internal Revenue Code of
1986, as amended ("Incentive Stock Options") and may determine when each
Option becomes exercisable, the duration of the exercise period for Options
and the form of the instruments evidencing Options granted under the Plan. The
Board of Directors may adopt, amend and rescind such rules and regulations as
in its opinion may be advisable for the
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<PAGE>
administration of the Plan. The Board of Directors may also construe the Plan
and the provisions in the instruments evidencing the Options granted under the
Plan and make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Board of Directors has broad discretion to determine the number of
shares with respect to which Options may be granted to participants. The
maximum aggregate fair market value (determined as of the date of grant) of
the shares as to which the Incentive Stock Options become exercisable for the
first time during any calendar year may not exceed $100,000. The Plan provides
that the purchase price per share for each Incentive Stock Option on the date
of grant may not be less than 100 percent of the fair market value of the
Common Stock on the date of grant. However, any Option granted under the Plan
to a person owning more than 10 percent of the Common Stock shall be at a
price of at least 110 percent of such fair market value. During May 1995,
options for 181,000 shares of Common Stock had been granted under the Plan, at
an exercise price of $3.50 per share, of which options for 90,500 shares will
vest over a five-year period commencing May 1, 1996 and the remaining options
for 90,500 shares will vest over a five-year period only upon the occurrence
of certain circumstances. On December 31, 1995, 13,500 of such remaining
options were granted and immediately vested for two employees terminated in
October, 1995. The Company recorded compensation expense of $20,356 and
$36,596 in 1996 and 1995, respectively, relating to these options.
Compensation expense of $22,361 will be recorded in future periods as these
options vest over a five-year period commencing December 31, 1996. During
1996, options totaling 77,000 shares of those originally granted in May, 1995,
were cancelled because the events upon which they were contingent did not
occur.
Options to purchase 5,000 shares of common stock at $3.50 per share,
granted in May 1995, were canceled prior to December 31, 1995, due to the
termination of the employment of one employee.
Prior to January 1, 1996, no options were granted to any executive
officer of the Company except Kathleen V. Dunlap, a former Treasurer and Chief
Financial Officer. Ms. Dunlap received options for 20,000 shares in the
aggregate, of which options for 10,000 shares vested during December 1995.
The remaining 10,000 options, originally scheduled to vest over a five year
period only upon the occurrence of certain circumstances, were cancelled
because the events upon which they were contingent did not occur.
On January 8, 1996, the Board of Directors granted options to seven
employees to purchase an aggregate of 45,000 shares. Options as to 30,000
shares vest over a five-year period commencing on the date of grant and are
exercisable at $9.00 per share until 10 years after the date of grant.
Options as to 10,000 shares vest over a five-year period commencing on April
10, 1997. The Options as to the remaining 5,000 shares were issued to an
employee who is the wife of Douglas W. Cotton, an Officer and Director of the
Company, and vest 20% immediately with the remainder vesting over a four-year
period commencing on the date of grant and are exercisable at $9.90 per share
until five years after the date of grant. On February 29, 1996, options to
purchase 10,000 shares granted on January 8, 1996, with an exercise price of
$9.00 per share were cancelled upon the termination of an employee.
On February 21, 1996, the Board of Directors granted options to an
employee to purchase up to 5,000 shares of Common Stock. These options vest
over a five-year period commencing on the date of grant and are exercisable at
$9.70 per share until ten years after the date of grant.
-8-
<PAGE>
On May 1, 1996, the Board of Directors granted an option to Keith Conti,
who was then the Company's principal financial officer, to purchase 10,000
shares of Common Stock at $10.625 per share. On March 28, 1997, these options
were cancelled in conjunction with the termination of Mr. Conti's employment.
On May 14, 1996, the Board of Directors granted options to seven
employees to purchase an aggregate of 22,500 shares of Common Stock at $11.875
per share. These options vest over a five year period commencing on the date
of grant, and are exercisable until ten years after the date of grant.
On November 14, 1996, the Board of Directors granted an option to Rick
C. Townsend, the Company's Executive Vice President and Chief Financial
Officer to purchase 60,000 shares of Common Stock at $4.25 per share. This
option vests as to 20,000 shares on each anniversary of the date of grant and
expires on November 4, 2001.
On December 2, 1996, the Board of Directors granted an option to an
employee to purchase 7,500 shares of Common Stock at $5.00 per share. This
option vests as to 1,875 shares on each anniversary of the date of grant and
expires on December 2, 2001.
On December 5, 1997, the Board of Directors granted options to ten
employees to purchase an aggregate of 72,500 shares of Common Stock at prices
ranging from $7.00 to $7.70 per share. The options vest over periods of five
to six years and expire ten years after the date of grant. In connection with
these grants, options to purchase 40,000 shares at an average exercise price
of $10.01 per share were cancelled.
On August 13, 1996, the Company filed a registration statement on Form
S-8 to register the 550,000 shares of the Company's Common Stock reserved for
the Company's Incentive Stock Option Plan.
During 1997, unvested options totaling an aggregate amount of 25,200
shares with an average exercise price of $8.30 were cancelled due to the
termination of five employees. In addition, vested options totaling 5,200
shares with an average exercise price of $5.09 were cancelled due to the
termination of five employees who did not exercise their options prior to the
expiration date stipulated in the option agreement.
As of December 31, 1997, options for 80,325 shares were exercisable at
prices ranging from $3.50 to $11.88 per share.
If an optionee ceases to be employed by the Company for any reason other
than death or disability, the optionee may exercise all Options within three
months following such cessation to the extent exercisable on the date of
cessation. If an optionee dies while employed by the Company, or during the
three-month period following termination of the optionee's employment, or if
the optionee becomes disabled, the optionee's Options, unless previously
terminated, may be exercised, whether or not otherwise exercisable, by the
optionee or his legal representative or the person who acquires the Options by
bequest or inheritance at any time within one year following the date of death
or disability of the optionee.
An Option granted under the Plan is not transferable by the optionee
other than by will or by the laws of descent and distribution and, during the
lifetime of the optionee, may be exercised only by the optionee, his guardian
or legal representative.
-9-
<PAGE>
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", which requires entities to calculate the fair value of
stock awards granted to employees. This statement provides entities with the
option of either electing to expense the fair value of employee stock-based
compensation or continuing to recognize compensation expense under existing
accounting pronouncements and to provide proforma disclosures of net income
and, if presented, income per share, as if the above-mentioned fair market
value method of accounting was used in determining compensation expense.
Additionally, the statement requires that all equity awards granted to
nonemployees such as suppliers of goods and services be recognized based on
fair value.
The Company has elected the proforma method of disclosure. Under this
method, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted-
average assumptions for grants used in 1997 and 1996: no expected dividends;
expected volatility of 74.77%; risk free interest rate of 6.07%; and expected
lives of five years.
Using these assumptions, the Company's net income(loss) and
earnings(loss) per common share would have been:
1997 1996
Net income(loss) --------- -----------
As reported $(347,291) $(3,756,450)
Pro Forma (495,586) (3,854,017)
Earnings(loss) per common share
As reported $ (0.06) $ (0.74)
Pro Forma (0.09) (0.76)
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Board of Directors approved the formation of a Compensation
Committee on December 5, 1997. The Compensation Committee has responsibility
to recommend salaries and short- and long-term incentive compensation levels
for all executive officers. It also will administer the Company's Incentive
Stock Option Plan, and will make recommendations concerning bonuses and other
incentive compensation for Company personnel.
The Compensation Committee currently consists of one independent non-
employee director and one non-employee director who has an ownership interest
in excess of 10% and certain other interlocking relationships as defined by
the Securities and Exchange Commission. The President and CEO serves in an
advisory capacity.
The philosophy of the Compensation Committee is to provide a
compensation package for each executive officer that incentivizes the
individual to fully support the Company's business objective and to maximize
stockholder value. These compensation packages will generally consist of a
base salary, short-term incentives in the form of discretionary cash bonuses,
and long-term incentives in the form of stock options.
EXECUTIVE OFFICER COMPENSATION
The Company's compensation program for executive officers is based on
the following principals:
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* Compensation should be reflective of overall Company financial
performance and an individual's contribution to the Company's
success.
* Compensation packages should be based on competitive practices.
* A significant portion of overall compensation should be performance
based.
* Long-term incentive compensation should be structured to closely
follow increases in stockholder return.
Prior to 1997, the CEO and one other executive officer took voluntary
reductions in base salary because of financial performance difficulties. In
the latter part of 1997, the Board of Directors recommended that the salaries
for these individuals be reinstated to their previous levels. There were no
other salary increases granted to executive officers in 1997.
Cash bonuses are generally provided on a purely discretionary basis.
The letter of employment of Rick C. Townsend, Executive Vice President and
Chief Financial Officer, provides for a bonus plan based on specific net
profit provisions. In 1997, there were no bonuses paid to executive officers.
The CEO and two other executive officers have significant ownership
interests (over 5%) and as a result are highly motivated to maximize
stockholder value. The executive officers are also eligible to participate in
the Company's Incentive Stock Option Plan. In 1997, there were no stock
options granted to executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Davis has been CEO of the Company since 1991. As noted above, in
1996 he took a voluntary reduction in base salary from $125,000 to $65,000.
His salary was reinstated to $125,000 in August 1997, and is currently set at
that level.
As a result of the Company not achieving profitability goals in 1997,
Mr. Davis was not awarded any cash bonus, stock options or other form of
incentive compensation.
The Compensation Committee believes Mr. Davis has managed the Company
well, and future compensation will be based on further improvements in Company
performance.
Compensation Committee: Craig C. Barto
Robert A. Taylor
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown below was prepared using data prepared by
Carl Thompson & Associates, Inc. As required by applicable rules of the SEC,
the graph was prepared based upon the following assumptions:
1. $100 was invested in Common Stock, the S&P 500 Composite Index and
the Peer Group (as defined below) on July 20, 1995 (the date of the Company's
initial public offering).
2. Peer Group investment is weighted based on the market
capitalization of each individual company within the Peer Group at the
beginning of each year.
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3. Dividends are reinvested on the ex-dividend dates.
The companies that comprise the Company's Peer Group are as follows:
Sevenson Environmental Services, Inc.; Thermo Remediation, Inc.; OHM
Corporation; EMCON; Versar, Inc.; and International Technology Corporation.
CET ENVIRONMENTAL SERVICES, INC.
COMPARATIVE CUMULATIVE TOTAL RETURNS
CET ENVIRONMENTAL SERVICES, INC.
S&P 500 INDEX AND PEER GROUP
(Performance results through December 31,1997)
[STOCK PERFORMANCE GRAPH INSERTED HERE]
7/20/95 12/31/95 12/31/96 12/31/97
------- -------- -------- --------
CET Environmental
Services, Inc. $100.00 $187.50 $115.00 $138.75
Peer Group $100.00 $ 87.40 $ 82.83 $ 83.87
S&P 500 $100.00 $112.52 $138.34 $184.48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since July 1992, the Company has relied upon financing from the Birnie
Trust. The mother-in-law of Steven Davis, the Company's President, is trustee
of the Birnie Trust and Mr. Davis' wife is a beneficiary. The Company has
borrowed funds from the Birnie Trust pursuant to promissory notes due and
payable on demand with the interest payable monthly. The Birnie Trust is also
an investor in the Company's private offering of debt securities, described
below. The total borrowings since July 1, 1992, were $2,269,000. However, the
maximum principal amount outstanding at any one time was $671,800.
In 1997 and 1996, the Company provided services to Signal Hill
Petroleum, Inc., Paramount Petroleum and Fletcher Oil in the aggregate amount
of approximately $835,000 and $340,000, respectively. These services include
remediation services, ground water monitoring and site investigations for
existing properties and environmental assessments in relation to property
acquisition. Mr. Barto, Chairman of the Company, is a 50 percent owner of
these businesses.
In March and April 1995, the Company issued debt securities in a private
offering pursuant to which it raised $890,000. In exchange for each $10,000
invested, the 19 investors were given a warrant to acquire approximately 1,312
shares of Common Stock at approximately $1.20 per share, for an aggregate of
116,768 shares, and a Subordinated Note for the amount invested. The
promissory notes were due on March 1, 1996, with interest of 10 percent per
annum payable on the first day of each month commencing on April 1, 1995.
Investors who held Subordinated Notes in the aggregate amount of $680,000 are
related to Company management. The Birnie Trust held $400,000 of such
Subordinated Notes and other relatives of Mr. Davis held $230,000 of such
Subordinated Notes. A relative of Mr. Cotton held $50,000 of such Subordinated
Notes. During August 1995, one of the Subordinated Notes in the principal
amount of $80,000 was repaid. During November and December 1995, the 19
investors exercised their warrants to purchase a total of 116,768 shares of
Common Stock. Eighteen (18) of the investors converted a total of $127,575 of
the outstanding Subordinated Notes and one investor paid $12,600 in cash to
exercise his warrant. On March 1, 1996, the
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remaining balances were repaid on all Subordinated Notes except for $471,800
(comprised of a $337,000 Note held by the Birnie Trust and $134,800 of Notes
held by relatives of Mr. Davis) which was rolled over into new Notes, payable
in one year with interest due monthly at ten percent per annum. On July 24,
1996, the Company borrowed an additional $200,000 from the Birnie Trust under
a Promissory Note payable in one year at 10% interest. On December 31, 1997,
the Promissory Notes to the Birnie Trust totaling $537,000 and to the
relatives of Mr. Davis totaling $134,800 were extended to February 28, 1999.
On April 30, 1996, the Company loaned $105,764.38 to John G. L. Hopkins,
an Officer and Director of the Company pursuant to a demand note which bears
interest at the rate of 8.25% per annum. Interest is payable monthly and
principal is due on demand. Since that date, several additional advances have
been made to Mr. Hopkins bringing the total amount of the loan to Mr. Hopkins
to approximately $148,000 (excluding accrued interest) as of December 31,
1996. On February 27, 1997, these loans were repaid in full by Mr. Hopkins.
During 1997, the Company made additional advances to Mr. Hopkins and the
balance due at December 31, 1997, was $100,010. Interest is payable monthly,
and principal is due on demand.
In order to meet short-term operating needs, the Company from time to
time borrows money from affiliates of the Company. On November 8, 1996, the
Company borrowed $545,000 from Signal Hill Petroleum, a company controlled by
Craig C. Barto, one of the Company's directors, pursuant to a 30 day note
which bears interest at 10% per annum. The due date on the note was extended
to January 15, 1997, then repaid in the amount of $300,000 on January 15,
1997, and $250,129 (including accrued interest) on February 27, 1997.
All of these transactions were approved by the Board of Directors and
were made on terms as fair and reasonable to the Company as those that could
be obtained from non-affiliated third parties. Any future transactions between
the Company and its officers, directors, employees and affiliates that are
outside the scope of the Company's employment relationship with such persons
will be subject to the approval of a majority of the disinterested members of
the Board of Directors based upon a determination that the terms are at least
as favorable to the Company as those that could be obtained from unrelated
parties.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The independent accounting firm of Grant Thornton LLP audited the
financial statements of the Company for the year ended December 31, 1997, and
has been selected in such capacity for the current fiscal year. At the
direction of the Board of Directors, this appointment is being presented to
the shareholders for ratification or rejection at the Annual Meeting of Share-
holders. If the shareholders do not ratify the appointment of Grant Thornton
LLP, the appointment of auditors will be reconsidered by the Board of
Directors.
It is expected that representatives of Grant Thornton LLP, will be
present at the meeting and will be given an opportunity to make a statement if
they desire to do so. It is also expected that the representatives will be
available to respond to appropriate questions from shareholders.
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK
DESCRIPTION OF PROPOSED AMENDMENTS
The Company's Board of Directors has proposed an amendment to the
Company's Articles of Incorporation which would authorize the Company to
issue up to
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5,000,000 shares of no par value preferred stock (the "Preferred Stock"). If
the proposed amendment is approved, the Board of Directors would be empowered,
without the necessity of further action or authorization by the Company's
stockholders (unless required in a specific case by applicable laws or
regulations or stock exchange rules), to authorize the issuance of the
Preferred Stock from time to time in one or more series, and to fix by
resolution or resolutions, designations, preferences, limitations and relative
rights of each of such series. Each series of Preferred Stock could, as
determined by the Board of Directors at the time of issuance, rank, with
respect to dividends and redemption and liquidation rights, senior to the
Company's common stock. No preferred stock is presently authorized by the
Company's Articles of Incorporation.
The amendment would authorize the Board of Directors to determine, among
other things, with respect to each series of Preferred Stock which may be
issued: (a) the distinctive designation and number of shares constituting such
series; (b) the dividend rates, if any, on the shares of that series and
whether dividends would be payable in cash, property, rights or securities;
(c) whether dividends would be non-cumulative, cumulative to the extent
earned, partially cumulative or cumulative and, if cumulative, the date from
which dividends on the series would accumulate; (d) whether, and upon what
terms and conditions, the shares of that series would be convertible into or
exchangeable for other securities or cash or other property or rights; (e)
whether, and upon what terms and conditions, the shares of that series would
be redeemable; (f) the rights and the preferences, if any, to which the shares
of that series would be entitled in the event of voluntary or involuntary
dissolution or liquidation of the Company; (g) whether a sinking fund would be
provided for the redemption of the series and, if so, the terms of and amounts
payable into such sinking fund; (h) whether the holders of such securities
would have voting rights and the extent of those voting rights; (i) whether
the issuance of any additional shares of such series, or of any other series,
shall be subject to restrictions as to issuance or as to the powers,
preferences or rights of any such other series; and (j) any other preferences,
privileges and relative rights of such series as the Board of Directors may
deem advisable. Holders of the Company's common stock have no preemptive
right to purchase or otherwise acquire any Preferred Stock that may be issued
in the future. The proposed amendment would not change the number of shares
of common stock currently authorized (20,000,000 shares), of which 5,809,485
shares were outstanding on April 27, 1998.
REASONS FOR AND POSSIBLE EFFECTS OF PROPOSED AMENDMENT
The Board of Directors recommends the authorization of Preferred Stock
to increase the Company's financial flexibility. The Board believes that the
complexity of modern business financing and acquisition transactions requires
greater flexibility in the Company's capital structure than now exists. The
Preferred Stock would be available for issuance from time to time as
determined by the Board of Directors for any proper corporate purpose. Such
purposes might include, without limitation, issuance in public or private
sales for cash as a means of obtaining additional capital for use in the
Company's business and operations, and issuance as part of all of the
consideration required to be paid by the Company for acquisitions of other
businesses or properties. As described below, the Company intends to issue a
portion of the Preferred Stock to Heartland Advisors. The Company does not
currently have any agreements, understandings or arrangements to issue any
other shares of Preferred Stock.
It is not possible to state the precise effect of the authorization of
the Preferred Stock upon the rights of holders of the Company's common stock
until the Board of Directors determines the respective preferences,
limitations and
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relative rights of the holders of one or more series of the Preferred Stock.
However, such effect might include: (a) reduction in the amount otherwise
available for payment of dividends on common stock, to the extent dividends
are payable on any issued shares of Preferred Stock and restrictions on
dividends on common stock if dividends on the Preferred Stock are in arrears;
(b) dilution of the voting power of the common stock to the extent that the
Preferred Stock has voting rights; and (c) the holders of common stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the Preferred Stock.
The amendment may be viewed as having the effect of discouraging an
unsolicited attempt by another person or entity to acquire control of the
Company. Issuance of authorized preferred shares can be implemented, and have
been implemented by some companies in recent years, with voting or conversion
privileges intended to make acquisition of a company more difficult or more
costly. Such an issuance could discourage or limit stockholders'
participation in certain types of transactions that might be proposed (such as
a tender offer), whether or not such transactions were favored by the
majority of the stockholders, and could enhance the ability of officers and
directors to retain their positions.
PROPOSED SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
During April 1998, the Company received a proposal pursuant to which the
Company would sell to a mutual fund managed by Heartland Advisors, a mutual
fund manager based in Milwaukee, Wisconsin, shares of the Company's Preferred
Stock, which the Company intends to designate as Series A Convertible
Preferred Stock, for cash in an amount between $5 and $6 million.
Under the terms of the proposal, the Series A Convertible Preferred
Stock would have cumulative dividends of 8.5% per annum, with dividends
payable semi-annually. The holder would have the right to convert the Series
A Convertible Preferred Stock into shares of Common Stock at a conversion
ratio based on a price per share of Common Stock equal to 110% of the average
price of the Common Stock during the twenty trading days prior to the closing.
Beginning four years after the Closing, the Company would have the right to
force the conversion of the Series A Convertible Preferred Stock, or redeem
such shares for cash. The voting rights that would be given to the holder of
the Series A Convertible Preferred Stock have not been determined.
The proposal provides that the Company would file a registration
statement with the Securities and Exchange Commission within 90 days of the
closing to register the Series A Convertible Preferred Stock and the
underlying Common Stock under the Securities Act of 1933, as amended, for
resale by the holder.
Based on 110% of an assumed average price of the Common Stock of $6.125
(the closing price on April 21, 1998), approximately 742,115 to 890,538 shares
of Common Stock could be issued upon conversion of the Series A Convertible
Preferred Stock. Such shares of Common Stock would represent approximately
11.3% to 13.3% of the Company's Common Stock which would then be outstanding,
assuming no other issuances of Common Stock by the Company.
The sale of the Series A Convertible Preferred Stock to the mutual fund
managed by Heartland Advisors is contingent on shareholder approval of the
amendment to the Articles of Incorporation, the negotiation of a definitive
stock purchase agreement, and the final determination of the terms of the
Series A Convertible Preferred Stock. It is possible that even if the
amendment were to be approved by the shareholders, that the sale of the Series
A Convertible Preferred Stock may not be completed.
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VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's Common
Stock outstanding will be required to approve the proposed amendment to the
Articles of Incorporation.
The Board of Directors recommends a vote FOR the proposed amendment to
the Articles of Incorporation.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any other matter to be presented at the Meeting other than as set
forth herein. However, if any other matters are properly brought before the
Meeting, the shares represented by valid proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting them. A
majority vote of the shares represented at the meeting is necessary to approve
any such matters.
ANNUAL REPORT
The Company's Annual Report for the year ending December 31, 1997,
accompanies this Proxy Statement. The Annual Report is not incorporated into
this Proxy Statement and is not to be considered part of the solicitation
material.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN MAY 1999
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in May 1999 must be received at the
offices of the Company, 7670 South Vaughn Court, Englewood, Colorado 80112, no
later than December 28, 1998, in order to be included in the Company's proxy
statement and proxy relating to that meeting.
STEVEN H. DAVIS, PRESIDENT
Englewood, Colorado
April 27, 1998
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PRELIMINARY COPY
P R O X Y
CET ENVIRONMENTAL SERVICES, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven H. Davis with the power to appoint
his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of common stock of CET Environmental
Services, Inc. held of record by the undersigned on April 27, 1998, at the
Annual Meeting of Shareholders to be held on June 2, 1998, or any adjournment
thereof.
1. The election of five (5) Directors of the Company to serve until the
next Annual Meeting of Shareholders and until their successors have been duly
elected and qualified:
___ FOR all nominees listed below (except as marked to the
contrary).
___ WITHHOLD authority to vote for all the nominees listed
below:
Craig C. Barto Douglas W. Cotton
Robert A. Taylor Rick C. Townsend
Steven H. Davis
[INSTRUCTION: To withhold authority to vote for any individual nominee,
cross out that nominee's name above.]
2. The ratification of the appointment of Grant Thornton LLP as the
Company's independent accountants for the fiscal year ending December 31,
1998:
___ FOR ___ AGAINST ___ ABSTAIN
3. The approval of an amendment to the Company's Articles of
Incorporation to authorize the issuance of up to 5,000,000 shares of no par
value Preferred Stock in such amounts, in one or more series, and with such
designations, preferences, limitations and relative rights for each series as
the Board of Directors shall determine.
___ FOR ___ AGAINST ___ ABSTAIN
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CET
ENVIRONMENTAL SERVICES, INC. PLEASE SIGN AND RETURN THIS PROXY IN THE
ENCLOSED PRE-ADDRESSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
(To be signed on the other side)
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement.
Dated: ______________, 1998 _______________________________________
Signature(s) of Shareholder(s)
_______________________________________
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians and attorneys should indicate when
signing. Attorneys should submit powers of attorney.
