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
CET ENVIRONMENTAL SEVICES, INC.
(Name of Registrant as Specified in Its Charter)
CET ENVIRONMENTAL SERVICE, INC.
(Name of Person(s) Filing Proxy Statement)
<PAGE>
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 addi-
tional 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 ownership 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 successors 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 re-election, 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 specifica-
tions 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.
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<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
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<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 50 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
-6-
<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. On
January 1, 1996, it was determined that the contingent events did occur as to
33,000 of the remaining shares, with vesting thus commencing one year later.
The remaining options totaling 44,000 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, as part
of the original 181,000 shares. The vesting on all 20,000 shares was
accelerated to May 15, 1996, related to Ms. Dunlap's termination due to a
terminal illness.
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.
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<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.
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<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 Corpora-
tion; 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 Shareholders. If the
shareholders do not ratify the appointment of Grant Thornton LLP, the appoint-
ment 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 Heart-
land Advisors. The Company does not currently have any agreements, under-
standings 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 a period of twenty trading days ending on a date
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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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, Proxy Statement and Annual Report.
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.
