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Filed with the Securities and Exchange Commission on October 1, 1999
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
KFX INC.
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(Exact name of registrant as specified in our charter)
Delaware 84-1079971
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 3200, Denver, Colorado 80202, (303) 293-2992
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(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
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Theodore Venners
1999 Broadway, Suite 3200, Denver, Colorado 80202, (303) 293-2992
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(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
____________________
Copies To:
Warren L. Troupe, Esq.
Morrison & Foerster LLP
370 17th Street, Suite 5200, Denver, Colorado 80202
(303) 592-1500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities Amount to be Proposed maximum offering Proposed maximum aggregate Amount of
to be registered registered price per share offering price registration fee
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Common Stock, $.001 par
value per share 527,000 $1.375(1) $724,625(1) $201.45(1)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices for the Common Stock
reported on the American Stock Exchange on September 28, 1999.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
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The information in this prospectus is subject to change. These securities may
not be sold until the registration statement filed with the Securities and
Exchange Commission is declared effective. This prospectus is not an offer to
sell these securities and we are not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
Subject to Completion, Dated October 1, 1999
KFX INC.
PROSPECTUS
527,000 Shares
Common Stock, $.001 par value
This prospectus relates to 527,000 shares of common stock, $.001 par value
per share of KFx Inc., a Delaware corporation, which may be offered from time to
time by the selling stockholder named herein. We will not receive any proceeds
from the sale of the common stock, rather the selling stockholder will receive
all of the net proceeds from the sale of the common stock. We will pay all
expenses incident to the registration of the common stock under the Securities
Act of 1933, as amended.
The selling stockholder may sell the common stock from time to time in one
or more transactions for the selling stockholder's own account (which may
include block transactions) on the American Stock Exchange or in negotiated
transactions. Sales will be made on terms and prices negotiated between the
selling stockholder and the buyers or, if made on the American Stock Exchange,
at then current market prices. The selling stockholder has agreed not to sell
any common stock until January 1, 2000 and to sell no more than 50,000 shares of
common stock in any calendar month during the period from January 1, 2000 until
June 30, 2000.
The common stock is listed for trading on the American Stock Exchange under
the symbol "KFX." On September 27, 1999, the last reported sale price of the
common stock was $1.5625 per share.
Our corporate offices are located at 1999 Broadway, Suite 3200, Denver,
Colorado 80202. Our telephone number is (303) 293-2992.
Investing in the common stock involves certain risks. See the "Risk
Factors" section beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission have approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is ________, 1999.
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TABLE OF CONTENTS
Page
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THE COMPANY............................................................ 1
RISK FACTORS........................................................... 3
FORWARD LOOKING STATEMENTS............................................. 9
USE OF PROCEEDS........................................................ 10
SELLING STOCKHOLDER.................................................... 10
PLAN OF DISTRIBUTION................................................... 11
LEGAL MATTERS.......................................................... 11
EXPERTS................................................................ 11
WHERE YOU CAN FIND MORE INFORMATION.................................... 11
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus or incorporated by reference is accurate only as of the date on the
front cover of this prospectus. Our business and financial condition may have
changed since that date.
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THE COMPANY
We develop and deliver various technological and service solutions to the
electric power generation industry that enhance energy value while minimizing
environmental harm. As a result, our solutions not only increase our customers'
productivity but also facilitate their ability to comply with government imposed
air emission standards. In general, we offer our customers technological
solutions that enhance the output of coal-fired electric utility boilers while
also reducing any harmful environmental impact.
To date, we offer two leading technologies, K-Fuel(TM) and NeuSight(TM), to
our customers in the electric power industry. First, we offer customers our K-
Fuel(TM) technology, a patented technology that uses heat and pressure to
physically and chemically transform high-moisture, low-energy value coal and
other organic feedstocks into a low-moisture, high-energy solid clean fuel, or
K-Fuel(TM). The principal benefit of the K-Fuel(TM) technology is that the fuel
produced from the process can facilitate the efforts of electric power producers
and other large-scale users of coal to meet the clean air standards imposed by
the Clean Air Act, as amended by the Clean Air Act Amendments of 1990. Based on
various analyses, the environmental benefits of burning K-Fuel(TM) versus most
other comparable heat value coals appear to include significant reductions in
emissions of nitrogen oxide, sulfur dioxide, carbon dioxide, mercury and
chlorine.
In February 1999, the first commercial burn of K-Fuel(TM) was completed at
Indiana-Kentucky Electric Corporation's Clifty Creek generating station in
southern Indiana. Initial results of the test burn indicate that K-Fuel(TM)
appears to produce:
- a reduction in nitrogen oxide emissions while maintaining full capacity
and reducing internal power consumption;
- no unusual deterioration of internal boiler operations;
- a reduction in the fuel preparation costs;
- no spontaneous combustion; and
- an improvement in boiler efficiency.
We plan to license our K-Fuel(TM) technology domestically and
internationally to various parties wishing to construct and operate K-Fuel(TM)
production facilities. Most recently, on June 28, 1999, we executed an
agreement with Kennecott Alternative Fuels, Inc., an indirectly owned subsidiary
of Kennecott Energy Company, one of the largest coal companies in the United
States, that expands our strategic partnership with Kennecott to develop a 3
million ton per year K-Fuel(TM) plant. Under this agreement, we received $2.0
million in license and renewal fees in connection with licensing our K-Fuel(TM)
technology to K-Fuel LLC. Of this payment, $1 million is a nonrefundable
prepayment that will be applied against a K-Fuel(TM) license fee at the time
Kennecott finalizes plans and commits to building a K-Fuel(TM) facility. We have
committed the $1.0 million balance to our partnership with Kennecott to fund
further action associated with developing the K-Fuel(TM) facility planned by
Kennecott.
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Additionally, in early 1998, through the acquisition of a controlling
interest in Pegasus Technologies, Limited and our formation in mid 1998 of Net-
Power Solutions, LLC, we added NeuSIGHT(TM) to the technological solutions that
we offer to the electric power generation industry. NeuSIGHT(TM), which is a
neural network-based (i.e. artificial intelligence) software technology, is the
leading combustion optimization software product for coal-fired electric
emissions. In general, the NeuSIGHT(TM) software gathers operating data from
the boiler and develops a model of optimal boiler combustion, or burn, taking
into account various safety, environmental and other restraints. Electric power
companies that use the NeuSIGHT(TM) software enjoy optimal combustion
efficiency, and as a result, increase their efficiency, lower their operating
costs and facilitate their compliance with applicable environmental laws.
Pegasus developed NeuSIGHT(TM) and continues to enhance it and develop related
products while Net-Power Solutions focuses on the marketing and sales of
NeuSIGHT(TM) licenses and related implementation services.
NeuSIGHT(TM) provides various benefits, including:
- improved combustion performance;
- reduction in nitrogen oxide emissions;
- improvements in boiler efficiency (heat rate), which translates into
lower fuel costs, as well as lower emissions of sulfur dioxide and
carbon dioxide;
- an increase in gross generating capacity, providing more electricity
for the power company to sell;
- lower carbon in the ash waste by-product, which can convert a related
waste product disposal cost into marketable ash product; and
- improvements in opacity, which refers to the visible exhaust discharged
from an emissions stack.
On August 27, 1999 we issued 527,000 of our shares of common stock to AIW/P
Holdings, Inc. as consideration for the assignment by AIW/P to us of a fifteen
percent (15%) ownership interest in Pegasus pursuant to an Exchange Agreement
and a Transfer Agreement between us and AIW/P. As part of the transaction,
AIW/P directed us to issue the shares of common stock to Computer Associates
International, Inc. This transaction increased our ownership of Pegasus to
seventy-five percent (75%). To more efficiently organize and operate the
business of Net Power Solutions and Pegasus, we plan to complete a merger of the
two entities within approximately thirty (30) days. Following the merger, we
will own an interest in the combined entity exceeding seventy-five percent
(75%).
As part of considering the exchange with AIW/P and the merger of Pegasus
and Net Power Solutions, the Company commissioned an independent third party
appraisal of the value of Pegasus and Net Power Solutions. The appraisal was
conducted by the Evergreen Group and concluded that the estimated combined value
of Pegasus and Net Power Solution approximated
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$14,106,000. The Evergreen Group based its analysis on the assumptions, and used
the methodologies, set forth in the appraisal.
We are actively exploring various options to expand our business by adding
other solutions (technologies, products and services) to meet: (a) the needs of
the electric power industry as it is transformed by deregulation into a highly
competitive industry; and (b) the increasingly stringent environmental standards
triggered by indications of global warming and other environmental concerns.
With our strategic partnership with Kennecott and our NeuSIGHT(TM) software, we
expect to combine the benefits of K-Fuel(TM) with those of the NeuSIGHT(TM)
optimizing solution, which would enable utilities to progress towards regulatory
compliance.
Although we are pursuing various international opportunities, during each
of the three years ended December 31, 1998, substantially all of our operating
activities were conducted domestically.
We maintain our principal executive offices at 1999 Broadway, Suite 3200,
Denver, Colorado 80202. Our telephone number is (303) 293-2992. Our World Wide
Website is http://www.kfx.com. Information contained in our website is
specifically not incorporated herein by reference or otherwise.
RISK FACTORS
An investment in the common stock being offered hereunder involves a high
degree of risk. Before purchasing the common stock, you should carefully
consider the following risk factors together with all other information in the
prospectus.
It is difficult to evaluate our business and prospects because we are
shifting our strategic focus to the development of Pegasus
KFx was organized in 1992 and in August 1995, we commenced the initial
application of our K-Fuel technology and began construction of a facility near
Gillette, Wyoming, which is owned by KFx Fuel Partners, L.P. (a limited
partnership of which we own 5%), in order to produce K-Fuel(TM). Historically,
our primary enterprise has been the business of licensing and commercializing a
patented technology that in general uses heat and pressure to physically and
chemically transform high-moisture, low-energy per pound coal and other organic
feedstocks into a low-moisture, high-energy solid fuel known as K-Fuel(TM).
Operations at the K-Fuel facility began in the second quarter of 1998. In March
1998 we acquired, through our purchase of a controlling ownership interest in
Pegasus, the software product NeuSIGHT(TM). Accordingly, we have a limited
operating history upon which an evaluation of our prospects and future
performance can be made. Although we continue to believe that K-Fuel(TM)
technology has significant long term value, we believe that the software
business of Pegasus offers more near term value. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the operation of a new business based on innovative technologies
in a highly competitive industry.
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We have not consistently achieved material revenue since our inception
We have not consistently achieved material licensing, royalty or product
sales revenues since we were formed in 1992. In addition, no significant
revenue was earned prior to our formation when similar operations to ours were
conducted by various predecessor entities. We have incurred significant net
operating losses, including net losses of $3,781,342 in the six months ended
June 30, 1999 and $6,783,817 and $5,095,160 in 1998 and 1997, respectively. At
June 30, 1999, we had an accumulated deficit of $49,852,047, and we expect to
incur additional losses in the future. We cannot assure you that we will ever
achieve profitability, or be able to generate earnings sufficient to meet our
interest and principal payment obligations.
The market for NeuSIGHT(TM) and related software depends on successful
sales and marketing strategies
The market for NeuSIGHT(TM) and related software is uncertain. In our
opinion, realization of near term value from the software business of Pegasus
requires, among other things, the successful implementation of new sales and
marketing programs. We have taken numerous steps to implement a variety of such
programs and strategies, however, any evaluation or prediction of their
effectiveness would be premature. We cannot assure you that our sales and
marketing strategies for NeuSIGHT and related software will be successful.
We may need additional capital to fund our business and to pay interest and
principal, at maturity, on our 6% convertible debentures
We require substantial working capital to fund our business. In past
years, we have experienced operating losses and negative cash flow and expect
this situation to continue in the future. As a result, we have been dependent
on sales of our equity securities and strategic relationships to fund
construction of our K-Fuel facility and operating costs associated with our
businesses.
By selling our 6% convertible debentures in July 1997, we incurred an
additional $17,000,000 in principal amount of indebtedness. This indebtedness
resulted in a ratio of long-term debt to stockholders' equity at December 31,
1998 of approximately 7.9 to 1.
Accordingly, we will require substantial amounts of cash to fund scheduled
payments of principal and interest on our 6% convertible debentures, future
acquisitions and capital expenditures and working capital requirements. We may
be required to raise additional funds through public or private financings,
strategic relationships or other arrangements. We cannot be assured that such
additional funding will be available or on terms satisfactory to us. A lack of
adequate financing may adversely affect our ability to:
- respond to changing business and economic conditions and competitive
pressures;
- make future acquisitions;
- absorb negative operating results; or
- fund capital expenditures or increased working capital requirements.
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We have contractual limitations on our ability to secure additional funding
Our ability to secure additional financing is limited by the terms of the
indenture related to our 6% convertible debentures. Our ability to raise
additional capital is also limited by a stock purchase agreement between us and
Thermo Ecotek Corporation, one of our major stockholders; however, we have been
advised by this major stockholder that it intends to sell its shares of common
stock and the stock purchase agreement with this major stockholder will
terminate when its stock has been sold.
Our ability to take advantage of net operating losses could be limited
Under Section 382 of the Internal Revenue Code of 1986, the use of prior
net operating losses is limited after an ''ownership change,'' as defined in
Section 382. The limitation, if applicable, is equal to the value of the loss
corporation's outstanding stock immediately before the date of the ownership
change multiplied by a long-term interest rate specified by the Internal Revenue
Code. The quoted market value of a stock is a factor to consider, but not
necessarily a conclusive factor, in determining the fair value of a
corporation's stock. Additional issuances of equity interests by us, including
the issuance of shares of common stock upon the conversion of our 6% convertible
debentures or on the exercise of outstanding warrants or options to purchase our
common stock may result in an ownership change. In the event we achieve
profitable operations, any significant limitation on the use of our net
operating losses would have the effect of increasing our tax liability and
reducing net income and available cash resources.
Our general project development is uncertain
The process of developing, permitting, financing and constructing K-
Fuel(TM) production facilities is complex, lengthy and costly and subject to
numerous risks, uncertainties and factors beyond our control, including cost
overruns, delays, damage and technical delays. Only a small percentage of the
projects that we evaluate and pursue may ultimately result in operating
projects. As a result, we may not be able to recover any expenses that we incur
in the evaluation and development of certain projects.
Continued development of the existing K-Fuel facility and its future
ownership is uncertain
The existing K-Fuel facility was substantially completed in December 1996.
Thermo Ecotek Corporation, which operates the facility and owns 95% of the
partnership that owns the facility, has continued to refine and optimize
operations at the K-Fuel facility, conducting extensive testing and producing
commercially salable K-Fuel(TM) product. Thermo Ecotek has encountered
difficulties in attempting to achieve optimal and sustained operations at this
K-Fuel facility. Thermo Ecotek has also informed us that they do not intend to
provide significant amounts of additional capital to implement solutions.
Further, on May 24, 1999, Thermo Ecotek announced that its parent, Thermo
Electron Corporation, has proposed the merger of Thermo Ecotek into Thermo
Electron. In conjunction with the proposed merger, Thermo Ecotek announced that
it will record pretax restructuring and other charges partially related to its
decision to hold for sale its investment in the K-Fuel facility in Wyoming.
Further, Thermo Ecotek has ceased operations at this facility and K-Fuel(TM) is
no longer being produced. It is
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unlikely that the facility will reopen on a full-time basis until projects
totaling $8 million to $12 million to modify the facility's waste management
system and address other issues are completed. Since Thermo Ecotek has ceased
operations at the Wyoming K-Fuel facility and will not pay for the project, a
new partner will have to be identified to fund that cost. We are unable to
predict the effect on us (including the recoverability of our investment related
to this facility), if any, of Thermo Ecotek's cessation of operations at the
Wyoming K-Fuel facility. We are, however, actively assisting Thermo Ecotek in
soliciting offers to purchase the Wyoming K-Fuel facility and have begun related
discussions with several interested parties; however we cannot give you any
assurance as to when or if the Wyoming K-Fuel facility will be sold or when, if
ever, it will resume operations.
Development of future K-Fuel facilities is uncertain
We cannot assure you that any K-Fuel facilities planned by Kennecott will
not experience technical or operational problems similar or in addition to those
experienced at the Wyoming K-Fuel facility. To the extent that other technical
or operational problems materialize, they may adversely impact our ability to
develop other K-Fuel(TM) projects or facilities.
We rely on strategic partners
We have established relationships with strategic partners to exploit the K-
Fuel(TM) technology, enhance the application of NeuSIGHT(TM) and further
penetrate the NeuSIGHT(TM) market. Our success will depend upon our ability to
maintain existing strategic relationships and develop and maintain additional
relationships for the further development of our technologies. We are and will
continue to be dependent upon our strategic partners to, among other things,
fund the operations of the partnerships or the joint venture entities in which
we own interests and to provide necessary technical, operational, personnel and
other resources. While each of our strategic partners has an economic
motivation to further the development of their respective joint ventures or
projects with us, the amount of time and resources devoted to such joint
ventures or projects will be controlled by our strategic partners and not by us.
A decline in the financial prospects of a particular strategic partner could
adversely effect such partner's commitment to a joint venture, which could
materially harm us. Moreover, joint ventures or similar arrangements require us
to have financial and other arrangements to meet our commitments to the joint
ventures. We cannot assure you that we will be able to maintain existing
strategic relationships, develop or maintain additional strategic relationships,
meet our commitments with respect to our joint ventures or that our strategic
partners will meet their commitments to any respective joint venture or project.
We are required to pay third parties a portion of licensing and royalty
revenues
We anticipate that a significant portion of our future revenues with
respect to K-Fuel(TM) will be in the form of licensing and royalty payments from
third party licensees operating commercial-scale production facilities of K-
Fuel(TM). Pursuant to various license agreements we have executed, we are
required to pay third parties a substantial portion of licensing and royalty
revenues we receive. Amounts due under these agreements may restrict or limit
our ability to pursue other commercialization opportunities with respect to K-
Fuel(TM) because such payments will decrease cash flow from operations.
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No established market for beneficiated fuel products exists
Although we believe that a substantial market will develop both
domestically and internationally for clean coal fuel products, an established
market does not currently exist. As a result, the availability of accurate and
reliable pricing information and transportation alternatives are not fully
known. Our future success will be determined by our ability to establish a
market for clean coal fuel products among potential customers such as electrical
utility companies and industrial coal users. Further, potential users of our
fuel products may be able to choose among alternative fuel supplies. Although we
have successfully operated a K-Fuel(TM) technology demonstration plant, the
market viability of the K-Fuel(TM) technology will not be known until we
complete construction of one or more commercial-scale production facilities,
either in the United States or internationally, that produce, on a consistent
basis, commercial quantities of fuel and meets certain minimum performance
specifications. We face the risk that commercial-scale production facilities
when completed will be unable to generate sufficient market interest to continue
in business. Further, we cannot assure you that the Wyoming K-Fuel facility or
any other commercial-scale K-Fuel facility will be successful.
The market for software in connection with the efficiency of the combustion
of coal is new and uncertain
Combustion and other optimization software relating to the production of
coal or other similar products has only been used by the electric power business
for a few years and has just recently gained market acceptance. We believe that
market pressures caused by the developing deregulation of the electric power
industry and the Clean Air Act will accelerate demand for and market acceptance
of NeuSIGHT(TM) and related software products being developed at Pegasus. There
can be no assurance, however, that NeuSIGHT(TM) or any related software products
will experience growth or market acceptance.
Our markets are competitive
We face competition from other companies in the clean coal and alternative
fuel technology industries. Some of these companies have financial and
managerial resources greater than ours and therefore may be able to offer
products more competitively priced and more widely available than ours. Also,
competitors' products may make our technology and products obsolete or non-
competitive. Our future success may depend on our ability to adapt to such
changing technologies and competition.
We are subject to risks of changing laws
A significant factor driving the creation of the United States market for
K-Fuel(TM), other beneficiated coal products, NeuSIGHT(TM) and other
optimization software products is the Clean Air Act, as amended by Title IV of
the Clean Air Act Amendments of 1990. The Clean Air Act specifies various air
emission requirements for electrical utility companies and industrial coal
users. We believe that compliance with the air emission regulations by these
coal users can be fully or partially met through the use of clean-burning fuel
technologies, like K-Fuel(TM), and combustion optimization software, like
NeuSIGHT(TM). We are unable to predict future regulatory
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changes and their impact on the demand for our products. A full or partial
repeal or revision of the Clean Air Act would have a material adverse effect on
our prospects.
The United States Court of Appeals for the District of Columbia recently
set aside certain air quality standards issued by the Environmental Protection
Agency in 1997, stating that the standards could not be enforced as issued
because the EPA's interpretation of the 1990 Clean Air Act in promulgating the
new rules was an unconstitutional delegation of legislative power. The court
remanded the case to the EPA for further consideration of all standards at
issue. Pending judicial resolution of the validity of the EPA's air quality
standards, some utilities may delay or abandon certain of their planned
activities designed to achieve compliance with the 1990 Clean Air Act, which
activities could include installation of the NeuSIGHT(TM) software. We cannot
predict the extent of such delay or its impact on the demand for our products.
We rely on key personnel and must be able to retain or attract qualified
personnel
We believe that our performance is substantially dependent on the
performance of senior management and key technical personnel. The inability to
retain key managerial and technical personnel or attract and retain additional
highly qualified managerial or technical personnel in the future could harm our
business or financial condition.
Our inability to adequately protect our proprietary technology could harm
our business
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights to establish
and protect our proprietary rights. We currently have a series of patents on
our K-Fuel(TM) technology, however, competitors may successfully challenge the
validity or scope of one or more of our patents or any future allowed patents.
These patents alone and our rights with respect to NeuSIGHT(TM) may not provide
us with any significant competitive advantage.
Third parties could copy or otherwise obtain and use our products or
technology without authorization or develop similar technology independently.
We cannot easily police unauthorized use of our technologies. The protection of
our proprietary rights may be inadequate and our competitors could independently
develop similar technology, duplicate our solutions or design around any patents
or other intellectual property rights we hold.
As is common in the software industry, we may from time to time receive
notices from third parties claiming infringement by our NeuSIGHT(TM) product or
similar software of third party patent and other property rights. At this time,
we have not filed suit against any competitor nor has another company claimed
that our products infringe on its patent or intellectual property rights. Any
claims, with or without merit, could be time-consuming or result in costly
litigation that may materially harm our business.
Year 2000 compliance
We are aware of the issues associated with the programming code in existing
computer systems as the Year 2000 approaches. We have completed a comprehensive
study of the possible effects of the Year 2000 issue on our informational
technology and non-informational technology systems at both our principal
offices and Pegasus' offices, and we believe them to be Year 2000 compliant. We
have hired a third party consultant to perform an analysis on the
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systems located at our Gillette, Wyoming laboratory and demonstration plant
facilities. Such analysis is expected to be completed in the fourth quarter of
1999.
We have been advised that KFx Fuel Partners has decided not to undertake a
Year 2000 analyses with respect to its IT and non-IT systems, including its
manufacturing equipment. All operations at the Wyoming K-Fuel facility have
ceased. Any activities related to Year 2000 issues are expected to be
undertaken in connection with modifications to the facility by a new investor.
Based on the recent age of the Wyoming K-Fuel facility, we do not expect that
any remedial actions necessary with respect to the Wyoming K-fuel facility will
be significant.
With respect to Year 2000 issue compliance of Pegasus' NeuSIGHT(TM) and
related software products, Pegasus' personnel has performed extensive analysis,
with the assistance of third party consultants, and believes that the products
are Year 2000 compliant. The remediation costs relative to these products were
nominal.
To date, no significant concerns have been identified as far as our
internal operations. We cannot assure you, however, that Year 2000-related
issues will not have a material adverse effect on our business, financial
condition or results of operations.
In addition, we substantially completed an assessment of the impact that
the Year 2000 issue may have on other systems that support our operations,
including, but not limited to, supplier systems, shipper systems, systems of
suppliers of banking and other financial services, environmental control systems
and building security systems. This analysis was largely based on interviews,
certifications and other correspondence. At this time, we cannot determine the
effects, if any, that any non-compliant systems of third parties may have on our
business, financial condition or results of operations and we cannot assure you
that the effects, if any, would not be material. Nevertheless, based on the
analyses performed to date, we do not expect these third party systems to
present a significant Year 2000 risk to our business, financial condition or
results of operations.
We do not expect to pay cash dividends
We have never paid any cash dividends and do not anticipate paying cash
dividends in the foreseeable future. In addition, we are prohibited from paying
dividends as long as any of our 6% convertible debentures are outstanding.
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that have been made
under the provisions of the Private Securities Litigation Reform Act of 1995.
Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and variations of these words and similar expressions are intended
to identify forward looking statements. We have based these statements on our
current expectations about future events. Although we believe that our
expectations about future events are reasonable, we cannot assure you that these
expectations will be achieved. Important factors that would cause our actual
results to differ materially from the forward looking statements in this
prospectus are described in the "Risk Factors" and elsewhere in this prospectus.
We urge you to carefully consider these factors. We caution you
9
<PAGE>
that any forward looking statements are not guarantees of future performance and
involve significant risks and uncertainties and that actual results may differ
materially from those projected in the forward looking statements as a result of
various factors. All forward looking statements attributable to us are expressly
qualified in their entirety by the foregoing cautionary statement.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by the
selling stockholder.
SELLING STOCKHOLDER
This prospectus relates to the offer and sale from time to time of up to a
total of 527,000 shares by Computer Associates International in the manner and
under the circumstances described on the cover page of this prospectus and under
"Plan of Distribution." There can be no assurance that Computer Associates
International will sell any or all of the common stock offered by this
prospectus. We do not know if, when or in what amount the selling stockholder
may offer the common stock for sale. The selling stockholder has agreed not to
sell any common stock until January 1, 2000 and to sell no more than 50,000
shares of common stock in any calendar month during the period from January 1,
2000 until June 30, 2000.
The following table sets forth (i) the name of the selling stockholder;
(ii) any relationship they may have had with us during the last three years;
(iii) the number of shares of common stock owned by the selling stockholder;
(iv) the number of shares of common stock being offered in this prospectus; and
(v) the number of shares of common stock held by the selling stockholder and (if
1% or more) the percentage of the class of common stock owned by the selling
stockholder after the completion of the offering described in this prospectus,
assuming that all the shares are sold.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME RELATIONSHIP SHARES OWNED SHARES SHARES OWNED
BEFORE THIS OFFERED IN THIS AFTER THIS
OFFERING PROSPECTUS OFFERING
- ------------------------------------------------------------------------------------------------------------
Computer Fifteen (15%) owner of 527,000 527,000 0
Associates an affiliated entity
International, (Pegasus)
Inc.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The selling stockholder and any broker or dealer to or through whom any of
the common stock is sold may be deemed to be underwriters within the meaning of
the Securities Act with respect to the common stock offered hereby, and any
profits realized by the selling stockholder or such brokers or dealers may be
deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the selling
stockholder are not expected to exceed normal selling expenses for sales. The
registration of the common stock under the Securities Act shall not be deemed an
admission by the selling
10
<PAGE>
stockholder or us that the selling stockholder is an underwriter for purposes of
the Securities Act of any common stock offered under this prospectus.
PLAN OF DISTRIBUTION
We are registering the shares of common stock covered by this prospectus
on behalf of the selling shareholder. All costs, expenses and fees in connection
with the registration of the shares offered hereby will be borne by us.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares will be borne by the selling shareholder. Sales of shares may be
effected by the selling shareholder from time to time in one or more types of
transactions (which may include block transactions) on the American Stock
Exchange, in the over-the-counter market, in negotiated transactions, through
put or call options transactions relating to the shares, through short sales of
shares, or a combination of such methods of sale, at market prices prevailing at
the time of sale, or at negotiated prices. Such transactions may or may not
involve brokers or dealers. The selling shareholder has advised us that is has
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling shareholder.
The selling shareholder may effect such transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling shareholder and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The selling shareholder may enter into hedging transactions with broker-
dealers or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of our
common stock in the course of hedging the positions they assume with the selling
shareholder. The selling shareholder may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or other financial institution of shares
offered hereby, which shares such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
Because the selling shareholder may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act, the selling shareholder will
be subject to the prospectus delivery requirements of the Securities Act, which
may include delivery through the facilities of the American Stock Exchange
pursuant to Rule 153 under the Securities Act. We have informed the selling
shareholder that the anti-manipulative provisions of Regulation M promulgated
under the Exchange Act may apply to its sales in the market.
The selling shareholder also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided it meets the criteria and conform to the requirements of such Rule.
Upon being notified by the selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a a supplement to
this prospectus, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of such selling shareholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such shares were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such broker-
dealer(s) did not conduct any investigation to verify the information set out or
incorporated by reference in this prospectus and (vi) other facts material to
the transaction
LEGAL MATTERS
Certain legal matters relating to the common stock to be offered hereby
will be passed upon for us by Morrison & Foerster LLP, 370 17th Street, Suite
5200, Denver, Colorado 80202.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of KFx Inc. for the year ended
December 31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. In accordance with those requirements, we file reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information on file at
the public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can request copies of those
documents upon payment of a duplicating fee, by writing to the SEC. Call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains a website that contains reports, proxy
and information statements and other information regarding the Company. The
address of the site is http://www.sec.gov. The common stock is quoted on the
American Stock Exchange. You may inspect reports and other information
concerning us at the offices of The American Stock Exchange, Inc. at 86 Trinity
Place, New York, New York 10006.
11
<PAGE>
The SEC allows us to "incorporate by reference" certain of our publicly
filed documents into this prospectus, which means that information included in
these documents is considered part of this prospectus. The following documents
filed by us with the SEC are hereby incorporated by reference in this
prospectus:
(1) our Annual Report on Form 10-K for the year ended December 31, 1998;
(2) our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
(3) our Current Report on Form 8-K dated June 29, 1999;
(4) our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
(5) our Current Report on Form 8-K dated August 27, 1999; and
(6) the description of the common stock contained in our Registration
Statement on Form 10-SB filed with the SEC on July 11, 1994.
All documents filed by us with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of the offering covered by this prospectus will be deemed to be
incorporated by reference into this prospectus and to be a part of the
prospectus from the date of filing of such documents. Any statement contained in
this prospectus or in any document incorporated or deemed to be incorporated by
reference into this prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
We will provide, without charge to each person to whom this prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the information that has been or may be incorporated by reference in this
prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to KFx Inc. Attention: Corporate Secretary, 1999 Broadway,
Suite 3200, Denver, Colorado 80202, telephone (303) 293-2992.
12
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be borne by the Registrant,
other than underwriting discounts and commissions, in connection with the
issuance and distribution of the common stock hereunder.
Payable by
the
Registrant
--------------
SEC registration fee.............................. $ 201.45
Accounting fees and expenses...................... 2,500.00
Legal fees and expenses........................... 15,000.00
Printing costs.................................... 500.00
Blue Sky fees and expenses........................ 250.00
Miscellaneous..................................... 250.00
Total........................................ $ 18,701.45
The foregoing items, except for the SEC registration fee, are estimated.
Item 15. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, and our
certificate of incorporation enables a corporation in our original certificate
of incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL provides that directors and officers of Delaware
corporations may, under certain circumstances, be indemnified against expenses
(including attorneys' fees) and other liabilities actually and reasonably
incurred by them as a result of any suit brought against them in their capacity
as a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. Section 145 also
provides that directors and officers may also be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
<PAGE>
We have implemented such indemnification provisions in our certificate of
incorporation, providing that officers and directors shall be entitled to be
indemnified by us to the fullest extent permitted by law against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any action, suit or proceeding by reason of the fact
that he or she is or was an officer or director of us.
The above discussion of our certificate of incorporation and Sections
102(b)(7) and 145 of the DGCL is not intended to be exhaustive and is qualified
in its entirety by such certificate of incorporation and statutes.
Under Section 145(g) of the DGCL, we maintain insurance on behalf of the
directors and officers serving at our request.
Item 16. Exhibits.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.
5.1 Opinion of Morrison & Foerster, LLP as to the legality of the common
stock being registered.*
10.1 Exchange Agreement dated August 27, 1999 between the Company and AIW/P
Holdings, Inc.(1)
10.2 Transfer Agreement dated August 27, 1999 between the Company and AIW/P
Holdings, Inc.(1)
10.3 Direction Letter dated September 9, 1999 from AIW/P Holdings, Inc. to
the Company.(1)
23.1 Consent of Morrison & Foerster, LLP (see Exhibit 5.1).*
23.2 Consent of PricewaterhouseCoopers LLP.*
23.3 Consent of Evergreen Group (see Exhibit 99.1).(1)
99.1 Report of the Evergreen Group to the Company dated February 19, 1999.(1)
* Filed herewith.
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 27, 1999.
<PAGE>
Item 17. Undertakings.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrants has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(b) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) that, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed what was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the SEC by the
undersigned pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, that are incorporated by reference in the registration
statement.
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the
<PAGE>
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
(4) if the Registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Securities Act need not be
furnished; provided, that the Registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Securities Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the SEC by the Registrant pursuant to Section 13 of Section 15(d)
of the Exchange Act that are incorporated by reference in the Form F-3.
(5) the undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on the 24th day of
September, 1999.
KFx Inc.
(Registrant)
By: /s/ Theodore Venners
-----------------------
Name: Theodore Venners
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Theodore Venners and Seth L. Patterson, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement on Form
S-3 and file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, to all intents and purposes and as full as they might or could do in
person, hereby ratifying and confirming all that such attorney-in-fact and
agent, or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Date: September 24, 1999 By: /s/ Theodore Venners
--------------------------------------------
Theodore Venners
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 24, 1999 By: /s/ Seth L. Patterson
--------------------------------------------
Seth L. Patterson
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: September 24, 1999 By: /s/ Stanford M. Adelstein
--------------------------------------------
Stanford M. Adelstein
Director
Date: September 24, 1999 By: /s/ Vincent N. Cook
--------------------------------------------
Vincent N. Cook
Director
Date: September 24, 1999 By: /s/ Jack C. Pester
--------------------------------------------
Jack C. Pester
Director
Date: September 24, 1999 By: /s/ Stanley G. Tate
--------------------------------------------
Stanley G. Tate
Director
</TABLE>
<PAGE>
EXHIBIT INDEX
5.1 Opinion of Morrison & Foerster, LLP as to the legality of the common
stock being registered.*
10.1 Exchange Agreement dated August 27, 1999 between the Company and AIW/P
Holdings, Inc.(1)
10.2 Transfer Agreement dated August 27, 1999 between the Company and AIW/P
Holdings, Inc.(1)
10.3 Direction Letter dated September 9, 1999 from AIW/P Holdings, Inc. to
the Company.(1)
23.1 Consent of Morrison & Foerster LLP (see Exhibit 5.1).*
23.2 Consent of PricewaterhouseCoopers LLP.*
23.3 Consent of Evergreen Group (see Exhibit 99.1).(1)
99.1 Report of the Evergreen Group to the Company dated February 19, 1999.(1)
________________
* Filed herewith.
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 27, 1999.
<PAGE>
EXHIBIT 5.1 AND EXHIBIT 23.1
OPINION OF MORRISON & FOERSTER, LLP
October 1, 1999
KFx Inc.
1999 Broadway
Suite 3200
Denver, Colorado 80202
Ladies and Gentlemen:
We have acted as your counsel in connection with the filing of the
Registration Statement on Form S-3 (the "Registration Statement") and related
prospectus under the Securities Act of 1933, as amended (the "Act"), relating to
527,000 shares of your common stock, $.001 par value per share (the "Shares").
In connection therewith, we have reviewed such Registration Statement, certain
of your corporate records and proceedings taken in connection with the
authorization and issuance of the Shares, and such other factual and legal
matters as we have considered necessary for purposes of this opinion.
Based on and subject to the foregoing, we are of the opinion that the
Shares are legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in such Registration Statement. This consent does not
constitute a consent under Section 7 of the Act, and in consenting to the
reference to our firm under such heading we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
<PAGE>
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 30, 1999, relating to the
consolidated financial statements which appears in KFx Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
September 24, 1999
