<PAGE> 1
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:
<TABLE>
<S> <C>
/ / 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
KTI, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
Nicholas Menonna, Jr.
Chairman and Chief Executive Officer July 18, 1996
To Our Shareholders:
On behalf of the Board of Directors of KTI, Inc., I cordially invite you to
attend the 1996 Annual Meeting of Shareholders of KTI, Inc. The Annual Meeting
will be held at 10:00 a.m. Eastern Prevailing Time, on August 13, 1996, at KTI,
Inc.'s offices at 7000 Boulevard East, Guttenberg, New Jersey 07093. The formal
notice of the Annual Meeting appears on the next page. Directions to the Annual
Meeting may be obtained by calling KTI at 201-854-7777.
The attached Proxy Statement describes matters that we expect will be acted
upon at the Annual Meeting. During the Annual Meeting, shareholders who are
present at the meeting will have the opportunity to ask questions.
It is important that your views be represented whether or not you are able
to be present at the Annual Meeting. Please sign and date the enclosed proxy
card and promptly return it to us in the envelope provided.
Sincerely,
Nicholas Menonna, Jr.
Nicholas Menonna, Jr.
Chairman and Chief Executive Officer
<PAGE> 3
KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 13, 1996
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The 1996 Annual Meeting of Shareholders of KTI, Inc. (the "Company") will
be held at 10:00 a.m. Eastern Prevailing Time, on August 13, 1996, at the
Company's offices at 7000 Boulevard East, Guttenberg, New Jersey 07093, for the
following purposes:
1) To elect directors as provided in the Restated Articles of
Incorporation and By-Laws of the Company.
2) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996.
3) To approve the adoption of amendments to the KTI, Inc. Directors'
Stock Option Plan.
4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 15, 1996 as
the record date for determining the shareholders entitled to notice of and to
vote at the meeting and any adjournment thereof. A complete list of shareholders
entitled to vote at the meeting will be available for examination by any Company
shareholder at the date, time, and place of the meeting.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made at the meeting.
YOUR VOTE IS IMPORTANT. SHAREHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON
ARE ASKED TO COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY
BY MAIL IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Nicholas Menonna, Jr.
Nicholas Menonna, Jr.
Chairman and Chief Executive Officer
Guttenberg, New Jersey
July 18, 1996
<PAGE> 4
KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
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PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD AUGUST 13, 1996
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This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors" or the "Board") of KTI, Inc., a New Jersey corporation (the "Company"
or "KTI"), in connection with the solicitation of proxies by the Company to be
used at the Company's 1996 Annual Meeting of Shareholders (the "Meeting") to be
held at the Company's offices at 7000 Boulevard East, Guttenberg, New Jersey
07093, on August 13, 1996 at 10:00 a.m. Eastern Prevailing Time, and at any
adjournment thereof. This Proxy Statement and the accompanying Notice and Form
of Proxy are first being mailed to shareholders on or about July 18, 1996. The
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1995 is being mailed to shareholders with this Proxy Statement and the
accompanying Notice and Form of Proxy. The principal executive offices of the
Company are located at 7000 Boulevard East, Guttenberg, New Jersey 07093.
The entire cost of preparing, assembling, printing, and mailing the proxy
materials and the cost of solicitation of proxies relating to the Meeting will
be borne by the Company. In addition to the use of the mails, proxies may be
solicited by officers, directors, and other regular employees of the Company,
either personally or by telephone or telegraph, and no additional compensation
will be paid to such individuals. Corporate Investor Communications, Inc. has
been retained to assist in the sending of proxy materials to beneficial owners
for which it will be paid a fee. The Company does not expect to pay any
compensation for the solicitation of proxies.
The Board of Directors has fixed the close of business on July 15, 1996 as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Meeting or any adjournments thereof.
Only holders of record of the Company's common stock, no par value (the "Common
Stock"), issued and outstanding at the close of business on the Record Date will
be entitled to vote at the Meeting. As of the Record Date, 5,737,417 shares of
Common Stock were issued and outstanding. Each share of Common Stock is entitled
to one vote on any matter which properly comes before the meeting. There is no
right to cumulative voting by the shareholders as to any matter. Directors will
be elected by a plurality of the shares present in person or represented by
proxy at the Meeting.
The presence in person or by proxy of the holders of at least a majority of
the outstanding shares of Common Stock entitled to be voted at the Meeting will
constitute a quorum for the transaction of business at the Meeting. Abstentions
and broker non-votes will be included in the computation of the number of shares
that are present for purposes of determining the presence of a quorum at the
Meeting. Abstentions will be counted as part of the total number of votes cast
on any proposal submitted to the shareholders for their consideration in
determining whether such proposal has received the requisite number of favorable
votes, whereas broker non-votes will not be counted as part of the total number
of votes cast on such proposal. Thus, abstentions will have the same effect as a
vote cast against any given proposal, whereas broker non-votes will have no
effect in determining whether any given proposal which requires the vote of a
majority or greater number of those voting has been approved by the
shareholders.
If a quorum is not present at the time the Meeting is convened, or, if for
any other reason, the Company believes that additional time should be allowed
for the solicitation of proxies, a majority of the Common Stock represented in
person or by proxy may adjourn or postpone the Meeting. If the Company proposes
to adjourn the Meeting by a vote of the shareholders, the persons named in the
enclosed proxy will vote all shares for which they have voting authority in
favor of such adjournment.
<PAGE> 5
PROXY PROCEDURE
A proxy may be revoked by the shareholder executing such proxy at any time
prior to the voting thereof by giving written notice of revocation to the
Secretary of the Company, by duly executing and delivering to the Secretary a
proxy bearing a later date or by voting in person by written ballot at the
Meeting. If a proxy is properly signed by a shareholder and is not revoked, the
shares represented thereby will be voted at the Meeting in the manner specified
on the proxy, or if no manner is specified with respect to any matter therein,
such shares will be voted by the persons designated therein (a) "FOR" the
election of each of Dibo Attar, Thomas A. Bosanko, Nicholas Menonna, Jr., Ross
Pirasteh, Jack Polak, Jeffrey R. Power, Martin J. Sergi, and Marshall S. Sterman
as directors of the Company, (b) "FOR" the ratification of the appointment of
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending December 31, 1996, (c) "FOR" the adoption of amendments to the KTI, Inc.
Directors' Stock Option Plan, and (d) in connection with the transaction of such
other business as may properly be brought before the meeting, in accordance with
the judgment of the person or persons voting the proxy. If any of the nominees
for director is unable to serve or for good cause will not serve, an event that
is not anticipated by the Company, the shares represented by the accompanying
proxy will be voted for a substitute nominee designated by the Board of
Directors.
Votes will not be considered cast, however, if the shares are not voted for
any reason, including an abstention indicated as such on a written proxy or
ballot, if directions are given in a written proxy to withhold votes or if the
votes are withheld by a broker.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors manages the business of the Company. The Company's
Restated Certificate of Incorporation, which became effective on July 12, 1994,
provides for a Board of Directors of not less than three directors with the
actual number to be fixed from time to time by a vote of the majority of the
directors then in office. During 1995 the Board of Directors formally met on
three (3) occasions. All incumbent directors were in attendance at all board
meetings and meetings of committees on which they served during 1995.
Prior to February 8, 1995 the Board of Directors did not have any standing
committees. The Board of Directors has established an Audit Committee, a
Compensation Committee, a Nominating Committee, and an Executive Committee as
standing committees of the Board of Directors.
AUDIT COMMITTEE
The Audit Committee consists of Messrs. Polak (chairman), Attar, and Power.
The Audit Committee recommends the appointment of independent public accountants
for the Company, reviews the scope of audits proposed by the independent public
accountants and recommends to the Board of Directors audit policies and
procedures. During 1995 the Audit Committee formally met on two (2) occasions.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs. Sterman (chairman), Attar,
and Polak, none of which has ever been an officer or employee of the Company.
The functions of the Compensation Committee include the administration of the
Company's 1994 Long-Term Incentive Award Plan, the making of recommendations
concerning other bonuses, stock options, performance, achievement or other
incentive plans, and the determination of salaries of employees of the Company
who are directors and executive officers. During 1995 the Compensation Committee
formally met on one (1) occasion.
NOMINATING COMMITTEE
The Nominating Committee consists of Messrs. Sergi (chairman), Menonna,
Power, and Sterman. Messrs. Menonna and Sergi are officers of the Company. The
functions of the Nominating Committee include the consideration of the size and
composition of the Board of Directors, review and recommendation of individuals
for election as directors or officers of the Company, and review of criteria for
selecting officers and
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<PAGE> 6
directors. In carrying out its responsibilities of recommending individuals for
the Board, the committee will consider candidates suggested by other directors
and employees of the Company. During 1995 the Nominating Committee formally met
on one (1) occasion.
EXECUTIVE COMMITTEE
The Executive Committee consists of Messrs. Menonna (chairman), Pirasteh,
and Sergi. The function of the Executive Committee is to review the business of
the Company and advise the Board of Directors and executive officers of the
Company as to potential business opportunities and strategies. The Executive
Committee does not make decisions on Company business and policy but acts in an
advisory capacity only. The Executive Committee meets regularly on an informal
basis.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the directors and
executive officers of the Company. All of the individuals identified as
directors are nominees for election as director at the Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -------------------------------------
<S> <C> <C>
Nicholas Menonna, Jr................................. 51 Chairman of the Board of Directors
and Chief Executive Officer
Martin J. Sergi...................................... 39 Vice Chairman of the Board of
Directors, President, Chief Operating
Officer, Chief Financial Officer, and
Treasurer
David E. Hill........................................ 54 Senior Vice President
Robert E. Wetzel..................................... 58 Senior Vice President, Secretary, and
General Counsel
Dibo Attar........................................... 56 Director
Thomas A. Bosanko.................................... 43 Director
Ross Pirasteh........................................ 58 Director
Jack Polak........................................... 83 Director
Jeffrey R. Power..................................... 72 Director
Marshall S. Sterman.................................. 64 Director
</TABLE>
Nicholas Menonna, Jr. has been a senior executive officer and director of
KTI since its inception in 1982. He currently serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company and serves as Chief
Executive Officer of each of the Company's subsidiaries other than DataFocus
Incorporated, a wholly owned subsidiary of the Company ("DataFocus"), and a
director of each of the Company's subsidiaries. Mr. Menonna is a member of the
Nominating and Executive Committees of the Board.
Martin J. Sergi has been a senior executive officer and director of the
Company since 1985 and currently serves as Vice Chairman of the Board of
Directors, President, Chief Operating Officer, Chief Financial Officer, and
Treasurer of the Company and serves as President of each of the Company's
subsidiaries other than DataFocus and a director of each of the Company's
subsidiaries. Mr. Sergi is a member of the Nominating and Executive Committees
of the Board. He is licensed as a certified public accountant in New York.
David E. Hill has been affiliated with the Company since January 1994 when
he was employed as the Company's Vice President, Business Development. From
October 1992 to January 1994 he was Vice President, Business Development of
Ecosorb International, Inc., an absorbent manufacturer in Houston, Texas. From
August 1989 to August 1992 he was Executive Vice President of Rescon, Inc., an
environmental management business in Baltimore, Maryland. In both prior
positions Mr. Hill was responsible for project development, proposal preparation
and contract negotiation.
3
<PAGE> 7
Robert E. Wetzel was employed by the Company in his current position on
July 31, 1995. From 1991 until June 30, 1995, Mr. Wetzel was a Vice President
and Associate General Counsel of Continental Casualty Company, a subsidiary of
CNA Financial Corporation. Mr. Wetzel was an employee of Continental Casualty
Company for more than twenty years.
Dibo Attar had served as a director of Convergent Solutions, Inc. ("CSI")
from April 1989 until its merger with and into the Company on February 8, 1995
(the "Merger"). He has been a director of the Company since February 8, 1995.
Mr. Attar is a member of the Audit and Compensation Committees of the Board of
Directors. Mr. Attar is an investor and a business consultant to domestic and
international companies including various companies which have extended
financing to KTI. Mr. Attar is a director of T.H. Lehman & Co., Incorporated,
which is engaged in medical accounts receivable financing and Newpark Resources,
Inc., which is engaged in providing oil field services.
Thomas A. Bosanko had been an officer and director of CSI from its
inception in 1981 until the Merger. At the time of the Merger, he served as
CSI's President and Chief Executive Officer. Since 1993, Mr. Bosanko has been an
executive officer of DataFocus and currently serves as President and Chief
Operating Officer. He has been a director of the Company since February 8, 1995.
Ross Pirasteh has been employed by the Company since January 1, 1996 and
became a director of the Company on May 14, 1996. Mr. Pirasteh is a member of
the Executive Committee of the Board of Directors. Mr. Pirasteh has a Ph.D in
Operations Research and Economic Analysis from Yale University and was
previously a senior executive officer with a major money center bank. He has
been a financial consultant and entrepreneurial investor for the past fifteen
years.
Jack Polak had been a director of CSI from August 1993 until its merger
with and into the Company. He has been a director of the Company since February
8, 1995. Mr. Polak is a member of the Audit and Compensation Committees of the
Board of Directors. He has been a private investment consultant since April
1982. Since 1955, Mr. Polak has served in various positions for Equity Interest,
Inc., a registered investment advisor located in New York City, most recently as
President, to supervise the liquidation of that company, currently in the final
stages of liquidation. Since April 1983 Mr. Polak has been a director of New
York Offices, Inc., Chicago Offices, Inc., and Atlanta Offices, Inc., private
companies engaged in subleasing office space and providing office services. He
serves as a director of C.C.A. Industries, Inc. which is engaged in the
manufacture and distribution of health and beauty aid products. Mr. Polak holds
a tax consultant certification in The Netherlands.
Jeffrey R. Power has been a director of the Company since February 8, 1995.
Mr. Power is a member of the Audit and Nominating Committees of the Board of
Directors. He has been a Vice President of Fechtor, Detwiler & Co., Inc., an
investment banking firm based in Boston, since January 1981.
Marshall S. Sterman has been a director of the Company since 1992. Mr.
Sterman is a member of the Compensation and Nominating Committees of the Board
of Directors. For a period in excess of five years he has been president of both
The Mayflower Group, Ltd. and Mayflower Partners, Inc., merchant banking and
corporate finance firms based in Boston. Mr. Sterman serves on the Boards of
Directors of US LAN Systems Corporation, Epigen, Inc., Microfluidics
International Corporation and The Standish Care Company. Mr. Sterman was a
director and executive officer of Las Colinas Retirement Center, Inc. ("LCRC")
and was a director of Skyland Golf Resorts, Inc. ("Skyland") f/k/a Mayflower
West Corp. On February 28, 1992, LCRC filed a petition for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of New Mexico. LCRC has been discharged from Chapter 11
bankruptcy protection. Skyland filed a petition for relief under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Colorado on or about February 8, 1992. Skyland has been discharged
from Chapter 11 bankruptcy protection.
All directors of the Company hold office until their respective successors
are elected and qualified, or until their death, resignation or removal.
Officers of the Company serve at the discretion of the Board of Directors. There
are no family relationships between any directors or executive officers of the
Company.
4
<PAGE> 8
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
with respect to compensation paid by KTI during the three years in the period
ended December 31, 1995 to the named executive officers who received in excess
of $100,000 in annual compensation during KTI's fiscal year ended December 31,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(3)
(1)(2) --------------------- ALL OTHER
----------------------- SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) ($)(4)(5)
- ----------------------------------------- ---- -------- ----- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Nicholas Menonna, Jr..................... 1995 $214,282 0 50,000 $ 6,000
Chairman of the Board and 1994 215,000 0 0 0
Chief Executive Officer 1993 177,000 0 0 0
Martin J. Sergi.......................... 1995 $188,437 0 50,000 $195,188
Vice Chairman of the Board, President, 1994 198,333 0 0 6,000
Chief Operating Officer, Chief 1993 177,000 0 0 0
Financial Officer, and Treasurer
David E. Hill............................ 1995 $103,123 0 24,999 $ 3,077
Senior Vice President 1994 72,155 0 14,536 0
</TABLE>
- ---------------
(1) The Company did not pay nor provide other forms of annual compensation (such
as perquisites) to any of the named executive officers having a value
exceeding the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such officers.
(2) The compensation to each of Messrs. Menonna and Sergi for each of 1993 and
1994 includes a $20,000 director's fee. The compensation actually paid to
Mr. Menonna for the three years 1993, 1994, and 1995 was $127,817, $156,500,
and $160,282, respectively. The balance of his salary was accrued. Accrued
and unpaid salary was applied against unpaid sums due to the Company by Mr.
Menonna pursuant to certain notes, in the following amounts: $49,183 for the
year 1993; $58,500 for the year 1994; and $54,000 for the year 1995. The
compensation actually paid to Mr. Sergi for the three years 1993, 1994, and
1995 was $127,817, $156,500, and $179,908, respectively. The balance of his
salary was accrued. Accrued and unpaid salary was applied against unpaid
sums due to the Company by Mr. Sergi pursuant to certain notes, in the
following amounts: $49,183 for the year 1993; $21,833 for the year 1994; and
$8,529 for the year 1995.
(3) During 1993, the Company had no long term incentive compensation plan other
than its 1986 Stock Option Plan and various individually granted options and
did not award stock appreciation rights, restricted stock awards or
long-term incentive plan pay-outs. Mr. Hill's options in 1994 were granted
under the 1986 Stock Option Plan. During 1994, the Company adopted the 1994
Long-Term Incentive Award Plan. No awards were made under this plan during
1994. The options granted to Mr. Hill in 1995 were under the 1994 Long-Term
Incentive Award Plan. 25,000 of the options granted to each of Messrs.
Menonna and Sergi in 1995 were under the 1994 Long-Term Incentive Award
Plan. The other 25,000 options were non-plan options. See "Plans."
(4) 1994 was the first year that the Savings Plan (as defined below) adopted in
December 1993 was in effect. Contributions by the Company to a predecessor
retirement plan were not made during 1993.
(5) The other compensation for Mr. Sergi in 1995 is comprised of $189,188 in
earnings on the exercise of stock options at prices below the market value
of the Common Stock and a $6,000 contribution to the Savings Plan. Mr. Sergi
also received a $6,000 contribution to the Saving Plan in 1994. Mr. Menonna
received a $6,000 contribution to the Savings Plan and Mr. Hill received a
$3,077 contribution to the Savings Plan in 1995.
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<PAGE> 9
During the period 1991 through April 30, 1994, each of Messrs. Menonna and
Sergi had written employment agreements with the Company under which they were
entitled to a base annual salary of $353,000 and $268,000, respectively. They
waived receipt of the difference between the foregoing contract amounts and the
compensation accrued, as reflected in the above table. The difference between
the amount paid and the amount accrued was applied against indebtedness due by
them to the Company. Effective May 1, 1994, the Company entered into new
employment agreements with each of Messrs. Menonna and Sergi (both agreements
have been amended as of May 27, 1996) under which each of them has agreed to
devote substantially all of his working time to the Company's affairs, and a
description of each of which follows.
The employment agreement with Nicholas Menonna, Jr. provides for his
employment as Chairman of the Board and Chief Executive Officer of the Company
at an annual base salary of $210,000. In addition, Mr. Menonna is entitled to a
bonus of 2% of before tax consolidated net income of the Company and its
subsidiaries of between $3,000,000 and $4,000,000; 4% of before tax consolidated
net income of between $4,000,001 and $5,000,000; and 6% of before tax
consolidated net income of over $5,000,000. The agreement has a term of three
years and is subject to extension for one additional year, each year on the
agreement's anniversary date. The agreement also provides that Mr. Menonna shall
participate in any employee benefit plans established for senior management of
the Company, that he is entitled to payments not in excess of $700 per month as
an automobile allowance, that the Company will pay premiums for $250,000 of term
life insurance on his life and that he will be entitled to participate in a
disability plan maintained by the Company. The Company has also agreed that Mr.
Menonna will be entitled to participate in an incentive stock option plan for
senior management.
The employment agreement with Martin J. Sergi provides for his employment
as Vice Chairman, President, Chief Operating Officer, Chief Financial Officer,
and Treasurer of the Company. His annual base salary was increased to $210,000
effective as of May 24, 1996. In addition, Mr. Sergi is entitled to a bonus of
2% of before tax consolidated net income of the Company and its subsidiaries of
between $3,000,000 and $4,000,000; 4% of before tax consolidated net income of
between $4,000,001 and $5,000,000; and 6% of before tax consolidated net income
of over $5,000,000. The term of the agreement and the other benefits made
available to Mr. Sergi are the same as those set forth in the agreement between
Mr. Menonna and the Company.
The Company has agreed with each of Messrs. Menonna and Sergi that if his
employment terminates other than by reason of his death, retirement, disability
or for cause, or if he should elect to terminate his employment as a result of
"good reason," he is entitled to continue receiving his annual base salary for a
period of three years and is also entitled to receive payment of an amount
intended to compensate him for retirement benefits he would have received had he
remained in the Company's employ until retirement. "Good reason" is defined to
mean, among other things, (i) the assignment to the employee of materially
different duties than those existing at the commencement of the agreement or
which require travel significantly more time consuming and (ii) the reduction of
employee's authority as a senior executive officer. However, the employee shall
not be entitled to terminate the agreement for reasons specified in clause (i)
above more than six months following a "change-of-control" of the Company, as
defined in each agreement.
COMPENSATION OF DIRECTORS
The Company pays a fee of $750 for each meeting of the Board of Directors
and $350 for each meeting of a committee of the Board of Directors to each
non-employee director plus travel expenses. Employee directors currently do not
receive a fee for their services as directors. The non-employee directors
participate in the KTI, Inc. Directors' Stock Option Plan. See "Plans -- KTI,
Inc. Directors Stock Option Plan."
PLANS
1986 Stock Option Plan. The Company's 1986 Stock Option Plan (the "1986
Plan") provides for the grant of stock options covering a maximum of 145,365
shares of Common Stock to key employees of the Company as determined by the
Board of Directors. The options granted under the 1986 Plan were intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as
6
<PAGE> 10
amended (the "Code"). Options to acquire 14,536 shares of Common Stock are
currently outstanding under the 1986 Plan. In the merger agreement with CSI, the
Company agreed that the 1986 Plan would terminate as the basis for granting
additional options following the Merger.
CSI Options. Upon the Merger, outstanding options to acquire common stock
of CSI were automatically converted into options to acquire Common Stock. CSI's
1989 Stock Option Plan (the "1989 Plan") provided for the grant of options to
acquire up to 800,000 shares of CSI common stock. All employees of CSI and its
subsidiaries, as well as directors, officers, and third party service providers,
were eligible to participate in the 1989 Plan. However, directors who were
members of the committee which administered the Plan were eligible only to
receive annual non-discretionary option awards for 5,000 shares each. Under the
merger agreement with CSI, the 1989 Plan was terminated as the basis for
granting additional options. As of December 31, 1995 there were outstanding
options to acquire 365,071 shares of Common Stock under the 1989 Plan.
1994 Long-Term Incentive Award Plans. The Company has adopted the 1994
Long-Term Incentive Award Plan (the "KTI Incentive Plan") covering 383,333
shares of Common Stock pursuant to which officers and key employees of the
Company and its subsidiaries designated as senior executives are eligible to
receive incentive and/or nonstatutory stock options, awards of shares of Common
Stock and stock appreciation rights (a "Right"). The KTI Incentive Plan, which
expires on July 6, 2004 (the "Termination Date"), is administered by a committee
designated by the Board of Directors (the "Committee"), provided that the
Committee shall consist of two or more "disinterested" directors as defined in
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The purposes of the KTI Incentive Plan are to assist in attracting,
retaining, and motivating senior executives and to promote the identification of
their interests with those of the shareholders of the Company. The Company has
also adopted the 1994 DataFocus Long-Term Incentive Award Plan (the "DataFocus
Plan," and collectively with the KTI Incentive Plan, the "Incentive Plans")
covering 83,333 shares of Common Stock exclusively for the benefit of employees
of DataFocus. The DataFocus Plan, which expires on July 6, 2004, is comparable
in all respects to the KTI Incentive Plan. During any calendar year a person may
not be a participant in both Incentive Plans.
Incentive stock options granted under the Incentive Plans will be
exercisable during the period commencing six months from the date of the grant
of the option and terminating not more than ten years from the date of grant at
an exercise price which is not less than the fair market value of the Common
Stock of the Company on the date of the grant. To the extent that the aggregate
fair market value, as of the date of grant, of the shares into which incentive
stock options become exercisable for the first time by an optionee during the
calendar year exceeds $100,000, the portion of such option which is in excess of
the $100,000 limitation will be treated as a nonstatutory stock option.
Rights granted under the Incentive Plans are exercisable during the period
commencing six months from the date of the grant of the Right (except in event
of death or disability of the holder) and terminating not more than ten years
from the date of the grant of the Right, or in the case of a Right related to an
option, the expiration of the related option. In addition, a Right may be
exercised only when the fair market value of a share exceeds either the fair
market value per share on the date of grant of the Right or the base price of
the Right (which is determined by the Committee) if it is not a Right related to
an option. A Right related to an option may be exercised only when and to the
extent the option is able to be exercised.
Upon the exercise of an option or Right, payment must be made in full
together with payment for any withholding taxes then required to be paid. The
receipt of incentive shares is subject to full payment by the recipient of any
withholding taxes required to be paid.
Incentive shares may be issued as provided in the agreement with the
recipient, based upon the achievement of the performance of standards set forth
in the agreement. The Committee must certify in writing prior to the issuance of
the incentive stock that the standards set forth in the agreement were
satisfied. The standards may be based on earnings or earnings growth, return on
assets, equity or investment, specified improvement of financial ratings,
achievement of specified balance sheet or income statement objectives, or stock
price, sales or market share and may be based on changes in such factors or
measured against or in relationship to the same objective factors of other
companies comparably or similarly situated. No options,
7
<PAGE> 11
Rights or incentive shares may be granted under the Incentive Plans after the
Termination Date. The options and Rights are non-transferable during the life of
the grantee. No participant in the Incentive Plans is entitled to receive grants
of options and Rights and awards of incentive shares in the aggregate exceeding
8,333 shares per year.
The Committee will have the authority to interpret the provisions of the
Incentive Plans, to prescribe, amend and rescind rules and regulations relating
to it and to make all determinations deemed necessary or advisable for its
administration, including the individuals to whom grants are made and the type,
vesting, timing, amount, exercise price and other terms of such grants.
The Board of Directors may amend or terminate the Incentive Plans except
that shareholder approval is required to effect any change to increase
materially the aggregate number of shares that may be issued under the Incentive
Plans (unless adjusted to reflect changes such as a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify materially
the requirements as to eligibility to receive options, Rights or incentive
shares or to increase materially the benefits accruing to participants. No
action taken by the Board may materially and adversely affect any outstanding
grant or award without the consent of the holder.
The Committee may also modify, extend or renew outstanding options or
Rights or accept the surrender of outstanding options or Rights granted under
the Incentive Plans and authorize the granting of new options and Rights
pursuant to the Incentive Plans in substitution therefor, including specifying a
longer term than the surrendered options or Rights, provided that the Committee
may not specify or lower the exercise price further than the surrendered option
or Right. Further, the Committee may modify the terms of any outstanding
agreement providing for the award of incentive shares. In no event, however, may
modifications adversely affect the grantee of the grant of incentive stock
without the grantee's consent.
As of December 31, 1995, there were 252,493 options outstanding under the
KTI Incentive Plan and 48,329 outstanding options under the DataFocus Plans.
DataFocus Incorporated 1996 Long-Term Stock Appreciation Rights Plan. In
March 1996, the board of directors of DataFocus adopted, and the Board of
Directors of the Company consented to the adoption of, the DataFocus
Incorporated 1996 Long-Term Stock Appreciation Rights Plan. Under this plan,
certain key employees of DataFocus and its subsidiaries will be eligible to
receive incentive compensation in the form of stock appreciation rights in
DataFocus common stock. The maximum number of rights that may be awarded under
the plan is 600,000, each right representing one share of DataFocus common
stock. The maximum number of rights awarded to any employee may not exceed
60,000 in any calendar year, and no employee may be awarded more than 120,000
rights under the plan. Employees may not receive rights under this plan and
awards under the 1994 DataFocus Incorporated Long-Term Incentive Award Plan in
the same fiscal year. To date, 414,000 rights have been granted under this plan.
An exercise of a right under this plan entitles the holder to receive cash
equal to the fair market value of the shares of common stock relating to the
right on the date of exercise less the fair market value of such shares on the
date of grant. The committee administering the plan will determine the terms and
conditions under which rights may be exercised within limits established by the
plan, which terms and conditions need not be identical for each grant under the
plan.
Rights granted under this plan are not transferable and will be subject to
adjustment under certain circumstances as delineated in the plan. Unless sooner
terminated, this plan will expire on May 14, 2006. Termination of the plan will
not affect the exercisability of any outstanding right.
KTI, Inc. Directors' Stock Option Plan. In July 1995, the Company adopted
the Directors' Stock Option Plan. Under this plan, non-employee Directors
currently are automatically granted non-statutory stock options on August 1 of
each year, commencing on August 1, 1995, for the lesser of (i) 4,000 shares of
Common Stock or (ii) a number of shares of Common Stock having a maximum market
value of $36,000. Options to purchase 16,000 shares were granted on August 1,
1995 and are still outstanding. Options to purchase 84,000 shares currently
remain available under this plan. Options may not be exercised until one year
after the date of grant and expire ten years after the date of grant. If the
shareholders of the Company approve the
8
<PAGE> 12
amendments to this plan as set forth in Item 3 below, the amount of the
automatic option issuable yearly to each eligible director will be increased to
7,500 shares of Common Stock and the maximum market value of such shares will be
increased to $67,500.
Non-Plan Options. In 1995, the Board of Directors of the Company granted
to each of Messrs. Menonna and Sergi an option to acquire 25,000 shares of
Common Stock outside of the KTI Incentive Plan in addition to options to acquire
25,000 shares of Common Stock granted by the Compensation Committee of the Board
under the KTI Incentive Plan. The non-plan options have a ten year term, were
issued at the then current price of Common Stock, and vest 20% per year
commencing on the first anniversary of the grant of the option.
In total, as of December 31, 1995, there were outstanding plan and non-plan
options to acquire 648,100 shares of Common Stock.
401(k) Plan. In 1993, the Company adopted a salary deferral and savings
plan for all KTI employees (the "Savings Plan") which is qualified under Section
401(k) of the Code. The employees of the Company at the Maine Energy Recovery
Company, a subsidiary of the Company, waste-to-energy facility had such a plan
since 1988. Subject to limits set forth in the Code, an employee who meets
certain age and service requirements may participate in the Savings Plan by
contributing through payroll deductions up to 15% of the employee's compensation
into an account established for the participating employee and may allocate
amounts in such account among a variety of investment vehicles. The Company
makes contributions to an employee's account in the amount of 4% of an
employee's annual salary whether or not the employee elects to make
contributions. The Savings Plan has a five year vesting schedule for employer
contributions of 20% per year. The Savings Plan also provides for loans to, and
withdrawals by, participating employees, subject to certain limitations.
OPTION GRANTS IN 1995
The following information is furnished for the fiscal year ended December
31, 1995 with respect to the named executive officers of the Company for stock
options granted during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM
UNDERLYING EMPLOYEES BASE PRICE EXPIRATION -------------------
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------ --------------- -------------- ----------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
N. Menonna, Jr.(1)...... 12,539 4.7% $ 7.975 Mar. 1, 2000 $ 16,025 $ 46,407
37,461 14.0 7.25 Aug. 29, 2005 170,785 432,862
M.J. Sergi(1)........... 12,539 4.7% $ 7.975 Mar. 1, 2000 $ 16,025 $ 46,407
37,461 14.0 7.25 Aug. 29, 2005 170,785 432,862
D.E. Hill............... 8,333 3.1% $ 6.00 Feb. 8, 2005 $ 31,415 $ 79,663
16,666 8.50 Sept. 27, 2005 86,497 219,158
</TABLE>
- ---------------
(1) The options granted to Messrs. Menonna and Sergi include options to acquire
25,000 shares each of Common Stock outside the KTI Incentive Plan.
9
<PAGE> 13
AGGREGATE OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following information is furnished for the year ended December 31, 1995
with respect to each of the executive officers of the Company named in the
Compensation Table above, for unexercised stock options at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)(1)
------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
N. Menonna, Jr. ................. 0 $ 0 0/50,000 $0/47,159
M.J. Sergi....................... 68,930 189,188 0/50,000 0/47,159
D.E. Hill........................ 0 0 14,536/24,999 68,973/19,791
</TABLE>
- ---------------
(1) The closing price of the Common Stock ($8.375) as quoted on the Nasdaq Small
Cap Market on December 29, 1995 was used to determine the in-the-money
status of these options. The Common Stock is currently quoted on the Nasdaq
National Market System.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the time period from January 1, 1995 to the closing of the Merger on
February 8, 1995, the Company's Board of Directors consisted of Messrs. Menonna,
Sergi, and Sterman. All decisions regarding executive compensation were made by
the full Board of Directors.
A Compensation Committee of the Board of Directors consisting of Messrs.
Attar, Polak, and Sterman was established on February 8, 1995 upon the closing
of the Merger. None of such persons has ever been an officer or employee of the
Company. Mr. Attar had interests in and participated in the structuring of
various transactions involving the Company during 1995. See "Certain
Relationships and Related Transactions."
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Company
presents this report on the compensation policies of the Company for its
executive officers. This report sets forth the major components of the Company's
executive compensation policies and the bases by which the compensation of the
Company's Chief Executive Officer for the fiscal year ended December 31, 1995
was determined. The Compensation Committee consists entirely of directors who
are not and have never been employees of the Company.
Executive Officer Compensation Policies
The Company's compensation policies for its executive officers are intended
to provide compensation packages designed to attract, motivate, reward, and
retain qualified executives, to encourage the achievement of the Company's
long-term performance objectives, and to increase the value of the Company for
the benefit of its shareholders. Annual compensation for each executive officer
of the Company is based on three main components: (i) a base salary based on an
individual's position and responsibility in the Company, experience and
expertise, and performance, in addition to internal pay equity; (ii) a bonus
based on the corporate performance of the Company, which is based on definitive
performance criteria for certain executive officers and is subjective for all
other executive officers; and (iii) stock options to purchase Common Stock of
the Company, including incentive stock options granted by the Compensation
Committee pursuant to the KTI Incentive Plan, a long-term incentive award plan,
and stock options granted by the Board of Directors to the Company's executive
officers outside of the KTI Incentive Plan, which options are designed to
encourage ownership of the Common Stock by the Company's executive officers and
promote the identification of the
10
<PAGE> 14
interests of the executive officers with those of the shareholders of the
Company. The Company has employment agreements with Nicholas Menonna, Jr. and
Martin J. Sergi which reflect the Company's compensation policies as set forth
above.
Chief Executive Officer Compensation
Nicholas Menonna, Jr. is the Chief Executive Officer of the Company. Mr.
Menonna's compensation is based on an employment agreement with the Company
which, among other things, provides for a fixed annual base salary with a
potential bonus based on the before tax consolidated net income of the Company
and its subsidiaries. Mr. Menonna also participates in the KTI Incentive Plan
established for senior management of the Company. In the Company's fiscal year
ended December 31, 1995, Mr. Menonna received a total salary of $214,282, which
included a base salary of $160,282 and accrued deferred compensation of $54,000
which was offset against an equal sum due to the Company by Mr. Menonna pursuant
to certain notes held by the Company. Mr. Menonna was not paid a bonus for the
fiscal year, as the Company's net income did not meet the threshold for the
payment of a bonus as set forth in Mr. Menonna's employment agreement, which
requires that the before tax consolidated net income of the Company and its
subsidiaries be greater than $3,000,000 before any bonus is paid. Mr. Menonna
was granted incentive stock options to acquire 25,000 shares of Common Stock
pursuant to the KTI Incentive Plan during the fiscal year. In addition, he
received a grant of an option to acquire an additional 25,000 shares of Common
Stock outside of the KTI Incentive Plan. These grants were consistent with the
Company's desire to link a portion of executive officer compensation to the
long-term performance of the Company and an increase in value of the Company for
the benefit of its shareholders.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits the corporate tax deduction for compensation paid to certain executive
officers in excess of $1,000,000 per year, unless the payments are made under a
performance based plan as set forth in Section 162(m). For the fiscal year ended
December 31, 1995, none of the executive officers of the Company received
compensation that exceeded the threshold for deductibility under Section 162(m),
and therefore all executive officer compensation paid by the Company during such
fiscal year will be fully tax deductible.
COMPENSATION COMMITTEE
Dibo Attar
Jack Polak
Marshall S. Sterman
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth stock ownership information as of June 21,
1996 concerning (i) each person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act) who is known to the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each of the Company's directors and executive officers, and (iii)
all directors and executive officers of the Company as a group. Each shareholder
had sole voting and investment power with respect to such shares. The address of
all parties listed below is c/o KTI, Inc., 7000 Boulevard East, Guttenberg, New
Jersey 07093, unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIALLY
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OWNED
- ------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Nicholas Menonna, Jr......................................... 1,109,386(2) 19.3%
Martin J. Sergi.............................................. 943,534(3) 16.4%
David E. Hill................................................ 16,202(4) *
Ross Pirasteh................................................ 461,785 8.0%
Robert E. Wetzel............................................. 42,781 *
Dibo Attar................................................... 145,774(5) 2.5%
Thomas A. Bosanko............................................ 183,332(6) 3.2%
Jack Polak................................................... 5,831(7) *
Jeffrey R. Power............................................. 48,455 *
Marshall S. Sterman.......................................... 0 *
All executive officers and directors as a group (10
persons)................................................... 2,957,080 51.5%
Mona Kalimian and related security holders................... 561,000(8) 9.6%
c/o Abington Holdings
950 Third Avenue
New York, NY 10022
</TABLE>
- ---------------
* Less than one percent.
(1) The table does not include an institutional investor which has advised the
Company that it disclaims beneficial ownership of shares of Common Stock as
a result of a transaction described below. See "Transactions with The
Prudential Insurance Company of America."
(2) Includes 603,228 shares held in escrow for Nicholas Menonna, Jr. These
shares were acquired by Mr. Menonna on May 10, 1994 from an institutional
investor. A description of such transaction follows this table. See
"Transactions with The Prudential Insurance Company of America."
(3) Includes 603,228 shares held in escrow for Martin J. Sergi. These shares
were acquired by Mr. Sergi on May 10, 1994 from an institutional investor. A
description of such transaction follows this table. See "Transactions with
The Prudential Insurance Company of America."
(4) Includes 16,202 shares which can be acquired by Mr. Hill pursuant to stock
options which are currently exercisable.
(5) Includes 8,333 shares which may be acquired pursuant to stock options which
are presently exercisable. Mr. Attar beneficially owns 2,333 shares which
are held of record by a profit-sharing plan controlled by Mr. Attar.
Mr. Attar is a controlling shareholder of Woodco Fund Management Inc.
("Woodco"), a corporation which is the beneficial owner of 135,109 shares of
Common Stock (the "Woodco Shares"), owned of record by The Bridge Fund N.V.,
an investment company located in the Netherlands Antilles ("Bridge Fund").
Woodco also acts as a consultant or investment advisor to certain other
mutual funds and investment companies located in the Netherlands Antilles
which own an aggregate of 414,567 shares of Common Stock. Woodco does not
have the right, directly or indirectly, to vote or dispose of such shares of
Common Stock. Mr. Attar disclaims beneficial ownership of all such shares of
Common Stock, other than the Woodco Shares referred to above.
T.H. Lehman & Co., Incorporated ("Lehman") is the beneficial owner of
159,500 shares of Common Stock, including shares which may be acquired
pursuant to a currently exercisable warrant. The principal shareholders of
Lehman are (i) Greenwich Securities, Ltd. based in Lugano, Switzerland, the
securities
12
<PAGE> 16
of which are owned by the Ezra and Linda Attar Family Foundation, a
charitable foundation organized under the laws of Liechtenstein, (ii)
Millingway, Inc., based in Houston, Texas, which is beneficially owned by
approximately 20 individuals who reside in Europe, and (iii) Swifton Capital
Corporation N.V., organized under the laws of the Netherlands Antilles
("Swifton"), which acquired the shares from CSI on December 2, 1994. See
"Certain Relationships and Related Transactions -- CSI's Sale of T.H. Lehman
& Co. Incorporated Stock." Mr. Attar has sole voting and investment power
with respect to the stock owned by Greenwich Securities, Ltd. is a
consultant to Capital Holdings, Inc., the parent of Millingway, Inc., and,
through Woodco, is a consultant to Swifton Capital Corporation N.V. Mr.
Attar is also chairman of Lehman. He disclaims beneficial ownership of the
Common Stock owned by Lehman.
(6) Includes 83,332 shares which may be acquired by Mr. Bosanko pursuant to
stock options which are presently exercisable.
(7) Includes 1,666 shares which may be acquired by Mr. Polak pursuant to stock
options which are presently exercisable and 1,499 shares held by
corporations and partnerships controlled by Mr. Polak. Excludes 667 shares
held in trust for the benefit of Mr. Polak's wife of which Mr. Polak
disavows beneficial ownership.
(8) According to a Schedule 13D filed with the Securities and Exchange
Commission (the "SEC"), Mrs. Kalimian is a member of a group of persons
comprised of her son, daughter and trusts for the benefit of her minor
grandchildren which, together with the shares beneficially owned by Mrs.
Kalimian, beneficially owns in the aggregate 561,000 shares of Common Stock,
including 176,000 shares which may be acquired pursuant to warrants which
are presently exercisable. Mrs. Kalimian has sole voting and dispositive
power with respect to 40,000 shares underlying warrants to purchase Common
Stock. She has acknowledged her relationship with the other members of the
group but has disclaimed beneficial ownership of all shares except for
240,000 shares directly owned by her.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Exchange Act Rule 16a-3(e) during its
fiscal year ended December 31, 1995, Form 5 and amendments thereto furnished to
the Company with respect to its fiscal year ended December 31, 1995, and any
written representation from a reporting person that no Form 5 was required to be
filed, no person who was a director, officer, beneficial owner of more than ten
percent (10%) of Common Stock or otherwise subject to Section 16 of the Exchange
Act with respect to the Company failed to file on a timely basis, as disclosed
in the above Forms, reports required by Section 16(a) of the Exchange Act during
the Company's fiscal year ended December 31, 1995
TRANSACTIONS WITH THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prior to May 10, 1994, The Prudential Insurance Company of America
("Prudential") was the registered owner of shares representing 37.52% of the
outstanding Common Stock. On that date Prudential sold one-half of its shares
(collectively, the "Purchased Shares") to each of Nicholas Menonna, Jr. and
Martin J. Sergi, for a purchase price of $3,500,000 each. The Purchased Shares
are registered in the name of Midlantic Bank, N.A., as Escrow Agent, pursuant to
Escrow Agreements. Each of Messrs. Menonna and Sergi have the exclusive power to
vote the Purchased Shares. In addition, they have the right to direct the
disposition of the Purchased Shares subject only to restrictions on the minimum
price for which the Purchased Shares may be sold.
The purchase price was payable by the delivery by each of Mr. Menonna and
Mr. Sergi of $7,500 cash at closing and a promissory note in the amount of
$3,492,500. Principal payments are due on each of the notes as follows: $349,250
on December 20, 1997 and December 20, 1998; $698,500 on December 20, 1999,
December 20, 2000 and December 20, 2001; and the balance on December 20, 2002.
The notes bear interest at 8% through December 31, 1997, with the rate
increasing up to 14% during the year prior to maturity. Unpaid interest is added
to principal. The notes are non-recourse to Messrs. Menonna and Sergi, except in
limited circumstances. Payments in respect of the notes are intended to be made
from proceeds of the sale of Purchased Shares. In connection therewith, the
Company has granted the Escrow Agent and Messrs. Menonna and Sergi certain
registration rights, both incidental to a proposed public offering of the
Company's
13
<PAGE> 17
stock and on demand. Any dividends received in respect of the Purchased Shares
and any proceeds in respect of the sale of Purchased Shares, net of taxes due,
are to be applied by Messrs. Menonna and Sergi against amounts due on the notes.
Prudential has the right to accelerate the maturity of the notes upon the
occurrence of various events including, without limitation:
(i) a payment default, unless counsel to Messrs. Menonna and Sergi delivers
an opinion that Messrs. Menonna and Sergi are not able to sell Purchased Shares
due to any requirement of contract or law, and 180 days after the payment date
shall have lapsed;
(ii) a breach of certain covenants including maintaining the Purchased
Shares free of liens; and
(iii) failure to cure a breach of various provisions of the Escrow
Agreements, following notice and an opportunity to cure.
If Prudential elects to accelerate, it has the right to have the Purchased
Shares delivered to it in exchange for the notes.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTION WITH ROSS PIRASTEH
Commencing in September 1995, the Company retained Mr. Pirasteh as a
consultant on debt restructuring and other financing matters on a month-to-month
basis for a fee of $5,000 per month. On January 1, 1996, Mr. Pirasteh joined the
Company on a full time basis at an annual salary of $160,000.
TRANSACTIONS WITH DAVSTAR MANAGED INVESTMENTS CORPORATION N.V., ET AL.
As of March 17, 1993, the Company entered into an agreement with Davstar
Managed Investments Corporation N.V., an entity organized under the laws of the
Netherlands Antilles ("Davstar"), pursuant to which Davstar acquired a note of
the Company in the amount of $1,500,000 and 252,248 shares of Common Stock. In
connection with this agreement the Company paid a $75,000 consulting fee to
Lehman. Contemporaneously with this transaction, the Company entered into a
warrant agreement with Faversham Corporation N.V., an entity organized under the
laws of the Netherlands Antilles ("Faversham"), pursuant to which Faversham was
issued a warrant to acquire up to 297,430 shares of Common Stock at $5.67 per
share. Davstar and Faversham also entered into a registration rights agreement
with the Company giving Davstar and Faversham certain rights to have their stock
registered with the SEC under the Securities Act. Davstar and Faversham were
introduced to the Company by Mr. Dibo Attar, who was a director of CSI and is
the chairman of Lehman and a director of the Company.
During the period September 30, 1993 through May 12, 1994, the Company
incurred indebtedness to other investors introduced to the Company by Mr. Attar
in respect of which the Company issued notes aggregating $1,825,000
(collectively, the "Affiliate Notes"). On May 12, 1994, the Company received a
$500,000 line of credit from Bridge Fund, which is beneficially owned by Woodco,
a corporation controlled by Mr. Attar. On or about December 2, 1994, $300,000
outstanding debt under this line of credit was assigned to Swifton, also
introduced to the Company by Mr. Attar. $280,000 of the $300,000 assigned to
Swifton was subsequently repaid. See "CSI's Sale of T.H. Lehman & Co.,
Incorporated Stock."
Effective December 16, 1993, the Company and Faversham entered into an
amendment of their warrant agreement which reduced the exercise price from $5.67
per share to $3.63 per share. Faversham was also permitted to exercise its
warrant for non-cash consideration consisting of (i) a fee valued at $787,928 in
consideration of Mr. Attar's finding the Company the opportunity to merge with
CSI and (ii) causing the holders of certain of the Affiliate Notes to forgive
interest in the amount of $293,936 that would otherwise be due on said notes for
the period from January 1, 1993 to December 31, 1994. Faversham, through Mr.
Attar, also instructed the Company to cause the shares underlying the warrant to
be issued to other investors who had participated in the Affiliate Notes. The
structuring of the business arrangements among Davstar, Faversham and the other
investors represented by Mr. Attar as it related to the exercise of the warrant
was determined by Mr. Attar in consultation with the investors.
14
<PAGE> 18
In August 1995, Faversham acquired 158,046 shares of Common Stock at $4.41
per share and a warrant to acquire 92,931 shares of Common Stock at $5.75 per
share as part of a private placement of an aggregate of 619,000 shares of Common
Stock and warrants to acquire 363,839 shares of Common Stock.
In April 1996, the Company entered into agreements with Davstar, Bridge
Fund, Wellington Corporation N.V. ("Wellington"), Swifton, and Sogevalor, S.A.
("Sogevalor") to exchange notes of the Company held by such entities for 12%
convertible notes of the Company due 1997, which are convertible into Common
Stock (the "Convertible Notes"), and Common Stock, as follows: (i) Davstar
exchanged $1,750,000 of 8% notes for $1,312,876.71 of Convertible Notes and
71,301 shares of Common Stock; (ii) Davstar exchanged $125,000 of 8% notes for
$131,287.67 of Convertible Notes; (iii) Bridge Fund exchanged $625,000 of 8%
notes for $656,438.36 of Convertible Notes; (iv) Wellington exchanged $575,000
of 8% notes for $603,923.29 of Convertible Notes; (v) Swifton exchanged $20,000
of 12% notes for $39,154.50 of Convertible Notes; and (vi) Sogevalor exchanged
$700,000 of 8% notes for $735,210.96 of Convertible Notes. The principal amount
of the Convertible Notes is equal to the principal amount of the exchanged notes
on January 1, 1996, and the Convertible Notes accrue interest retroactive to
such date. The maturity date of the Convertible Notes is March 31, 1997 and are
convertible commencing September 30, 1996 to Common Stock by dividing the
principal amount and accrued interest by a conversion price equal to the lesser
of $13.50 or 75% of average daily low trading prices of the Common Stock during
the five (5) consecutive trading days preceding the conversion date, with a
minimum conversion price of $5.00 per share. The Convertible Notes are
prepayable by the Company.
In March 1995, an additional line of credit in the amount of $350,000 was
extended to the Company by another investor represented by Mr. Attar. As of
September 30, 1995, no amount had been drawn on this line of credit.
As of December 31, 1995, $630,000 was available under all lines of credit
extended to the Company by investors represented by Mr. Attar.
WARRANT HELD BY T.H. LEHMAN & CO., INCORPORATED
On March 28, 1994, CSI entered into a Consulting Agreement with Lehman
pursuant to which Lehman would provide consulting services to CSI. In connection
with this agreement and as the sole consideration for Lehman's services
thereunder, CSI granted to Lehman a warrant to purchase 83,333 shares of CSI
common stock for a purchase price of $6.00 per share. Lehman also had
registration rights with respect to the shares underlying the warrant on demand
and incidental to any public offering of CSI common stock or, following the
Merger, Common Stock, for a term through March 27, 1995. By virtue of the
Merger, the warrant automatically was converted into a right to acquire 83,333
shares of Common Stock at $6.00 per share. Lehman held a warrant to purchase
83,333 shares of CSI common stock at $8.25 per share which expired on March 14,
1994. Mr. Dibo Attar, who was a director of CSI and who is a director of the
Company, is also the Chairman of Lehman.
CSI'S SALE OF T.H. LEHMAN & CO., INCORPORATED STOCK
Prior to December 2, 1994, CSI was the owner of 321,237 shares of Lehman
stock. On that date CSI sold the shares to Swifton for $321,237 consisting of
$21,237 in cash and a promissory note in the amount of $300,000 bearing interest
at 8% per annum. The note was secured by the pledge of a $300,000 note of the
Company payable to Swifton referred to in "Transactions with Davstar Managed
Investments Corporation N.V., et al." above.
Upon the closing of the Merger, the amounts due under the respective notes
were offset against one another and the notes were canceled. Mr. Attar
structured the foregoing transaction between CSI and Swifton.
15
<PAGE> 19
THOMAS A. BOSANKO RELOCATION AGREEMENT
In May 1994, CSI entered into an agreement with Thomas A. Bosanko with
respect to his relocation from New Jersey to Virginia. In consideration of Mr.
Bosanko's agreement to relocate for purposes of serving as an employee of
DataFocus, CSI loaned him the sum of $88,000. The agreement provided for the
loan to be forgiven on April 1, 1995 (the maturity date of the loan) if Mr.
Bosanko's employment with DataFocus had not terminated prior to said date. Since
Mr. Bosanko remained in the employment of DataFocus on such date, the loan was
forgiven.
TRANSACTIONS WITH NICHOLAS MENONNA, JR. AND MARTIN J. SERGI
The Company leases office space from the Mall at the Galaxy, Inc. (the
"Mall"), a corporation which is 72% owned by Nicholas Menonna, Jr., a principal
shareholder and Chairman and Chief Executive Officer of the Company, and Martin
J. Sergi, a principal shareholder, and Vice Chairman, President, Chief Operating
Officer, Chief Financial Officer, and Treasurer of the Company. The Mall leases
space to 27 tenants under long-term operating leases. The Company paid rent
expenses to the Mall of $101,000 in fiscal year 1995. The Company believes that
the lease for the office space was made on terms comparable to those which could
have been obtained from an unaffiliated lessor.
Grayson Funding, Ltd., a corporation in the business of leasing
transportation and other equipment to the general public and which is 56% owned
by Messrs. Menonna and Sergi, currently leases two tractors to KTI. The tractors
were leased in 1994 for a monthly aggregate payment of $3,536. The tractors are
currently placed on an operating lease with an unrelated third party. The
Company believes that the equipment leases were made on terms comparable to
those which could have been obtained from an unaffiliated lessor.
The Company holds the following promissory notes of affiliates:
(a)(i) Promissory note of Nicholas Menonna, Jr. dated January 1, 1994 in
the original principal amount of $150,239, with a balance including interest
accrued as of December 31, 1995 of $86,271. This note was issued in replacement
of a note dated December 5, 1988 in the original principal amount of $425,013
given by Mr. Menonna in connection with the acquisition by him from the Company
of stock of KTI Realty, Inc., which at the time of the acquisition was a
subsidiary of the Company; (ii) promissory note of Nicholas Menonna, Jr. dated
August 29, 1991 in the original principal amount of $30,000, with a principal
balance as of December 31, 1995 of $30,000. Both notes bear interest at 8% per
annum.
(b)(i) Promissory note of Martin J. Sergi dated January 1, 1994 in the
original principal amount of $50,736, with a balance including interest accrued
as of December 31, 1995 of $29,519. This note was issued in replacement of a
note dated December 5, 1988 in the original principal amount of $425,013 given
by Mr. Sergi in connection with the acquisition by him from the Company of stock
of KTI Realty, Inc., which at the time of the acquisition was a subsidiary of
the Company; (ii) promissory note of Martin J. Sergi dated August 29, 1991 in
the original principal amount of $30,000 with a principal balance as of December
31, 1995 of $30,000. Both notes bear interest at 8% per annum.
(c)(i) Promissory note of the Mall at the Galaxy, Inc. dated January 1,
1994 in the original principal amount of $121,581, with a balance including
interest accrued as of December 31, 1995 of $121,581. This note was issued in
replacement of a note dated May 30, 1989 in the original principal amount of
$74,075.61. The note bears interest at 10% per annum.
PRIVATE PLACEMENTS OF NOTES
Since December 31, 1995, the Company has made private placements on
$2,003,314 of 8% notes due July 31, 1996 together with 333,882 warrants to
purchase Common Stock at $6.00 per share, subject to adjustment, which expire
five (5) years from the date of issue. Certain directors and executive officers
of the Company or affiliates thereof participated in the private placement in
the amounts as follows: Mr. Menonna, $129,000 in notes and 21,500 warrants; Mr.
Wetzel, $103,314 in notes and 17,219 warrants; Mr. Power, $96,000 in notes and
16,000 warrants; Mr. Pirasteh, $60,000 in notes and 10,000 warrants; and Mr.
Polak, $60,000 in notes and 10,000 warrants.
16
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
The following performance graph compares the cumulative total return from
February 9, 1995 to December 31, 1995 on each of the Company's Common Stock
("KTIE"), Standard & Poors' 500 Index ("SPX"), and Standard & Poors' Pollution
Control Index ("SPPOLU"). The Company has been a public company since February
8, 1995. The total cumulative dollar returns are based on the assumption that
$100 was invested in Company Common Stock and each index on February 9, 1995 and
all dividends were reinvested, and represent the value that such investments
would have had at the end of each quarter from February 9, 1995 through December
31, 1995.
<TABLE>
<CAPTION>
Measurement Period KTIE Equity SPX Index SPPOLU Index
(Fiscal Year Covered) Return Return Return
<S> <C> <C> <C>
9-Feb-95 100.00 100.00 100.00
Mar-95 110.71 104.27 99.87
Jun-95 102.38 113.44 104.63
Sep-95 159.52 121.70 98.52
Dec-95 159.52 128.27 102.46
</TABLE>
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors currently consists of eight members. The Board of
Directors has nominated Messrs. Menonna, Sergi, Sterman, Power, Attar, Bosanko,
Polak and Pirasteh, the existing directors of the Company, for re-election as
directors. Each nominee is at present available for election. The directors
elected at the Meeting will serve until the 1997 annual meeting of shareholders
of the Company.
The affirmative vote of the holders of a plurality of the shares of the
Company's Common Stock voted in person or by proxy at the Meeting is required
for the election of each director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
ITEM 2 -- RATIFICATION AND APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, subject to shareholder ratification, has appointed
Ernst & Young LLP to serve as the independent auditors for the fiscal year
ending December 31, 1996. Ernst & Young LLP was first appointed by the Company
as its independent auditors in 1984 and has been the independent auditors of the
Company for each of the two preceding fiscal years of the Company. If the
shareholders do not ratify the appointment of Ernst & Young LLP, the Company may
reconsider its selection.
A representative of Ernst & Young LLP is expected to be present at the
Meeting to respond to appropriate questions from shareholders. Such
representative will have the opportunity to make a statement at the Meeting if
he or she so desires.
17
<PAGE> 21
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present, in person or by proxy, at the Meeting is
required for the ratification and approval of the appointment of auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
ITEM 3 -- AMENDMENTS TO THE KTI, INC. DIRECTORS' STOCK OPTION PLAN
On May 14, 1996, the Board of Directors adopted resolutions approving and
recommending that the shareholders of the Company approve amendments to the KTI,
Inc. Directors' Stock Option Plan (the "Directors' Plan"), which plan was
adopted by vote of the shareholders at the 1995 annual meeting of shareholders
of the Company.
The following description of the Directors' Plan is a summary and is
qualified by reference to the full text of the Directors' Plan which is attached
hereto as Annex A, including the proposed amendments as described herein.
The individuals eligible to participate in the Directors' Plan are those
members of the Board of Directors who are not employees of the Company or any of
its subsidiaries. Of the directors nominated for election at the Meeting, five
(5) are not employees of the Company. Under the current terms of the Directors'
Plan, each year on August 1, commencing on August 1, 1995, each eligible
director shall automatically receive a nonstatutory option for the purchase of
up to 4,000 shares of Common Stock. In the event that the product of 4,000 and
the fair market value of a share of the Common Stock on the date of grant shall
exceed $36,000, then the number of shares under the automatic option will be
reduced to such a number, rounded up to the next full share, so that the number
of shares when multiplied by the fair market value of a share of the Common
Stock will not exceed $36,000. 100,000 shares of the Common Stock are reserved
for issuance under the Directors' Plan. The options granted under the plan will
not be exercisable until one year following the date of grant and have a term of
ten years.
The amendment proposed by the Board of Directors will (i) increase the
amount of the automatic option issuable yearly to each eligible non-employee
director under the Directors' Plan from 4,000 shares to 7,500 shares of Common
Stock and (ii) increase the maximum market value of such shares from $36,000 to
$67,500. The total amount of shares subject to the plan will not be increased.
84,000 shares of Common Stock currently remain available under this plan.
Prior to 1995, the non-employee members of the Board of Directors were paid
an annual fee of $20,000 plus travel expenses. The Company in 1995 paid and
currently pays a fee of $750 for each meeting of the Board of Directors and $350
for each meeting of a committee of the Board of Directors to each non-employee
director plus travel expenses. Employee directors currently do not receive a fee
for their services as directors. The non-employee directors' participation in
the Directors' Plan is, other than the fees set forth above, the only
remuneration received by non-employee directors from the Company. The Company
believes that increasing the amounts of options that can be awarded to
non-employee directors under the Directors' Plan would enhance the Company's
present ability to attract competent and qualified directors to carry out the
Company's long-term business strategy.
A "nonstatutory" option means an option that by its terms does not qualify
as an "incentive stock option" under Section 422 of the Code. Upon the exercise
of a nonstatutory option, a federal income tax deduction generally will be
allowed to the employer corporation in an amount equal to the excess of the fair
market value of the option shares at the time of exercise over the exercise
price, provided that such amount constitutes an ordinary and necessary business
expense and is reasonable and the employer corporation satisfies any withholding
obligation with respect to such income.
The Board of Directors has the authority to amend, suspend or discontinue
the Directors' Plan but the Board of Directors may not, without the approval of
shareholders, make any amendment which (i) makes a change in the persons
eligible to receive options under the Directors' Plan, (ii) increases the number
of shares of the Common Stock which may be issued under the Directors' Plan,
(iii) increases the maximum option
18
<PAGE> 22
prices, (iv) decreases the option price, or (v) changes the number of shares
subject to the automatic option. The proposed amendment is submitted pursuant to
clauses (iii) and (v) above.
The following table sets forth the maximum yearly benefits to be received
by the non-employee directors if the amendments are approved by the
shareholders:
NEW PLAN BENEFITS
KTI, INC. DIRECTORS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE NUMBER OF SHARES
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Non-Executive Director Group Up to $337,500 in the Up to 37,500 in the aggregate
(Messrs. Attar, Bosanko, aggregate ($67,500 per person) (7,500 shares per person)
Polak, Power, and Sterman)
</TABLE>
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock voted in person or by proxy at the Meeting is required in
order to approve the amendments to the Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENTS TO THE DIRECTORS' PLAN.
SHAREHOLDERS PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 1997
annual meeting of shareholders must be received by the Company at its offices at
7000 Boulevard East, Guttenberg, New Jersey 07013, on or before March 20, 1997,
in order to be considered for inclusion in the proxy statement and form of proxy
for such annual meeting.
OTHER MATTERS
The Board of Directors knows of no business other than that described in
this Proxy Statement that will be presented for consideration at the Meeting.
If, however, any other business shall properly come before the Meeting, the
persons named in the enclosed form of proxy intend to vote the shares
represented by said proxies on such matters in accordance with their best
judgment, pursuant to the discretionary authority granted by the proxy.
The Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1995, which is being mailed to shareholders with this Proxy
Statement, is not to be regarded as proxy solicitation material.
Your vote is important. If you do not plan to attend the Meeting in person,
please complete, sign, date, and return the enclosed proxy card promptly.
KTI, INC.
Nicholas Menonna, Jr.
Nicholas Menonna, Jr.
Chairman and Chief Executive Officer
Dated: July 18, 1996
19
<PAGE> 23
ANNEX A
KTI, INC.
DIRECTORS' STOCK OPTION PLAN
1. PURPOSE
The purpose of the KTI, Inc. Directors' Stock Option Plan (the "Plan") is
to promote the success of KTI, Inc. (the "Company") by providing a method
whereby members of the Board of Directors of the Company who are not Employees
of the Company or its Subsidiaries may be encouraged to invest in the Common
Stock of the Company in order to promote long term shareholder value, and
increase their personal interest in the continued success and progress of the
Company.
2. DEFINITIONS
Except where the context otherwise requires, as used herein:
2.1 "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company.
2.2 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any Treasury regulations promulgated thereunder.
2.3 "COMMON STOCK" shall mean the common stock of the Company or such other
stock into which the common stock may be changed as a result of split-ups,
recapitalizations and the like.
2.4 "DIRECTOR" shall mean a member of the Board of Directors.
2.5 "EMPLOYEE" shall mean an individual who is on the active salaried
payroll of the Company or any of its Subsidiaries at the time a Nonstatutory
Stock Option is granted under the Plan.
2.6 "FAIR MARKET VALUE" of the Common Stock means, for all purposes of the
Plan unless otherwise provided (i) the mean between the high and low sales
prices of the Common Stock as reported on the National Market System or Small
Cap Market of the National Association of Securities Dealers, Inc., Automated
Quotation System, or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not quoted as
described in clause (i), the mean between the high bid and low asked quotations
for the Common Stock as reported by the National Quotation Bureau Incorporated
or such other source as the Board of Directors shall determine, or (iii) if the
Common Stock is listed or admitted for trading on any national securities
exchange, the mean between the high and low sales price, or the closing bid
price if no sale occurred, of the Common Stock on the principal securities
exchange on which the Common Stock is listed. In the event that the method for
determining the Fair Market Value of the Common Stock provided for above shall
not be practical in the opinion of the Board of Directors, then the Fair Market
Value shall be determined by such other reasonable method as the Board of
Directors shall, in its discretion, select and apply.
2.7 "NONSTATUTORY STOCK OPTION" shall mean an option to purchase Common
Stock granted under Section 5(b) of the Plan that by its terms does not qualify
as an "incentive stock option" under Section 422 of the Code.
2.8 "OPTIONEE" shall mean a person to whom a Nonstatutory Stock Option has
been granted under the Plan.
2.9 "SUBSIDIARY" shall mean a corporation at least 80% of the total
combined voting power of all classes of stock of which is owned by the Company,
either directly or through one or more Subsidiaries.
3. ADMINISTRATION
(a) The Board of Directors of the Company shall administer the Plan. The
Board of Directors shall have full power and authority to grant Nonstatutory
Stock Options pursuant to the provisions of the Plan, to
<PAGE> 24
interpret the provisions of the Plan and any agreements reflecting Nonstatutory
Stock Options issued under the Plan, and to supervise the administration of the
Plan, including the adoption of the rules and regulations for the administration
of the Plan. The Board of Directors may act only by a majority of its members in
office, except that the members thereof may authorize any one or more of their
number or the Secretary or any other officer of the Company to execute and
deliver documents on behalf of the Board of Directors.
(b) All decisions of the Board of Directors pursuant to the provisions of
the Plan shall be final, conclusive and binding on all persons, including the
Company, shareholders, employees and Optionees.
(c) No member of the Board of Directors shall be liable for anything done
or omitted to be done by him or any other member of the Board of Directors in
connection with the Plan, except for his own willful misconduct or as expressly
provided by statute.
4. SHARES SUBJECT TO THE PLAN
(a) The shares of Common Stock to be delivered upon exercise of
Nonstatutory Stock Options granted under the Plan may be made available from the
authorized but unissued shares of the Company or treasury shares or from shares
reacquired by the Company, including shares purchased in the open market.
(b) Subject to adjustments made pursuant to the provisions of Section 4(c),
the aggregate number of shares to be delivered upon the exercise of all
Nonstatutory Stock Options which may be granted under the Plan shall not exceed
100,000 shares of Common Stock.
(c) In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, split-up, split-off,
spin-off, recapitalization, merger, consolidation, rights offering,
reorganization, combination or exchange of shares, a sale by the Company of all
or part of its assets, any distribution to shareholders other than a normal cash
dividend, or other extraordinary or unusual event, the number or kind of shares
that may be issued under the Plan pursuant to Section 4(b) above, the number or
kind of shares subject to, and the Nonstatutory Stock Option price per share
under, all outstanding Nonstatutory Stock Options shall be automatically
adjusted so that the proportionate interest of the Optionee shall be maintained
as before the occurrence of such event; such adjustment in outstanding
Nonstatutory Stock Options shall be made without change in the total
Nonstatutory Stock Option exercise price applicable to the unexercised portion
of such Nonstatutory Stock Options and with a corresponding adjustment in the
Nonstatutory Stock Option exercise price per share, and such adjustment shall be
conclusive and binding for all purposes of the Plan.
(d) If a Nonstatutory Stock Option granted under the Plan shall expire or
terminate for any reason, the shares subject to, but not delivered under, such
Nonstatutory Stock Option shall be available for other Nonstatutory Stock
Options to the same member or other members of the Board of Directors.
5. ELIGIBILITY AND EXTENT OF PARTICIPATION
(a) Persons eligible to receive Nonstatutory Stock Options under the Plan
shall consist of members of the Board of Directors who are not Employees.
(b) On August 1, 1995, each member of the Board of Directors who is not an
Employee and who is a member of the Board of Directors on July 1, 1995 shall
automatically receive a Nonstatutory Stock Option for 4,000 shares of Common
Stock. Each year thereafter, on August 1, commencing on August 1, 1996, each
member of the Board of Directors who is not an Employee and who is a member of
the Board of Directors on July 1, shall automatically receive a Nonstatutory
Stock Option for 7,500 shares of Common Stock; provided, however, in the event
that the product of 7,500 and the Fair Market Value of a share of Common Stock
on the date of grant shall exceed $67,500, then the number of shares under the
automatic Nonstatutory Stock Option shall be reduced to such a number, rounded
down to the next full share, so that number of shares when multiplied by the
Fair Market Value of a share of Common Stock on the date of grant will not
exceed $67,500.
(c) The Nonstatutory Stock Option shall not be transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by him.
A-2
<PAGE> 25
(d) The Nonstatutory Stock Option shall not be exercisable:
(i) before the expiration of one year from the date it is granted and
after the expiration of ten years from the date it is granted, and may be
exercised at any time during such period;
(ii) unless payment in full is made in United States dollars by cash
or check; and
(iii) unless the person exercising the Nonstatutory Stock Option has
been, at all times during the period beginning with the date of grant of
the Nonstatutory Stock Option and ending on the date of such exercise, a
member of the Board of Directors of the Company, except that
(A) if such person shall cease to be such a member of the Board of
Directors who is not an Employee for reasons other than death, while
holding a Nonstatutory Stock Option that has not expired and has not
been fully exercised, such person, at any time within three years of the
date he ceased to be such a member (but in no event after the
Nonstatutory Stock Option has expired under the provisions of Section
5(d)(i) above), may exercise the Nonstatutory Stock Option with respect
to any shares of Common Stock as to which he has not exercised the
Nonstatutory Stock Option on the date he ceased to be such a member; or
(B) if any person to whom a Nonstatutory Stock Option has been
granted under this Plan shall die holding a Nonstatutory Stock Option
that has not expired and has not been fully exercised, his executors,
administrators, heirs or distributees, as the case may be, may, at any
time within one year after the date of such death (but in no event after
the Nonstatutory Stock Option has expired under the provisions of
Section 5(d)(i) above), exercise the Nonstatutory Stock Option with
respect to any shares as to which the decedent could have exercised the
Nonstatutory Stock Option at the time of his death.
(e) It shall be a condition to the obligation of the Company to issue
shares of Common Stock upon exercise of a Nonstatutory Stock Option, that the
holder (or any beneficiary or person entitled to exercise such Nonstatutory
Stock Option pursuant to the Plan) pay to the Company, upon its demand, such
amount as may be requested by the Company for the purpose of satisfying any
liability to withhold federal, state, or local income or other taxes. If the
amount requested is not paid, the Company may refuse to issue shares of Common
Stock.
6. OPTION AGREEMENTS
Each Nonstatutory Stock Option under the Plan shall be evidenced by an
option agreement which shall be executed by the Optionee and, on behalf of the
Company, by an of ricer of the Company and shall contain such provisions
consistent with the Plan as may be approved by the Board of Directors and may be
supplemented and amended from time to time as approved by the Board of
Directors.
7. OPTION PRICE
The price at which shares of Common Stock may be purchased upon exercise of
a particular Nonstatutory Stock Option shall be 100 percent of the Fair Market
Value of such shares at the time such Nonstatutory Stock Option is granted, but
in no event less than the par value thereof (if any).
8. TRANSFERABILITY OF NONSTATUTORY STOCK OPTIONS
A Nonstatutory Stock Option granted under the Plan may not be transferred
except by will or the laws of descent and distribution. During the lifetime of
an Optionee, a Nonstatutory Stock Option may be exercised only by the Optionee,
or by a duly appointed legal guardian in the event of the legal disability of
the Optionee. Except as specifically provided in the Plan, no person shall have
any right to assign, transfer, alienate, pledge, encumber or subject to lien the
benefits to which such person is entitled thereunder, and benefits under the
Plan shall not be subject to adverse legal process of any kind. No prohibited
assignment, transfer, alienation, pledge or encumbrance of benefits or
subjection of benefits to lien or adverse legal process of any kind will be
recognized by the Board of Directors and in such case the Board of Directors may
terminate the right of such
A-3
<PAGE> 26
person to such benefits and direct that they be held or applied for the benefit
of such person, his spouse, children or other dependents in such manner and in
such proportion as the Board of Directors deems advisable. If a person to whom
benefits are due shall be or become incompetent, either physically or mentally,
in the judgment of the Board of Directors, the Board of Directors shall have the
right to determine to whom such benefits shall be paid for the benefit of such
person.
9. DELIVERY OF SHARES
No shares shall be delivered pursuant to any exercise of a Nonstatutory
Stock Option until the requirements of such laws and regulations as may be
deemed by the Board of Directors to be applicable thereto are satisfied.
10. AMENDMENTS, SUSPENSION OR DISCONTINUANCE
The Board of Directors may amend, suspend, or discontinue the Plan, but
except as permitted by Section 4(c), may not, without the prior approval of the
shareholders of the Company, make any amendment which operates (a) to make any
material change in the persons eligible to receive Nonstatutory Stock Options
under the Plan, (b) to increase the total number of shares which may be
delivered under the Plan except as provided in Section 4(c), (c) to extend the
maximum option period or the period during which Nonstatutory Stock Options may
be granted under the Plan, (d) to decrease the option price, or (e) change the
number of shares subject to an option granted to a director each year hereunder.
Except with the consent of an Optionee, no amendment, suspension or termination
of the Plan shall impair the right of any recipient of any Nonstatutory Stock
Options granted under the Plan.
11. TERMINATION
This Plan shall terminate upon the earlier of the following dates or events
to occur:
(a) upon the adoption of a resolution of the Board of Directors terminating
the Plan, or
(b) ten years from the date the Plan is initially approved and adopted by
the shareholders of the Company in accordance with Section 12 below.
12. SHAREHOLDER APPROVAL AND ADOPTION
Except as set forth below, the Plan shall be submitted to the shareholders
of the Company for their approval and adoption on or before July 31, 1995. The
Plan shall not be effective and no Nonstatutory Stock Option shall be granted
hereunder unless and until the Plan has been so approved and adopted. The
shareholders shall be deemed to have approved and adopted the Plan only if it is
approved and adopted at a meeting of the shareholders duly held on or before
that date (or any adjournment of said meeting occurring subsequent to such date)
by vote taken in the manner required by the laws of the United States.
13. MISCELLANEOUS
(a) All expenses and costs in connection with the operation of the Plan
shall be borne by the Company.
(b) Proceeds from the sale of shares pursuant to Nonstatutory Stock Options
granted under this Plan shall constitute general funds of the Company.
(c) Upon any distribution of shares of Common Stock pursuant to any
provision of the Plan, the distributed may be required to represent in writing
that he is acquiring such shares for his own account for investment and not with
a view to, or for sale in connection with, the distribution of any part thereof.
The certificates for shares delivered under the Plan may include any legend
which the Board of Directors or counsel for the Company deems appropriate to
reflect any restrictions on transfers.
(d) Except as expressly provided for in the Plan, no member of the Board of
Directors or other person shall have any claim or right to be granted a
Nonstatutory Stock Option under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any member of the Board of Directors any
right to be retained in the service of the Company.
A-4
<PAGE> 27
P KTI, INC..
R PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
O AUGUST 13, 1996
X
Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Nicholas Menonna, Jr. and Martin J. Sergi and
each of them, with full power of substitution as proxies for the undersigned,
to attend the annual meeting of stockholders of KTI, Inc. (the "Company"), to
be held at the Company's corporate offices at 7000 Boulevard East, Guttenberg,
New Jersey 07093 at 10:00 a.m., Eastern Prevailing Time on August 13, 1996; or
any adjournment thereof, and to vote the number of shares of common stock of
the Company that the undersigned would be entitled to vote, and with all the
power the undersigned would possess, if personally present, as follows:
(Continued and to be signed on reverse side.)
SEE REVERSE
SIDE
<PAGE> 28
/X/ Please mark your votes as this example
WITHHOLD AUTHORITY
to vote for the nominees for
FOR election as directors
1. Election of Directors:
Nicholas Menonna, Jr., / / / /
Martin J. Sergi, Dibo Attar,
Thomas A. Bosanko,
Ross Pirasten, Jack Polak,
Jeffrey R. Power,
Marshall S. Sterman
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name on the line provided below.)
- ------------------------------------------------------------------------------
2. Approval of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of an amendment to the KTI, Inc. Director's Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
Unless a contrary direction is indicated, the shares represented by this proxy
will be voted FOR approval of each of the proposals; if specific instructions
are indicated, this proxy will be voted in accordance with such instructions.
PLEASE VOTE, DATE AND SIGN THIS PROXY AND RETURN IT AT ONCE, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING. YOU MAY VOTE IN PERSON IF YOU DO ATTEND.
Dated:
------------------------- ---------------------------------------------
Name of Stockholder
