333-28067
Filed Pursuant to Rule 424(b)(1)
KTI, INC.
938,025 SHARES OF COMMON STOCK
_______________
This prospectus relates to the resale of an aggregate of 938,025 shares (the
"Shares") of common stock, no par value (the "Common Stock"), of KTI, Inc., a
New Jersey corporation (the "Company"), consisting of 291,688 Shares held by
existing shareholders, 631,075 Shares issuable upon the exercise of warrants to
purchase Common Stock (the "Warrants") and 15,262 Shares issuable upon the
exercise of stock options to purchase shares of Common Stock (the "Stock
Options"), in each case, by the selling shareholders named herein (the "Selling
Shareholders"). The Shares may be offered for sale from time to time by the
Selling Shareholders or their respective pledgees, donees, transferees or other
successors in interest in the open market, on the NASDAQ National Market, in the
over-the-counter market, in privately negotiated transactions, or a combination
of such methods, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Shares
are intended to be sold through one or more broker-dealers or directly to
purchasers. Such broker-dealers may receive compensation in the form of
commissions, discounts or concessions from the Selling Shareholders and/or
purchasers of the Shares for whom such broker-dealers may act as agent, or to
whom the Selling Shareholders may sell as principal, or both (which compensation
as to a particular broker-dealer may be in excess of customary concessions).
The Selling Shareholders and any broker-dealers who act in connection with the
sale of Shares hereunder may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by them and proceeds of any resale of the Shares may be
deemed to be underwriting discounts and commissions under the Act. See "Selling
Security Holders" and "Plan of Distribution."
Of the 938,025 Shares offered hereby, 291,688 Shares are presently issued
and outstanding, 631,075 Shares are issuable upon the exercise of the Warrants,
371,725 of which are exercisable at a price of $5.71 per share (301,731 of such
Warrants have an expiration date of March 31, 2001 and 69,994 of such warrants
have a November 1, 2001 expiration date), 210,000 of which are exercisable at a
price of $7.14 per share (with an expiration date of June 1, 1999), 15,750 of
which are exercisable at a price of $8.10 per share (with an expiration date of
December 31, 1999), 2,100 of which are exercisable at a price of $8.10 per share
(with an expiration date of January 31, 2000), 15,750 of which are exercisable
at a price of $5.71 per share (with an expiration date of April 30, 2001), and
15,750 of which are exercisable at a price of $6.67 per share (with an
expiration date of April 30, 2002) and 15,262 Shares are issuable upon the
exercise of Stock Options, which are exercisable at a price of $3.46 per share
(with an expiration date of January 17, 2004). The exercise price and the
number of shares issuable upon exercise of the Warrants and Stock Options are
subject to adjustment in the event of stock splits, stock combinations, mergers,
reorganizations, and other transactions involving the Company. If all of the
Warrants are exercised, the Company will receive proceeds of approximately
$3,963,000. If all of the Stock Options are exercised, the Company will receive
proceeds of approximately $52,800. The proceeds from the sale of the Shares
hereunder will be received solely by the Selling Shareholders.
The Common Stock is listed on the NASDAQ National Market System under the
symbol "KTIE." On June 5, 1997, the last reported sale price of the Common
Stock, as reported on the NASDAQ National Market System, was $8.00 per share.
AN INVESTMENT IN THE SECURITIES OFFERED PURSUANT TO THIS
PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" AT PAGES 9 TO 14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 6, 1997.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (referred to herein, together
with all other amendments and exhibits, as the "Registration Statement") under
the Securities Act for the registration of the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are omitted from this Prospectus in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Shares offered hereby, reference is made to the
Registration Statement, exhibits, schedules thereto, and the financial statement
and notes thereto filed or incorporated by reference as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Commission. Such reports, proxy statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at its office at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission s regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference and made a part of this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
and
(iii) Report on Form 8-K dated as of May 28, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified, replaced or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference herein (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates). Requests
should be directed to:
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel
Telephone Number: (201) 854-7777
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements contained herein or incorporated by reference herein that
are not historical facts, including but not limited to statements regarding the
Company's current business strategy, prospective joint ventures, and plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors in
addition to the foregoing that could cause actual results to differ materially
are the following: (i) the availability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company; (ii) competitive
factors such as availability of less expensive waste disposal outlets or
expanded recycling programs that may significantly reduce the amount of waste
products available to the Company's facilities; (iii) any further restructuring
of the Company's power purchase agreement with Central Maine or any
restructuring of the Company's power purchase agreements with Bangor-Hydro and
Florida Power (iv) changes in labor, equipment and capital costs; (v) the
ability of the Company to consummate any contemplated joint ventures and/or
restructuring on terms satisfactory to the Company; (vi) changes in regulations
affecting the waste disposal and recycling industries; (vii) the ability of the
Company to comply with the restrictions imposed upon it in connection with its
outstanding indebtedness; (viii) future acquisitions or strategic partnerships;
(ix) general business and economic conditions; and (x) other factors described
from time to time in the Company's reports filed with the Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference
herein. All share numbers have been adjusted to give effect to a 5% stock
dividend paid on March 28, 1997.
Certain statements under this caption "Summary" constitute "Forward-Looking
Statements" within the meaning of the Securities Act and the Exchange Act. Such
forward-looking statements involve known and unknown risks and uncertainties.
See "Risk Factors" and "Special Note Regarding Forward-Looking Statements."
THE COMPANY
KTI, Inc. (individually and collectively with its subsidiaries and an
affiliate, the "Company"), incorporated in New Jersey in 1985, is focused on the
development of an integrated waste handling business, providing waste recycling,
processing and disposal capabilities, specialty waste disposal services,
facility operations and recycling of ash combustion residue. The Company is a
holding company, and substantially all of its operating assets are owned by
corporate and partnership subsidiaries and an affiliate. The principal
executive offices of the Company are located at 7000 Boulevard East, Guttenberg,
New Jersey 07093. Its telephone number is (201) 854-7777.
The Company's current business plan for its integrated waste handling
business includes the following elements: (i) to maximize the refuse derived
fuel ("RDF") production and operating efficiencies at the Company's
waste-to-energy facilities, (ii) to continue to focus on lowering expenses of
its waste-to-energy facilities, including identifying less costly means of
disposal or by utilizing recycling opportunities for municipal solid waste
("MSW") process and ash combustion residues, (iii) to utilize its expanded
specialty waste disposal capabilities (an increase in the amounts of specialty
waste processed by the Company is planned to offset the effects of the seasonal
nature of the traditional MSW market and the uncertainties of the MSW spot
market, which would increase revenue due to the higher tipping fees that the
Company believes its facilities will be able to charge for processing such
wastes), (iv) to enhance the value of its wood waste processing business by
expanding the utilization of available capacity through the acquisition of
additional materials and expanding the menu of materials processed, (v) to
recycle ash produced by waste-to-energy facilities, (vi) to expand its waste
brokerage service, and (vii) to utilize its experience gained in restructuring
the power supply contract of one of the Company's waste-to-energy facilities,
in waste handling and processing, in turning around troubled facilities and in
operating waste facilities by acquiring an interest in or assuming operational
responsibility for other waste disposal or recycling facilities in financial or
operational distress.
The implementation of parts of the foregoing business plan has only
recently commenced and there can be no assurance that such plan will be
successful.
RECENT DEVELOPMENTS
One of the Company's indirect subsidiaries, Kuhr Technologies, Inc.
("Kuhr") is the 10% general partner of Maine Energy Company, Limited
Partnership, a Maine limited partnership ("Maine Energy"), one of the Company's
waste-to-energy facilities. Another subsidiary of the Company holds a 64.15%
limited partner interest in Maine Energy.
The Company indirectly owns 919,173 shares of Kuhr common stock,
approximately 84% of the 1,094,580 shares currently outstanding. The remaining
175,407 shares are owned by 51 minority shareholders. Kuhr presently owes the
Company $6.4 million, representing loans advanced by the Company on behalf of
Kuhr in connection with Kuhr's investment in Maine Energy. Kuhr has no source
of funds available to service such debt. The Company has offered to accept
additional shares of common stock of Kuhr in lieu of interest on the $6.4
million debt. Such offer will be presented to the Kuhr shareholders for their
approval at the Annual Meeting of Shareholders of Kuhr to be held on June 10,
1997. If this offer is accepted, the Company's ownership in Kuhr would increase
to approximately 96%. The Company has offered to buy Kuhr common stock owned by
minority shareholders at a price of 10 cents per share prior to June 10, 1997,
and for a price of 5 per share cents thereafter. To date shares representing
approximately 2% of Kuhr's common stock presently outstanding have been
purchased.
The Company is currently discussing with Bangor Hydro Power Company
("Bangor Hydro") a proposed restructuring of the Power Purchase Agreement (the
"Bangor Hydro PPA") between Bangor Hydro and a subsidiary of the Company,
Penobscot Energy Recovery Company, Limited Partnership, a Maine limited
partnership ("PERC"), to reduce the costs to Bangor Hydro's ratepayers. PERC
owns and operates a waste-to-energy facility in the Town of Orrington, Maine
(the "Town"). Town has issued Floating Rate Demand Resource Recovery Revenue
Bonds, which bonds are tax-exempt, in the aggregate principal amount of $81
million (the "Bonds"). The proceeds of the bond issuance were loaned to PERC to
finance the acquisition and construction of the waste-to-energy facility. Other
parties to the restructuring discussions include PERC Management Company and
Energy National, Inc., the general partners of PERC, Prudential Insurance
Company of America, a limited partner of PERC ("Prudential"), the approximately
250 communities served by PERC, the Finance Authority of Maine ("FAME") and the
State of Maine.
Pursuant to the terms of the proposed restructuring, Bangor Hydro will
make a lump sum payment of $8 million and Bangor Hydro will be entitled to
receive rebates from PERC, which amounts would have otherwise been distributed
to the partners of PERC. If Bangor Hydro receives the projected annual rebate
during any of 1997, 1998, 1999, or 2000, then Bangor Hydro will pay PERC
$500,000 for such year. To the extent that the actual rebate is less than the
projected amount, the $500,000 payment by Bangor Hydro will be reduced dollar
for dollar, but in no event will PERC or its partners be obligated to make any
payments to Bangor Hydro. In connection with the proposed restructuring of the
Bangor Hydro PPA, the Bonds will be restructured to extend the maturity of the
Bonds and reduce the mandatory sinking fund payments. In addition, FAME will
credit enhance the Bonds.
Among the conditions to the consummation of the proposed restructuring, the
State of Maine must enact certain legislation permitting the transactions
contemplated by the restructuring. On May 14, 1997, both houses of the Maine
legislature passed such legislation and the bill will be presented to the
Governor for signature by the end of May. Although the Governor has indicated
that he will sign the bill, there can be no assurance that the bill will be
signed into law.
In connection with the proposed restructuring, the Company and Prudential
entered into a letter agreement pursuant to which the Company may acquire an
additional limited partner interest in PERC, of approximately 43%, for an amount
up to $9.5 million. The acquisition of the limited partner interest from
Prudential is conditioned upon, among other things, the consummation of the
proposed restructuring.
There can be no assurance that the proposed restructuring of the Bangor
Hydro PPA or the acquisition of the limited partner interest in PERC will be
consummated, or, if consummated, on terms that are not materially or adversely
different from those described above.
In April, 1996, the Company entered into agreements with American Ash
Recycling Corp., a Florida corporation ("AAR"), pursuant to which the Company
acquired a 60% limited partnership interest in a limited partnership formed to
operate a municipal waste combuster ("MWC") ash recycling facility in the State
of Maine (the "Maine Partnership"). The Maine Partnership is in the process of
obtaining its federal, state and local permits and the Company agreed to become
a 60% limited partner, if appropriate, in up to eight (8) more ash recycling
facilities that may be developed by AAR through December, 1999.
The Company believes that the Company's efforts to obtain operating permits
for the Maine Partnership's ash recycling facility were instrumental in Maine
Energy's ability to negotiate a reduced disposal fee with a third-party ash
landfill owner. Under the renegotiated contract, Maine Energy's ash disposal
fee was reduced to $46 per ton from $76 per ton. Maine Energy shares a portion
of the ash disposal fee savings with the Maine Partnership.
In May, 1997, the Company concluded that the prospects for building an ash
recycling facility in the State of Maine in the near future were poor, a view
not shared by AAR. To resolve these differences, the Company and AAR both
agreed that KTI Ash Recycling, Inc., a subsidiary of the Company ("KTI Ash
Recycling") would withdraw from the Maine Partnership. In exchange, KTI Ash
Recycling will receive a portion of the ash disposal savings. Maine Energy will
distribute 24% of the ash disposal savings, beginning with ash disposal savings
accruing after April 1, 1997, directly to KTI Ash Recycling until such time as
KTI Ash Recycling has received $1,408,172 in cumulative distributions. KTI Ash
Recycling will be entitled to receive 18% of all distributions thereafter.
In the fourth quarter of 1996, the Company acquired Timber Energy
Investments, Inc. ("TEII"), a Florida-based company. TEII and its subsidiaries
own, among other facilities, a 14-megawatt power plant in Telogia, Florida which
processes biomass waste and sells electricity to the Florida Power Company under
a long-term contract. The construction of the power plant was financed with
$13.4 million of tax-exempt debt. The Company is presently in negotiations to
refinance the $13.4 million tax-exempt bonds to release the credit enhancement
provided by Continental Casualty Company ("CNA"). The closing of this
transaction is tentatively scheduled for June, 1997. No assurance can be
given that the Company will be able to refinance the tax-exempt bonds.
On April 21, 1997, KTI Recycling, Inc. ("Recycling"), a wholly owned
subsidiary of the Company, executed a term sheet with Prins Recycling Corp. and
certain of its subsidiaries (collectively, "Prins"), a corporation currently
operating as a debtor in possession in bankruptcy reorganization proceedings
under Title 11 of the U.S. Code pending in the United States Bankruptcy Court
for the District of New Jersey, pursuant to which Recycling will acquire the
assets of Prins. Prins currently operates three paper recycling facilities in
Franklin Park, Illinois, Charlestown, Massachusetts, and Newark, New Jersey.
Pursuant to negotiations with the Committee for Unsecured Creditors (the
"Committee") in the Prins bankruptcy proceeding, the term sheet was modified on
May 27, 1997.
The modified term sheet provides that Recycling will purchase all of the
assets of Prins, other than certain assets specifically excluded by Recycling,
for cash and notes in the amount of $13.1 million and the assumption of $500,000
in trade payables. The notes will be accepted by PNC Bank, National Association
("PNC"), Prins' principal secured creditor, at par. In the event that any
assets of Prins are sold after April 21, 1997, but before the closing date, such
sales, if approved by Recycling, will reduce the above purchase price dollar for
dollar. If any sale of assets are made without Recycling's approval, the offer
may be withdrawn by Recycling. In addition, Recycling has the right to require
Prins to accept or reject any contract of Prins, currently in effect. Pursuant
to the term sheet, the Company will contribute $1 million in working capital to
Recycling.
The term sheet also provides that if any of the Prins facilities, other
than the Franklin Park facility, are sold to another purchaser, Recycling will
be entitled to a breakup fee payable from the proceeds of such sale equal to the
lesser of $250,000 or 150% of Recycling's out of pocket costs. Prins may not
solicit any offers to purchase the facilities from any third party. In
addition, Prins has agreed to request that the Bankruptcy Court provide that any
higher offer, other than an offer for only the Franklin Park facility, must
exceed Recycling's offer by not less than $300,000. Recycling's right to
receive the breakup fee is contingent upon Recycling executing a definitive
agreement to purchase such assets, which agreement shall be subject only to
Bankruptcy Court approval and due diligence with respect to environmental
matters, which due diligence must be completed within 45 days after the
Bankruptcy Court approves the terms of the deal, and which will contain
customary representations, warranties and covenants. The Bankruptcy Court must
approve an Operations and Maintenance Agreement (the "Management Agreement") in
the form executed by Prins and KTI Operations, Inc., a wholly owned subsidiary
of the Company on April 21, 1997. Definitive purchase agreements must be
executed within one week after the Bankruptcy Court approves the Management
Agreement, the breakup fee and the minimum increase in bid.
On April 21, 1997, Recycling entered into an agreement with PNC, which
agreement was modified on May 22, 1997 after discussion with the Committee,
pursuant to which PNC agreed to advance additional funds to Prins up to a
maximum of $9.5 million, an increase of approximately $1 million. The Company
agreed to guarantee up to 40% of such additional advances, subject to a maximum
guaranty of $400,000. In addition, subject to Bankruptcy Court approval,
Recycling agreed to purchase the Franklin Park, Illinois facility of Prins for a
purchase price of $2 million, if such facility is not sold to a third party
prior to July 31, 1997. Recycling's obligation to purchase the Franklin Park,
Illinois facility is secured by a $1 million letter of credit arranged by the
Company. The $1 million letter of credit is guaranteed by three individuals,
one of whom is an officer of the Company. As consideration for such guarantees,
the guarantors received a fee of $15,000 and warrants to purchase 15,750 shares
of Common Stock at $8.095 per share. The warrants expire five years after the
date of issue.
In the event that Recycling purchases all of the assets of Prins, or the
Franklin Park, Illinois facility, PNC has agreed to accept a portion of such
purchase price in the form of short term notes. In addition, the Company has
agreed to issue a warrant to PNC to purchase 30,000 shares of its Common Stock
at an exercise price of $8.50 per share. The warrant will expire on April 30,
2002. The shares of Common Stock covered by the warrant are subject to a
registration rights agreement which requires the Company to register such
shares.
On May 28, 1997, the Bankruptcy Court for the District of New Jersey
entered an order approving the terms set forth in the modified term sheet, as
set forth above, and the Management Agreement, subject to the execution of a
definitive purchase agreement.
In connection with such order, on May 22, 1997, the Company, Prins, PNC
and the Committee modified the term sheet and the agreement with PNC by reading
certain modifications into the record of the hearing. Such modified terms
provided that: (i) Prins shall give notice of the agreement with the Company to
parties who have expressed an interest in acquiring the Prins facilities within
ten days of the entry of the order recording the court proceedings; (ii) any
third party wishing to purchase either the Charlestown facility or the Newark
facility must submit a written bid by 5:00 p.m. EDT on July 7, 1997 (an
"Alternate Bid"); (iii) if an Alternate Bid is submitted in a timely fashion, a
hearing will be held on July 10, 1997 and if such Alternate Bid is accepted,
such third party bidder must immediately execute an asset purchase agreement and
make a down payment of $1,000,000 by certified check or deposit of a letter of
credit from a bank previously approved by Prins, PNC and the Committee; (iv) any
third party wishing to purchase the Franklin Park facility must submit a written
bid at least ten days in advance of any scheduled hearing for such sale, which
hearing is currently scheduled to be held on the later of September 16, 1997 or
a decision of the Bankruptcy Court to deny confirmation of the plan of
reorganization pursuant to which all of the Prins facilities will be sold to
Recycling; (v) a successful bidder for the Franklin Park facility must execute
an asset purchase agreement and deposit a down payment equal to $1,000,000 in
cash or cash equivalents and consummate such sale within five business days; and
(vi) for purposes of the plan or reorganization, PNC will be deemed to be an
impaired creditor.
The Company has entered into an agreement with First Analysis Corporation
("First Analysis") pursuant to which First Analysis will provide strategic
advice, analytical services and deal flow to the Company. As compensation for
such services, the Company will issue warrants to purchase 75,000 shares of
Common Stock at an exercise price of $9.00 per share and warrants to purchase
25,000 shares of Common Stock at an exercise price of $10.00 per share. The
warrants will expire six years after the date of issue.
The Company is presently in negotiations to issue, in one or more
privately negotiated transactions, up to 487,500 shares of a new Series A
Convertible Preferred Stock (the "Series A Preferred"). The Series A Preferred,
which will not have been registered under the Act and which would not be subject
to offer or sale in the United States absent registration or an applicable
exemption from registration requirements, is expected to not pay dividends and
be callable at the end of five years by the Company at a premium. The Series A
Preferred Stock is expected to be convertible into Common Stock of the Company
at $8.00 per share. In addition, it is anticipated that the Series A Preferred
holders will receive detachable warrants, exercisable at a price of $9.00 per
share and having an expiration date six years from the date the Series A
Preferred were issued. The Company, under the proposed terms, would be able to
compel conversion of the Series A Preferred under certain circumstances.
It is anticipated that the Series A Preferred would be junior to the
Company's preferred stock with no conversion features or associated warrants,
and would be pari passu to other convertible preferred series. The Series A
Preferred would be senior to Common Stock in the event of liquidation, sale or
merger of the Company. The Series A Preferred holders would be entitled to
registration of the underlying shares of Common Stock within 120 days of
closing. The Company expects that the Series A Preferred holders would have the
right to nominate one person for election to the Board of Directors.
In addition, the Company is presently in negotiations to issue, in one or
more privately negotiated transactions, up to $15 million of a new Series B
Convertible Preferred Stock (the "Series B Preferred"). The Series B Preferred,
which will not have been registered under the Act and which would not be subject
to offer or sale in the United States absent registration or an applicable
exemption from registration requirements, is expected to have a market rate
coupon and be redeemable on the seventh anniversary of issue at its liquidation
value. The Series B Preferred is expected to be callable, after the third
anniversary of its issuance at a premium, which premium is expected to decline
to zero by the sixth anniversary of the issuance of the Series B Preferred. The
Series B Preferred is expected to be convertible into Common Stock of the
Company at a price per share representing a premium above the per share price on
the date of issue. The Company, under the proposed terms, would be able to
compel conversion of the Series B Preferred under certain circumstances.
The Company, under the proposed terms, would be able to compel an exchange
of all of the then outstanding Series B Preferred for subordinated convertible
debt of the Company at any time on a dividend payment date. The subordinated
convertible debt would have similar terms and an equivalent interest rate,
without adjustment for the dividend received deduction. It is anticipated that
the Series B Preferred holders may require the Company to redeem the Series B
Preferred in the event of a change of control of the Company.
It is anticipated that the Series B Preferred would be pari passu with the
Series A Preferred and would be senior to Common Stock in the event of
liquidation, sale or merger of the Company. The Series B Preferred holders may
prohibit the issuance of preferred stock senior to Series B Preferred or pari
passu with it, unless certain financial ratios have been obtained. The Series B
Preferred holders would be entitled to registration of the Series B Preferred
and the underlying shares of Common Stock within 180 days of closing.
There can be no assurance that the Company will issue either the Series A
Preferred or the Series B Preferred, or, if issued, that the terms thereof will
not be materially adversely different from the terms described above.
THE OFFERING
This prospectus relates to the resale of (a) 291,688 Shares presently held
by existing shareholders; (b) 421,075 Shares to be issued to certain debtholders
upon exercise of Warrants issued in connection with the placement of $2,503,314
in short term debt; (c) 210,000 Shares to be issued to a financial advisor of
the Company upon exercise of Warrants; and (d) 15,262 Shares to be issued to an
officer of the Company upon the exercise of certain stock options, having an
exercise price of $3.63 per share.
During March, April, June and July 1996, the Company privately placed
$2,503,314 in short term notes and Warrants representing the right to acquire
468,167 shares of Common Stock, which constitute a portion of the Shares offered
hereby. (20,824 of these shares are not being registered hereunder at the
request of the owner of such warrant and 26,268 shares have been issued to date
pursuant to the exercise of such warrants and are included in the 291,688 Shares
offered hereby which are presently held by existing shareholders.) No portion
of the purchase price of the short term notes and such Warrants was allocated to
such Warrants. The exercise price of the Warrants is subject to adjustment
under certain circumstances. 301,731 of the Warrants are exercisable through
March 31, 2001 and 69,994 of the Warrants are exercisable through June 30,
2001. As part of the private placement transaction, the Company entered into
a registration rights agreement with each purchaser of short term debt and
Warrants under which the Company agreed to file the Registration Statement
of which this Prospectus is a part. $2,003,314 of the short term debt was
repaid on July 31, 1996 and the balance was repaid on October 31, 1996.
In June 1996, the Company entered into a consulting agreement (as amended,
the "Consulting Agreement") with L. T. Lawrence & Co., Inc. ("LTL"), whereby LTL
agreed to provide the Company with financial advisory services and, in partial
consideration therefor, the Company granted LTL certain Warrants representing
the right to buy 210,000 shares of Common Stock (the "LTL Warrants"), which
constitute a portion of the Shares offered hereby. The exercise price of the
LTL Warrants is $7.14 per share of Common Stock, subject to adjustment under
certain circumstances. The LTL Warrants are currently exercisable and expire on
June 1, 1999. In accordance with the registration rights agreement between the
Company and LTL, the Company is including the Shares underlying the LTL Warrants
in this Registration Statement.
RISK FACTORS
Investors should consider very carefully each of the following risk factors
and all other information contained in this prospectus.
LOSSES AND ACCUMULATED DEFICIT OF THE COMPANY AND UNCERTAINTY OF FUTURE
FINANCIAL RESULTS
Prior to 1996, the Company has historically not operated at a profit and
has historically lacked cash resources. As of December 31, 1996, the Company
had an accumulated deficit of $12,939,642. During the fiscal year ended
December 31, 1995, the Company had a net loss of $1,331,494, and during the
fiscal year December 31, 1996, the Company had net income of $13,366,352.
There can be no assurance that the Company will be able to operate profitably
in the future. Continued operating losses could impact the long-term viability
of the Company.
HOLDING COMPANY STATUS OF THE COMPANY
The Company is a legal entity separate and distinct from its subsidiaries
and an affiliate, which operate substantially all of the Company's businesses.
Accordingly, the right of the Company to utilize any assets or earnings of any
one subsidiary or the affiliate to finance the growth of any other of its
subsidiaries or affiliate is necessarily subject to the prior claims of
creditors of the subsidiaries and the affiliate. In addition, the payment of
management fees and the distribution of the cash flow generated by certain
subsidiaries and the affiliate of the Company are subject to substantial
restrictions as a result of agreements with their lenders and as a result of
agreements with the Company's lender. Certain financing and the long-term waste
handling agreements of Maine Energy, the owner and operator of a waste-to-energy
facility in which the Company has an approximately 74.15% ownership interest,
require that all available cash flow be applied to the redemption of
indebtedness in full before any distribution to partners. The Company's current
ability to utilize internally generated cash flow as a means of financing
expansion is limited. As a result, the liquidity of the Company is adversely
affected, which could result in the need to raise additional cash through the
sale of securities of the Company, some of which may include sales of Common
Stock at less than the then prevailing market prices which may dilute existing
stockholders and make less likely the payment of cash dividends on Common Stock.
NEED FOR ADDITIONAL FINANCING
The Company's strategy to foster expansion of its business includes, in
part, the development of new businesses or the acquisition of the ownership of,
or operational responsibility for, additional businesses in the waste handling
industry. This strategy may require the Company to raise additional
cash through offerings of either equity or debt or both, including sales of
Common Stock at prices less than the then prevailing market price. The success
of the Company's planned expansion will depend upon a number of factors not
entirely within the Company's control, including, among others, the terms and
availability of additional financing, the regulatory climate in which the
Company operates, and other general economic and business conditions. There can
be no assurance that additional financing, through bank borrowings, debt or
equity financings or otherwise, will be available to the Company on acceptable
terms. Further, the Company's existing revolving credit facility (the "Credit
Facility") and the Company's outstanding 8% note contain restrictions on the
Company incurring additional debt.
COMPETITION
The Company experiences significant competition in each of its waste
handling markets. Maine Energy and PERC compete with landfills and several
waste-to-energy facilities and municipal incinerators in Maine and the New
England region. However, the volume of MSW produced in the New England region
has historically increased and the Company believes that it is likely to
continue to increase while the availability of landfills for waste disposal is
likely to continue to decline. Even though the implementation of recycling
programs to reduce MSW has increased, the Company believes that there are limits
on the percentage of MSW that ultimately can be recycled and that alternatives
for disposal of MSW will continue to be needed. In addition, the Company has
begun to focus on the industrial waste market as an ancillary source of waste
for the Maine Energy and PERC facilities and as a means of reducing its reliance
upon the MSW market. Specifically, KTI Specialty Waste Services, Inc. and SEMCO
Specialty Environmental Management Company, LLC have been formed to acquire
specialty waste products for these facilities.
The Company believes that the RDF technology employed by the Maine Energy
and PERC facilities compares favorably with the mass-burn technology utilized by
many other waste-to-energy facilities. In RDF systems, MSW is preprocessed to
remove various non-combustible items which are recycled or landfilled. This
results in a significantly reduced volume of ash residue, thereby lowering
ultimate disposal costs, and is also complementary to current recycling
programs.
The wood waste processing facility operated by KTI Bio Fuels, Inc., a
subsidiary of the Company ("KTI Bio Fuels"), in Lewiston, Maine competes with
landfills and operators of portable wood chipping equipment. KTI Bio Fuels is,
however, with Maine Energy and PERC, part of an integrated waste handling
company which both processes wood waste into wood chips and also destroys it
through combustion. The Company believes that this integrated process will
become increasingly attractive to wood waste generators such as electric and
telephone utilities who are seeking a means of eliminating many potential
environmental liabilities associated with traditional means of landfill
disposal.
The Telogia facility competes for biomass fuel supply with paper companies
which employ on site power generation. As the Company moves toward tipping fee
based waste fuels this facility's dependence on the current fuel supply will be
decreased. The facility is permitted to combust 100% of such tipping fee based
fuels. Competition for tipping fee based material will principally come from
landfills whose cost structure is higher than that of the Telogia Facility.
Local landfill costs for biomass waste products range from $15 to $25 per ton,
while the cost of processing the material ranges from $5 to $8 per ton at the
Telogia Facility.
Competition for the Company's ash recycling subsidiary is primarily from
ash landfills. The Company believes its ash recycling facilities will be able
to compete favorably based on historical prices charged by these landfill
operators, although there can be no assurance that it will do so.
Manner Resins, Inc., acquired by the Company in November, 1996, ("Manner"),
competes with several other recycled plastic brokers and direct marketing from
plastic recycling plans for the post-industrial plastic scrap and with materials
recovery facilities for post-consumer plastics.
The Company believes that Manner will continue to be competitive and will
be able to increase revenues and maintain its operating margin as a result of
its knowledge of the plastic recycling market and its reputation and
relationship with its customer base.
RELIANCE ON ELECTRIC UTILITIES AND POWER PURCHASE AGREEMENTS
Each of the Maine Energy facility, the PERC facility and the Telogia
facility has been certified by the Federal Energy Regulatory Commission as a
"qualifying small power production facility" under the Public Utility Regulatory
Policies Act of 1978 ("PURPA") and regulations promulgated thereunder, which
grants an exemption for such facilities from most federal and state laws
governing electric utility rates and financial organization. A qualified small
power production facility is exempt from the Public Utility Holding Company Act
of 1935 and from certain state laws and regulations governing electric utility
rates and financial organization, and, the rates charged by Maine Energy, PERC
and the Telogia facility for their acceptance of waste at their respective
facilities are not subject to regulation under existing state and federal law.
PURPA requires that electric utilities purchase electricity generated by
qualifying facilities at a price equal to the purchasing utility's full "avoided
cost." Avoided costs are defined by PURPA as the incremental costs to the
electric utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility, such utility would generate itself or
purchase from another source.
There are certain risks that the terms of such power purchase agreements
may be altered or changed in a manner adverse to Maine Energy, PERC and the
Telogia facility, primarily due to a bankruptcy of the contracting utility.
These risks are particularly heightened, as to Maine Energy and PERC, at the
present time because of the existence of excess energy capacity in the New
England area. The rates in the Maine Energy and PERC agreements were
established based upon predictions made more than ten years ago as to what each
of Central Maine Power Company ("Central Maine") and Bangor Hydro would spend to
provide the same energy and capacity as Maine Energy or PERC, as applicable,
over the terms of the power purchase agreements. Contrary to the assumptions
built into the contract prices, energy demand did not grow as fast as predicted
and oil prices decreased, rather than increased. Central Maine and Bangor Hydro
may thus currently purchase energy and capacity on the open market for
significantly less than they are obligated to pay Maine Energy and PERC,
respectively, under the power purchase agreements.
DEPENDENCE ON SOURCES OF SUPPLY OF FUEL
The waste-to-energy facilities operated by Maine Energy and PERC are
dependent upon MSW and, if required, supplementary fuel sources (including wood
chips such as those produced by KTI Bio Fuels) that are processed in order to
generate electricity. In 1995, approximately 70% of the total MSW processed by
Maine Energy was received from sources other than parties with whom Maine Energy
has long-term waste disposal agreements. Competition within the waste handling
and disposal industry for spot market MSW may impede a steady, reliable supply
of MSW and may also result in decreased tipping fees for the disposal of such
MSW. Moreover, even under the long-term agreements, the volume of MSW is
seasonal in nature. A decrease in the availability of MSW might force the Maine
Energy and PERC facilities to utilize supplemental fuels in their electric
generating processes. Maine Energy and PERC are paid tipping fees for the
disposal of MSW, but must expend money for the purchase of supplemental fuels as
required, which increases their overall fuel costs. Maine Energy is currently
utilizing no supplemental fuels for its electric generating processes as it has
been able to meet its fuel supply needs through MSW disposal contracts. Maine
Energy intends to use as little supplemental fuel as possible over the term of
the Power Purchase Agreement with Central Maine due to the decreased prices for
the electricity that it will generate and sell to Central Maine. The PERC
facility is currently utilizing supplemental fuels for its electric generating
processes but currently purchases no wood chips for use as supplemental fuel
from the KTI Bio Fuels wood waste processing business, which currently is
selling its entire output of wood chips to purchasers other than Maine Energy
and PERC.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL RISKS
Federal, state, and local environmental laws govern discharges of
pollutants and the generation, transportation, storage, treatment and disposal
of solid waste. These laws (i) establish standards governing most aspects of
the operation of the waste-to-energy facilities of Maine Energy and PERC, KTI
Bio Fuels' wood waste processing facility, AART's ash recycling facility and
Timber Energy's biomass waste to energy plant in Telogia, Florida and (ii)
generally require multiple governmental permits in order to continue the
operation of these facilities. The Company believes it has all permits
necessary to operate the Maine Energy, PERC, KTI Bio Fuels, AART and Timber
Energy facilities in the manner that each of them is currently operating.
However, there can be no assurance that all required permits will be renewed
following their expiration. In some cases the renewal process may entail public
hearings.
The standards established pursuant to environmental statutes and
regulations, the interpretation of statutes and regulations and the policies
governing their enforcement may change, requiring new pollution control
technology or stricter standards for the control of discharge of air or water
pollutants or for solid waste or ash handling and disposal. For example, the
United States Supreme Court, in a 1994 decision interpreting the Resource
Conservation and Recovery Act, held that ash from the combustion of
non-hazardous household and commercial waste, if tested and found to have
hazardous characteristics, will be treated as a hazardous waste. In addition,
new statutory and regulatory provisions may be implemented which could have
retroactive application. Both Maine Energy and PERC have been testing their ash
since initial start-up and the ash has generally tested as non-hazardous.
Hazardous waste, if any is detected, is disposed of appropriately at costs
generally in excess of usual solid waste disposal costs. The Telogia, Florida
power plant stores its ash residue on site.
Changes in laws, regulations or policies or new interpretations of existing
laws, regulations or policies, could have a material impact on the
profitability, level of capital expenditures or continued operation of the
waste-to-energy facilities and wood processing operations in which the Company
has an interest.
RESCISSION OF TIMBER ENERGY TRANSACTION
In connection with the Company's acquisition of the common stock of TEII,
the Company is obligated to obtain the release of CNA from its current
reimbursement obligations on the outstanding $13.4 million tax-exempt debt
used to finance the construction of the Telogia facility by August 22, 1997.
If the Company does not obtain such release by August 22, 1997, CNA can rescind
the TEII acquisition and retain $250,000 of the $1.85 million purchase price
paid by the Company as liquidated damages. The closing of the restructuring
of the tax-exempt debt is currently scheduled for June, 1997. However, there
can be no assurance that the Company will consummate the restructuring and
obtain a release of CNA from such reimbursement obligation.
FLOW CONTROL
One response by state and local governments to the increasing problems
associated with solid waste disposal was the enactment of flow control
ordinances which generally require that all waste generated in the municipality
enacting the ordinance be directed to a specified disposal site. The purpose of
these ordinances was to control the processing of solid waste from the enacting
municipalities as a means of controlling waste tipping fee revenues which were
relied upon as a means to support the financing and operation of solid waste
disposal facilities. The enactment of flow control ordinances was authorized
pursuant to Maine law and most of the municipalities with whom Maine Energy and
PERC executed long-term waste handling agreements enacted such an ordinance.
From the municipality's perspective, having such an ordinance in place was a
corollary to its agreement to a "put-or-pay" waste handling agreement which
requires the municipality to pay a guaranteed annual minimum fee to the
waste-to-energy facility regardless of the actual amount of MSW delivered to the
facility.
In May 1994, in C&A Carbone, Inc. v. Town of Clarkstown, the United States
Supreme Court struck down, as an unlawful violation of the "commerce clause" of
the United States Constitution, a flow control ordinance enacted by the Town of
Clarkstown, New York. The Company does not believe that loss of flow control
provisions would adversely impact operations at either Maine Energy or PERC.
The long-term waste handling agreements for such facilities contractually
require the municipalities to pay for waste disposal whether or not the waste is
delivered. Therefore, the municipalities have little financial incentive to pay
for the disposal of MSW at alternative sites even at lower tipping fees. More
significantly, however, the tipping fees charged by both Maine Energy and PERC
are less than the long-term tipping fees currently being charged by landfills
and other waste incinerators in the region. In addition, the closing of
landfills and the remoteness of Maine from urban areas means that there are few
disposal alternatives available to Maine municipalities. Finally, as
transportation costs are a significant part of total disposal costs, it is
unlikely that existing disposal facilities located outside of the Maine Energy
or PERC facility waste generation areas would be able to lower their tipping
fees to a point that would justify the incurrence of the additional
transportation expense. The Company believes that comparatively low tipping
fees at the Maine Energy and PERC facilities will make them attractive
alternatives to waste generators who may be free to look elsewhere if flow
control ordinances restricting their disposal opportunities become
unenforceable, although there can be no assurance that such facilities will
be attractive alternatives to waste generators.
NO CASH DIVIDENDS
The Company has not paid any cash dividends on its Common Stock to date and
the Company does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Additionally, the Credit Facility and the 8% note
contain restrictions on the payment of dividends.
POTENTIAL ANTI-TAKEOVER EFFECTS OF STATE LAW
PREFERRED STOCK
Certain provisions of New Jersey law and the Company's Restated Certificate
of Incorporation could delay or impede the removal of incumbent directors and
could make it more difficult for a third party to acquire, or discourage a third
party from attempting to acquire, control of the Company. Such provisions could
limit the price that certain investors might be willing to pay in the future for
the Company's securities.
Shares of preferred stock may be issued by the Board of Directors of the
Company without stockholder approval on such terms and conditions, and having
such rights, privileges and preferences, as the Board of Directors may
determine. The issuance of preferred stock could make the possible takeover of
the Company or the removal of management of the Company more difficult,
discourage hostile bids for control of the Company in which stockholders may
receive premiums for their shares of Common Stock, or otherwise dilute the
rights of holders of the Common Stock and depress the market price of the
Company's securities.
In addition, the Restated Certificate of Incorporation of the Company
provides for "supermajority" and "fair price" anti-takeover measures which could
affect the price stockholders could receive for shares of Common Stock. The
supermajority provision requires that in the event of a merger or consolidation
of the Company with another corporation or the sale, lease, exchange or other
disposition of all or substantially all the assets of the Company, an
affirmative vote of at least 80% of all outstanding shares of voting stock shall
be required to approve such transaction unless it is approved by at least the
greater of three fourths of the directors or two directors who are not
affiliated with said transaction.
The fair price provision as set forth in the Restated Certificate of
Incorporation requires a potential acquiring entity to obtain the approval of at
least 80% of all outstanding shares of voting stock of the Company, obtain the
approval of at least three fourths of the directors on the Board who are not
affiliated with the transaction, or satisfy several conditions that include,
among other things, holders of capital stock of the Company receiving fair
market value for their shares, the payment of all outstanding dividends on
capital stock of the Company, the receipt of a proxy or information statement by
all holders of Common Stock describing the proposed transaction and complying
with the requirements of the Exchange Act and the approval of not less than the
majority of the directors not affiliated with said transaction. See
"Description of Common Stock."
LIMITATION ON USE OF TAX LOSS CARRYFORWARDS
As of December 31, 1996, the Company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $47,587,000 that
expire in the years 2002 through 2010. As a result of an "ownership change"
which occurred during 1994, the Company's ability to utilize its pre-ownership
change NOLs is limited under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code"), to an amount equal to approximately $1,100,000 of
taxable income per year. If the value of the Company's capital stock
immediately before the 1994 ownership change were determined to be lower than
that calculated by management of the Company, the annual allowable NOL deduction
of $1,100,000 per year for the Company, other than TEII, would be reduced
proportionately. The net operating loss carryforward of TEII is limited to
approximately $874,000 per year. This limitation may be increased if the
Company or TEII recognizes a gain on the disposition of an asset which had a
fair market value greater than its tax basis on the date of the ownership
change.
USE OF PROCEEDS
Certain statements under this caption "Use of Proceeds" constitute
"forward-looking statements" within the meaning of the Securities Act and
Exchange Act. Such forward-looking statements involve known and unknown risks
and uncertainties. See "Risk Factors" and "Special Note Regarding Forward-
Looking Statements."
The Company will not receive proceeds from the sale of any of the Shares
offered by the Selling Shareholders pursuant to this prospectus. However, the
Company will receive up to approximately $3,963,000 upon the exercise of the
Warrants and up to approximately $52,800 upon the exercise of the stock options,
which the Company currently plans to use as working capital for general
corporate purposes. No assurance can be given that any or all of the Warrants
or stock options will be exercised.
The use of proceeds set forth above represents the Company's present
intention on the basis of circumstances at the date of this prospectus. Changes
in circumstances may result in the reallocation of the net proceeds to other
unexpected uses. Pending such uses, the proceeds will be invested in short term
certificates of deposit or other interest bearing instruments.
SELLING SHAREHOLDERS
The following sets forth certain information with respect to the Selling
Shareholders which has been provided to the Company by each such Selling
Security Holder. The Company has no knowledge of the intentions of any of the
Selling Shareholders to actually sell any of the shares listed under the column
"Shares Available for Sale." Each of the Selling Shareholders, other than
Messrs. Menonna and Sergi, has contractual restrictions on the right to sell
shares. No Selling Security Holder has a material relationship with the Company
other than as a result of ownership of the Shares and the Warrants, except as
described below.
Shares
Offered
Pursuant to Percentage of
Ownership this Class Owned
Prior to Prospectus After
Selling Shareholder Offering (1)(2) Offering(3)
NUMBER
PERCENT
Baldwin & Clarke 31,500 31,500 0 *
Companies
Brapo Associates 5,250 5,250 0 *
John J. Clarke, Jr. 4,374 4,374 0 *
Crescent Capital 17,499 17,499 0 *
Company, LLC
K. Thomas Decoster 26,250 26,250 0 *
Domeco Venture Capital 5,250 5,250 0 *
Fund
S. Edmond Farber 5,250 5,250 0 *
Joseph R. Fichtl 57,748 57,748 0 *
C. Leslie Frederick 26,250 26,250 0 *
Michael Gaudette 6,999 6,999 0 *
Barry M. Gelfand and 52,500 52,500 0 *
Claudette L. Gelfand
Raji A. Hakim 1,050 1,050 0 *
Tabitha A. Hakim 1,050 1,050 0 *
Tiffany A. Hakim 1,050 1,050 0 *
Felix Hertza 32,898 32,898 0 *
Norton F. Hight 5,250 5,250 0 *
Randall V. Hight 5,250 5,250 0 *
David E. Hill 15,262 15,262 0 *
Intergalactic Growth 8,749 8,749 0 *
Fund, Inc.
L. T. Lawrence & Co., 210,000 210,000 0 *
Inc. (5)
Maine Woodchips 12,600 12,600 0 *
Associates
Wolfe F. Model 5,250 5,250 0 *
Morgan Steel Limited 17,499 17,499 0 *
Ameen K. Pirasteh (4) 3,675 3,675 0 *
Annisa B. Pirasteh (4) 3,675 3,675 0 *
Ross Pirasteh (4) 428,624 210,000 218,624 3.2
Anthony G. Polak IRA 5,250 5,250 0 *
(4)
Frederick B. Polak (4) 5,250 5,250 0 *
Jack Polak Keogh 11,373 5,250 0 *
Account (4)
Jeffrey R. Power (4) 67,678 16,800 51,878 *
Jonathan E. Rothschild 10,500 10,500 0 *
Thomas E. Schulze 6,300 6,300 0 *
J. Kirk Smith 5,599 5,599 0 *
Clare and Murray 5,250 5,250 0 *
Stadtmauer
Kasper & Rita Terhorst 5,250 5,250 0 *
Family Trust
John E. Turner 3,150 3,150 0 *
Robert E. Wetzel (4) 69,300 69,300 0 *
Blandon G. Wiggin 1988 13,999 13,999 0 *
Trust
Erma N. Wiggin 1988 13,999 13,999 0 *
Trust
_______
TOTAL 938,025
* Less than one percent.
(1) Assuming the exercise of all of the Warrants to acquire 631,075
shares of Common Stock held and assuming the exercise of a stock option to
purchase 15,262 shares of common stock held by the Selling Shareholders.
(2) The amounts indicated are as of May 22, 1997.
(3) Based on the total number of shares of Common Stock outstanding as of
the date of this prospectus and assuming the sale of all the Shares offered
hereby, including Shares obtained upon the exercise of all of the Warrants and
Stock Options.
(4) Messrs. Hill and Wetzel are officers of the Company. Mr. Ross
Pirasteh is a director and officer of the Company. The Pirastehs (other than
Ross Pirasteh) are relatives of Ross Pirasteh. Messrs. Jack Polak and Jeffrey
R. Power are directors of the Company. Mr. Anthony G. Polak is the son of
Mr. Jack Polak.
(5) L.T. Lawrence & Co., Inc. served as a financial consultant to the
Company from June 1996 to December 31, 1996.
PLAN OF DISTRIBUTION
The Shares may be offered for sale from time to time by the Selling
Shareholders or their respective pledgees, donees, transferees or other
successors in interest in the open market, on the NASDAQ National Market, in the
over-the-counter market, in privately negotiated transactions, or a combination
of such methods, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Shares
are intended to be sold through one or more broker-dealers or directly to
purchasers. Such broker-dealers may receive compensation in the form of
commissions, discounts or concessions from the Selling Shareholders and/or
purchasers of the Shares for whom such broker-dealers may act as agent, or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary concessions). The Selling
Shareholders and any broker-dealers who act in connection with the sale of
Shares hereunder may be deemed to be "underwriters" within the meaning of the
Act, and any commissions received by them and proceeds of any resale of the
Shares may be deemed to be underwriting discounts and commissions under the Act.
DESCRIPTION OF COMMON STOCK
AUTHORIZED STOCK
The Company's Restated Certificate of Incorporation, as amended, authorizes
the issuance of 13,333,333 shares of Common Stock and 10,000,000 shares of
"blank check" preferred stock, no par value, and, pursuant to a Certificate of
Amendment to the Company's Restated Certificate of Incorporation filed on May
16, 1997, 20,000,000 shares of Common Stock. As of May 12, 1997, there were
6,907,262 shares of Common Stock issued and outstanding and held of record by
180 stockholders of record, and no shares of the Company's preferred stock
outstanding.
Common Stock. Stockholders are entitled to one vote for each share of the
Common Stock held of record on all matters to be voted by stockholders.
Stockholders are not entitled to cumulate their votes in the election of
directors. Subject to the prior rights of holders of preferred stock of the
Company which may be issued, the holders of Common Stock are entitled to
dividends, when and if declared by the Board of Directors, out of funds legally
available therefor. The Credit Facility and the 8% note, however, contain
restrictions on dividends. See "Risk Factors -- No Dividends." In the event of
the liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of Common Stock have no preemptive rights and have no
right to convert Common Stock into any other securities. All outstanding shares
of Common Stock are fully paid and nonassessable.
Preferred Stock. No shares of preferred stock of the Company are
outstanding. The Board of Directors has the authority without further
stockholder approval, to issue authorized but unissued shares of preferred stock
in one or more series and to determine the preferences, rights, privileges and
restrictions of any series, including the dividend rights, conversion rights,
voting rights, rights and terms of redemption, liquidation preferences, the
number of shares constituting any such series, and the designation of such
series. Such issuance of preferred stock may adversely affect, among other
things, the voting rights of existing stockholders. The Company is presently
negotiating the issuance of the Series A Preferred and the Series B Preferred.
OTHER PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
The Company's Restated Certificate of Incorporation contains certain
provisions known as "supermajority" and "fair price" provisions which are
anti-takeover measures and could affect the price stockholders could receive for
shares of Common Stock.
Supermajority Provision. The "supermajority" provision is intended to
encourage a corporation seeking to enter into a merger or consolidation with the
Company or a sale of all or substantially all of the assets of the Company to
negotiate these transactions with the "Disinterested Directors" (as defined) to
ensure that such transactions have the substantial support of such directors
before submission to the stockholders.
The supermajority provision requires for approval of a merger or
consolidation between the Company and another corporation, or a sale of
substantially all of the assets of the Company, the affirmative vote of at least
80% of the combined voting power of the then outstanding voting stock voting
together as a single class (an "80% Stockholder Vote") in addition to any other
Stockholder vote required. The 80% Stockholder Vote would not apply if the
proposed transaction is approved by the greater of (i) at least three-fourths of
the Disinterested Directors or (ii) two Disinterested Directors. A Disinterested
Director is any person who is a member of the Board of Directors, while such
person is a member of the Board, who is not an Affiliate, Associate (as those
terms are defined in Rule 12b-2 under the Exchange Act) or representative of the
other party to the transaction with the Company and who was either a member of
the Board at the time the supermajority provision was approved by the Board, or
who was recommended for election to the Board, or elected to fill a vacancy on
the Board, by a majority of Disinterested Directors.
Fair Price Provision. The "fair price" provision is intended to
(i) override New Jersey's corporation law which provides that a majority in
interest of stockholders voting thereon is required for a merger by a
corporation, unless such corporation's certificate of incorporation specifies a
higher percentage and (ii) prevent a two-tier front-end loaded pricing method
for corporate takeovers. In this type of takeover attempt, the bidder tenders
for that percentage of shares which will give it sufficient votes to approve a
merger providing for the elimination of minority stockholders, as the method of
buying the remaining shares. The consideration given for a corporation's shares
in this type of merger can be, and frequently is, in a different form than that
given in the tender offer. For example, the bidder may pay cash to purchase a
controlling position and thereafter approve a merger in which the remaining
stockholders receive securities of the bidder (or one of its subsidiaries).
Moreover, the value of the securities exchanged in the second step may be
substantially less than the amount of cash or the value of the other
consideration given in the first step. Accordingly, the stockholders are
induced to tender initially.
The fair price provision requires an 80% Stockholder Vote for certain
transactions with an Interested Shareholder (as defined) unless specified price
criteria and procedural requirements are met and a majority of the entire Board
of Directors approves the Business Combination (as defined) or the approval of
not less than three-fourths of the Continuing Directors (as defined) is given.
If the latter occurred, then the proposed Business Combination would be subject
to the normal approval requirements under New Jersey law.
An "Interested Shareholder" is defined as any person, other than the
Company or any subsidiary or any employee benefit plan of the Company or of any
subsidiary or fiduciary of such a plan, or any person who was a director of the
Company on the date the provision was adopted by the Board of Directors (such
persons being Messrs. Nicholas Menonna, Jr., Martin J. Sergi and Marshall S.
Sterman) who (i) is the beneficial owner of voting stock representing 10% or
more of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock, (ii) is an Affiliate (as defined) or Associate of the
Company and within the prior two years was the beneficial owner of voting stock
representing 10% or more of the votes entitled to be cast by the holders of all
then outstanding shares of voting stock, or (iii) is the assignee of or has
otherwise succeeded to the beneficial ownership of any voting stock beneficially
owned by an Interested Shareholder within such two-year period, if such
assignment or succession occurred pursuant to a transaction or any series of
transactions not involving a public offering within the meaning of the
Securities Act. The term "beneficial owner" includes any person directly or
indirectly owning or having the right to vote or acquire shares.
The terms "Affiliate" and "Associate" have the respective meanings ascribed
to such terms in Rule 12b-2 under the Exchange Act, as in effect on December 31,
1993.
A "Business Combination" includes the following transactions: (1) a merger
or consolidation of the Company or any of its subsidiaries with an Interested
Shareholder or any other corporation which is or after such transaction becomes
an Affiliate or Associate of an Interested Shareholder; (2) the sale or other
disposition to, with or by any Interested Shareholder or any Affiliate or
Associate of an Interested Shareholder involving any assets or securities of the
Company, any subsidiary or any Interested Shareholder or any Affiliate or
Associate of an Interested Shareholder valued at $20,000,000 or more; (3) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company proposed by or on behalf of an Interested Shareholder or any Affiliate
or Associate of an Interested Shareholder; (4) any reclassification of
securities or recapitalization of the Company, merger or consolidation of the
Company with any subsidiary or other transaction which has the effect, directly
or indirectly, of increasing the proportionate share of any class or series of
the Company's stock, or securities convertible into stock of any class or series
of the Company's stock or into equity securities of any subsidiary, that is
beneficially owned by an Interested Shareholder or any Affiliate or Associate of
an Interested Shareholder; or (5) any agreement, contract or other arrangement
providing for any one or more of the actions referred to above.
A "Continuing Director" is any member of the Board, while a member of the
Board, who is not an Affiliate or Associate or a representative of the
Interested Shareholder and either was a director at the time the fair price
provision was adopted by the Board or was recommended for election to the Board,
or elected to fill a vacancy on the Board, by a majority of the Continuing
Directors.
An 80% Stockholder Vote would not be required if the proposed Business
Combination is approved by not less than three-fourths of the Continuing
Directors or certain minimum price criteria and procedural requirements are
satisfied and not less than a majority of the entire Board of Directors approves
the transaction.
LEGAL MATTERS
The law firm of McDermott, Will & Emery, 50 Rockefeller Plaza, New York,
New York 10020 acted as counsel for the Company in connection with the validity
of the Common Stock offered hereby.
EXPERTS
The audited consolidated financial statements and schedules of the Company
and PERC included in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1996 have been audited by Ernst & Young LLP, independent auditors,
as indicated in their reports thereon included therein and incorporated herein
by reference in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
No dealer, salesman or
any other person has been
authorized to give any
information or to make any
representation other than
those contained in this 938,025
Prospectus and, if given or
made, such information or
representation must not be Shares of Common Stock
relied upon as having been
authorized by the Company, by
any Selling Shareholder or by
any other person. This KTI, INC.
Prospectus does not constitute
an offer to sell or a
solicitation of an offer to
buy the securities offered
hereby to any person or by
anyone in any jurisdiction in
which such offer or
solicitation may not lawfully
be made. Neither the delivery
of this Prospectus nor any
sale made hereunder shall,
under any circumstances,
create any implication that
there has been no change in
the affairs of the Company
since the date hereof, or that
the information herein
contained is correct as of any
time subsequent to its date.
TABLE OF CONTENTS PROSPECTUS
PAGE
Available Information . . . .
Incorporation of Certain
Information by Reference .
Summary . . . . . . . . . . .
Discontinued Operations . . .
The Offering . . . . . . . .
Risk Factors . . . . . . . .
Use of Proceeds . . . . . . . June 6, 1997
Selling Shareholders . . . .
Plan of Distribution . . . .
Description of Common Stock .
Legal Matters . . . . . . . .
Experts . . . . . . . . . . .
