<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 Rule 14a-11(c) or Rule 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] No fee required.
[ ] Fees 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
LOGO
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
Ross Pirasteh
Chairman of the Board of Directors
April 16, 1998
To Our Shareholders:
On behalf of the Board of Directors of KTI, Inc., I cordially invite you to
attend the 1998 Annual Meeting of Shareholders of KTI, Inc. The Annual Meeting
will be held at 10:00 a.m. Eastern Time, on Wednesday, May 13, 1998, 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,
ROSS PIRASTEH
Chairman of the Board of Directors
<PAGE> 3
KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
The 1998 Annual Meeting of Shareholders of KTI, Inc. (the "Company") will
be held at 10:00 a.m. Eastern Time, on Wednesday, May 13, 1998, 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 Certificate of
Incorporation and By-Laws of the Company.
2) To ratify and approve the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31,
1998.
3) To approve the adoption of an amendment to the Restated Certificate of
Incorporation of the Company to increase the number of authorized shares
of common stock of the Company from 20,000,000 shares to 40,000,000
shares.
4) To approve the adoption of amendments to the Company's 1994 Long-Term
Incentive Award Plan.
5) To approve the adoption of amendments to the KTI, Inc. Directors' Stock
Option Plan.
6) 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 March 19, 1998 as
the record date for determining the shareholders entitled to notice of and to
vote at the meeting at the offices of the Company and any adjournments or
postponements thereof. A complete list of shareholders entitled to vote at the
meeting will be available for examination for any purpose germane to the meeting
during the ten-day period preceding the date 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 POSTAGE-PAID, SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors,
ROSS PIRASTEH
Chairman of the Board of Directors
Guttenberg, New Jersey
April 16, 1998
<PAGE> 4
KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 13, 1998
This Proxy Statement and enclosed form of proxy are being 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 1998 Annual Meeting of
Shareholders (the "Meeting") to be held at the Company's offices at 7000
Boulevard East, Guttenberg, New Jersey 07093, on May 13, 1998 at 10:00 a.m.
Eastern 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 April 16, 1998. The Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1997 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. 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 March 19, 1998 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, 9,477,953 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 (even if not a quorum) 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.
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
<PAGE> 5
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, Kenneth (Kook
Joo) Choi, Paul Kleinaitis, Ross Pirasteh, Jack Polak, Wilbur L. Ross, Jr. and
Martin J. Sergi as directors of the Company, (b) "FOR" the ratification and
approval of the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998, (c) "FOR" the approval of
the adoption of an amendment to the Restated Certificate of Incorporation of the
Company to increase the number of authorized shares of Common Stock from
20,000,000 shares to 40,000,000 shares, (d) "FOR" the approval of the adoption
of amendments to the Company's 1994 Long-Term Incentive Award Plan, (e) "FOR"
the approval of the adoption of amendments to the Directors' Stock Option Plan,
and (f) 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, as amended, which became effective on
July 12, 1994, provides for a Board of Directors of not less than three (3)
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 1997, the Board of Directors
formally met on seven (7) occasions. All incumbent Directors, other than Messrs.
Kleinaitis and Ross, were in attendance at all meetings of the Board of
Directors and meetings of committees of the Board of Directors on which they
served during 1997. Messrs. Kleinaitis and Ross were elected Directors on June
17, 1997 and November 24, 1997, respectively. Mr. Kleinaitis attended three of
four meetings following his election. Mr. Ross attended the one board meeting in
1997 held subsequent to his election.
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.
EXECUTIVE COMMITTEE
The Executive Committee consists of Messrs. Pirasteh (chairman) and Sergi.
Mr. Menonna was a member of the Executive Committee until his retirement. The
Executive Committee meets on a regular basis to discuss developments regarding
the Company and provide advice to the Company's officers. Each meeting was
attended by each member of the Executive Committee.
AUDIT COMMITTEE
The Audit Committee consists of Messrs. Attar, Kleinaitis and Polak. 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 1997, the Audit Committee formally met on two (2) occasions.
Each meeting was attended by each member of the Audit Committee.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs. Kleinaitis, Polak and Ross,
none of whom 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 1997,
2
<PAGE> 6
the Compensation Committee formally met on one (1) occasion. Each member was in
attendance at the meeting of the Compensation Committee.
NOMINATING COMMITTEE
The Nominating Committee consists of Messrs. Sergi (chairman), Attar and
Pirasteh. Messrs. Pirasteh and Sergi are executive 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 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 1997, the
Nominating Committee formally met on one (1) occasion. Each member was in
attendance at the meeting of the Nominating Committee.
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>
Ross Pirasteh........................ 60 Chairman of the Board of Directors
Martin J. Sergi...................... 40 Vice Chairman of the Board of Directors,
President, and Chief Financial Officer
William F. Kaiser.................... 45 Executive Vice President and Treasurer
David E. Hill........................ 56 Chief Operating Officer and Senior Vice
President
Fred Prins........................... 58 Senior Vice President
Robert E. Wetzel..................... 60 Senior Vice President, Secretary and General
Counsel
Samuel M. Zaitlin.................... 49 Senior Vice President
Dibo Attar........................... 58 Director
Ken (Kook Joo) Choi.................. 55 President of K-C International, LTD, a
subsidiary of the Company
Paul Kleinaitis...................... 39 Director
Jack Polak........................... 85 Director
Wilbur L. Ross, Jr. ................. 60 Director
</TABLE>
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 was elected as
the Chairman of the Executive Committee of the Board of Directors on February
28, 1997 and as Chairman of the Board of Directors on September 16, 1997. He has
been a financial consultant and entrepreneurial investor for the past fifteen
years.
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 and Chief Financial Officer of the Company and serves as
President of each of the Company's subsidiaries other than Data Destruction
Services, Inc., K-C International, LTD., Manner Resins, Inc., Power Ship
Transport, Inc., Seaglass, Inc., Total Waste Management Corporation and I.
Zaitlin and Sons, Inc. 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.
William F. Kaiser has been employed by the Company since January 5, 1998
and was elected as an Executive Vice President and the Treasurer of the Company
on that date. From 1992 to 1997, he was the Chief Financial Officer of Waste
Management of New York, and its predecessor, ReSource NE, Inc. Waste Management
of New York is a wholly owned subsidiary of Waste Management, Inc.
3
<PAGE> 7
David E. Hill has been affiliated with the Company since January 1994 when
he was employed as the Company's Senior Vice President, Business Development.
Mr. Hill was elected to the position of Chief Operating Officer on September 16,
1997. 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.
Fred Prins has been a Senior Vice President of the Company since November
14, 1997. Prior to that time, he was the Chairman of the Board, President and
Chief Executive Officer of Prins Recycling Corp., a publicly traded paper and
fiber recycling company, where he had been employed since 1990.
Robert E. Wetzel was employed by the Company as Senior Vice President,
Secretary and General Counsel 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.
Samuel M. Zaitlin has been a Senior Vice President of the Company since
1997 and is the President of I. Zaitlin and Sons ("I. Zaitlin"), a wholly owned
subsidiary of the Company. Mr. Zaitlin has been employed by I. Zaitlin since
1971.
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 an investor and a business consultant to domestic and international
companies including various companies which have extended financing to KTI. Mr.
Attar is Chairman of the Board of Directors of T.H. Lehman & Co., Incorporated,
which is engaged in medical accounts receivable financing and a director of
Newpark Resources, Inc., which is engaged in providing oil field services. Mr.
Attar is a member of the Audit Committee and the Nominating Committee.
Ken (Kook Joo) Choi is the President and Chief Executive Officer of K-C
International, Ltd ("K-C"), a wholly owned subsidiary of the Company. Mr. Choi
has been employed by K-C since 1976.
Paul Kleinaitis is a Vice President of First Analysis Corporation and has
been employed there since 1990. Mr. Kleinaitis is a member of the Audit
Committee and the Compensation Committee.
Jack Polak had served as a director of CSI from August 1993 until the
Merger. He has been a director of the Company since February 8, 1995. 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, which is currently in the final stages of
liquidation. He serves as a director of C.C.A. Industries, Inc., a public
company from East Rutherford, N.J., which is engaged in the manufacture and
distribution of health and beauty aid products. Mr. Polak holds a tax consultant
certification in the Netherlands. Mr. Polak is a member of the Audit Committee
and the Compensation Committee.
Wilbur L. Ross, Jr. is the Senior Managing Director and a member of the
Office of the Chairman, Rothschild, Inc. and is the Chairman and Chief
Investment Officer of Rothschild Recovery Fund, L.P. He also serves as a
Director of Mego Financial Corp. and Syms Corp., a retail discount clothing
chain, and is the Chief Executive Officer of News Communications, Inc., a
neighborhood newspaper company. Mr. Ross has been employed by Rothschild, Inc.
since 1976. Mr. Ross is a member of the Compensation Committee.
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 by KTI during the three year period ended December
31, 1997 to the named executive officers who received in excess of $100,000 in
annual compensation during KTI's fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(3)
ANNUAL COMPENSATION(1)(2) SECURITIES ALL OTHER
------------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(4) OPTIONS(#) ($)(5)
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Nick Menonna Jr. ................. 1997 $197,019 0 75,000 $ 7,000
Chief Executive Officer 1996 214,038 $145,000 25,000 6,000
1995 214,282 0 50,000 6,000
Martin J. Sergi................... 1997 $210,000 0 75,000 $ 7,000
Vice Chairman of the Board,
President, 1996 203,461 $145,000 25,000 6,000
and Chief Financial Officer 1995 188,437 0 50,000 195,188
Ross Pirasteh..................... 1997 $208,750 $ 50,000 75,000 $ 7,000
Chairman of the Board 1996 155,000 0 25,000 0
David E. Hill..................... 1997 $132,115 0 20,000 $ 7,000
Senior Vice President 1996 114,038 $ 32,303 20,000 5,854
1995 103,123 0 24,999 3,077
Robert E. Wetzel.................. 1997 $152,885 0 15,000 $ 7,000
Senior Vice President, Secretary 1996 151,923 0 10,000 3,115
and General Counsel 1995 43,456 0 25,000 52,941
</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 actually paid to Mr. Menonna for the three years 1995, 1996
and 1997 was $160,282, $196,188 and $346,058, 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: $54,000 for the year 1995, $17,850 for the year 1996 and
$10,600 for the year 1997. The compensation actually paid to Mr. Sergi for
the three years 1995, 1996 and 1997 was $179,908, $200,911 and $314,038,
respectively. The balance of his salary was accrued. Accrued and unpaid
salary and in 1996 bonuses, were applied against unpaid sums due to the
Company by Mr. Sergi pursuant to certain notes, in the following amounts:
$8,529 for the year 1995, $38,524 for the year 1996 and $2,650 for the year
1997.
(3) The options granted to Mr. Hill in 1995, 1996 and in 1997 were granted under
the 1994 Long-Term Incentive Award Plan. The options granted to Mr. Wetzel
in 1995, 1996 and in 1997 were granted under the 1994 Long-Term Incentive
Award Plan. 25,000 of the options granted to Mr. Menonna in each of 1995,
1996 and 1997 were granted under the 1994 Long-Term Incentive Award Plan.
The balance of 25,000 options in 1995 and 50,000 options in 1997 which Mr.
Menonna received were non-plan options. 25,000 of the options granted to Mr.
Pirasteh in each of 1996 and 1997 were granted under the 1994 Long-Term
Incentive Award Plan. The 50,000 options which were granted to Mr. Pirasteh
in 1997 were non-plan options. 25,000 of the options granted to Mr. Sergi in
each of 1995, 1996 and 1997 were granted under the 1994 Long-Term Incentive
Award Plan. The balance of 25,000 options which were granted to Mr. Sergi in
1995 and 50,000 options which were granted to Mr. Sergi in 1997 were
non-plan options. See "Plans."
The number of shares indicated do not give effect to the 5% stock dividend
payable on March 28, 1997.
(4) Each of Messrs. Menonna and Sergi were to be paid a bonus aggregating
approximately $500,000 for 1996 under the formulas in their employment
agreements with the Company. Pursuant to a letter agreement with the Board
of Directors, Messrs. Menonna and Sergi agreed to reduce such bonuses to
5
<PAGE> 9
$145,000 each. Mr. Sergi was entitled to receive a bonus of approximately
$120,000 for 1997 pursuant to his employment agreement, but Mr. Sergi waived
receipt of such bonus.
(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. Mr. Sergi also received a $6,000 contribution to the
Savings Plan (as described below) for each of 1995 and 1996 and $7,000 in
1997. Mr. Hill received a $3,077 contribution to the Savings Plan in 1995, a
$5,854 contribution in 1996 and a $7,000 for 1997. The other compensation
for Mr. Wetzel in 1995 is comprised of $52,941 in the form of a discount
below the market value of Common Stock on the purchase of stock from the
Company. Mr. Wetzel received contributions of $3,115 to the Savings Plan in
1996 and $7,000 in 1997. Mr. Pirasteh received contributions of $7,000 to
the Savings Plan in 1997.
* Retired November 16, 1997.
The employment agreement with Nicholas Menonna, Jr. provided 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 was 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 $4,00,001 and $5,000,000; and 6% of before tax
consolidated net income of over $5,000,000. Mr. Menonna was entitled to a bonus
of approximately $500,000 for 1996 pursuant to such formula. Pursuant to a
letter agreement with the Board of Directors, such bonus was reduced to
$145,000. The agreement also provided 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. Upon Mr. Menonna's retirement, the Board of Directors agreed
to amend his existing employment contract, effective as of November 14, 1997, as
follows: (a) the amended employment contract will end on November 15, 1999; (b)
commencing November 15, 1997 and until November 15, 1999, Mr. Menonna's base
salary shall be $75,000 per annum; (c) Mr. Menonna shall continue to receive the
car allowance in the amount provided for in the employment contract and such
other benefits as are received by all employees, consistent with the Company's
employment policies; and (d) Mr. Menonna's existing stock options, not currently
vested, shall vest on the earlier of: (1) such options' existing schedules; (2)
July 1, 1998, with respect to 50% of such invested options and (3) July 1, 1999,
with respect to the balance of such invested options. During the period from
November 15, 1997 to November 15, 1999, Mr. Menonna will work on such
operational projects as may be assigned to him from time to time by the Company.
The employment agreement with Martin J. Sergi provides for his employment
as Vice Chairman, President and Chief Financial Officer of the Company. His
annual base salary was increased from $185,000 to $210,000, effective as of May
24, 1996. Prior to its most recent amendment, Mr. Sergi was 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 the Company and its subsidiaries between $4,000,001 and $5,000,000; and 6% of
before tax consolidated net income of the Company and its subsidiaries over
$5,000,000. Mr. Sergi was entitled to a bonus of approximately $500,000 for 1996
under the formula in his employment agreement with the Company. Pursuant to a
letter agreement with the Board of Directors, such bonus was reduced to
$145,000. For 1997, Mr. Sergi was entitled to a bonus of approximately $120,000,
but Mr. Sergi waived receipt of such bonus. Currently, Mr. Sergi will receive a
bonus based on the attainment of certain goals set by the Board of Directors.
The agreement has a three (3) year term and may be extended for additional
one-year periods. 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 Mr. 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 (3)
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,
6
<PAGE> 10
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 than that required at the commencement
of the agreement and (ii) the reduction of employee's authority as a senior
executive officer. However, Mr. Sergi may not terminate the employment agreement
for reasons specified in clause (i) above more than six (6) months following a
"change-of-control" of the Company, as defined in the employment agreement.
COMPENSATION OF DIRECTORS
In 1996 and 1997, the Company paid each non-employee director a fee of
$7,500 per annum. Non-employee directors also participate in the KTI, Inc.
Directors' Stock Option Plan. See "Plans -- KTI, Inc. Directors' Stock Option
Plan." Employee directors currently do not receive an additional fee for their
services as directors.
PLANS
1994 Long-Term Incentive Award Plan. 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"). An additional 500,000 shares of
Common Stock were made available to be granted under the KTI Incentive Plan in
1997. The KTI Incentive Plan, which expires on July 6, 2004 (the "Termination
Date"), is administered by the Compensation Committee of the Board of Directors
(the "Committee"). 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.
Incentive stock options granted under the KTI Incentive Plan are
exercisable during the period commencing six (6) months from the date of the
grant of the option and terminating not more than ten (10) 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 KTI Incentive Plan are exercisable during the
period commencing six (6) 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
(10) 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.
Incentive shares may be issued as provided in the agreement with the
recipient, based upon the achievement of the performance standards set forth in
the agreement. The Committee must certify in writing prior to the issuance of
the incentive shares 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, Rights or incentive
shares may be granted under the KTI Incentive Plan after the Termination Date.
The options and Rights are presently non-transferable during the life of the
grantee. No participant in the KTI Incentive Plan is currently entitled to
receive grants of options and Rights and awards of incentive shares in the
aggregate exceeding 25,000 shares per year.
The Committee has the authority to interpret the provisions of the KTI
Incentive Plan, to prescribe, amend and rescind rules and regulations relating
to it and to make all determinations deemed necessary or
7
<PAGE> 11
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 KTI Incentive Plan except
that shareholder approval is required to effect any change to increase
materially the aggregate number of shares that may be issued under the KTI
Incentive Plan (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 KTI Incentive Plan and authorize the granting of new options and Rights
pursuant to the KTI Incentive Plan 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 without the grantee's
consent.
As of December 31, 1997, there were options to acquire 512,131 shares of
Common Stock outstanding under the KTI Incentive Plan.
KTI, Inc. Directors' Stock Option Plan. In July 1995, the Company adopted
the KTI, Inc. Directors' Stock Option Plan. Under this plan, non-employee
Directors are automatically granted nonstatutory stock options on August 1 of
each year, commencing on August 1, 1995. Effective as of May 14, 1997, the
amount of the automatic option issuable yearly to each eligible director was
increased to 7,500 shares of Common Stock. Options were granted on August 1,
1995, August 1, 1996 and on August 1, 1997 to purchase in the aggregate 85,800
shares of Common Stock, all of which options were outstanding as of December 31,
1997. Options to purchase 14,200 shares currently remain available for grant
under this plan. Options may not be exercised until one (1) year after the date
of grant and expire ten (10) years after the date of grant.
Non-Plan Options. In addition to options granted under the KTI Incentive
Plan, in 1997 the Board of Directors granted to each of Messrs. Menonna, Sergi
and Pirasteh options to acquire 50,000 shares of Common Stock. The non-plan
options have a ten (10) year term, were issued with exercise prices equal to the
then prevailing market price of the Common Stock, and vested in full of the date
of the grant.
As of December 31, 1997, there were outstanding plan and non-plan options
to acquire a total of 840,695 shares of Common Stock.
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 shares of Common Stock upon exercise of an option or Right is subject
to full payment by the recipient of any withholding taxes required to be paid.
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. 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 total
annual compensation into an account established for the participating employee
and may allocate amounts in such account among a variety of investment vehicles.
On January 1, 1997, the Company began making matching contributions to the
Savings Plan of up to the lesser of (a) 10% of the employee's contribution, or
(b) 6.67% of the employee's annual salary. Matching contributions made by the
Company vest in equal annual installments over a five-year period. The Savings
Plan also provides for loans to, and withdrawals by, participating employees,
subject to certain limitations. Certain recently acquired subsidiaries have
similar 401(k) plans with different terms, generally less generous to employees.
When these employees have been with the Company for at least one (1) year and
otherwise meet the eligibility requirements of the Company, they will be
permitted to join the Savings Plan and roll over their existing balances in
their plans into the Savings Plan.
8
<PAGE> 12
OPTION GRANTS IN 1997
The following information is furnished for the fiscal year ended December
31, 1997 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>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE ---------------------------
NAME GRANTED YEAR ($/SH) EXPIRATION DATE 5%($) 10%($)
---- ---------- ---------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nicholas Menonna,
Jr. .................. 10,810 3.7% $ 9.25 June 18, 2002 $ 62,885 $159,362
14,190 4.8 10.175 June 18, 2007 90,802 230,110
50,000 17.0 9.00 July 23, 2007 283,003 717,184
Martin J. Sergi......... 10,810 3.7 9.25 June 18, 2002 $ 62,885 $159,362
14,190 4.8 10.175 June 18, 2007 82,547 230,110
50,000 17.0 9.00 July 23, 2007 283,003 717,184
Ross Pirasteh........... 10,810 3.7 9.25 June 18, 2007 $ 62,885 $159,362
14,190 4.8 9.25 June 18, 2007 82,547 209,191
50,000 17.0 9.00 July 23, 2007 283,003 717,184
David E. Hill........... 10,810 3.7 9.25 June 18, 2007 $ 62,885 $159,362
9,190 3.1 9.25 June 18, 2007 53,461 135,480
Robert E. Wetzel........ 10,810 3.7 9.25 June 18, 2007 $ 62,885 $159,362
4,190 1.4 9.25 June 18, 2007 24,374 61,768
</TABLE>
AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
The following information is furnished for the year ended December 31, 1997
with respect to each of the executive officers of the Company named in the
Compensation Table above, for unexercised stock options at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FY-END(#) FY-END($)(1)
ON VALUE ------------- ----------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Nicholas Menonna, Jr................... 0 $0 78,882/74,866 $636,042/643,747
Martin J. Sergi........................ 0 0 78,882/74,866 $636,042/643,747
Ross Pirasteh.......................... 0 0 55,250/46,000 $417,727/791,760
David E. Hill.......................... 0 0 29,962/52,549 $333,196/448,458
Robert E. Wetzel....................... 0 0 12,600/39,150 $107,291/316,763
</TABLE>
- ---------------
(1) The closing price of the Common Stock ($16.375) as quoted on the Nasdaq
National Market System on December 31, 1997 was used to determine the value
of unexercised in-the-money status of these options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, Messrs. Kleinaitis, Polak
and Ross served on the Compensation Committee. No member of the Compensation
Committee was involved in an interlocking relationship or insider participation
with respect to the Compensation Committee.
9
<PAGE> 13
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, 1997
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 interests of the executive officers with those
of the shareholders of the Company. The Company has employment agreements with
Messrs. Menonna, Sergi and Hill which reflect the Company's compensation
policies as set forth above.
Chief Executive Officer Compensation
Nicholas Menonna, Jr. was the Chief Executive Officer of the Company until
October 16, 1997. Mr. Menonna's compensation was based on an employment
agreement with the Company which, among other things, provided 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, 1997, Mr. Menonna received a total
salary of $197,019. Mr. Menonna was granted incentive stock options to acquire
75,000 shares of Common Stock, 25,000 of which were granted pursuant to the KTI
Incentive Plan during the fiscal year. 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.
No individual has been designated as the Chief Executive Officer of the
Company, following Mr. Menonna's retirement.
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, 1997, 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
Paul Kleinaitis
Jack Polak
Wilbur L. Ross, Jr.
10
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth stock ownership information as of February
27, 1998 concerning (i) each person (including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (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. Except as otherwise indicated, the address of each
party listed below is c/o KTI, Inc., 7000 Boulevard East, Guttenberg, New Jersey
07093, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
NAME AND ADDRESS OF OF BENEFICIAL BENEFICIALLY
BENEFICIAL OWNER OWNERSHIP(1) OWNED
------------------- ----------------- ------------
<S> <C> <C>
Nicholas Menonna, Jr. ................................ 651,532(2) 6.9%
Martin J. Sergi....................................... 1,001,716(3) 10.6%
David E. Hill......................................... 29,962(4) *
Ross Pirasteh......................................... 483,874(5) 5.1%
Robert E. Wetzel...................................... 91,350(6) *
Dibo Attar............................................ 181,140(7) 1.9%
Paul Kleinaitis....................................... 6,500(8) *
Jack Polak............................................ 23,081(9) *
Ken (Kook Joo) Choi................................... 216,757(10) *
Riverside Partnership................................. 685,417(11) 7.1%
233 South Walker Drive
9500 Sears Tower
Chicago, Illinois 60606
All executive officers and directors as a group (9
persons)............................................ 2,805,912 29.6%
</TABLE>
- ---------------
* Less than one percent.
(1) For purposes of this table, a person or group of persons is deemed to be
the "beneficial owner" of any shares that such person has the right to
acquire within 60 days. For purposes of computing the percentage of
outstanding shares held by each such person or group of persons named above
on a given date, any security that such person or group of persons has the
right to acquire within 60 days is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 78,882 shares of Common Stock which may be acquired by Mr. Menonna
pursuant to stock options which are presently exercisable and 22,575 shares
pursuant to a warrant to purchase Common Stock at $5.71 per share.
(3) Includes 603,389 shares of Common Stock held in escrow for Martin J. Sergi.
These shares were acquired by Mr. Sergi on May 10, 1994, from an
institutional investor. Includes 78,882 shares which may be acquired by Mr.
Sergi pursuant to stock options which are presently exercisable.
(4) Includes 29,962 shares of Common Stock which can be acquired by Mr. Hill
pursuant to stock options which are currently exercisable.
(5) Includes 55,250 shares of Common Stock which can be acquired by Mr.
Pirasteh pursuant to stock options which are currently exercisable.
(6) Includes 12,600 shares of Common Stock which can be acquired by Mr. Wetzel
pursuant to stock options which are currently exercisable, 18,060 shares
pursuant to a warrant to purchase Common Stock at $5.71 per share and
15,750 shares pursuant to a warrant to purchase Common Stock at $8.10 per
share.
(7) Includes 20,449 shares of Common Stock which may be acquired pursuant to
stock options which are presently exercisable. Mr. Attar beneficially owns
2,449 shares over which he has sole voting power and 158,246 shares of
Common Stock over which he has shared voting power. Mr. Attar disclaims
beneficial
11
<PAGE> 15
ownership of all shares of Common Stock owned by certain entities to which
he provides investment advice, other than the shares referred to above.
(8) Does not include (i) 437,500 shares of Common Stock (the "Conversion Common
Stock") issued to Riverside Partnership ("Riverside") upon conversion of
437,500 shares of Series A Convertible Preferred Stock, or (ii) warrants to
purchase 218,750 shares of Common Stock at $9.00 per shares or warrants to
purchase 29,167 shares of Common Stock at $10.00 per share (collectively,
the "Warrants") each of which are held by Environmental Private Equity Fund
II, L.P. ("EPEF"). Mr. Kleinaitis's employer is a general partner of each
of Riverside and EPEF.
(9) Includes 11,700 shares of Common Stock which may be acquired by Mr. Polak
pursuant to stock options which are presently exercisable and 1,573 shares
held by corporations and partnerships controlled by Mr. Polak. Includes
warrants to purchase 5,200 shares. Excludes 700 shares held in trust for
the benefit of Mr. Polak's wife of which Mr. Polak disavows beneficial
ownership.
(10) Includes 216,757 shares of Common Stock held in the name of Ken (Kook Joo)
Choi and Myungki Choi, as Trustees of the Choi Family Trust under an
agreement dated March 22, 1993.
(11) Consists of 437,500 shares of the Conversion Common Stock and 247,917
shares of Common Stock issuable upon exercise of the Warrants which are
held by EPEF and which may be deemed to be beneficially owned by Riverside.
All of such shares and warrants may also be deemed to be beneficially owned
by EPEF and certain partners of Riverside and EPEF.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997, Form 5 and amendments thereto furnished to
the Company with respect to its fiscal year ended December 31, 1997, 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, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 former Chairman and Chief Executive Officer of the Company, and
Martin J. Sergi, a principal shareholder and Vice Chairman, President and Chief
Financial Officer of the Company. The Mall leases space to 27 tenants under
long-term operating leases. The Company made rental payments to the Mall of
$96,000 in fiscal year 1997. 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.
The Company held the following promissory notes of affiliates:
(a) Promissory note of Nicholas Menonna, Jr. dated January 1, 1994 in
the original principal amount of $150,239, having a balance including
interest accrued as of December 31, 1996 of $82,026. This note, which was
repaid in 1997, had an interest rate of 8% per annum.
(b) 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, 1996 of $16,771. This note, which was repaid in
1997, had an interest rate of 8% per annum.
(c) 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, 1997 of $84,075. 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.
12
<PAGE> 16
PRIVATE PLACEMENTS OF NOTES, LETTER OF CREDIT
During 1996, the Company made private placements of $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 22,575 warrants; Mr. Wetzel,
$103,314 in notes and 18,080 warrants; Mr. Pirasteh, $60,000 in notes and 10,500
warrants (which were registered in the names of others); and Mr. Polak, $60,000
in notes and 10,500 warrants.
In connection with the purchase of the assets of Prins Recycling Corp. in
1997, a letter of credit was provided to the secured lender to Prins. Three
individuals, including Mr. Wetzel, provided the collateral supporting the letter
of credit. As consideration for providing such collateral, such individuals
received a fee, equal to 1.5% of the face amount of the letter of credit and
warrants to purchase shares of Common Stock of the Company. Mr. Wetzel received
a fee of $4,500 and a warrant to purchase 9,450 shares at an exercise price of
$8.10 per share.
CERTAIN LEGAL MATTERS
Sogevalor S.A., Pierpaolo Matteuzzi and Rodolpho Oechslin have filed suit
against, among others, Dibo Attar, a director of the Company, alleging breach of
fiduciary duty, negligence, fraud, conversion, violations of the Federal
Securities Act, the Texas Securities Act, the Racketeer Influenced and Corrupt
Organizations Act and the Texas Deceptive Trade Practices -- Consumer Protection
Act. The plaintiffs allege, among other things, that the defendants failed to
deliver to the plaintiffs 576,621 shares of Common Stock of the Company which
were issued to the plaintiffs in connection with the conversion of note issued
by the Company. In a related suit, the plaintiffs have filed an action against
the Company alleging breach of contract in connection with an alleged failure to
take into account an interest payment when converting notes issued by the
Company. The Company believes that the plaintiffs received all amounts due to
them upon conversion.
STOCK PRICE PERFORMANCE GRAPH
The following performance graph compares the cumulative total return from
February 9, 1995 to December 31, 1997 on each of the Company's Common Stock
("KTIE"), Standard & Poor's 500 Index ("SPX"), and ECO-FAC Environmental Index
("ECO-FAC"). 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,
1997. On March 19, 1998, the closing sale price of the Common Stock was $17.00.
13
<PAGE> 17
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors currently consists of seven (7) members. The Board
of Directors has nominated Messrs. Attar, Choi, Kleinaitis, Polak, Pirasteh,
Ross and Sergi. With the exception of Mr. Choi, all nominees are currently
directors of the Company. Each nominee is at present available for election. The
directors elected at the Meeting will serve until the 1998 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, upon the reconsideration of the Audit Committee and
subject to shareholder ratification, has appointed Ernst & Young LLP to serve as
independent auditors for the fiscal year ending December 31, 1998. 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. The Company has been advised by Ernst & Young LLP
that the firm did not have any direct financial interest or any material
indirect financial interest in the Company and its subscribers in 1997. 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.
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
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 -- APPROVAL OF THE ADOPTION OF AN AMENDMENT TO THE RESTATED CERTIFICATE
OF INCORPORATION OF THE COMPANY TO INCREASE THE TOTAL AUTHORIZED
COMMON STOCK OF THE COMPANY FROM 20,000,000 SHARES TO 40,000,000
SHARES.
The Board has recommended the adoption of an amendment to the Company's
Restated Certificate of Incorporation to increase the total authorized Common
Stock of the Company from 20,000,000 shares to 40,000,000 shares. Of the
20,000,000 shares of Common Stock currently authorized as of the Record Date,
there are 9,477,953 shares of Common Stock issued and outstanding, 4,138,382
shares of Common Stock reserved for issuance pursuant to outstanding options,
warrants and convertible notes and 583,425 which the Board of Directors
contemplates will be reserved for issuance if the amendments to the KTI
Incentive Plan and Directors' Stock Option Plan are approved, leaving a total of
5,800,240 shares of Common Stock authorized and available for future issuances
for corporate purposes, including acquisitions and employee benefit plans.
The higher number of authorized shares of Common Stock will afford the
Company more flexibility in future offerings of its securities. The primary
purpose of the amendment is to increase the number of shares available for
acquisitions and financings. The Company in recent years expanded its business
and operations through acquisitions and internal growth that has been financed
in part with Common Stock or proceeds of sale of Common Stock. The Company
expects that the future growth of the Company will continue to require the use
of its Common Stock from time to time, either as consideration for acquisitions
or as part of a financing for the Company through the sale of Common Stock or
securities convertible or exchangeable into Common Stock in public offerings or
in private placements of such shares or securities. The proposed amendment would
provide the Company with additional flexibility to effect such acquisitions or
financings without the delay and expense of obtaining the approval or consent of
shareholders of the Company at the time such shares of Common Stock are
required.
The Company does not have any current plans, proposals or undertakings that
would require the use of the additional shares of Common Stock that would be
authorized pursuant to the proposed amendment. The
14
<PAGE> 18
Company anticipates, however, that some portion of the additional shares would
be utilized by the Company in the future for acquisitions as well as for public
offerings or private placements of shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock. Such shares are also
anticipated to be used for shares of Common Stock that may be issued under the
Company's employee benefit plans, including the additional shares that may be
issued pursuant to the proposed amendments to the KTI Incentive Plan as
described above and to the Directors' Plan as described below. Other than as
required by law, regulation or applicable NASDAQ rules, it is not anticipated
that any other authorization by a vote of shareholders will be sought by the
Company for the issuance of any shares of Common Stock. Shareholders of the
Company do not have any preemptive rights to purchase additional shares of
Common Stock, whether now or hereafter authorized.
Neither the proposed increase in the number of authorized shares of Common
Stock nor the issuance of such additional shares will alter the rights of the
shareholders of the Company, but the issuance of additional shares could dilute
the voting power of the shares of Common Stock then outstanding. Because the
issuance of additional shares of Common Stock could dilute the voting power of
the then outstanding shares of Common Stock, the Board's ability to approve the
issuance of additional shares might discourage an attempt to take over the
Company. To the extent the issuance of additional shares might impede an attempt
to acquire a controlling interest in the Company, the proposed amendment might
serve to entrench the current management of the Company. Additionally, the
issuance of additional shares of Common Stock could possibly reduce or eliminate
a premium that shareholders might receive for their shares in the event of a
tender offer. The Company is not aware of any effort to accumulate shares or to
obtain control of the Company by a tender or proxy contest, and the Company has
no present intention to use the increased number of shares of authorized Common
Stock for anti-takeover purposes. Once authorized by the shareholders of the
Company, the Board of Directors of the Company will be able, with certain
exceptions, to issue these shares without further approval from the shareholders
of the Company.
The increase in the authorized number of shares of Common Stock would be
effected through an amendment to the first paragraph of Article Third of the
Company's restated Certificate of Incorporation which, as amended, would read as
follows:
"The total number of shares of Common Stock which the Corporation
shall have the authority to issue is Forty Million (40,000,000) shares
without par value. The Corporation shall also have the authority to issue
Ten Million (10,000,000) shares of Preferred Stock."
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock outstanding is required to approve the proposed amendment
to the Restated Certificate of Incorporation of the Company to increase the
total authorized Common Stock of the Company from 20,000,000 shares to
40,000,000 shares.
ITEM 4 -- APPROVAL OF THE ADOPTION OF AMENDMENTS TO THE COMPANY'S 1994 LONG-TERM
INCENTIVE AWARD PLAN
As of December 31, 1997, 512,131 shares have been granted under the KTI
Incentive Plan to key employees, leaving 371,202 shares available for future
option grants under the KTI Incentive Plan.
On March 17, 1998, the Board of Directors approved an amendment to the KTI
Incentive Plan to (a) increase the number of shares of common stock of the
Company which may be used for incentive or nonstatutory stock options, awards of
shares of common stock and stock appreciation rights by 500,000 shares; (b)
increase the maximum grant to any individual from 25,000 shares per year to
50,000 shares per year; (c) permit the recipients of stock options to assign a
portion or all of their stock options (i) to one or more family or charitable
remainder trusts established by such recipient, (ii) entities established by
such recipient for estate planning purposes (iii) or one or more charities; and
(d) change the normal vesting for stock options from 20% on each anniversary of
the date of grant to one-sixtieth ( 1/60th) each month, beginning one month
after the date of grant (said change to be retroactive for all previous grants
providing for annual vesting).
The Company's current forecasts for the KTI Incentive Plan indicates that
there are currently insufficient shares for projected grants of options.
Additional shares are needed for use in the KTI Incentive Plan can
15
<PAGE> 19
continue to be made to attract and retain key employees of the Company and its
subsidiaries. In addition, the Company wishes to make the provisions of the KTI
Incentive Plan more attractive.
Certain individuals, whom the Company wishes to hire, have requested
specific changes to the provisions of this plan, including (a) initial grants in
excess of 25,000 shares; (b) monthly versus annual vesting, commencing one month
after the commencement of employment; and (c) limited transferability of such
stock options to one or more family or charitable remainder trusts established
by such recipient or others or one or more charities.
The Compensation Committee may not grant more than 25,000 shares of Common
Stock under the KTI Incentive Plan in any one calendar year, without Shareholder
approval of an amendment to the KTI Incentive Plan. To the extent that the
Company has chosen to hire individuals who desire an initial grant of more than
25,000 shares of Common Stock, such grants have been made with outside of the
KTI Incentive Plan. Such grants are less attractive to recipients, causing such
individuals to request an increased number of shares of Common Stock. It is the
Company's belief that this proposed change will not increase the costs to the
Company.
Similarly, the Compensation Committee may not issue a grant providing for
(a) vesting of the grant in any period of less than six months or (b) amend
grants retroactively in a manner which benefits grantees, without Shareholder
approval. The requested change will moderately lower the incentives of
individuals to leave the employment after the anniversary of a grant of stock
options, which may affect the timing of some resignations. The costs to the
Company over time should not be significant.
The proposed amendments to provide for limited transferability will enhance
the value of the stock options without cost to the Company.
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 increase in the number of shares available for grant under
the KTI Incentive Plan and to approve the other amendments to the KTI Incentive
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
AMENDMENTS TO THE KTI INCENTIVE PLAN.
ITEM 5 -- APPROVAL OF THE ADOPTION OF AMENDMENTS TO THE KTI, INC. DIRECTORS'
STOCK OPTION PLAN
On March 17, 1998, the Company's stockholders adopted and approved the KTI,
Inc. Directors' Stock Option Plan (the "Directors' Plan") and 100,000 shares of
Common Stock were reserved for issuance under the Directors' Plan. As of
December 31, 1997 14,200 shares remained available for future grants under this
plan.
The Company's current forecast for the Directors' Plan indicates that there
are currently insufficient shares for projected grants of options through
August, 1998. Additional shares are needed so that non-employee directors may
continue to receive their annual stock grants and so that the Company may
continue to attract non-employee directors. If this amendment to the Directors'
Plan is not approved by the stockholders, no grant of options will be made under
the Directors' Plan once the presently available number of options are granted.
On March 17, 1998, the Board of Directors adopted resolutions Directors'
Plan to increase the number of shares of common stock that may be granted under
the plan by 100,000 shares and to permit the recipients of stock options to
assign a portion or all of their stock options to (i) one or more family or
charitable remainder trusts established by such recipient or others, (ii)
entities established by such recipient for estate planning purposes or (iii) one
or more charities.
If the amendment is approved the following new plan benefits will be
awarded:
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....................... No Limit 30,000 shares in the aggregate
(Messrs. Attar, Kleinaitis, Polak and Ross) (7,500 shares per person)
</TABLE>
16
<PAGE> 20
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 to
approve the proposed amendments to the Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
AMENDMENTS TO THE DIRECTORS' PLAN.
PROPOSALS FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
Shareholders who intend to present proposals for consideration at next
year's annual meeting are advised that any such proposal must be received by the
Secretary of the Company no later than the close of business on December 17,
1998 if such proposal is to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
OTHER MATTERS
The Board is not aware of any other matters which may be presented for
action at the meeting, but if other matters do properly come before the Meeting,
it is intended that the shares of Common Stock represented by proxies in the
accompanying form will be noted by the persons named in the proxy in accordance
with their best judgement.
You are cordially invited to attend this year's meeting. However, whether
you plan to attend the meeting or not you are respectfully urged to sign and
return this enclosed proxy, which may be revoked if you are present at the
meeting and so request.
KTI, INC.
ROSS PIRASTEH
Chairman of the Board of Directors
Dated: April 16, 1997
17
<PAGE> 21
KTI, INC
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS, WEDNESDAY, MAY 13, 1998
The undersigned stockholder of KTI, Inc., a New Jersey corporation, hereby
appoints Messrs. Ross Pirasteh and Martin J. Sergi, or any of them, voting
singly in the absence of the other, attorney and proxies, with full power of
substitution and revocation, to vote, as designated on the reverse side, all
shares of Common Stock of KTI, Inc., that the undersigned is entitled to vote at
the Annual Meeting of Stockholders of said corporation to be held at KTI, Inc.'s
offices at 7000 Boulevard East, Guttenberg, New Jersey 07093, on Wednesday, May
13, 1998, at 10:00 a.m., Eastern Time, or any adjournment or adjournments
thereof, in accordance with the instructions on the reverse side.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED "FOR" ALL NOMINEES IN PROPOSAL NO. 1, AND "FOR" PROPOSAL NOS. 2, 3, 4
and 5. The proxies are authorized to vote as they may determine in their
discretion upon such other business as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL NO. 1
AND "FOR" PROPOSAL NOS. 2, 3, 4 AND 5.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: FOR all nominees listed WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
below [ ]
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS: EXCEPTIONS* [ ]
</TABLE>
NOMINEES: Dibo Attar, Ken Choi, Paul Kleinaitis, Jack Polak, Wilbur L. Ross,
Jr., Ross Pirasteh and Martin J. Sergi
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
Exceptions
- --------------------------------------------------------------------------------
(continued, and to be signed, on other side)
<PAGE> 22
(continued from other side)
2. The ratification of the appointment of Ernst & Young LLP as auditors for the
fiscal year ending December 31, 1998.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
3. Approval for the adoption of an amendment to the Restated Certificate of
Incorporation of KTI, Inc. to increase the total authorized Common Stock of
KTI, Inc., to 40,000,000 shares.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
4. Approval of the adoption of amendments, to KTI, Inc.'s, 1994 Long-Term
Incentive Award Plan.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
5. Approval of the adoption of amendments to the KTI, Inc., Director Stock
Option Plan.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
6. The proxies are authorized to vote as they may determine in their discretion
upon such other business as may properly come before the meeting.
CHANGE OF ADDRESS AND OR COMMENTS
MARK HERE [ ]
Please sign exactly as name appears
to the left.
When shares are held in the name of
joint holders, each should sign.
When signing as attorney, executor,
trustee, guardian, etc., please so
indicate, if a corporation, please
sign in full corporate name by an
authorized officer, if a
partnership, please sign in
partnership name by an authorized
person.
Dated: , 1998
---------------------------------------------
--------------------------------------------------------
SIGNATURE
--------------------------------------------------------
SIGNATURE IF HELD JOINTLY
PLEASE MARK, DATE, SIGN AND MAIL YOUR PROXY PROMPTLY IN THE ENVELOPE
PROVIDED. VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [ ]
