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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1998
REGISTRATION NO. 333-64953
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KTI, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
NEW JERSEY 22-2665282
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
(201) 854-7777
(Address, including zip code, and telephone including area code, of
registrant's principal executive offices)
ROBERT E. WETZEL, ESQ.
C/O KTI, INC.
7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
(201) 854-7777
(Name, address, including zip code,
and telephone number,
including area code, of
agent for service)
Copies to:
BRIAN HOFFMANN, ESQ.
MCDERMOTT, WILL & EMERY
50 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
(212) 547-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
---------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to section 8(a), may
determine.
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KTI, INC.
2,930,291 SHARES OF COMMON STOCK
This prospectus relates to the resale of an aggregate of 2,930,291
shares of common stock, no par value (the "Common Stock"), of KTI, Inc., a New
Jersey corporation (the "Company"), consisting of (a) 1,714,285 shares of Common
Stock previously issued by the Company to former securityholders (the "Holders")
of FCR, Inc., a Delaware corporation ("FCR"), in connection with the
consummation of the merger (the "Merger") of FCR with and into KTI Acquisition
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Merger Sub"), (b) up to 251,289 shares of Common Stock issuable to the Holders
in respect of an additional payment payable to the Holders in connection with
the Merger, in each case pursuant to the Agreement and Plan of Merger, dated
July 22, 1998, by and among, the Company, Merger Sub, FCR and the Holders, (c)
154,718 shares of Common Stock issued in connection with the acquisition of
Atlantic Coast Fibers, Inc., Gaccione Bros. & Co., Inc., PGC Corporation and
First State Recycling, Inc., (d) 205,874 shares of Common Stock issued upon
exercise of warrants and options, (e) 65,000 shares of Common Stock underlying
warrants issued by the Company, and (f) 539,125 shares of Common Stock
underlying options issued to employees of the Company.
The shares of Common Stock offered hereby (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, hedging 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 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 2,930,291 Shares offered hereby, (a) 2,074,877 Shares are
presently issued and outstanding, (b) up to 251,289 Shares may be issued to the
Holders in respect of an additional payment in connection with the Merger, (c)
65,000 Shares are issuable upon exercise of warrants, 5,000 of which are
exercisable at a price of $10.00 per share and expire on June 16, 2002, 15,000
of which are exercisable at a price of $15.3125 per share and expire on August
28, 2008, 7,500 of which are exercisable at a price of $16.25 per share and
expire on November 24, 2007, 17,500 of which are exercisable at a price of
$22.25 per share and expire on June 22, 2008, and 20,000 of which are
exercisable at a price of $19.75 per share and expire on August 20, 2008, and
(d) 549,125 Shares are issuable upon exercise of options, 34,125 of which are
exercisable at price of $6.905 per share and expire on September 27, 2005,
50,000 of which are exercisable at a price of $9.00 per share and expire on
July 23, 2007, 150,000 of which are exercisable at a price of $15.3125 per share
and expire on August 28, 2008, 150,000 of which are exercisable at a price of
$16.625 per share and expire on January 2, 2008, and 155,000 of which are
exercisable at a price of $17.00 per share and expire on January 4, 2008. If all
of the warrants are exercised, the Company will receive proceeds of
approximately $1,185,938, and if all of the options are exercised the Company
will receive proceeds of approximately $8,110,883.
The proceeds from the sale of the shares of Common Stock 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 October __, 1998, the last reported sale price of the
Common Stock, as reported on the NASDAQ National Market System, was $___ 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 6 TO 13.
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 October __, 1998.
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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 of Common Stock 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
Current Report on Form 8-K, dated November 14, 1997, as amended on Form
8-K/A;
Annual Report on Form 10-K for the year ended December 31, 1997;
Current Report on Form 8-K, dated May 6, 1998;
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
Current Report on Form 8-K, dated June 10, 1998;
Current Report on Form 8-K, dated June 16, 1998;
Current Report on Form 8-K, dated June 26, 1998;
Current Report on Form 8-K, dated July 10, 1998;
Current Report on Form 8-K, dated July 22, 1998;
Current Report on Form 8-K, dated August 5, 1998;
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
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Current Report on Form 8-K, dated August 21, 1998; and
Current Report on Form 8-K, dated August 28, 1998, as amended on
Form 8-K/A.
No other report has been filed by the Company since the end of its fiscal year
ended December 31, 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 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 plans on terms satisfactory to the Company; (ii) the ability of the
Company to integrate acquired companies into its operations; (iii) the ability
of the Company to attract and retain senior managers and other employees to
augment the Company's management group; (iv) the ability of the Company to
improve its operational and financial systems and controls; (v) 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; (vi) any further restructuring
of the Company's power purchase agreements with Central Maine Power Company and
Bangor-Hydro Electric Power Company or any restructuring of the Company's power
purchase agreement with Florida Power Company; (vii) changes in labor, equipment
and capital costs; (viii) the ability of the Company to consummate any
contemplated joint ventures and/or restructuring on terms satisfactory to the
Company; (ix) changes in regulations affecting the waste disposal and recycling
industries; (x) the ability of the Company to comply with the restrictions
imposed upon it in connection with its outstanding indebtedness; (xi) future
acquisitions or strategic partnerships; (xii) general business and economic
conditions; and (xiii) other factors described from time to time in the
Company's reports filed with the Commission and in the "Risk Factors" section of
this Prospectus. The Company wishes to caution
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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.
THE COMPANY
KTI, Inc. (individually and collectively with its subsidiaries, the
"Company") is focused on consolidation of the integrated waste handling market
in the areas of secondary recovery and reuse of the waste stream. The Company
provides wood, paper, corrugated cardboard, metals, plastic and glass processing
and recycling, municipal solid waste processing and disposal capabilities,
specialty waste disposal services, facility operations and recycling of ash
combustion residue. The Company's integrated waste handling business emphasizes
the use of low cost processing to add value to the various waste products
delivered and, in certain cases, the generation of electric and steam power. The
Company believes that by adding these processing steps to its system, it is
competitive with traditional landfill alternatives while producing superior
environmental results and meeting social and political mandates. The Company
also markets recyclable metals, plastic, paper and corrugated cardboard
processed at its facilities and by third parties.
As part of its integrated waste handling business, the Company operates
six waste-to-energy plants, two wood waste processing plants, twenty-five
material recovery facilities, six cellulose insulation manufacturing plants,
three plastics reprocessing facilities, an international recycled products
brokering business and other recycling assets in twenty-one states.
The Company was incorporated in New Jersey in 1985. The Company is a
holding company, and substantially all of its operating assets are owned by
corporate and partnership subsidiaries. The principal executive offices of the
Company are located at 7000 Boulevard East, Guttenberg, New Jersey 07093. The
Company's telephone number is (201) 854-7777.
RECENT DEVELOPMENTS
On August 28, 1998, FCR, Inc., a Delaware corporation ("FCR"), was
merged (the "Merger") with and into KTI Acquisition Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company ("Merger Sub"),
pursuant to an Agreement and Plan of Merger, dated July 22, 1998 (the "Merger
Agreement"), by and among the Company, Merger Sub, FCR and the securityholders
of FCR (the "Holders"). Pursuant to the Merger Agreement, at the closing of the
Merger, the securities of FCR held by the Holders were converted into the right
to receive an aggregate of (i) $30.0 million in cash (the "Initial Cash
Consideration"), (ii) 1,714,285 shares of common stock, no par value (the
"Common Stock"), of the Company (the "Initial Stock Consideration"), and (iii)
an additional payment of up to $30.0 million (the "Earnout"), based upon the
earnings from the operation of FCR for the period from July 1, 1998 through
December 31, 1998, payable in a combination of cash and Common Stock, which
Common Stock shall be valued at the greater of the market value of the Common
Stock on the date the Earnout is determined and $23 per share; provided, that if
the market value of the Common Stock on the date the Earnout is determined is
less than $18 per share, the FCR Holders shall be entitled to an additional
payment equal to the difference between $18 and such market value (the "Makeup
Payment," and together with the Earnout, the Initial Cash Consideration and the
Initial Stock Consideration, the
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"Merger Consideration"). The Merger Consideration is payable in a combination of
Cash and Common Stock, and the value of the Common Stock portion of the Merger
Consideration shall be equal to at least 40% of the aggregate Merger
Consideration. As a result of the Merger, FCR became a wholly owned subsidiary
of the Company.
FCR is a diversified recycling company that provides residential and
commercial recycling processing and marketing services and manufactures
products, in particular, cellulose insulation, using recycled materials. FCR
owns or operates seventeen material recovery facilities, six cellulose
insulation manufacturing facilities and three plastic reprocessing facilities in
twelve states.
In connection with the Merger, Mr. Paul A. Garrett, Chief Executive
Officer of FCR, was elected to the Board of Directors of the Company and was
named the Vice-Chairman of the Board of Directors of the Company. Mr. Brian J.
Noonan, Chief Financial Officer of FCR, was named Chief Financial Officer of the
Company.
On August 21, 1998, the Company consummated the acquisition of
substantially all of the assets of Atlantic Coast Fibers, Inc., a New Jersey
corporation ("Atlantic Coast Fibers"), Gaccione Bros. & Co., Inc. and PGC
Corporation, each a New Jersey corporation (collectively, "Gaccione Bros.").
Atlantic Coast Fibers and Gaccione Bros. operate high-grade paper processing
facilities in Passaic, New Jersey and Clifton, New Jersey, respectively. The
Company intends to relocate the operations of Gaccione Bros. to the facility
operated by Atlantic Coast Fibers.
The purchase price for Atlantic Coast Fibers was comprised of (i) $6.5
million in cash, (ii) 123,532 shares of Common Stock, (iii) certain incidental
payments totaling approximately $100,000, and (iv) an additional payment based
upon the combined earnings before interest, taxes, depreciation and amortization
("EBITDA") of Atlantic Coast Fibers and Gaccione Bros., as set forth below. The
purchase price for Gaccione Bros. consisted of (i) $5.2 million in cash, (ii) a
promissory note in the principal amount of $1,086,213, bearing interest at 7%
per annum and due in February 2001, (iii) certain incidental payments totaling
approximately $75,000, and (iv) an additional payment based upon the combined
EBITDA of Atlantic Coast Fibers and Gaccione Bros., as set forth below.
The additional payments payable in respect of the Atlantic Coast Fibers
and Gaccione Bros. acquisitions will be calculated on the basis of the combined
EBITDA of Atlantic Coast Fibers and Gaccione Bros. during the twelve-month
period commencing on November 1, 1998 (the "Combined EBITDA"). The additional
payment shall be equal to the sum of (A) the product of (i) the Combined EBITDA
less $3.0 million, multiplied by (ii) five and (B) the product of (i) the
Combined EBITDA less $4.0 million, multiplied by (ii) 0.5.
On August 5, 1998, the Company, purchased substantially all of the
assets of First State Recycling, Inc., a Delaware corporation ("First State"),
for cash and stock in the amount of $1.85 million, subject to existing debt of
$445,000. First State processes post industrial and other waste plastics.
THE OFFERING
This prospectus relates to the resale of up to an aggregate of
2,930,291 shares of Common Stock, consisting of (a) 1,714,285 shares of Common
Stock issued to the Holders at the closing of the Merger, (b) up to 251,289
shares of Common Stock which may be issued to the Holders in respect of the
Earnout, (c) 154,718 shares of Common Stock issued in connection with the
acquisition of Atlantic Coast Fibers, Gaccione Bros. and First State, (d)
205,874 shares of Common Stock issued upon exercise of warrants and options, (e)
65,000 shares of Common Stock underlying warrants issued by the Company, and (f)
539,125 shares of Common Stock underlying options issued to employees of the
Company.
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RISK FACTORS
In addition to the other information incorporated by reference and
contained in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
Common Stock offered hereby.
HOLDING COMPANY STATUS OF THE COMPANY; RESTRICTIONS ON UTILIZATION OF ASSETS
The Company is a legal entity separate and distinct from its
subsidiaries, which operate substantially all of the Company's businesses.
Accordingly, the right of the Company to utilize any assets or earnings or cash
flow of any one subsidiary to finance the growth of any other of its
subsidiaries is necessarily subject to the prior claims of creditors of the
subsidiaries. In addition, the payment of management fees and the distribution
of the cash flow of the Company generated by certain subsidiaries of the Company
are subject to substantial restrictions as a result of agreements with their
respective lenders. Certain financing agreements of Maine Energy Recovery
Company, Limited Partnership, a Maine limited partnership ("Maine Energy"), the
owner and operator of a waste-to-energy facility in which the Company has a
majority ownership interest, require that all available cash flow be applied to
the redemption of indebtedness in full before any distribution to partners. In
addition, certain financing agreements to which Penobscot Energy Recovery
Company, Limited Partnership, a Maine limited partnership ("PERC"), in which the
Company has a majority ownership interest, Timber Energy Resources, Inc., a
Texas corporation ("TERI") wholly owned by the Company, and other subsidiaries
of the Company are parties also restrict the ability of such entities to make
distributions to the Company.
Currently, the Company's ability to utilize internally generated cash
flow as a means of financing expansion is limited to distributions from its
operating subsidiaries. As a result, the liquidity of the Company is adversely
affected, and the Company may 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
shareholders and make less likely the payment of cash dividends on Common Stock.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
In connection with the Merger, the Company borrowed approximately $65.0
million under its $150.0 million line of credit (the "Line of Credit"). Of the
amount borrowed, $30.0 million was used to pay the Initial Cash Consideration,
and the balance was used to repay certain existing indebtedness of FCR.
The degree to which the Company is leveraged could have important
consequences for the Company, including the following: (i) the ability of the
Company to obtain additional financing for working capital, capital
expenditures, acquisitions, debt service requirements or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be required to pay the Company's interest expense and principal repayment
obligations and will not be available for its general corporate needs; (iii) the
Company's flexibility to adjust to changing market conditions may be limited,
and its ability to compete against its less highly leveraged competitors may be
reduced; and (iv) the Company may be more vulnerable in the event of a downturn
in its business.
The Company's ability to pay interest and principal on the Line of
Credit and satisfy its other obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Although the Company believes it will be able to pay its obligations as they
come due, there can be no assurance that it will generate earnings in any future
period sufficient to cover its fixed charges. In the
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absence of adequate operating results and cash flows, the Company might be
required to adopt alternative strategies that may include reducing or delaying
capital expenditures, disposing of material assets or operations, refinancing
its indebtedness, or seeking additional equity capital to meet its debt service
obligations. The Line of Credit contains covenants that restrict the Company's
ability to take certain of the foregoing actions, including selling assets and
using the proceeds therefrom. There can be no assurance as to the timing of such
actions, the ability of the Company to consummate such actions under its
existing financing agreements or the proceeds that the Company could realize
therefrom, and there can be no assurance that any such transactions would be
feasible at the time or that such proceeds would be adequate to meet the
obligations then due.
RELIANCE ON ELECTRIC UTILITIES AND POWER PURCHASE AGREEMENTS
The Company's waste-to-energy business, which accounted for
approximately 73% of the Company's revenue during 1997, is dependent upon
electric utilities that purchase energy produced at the Company's
waste-to-energy plants. Pursuant to power purchase agreements between Maine
Energy and Central Maine Power Company with a term through 2012, between PERC
and Bangor Hydro Electric Company with a term through 2018, and between the TERI
plant in Telogia, Florida (the "Telogia Facility") and Florida Power Corporation
with a term through 2002, these utilities have agreed to purchase electricity
generated by the Company's waste-to-energy facilities at contractually agreed
rates. Sales of electricity to these utilities accounted for approximately 63%,
59% and 96% of revenues of Maine Energy, PERC and the Telogia Facility,
respectively, in 1997. In the event of the deregulation of electric utilities,
certain electric companies may no longer be financially viable. To the extent
that any of the electric utilities with whom the Company contracts is adversely
impacted by deregulation, such utility may not be able to perform its
obligations under such purchase power agreements. The State of Maine has
recently enacted deregulation legislation which will require the local utilities
to transfer their respective contracts with Maine Energy and PERC to newly
formed regulated transmission and distribution companies. The costs of such
contracts will be passed through to the rate-payers beginning in the year 2000
through these transmission and distribution companies.
COMMODITY RISK RELATED TO THE RESALE OF RECYCLABLE MATERIALS
The Company's recycling business involves the purchase and sale of
recyclable materials. The resale and purchase prices of, and market demand for,
recyclable materials, particularly wastepaper, plastic and ferrous and aluminum
metals, can be volatile due to numerous factors beyond the control of the
Company and are subject to changing market conditions. Accordingly, the
Company's results of operations will be affected, and may be affected
materially, by changing purchase or resale prices or market requirements for
those recyclable materials described above and other materials processed by the
Company. These changes may also contribute to significant variability in the
Company's period-to-period results of operation. Certain of the Company's
subsidiaries involved in the recycling business utilize long-term supply
contracts with customers with floor price arrangements to minimize the commodity
risk for certain recyclable materials, particularly wastepaper and aluminum
metals. Under such contracts, such subsidiaries obtain a guaranteed minimum
price ("floor price") for the recyclable materials along with a commitment to
receive additional amounts if the current market price rises above the floor
price. In return, such subsidiaries provide a consistent quantity and quality of
material to the customer. These contracts are generally with large domestic
companies which utilize the recyclable materials in their manufacturing
processes. Any failure to continue to secure long-term supply contracts with
customers with floor price arrangements could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the Company's insulation manufacturing plants utilize
recyclable materials, particularly newspaper, in the manufacturing of cellulose
insulation. Newspaper represents 49% of the
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tonnage of materials recovered by FCR in its recycling operations. This
minimizes the impact of changing resale prices for newspaper because an increase
or decrease of the price for newspaper in the recycling division results in an
offsetting increase or decrease in product pricing in the Company's insulation
operations. Any failure or inability of the Company to continue to process
newspaper and manufacture cellulose insulation could have a material adverse
affect on the Company's business, financial condition, and results of
operations.
DEPENDENCE ON MUNICIPAL CONTRACTS
In 1997, FCR derived approximately 38% of its revenues from long-term
contracts with municipal suppliers of recyclable materials. These contracts
generally have a term of five to ten years. As is generally the case in the
recycling industry, these contracts are subject to periodic competitive bidding.
There can be no assurance that FCR will be the successful bidder to obtain or
retain these contracts. Its inability to compete with larger and better
capitalized companies, or to replace municipal contracts lost through the
competitive bidding process with comparable contracts or other revenue sources
within a reasonable time period, could have a material adverse effect on the
Company's business, financial condition and results of operations.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL RISKS
Federal, state, and local environmental laws govern the discharge 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, wood waste processing facilities,
and the Company's ash recycling facility, 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 its 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.
In addition, the Company's insulation plants are subject to a number of
laws and regulations regarding the manufacture of cellulose insulation. In
addition, such facilities are required to file reports under the federal
Resource Conservation and Recovery Act in connection with the processing of
chemical fire retardants in its manufacture of cellulose insulation.
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. If any
hazardous waste is detected, it would be disposed of appropriately. There can be
no assurance, however, that disposing of hazardous waste, if ever detected,
would not entail substantial costs.
The waste-to-energy facilities in which the Company has an interest are
also subject to the provisions of various federal and state laws and regulations
including the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as
amended. PURPA requires that electric utilities purchase electricity generated
by qualifying power producers 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
8
<PAGE> 10
capability, or both. The Company's facilities could be materially and adversely
affected if the various benefits of PURPA were repealed or substantially
reduced. 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, wood processing and ash recycling operations in
which the Company has an interest.
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 municipal solid waste ("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. There can be no assurance,
however, that these trends will continue. 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. There can be no
assurance, however, that new recycling technologies will not be developed.
The Telogia Facility competes for biomass fuel supply with paper
companies which employ on-site power generation. As the Company increasingly
utilizes tipping fee based waste fuels, this facility's dependence on the
current fuel supply is expected to decrease. The Telogia 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 the
Company believes to be 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.
There can be no assurance, however, that such cost structure will not change in
a manner adverse to the Company.
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 such historical pricing
trends will continue in the future or that the Company's ash recycling facility
will continue to be able to compete favorably.
Manner Resins, Inc., acquired by the Company in November, 1996
("Manner"), and First State compete with several other recycled-plastic brokers
and direct marketing from plastic recycling plants for the post-industrial
plastic scrap and with materials recovery facilities for post-consumer plastics.
The Company's plastics reprocessing operations faces significant competition.
FCR's largest competitor in the plastics reprocessing field is KW Plastics,
Inc., a privately held company located in Troy, Alabama ("KW"). KW currently has
a significant market share and has a substantially larger production capacity
than FCR. The Company's reprocessed plastics products are substitutes for
"virgin" HDPE plastic resin, and the Company must compete with large plastic
resin manufacturers which are substantially better capitalized than the Company.
The Company's waste paper brokerage business faces extensive
competition. Such businesses operate with thin profit margins. In order to be
profitable, the waste paper broker must arrange to simultaneously buy and sell
waste paper, while providing a great enough spread to cover transportation costs
and insurance. Generally, paper mills purchase paper under long-term contracts
which provide for purchase prices that are adjusted in accordance with a
relevant paper price index. A significant portion of the sales made by K-C are
to foreign customers, and such sales are contingent upon the availability of
letters of credit for such customers.
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<PAGE> 11
KTI Recycling, which operates recycling plants in Boston, Chicago and
Newark, faces significant price competition in most of its markets. The Newark
recycling market is burdened with industry-wide overcapacity and continual price
pressure. Combined with high labor costs, the Newark market currently operates
with very low profitability. The material recovery facilities operated by FCR
operate in markets which are served by one or more of the national solid waste
companies, as well as numerous regional and local recycling companies of varying
sizes and resources.
In its insulation manufacturing activities, the Company competes
primarily with large manufacturers of fiberglass insulation, such as Owens
Corning, Certainteed and Schuller International. These manufacturers have a
significant market share and are better capitalized than the Company. The
largest producer of cellulose insulation is Louisiana Pacific Corporation, a
large building products company.
DEPENDENCE UPON SOURCES OF SUPPLY OF FUEL
The waste-to-energy facilities operated by Maine Energy, PERC and the
Telogia Facility are dependent upon spot market waste material in order to run
at high capacity. In 1997, approximately 71% 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. The Telogia Facility is in the process of changing its fuel mix from
purchased residual material to tipping fee-driven bio-mass waste which has
reduced net fuel costs. As its fuel mix continues to change over time, the
Telogia Facility expects to have tipping revenue in excess of its cost of
purchased bio-mass material for its boiler fuel. There can be no assurance,
however, that it will have tipping revenue in excess of its cost of purchased
bio-mass material. The Telogia Facility may be subject to competition from other
waste disposal companies as it continues to penetrate the bio-mass waste market.
TIMBER ENERGY RESOURCES, INC.'S RELIANCE ON ONE CHIP MILL CUSTOMER
TERI's chip mill (the "Timber Chip Mill") relies on one customer, Stone
Container Corporation ("Stone Container"), for all of its business. The Timber
Chip Mill was constructed as a result of establishing a 15 year "process-or-pay"
contract with Stone Container, whereby the Timber Chip Mill receives a tolling
fee upon receipt of raw wood. The contract expires on December 1, 2004 and
includes an option to extend it for an additional five years. Loss of this
contract would require the Company to obtain an additional source of supply or
possibly shut down the facility. Additionally, Stone Container has the right to
purchase the Timber Chip Mill at a specified price which decreases each year.
Management believes it is unlikely that Stone Container will exercise its right
to purchase.
Stone has announced that it has entered into an agreement and plan of
merger with Jefferson Smurfit Corporation. As a result of such merger, Stone may
sell certain assets. There can be no assurance that such merger will not have a
materially adverse impact on the Timber Chip Mill.
MULTITRADE GROUP, INC.'S RELIANCE ON SIGNIFICANT CUSTOMERS; LACK OF CAPACITY
Multitrade Group, Inc., a subsidiary of the Company ("Multitrade"),
operates two steam generating plants in Henry County, Virginia. One plant
produces steam for a facility owned by E. I. du Pont de Nemours and Company ("Du
Pont") under a five year contract. Du Pont has significantly reduced operations
at such facility, and has the option to terminate the contract upon payment of a
termination fee. The second plant in Henry County, Virginia produces steam for
an industrial park. Approximately 85% of the steam produced by such plant is
purchased by one customer and the balance is sold to ten customers under
interruptible contracts. Currently, maximum contracted capacity for all
10
<PAGE> 12
customers for steam exceeds the maximum rated capacity that may be produced by
this plant. Actual demand, however, has not exceeded the maximum rated capacity.
With the growth in actual demand, the plant may need to install equipment to
respond to peak demands, as well as equipment which may be necessary to allow
the plant to meet stricter air quality standards which management of the Company
believes may be promulgated in the near future. The cost of such air quality
equipment is expected to be approximately $1.2 million. A third steam generating
plant operated by a subsidiary of Multitrade sells all of its output to one
customer who currently has steady and predictable usage. The termination of the
contract with Du Pont or any of the significant customers who purchase steam
from Multitrade's other plants may have a material adverse effect on the
operations of Multitrade.
FLOW CONTROL
The availability of reliable and continuous sources of MSW or other
combustible waste is critical to the operations of the waste-to-energy
facilities in which the Company has an interest. MSW availability has been
assured, to some extent, by the enactment by municipalities in the service
territories of Maine Energy and PERC of ordinances requiring that waste
generated within their respective jurisdictions be brought exclusively to the
Maine Energy or PERC facilities. Such ordinances are referred to as "flow
control". A 1994 decision of the United States Supreme Court overturned a flow
control ordinance of a New York municipality on the basis that it was an
improper regulation of interstate commerce. In New Jersey, flow control laws
also have been overturned and the State of New Jersey is in the process of
appealing such decisions. Accordingly, the present questionable validity of all
flow control ordinances introduces some degree of uncertainty in the waste
handling business.
NEED FOR ADDITIONAL FINANCING; LIQUIDITY
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 non-recourse and recourse debt, or both. 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. Under the
terms of the Company's Line of Credit, it must obtain the consent of the lenders
for any acquisitions of $5.0 million or more, including any assumed debt. In
addition, the Company may not draw any additional funds under its Line of Credit
after December 31, 1998, unless the Company has made certain amendments to its
agreements relating to Maine Energy. There can be no assurance that additional
funding, through bank borrowings, debt or equity financings or otherwise, will
be available to the Company on acceptable terms.
AVAILABILITY OF ACQUISITION TARGETS; INTEGRATION OF FUTURE ACQUISITIONS
The Company's ongoing acquisition program is a key element of the
growth strategy for expanding its integrated waste management operations.
Consequently, the future growth of the Company depends in a large part upon the
successful continuation of this acquisition program. The Company may encounter
substantial competition in its efforts to acquire waste-to-energy facilities,
ash recycling facilities, pre and post-consumer recycling facilities or any
other facilities relating to the integrated waste management business. There can
be no assurance that the Company will succeed in acquiring appropriate
acquisition candidates at price levels and on terms and conditions that the
Company considers to be in the interests of the Company.
11
<PAGE> 13
In addition, if in the future the Company is successful in acquiring
targeted companies, it will need to integrate those acquired companies into the
Company's operations. There can be no assurance that the Company will
successfully integrate future acquisitions into its operations.
ABILITY TO MANAGE GROWTH
The Company's objectives include the development of an integrated waste
handling business through, among other things, the acquisition of other waste
handling and related businesses. Consequently, the Company may experience
periods of rapid growth and significantly increased staffing level requirements.
Such growth could place significant strain on the Company's management and on
its operational, financial and other resources. The Company's ability to
maintain and manage its growth effectively, particularly, in light of the
Merger, will require it to expand and improve its operational and financial
systems and controls. In addition, the Company will be required to attract and
retain senior managers and other employees to augment the Company's management
group and serve in other capacities. Any failure or inability of the Company to
expand and improve its operational and financial systems and controls, attract
and retain senior managers and employees, and otherwise effectively and
efficiently integrate any acquired businesses into its current operations may
have a material adverse effect on the business, financial condition, results of
operations and prospects of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success depends, to a significant extent,
on the efforts and abilities of its senior management. In particular, the loss
of any one of Ross Pirasteh, Chairman of the Board of Directors, Martin J.
Sergi, the Company's President, and Paul A. Garrett, the Company's Vice-Chairman
of the Board of Directors, could have a material adverse effect on the Company.
In addition, the Company believes that its success will depend in large part
upon its ability to attract, retain and motivate skilled employees and other
senior management personnel. Although the Company expects to continue to attract
sufficient numbers of such persons for the foreseeable future, there can be no
assurance that the Company will be able to do so. In addition, because the
Company may acquire one or more businesses in the future, the Company's success
will depend, in part, upon its ability to retain and integrate its own
operations personnel with personnel from acquired entities who are necessary to
the continued success or successful integration of the acquired business.
SEASONALITY
The Company's MSW revenues for Maine Energy and PERC tend to be lower
in the winter months. In the case of Maine Energy and PERC, the summer
population in Maine is roughly 30% higher than any other season of the year.
Generally, the supply of recycled paper is highest in the winter months and
decreases during the summer months. The Company's recycled plastic volume is
highest during the fourth quarter.
NO CASH DIVIDENDS ON COMMON STOCK
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 Company's Line of Credit and
the Notes contain restrictions on the payment of cash dividends on the Common
Stock.
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<PAGE> 14
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 Common Stock shareholder 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
shareholders 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 shareholders 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, 1997, the Company had net operating loss
carryforwards ("NOLs") for federal income tax purposes of approximately
$46,100,000 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 $1,200,000 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 $1,200,000 per year for the Company, other
than TERI, would be reduced proportionately. The net operating loss carryforward
of TERI is limited to approximately $988,000 per year. This limitation may be
increased if the Company or TERI 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.
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<PAGE> 15
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. The
Company will receive up to approximately $1,185,938 upon the exercise of all the
warrants relating to certain of the Shares offered by the Selling Shareholders,
and up to $8,110,883 upon the exercise of all of the options relating to certain
of the Shares offered by the Selling Shareholders, which the Company plans to
use as working capital for general corporate purposes. No assurance can be given
that any of such warrants or options will be exercised.
The use of proceeds set forth above represents the Company's present
intention on the basis of the 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
Shareholder. 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 has the
contractual right to sell shares. No Selling Shareholder has a material
relationship with the Company other than as a result of ownership of the Shares
and the Warrants, except as described below.
<TABLE>
<CAPTION>
Shares Offered
Ownership Prior to Pursuant to this Percentage of Class
Selling Shareholder Offering Prospectus Owned after Offering
- ------------------- -------- ---------- --------------------
<S> <C> <C> <C>
Carlos Aguero 18,124(1) 18,124 *
AlliedSignal Inc. Master Pension Trust 49,827(2) 49,827 *
Berryman L. Bourne 140,627(3) 140,627 1.2%
Sean P. Duffy 253,349(4) 228,349 2.1%
Edward J. Gargiulo 7,663(5) 7,663 *
Paul A. Garrett 508,971(6) 483,971 4.3%
Tim L. Garris 2,633(7) 2,633 *
Charles L. Graham 2,633(8) 2,633 *
Steve Gray 526(9) 526 *
Samuel E. Handy 1,316(10) 1,316 *
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C> <C>
W.D. Jackson 1,316(11) 1,316 *
Francis G. Jonas 262(12) 262 *
Kitty Hawk Capital Limited Partnership II 155,595(13) 155,595 1.3%
Michael P. Kuruc 111,822(14) 86,822 *
Franklin Lee McSwain 10,389(15) 10,389 *
Joseph Milici 526(16) 526 *
Thomas J. Miller 7,023(17) 7,023 *
Brian J. Noonan 126,079(18) 101,079 1.1%
Paul W. O'Donnell 29,739(19) 29,739 *
Kenneth W. Peyton 526(20) 526 *
RFE Investment Partners IV, L.P. 291,266(21) 291,266 2.5%
Signal Capital Corporation 128,681(22) 128,681 1.1%
Kelly Smith 1,316(23) 1,316 *
Kathleen P. Stahelski 1,975(24) 1,975 *
David E. Sturgess 1,975(25) 1,975 *
Jim Vincelli 1,316(26) 1,316 *
Alfred J. Vincelli, Sr. 359,648(27) 359,648 3.0%
Alfred J. Vincelli, Jr. 3,686(28) 3,686 *
Todd Wannamaker 2,633(29) 2,633 *
Richard J. White 1,632(30) 1,632 *
John G. Ambrogi 1,040 1,040 *
Patrick J. Bastian and Dyan Furey 14,033(31) 14,033 *
Richard M. Bastian and Lisa Bastian 14,033(32) 14,033 *
Richard F. Bastian and Norine M. Bastian 1,040(33) 1,040 *
Green Ocean Corp., N.V. 87,499 87,499 *
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ferdinand Montleone 118,455(34) 118,455 *
Francisco Munero and Mary K. Munero 1,040(35) 1,040 *
Vincent Riviello 25,077(36) 25,077 *
W. Chris Hegele 7,500(37) 7,500 *
Frank A. Klepetko 17,500(38) 5,000 *
George W. Mitchell 25,000(39) 17,500 *
Wilbur L. Ross, Jr. 15,000(40) 7,500 *
William J. Kaiser 180,000(41) 155,000 1.5%
Nicholas Mennona, Jr. 648,837(42) 76,250 5.5%
Ross Pirasteh 599,923(43) 125,000 5.1%
Martin J. Sergi 1,151,584(44) 151,250 9.7%
-------
TOTAL 2,930,291
=========
</TABLE>
- -------------------
* Less than one percent
(1) Includes 8,084 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 2,540 shares of Common
Stock of the Company which may be issued in respect of the Earnout. Also
includes 7,500 shares of Common Stock issuable upon exercise of warrants granted
to Mr. Aguero. Mr. Aguero was elected to the Board of Directors of the Company
effective as of the closing of the Merger.
(2) Includes 37,913 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 11,914 shares of Common
Stock of the Company which may be issued in respect of the Earnout.
(3) Includes 131,028 shares of Common Stock of the Company issued at the
initial closing of the Merger, of which 27,065 shares of Common Stock of the
Company were held in Mr. Bourne's IRA, and up to an additional 9,599 shares of
Common Stock of the Company which may be issued in respect of the Earnout, of
which 1,985 shares of Common stock will be held in Mr. Bourne's IRA. Mr. Bourne
is an officer of a subsidiary of FCR.
(4) Includes 189,453 shares of Common Stock of the Company issued at the
initial closing of the Merger, of which 5,155 shares of Common Stock of the
Company were held in Mr. Duffy's IRA, and up to an additional 13,896 shares of
Common Stock of the Company which may be issued in respect of the Earnout, of
which 376 shares of Common Stock will be held in Mr. Duffy's IRA. Also includes
50,000 shares of Common Stock issuable upon exercise of options granted to Mr.
Duffy, 25,000 of which were
16
<PAGE> 18
granted under the Company's stock option plan. Mr. Duffy is an employee of the
Company and officer of a subsidiary of FCR.
(5) Includes 5,831 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 1,832 shares of Common
Stock of the Company which may be issued in respect of the Earnout. Mr. Gargiulo
is an employee of FCR.
(6) Includes 381,051 shares of Common Stock of the Company issued at
the initial closing of the Merger, of which 86,350 shares of Common Stock of the
Company were held in Mr. Garrett's IRA, and up to an additional 27,920 shares of
Common Stock of the Company which may be issued in respect of the Earnout, of
which 6,408 shares of Common Stock will be held in Mr. Garrett's IRA. Also
includes 100,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Garrett, 25,000 of which were granted under the Company's stock
option plan. Mr. Garrett was appointed Vice Chairman of the Board of Directors
of the Company and elected to the Board of Directors of the Company effective as
of the closing of the Merger. Mr. Garrett is also the Chief Executive Officer of
FCR.
(7) Includes 2,004 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 629 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Garris is an
employee of FCR.
(8) Includes 2,004 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 629 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Graham is an
employee of FCR.
(9) Includes 401 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 125 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Gray is an
employee of FCR.
(10) Includes 1,002 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 314 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Handy is an
employee of FCR.
(11) Includes 1,002 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 314 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Jackson is an
employee of FCR.
(12) Includes 200 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 62 shares of Common Stock
of the Company which may be issued in respect of the Earnout.
(13) Includes 118,389 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 37,206 shares of
Common Stock of the Company which may be issued in respect of the Earnout. Mr.
W. Chris Hegele, the General Partner of Kitty Hawk Capital Limited Partnership
II, was elected to the Board of Directors of the Company effective as of the
closing of the Merger.
(14) Includes 57,601 shares of Common Stock of the Company issued at
the initial closing of the Merger, of which 16,853 shares of Common Stock of the
Company were held in Mr. Kuruc's IRA and up to an additional 4,221 shares of
Common Stock of the Company which may be issued in respect of the Earnout, of
which 1,231 shares of Common Stock will be held in Mr. Kuruc's IRA. Also
includes 50,000
17
<PAGE> 19
shares of Common Stock issuable upon exercise of options granted to Mr. Kuruc,
25,000 of which were granted under the Company's stock option plan. Mr. Kuruc is
an employee of the Company.
(15) Includes 7,905 shares of Common Stock of the Company held in Mr.
McSwain's IRA issued at the initial closing of the Merger and up to an
additional 2,484 shares of Common Stock of the Company which may be issued in
respect of the Earnout. Mr. McSwain is an employee of FCR.
(16) Includes 401 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 125 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Milici is an
employee of FCR.
(17) Includes 5,344 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 1,679 shares of Common
Stock of the Company which may be issued in respect of the Earnout.
(18) Includes 70,884 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 5,195 shares of Common
Stock of the Company which may be issued in respect of the Earnout. Also
includes 50,000 shares of Common Stock issuable upon the exercise of options
granted to Mr. Noonan, 25,000 of which were granted under the Company's stock
option plan. Mr. Noonan was appointed the Chief Financial Officer of the Company
effective as of the closing of the Merger and is an officer of FCR.
(19) Includes 27,709 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 2,030 shares of Common
Stock of the Company which may be issued in respect of the Earnout. Mr.
O'Donnell is an employee of FCR.
(20) Includes 401 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 125 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Peyton is an
employee of FCR.
(21) Includes 221,618 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 69,648 shares of
Common Stock of the Company which may be issued in respect of the Earnout.
(22) Includes 97,911 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 30,770 shares of
Common Stock of the Company which may be issued in respect of the Earnout.
(23) Includes 1,002 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 314 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Ms. Smith is an
employee of FCR.
(24) Includes 1,503 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 472 shares of Common Stock
of the Company which may be issued in respect of the Earnout.
(25) Includes 1,503 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 472 shares of Common Stock
of the Company which may be issued in respect of the Earnout.
18
<PAGE> 20
(26) Includes 1,002 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 314 shares of Common Stock
of the Company which may be issued in respect of the Earnout.
(27) Includes 335,088 shares of Common Stock of the Company issued at
the initial closing of the Merger and up to an additional 24,560 shares of
Common Stock of the Company which may be issued in respect of the Earnout. Mr.
Vincelli is an officer of a subsidiary of FCR.
(28) Includes 2,805 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 881 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Vincelli is an
employee of FCR.
(29) Includes 2,004 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 629 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. Wannamaker is
an employee of FCR.
(30) Includes 1,242 shares of Common Stock of the Company issued at the
initial closing of the Merger and up to an additional 390 shares of Common Stock
of the Company which may be issued in respect of the Earnout. Mr. White is an
employee of FCR.
(31) The shares of Common Stock are held by Mr. Bastian and Ms. Furey
as joint tenants with right of survivorship and not as tenants in common. Mr.
Bastian is an employee of a subsidiary of the Company.
(32) The shares of Common Stock are held by Mr. Bastian and Ms. Bastian
as tenants by the entirety. Mr. Bastian is an employee of a subsidiary of the
Company.
(33) The shares of Common Stock are held by Mr. Bastian and Ms. Bastian
as tenants by the entirety.
(34) Includes 20,000 shares of Common Stock issuable upon exercise of a
warrant granted to Mr. Montleone. Mr. Montleone performs consulting services for
the Company.
(35) The shares of Common Stock are held by Mr. Munero and Ms. Munero
as joint tenants with right of survivorship and not as tenants in common.
(36) Mr. Riviello is an employee of a subsidiary of the Company.
(37) Includes 7,500 shares of Common Stock issuable upon exercise of
warrants granted to Mr. Hegele. Mr. Hegele is a member of the Board of Directors
of the Company.
(38) Includes 5,000 shares of Common Stock issuable upon exercise of
warrants granted to Mr. Klepetko. Mr. Klepetko performs consulting services for
the Company from time to time.
(39) Includes 17,500 shares of Common Stock issuable upon exercise of
warrants granted to Mr. Mitchell. Mr. Mitchell is a member of the Board of
Directors of the Company.
(40) Includes 7,500 shares of Common Stock issuable upon exercise of
warrants granted to Mr. Ross. Mr. Ross is a member of the Board of Directors of
the Company.
(41) Includes 155,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Kaiser. Mr. Kaiser is the Executive Vice President and
Treasurer of the Company.
(42) Includes 7,875 shares of Common Stock issuable upon exercise of
options granted to Mr.
19
<PAGE> 21
Mennona. Mr. Mennona is the former Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Mennona is currently an employee of the
Company.
(43) Includes 125,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Pirasteh. Mr. Pirasteh is the Chairman of the Board of
Directors, Chairman of the Executive Committee and is a member of the Board of
Directors of the Company.
(44) Includes 51,250 shares of Common Stock issuable upon exercise of
options granted to Mr. Sergi. Mr. Sergi is the President and a member of the
Board of Directors of the Company.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby (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, through the writing of options (whether such
options are listed on an options exchange or otherwise), or a combination of
such methods, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at varying prices determined at the time of
sale, or at negotiated or fixed prices, in each case, as determined by the
Selling Shareholders or by agreement between the Selling Shareholders and
underwriters, brokers, dealers or agents, or purchasers. In addition, the
Selling Shareholders may enter into hedging transactions with broker-dealers,
who may engage in short sales of the Common Stock in connection with such
hedging transactions. In such event, the broker-dealers may borrow the Shares
from the Selling Stockholder in order to consummate such short sales. The
Selling Shareholder may also sell short the Common Stock and deliver the Shares
to close out such short positions, or may loan or pledge the Shares to
broker-dealers, who may, in turn, sell, loan or pledge the Shares.
The sale or distribution of the Shares may be effected directly to
purchasers by the Selling Shareholders or through one or more brokers, dealers
or agents, from time to time, in one or more transactions. If the Selling
Shareholders effect such transactions by selling shares to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of commissions, discounts or
concessions from the Selling Shareholders and/or purchasers of the Shares for
whom they may act as agent, or to whom they may sell as principal, or both
(which compensation as to a particular underwriter, broker, dealer or agent may
be in excess of those customary in the type of transaction involved). The
Selling Shareholders and any brokers, dealers or agents 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, discounts or concessions received by
any such brokers, dealers or agents and proceeds of any resale of the Shares may
be deemed to be underwriting discounts and commissions under the Act.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the Shares may be not be sold unless the Shares have been
registered or qualified for sale in any such state or an exemption from
registration or qualification is available and complied with.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Shares to the public hereunder other than commissions,
fees and discounts of underwriters, brokers, dealers or agents. The Company will
not receive any of the proceeds of the sale of any of the Shares by the Selling
Shareholders.
20
<PAGE> 22
DESCRIPTION OF COMMON STOCK
AUTHORIZED STOCK
The Company's Restated Certificate of Incorporation, as amended,
authorizes the issuance of 20,000,000 shares of Common Stock, no par value, and
10,000,000 shares of "blank check" preferred stock. As of September 2, 1998
there were 11,873,509 shares of Common Stock issued and outstanding and held of
record by 229 shareholders of record.
Common Stock. Shareholders are entitled to one vote for each share of
the Common Stock held of record on all matters to be voted by shareholders.
Shareholders are not entitled to cumulate their votes in the election of
directors. Subject to the prior rights of holders of additional 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 Company's bank credit facility and the Company's Notes,
however, contain restrictions on the payment of cash dividends. See "Risk
Factors -- No Cash 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.
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 shareholders 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 shareholders.
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% Shareholder Vote") in addition to any other
Shareholder vote required. The 80% Shareholder 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 shareholders 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
21
<PAGE> 23
votes to approve a merger providing for the elimination of minority
shareholders, 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 shareholders 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 shareholders
are induced to tender initially.
The fair price provision requires an 80% Shareholder 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 Mennona, 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 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.
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.
22
<PAGE> 24
An 80% Shareholder 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 consolidated financial statements and schedule of KTI, Inc. and the
financial statements of Penobscot Energy Recovery Company, Limited Partnership
appearing in KTI, Inc.'s Annual Report (Form 10-K) for the year ended December
31, 1997, and the consolidated statements of Prins Recycling Corp.
(debtor-in-possession) appearing in KTI, Inc.'s Current Report (Form 8-K, dated
November 14, 1997, as amended by Form 8-K/A) have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements and
schedule are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of FCR, Inc. and Subsidiaries,
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent auditors, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
23
<PAGE> 25
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
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company, by any Selling Shareholder
or by any other person. This 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
PAGE
Available Information..........................................................2
Incorporation of Certain Information
by Reference.................................................................2
Special Note Regarding Forward Looking
Statements...................................................................3
Summary........................................................................4
The Offering...................................................................5
Risk Factors...................................................................6
Use of Proceeds...............................................................14
Selling Shareholders..........................................................14
Plan of Distribution..........................................................20
Description of Common Stock...................................................21
Legal Matters.................................................................23
Experts.......................................................................23
2,930,291
Shares of Common Stock
KTI, INC.
PROSPECTUS
October __, 1998
<PAGE> 26
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering described in this Registration Statement. The Company has agreed to pay
all of the costs and expenses of this Offering.
<TABLE>
<S> <C>
SEC Registration fee $15,704
*Blue Sky fees and expenses 0
*Legal fees and expenses 25,000
*Accounting fees and expenses 7,500
*Miscellaneous 500
*TOTAL $48,704
</TABLE>
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's Restated Certificate of Incorporation provides that
the Company shall indemnify its officers, directors, employees and agents to the
full extent permitted by law.
Statutory authority for such indemnification is contained in Title 14A,
New Jersey Business Corporation Act, Revised Statutes of New Jersey, N.J.S.A.
14A:3-5, the material provisions of which may be summarized as follows:
NON-DERIVATIVE PROCEEDINGS (PROCEEDINGS OTHER THAN THOSE BROUGHT BY OR
IN THE RIGHT OF THE CORPORATION). A corporation may indemnify an actual or
prospective party to a proceeding or investigation if he became such because he
is or was a director, officer, employee or agent of the corporation, or of a
constituent corporation absorbed by such corporation in a consolidation or
merger, or is or was serving at the request of the indemnifying or constituent
corporation as a director, officer, trustee, employee or agent of another
enterprise. To be eligible for such indemnity, the party must have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and also, in a criminal proceeding, he must have
had no reasonable cause to believe that his conduct was unlawful. Such indemnity
may be against judgments, fines, settlements, and penalties and reasonable
expenses (including counsel fees) incurred in connection with such proceeding.
DERIVATIVE PROCEEDINGS (PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION). A corporation may indemnify such actual or prospective party to a
proceeding or investigation against his reasonable expenses (including counsel
fees) if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, but not against
judgments, fines, settlements or penalties in connection with such proceedings
or investigation. However, if such party has been adjudged to be liable to the
corporation, he may be indemnified for expenses only if a court determines that,
despite such adjudication of liability, in the circumstances of the case
indemnity of such party is fair and reasonable.
DETERMINATION REGARDING INDEMNIFICATION. Indemnification of a party
(unless ordered by a court) is dependent upon a determination that such
indemnification is proper because the party has met the above standards
applicable to him, such determination to be made by (a) the Board of Directors
or a committee thereof acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceedings or
(b) under certain circumstances, by independent legal counsel in
II-1
<PAGE> 27
a written opinion or by the shareholders of the corporation. Upon the making of
such determination in the appropriate manner, a corporation may advance expenses
in connection with a proceeding upon receipt of an undertaking by the party to
repay them if it is ultimately determined that he is not entitled to
indemnification.
OTHER MATERIAL PROVISION. In all cases, if the party has been
successful in a proceeding on the merits or otherwise, or in defense of any
matter therein, he is entitled to indemnification for his reasonable expenses
(including counsel fees). The indemnification provided by statute is not
exclusive of other rights of indemnification and inures to the benefit of the
party's legal representative. A corporation may purchase and maintain insurance
against expenses incurred by, and liabilities asserted against, directors,
officers, employees or agents whether or not the corporation would be empowered
to provide such indemnity.
ITEM 16. EXHIBITS.
The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement.
*4.1 Specimen Form of Common Stock Certificate.
#5 Opinion of McDermott, Will & Emery
#23.1 Consent of Ernst & Young LLP.
#23.2 Consent of Arthur Andersen LLP
#23.3 Consent of McDermott, Will & Emery (contained in Exhibit 5).
- ------------------------
* Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No.
33-85234) effective January 6, 1995.
# Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
II-2
<PAGE> 28
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Guttenberg in the State of New Jersey, on October 22,
1998.
KTI, INC.
By: /s/ Martin J. Sergi
Martin J. Sergi
President (Principal Executive Officer)
By: /s/ Ross Pirasteh
Ross Pirasteh
Chairman of the Board of Directors
(Principal Executive Officer)
By: /s/ Paul A. Garrett
Paul A. Garrett
Vice Chairman of the Board of Directors
(Principal Executive Officer)
By: /s/ Brian J. Noonan
Brian J. Noonan
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
II-4
<PAGE> 30
<TABLE>
<CAPTION>
SIGNATURE TITLE DATED
<S> <C> <C>
/s/ Ross Pirasteh Chairman of the Board of October 22, 1998
- -------------------------------------------
Ross Pirasteh Directors, Chairman of the
Executive Committee and
Director
/s/ Martin J. Sergi President and Director October 22, 1998
- -------------------------------------------
Martin J. Sergi
/s/ Paul A. Garrett Vice Chairman of the Board October 22, 1998
- -------------------------------------------
Paul A. Garrett of Directors
* Director October 22, 1998
- -------------------------------------------
Dibo Attar
* Director October 22, 1998
- -------------------------------------------
Paul Kleinaitis
* Director October 22, 1998
- -------------------------------------------
Jack Polak
* Director October 22, 1998
- -------------------------------------------
Ken Choi
* Director October 22, 1998
- -------------------------------------------
Wilbur L. Ross, Jr.
* Director October 22, 1998
- -------------------------------------------
George Mitchell
* Director October 22, 1998
- -------------------------------------------
W. Chris Hegele
* Director October 22, 1998
- -------------------------------------------
Carlos Aguero
By: /s/ Martin J. Sergi
----------------------------------------
Martin J. Sergi,
Attorney-in-fact
</TABLE>
II-5
<PAGE> 31
EXHIBIT INDEX
*4.1 Specimen Form of Common Stock Certificate.
#5 Opinion of McDermott, Will & Emery
#23.1 Consent of Ernst & Young LLP
#23.2 Consent of Arthur Andersen, LLP
#23.3 Consent of McDermott, Will & Emery (contained in Exhibit 5).
24 Power of Attorney (on signature page).
- -------------
* Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No.
33-85234) effective January 6, 1995.
# Filed herewith.
<PAGE> 1
EXHIBIT 5
MCDERMOTT, WILL & EMERY
50 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
October 22, 1998
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Re: Resale of up to an aggregate of 2,930,291 shares of common stock,
no par value (the "Common Stock"), of KTI, Inc., a New Jersey
corporation (the "Company"), consisting of (a) 1,714,285 shares of
Common Stock previously issued by the Company (the "FCR Issued Shares")
to the securityholders (the "Holders") of FCR, Inc. ("FCR") in
connection with the merger (the "Merger") of FCR with and into a
subsidiary of the Company, (b) up to 251,289 shares of Common Stock
issuable to the Holders as an additional payment in connection with the
Merger based upon the earnings of FCR (the "Earnout Shares"), (c)
154,718 shares of Common Stock issued in connection with the
acquisition of Atlantic Coast Fibers, Inc and First State Recycling,
Inc. (the "Acquisition Issued Shares"), (d) 205,874 shares of Common
Stock previously issued upon exercise of warrants and options (the
"Issued Shares"), (e) 65,000 shares of Common Stock underlying warrants
issued by the Company (the "Warrant Shares"), and (f) 539,125 shares of
Common Stock underlying options issued to employees of the Company (the
"Option Shares")
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of the above-captioned securities, which, in the case of the
Earnout Shares, may be issued as an additional payment to the Holders in
connection with the Merger and, in the case of the Warrant Shares and Options,
may be issued upon exercise of warrants and options, and, in each case, then
offered for sale from time to time by selling shareholders.
In arriving at the opinions expressed below we have examined the
Registration Statement, the Agreement and Plan of Merger, dated July 22, 1998
(the "Merger Agreement"), by and among the Company, KTI Acquisition Sub, Inc.,
FCR and the Holders, the acquisition agreements relating to Atlantic Coast
Fibers, Inc. and First State Recycling, Inc., the warrant agreements relating to
the Warrant Shares (the "Warrant Agreements"), the option agreements relating to
the Option Shares (the "Option Agreements"), resolutions of the Board of
Directors of the Company relating to the issuance of the above-referenced
securities, and such other documents as we have deemed necessary to enable us to
express the opinions hereinafter set forth. We have also reviewed such questions
of law as we considered necessary or appropriate for the purposes of such
opinions. In addition, we have examined and relied, to the extent we deemed
proper, on certificates of officers of the Company as to factual matters, on the
originals or copies certified or otherwise identified to our satisfaction of all
such corporate records of the Company and such other instruments and
certificates of public officials and other persons as we have deemed
<PAGE> 2
appropriate. In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to as copies, and the genuineness of all signatures
on documents reviewed by us and the legal capacity of natural persons.
Members of our firm are admitted to the bar of the State of New York.
We express no opinion as to the laws of any jurisdiction other than the laws of
the State of New York and, to the extent specifically referred to herein, the
New Jersey Business Corporation Act (the "NJBCA"). While we are not licensed to
practice law in the State of New Jersey, we have reviewed applicable provisions
of the NJBCA as we have deemed appropriate in connection with the opinions
expressed herein. Except as described, we have neither examined nor do we
express any opinion with respect to New Jersey Law.
Based upon and subject to the foregoing, we are of the opinion that,
the FCR Issued Shares, the Acquisition Issued Shares and the Issued Shares are,
and the Earnout Shares, Warrant Shares and Option Shares, when issued in
accordance with the terms of the Merger Agreement, Warrant Agreements and Option
Agreements, respectively, will be, legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-64953) and
related Prospectus of KTI, Inc. for the registration of 2,930,291 shares of its
common stock, and to the incorporation by reference therein of our reports dated
March 6, 1998 (except for Note 18 as to which the date is March 23, 1998) and
February 7, 1997 with respect to the consolidated financial statements and
schedule of KTI, Inc. and the financial statements of Penobscot Energy Recovery
Company, Limited Partnership (a Maine limited partnership), respectively,
included in the Annual Report (Form 10-K) of KTI, Inc. for the year ended
December 31, 1997, and of our report dated January 16, 1998 with respect to the
consolidated financial statements of Prins Recycling Corp.
(debtor-in-possession) included in the Current Report (Form 8-K, dated November
14, 1997, as amended by Form 8-K/A) of KTI, Inc., as filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hackensack, New Jersey
October 19, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 27, 1998,
except with respect to Note 13 as to which the date is September 30, 1998,
included in KTI, Inc.'s Form 8-K/A dated October 4, 1998, and to all references
to our firm included in this registration statement.
/s/ Arthur Andersen, LLP
Arthur Andersen, LLP
Charlotte, North Carolina,
October 19, 1998.
