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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 0-25490
KTI, INC.
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NEW JERSEY 22-2665282
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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7000 BOULEVARD EAST
GUTTENBERG, NEW JERSEY 07093
(201) 854-7777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$36,345,118 at March 27, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
6,862,032
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TABLE OF CONTENTS
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PAGE
ITEM NUMBER AND CAPTION NUMBER
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PART I
Item 1. Business................................................................. 1
Item 2. Properties............................................................... 18
Item 3. Legal Proceedings........................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders...................... 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 20
Item 6. Selected Financial Data.................................................. 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 22
Item 8. Financial Statements and Supplementary Data.............................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant....................... 34
Item 11. Executive Compensation................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 34
Item 13. Certain Relationships and Related Transactions........................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules.................................. 35
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PART I
ITEM 1. BUSINESS
GENERAL
KTI, Inc. (individually and collectively with its subsidiaries, "KTI" or
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 and affiliates.
The Company's objectives are focused on the development of an integrated
waste handling business, providing waste recycling, processing and disposal
capabilities, specialty waste disposal services, facility operations and
recycling of ash combustion residue.
As part of its integrated waste handling business, the Company owns
waste-to-energy facilities which convert ordinary, non-hazardous solid waste
from residential, commercial and industrial sources ("municipal solid waste" or
"MSW") into refuse derived fuel ("RDF"), which in turn is combusted alone or
with supplemental fuels to dispose of the RDF and, in the process, to generate
electrical power to be sold to electrical utilities. The Company has developed
and currently owns interests in two such facilities. The first facility is owned
by KTI's 74.15% owned subsidiary, Maine Energy Recovery Company, Limited
Partnership, a Maine limited partnership ("Maine Energy"), which is located in
Biddeford, Maine. Maine Energy commenced operations in 1987. The other facility,
owned by KTI's 7% owned affiliate Penobscot Energy Recovery Company, a Maine
limited partnership ("PERC"), is located in Orrington, Maine. PERC commenced
operations in 1988. Sources of revenues are from fees payable under waste
handling agreements with over 250 municipalities and commercial waste sources
for the right to dispose of MSW at the Company's facilities ("tipping fees") and
payments from electrical utilities for electricity sold by the facilities. The
Company also developed and operates a wood waste processing facility in
Lewiston, Maine through its subsidiary KTI Bio Fuels, Inc. ("KTI Bio Fuels").
This facility commenced operations in 1986 and processes woodwaste, producing
woodchips which are used by Maine Energy and PERC, as well as third parties, as
supplemental fuel. These three facilities provide 60% of the long-term disposal
capacity for the State of Maine.
To solidify its business base in Maine and expand its integrated waste
handling business vertically and geographically, KTI made a number of strategic
acquisitions and entered into contract restructurings and joint ventures during
1996.
In April 1996, the Company entered into a series of agreements with
Environmental Capital Holdings, Inc., a Florida corporation ("ECH"), and its
subsidiary American Ash Recycling Corp., a Florida corporation ("AAR"), under
which the Company made the following acquisitions and commitments.
(i) The Company acquired a 60% limited partnership interest in a limited
partnership which operates a permitted municipal waste combustor ("MWC") ash
recycling facility in Nashville, Tennessee. This facility, which commenced
operations in 1993, is the first commercially operational MWC ash recycling
facility in the United States.
(ii) The Company acquired a 60% limited partnership interest in a limited
partnership formed to operate a similar facility in the State of Maine (the
"Maine Partnership"). The Maine Partnership is in the process of obtaining its
federal, state and local permits.
(iii) The Company agreed to become a 60% limited partner, if appropriate,
in up to eight (8) more ash recycling facilities that may be developed by AAR
through December, 1999.
AAR's MWC proprietary ash recycling process recovers substantial quantities
of metal contained in MWC ash residue and, after removing unburned materials,
converts the remainder of the ash into a high grade aggregate which is sold for
reuse in commercial construction, asphalt, concrete, and roadbed material
applications. AAR's process recovers both ferrous and non-ferrous metals, which
are cleaned to enhance their value in the scrap metal markets. AAR's process
also removes unburned combustibles through the utilization of proprietary air
separation processes.
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With respect to the Maine Partnership and the other proposed partnerships,
there can be no assurance that the intended projects would be economically
feasible and, if feasible, that necessary financing and regulatory approvals
would be obtained in order to construct and operate the proposed facilities.
Also in April 1996, Maine Energy negotiated a reduced disposal fee
retroactive to January 1, 1996 with the third party ash landfill owner that
disposes of all ash residue produced at the Biddeford facility. The cost per ton
was reduced from $70 per ton to $46 per ton. This reduced fee will stay constant
through 1997 and then be increased by inflation. Maine Energy disposed of 55,826
tons of ash in 1996 which produced a total savings of $1,339,824. KTI's share of
this savings through its ownership of Maine Energy and the Maine Partnership was
$936,604 for 1996. The Company believes that the Company's effort to obtain
permits for the ash recycling facility in Maine resulted in the third party ash
landfill owner reducing the ash residue disposal cost, yielding such savings.
In May 1996, KTI completed a restructuring of the long-term power supply
contract between its waste-to-energy subsidiary, Maine Energy and Central Maine
Power Company ("Central Maine"), a major utility in the State of Maine. As part
of the restructuring, Maine Energy sold its generating capacity through May 31,
2007 to CL Power Sales One, L.L.C., an affiliate of Citizens Lehman Power ("CL
One"). Maine Energy recorded a gain on the transaction of $33.2 million and an
additional amount of $45 million was deferred which will be recognized as
certain contingencies are eliminated. At closing, Maine Energy received
approximately $90 million in cash and an extension of the contract for five and
one-half years to December 31, 2012 in exchange for reducing the price of its
above-market rate of electricity to Central Maine from 16 cents per kilowatt
hour (kWh) to 7.18 cents per kWh. The new rate will escalate by 2% per year
through May 31, 2007 and then convert to a market based rate for the remaining
term of the contract. The proceeds, together with cash released from reserves,
were used by the Company to: 1) repay the entire $64.5 million of Maine Energy's
outstanding bonds and terminate the bank letter of credit supporting them and 2)
reduce the subordinated debt of this subsidiary by $29.5 million. Also as a
result of the transaction, the Company was able to increase its ownership in the
subsidiary to 74.15% from 50.38%.
In June 1996, Maine Energy received the Environmental Protection Agency
("EPA") Environmental Leadership Award. Maine Energy received the award in
recognition of its performance in operating at a plateau above compliance. The
Company was the only waste-to-energy company so recognized by the EPA. As a
function of the program, Maine Energy will benefit via decreased reporting
procedures and will spearhead a move toward facility self-certification. Maine
Energy will also be a mentor to two facilities selected by the EPA who can
benefit from the Biddeford facilities pollution prevention techniques and
successes.
In September 1996, the Company entered into a joint venture with Pinetree
Waste, Inc. of Portland, Maine. The joint venture with experienced Maine waste
management professionals will concentrate on the sourcing of MSW and specialty
waste for Maine Energy and PERC.
In November and December 1996, the Company acquired Timber Energy
Investments, Inc. ("TEII"), a Florida-based company. TEII and its subsidiaries
own the following facilities:
- A 14-megawatt power plant in Telogia, Florida which processes biomass
waste and sells electricity to Florida Power Company under a long-term
contract. The power plant is subject to $13.4 million of tax exempt debt.
- A 400,000-ton per year wood chip mill in Cairo, Georgia which processes
pulp wood under a long-term service contract with Stone Container, Inc.
("Stone"), and
- A 15-million pound plastic recycling plant in Tuscaloosa, Alabama
In exchange for a purchase price of $1.85 million the Company received 49%
of the common stock of TEII, preferred stock with a $50 million liquidation
preference and $11.8 million in notes previously owned by Continental Casualty
Company and its affiliates ("CNA"). KTI has agreed to release CNA from its
current reimbursement obligations on the $13.4 million outstanding municipal
bonds. The net result of this purchase and restructuring will be a retirement of
approximately $61.8 million in TEII's obligations. In a series of
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subsequent transactions, KTI acquired the remaining 51% of common stock of TEII
for approximately $290,000. KTI currently owns 100% of the TEII preferred and
common stock outstanding.
Also in November 1996, the Company acquired Manner, Inc. ("Manner"), a
Maryland-based company doing business as a broker of recycling plastics
nationwide. Manner is expected to play a key role in the Company's participation
in the plastic recycling market including the anticipated enhancement of the
profitability of the acquired TEII plastic recycling plant located in
Tuscaloosa, Alabama. KTI acquired Manner for 65,000 shares of KTI stock and
granted incentive stock options to Manner's key personnel.
The Company's current business plan for its integrated waste handling
business includes the following elements: (i) to maximize the RDF production and
operating efficiencies of the Maine Energy and PERC facilities, (ii) to continue
to focus on lowering expenses of its waste-to-energy facilities, including
identifying less costly means of disposal or by utilizing recycling
opportunities for MSW process and ash combustion residues, (iii) to utilize its
expanded specialty waste disposal capabilities (an increase in the amounts of
specialty waste processed by the Company is planned to offset the effects of the
seasonal nature of the traditional MSW market and the uncertainties of the MSW
spot market, which would increase revenue due to the higher tipping fees that
the Company believes its facilities will be able to charge for processing such
wastes), (iv) to enhance the value of its wood waste processing business by
expanding the utilization of available capacity through the acquisition of
additional materials and expanding the menu of materials processed, (v) to
recycle ash produced by waste-to-energy facilities, (vi) to expand its waste
brokerage service, and (vii) to utilize its experience gained in restructuring
Maine Energy's power supply contract, in waste handling and processing, in
turning around troubled facilities and in operating waste facilities by
acquiring an interest in or assuming operational responsibility for other waste
disposal or recycling facilities in financial or operational distress.
The implementation of parts of the foregoing business plan has only
recently commenced and there can be no assurance that such plan will be
successful.
WASTE-TO-ENERGY TECHNOLOGY
The two waste-to-energy facilities developed by the Company utilize RDF
technology, which emphasizes both materials separation prior to the combustion
of MSW and the production of a high quality fuel. In the RDF process utilized by
the Company, non-combustible materials, such as ferrous metals, glass, grit and
fine organic materials, are separated from MSW, which promotes recycling of
non-combustible material and, in addition, yields a more homogeneous and
efficient fuel for electric power generation, more acceptable air emissions, and
decreased quantities of ash residue from combustion. The use of supplemental
fuels, such as woodchips, tire chips, natural gas and fuel oil, allows the
Company to compensate for seasonal variations or temporary interruptions in MSW
deliveries or temporary fluctuations in the quality of the RDF used in the power
production process. The combustion of RDF either alone or with supplemental
fuels results in superheated steam that is delivered to a single steam turbine
generator in each facility, each of which generates electricity that is
transmitted through interconnection equipment to Central Maine and Bangor
Hydro-Electric Company ("Bangor Hydro"), respectively, pursuant to power
purchase agreements with Maine Energy and PERC.
Ash residue is the remaining by-product of the Maine Energy and PERC
facilities' energy generation process. The facilities have disposed of, and
currently dispose of, their ash residue at landfills located within the State of
Maine that are licensed by the Maine Department of Environmental Protection
("MDEP"). The Company is seeking the regulatory approvals required to recycle
its ash residues, but such ash residue is not currently being recycled. There
can be no assurance that the Company will be able to recycle its ash residue.
MAINE ENERGY
General
Maine Energy is a limited partnership organized in 1983 for the purpose of
developing and owning a waste-to-energy facility located in Biddeford, Maine.
The Company, through its subsidiaries, owns a 74.15%
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interest as the sole general partner and one of three limited partners of Maine
Energy. Accordingly, the Company holds a majority ownership interest in Maine
Energy. The other two limited partners are CNA Realty Corp. ("CNA Realty"), a
subsidiary of CNA Financial Corporation, and Energy National, Inc., an affiliate
of Pacific Generation Company ("PacifiCorp"), which own 9.6% and 16.25%
interests in the partnership, respectively.
Maine Energy Facility
The Maine Energy facility occupies an approximately 9.1 acre site owned by
Maine Energy in the City of Biddeford, Maine. The facility provides waste
disposal services to municipalities in central and southern Maine. The nominal
waste disposal capacity of the facility is 245,000 tons per year. The volume of
waste processed at the Maine Energy facility in 1996 was 245,634 tons.
Financing of Maine Energy Facility
The construction of the Maine Energy facility was financed with the
proceeds from the sale of $85 million original principal amount of variable rate
demand resource recovery bonds issued by the City of Biddeford in two offerings
(the "Biddeford Bonds"), which were secured by a letter of credit from a group
of banks, and a $22 million equity investment by Maine Energy's original limited
partners, CNA Realty, ENI and Project Capital 1985 ("Project Capital"). The
partners subsequently made additional investments in the aggregate amount of
$24.7 million in the form of subordinated loans with an interest rate of 12% per
annum, which are payable solely out of distributable cash flow of Maine Energy.
Payments on these loans were restricted by the terms of the documents governing
the Biddeford Bonds and the letter of credit.
In May 1996, in connection with the restructuring of the Central Maine PPA
(as defined below) the Biddeford Bonds and the associated Letter of Credit were
retired with a $64.5 million prepayment and a payment of $29.5 million was made
for principal and accrued interest on the subordinated loans. The balance of the
subordinated loans at December 31, 1996 was $14,575,985. While the Company
believes that distributable cash flow from the facility's operations will be
adequate to cover future annual interest requirements on the subordinated loans,
there can be no assurance that this will occur.
Management and Fees
A subsidiary of the Company, Kuhr Technologies, Inc. ("Kuhr"), is the sole
general partner and manager and has control of the day to day business of Maine
Energy.
Under the terms and conditions of an operation and maintenance agreement
with Maine Energy, a subsidiary of the Company, KTI Operations, Inc.
("Operations") also administers, operates and maintains the Maine Energy
facility and is paid an amount equal to the actual operating costs of the Maine
Energy facility plus a monthly fixed fee, currently set at approximately $40,500
and subject to an inflationary adjustment annually. The agreement also provides
for incentive payments to Operations employees at the Maine Energy facility in
the event expected performance standards are exceeded. As a result of such
expected performance standard being exceeded, aggregate incentive payments in
the amount of $212,601, $202,016 and $203,200 have been paid to Operations
employees during 1994, 1995 and 1996, respectively.
Power Purchase Agreement
The electricity produced by the Maine Energy facility is sold to Central
Maine pursuant to a power purchase agreement dated January 12, 1984 with a term
through December 31, 2012 (as amended, the "Central Maine PPA"). Central Maine
serves more than 490,000 customers in an 11,000 square mile service area in
central and southern Maine and purchases substantial amounts of power from
Canadian utilities as well as independent power producers such as Maine Energy.
In 1996, Maine Energy derived approximately $20,337,000, or 31.6% of its
revenues, from the sale of electricity to Central Maine.
In May, 1996 Maine Energy restructured its agreement with Central Maine by
entering into a series of agreements with CL One and Central Maine, which
provided for the purchase of Maine Energy's available
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power generation capacity by CL One and amending the Central Maine PPA (together
with the agreement, the "Agreements"). CL One made an initial payment of $85
million and agreed to also make additional quarterly payments through May 31,
2007 to Maine Energy as a portion of its purchase price and for reimbursement to
Maine Energy of certain expenses. In consideration of its payments to Maine
Energy, CL One would be assigned all rights to capacity from the Maine Energy
facility through May 31, 2007. In the restructuring, the term of the Central
Maine PPA was extended from May 31, 2007 to December 31, 2012. Maine Energy will
sell energy to Central Maine through May 31, 2007 at an initial rate of 7.18
cents per kWh which would escalate annually by 2% per annum. Beginning June 1,
2007 until the expiration date of the contract, Maine Energy will be paid market
value for both its energy and capacity by Central Maine. Maine Energy retired
the outstanding principal amount of $64.5 million of the Biddeford Bonds with
the proceeds of the sale of its capacity. Utilizing the balance of the proceeds
and a portion of the reserve funds available, the Company substantially reduced
the outstanding principal amount of Maine Energy's subordinated indebtedness by
paying off $29.5 million of subordinated debt. As of December 31, 1996 the
balance of the subordinated debt at Maine Energy was $14,575,985.
Under the terms of the Central Maine restructuring, a $45 million letter of
credit was issued to Central Maine by ING (US) Capital Corporation, ("ING"). If,
in any year, Maine Energy fails to produce 100,000,000 kWh of electricity (a
"100,000,000 kWh default") and Maine Energy does not have a force majeure
defense (physical damage to the plant and other similar events), Maine Energy is
obligated to pay $3.75 million to Central Maine as liquidated damages. Such
payment obligation is secured by the ING letter of credit. In each year in which
100,000,000 kWh is produced, the balance of the ING letter of credit is reduced
by $3.75 million. If, in any year, Maine Energy fails to produce 15,000,000 kWh
of electricity (a "15,000,000 kWh default") and Maine Energy does not have a
force majeure defense, Maine Energy is obligated to pay the then balance of the
ING letter of credit to Central Maine as liquidated damages. In 1996, the
15,000,000 kWh and the 100,000,000 kWh tests were met, resulting in a reduction
of the amount of the ING letter of credit to $41.25 million.
Management of the Company restructured its relationship with Central Maine
because it believes that the cash proceeds from the restructuring which enabled
the Company to reduce the outstanding indebtedness of Maine Energy, should allow
the Company upon refinancing or repayment of the reduced subordinated debt to
access Maine Energy's available cash flow. In addition, the newly restructured
Central Maine PPA will allow Maine Energy to be more competitive as electric
utility deregulation become a reality. The foregoing estimate of increases in
cash flow and competitive advantage, however, are forward-looking statements
that are subject to certain risks and uncertainties that could cause actual
results to differ materially from those set forth herein due to, among other
factors, (i) failure to achieve the levels of power production projected by the
Company or (ii) levels of expenses greater than those projected by the Company,
and, accordingly, there can be no assurance that the Company will experience
such an increase in cash flow and competitive advantage as a result of such
transactions.
Long-Term Waste Handling Agreements
Approximately one-third of the MSW provided to Maine Energy is delivered
pursuant to waste handling agreements with eighteen (18) municipalities with
terms expiring on June 30, 2007 or later. The agreements are substantially
similar in content except that (i) the sixteen (16) "charter" municipalities are
entitled to various concessions as a result of having participated in the
financial restructuring of Maine Energy in 1991, and (ii) the two "host"
municipalities of Biddeford and Saco (both of which are charter municipalities)
pay tipping fees in the amount of one-half of those paid by the other charter
municipalities. The municipalities currently pay tipping fees to Maine Energy
for the disposal of MSW ranging as of December 31, 1996 from $20.42, in the case
of the two host municipalities of Biddeford and Saco, to $40.83 per ton, which
are subject to adjustment. During 1996, Maine Energy reduced the tipping fees as
required by the Waste Handling Agreements by $7.27 and $3.64 for charter and
host communities, respectively, as a result of the retirement of the Biddeford
Bonds. The annual tipping fees charged to the municipalities are increased (but
not decreased) each year for inflation and any increases in variable "pass
through" costs, such as disposal fees for residues. The municipalities are also
responsible for costs associated with changes in law. Maine Energy was not
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entitled to an increase in tipping fees in 1996 for variable "pass through" or
change in law costs. Approximately 35% of Maine Energy's total waste handling
revenues in 1996 was attributable to these long-term waste handling agreements.
Under the Maine Energy long-term waste handling agreements, each
municipality agrees to deliver to the Maine Energy facility acceptable waste in
an amount equal to its "Guaranteed Annual Tonnage." Maine Energy is required to
accept 110% of each municipality's Guaranteed Annual Tonnage. The total tonnage
processed under long-term agreements in 1996 was only 30.4% of the total waste
processed by the facility. A municipality is required to pay to Maine Energy the
tipping fee for the amount of any shortfall from its Guaranteed Annual Tonnage.
As a corollary to the "put-or-pay" delivery guarantee, each municipality enacted
a flow control ordinance pursuant to Maine law which designates the Maine Energy
facility as the exclusive disposal or reclamation facility to which all
acceptable waste generated within the municipality must be delivered regardless
of which entity picks up waste in such municipality. See "Governmental
Regulations -- Waste Handling -- Flow Control."
Each municipality has the right, once a year, to terminate its long-term
waste handling agreement on one year's prior notice. The Company does not
believe that currently there is a material risk that the municipalities would
exercise their respective rights to terminate their agreements, as there are
currently no less costly alternative longterm means of MSW disposal available in
Maine Energy's market area.
Other Sources of Waste
The Company has short-term MSW disposal contracts with additional
municipalities with terms expiring in 1997 through 2000 that provide Maine
Energy with approximately 38,800 tons per year of MSW and short-term contracts
principally with one to three year terms with commercial and private waste
haulers that provide approximately 87,900 tons per year of MSW to the Company.
The balance of Maine Energy's capacity is utilized by spot market MSW and
specialty wastes.
Bypass and Residue Disposal
The processing of MSW at the Maine Energy facility generates materials such
as non-combustible material removed from the front-end processing of MSW
("front-end process residue") and ash residue resulting from the RDF combustion
process. These materials are disposed of by licensed third parties under
long-term agreements. Maine Energy is also required, in the event of a shutdown
of the Maine Energy facility, to dispose of MSW received by Maine Energy by
delivering such MSW to PERC or to third party waste disposal facilities.
PERC
General
PERC is a limited partnership organized in 1983 for the purpose of
developing and owning a waste-to-energy facility located in Orrington, Maine. A
subsidiary of the Company owns a 7% general partnership interest in PERC. The
other partners of PERC are ENI, which has both a general and limited partnership
interest representing an aggregate 28.71% ownership percentage, and The
Prudential Insurance Company of America, which has a limited partnership
interest representing a 64.29% ownership percentage.
PERC Facility
The PERC facility occupies an approximately 40.3 acre site owned by PERC in
the Town of Orrington. The facility provides waste disposal services to
municipalities in Penobscot, Hancock, Waldo, Piscataquis, Somerset, Knox,
Kennebec, Lincoln and Aroostook Counties, Maine. The nominal waste disposal
capacity of the facility is 325,000 tons per year. The PERC facility processed
253,523 tons of MSW in 1996. The Company intends to increase the annual
processed total to approximately 325,000 tons over the next ten years.
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Management and Fees
A subsidiary of the Company and ENI are both general partners of PERC. The
subsidiary of the Company and ENI each have one representative on a management
committee, which is generally given full authority and discretion with respect
to PERC's business, except as delegated to the managing general partner, which
is the subsidiary of the Company. However, certain matters acted upon by the
management committee, such as the addition of new partners or the transfer of
partnership interests and the approval of the terms and conditions of any
contract pursuant to which the partnership would expend or receive $100,000 or
more in any year, must be presented to the general partners for approval or
rejection.
Primary day-to-day responsibility for operating the PERC facility has been
contracted to ESOCO Orrington, Inc. ("ESOCO"), a subsidiary of ENI, pursuant to
an operating and maintenance agreement. The term of the agreement is for five
years, with renewals for successive five year terms.
The subsidiary of the Company also earns an annual management fee from
PERC. The base amount was set in the PERC partnership agreement subject to
annual adjustments on the basis of the Consumer Price Index and was $334,338 for
the year ended December 31, 1996. The subsidiary of the Company was due
$2,279,105 on account of accrued management fees as of December 31, 1996, which
represent the unpaid portion of management fees earned by the Company through
March 31, 1991. Payment of the accrued management fees currently are restricted
by the terms of the PERC partnership agreement to the extent of 10% of cash flow
otherwise distributable to equity owners. The Company also receives an annual
co-operator's fee which was $53,109 for the year ended December 31, 1996.
In 1996, the Company was entitled to receive $691,442 as a result of PERC's
operations during 1995, $398,311 of which was paid to ENI for principal and
interest due on its note from the Company.
The Power Purchase Agreement
The electricity produced by the PERC facility is sold to Bangor Hydro
pursuant to a power purchase agreement dated June 21, 1984 with a term through
February 14, 2018 (the "Bangor Hydro PPA"). Bangor Hydro serves approximately
97,000 customers in a 4,900 square mile service area in portions of the counties
of Penobscot, Hancock, Washington, Waldo, Piscataquis and Aroostook, Maine. In
1996, PERC derived approximately 61% of its revenues, from the sale of
electricity to Bangor Hydro.
Under the terms of the Bangor Hydro PPA, Bangor Hydro has agreed to
purchase all electricity generated by the PERC facility up to 25 megawatts (the
practical limit of the facility's equipment) and up to a maximum of
approximately 166,000,000 kWh in a calendar year, net of electricity consumed at
the facility. The Bangor Hydro PPA rate formula is currently favorable to PERC,
providing a contract rate of 11.402 cents per kWh for 1996. A portion of the
contract rate is adjusted annually to reflect changes in inflation. If PERC
fails to deliver at least 105,000,000 kWh to Bangor Hydro in any calendar year,
PERC is obligated to pay Bangor Hydro $4,000 for each 1,000,000 kWh by which
such deliveries fall below 105,000,000 kWh. Although future performance cannot
be guaranteed by past results, PERC has never failed to meet this delivery
obligation. The profitability of PERC is heavily dependent on the Bangor Hydro
PPA.
The Company is currently working with Bangor Hydro in an attempt to
restructure the Bangor Hydro PPA utilizing the Central Maine PPA restructuring
as a model. The Company's objectives in a restructuring would be the same as it
believes were accomplished in the Central Maine PPA restructuring. The
discussions with Bangor Hydro have only recently commenced and no assurances can
be given that such restructuring will be successful.
Long-Term Waste Handling Agreements.
As of December 31, 1996, PERC had in place 124 long-term waste handling
agreements, of which 82 cover approximately 100 so-called charter municipalities
("Charter Municipalities") with terms expiring on March 31, 2004, unless sooner
terminated, and all of which are substantially similar in content. The
agreements provide PERC with approximately 200,000 tons per year of MSW. PERC
receives approximately 20,000 tons per year of MSW from municipalities with whom
PERC has short-term waste handling
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agreements, 20,000 tons per year from commercial haulers and 10,000 tons per
year from the spot market. As of December 31, 1996, the municipalities under the
PERC long-term waste handling agreements pay an average tipping fee of $47.02
per ton to PERC for the disposal of their waste. Total waste processing revenues
of PERC in 1996 were approximately $11,792,000 of which approximately 81.3% is
attributable to MSW received from Charter Municipalities.
The PERC long-term waste handling agreements with the Charter
Municipalities are substantially similar to the Maine Energy long-term waste
handling agreements, including the inclusion of "Guaranteed Annual Tonnages" and
"put-or-pay" provisions and a variable tipping fee for "pass through" and change
in law costs.
Each PERC Charter Municipality has the right to receive a pro rata credit
against tipping fees, which credits are known as "Performance Credits" and may
be used to reduce future tipping fee payments at the option of the Charter
Municipalities in lieu of cash payment. Performance Credits for 1995 in the
amount of $1,417,567 were paid in 1996. The amount due for 1996 which will be
paid during 1997 is approximately $619,000.
On one year's notice, a PERC Charter Municipality may terminate its
long-term waste handling agreement as of March 31, 1998, March 31, 2000 or March
31, 2002. If, as a result of such termination notices received from Charter
Municipalities, the aggregate Guaranteed Annual Tonnage of non-terminating
municipalities would fall below 180,000 tons, PERC may elect to terminate all
waste handling agreements with Charter Municipalities. Currently no charter
municipality has given any such notice for March 31, 1998. Effective March 31,
2004, Charter Municipalities, acting collectively, which have not previously
terminated their PERC long-term waste handling agreements will have three
options: (i) to purchase the PERC facility at its book value (as defined) as of
March 31, 2004; (ii) to acquire, for $1.00, 50% of all "Distributable Cash"
(defined as the revenues of PERC less expenses, amounts credited to reserve
accounts and management fees) on or after April 1, 2004; or (iii) to extend the
existing waste handling agreements for a period of 15 years. If the PERC Charter
Municipalities are unable to agree on the option to select, the option selected
by a majority of such municipalities, based upon Guaranteed Annual Tonnage,
shall be the option selected.
KTI BIO FUELS -- WOOD WASTE PROCESSING
General
The Company's Maine wood waste processing business is operated by the
Company's subsidiary, KTI Bio Fuels, Inc. ("KTI Bio Fuels"). KTI Bio Fuels was
organized in 1986 for the purpose of developing and operating a wood waste
processing facility on a leased site in Lewiston, Maine (the "Lewiston
Facility") to convert treated and untreated wood waste materials into woodchips
used for disposal through use as boiler fuel. This facility also converts
oversized bulky wastes, such as furniture and mattresses into a biomass boiler
fuel.
The principal source of revenue to KTI Bio Fuels is tipping fees from
parties disposing of wood waste at the Lewiston Facility, which is supplemented
by revenues from the sale of woodchips and recovered scrap metals. Maine Energy
and PERC utilize woodchips produced by the Lewiston Facility as a supplemental
fuel for their RDF combustion processes. In addition to Maine Energy and PERC,
KTI Bio Fuels also sells its woodchips to third party biomass power plants in
Maine.
Lewiston Facility
The Lewiston Facility occupies an approximately 9.7 acre site which is
leased from an affiliate of the City of Lewiston for a term expiring 2015 . The
facility has the capacity to process up to three hundred (300) tons per day of
wood waste materials and consists of a waste processing building, including
equipment for the magnetic separation of ferrous metals, and a large storage
building where processed woodchips are stored.
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Ownership
A subsidiary of the Company owned a 75% ownership interest in the
predecessor partnership, KTI Bio Fuels, L.P. The sole limited partner of KTI Bio
Fuels L.P. was Maine Woodchips Associates, a Maine partnership ("Woodchips
Associates"), which held the remaining 25% ownership interest in KTI Bio Fuels,
L.P. In February 1997, the Company acquired the 25% interest owned by Maine
Woodchips for 10,000 shares of its common stock and a five year warrant for
2,000 shares at $8.50 per share. Upon acquiring the ownership, KTI liquidated
the partnership and moved the operation into its wholly owned subsidiary, KTI
Bio Fuels
KTI ASH RECYCLING, INC.
On December 28, 1995 the Company, through its wholly owned subsidiary KTI
Ash Recycling, Inc. ("KTI Ash"), entered into a series of agreements with
Environmental Capital Holdings, Inc. ("ECH") and its subsidiary, American Ash
Recycling Corp. ("AAR"). These agreements were subject to due diligence which
was completed in the first quarter of 1996.
Effective March 29, 1996, KTI Ash purchased a 60% interest as a limited
partner in American Ash Recycling of Tennessee, Ltd., a Florida limited
partnership ("AART"). The general partner is the previous owner of the Facility,
American Ash Recycling Corp. of Tennessee, a Florida corporation, an affiliate
of AAR. The partnership will carry on the business of the predecessor
corporation. The Company has a priority on the annual distributions of earnings
and cash flow from the Facility to the extent of 75% of the earning and cash
flow generated until it receives $315,000 for each year on a cumulative basis.
The purchase price consisted of $500,000 in cash and a short-term promissory
note for $1,600,000 which was paid during 1996.
The partnership owns an incinerator ash recycling plant in Nashville,
Tennessee, which commenced operations in 1993. The plant recycles ash from a
landfill owned by the city of Nashville and Davidson County.
The Company also agreed to become a 60% limited partner of a partnership,
American Ash Recycling of New England ("AARNE") to operate a similar facility in
the State of Maine (the "Maine Partnership"). The Company's initial contribution
to this partnership was $500,000.
The Company has agreed to become a 60% limited partner in up to an
additional eight facilities. The purchase price for each of these partnership
interests is $2 million. ECH and AAR have a four year period to develop these
eight facilities which ends December 31, 1999.
Maine Energy executed an Ash Recycling Agreement with AARNE. In April 1996,
Maine Energy negotiated a reduced disposal fee retroactive to January 1, 1996
with the third party ash landfill owner that disposes of all ash residue
produced at the Biddeford facility. The cost per ton was reduced from $70 per
ton to $46 per ton. This reduced fee will stay constant through 1997 and then be
increased by inflation. Maine Energy disposed of 55,826 tons of ash in 1996
which produced a total savings of $1,339,824. KTI's share of this savings
through its ownership of Maine Energy and AARNE was $936,604 for 1996.
PERC also executed an Ash Recycling Agreement with AARNE. The Ash Recycling
Agreement guarantees the delivery by PERC of a minimum of 35,000 tons of ash to
AARNE. The processing fee is $43.50 per ton, including a trucking fee of $11.00
per ton. Under PERC's current ash recycling contract, the other party may retain
PERC's ash disposal if its reduces its current price of $56.56 to match the
$43.50 price contained in the AARNE Ash Recycling Agreement. The current ash
recycling contract requires a one year notice period for termination, such
notice will be given when AARNE receives such notice of its required federal,
state and local approvals and permits. AARNE expects to complete construction of
its facility within six months of receiving the necessary permits and approvals,
at which time PERC will begin delivery of ash residue to AARNE.
AAR's MWC proprietary ash recycling process recovers substantial quantities
of metal contained in MWC ash residue and, after removing unburned materials,
converts the remainder of the ash into a high grade aggregate which is sold for
reuse in commercial construction, asphalt, concrete, and roadbed material
applications. AAR's process recovers both ferrous and non-ferrous metals, which
are cleaned to enhance their
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value in the scrap metal markets. AAR's process also removes unburned
combustibles through the utilization of proprietary air separation processes.
With respect to the Maine Partnership and the other proposed partnerships,
there can be no assurance that the intended projects would be economically
feasible and, if feasible, that necessary financings and regulatory approvals
would be obtained in order to construct and operate the proposed facilities.
TIMBER ENERGY INVESTMENTS, INC.
General
TEII was formed in 1994 as a holding company, which ultimately owned a
majority of common stock of Timber Energy Resources, Inc. ("TERI") and all of
the outstanding stock of Timber Energy Plastics Recycling, Inc. ("TEPRI") and
Timber Energy Trucking, Inc. ("TET").
Acquisition by KTI, Inc.
On November 22, 1996, the Company acquired TEII from Continental Casualty
Company (together with its subsidiaries, "CNA") and a group of ten individual
investors. CNA sold its debt obligations of TEII (approximately $11.8 million at
par plus accrued interest) and equity interests in TEII (73,500 shares, or 49%,
of common stock and $50 million in preferred stock) to KTI for $1.85 million.
The remaining 51% ownership interest was purchased from the group of ten
individual investors for an additional approximately $290,000.
As part of its purchase agreement with CNA, the Company has also agreed to
obtain the release of CNA's reimbursement obligation to the letter of credit
bank, Bank of Montreal ("BOM") which credit enhances the $13,400,000 of
outstanding bonds. If the Company is unable to obtain the release of CNA of its
obligation by August 21, 1997, then CNA has the option of reimbursing the
Company $1.75 million of its purchase price and reversing the transaction. The
Company has retained an investment banking firm to place the bonds and is
confident it will be able to obtain the release of CNA of its obligation by the
August 21, 1997 deadline. While the company believes that it will be able to
release CNA of its obligation and that cash flow from the facility's operations
will be adequate to cover future principal and interest payments on the bonds,
there can be no assurance that these results will occur.
Timber Energy Resources, Inc.
General
TERI is a Texas corporation organized in July 1984 for the purpose of
constructing and operating bio-mass waste power plants. TERI owns and operates a
14 megawatt ("MW") steam generating, bio-mass waste-fired power plant (the
"Telogia Facility") located on a 97 acre site in Telogia, Florida, which
commended operations in 1988. The Telogia Facility is fueled with biomass
wastes, such as residual waste from wood processing industries, clean
construction and demolition wood debris, and non-recyclable paper products.
Electricity generated by the Facility is sold to Florida Power Corporation under
a long term power purchase agreement that expires on March 31, 2002 ("Florida
Power PPA").
To assure a continuing, dependable and economical fuel supply, TERI
constructed a chip mill in 1988 in Cairo, Georgia (the "Cairo Facility"), which
commenced operations in December 1989. Pulpwood is processed for Stone under a
"process or pay" contract. Bark trimmings from the Cairo Facility can provide up
to 20% of fuel requirement for the Telogia Facility.
In 1991, to further improve the supply and cost of fuel for the Telogia
Facility, TERI constructed a waste paper densification line at the Telogia site.
This line produces a densified fuel pellet from incoming feedstock, which has
better burning characteristics than the undensified material.
During 1996, approximately 80% of TERI's revenue was derived from the sale
of electricity to Florida Power, with the majority of the remainder in the form
of tolling fees paid by Stone and from waste bark sales to third parties.
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During 1996, the Telogia Facility processed approximately 150,000 tons of
wood waste and 40,000 tons of waste paper, and generated approximately 120,000
megawatt-hours of electricity, which represented 95% and 97%, respectively, of
its annual capacity. The Cairo Facility processed approximately 310,000 tons of
virgin wood, which represented 77% of its single shift annual capacity, and
produced approximately 276,000 tons of wood chips and approximately 35,000 tons
of bark trimmings.
Timber Energy Plastic Recycling, Inc.
TEPRI recycles post consumer low density plastic waste into products that
are sold to manufacturers of plastic products at its facility which is located
in Tuscaloosa, Alabama (the "Tuscaloosa Facility").
Timber Energy Trucking, Inc.
At the date of acquisition, TET was inactive. In December 1996, KTI renamed
TET "Power Ship Transport, Inc." and it commenced handling of Manner's transport
requirements.
MARKETING
Most of the Company's current marketing activity is focused on contract
acquisition for biomass, municipal solid and specialty waste materials supply to
the Maine Energy facility, the Lewiston Facility, the Timber Facilities and the
PERC facility. The Company currently is soliciting waste handling agreements for
the Maine Energy facility from municipalities and commercial waste generators in
Maine and in nearby areas such as northern Massachusetts and southern New
Hampshire. The Company intends to enter into contracts of from one (1) to six
(6) years duration in order to stabilize supply while retaining the ability to
take advantage of any upward swings in regional disposal fees. The Company has
recently taken additional marketing responsibilities at PERC under which the
Company will attempt to fill the approximately 75,000 ton annual capacity of
PERC currently being utilized by combusting supplemental fuels. The Company
intends on utilizing the spot market for MSW to fill the available capacity at
PERC.
Disposal of oil soaked wastes, industrial wastes, out-dated
pharmaceuticals, cosmetics, and other commercial wastes, known generally as
"specialty wastes," is another large potential market for the Company. The MDEP
has granted a permit to Maine Energy that enables the Maine Energy facility to
accept a broad variety of specialty wastes for disposal by combustion. The
Company believes that tipping fees on specialty wastes are substantially higher
per ton than MSW delivered on a spot market basis and therefore provides
improved operating margins on Maine Energy's available capacity.
The Company markets its specialty waste capacity through retail brokers of
such materials who sign contracts with a wholly owned subsidiary, KTI Specialty
Waste, Inc. ("KTI Specialty"). On October 18, 1996 KTI Specialty Waste executed
an Operating Agreement with Pine Tree Waste, Inc. ("Pine Tree"). Under the
Agreement, the Company and Pine Tree established Specialties Environmental
Management Company, LLC, a Maine Limited Liability Company ("SEMCO"). SEMCO will
provide services on a retail basis to municipal, commercial and industrial
customers to dispose of certain solid and liquid wastes in the New England
Region, concentrating on: (a) premium priced unusual or difficult to dispose of
wastes; (b) in and out of jurisdiction municipal solid waste; and (c)
construction and demolition waste, including treated and untreated wood waste.
SEMCO has entered into a contract with Maine Energy to dispose of acceptable
material at Maine Energy's Biddeford facility for a term of five years which may
be extended for an additional five year period at set tipping fees, adjusted
annually for changes in the consumer price index. The Company is a 55% owner of
the joint venture and currently utilizes SEMCO as it's retail broker to handle
all of the supply of specialty waste into Maine Energy which is delivered
directly by the waste generators.
The Company also intends to pursue either the acquisition of or operational
responsibility for existing, financially-troubled waste-to-energy or waste
processing and recycling facilities with the goal of improving the operational
efficiencies of such facilities utilizing its successful experiences with the
Maine Energy and PERC facilities. The Company's acquisition of TEII is the first
example of this strategy. The Company currently is working with several
additional institutions and companies which own or have financed such facilities
in an attempt to structure transactions regarding their respective facilities.
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At the Lewiston Facility, most contracts have durations of one (1) year or
less. Most of the wood waste materials processed by the facility are acquired as
a result of bids on specific demolition or disposal projects concentrated in
Maine or in nearby states such as New Hampshire, Massachusetts and Connecticut.
In order to mitigate the effects of competition in these areas from
companies that operate portable wood chipping equipment, KTI Bio Fuels has
expanded its marketing staff and entered the oversized bulky waste ("OBW")
market. KTI Bio Fuels is processing OBW such as mattresses, box springs,
furniture, wooden pallets, and other similar waste materials, which is shred and
blended with other process materials to be delivered for ultimate disposal
through incineration at the PERC facility.
In marketing the services of the Lewiston Facility, the Company emphasizes
its integrated waste handling capabilities to ensure wood waste producers such
as electric and telephone utilities, railroads and other large scale wood waste
generators that their waste will be processed and completely destroyed through
ultimate incineration at either the Maine Energy or PERC facilities or at other
approved incinerator facilities that currently are doing or may do business with
KTI Bio Fuels. The Company's integrated disposal facilities provide wood waste
or OBW generators with disposal procedures that eliminate many potential future
liabilities associated with the disposal of wood wastes by conventional means
such as landfilling. Management of the Company believes that if landfill
capacity becomes scarcer, then the availability of wood waste from within Maine
for use by the Lewiston Facility may increase. Through direct marketing and
broker affiliations, the Company plans to secure new regional accounts.
Manner has a marketing staff of seven commission based recycled plastic
brokers. This staff identifies industrial customers with scrap plastic resins
which can be utilized in value added recycling plants. Manner manages the
movement of all material through internal truck brokers. Manner is complementing
the marketing personnel at TEPRI to increase the throughput of raw materials and
market the recycling plastic pellets produced by TEPRI. Manner management is
working closely with the Company's senior management to develop an overall
marketing strategy for the Company in the plastics recycling industry.
The Telogia Facility historically marketed its biomass waste capacity to
brokers of waste materials resulting from the chipping of pulpwood. The Telogia
Facility has been receiving the biomass waste (bark mulch and wood fines) from
the Cairo Facility. Due to the requirement of transporting the material
approximately 60 miles to the Telogia Facility from the Cairo Facility, this
fuel supply actually costs TERI approximately $8 per ton. TERI during 1996, paid
to third parties between $5 and $10 per ton for its fuel supply when the cost of
transporting the material is taken into account. The Company is currently
directly marketing this capacity to generators of residual waste from wood
processing industries, clean construction and demolition wood debris, and
non-recyclable paper products. The Company believes its marketing efforts will
produce biomass wastes for the Telogia Facility which will be received on a
tipping fee basis as a result of its direct marketing program. The Company will
initially attempt to bring the net costs of fuel acquisition to zero for the
Telogia Facility and ultimately look to produce net revenues from the tipping
fee based material. As the Telogia Facility becomes less dependent on the Cairo
Facility for fuel supply, the Cairo Facility biomass waste particularly bark
mulch can be marketed for sale to third parties producing additional revenues
for the Company.
COMPETITION
The Company experiences significant competition in each of its waste
handling markets. Maine Energy and PERC compete with landfills and several
waste-to-energy facilities and municipal incinerators in Maine and the New
England region. However, the volume of MSW produced in the New England region
has historically increased and the Company believes that it is likely to
continue to increase while the availability of landfills for waste disposal is
likely to continue to decline. Even though the implementation of recycling
programs to reduce MSW has increased, the Company believes that there are limits
on the percentage of MSW that ultimately can be recycled and that alternatives
for disposal of MSW will continue to be needed. In addition, the Company has
begun to focus on the industrial waste market as an ancillary source of waste
for the Maine Energy and PERC facilities and as a means of reducing its reliance
upon the MSW market.
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Specifically, KTI Specialty and SEMCO have been formed to acquire specialty
waste products for these facilities.
The Company believes that the RDF technology employed by the Maine Energy
and PERC facilities compares favorably with the mass-burn technology utilized by
many other waste-to-energy facilities. In RDF systems, MSW is preprocessed to
remove various non-combustible items which are recycled or landfilled. This
results in a significantly reduced volume of ash residue, thereby lowering
ultimate disposal costs, and is also complementary to current recycling
programs.
The Lewiston Facility competes with landfills and operators of portable
wood chipping equipment. KTI Bio Fuels is, however, with Maine Energy and PERC,
part of an integrated waste handling company which both processes wood waste
into wood chips and also destroys it through combustion. The Company believes
that this integrated process will become increasingly attractive to wood waste
generators such as electric and telephone utilities who are seeking a means of
eliminating many potential environmental liabilities associated with traditional
means of landfill disposal.
The Telogia facility competes for biomass fuel supply with paper companies
which employ on site power generation. As the Company moves toward tipping fee
based waste fuels this facility's dependence on the current fuel supply will be
decreased. The facility is permitted to combust 100% of such tipping fee based
fuels. Competition for tipping fee based material will principally come from
landfills whose cost structure is greater than that of the Telogia Facility.
Local landfill costs for biomass waste products range from $15 to $25 per ton,
while the cost of processing the material ranges from $5 to $8 per ton at the
Telogia Facility.
Competition for the Company's ash recycling subsidiaries 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.
Manner competes with several other recycled plastic brokers and direct
marketing from plastic recycling plans for the post industrial plastic scrap and
with materials recovery facilities for post consumer plastics.
The Company believes that Manner will continue to be competitive and will
be able to increase revenues and maintain its operating margin as a result of
its knowledge of the plastic recycling market and its reputation and
relationship with its customer base.
CUSTOMERS
Maine Energy, TERI and PERC are contractually obliged to sell all of the
electricity generated at their facilities to Central Maine, Florida Power and
Bangor Hydro, respectively. The loss of these electricity customers would have a
material adverse affect on the business and financial condition of the Company.
Maine Energy and PERC, along with other approved incinerator facilities,
purchase the majority of the output of woodchips from KTI Bio Fuel's Lewiston
Facility for use as a boiler fuel supplement to their combustion processes. The
Company does not believe that there will be a substantial decline in the amount
of woodchips required by the Maine Energy and PERC facilities in the foreseeable
future.
The Nashville Facility receives its entire supply of MWC ash from the City
of Nashville as a result of the operation of the Nashville Thermal Facility. If
the City of Nashville reduces the current level of appropriation or the
Nashville Thermal Facility fails to continue to operate there would be a
material adverse affect on the business and financial condition of the Nashville
Facility.
Manner markets the materials acquired from its venders to plastic recycling
plants throughout the United States, including TEPRI.
RAW MATERIALS
The raw material demands of the PERC facility currently are met mainly by
PERC's long-term waste handling agreements with approximately 200 municipalities
in Maine. Maine Energy received 30.4% of its raw materials in 1996 from 18 Maine
municipalities under long-term waste handling agreements and the majority
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of the balance from commercial and private waste haulers and municipalities with
short-term contracts. Maine Energy and PERC are currently exploring other waste
material opportunities in order to lessen their reliance on the MSW spot market,
including pursuing agreements with commercial waste generators and entering new
specialty waste markets. The Company believes that diversifying its raw
materials base could be an important factor in gaining stability in the
Company's waste material requirements if the MSW market declines due to
recycling or other factors. The Company currently has not experienced a decline
in the amounts of MSW raw material that it obtains from its current market
areas. Because of its attractive tipping fees in recent years, Maine Energy has
consistently received and processed waste at its nominal capacity.
KTI Bio Fuels mainly relies on short-term treated and untreated wood waste
disposal agreements for its raw materials requirements. Most of KTI Bio Fuel's
wood waste disposal agreements have durations of one (1) year or less, with many
of such agreements resulting from bids on specific demolition or disposal
projects concentrated in Maine or in nearby states such as New Hampshire,
Massachusetts and Connecticut. KTI Bio Fuels is exploring additional wood waste
markets in other nearby states such as New York and New Jersey and is also
actively seeking additional sources of chemically treated wood waste and OBW for
processing at the Lewiston Facility, which would not only expand its raw
materials base but also would allow KTI Bio Fuels to charge higher disposal fees
for such materials.
The Telogia Facility utilizes biomass fuels which are a by-product of the
paper pulp woodchip industry as its raw material. The Company plans to
supplement and ultimately replace this raw material with tipping fee based
biomass waste, such as construction and demolition debris and non-recyclable
paper products.
Manner acquires recyclable post industrial and post consumer material from
plastic manufacturers and materials recycling facilities.
AART receives ash produced as a by-product of the combustion process at the
Thermo Facility, from the City of Nashville.
SEASONALITY
The MSW market in Maine Energy's and PERC's market areas is seasonal, with
one-third more MSW generated in the summer months than is generated during the
rest of the year. Maine Energy and PERC rely on the spot MSW market and waste
from commercial sources as needed to meet their waste material needs over that
delivered pursuant to agreements with municipalities, and charge tipping fees
based on prevailing prices in their respective market areas. The Company
believes that its planned diversification of the waste material used by the
Maine Energy and PERC facilities, such as combusting specialty waste products,
will lessen any seasonality supply problems experienced by the facilities.
KTI Bio Fuels is also affected by seasonal factors, as wood waste materials
from construction and demolition sites in its market areas are also much more
widely available in the warmer months of the year, when construction and
demolition projects usually occur.
None of the Company's other facilities is affected by seasonal factors.
GOVERNMENTAL REGULATION
Waste Handling
General
The operations of the Company's waste handling businesses are subject to
extensive governmental regulations at the federal, state and local levels. The
Company believes that its operations are in material compliance with existing
laws and regulations material to its business. The laws, rules and regulations
which govern the waste handling businesses are very broad and are subject to
continuing change and interpretation. No assurance can be given that the Company
will be able to obtain or maintain the licenses, permits and approvals necessary
to conduct its current business or possible future expansions of its business.
The failure to obtain or maintain requisite licenses, permits and approvals or
otherwise to comply with such existing or future laws, rules and regulations or
interpretations thereof could have a material adverse effect on the Company's
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operations. The following discussion of statutes, regulations and court
decisions are brief summaries, are not intended to be complete, and are
qualified in their entirety by reference to such statutes, regulations and court
decisions.
Energy and Utility Regulation
Each of the Maine Energy facility, the PERC facility and the Telogia
facility has been certified by the Federal Energy Regulatory Commission as a
"qualifying small power production facility" under the Public Utility Regulatory
Policies Act of 1978 ("PURPA") and regulations promulgated thereunder, which
grants an exemption for such facilities from most federal and state laws
governing electric utility rates and financial organization. A qualified small
power production facility is exempt from the Public Utility Holding Company Act
of 1935 and from certain state laws and regulations governing electric utility
rates and financial organization, and, the rates charged by Maine Energy, PERC
and TERI for their acceptance of waste at their respective facilities are not
subject to regulation under existing state and federal law.
PURPA requires that electric utilities purchase electricity generated by
qualifying facilities at a price equal to the purchasing utility's full "avoided
cost." Avoided costs are defined by PURPA as the incremental costs to the
electric utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility, such utility would generate itself or
purchase from another source.
There are certain risks that the terms of such power purchase agreements
may be altered or changed adversely to Maine Energy, PERC and TERI, primarily
due to a bankruptcy of the contracting utility. These risks are particularly
heightened, as to Maine Energy and PERC, at the present time because of the
existence of excess energy capacity in the New England area. The rates in the
Maine Energy and PERC agreements were established based upon predictions made
more than ten years ago as to what each of Central Maine and Bangor Hydro would
spend to provide the same energy and capacity as Maine Energy or PERC, as
applicable, over the terms of the power purchase agreements. Contrary to the
assumptions built into the contract prices, energy demand did not grow as fast
as predicted and oil prices did not increase, but rather decreased. Central
Maine and Bangor Hydro may thus currently purchase energy and capacity on the
open market for significantly less than they are obligated to pay Maine Energy
and PERC, respectively, under the power purchase agreements.
Flow Control
One response by state and local governments to the increasing problems
associated with solid waste disposal was the enactment of flow control
ordinances which generally require that all waste generated in the municipality
enacting the ordinance be directed to a specified disposal site. The purpose of
these ordinances was to control the processing of solid waste from the enacting
municipalities as a means of controlling waste tipping fee revenues which were
relied upon as a means to support the financing and operation of solid waste
disposal facilities. The enactment of flow control ordinances was authorized
pursuant to Maine law and most of the municipalities with whom Maine Energy and
PERC executed long-term waste handling agreements enacted such an ordinance.
From the municipality's perspective, having such an ordinance in place was a
corollary to its agreement to a "put-or-pay" waste handling agreement which
requires the municipality to pay a guaranteed annual minimum fee to the
waste-to-energy facility regardless of the actual amount of MSW delivered to the
facility.
In May 1994, in C&A Carbone, Inc. v. Town of Clarkstown, the United States
Supreme Court struck down, as an unlawful violation of the "commerce clause" of
the United States Constitution, a flow control ordinance enacted by the Town of
Clarkstown, New York. The Company does not believe that loss of flow control
provisions would adversely impact operations at either the Maine Energy facility
or the PERC facility. The long-term waste handling agreements for such
facilities contractually require the municipalities to pay for waste disposal
whether or not the waste is delivered. Therefore, the municipalities have little
financial incentive to pay for the disposal of MSW at alternative sites even at
lower tipping fees. More significantly, however, the tipping fees charged by
both Maine Energy and PERC are less than the long-term tipping fees currently
being charged by landfills and other waste incinerators in the region. In
addition, the closing of
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landfills and the remoteness of Maine from urban areas means that there are few
disposal alternatives available to Maine municipalities. Finally, as
transportation costs are a significant part of total disposal costs, it is
unlikely that existing disposal facilities located outside of the Maine Energy
or PERC facility waste generation areas would be able to lower their tipping
fees to a point that would justify the incurrence of the additional
transportation expense. The Company believes that comparatively low tipping fees
at the Maine Energy and PERC facilities will make them attractive alternatives
to waste generators who may be free to look elsewhere if flow control ordinances
restricting their disposal opportunities become unenforceable.
Environmental Laws
The Company's waste-to-energy, ash recycling and wood processing business
activities at its facilities and its transportation and waste disposal business
activities are regulated pursuant to federal, state and local environmental
laws. Federal laws such as the Clean Air Act and the Clean Water Act and their
state analogs govern discharges of pollutants from waste-to-energy facilities to
air and water, and other federal, state and local laws such as the Resource
Conservation and Recovery Act of 1976 ("RCRA") comprehensively govern the
generation, transportation, storage, treatment and disposal of solid waste.
These environmental regulatory laws, and others such as the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), may make the
Company potentially liable in the event of environmental contamination
associated with its activities, facilities or properties.
The environmental regulatory laws and regulations or licenses and permits
issued thereunder also establish operational standards, including specific
limitations on emissions of certain air and water pollutants. Failure to meet
these standards could subject the facilities to enforcement actions and, unless
excused by particular circumstances, fines or other liabilities.
Standards established pursuant to the environmental regulatory laws and
governmental policies governing their enforcement may change. For example, new
technology may be required or stricter standards may be established for the
control of discharges of air or water pollutants or for solid waste or ash
handling and disposal. Such future developments could affect the manner in which
the Company operates its facilities and could require significant additional
capital expenditures to achieve compliance with such requirements or policies.
In the case of Maine Energy and PERC, however, in most circumstances all or a
portion of these compliance costs may be recovered from the communities with
long-term waste handling agreements as a component of the variable portion of
the tipping fee pursuant to change-in-law provisions of such agreements.
CERCLA, and other environmental remediation laws, may subject the Company
to strict joint and several liability for the costs of remediating contamination
associated with contaminated sites, including landfills, at which there has been
disposal of residue or other waste handled, transported or processed by the
Company and real property owned by the Company which may be contaminated. The
Company has no information that might indicate that it may be a potentially
responsible party under CERCLA or any other environmental remediation law.
Timely applications have been made for air emissions permits for the Maine
Energy and PERC facilities. Under Maine regulatory law, a permit continues in
effect provided that a timely application for renewal is made. Due to protracted
delays in processing the application at the state level, MDEP has elected to
defer its decision until such time as the new Title V Clean Air Act Standards
are promulgated. In Maine Energy's case, the Title V application was submitted
in compliance with state mandate during August, 1996. Thereafter, in December,
1996 a public meeting was convened by MDEP to delineate the Title V application,
and to address the favorable results of an independently conducted health risk
assessment pertaining to Maine Energy. Final adjudication is expected during mid
to late 1998. Management of the Company believes that Maine Energy is in
compliance with the federal Clean Air Act, its implementing regulations and all
other applicable regulations and, therefore, anticipates that the permit will be
renewed following the hearing. There can be no assurance, however, that new
conditions will not be imposed in the permit or that the permit will be renewed.
PERC is not yet required to file a new application in conformity with the new
Clean Air Act requirements.
16
<PAGE> 19
Management of Maine Energy, PERC and TERI believe that relationships with
Maine and Florida environmental regulators is good and there are no pending or,
to such management's knowledge, any threatened enforcement actions. The Company,
which is responsible for operating the Maine Energy and TERI facilities,
monitors applicable environmental standards and evaluates its selection of
technology to ensure that applicable standards are being met.
The United States Supreme Court recently determined in City of Chicago v.
Environmental Defense Fund, a case interpreting provisions of RCRA, that the
generation of ash residue from waste-to-energy facilities in the incineration
process is not exempt from hazardous waste regulation. The Company believes that
the Supreme Court's decision will have no material adverse effect on operations
at the Maine Energy and PERC facilities. The ash produced at the Maine Energy
and PERC facilities is and always has been tested for hazardous wastes and has
generally met the requirements of nonhazardous material according to the
regulations implementing RCRA promulgated by the EPA since their adoption. Any
ash residue that is designated as hazardous material is disposed of according to
regulations governing the disposal of such material. Moreover, the Company's ash
residue is disposed in landfills segregated to accept ash residue only and, to
the Company's knowledge, the landfill facilities at which the ash residue is
disposed meet or exceed the applicable standards for such facilities under RCRA.
There can be no assurance, however, that the current regulations governing the
testing and disposition of ash residue will not be modified and made more
stringent and require operational or technological adjustments at the Maine
Energy and PERC facilities, which adjustments could have a material adverse
effect on the operation of such facilities and the financial viability or
profitability of the Company.
Maine Energy's waste handling agreements with its host communities of
Biddeford and Saco prescribe a set of standards for noise, odor and ash
emissions from the Maine Energy facility and impose penalties in the event of
non-compliance. Since the Maine Energy facility is sited directly in the
commercial area of Biddeford, the Company has implemented stringent operational
practices to mitigate the escape of odors from the Maine Energy facility
including the use of air lock doors at the waste-hauling trucks' entrance to,
and exit from, the facility's tipping floor. Management believes that the Maine
Energy facility has been in compliance with noise, odor and ash emission
standards.
In order to operate the Lewiston Facility, KTI Bio Fuels is required to
maintain a site location and solid waste permit issued by MDEP and a junkyard
permit issued by the City of Lewiston, Maine. The site location and solid waste
permit has expired, but a timely application for the renewal of same was filed
and the Lewiston Facility continues to operate under the grandfather provisions
of Maine law.
Maine state law and an ordinance of the City of Lewiston forbid the
operation of "junkyards" without obtaining a permit. The nature of the Lewiston
Facility's operation puts it within the definition of a junkyard. The permit is
issued on a yearly basis and local officials have the authority to impose
conditions in the permit consistent with public health and safety. Renewal is
subject to a public hearing. The KTI Bio Fuels permit contains numerous special
conditions, the majority of which were inserted in response to two fires that
occurred at the Lewiston Facility, including, without limitation, restrictions
on the number and size of wood waste piles which may be maintained on the
premises and the requirement that fire hydrants and an additional access road to
the Lewiston Facility from the main road be provided. The permit was most
recently renewed on February 4, 1997. The Company believes that the Lewiston
Facility is in compliance with the provisions of the permit.
TERI's biomass-to-energy facility applied for renewal of its federal NPDES
and state of Florida Industrial Wastewater permits during March, 1996 in
conformance with both policy and schedule. Likewise, TERI submitted its Title V
Air Permit application to the Florida Department of Environmental Protection
("FDEP") in June, 1996. At this juncture, a backlog of other applications at
FDEP has prevented the regulatory authorities from acting on either application.
Accordingly, the current permits and conditions remain in effect until further
notice. TERI is considered to be in substantial compliance with its existing
Air/Operating, NPDES and Industrial Wastewater Permits.
The Company's ash recycling subsidiary, AART, is required to maintain
permits issued by the State of Tennessee Department of Environmental and
Conservation. These permits allow for the recovery of ferrous
17
<PAGE> 20
and non-ferrous metals from the ash residue, as well as processing the ash
residue for reuse as an asphalt aggregate. These permits were issued on October
9, 1992 and January 23, 1993, respectively and are "Permits-by-Rule", which are
valid from the time of issuance and continue to be in effect as long as the
facility is in compliance with these permits. The facility also maintains a
Metropolitan Health Department Pollution Control Division Air Pollutant Service
Operating Permit which was renewed on December 31, 1996 and is subject to an
annual renewal.
DISCONTINUED OPERATIONS
During 1996, the Company disposed of its computer services segment which
was composed entirely of Convergent Solutions, Inc. ("CSI"). The sale was
completed in two separate transactions. On July 26,1996, certain assets and
liabilities of CSI were sold to Ciber, Inc. for $5,000,000. Also, on July 29,
1996, after the transfer of certain of CSI's remaining assets and liabilities to
the Company, all of the outstanding common stock of CSI was sold to certain
members of its management for $5,000. In addition, the Company has notes
receivable from the buyers aggregating $444,643 at December 31, 1996. The notes
receivable are due on July 29, 2000.
EMPLOYEES
As of December 31, 1996, the Company had eighteen (18) full time employees
on its corporate staff, eighty-one (81) full time employees at the Maine Energy
facility, fourteen (14) full time employees at the Lewiston Facility,
sixty-seven (67) full time employees at the TEII facilities and eight (8) at
Manner. The employees at the PERC and Nashville facilities are not Company
employees. None of the Company's employees are covered by collective bargaining
agreements and the Company considers its employee relations to be good.
FORWARD-LOOKING STATEMENTS
All statements contained herein and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that are not
historical facts, including but not limited to statements regarding the
Company's current business strategy, prospective joint ventures, and plans for
future development and operations and predictions of future tipping fees,
management fees payable to KTI and cash flow and its uses, 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 that could cause actual results to differ materially are the
following: (i) the availability of sufficient capital to finance the Company's
business plan and its other capital needs on terms satisfactory to the Company;
(ii) competitive factors such as availability of less expensive waste disposal
outlets or expanded recycling programs that may significantly reduce the amount
of waste products available to the Company's facilities; (iii) restructuring of
the Company's power purchase agreements with Bangor Hydro; (iv) changes in
labor, equipment and capital costs; (v) the ability of the Company to consummate
any contemplated joint ventures and/or restructuring on terms satisfactory to
the Company; (vi) changes in regulations affecting the waste disposal and
recycling industries; (vii) the ability of the Company to comply with the
restrictions imposed upon it in connection with its outstanding indebtedness;
(viii) future acquisitions or strategic partnerships; (ix) general business and
economic conditions; and (x) other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 2. PROPERTIES
MAINE ENERGY FACILITY
The Maine Energy facility occupies an approximately 9.1 acre site owned by
Maine Energy in the City of Biddeford, Maine and borders the west bank of the
Saco River.
18
<PAGE> 21
PERC FACILITY
The PERC facility occupies an approximately 40.3 acre site owned by PERC in
the Town of Orrington, Maine.
LEWISTON FACILITY
The Lewiston Facility occupies an approximately 9.7 acre site which is
leased from South Park Company, an affiliate of the City of Lewiston, Maine,
under a long-term ground lease for a term expiring in 2015. Current annual
rental charges are approximately $16,000.
TERI FACILITY
The TERI Facility occupies an approximately 97 acre site under long term
lease from St. Joseph Land and Development Company in Telogia, Florida for a
term expiring November 30, 2009 and owns a 60 acre site in Cairo, Georgia. The
current annual rent charges for the Telogia Facility are approximately $58,000.
TEPRI FACILITY
The TEPRI Facility occupies a site under a long-term lease from Wenoha
Corporation in Tuscaloosa, Alabama for a term expiring May 31, 1998, with annual
options to renew for unlimited number of annual extension periods. If the lease
is extended, the annual rent would increase by 4% for each option period.
Current annual rent charges are approximately $73,800.
NASHVILLE FACILITY
The Nashville Facility occupies a site provided by the City of Nashville
adjacent to the City's ash landfill as part of its contractual relationship with
AART.
CORPORATE OFFICES
The Company's executive offices are located in Guttenberg, New Jersey. The
aggregate floor area of these facilities is approximately 4,500 square feet. The
lease provides for a base annual rent of approximately $96,000, plus a
proportionate share of the increase of expenses such as real property taxes,
utilities and maintenance costs. The lease on these offices expires on September
30, 2001 and is renewable for an additional five year term. The lease is from an
affiliated party. See "Certain Relationships and Related
Transactions -- Transactions with Nicholas Menonna, Jr. and Martin J. Sergi."
The Company also maintains offices in Saco, Maine consisting of
approximately 3,000 square feet of leased office space. The lease provides for
an annual rental of approximately $26,300 which increases 5% annually during the
term of the lease. The lease expires on March 31, 1999 and is renewable through
2003.
ITEM 3. LEGAL PROCEEDINGS
Anthony Buonaguro, a former officer of the Company, has instituted
arbitration proceedings in New York, New York against the Company for alleged
breaches of an employment agreement between Mr. Buonaguro and the Company more
than five years prior to the filing of the arbitration proceedings. The amount
of damages requested is approximately $220,000. The Company believes that it has
meritorious defenses against this claim and will defend the matter.
A fatality of an employee of PERC's operator, ESOCO, occurred when he was
working under a conveyor belt in the plant. His widow has instituted a lawsuit
against various parties. Her lawyer recently has moved to join the Company to
the suit as additional defendants on the basis that the Company is an owner of
PERC. PERC's insurance carrier has accepted the defense of this lawsuit. All
actual owners of record are additional insureds. Under the operations and
maintenance agreement with the operator, ESOCO, such operator is obligated to
defend the Company.
19
<PAGE> 22
The Company is a defendant in certain other law suits alleging various
claims incurred in the ordinary course of business, none of which, either
individually or in the aggregate, the Company believes will have a material
adverse effect on the Company.
Management of the Company does not believe that the outcome of the
foregoing matters, individually or in the aggregate, will have a materially
adverse effect on the Company's financial condition, cash flows or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company became a public company on February 8, 1995. From February 8,
1995, until February 14, 1996, the Common Stock was traded in the
over-the-counter market on the NASDAQ SmallCap Market under the symbol KTIE.
Since February 14, 1996, the Company's Common Stock has traded on the NASDAQ
National Market tier of The NASDAQ Stock Market under the symbol KTIE. The
following table sets forth the high and low sale prices for the Common Stock for
the periods indicated, as reported on the NASDAQ Small Cap Market and the NASDAQ
National Market System.
<TABLE>
<CAPTION>
HIGH LOW
PRICE PRICE
----- -----
<S> <C> <C>
February 8, 1995 through March 31, 1995............................. $6 3/8 5$1/4
April 1, 1995 through June 30, 1995................................. 6 1/8 5 3/8
July 1, 1995 through September 30, 1995............................. 8 7/8 5 3/8
October 1, 1995 through December 31, 1995........................... 9 8 1/4
January 1, 1996 through March 31, 1996.............................. 8 5/8 6
April 1, 1996 through June 30, 1996................................. 7 3/8 6 1/4
July 1, 1996 through September 30, 1996............................. 8 1/2 6 1/2
October 1, 1996 through December 31, 1996........................... 11 1/4 7
</TABLE>
On March 27, 1997, the last reported sale price of the Common Stock as
reported on the NASDAQ National Market System was $8.625 per share. There were
180 record owners of the Company's 6,862,032 outstanding shares of Common Stock
as of March 27, 1997.
The Company has not paid cash dividends on the Common Stock and has no
plans to begin paying cash dividends in the immediate future. Furthermore,
provisions of certain of the Company's debt instruments restrict the payment of
cash dividends. A 5% stock dividend was declared, payable on March 28, 1997 to
stockholders of record on March 14, 1997. Free cash flow, if any, will be used
for strategic opportunities and to reduce debt.
20
<PAGE> 23
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Operating revenues............................ $ 35,305 $ 38,083 $ 37,783 $11,290 $ 6,287
Sale of capacity, net......................... 33,203
-------- -------- -------- ------- -------
Total revenues...................... 68,508 38,083 37,783 11,290 6,287
Total costs and expenses...................... 33,603 38,459 37,615 10,740 7,691
Equity in net income (loss) of partnerships... 333 335 324 133 (661)
-------- -------- -------- ------- -------
Income (loss) from continuing operations
before minority interest, income taxes and
extraordinary item.......................... 35,238 (41) 492 683 (2,065)
Minority interest(1).......................... (18,610) (1,287) (1,920)
-------- -------- -------- ------- -------
Income (loss) from continuing operations
before income taxes and extraordinary
item........................................ 16,628 (1,328) (1,428) 683 (2,065)
Income taxes.................................. -- 65
-------- -------- -------- ------- -------
Income (loss) from continuing operations
before extraordinary item................... 16,628 (1,393) (1,428) 683 (2,065)
Loss from discontinued operations............. (714) (86)
Extraordinary item -- net..................... (2,247) 148
-------- -------- -------- ------- -------
Net income (loss)............................. $ 13,667 $ (1,331) $ (1,428) $ 683 $(2,065)
======== ======== ======== ======= =======
Per share data:
Primary:
Income (loss) from continuing operations.... $ 2.61 $ (0.26) $ (0.42) $ 0.19 $ (0.60)
Loss from discontinued operations........... (0.11) (0.02)
-------- -------- -------- ------- -------
Income (loss) before extraordinary item..... 2.50 (0.28) (0.42) 0.19 (0.60)
Extraordinary item.......................... (0.35) 0.03
-------- -------- -------- ------- -------
Net income (loss)........................... $ 2.15 $ (0.25) $ (0.42) $ 0.19 $ (0.60)
======== ======== ======== ======= =======
Weighted average number of shares used in
calculating earnings per share(2)(3)........ 6,360 5,264 3,409 3,630 3,435
======== ======== ======== ======= =======
Fully-diluted:
Income (loss) from continuing operations.... $ 2.46 $ (0.26) $ (0.42) $ 0.19 $ (0.60)
Loss from discontinued operations........... (0.10) (0.02)
-------- -------- -------- ------- -------
Income (loss) before extraordinary item..... 2.36 (0.28) (0.42) 0.19 (0.60)
Extraordinary item.......................... (0.32) 0.03
-------- -------- -------- ------- -------
Net income (loss)........................... $ 2.03 $ (0.25) $ (0.42) $ 0.19 $ (0.60)
======== ======== ======== ======= =======
Weighted average number of shares used in
calculating earnings per share(2)(3)........ 6,926 5,264 3,409 3,630 3,435
======== ======== ======== ======= =======
BALANCE SHEET DATA
Total assets.................................. $123,075 $132,906 $131,383 $21,171 $11,938
Debt.......................................... 39,073 115,376 127,348 15,348 6,148
Minority interest............................. 10,872 1,840 553
Deferred revenue.............................. 41,250
Shareholders' equity (deficit)................ 25,705 6,881 (3,911) (1,905) (3,594)
</TABLE>
- ---------------
(1) Minority interest for the year ended December 31, 1994 includes $1,367,000
of preacquisition earnings of Maine Energy.
(2) Earnings (loss) per share have been determined based on the weighted average
number of shares outstanding as well as the dilutive effect of outstanding
options and warrants to purchase common stock, In addition, an adjustment
for shares issued during the twelve month period prior to the Merger has
been made for all periods presented whether dilutive or antidilutive.
(3) All periods reflect the effect of a 5% common stock dividend declared by the
Board of Directors on February 28, 1997 and payable March 28, 1997.
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a holding company deriving its revenues from its
subsidiaries and PERC, an affiliate, of which it owns less than 50% and which is
accounted for under the equity method of accounting. Prior to 1994, Maine Energy
also was accounted for under the equity method of accounting. On September 16,
1994 and May 3, 1996, the Company acquired an additional 40.38% and 23.77%,
respectively, partnership interest in Maine Energy bringing its ownership
interest to 74.15% at December 31, 1996. Because the Company's controlling
interest in Maine Energy was acquired in two separate transactions, the
consolidated statements of operations for the year ended December 31, 1994
include the operations of Maine Energy from January 1, 1994 and include
adjustments to eliminate minority interest and the pre-acquisition earnings of
Maine Energy attributable to the partnership interest acquired on September 16,
1994. For presentation purposes, this section will discuss and analyze, in
addition to the Company's results, the results of PERC.
The Company, since its inception, has developed and managed waste
facilities. The Company's subsidiary, Maine Energy, and its affiliate, PERC,
both take in municipal solid waste and convert it to a fuel which is consumed in
the generation of electric power. A subsidiary of the Company is the operator of
Maine Energy on a cost plus basis and a co-operator of PERC on an annual fee
basis. KTI BioFuels processes treated and untreated waste wood materials into
woodchips which are then used as a supplemental fuel by Maine Energy and PERC or
sold to other parties.
On November 22, 1996, the Company acquired TEII from CNA and a group of ten
investors. CNA sold its debt obligations (approximately $11.8 million at par
plus accrued interest) and equity interest (73,500 shares, or 49%, of common
stock and $50 million in preferred stock) to KTI for $1.85 million. The
remaining 51% ownership interest was purchased from a group of ten investors for
an additional approximately $290,000.
As part of its purchase agreement with CNA, the Company has also agreed to
obtain the release of CNA's reimbursement obligation to the letter of credit
bank, BOM which credit enhances $13,400,000 of outstanding bonds. If the Company
is unable to obtain the release of CNA from its obligation by August 21, 1997,
then CNA has the option of reimbursing the Company $1.75 million of its purchase
price and reversing the transaction. The Company has retained an investment
banking firm in connection with the bonds and is confident it will be able to
obtain the release of CNA of its obligation by the August 21, 1997 deadline.
While the Company believes that cash flow from the facility's operations will be
adequate to cover future principal and interest payments on the bonds, there can
be no assurance that this will occur.
TEII's Telogia Facility takes in biomass fuels to be combusted to produce
electric power. TEII's Cairo Facility processes pulpwood under a tolling
agreement to produce woodchips for use in the paper industry. TEII's Tuscaloosa
Facility takes in post consumer low density recyclable plastics and processes
the material through a washing, grinding and extruding process to produce a high
quality, low density plastic resin pellets.
Effective March 29, 1996, KTI Ash purchased a 60% interest as a limited
partner in American Ash Recycling of Tennessee, Ltd., a Florida limited
partnership ("AART"). The general partner is the previous owner of the Facility,
American Ash Recycling Corp. of Tennessee, a Florida corporation, an affiliate
of AAR. The partnership will carry on the business of the predecessor
corporation. The Company has a priority on the distributions of earnings and
cash flow from the Facility to the extent of 75% of the earning and cash flow
generated until it receives $315,000 per annum on a cumulative basis. The
purchase price consisted of $500,000 in cash and a short-term promissory note
for $1,600,000 which was paid during 1996. AART recycles MWC ash at its
Nashville Facility converting the ash principally into construction aggregate
after recovering recyclable metals.
The Company also agreed to become a 60% limited partner of a partnership,
American Ash Recycling of New England ("AARNE") to operate a similar facility in
the State of Maine (the "Maine Partnership"). The Company's initial contribution
to this partnership was $500,000.
22
<PAGE> 25
The Company has agreed to become a 60% limited partner in up to an
additional eight facilities. The purchase price for each of these partnership
interests is $2 million. ECH and AAR have a four year period to develop these
eight facilities which ends December 31, 1999.
Maine Energy, PERC and the Telogia Facility principally derive their
revenues from sale of electric power generated as a by-product of the combustion
of waste products and sold under long-term contracts with local utilities and,
in the case of Maine Energy and PERC, from tipping fees received under
long-term, short-term and commercial waste disposal contracts with
municipalities and spot-market waste received from haulers. The utilities pay
each facility based on the kilowatts delivered to the utility in accordance with
rates agreed to at the inception of the contracts. PERC's and the Telogia
Facility's rates are adjusted annually for expected or actual increases in
inflation.
In May, 1996 Maine Energy restructured its agreement with Central Maine by
entering into a series of agreements with CL One and Central Maine, which
provided for the purchase of Maine Energy's available power generation capacity
by CL One and amending the Central Maine PPA (together with the agreement, the
"Agreements"). CL One made an initial payment of $85 million and agreed to also
make additional quarterly payments through May 31, 2007 to Maine Energy as a
portion of its purchase price and for reimbursement to Maine Energy of certain
expenses. In consideration of its payments to Maine Energy, CL One would be
assigned all rights to capacity from the Maine Energy facility through May 31,
2007. In the restructuring, the term of the Central Maine PPA was extended from
May 31, 2007 to December 31, 2012. Maine Energy will sell energy to Central
Maine through May 31, 2007 at an initial rate of 7.18 cents per kWh which would
escalate annually by 2% per annum. Beginning June 1, 2007 until the expiration
date of the contract, Maine Energy will be paid market value for both its energy
and capacity by Central Maine. Maine Energy retired the outstanding principal
amount of $64.5 million of the Biddeford Bonds with the proceeds of the sale of
its capacity. Utilizing the balance of the proceeds and a portion of the reserve
funds available, the Company substantially reduced the outstanding principal
amount of Maine Energy's subordinated indebtedness by paying off $29.5 million
of subordinated debt. As of December 31, 1996 the balance of the subordinated
debt at Maine Energy was $14,575,985.
Under the terms of the Central Maine restructuring, a $45 million letter of
credit was issued to Central Maine by ING (US) Capital Corporation, ("ING"). If,
in any year, Maine Energy fails to produce 100,000,000 kWh of electricity (a
"100,000,000 kWh default") and Maine Energy does not have a force majeure
defense (physical damage to the plant and other similar events), Maine Energy is
obligated to pay $3.75 million to Central Maine as liquidated damages. Such
payment obligation is secured by the ING letter of credit. In each year in which
100,000,000 kWh is produced, the balance of the ING letter of credit is reduced
by $3.75 million. If, in any year, Maine Energy fails to produce 15,000,000 kWh
of electricity (a "15,000,000 kWh default") and Maine Energy does not have a
force majeure defense, Maine Energy is obligated to pay the then balance of the
ING letter of credit to Central Maine as liquidated damages. In 1996, the
15,000,000 kWh and the 100,000,000 kWh tests were met, resulting in a reduction
of the amount of the ING letter of credit to $41.25 million.
The disposal fees paid by the municipalities and waste haulers to Maine
Energy and PERC are based on the tons of MSW delivered. The rate charged by each
of Maine Energy and PERC under its long-term contracts for each ton delivered is
based on the contractual tipping fee rate consisting of a fixed component and a
variable component which is adjusted as a result of inflation, changes in law
and changes in operating costs of the applicable facility. The fixed fee
component escalates annually with changes in the local consumer price index.
Maine Energy's and PERC's variable fee is determined by comparing certain of the
then current operating and financing costs against contractually agreed-to base
operating and financing costs. In the case of Maine Energy, the cumulative net
increases of all of these cost items is divided by a total tonnage factor for
the facility to determine the per ton variable component. PERC's variable
component is calculated in a similar fashion but takes into account not only net
increases but also net decreases in these costs. This can cause the variable
component to be a negative amount effectively reducing PERC's fixed fee
component. Based on PERC's current long-term contracts, any decreases or
increases in operating or financing costs are passed through to the affected
municipal customers with no benefit or detriment to PERC. The rate charged by
each
23
<PAGE> 26
of Maine Energy and PERC for short-term municipal and commercial contracts
(usually one to six years) and spot market contracts are based on the general
market conditions for MSW.
ANALYSIS OF TONNAGE RECEIVED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
MAINE ENERGY:
Long-Term Municipal Contracts................................. 71,203 68,380 70,339
Short-Term Municipal Contracts................................ 45,445 36,214 22,211
Spot Market................................................... 72,634 83,647 120,678
Commercial.................................................... 56,352 36,452 16,125
------- ------- -------
Total............................................... 245,634 224,693 229,353
======= ======= =======
PERC:
Long-Term Municipal Contracts................................. 203,875 200,908 200,464
Short-Term Municipal Contracts................................ 18,341 17,614 25,477
Spot Market................................................... 13,163 16,703 17,218
Commercial.................................................... 18,144 13,396 4,879
------- ------- -------
Total............................................... 253,523 248,621 248,038
======= ======= =======
</TABLE>
The Company's MSW waste disposal operations are subject to seasonal
fluctuations. Reduced volumes of waste are generated during the winter months.
This requires reductions in spot market tipping fees and increases reliance on
supplemental fuel, principally woodchips. The Company's Maine facilities are
located in summer vacation areas and larger volumes of waste are generated
during that season enabling increases in the spot market tipping fees charged to
the customers of Maine Energy and PERC and decreases in their reliance on
supplemental fuel. General economic conditions of the surrounding area also have
an impact on the availability of waste, with greater levels of waste usually
generated during periods of good economic conditions.
DISCONTINUED OPERATIONS
On February 8, 1995, the Company acquired CSI. As a result of the
acquisition the Company participated in two business segments, waste handling
and computer services. The original business of the Company prior to the Merger
are included in waste handling and the CSI businesses are included in computer
services segment.
The Company's operations in the computer services segment were carried out
principally by its wholly-owned subsidiary DataFocus. DataFocus is primarily
engaged in client-server systems software engineering and application
development services. During the past three years, DataFocus has developed and
brought to market a new software product, NuTCRACKER(TM), which assists
customers in porting from the UNIX to the Microsoft Windows NT operating
environment.
On July 19, 1996, DataFocus executed an agreement with CIBER, Inc.
("CIBER"). Pursuant to the Agreement, DataFocus sold substantially all of the
assets of DataFocus' Business Systems Division, other than cash and accounts
receivable, to CIBER for $5,000,000, subject to customary prorations, on July
26, 1996. DataFocus retained cash, accounts receivables and substantially all of
the liabilities of its Business Systems Division that arose prior to July 26,
1996. The net proceeds of such sale, including cash and accounts receivable
retained, less related liabilities, are approximately $4,250,000.
Additionally, on July 29, 1996, the Company sold the stock of DataFocus to
certain members of the management of DataFocus. Pursuant to the sale, the
Company received $5,000 in cash, the cancellation of stock options issued to
DataFocus management to purchase 132,328 shares of the Company's common stock,
the cancellation of an option to purchase 20% of the common stock of DataFocus,
and a royalty agreement.
24
<PAGE> 27
Under the royalty agreement, the Company receives a monthly base royalty payment
of $5,000 and quarterly payments of additional royalties, equal to 5% of net
revenue from the sale of NuTCRACKER software product in excess of $4,000,000 per
year. DataFocus will have the right to repurchase the royalty agreement from the
Company for the following payments: $400,000 prior to July 29, 1997; three times
the royalty payments due to the Company for the twelve months immediately prior
to the date of notice of repurchase, if given on or after July 29, 1997 but
before July 29, 1998; two times the royalty payments due to the Company for the
twelve months immediately prior to the date of notice of repurchase, if given on
or after July 29, 1998 but before July 29, 1999; or an amount equal to the
royalty payments due to the Company for the twelve months immediately prior to
the date of notice of repurchase, if given after July 29, 1999.
As part of the sale of DataFocus to its management, the Company agreed to
loan up to $500,000 to certain members of the management of DataFocus, including
Thomas A. Bosanko, who was a director of the Company through August 13, 1996.
The loan bears interest of 8% per annum and provides for level quarterly
principal payments to repay the loan over a four year period. The loan is
secured by Company common stock owned by such members of management of
DataFocus. The royalty agreement provides that royalty payments to the Company
terminate three years after the repayment of the loans.
Loss from discontinued operations of $714,000 for the year ended December
31, 1996, resulted from the sale and disposal of the Company's computer service
division.
25
<PAGE> 28
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
------------------ -----------------
($ THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Electric power revenues............................ $ 20,821 30.4 % $26,470 69.5 %
Sale of capacity, net.............................. 33,203 48.5 %
Waste processing revenues.......................... 11,024 16.1 % 8,314 21.8 %
Other waste handling revenues...................... 3,459 5.0 % 3,299 8.7 %
------- ----- ------- ---- -
Total revenues............................. 68,507 100.0 % 38,083 100.0 %
Costs and expenses:
Electric power and waste processing operating
costs........................................... 26,453 38.6 % 26,139 68.6 %
Selling, general and administrative................ 2,389 3.5 % 2,941 7.7 %
Interest expense -- net............................ 4,464 6.5 % 9,379 24.6 %
------- ----- ------- ---- -
Total costs and expenses............................. 33,306 48.6 % 38,459 101.0 %
Equity in net income of PERC......................... 332 0.5 % 335 0.9 %
Loss on sale of investments.......................... (296) (0.4)%
------- ----- ------- ---- -
Income (loss) from continuing operations before
minority interest, income taxes and extraordinary
item............................................... 35,237 51.4 % (41) (0.1)%
Minority interest.................................... (18,610) (27.2)% (1,287) (3.4)%
------- ----- ------- ---- -
Income (loss) from continuing operations before
income taxes and extraordinary item................ 16,627 24.3 % (1,328) (3.5)%
Income taxes......................................... (65) (0.2)%
------- ----- ------- ---- -
Income (loss) from continuing operations before
extraordinary item................................. 16,627 24.3 % (1,393) (3.7)%
Discontinued operations
Loss from discontinued operations.................. (714) (1.0)% (86) (0.2)%
------- ----- ------- ---- -
Income (loss) before extraordinary item.............. 15,913 23.2 % (1,479) (3.9)%
Extraordinary item -- gain (loss) on early
extinguishment of debt, net of minority interest... (2,247) (3.3)% 148 0.4 %
------- ----- ------- ---- -
Net income (loss).................................... $ 13,666 19.9 % $(1,331) (3.5)%
======= ===== ======= =====
</TABLE>
Revenues
Electric power revenues decreased by $5,649,000, or 21.3%, for the year
ended December 31, 1996 compared to 1995. The decreased revenue principally
resulted from a reduced contract rate under the amended PPA from 16.52c per kWh
to 7.18c per kWh for all power produced after May 3, 1996. As a result of
certain contingencies required by the sale of capacity under the PPA, the
Company has deferred $45,000,000 of revenue from this transaction which is being
amortized through May 31, 2007, of which $3,750,000 has been amortized into
revenues in 1996. As a result of the purchase of TEII on November 22, 1996,
$484,000 of electric power revenue is included for the year ended December 31,
1996.
Sale of capacity, net was $33,203,000 for the year ended December 31, 1996
arising from the sale of capacity under Maine Energy's PPA.
Revenues from waste processing increased $2,711,000, or 32.6%, for the year
ended December 31, 1996 compared to the same period in 1995. This increase is
primarily the result of the acquisition of the Nashville Facility which produced
revenues of approximately $1,827,000 from the date of acquisition and increased
26
<PAGE> 29
revenues from the Company's specialty waste subsidiary of approximately $900,000
which is a direct result of the increase of 8,786 tons in specialty waste
processed at Maine Energy. The total tonnage increase at Maine Energy of 21,000
tons which resulted in increased revenues of $768,000 for 1996 was offset by the
permanent tipping fee reduction in charter and host community tipping fees of
$7.27 per ton as required by Maine Energy's long-term waste supply contracts
upon the retirement of the $64.5 million in bonds at Maine Energy.
Other waste handling revenues for the year ended December 31, 1996
increased by $161,000, or 4.9%, as compared to the year ended December 31, 1995.
This increase is primarily the result of the acquisitions of Manner and the
Nashville Facility which recorded sales of recycled plastic and recovered metals
of $398,000 and $702,000, respectively, from the date of acquisition to December
31, 1996. This was partially offset by decreases in KTI BioFuels revenues of
$749,000 principally resulting from a 22,353 ton, or 29.2% decrease in woodwaste
revenues compared to 1995. This decrease was primarily as the result of
diminished supply of wastewood due to severe weather conditions during the first
quarter of 1996. Lease revenue from transportation equipment decreased by
$239,000 as a result of previous equipment sales.
Costs and Expenses
Waste handling operating costs increased by $314,000, or 1.2%, for the year
ended December 31, 1996, compared to the corresponding period in 1995. The
principal cause of the increase in 1996 is the purchase of TEII, Manner and AART
resulting in increased costs of $2,909,000 during 1996. These increases were
partially offset by decreased depreciation and amortization expenses of
$787,000, primarily as a result of a change in the estimated useful lives of the
plant assets; decreased net disposal costs of plant residues of $410,000,
primarily as a result of the renegotiated ash disposal contract; a decrease in
the need for supplemental fuels ($273,000) as a result of an increase in the MSW
received at the facility; and, decreased maintenance and related costs of
$346,000 all from the Maine Energy facility. Additional decreased costs arose
from the transportation division which during 1995 suspended operations. Also,
during 1995, the transportation division recorded a provision of $521,000 to
reduce the carrying value of certain transportation equipment. No such provision
was required during 1996.
Selling, general and administrative expenses decreased by $552,000, or
18.8%, for the year ended December 31, 1996 as compared to the year ended
December 31, 1995. The decrease was principally a result of a decrease in
amortization expense resulting from the write off of deferred costs related to
the PPA restructuring.
Interest and Other Items
Interest -- net decreased by $4,915,000 or 52.4% during the year ended
December 31, 1996 as compared to the year ended December 31, 1995. The primary
decreases for the year were $1,728,000 resulting from the retirement of
$64,500,000 of bonds at Maine Energy, $2,010,000 resulting from the payment of
$29,500,000 of subordinating debt at Maine Energy and $1,177,000 resulting from
decreased letter of credit fees at Maine Energy due to the retirement of the
bonds.
The increase in minority interest of $17,323,000 for the year ended
December 31, 1996 principally resulted from the minority interest of 49.62%
share of Maine Energy's gain from sale of capacity.
Loss from sale of investments of $296,000 for the year ended December 31,
1996, resulted from the sale of long-term fixed rate municipal bonds pledged by
Maine Energy to the letter of credit banks immediately prior to the sale of
capacity on May 3, 1996.
Extraordinary item of $2,247,000 for the year ended December 31, 1996,
resulted from the early extinguishment of the Biddeford Bonds at Maine Energy,
net of minority interest.
Equity in the net income of PERC decreased by $2,000, or .6%, for the year
ended December 31, 1996. The Company's ownership interest in PERC is 7%.
27
<PAGE> 30
PERC
Revenues from electric power for 1996 increased by $210,000 over 1995, as a
result of a 2.8% increase in contract rate per kilowatt for 1996, offset by a
decrease in power production of 2,635 mWh or 1.6%. Waste processing revenues for
1996 increased $625,000, or 5.6%, compared to 1995. This resulted principally
from a $1.68 per ton, or 3.7%, increase in PERC's average tipping fee arising
principally as the result of increases in spot market disposal rates and a 4,900
ton, or 1.9% increase in MSW received in 1996. PERC's tipping fee revenues are
principally derived under long-term contracts, and increases or decreases in
revenues will principally be a result of inflation adjustments, increases or
decreases in pass-through facility costs and change in law pricing provisions.
Operating expenses for the year ended December 31, 1996 increased $1,007,000, or
5.0%, as compared with the year ended December 31, 1995, principally due to
increased disposal costs of $626,000, maintenance costs $669,000 and operating
and fuel costs $511,000. These increases were offset by a decrease of $799,000
in performance credits payable to the Charter Municipalities. Beginning in 1994,
PERC, in accordance with agreements with its charter municipality customers,
paid an amount representing 50% of "distributable cash," as defined in the
agreements, to the charter municipalities. Expense with respect to these
agreements was $619,000 in the year ended December 31, 1996, compared to
$1,418,000 in 1995.
Net interest expense for the year ended December 31, 1996 decreased by
$633,000, or 16.6%, as compared with the year ended December 31, 1995. This
decrease was primarily due to lower interest rates on the variable rate bond
debt as well as a reduction in outstanding principal on such bonds. Interest
expense on the variable rate bond debt is a pass-through cost to municipal
customers. As a result, changes in interest expense do not have a significant
effect on net income.
28
<PAGE> 31
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994
----------------- ----------------
($ THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Electric power revenues............................... $26,470 69.5% $26,837 70.5%
Waste processing revenues............................. 8,314 21.8% 7,718 20.3%
Other waste handling revenues......................... 3,299 8.7% 3,230 8.5%
------- ------ ------- ----
-
Total revenues................................ 38,083 100.0% 37,785 99.2%
Costs and expenses:
Electric power and waste processing operating costs... 26,139 68.6% 25,501 67.0%
Selling, general and administrative................... 2,941 7.7% 2,401 6.3%
Interest expense -- net............................... 9,379 24.6% 9,714 25.5%
------- ------ ------- ----
-
Total costs and expenses...................... 38,459 101.0% 37,616 98.8%
Equity in net income of PERC.......................... 335 0.9% 324 0.9%
------- ------ ------- ----
-
Income (loss) from continuing operations before (41) (0.1)% 493 1.3%
minority interest, income taxes and extraordinary
item...............................................
Minority interest..................................... (1,287) (3.4)% (553) (1.5)%
Pre-acquisition earnings minority interest............ (1,367) (3.6)%
------- ------ ------- ----
-
Loss from continuing operations before income taxes (1,328) (3.5)% (1,427) (3.7)%
and extraordinary item.............................
Income taxes.......................................... (65) (0.2)%
------- ------ ------- ----
-
Loss from continuing operations before (1,393) (3.7)% (1,427) (3.7)%
extraordinary item.................................
Discontinued operations
Loss from discontinued operations.................. (86) (0.2)%
------- ------ ------- ----
-
Loss before extraordinary item........................ (1,479) (3.9)% (1,427) (3.7)%
Extraordinary item -- gain on early extinguishment 148 0.4%
of debt............................................
------- ------ ------- ----
-
Net loss.............................................. $(1,331) (3.5)% $(1,427) (3.7)%
======= ====== ======= =====
</TABLE>
Revenues
Electric power revenues decreased by $367,000, or 1.4%, for the year ended
December 31, 1995 compared to 1994. The decrease resulted from a decrease in
electric power generated by Maine Energy of 1.8% for 1995, which was partially
offset by a 0.2% increase in the contract rate per kilowatt hour in 1995.
Revenues from waste processing increased $596,000, or 7.7%, for the year
ended December 31, 1995 compared to the same period in 1994. The increase
resulted from an increase at Maine Energy in the average tipping fee of $4.97,
per ton or 16.1%, principally in spot market and commercial tonnage, and from a
shift in mix in waste received in 1995 to higher priced municipal and commercial
tonnage. The volume of MSW received in 1995 decreased by 4,660 tons, or 2.0%, in
1995. The average tipping fee increase resulted in an increase in revenues of
$1,117,000, and the decrease in volume resulted in a decrease of $145,000. This
amount was partially offset by the absence in 1995 of the recovery from the
State of Maine of waste import fees of $640,000 recorded in the year ended
December 31, 1994.
Other waste handling revenues for the year ended December 31, 1995
increased by $69,000, or 2.1%, as compared to the year ended December 31, 1994.
This increase is primarily a result of increases in KTI BioFuels tipping fee
revenues of $621,000 and woodchip sales of $154,000, both principally resulting
from
29
<PAGE> 32
increases in tonnage in 1995 compared to the prior year. These increases were
offset in part by the absence in 1995 of revenues from transportation services.
Transportation revenues in 1994, the final year of the Company's active
participation in the transportation business, were $510,000. Also included in
other waste handling revenues is rental income, principally of transportation
equipment, of $298,000 and $292,000 for the years ended December 31, 1995 and
1994, respectively.
Costs and Expenses
Electric power and waste handling operating costs increased by $638,000, or
2.5%, for the year ended December 31, 1995, compared to the corresponding period
in 1994. Principal causes of the increase in 1995 include costs resulting from
the settlement of claims of $389,000 relating to businesses sold in prior years,
and a provision of $521,000 to reduce the carrying value of certain
transportation equipment and additional equipment and maintenance expense of
$502,000 and depreciation expense of $413,000 both at Maine Energy. These
increases were partially offset by a $543,000 decrease in costs of the
transportation business which reduced operations in the fourth quarter of 1994
and a decrease of $375,000 in amortization as a result of deferred renegotiation
costs being fully amortized at Maine Energy.
Selling, general and administrative expenses increased by $540,000, or
22.4%, for the year ended December 31, 1995 as compared to the year ended
December 31, 1994. The increase principally resulted from $380,000 of payroll
and related costs principally attributed to the corporate staff and increases in
consulting expenses of $132,000.
Interest and Other Items
Interest expense -- net decreased by $336,000 during the year ended
December 31, 1995 as compared to the year ended December 31, 1994. The primary
decreases for the year were $272,000 resulting from decreases in obligations
related to transportation equipment and $152,000 resulting from the
extinguishment of the debt owed to CSI prior to the Merger. These decreases were
offset in part by a net increase of $116,000 at Maine Energy. The increase at
Maine Energy is the result of a $636,000 increase in interest on its variable
rate bond debt partially offset by a $242,000 increase in interest income, a
$160,000 decrease in subordinated note interest resulting from a repayment of
principal and a $118,000 reduction in letter of credit fees resulting from a
decrease in the principal amount of bonds outstanding.
Minority interest of $1,287,000 for the year ended December 31, 1995
resulted from the elimination of 49.62% of Maine Energy's net income, net of
amortization of the step up in basis of certain assets. In 1994, 90% of the net
income of Maine Energy was eliminated as "Pre-acquisition Earnings" for income
prior to September 16, 1994.
Equity in the net income of PERC increased by $11,000, or 3.4%, for the
year ended December 31, 1995. The increase resulted from an increase in PERC's
net income of $151,000. The Company's ownership interest in PERC is 7%.
PERC
Revenues from electric power for 1995 increased by $389,000 over 1994, as a
result of a 2.4% increase in contract rate per kilowatt for 1995. Waste
processing revenues for 1995 increased $597,000, or 5.6%, compared to 1994. This
resulted principally from a $4.37 per ton, or 10.6%, increase in PERC's average
tipping fee arising principally as the result of the pass-through of increases
in the interest paid on PERC's variable rate bonds. PERC's tipping fee revenues
are principally derived under long-term contracts, and increases or decreases in
revenues will principally be a result of inflation adjustments, increases or
decreases in pass-through facility costs and change in law pricing provisions.
Waste processing revenue in 1994 included a $306,000 retroactive adjustment for
1993 pass-through costs and the refund of $174,000 of fees for imported MSW paid
in prior years. No such adjustments occurred in 1995. Operating expenses for the
year ended December 31, 1995 increased $687,000, or 3.6%, as compared with the
year ended December 31, 1994, principally due to an increase of $978,000 in
performance credits payable to the Charter Municipalities partially offset by
reductions in disposal costs.
30
<PAGE> 33
Net interest expense for the year ended December 31, 1995 increased by
$148,000, or 4.0%, as compared with the year ended December 31, 1994. This
increase was primarily due to the increase in interest rates on the variable
rate bond debt offset by a reduction in outstanding principal on such bonds.
Interest expense on the variable rate bond debt is a pass through cost to
municipal customers. As a result, changes in interest expense do not have a
significant effect on net income.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company and receives cash flow from its
subsidiaries. Receipt of cash flow from its affiliate PERC is currently
restricted by covenants under loan agreements, distribution restrictions under
partnership agreements with its equity investors, and put-or-pay agreements with
municipalities. Maine Energy's cash flow is required to retire the remaining
outstanding balance of $14,575,985 as of December 31, 1996 before partners cash
distributions can begin. As a result, the following discussion is organized to
present liquidity and capital resources of the Company separate from Maine
Energy and PERC and liquidity and capital resources of each of Maine Energy and
PERC independently.
The Company
Through December 31, 1996, the Company has accumulated management fees
receivable from PERC in the amount of $2,279,000. These fees are payable by PERC
only out of cash flow after all current operating costs and debt service
payments of the project. PERC has significant restrictions on the amount of cash
flow that can be distributed to the Company. Also, management fees are only paid
annually and only if the partnership meets certain operating results set forth
in its loan documents.
The Company has pledged to ENI, the other general partner of PERC, a
portion of the Company's share of PERC management fees as a means of repaying a
$1,693,000 advance ENI made on the Company's behalf to PERC to cover the
Company's additional partnership capital requirement in 1989. While no assurance
can be given, based upon current conditions, management of the Company expects
annual management fees to be received on a current basis and accrued management
fees from prior years to be paid from PERC's distributable cash flow as the
project continues its recent trend of distribution of cash to its partners. The
future operating results of PERC will determine the exact term over which the
accrued management fees will be received by the Company. As of December 31, 1996
the Company owed ENI $1,353,479. During 1996, the Company received $691,442 in
current and accrued management fees on account of 1995 operations of which
$298,311 was paid to ENI.
The Company anticipates receipt of cash from PERC during 1997 on account of
1996 operations of $686,363 of which $389,381 will be paid to ENI.
Since February 28, 1991, the Company has been receiving operating and
management fees from Maine Energy on a current basis. During 1996 the Company
received $548,080 for operating and management fees from Maine Energy on account
of 1996 operations. The Company also received $857,534 for accrued management
fees through February 28, 1990.
On October 24, 1996 the Company executed a Note Purchase Agreement with
WEXFORD KTI LLC, a Delaware limited liability company ("WEXFORD"). Pursuant to
the Note Purchase Agreement, the Company issued an 8%, $5,000,000 convertible
subordinated note (the "Note") to WEXFORD. The Note is due on October 31, 2002
and is convertible into the Company's common stock at a conversion price of
$8.50 per share. The Notes are subordinated to bank debt. The Note Purchase
Agreement has customary and usual covenants, including limitations in incurring
additional indebtedness and on incurring liens on assets. The $8.50 per share
conversion price may be adjusted in certain circumstances under antidilution
provisions. Of the proceeds, $2,300,000 was used to fund certain designated
acquisition costs of TEII. The balance was used for transaction costs of
approximately $200,000 and working capital.
The Company has financed its operations and capital expenditures primarily
from cash flow from its subsidiaries which are not contractually restricted from
making distributions, collateralized equipment
31
<PAGE> 34
financing, unsecured subordinated debt, borrowings from CSI prior to the Merger
and proceeds from the sale of the Company's common stock.
The Company and its subsidiaries, other than Maine Energy and PERC, at
December 31, 1996 had indebtedness maturing in 1997 of $4,124,000. During 1996,
the Company, other than Maine Energy and PERC, incurred additional debt of
approximately $23,664,000, primarily as a result of the acquisition of TEII and
the issuance of 8%, convertible subordinated debt and retired approximately
$7,400,000 of debt.
As of December 31, 1996, the Company had cash on hand without regard to
Maine Energy and PERC of approximately $3,579,000 and $490,000 available in
lines of credit from a bank. Management of the Company believes that cash flow
from its subsidiaries and affiliates and unused lines of credit will meet its
current needs for liquidity. Moreover, management believes that the Company has
the ability to access additional borrowing facilities if needed, although no
assurance can be given in this regard. There are no pending agreements or
commitments relating to either new debt or equity financing by the Company.
Maine Energy
During the last three years Maine Energy has financed its operations and
capital expenditures from cash flows from operations. Cash provided by
operations was $89,259,000 in 1996, as compared to $8,987,000 in 1995. During
1996 Maine Energy sold its generating capacity to CL One for a period through
May 31, 2007. In exchange CL One has agreed to make a series of quarterly
payments to Maine Energy including an initial payment of $85 million. Maine
Energy capital expenditures were $2,939,000 and $2,121,000 for additions to
property, plant and equipment during 1996 and 1995, respectively.
During May 1996, Maine Energy retired the entire outstanding principal
balance of $64.5 million of its tax exempt variable rate revenue bonds and $29.5
million of its subordinated loan accrued interest and principal from the
proceeds from the sale of capacity.
As of December 31, 1996 and December 31, 1995, in addition to Maine
Energy's operating cash of $1,648,000 and $5,507,000, respectively, Maine
Energy, as required under the terms of the credit agreement with the issuer of
its letter of credit, has on account an additional $7,433,000 and $13,363,000,
respectively, of reserves to be used for capital improvements, debt service,
operating shortfalls and working capital requirements.
Management of the Company believes Maine Energy has adequate cash resources
available to fund its future operations and anticipated capital expenditures.
Capital expenditures for Maine Energy for the year ending December 31, 1997 are
expected to be approximately $2,581,000, which has principally been set aside in
the above mentioned reserves accounts.
PERC
PERC has financed its recent operations and capital expenditures primarily
by cash flow from operations. Cash provided by operations was $8,493,000 in 1996
as compared to $10,328,000 in 1995. PERC's capital expenditures were $1,192,000
and $1,172,000 for additions to property, plant and equipment during 1996 and
1995, respectively.
At December 31, 1996 and December 31, 1995, PERC had outstanding
tax-exempt, variable rate revenue bonds backed by bank letters of credit in the
aggregate amounts of $53,500,000 and $59,400,000, respectively. The variable
interest rate on the Orrington Bonds at December 31, 1996 and 1995 was 4.25% and
6.125%, respectively. The bonds are payable pursuant to a schedule through May
2003. During 1996 and 1995 PERC made principal payments to bondholders in the
amounts of $5,900,000 and $4,900,000, respectively.
As of December 31, 1996 and 1995, in addition to PERC's operating cash of
$5,440,000 and $6,465,000, respectively, PERC, as required under the terms of
the credit agreement with its letter of credit banks and the trust indenture
governing the Orrington Bonds, had on account an additional $8,482,000 and
$8,364,000, respectively, of cash reserves to be used for capital improvements,
debt service, operating shortfalls and working capital requirements.
32
<PAGE> 35
Company management believes PERC has adequate cash resources available to
fund its current project operations and currently anticipated capital
expenditures. PERC plans capital expenditures for the year ending December 31,
1997 of approximately $782,000. PERC intends to finance the requirements through
cash flow from operations.
TAX LOSS CARRYFORWARDS
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $47,587,000 for income tax purposes that expire in years 2002
through 2010 and are subject to the limitations described below. In addition,
the Company has general business credits carryforwards of approximately $530,000
that expire in the years 1999 through 2006 and alternative minimum tax credits
of approximately $687,000 which do not expire. For financial reporting purposes,
such amounts are treated as deferred tax assets and a valuation allowance has
been recognized to offset these deferred tax assets.
These deferred tax assets can be utilized against future net income of the
Company. When utilized by the Company net income will not be reduced by income
tax provisions.
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
potential utilization of net operating loss and tax credit carryforwards in
periods following a corporate "ownership change." In general, for federal income
tax purposes, an ownership change is deemed to occur if the percentage of stock
of a loss corporation owned (actually, constructively and, in some cases,
deemed) by one or more "5% shareholders" has increased by more than fifty (50)
percentage points over the lowest percentage of such stock owned during a
three-year testing period.
During 1994, such a change in ownership occurred at the Company. As a
result of the change, the Company's ability to utilize its net operating loss
carryforwards and general business credits will be limited to approximately
$1,100,000 of taxable income, or approximately $375,000 of equivalent credit per
year.
As a result of the Company's acquisition of TEII, the Company's ability to
utilize TEII's net operating loss carryforwards will be limited to approximately
$874,000 per year. These limitations may be increased if the Company recognizes
a gain on the disposition of the respective assets which had a fair market value
greater than its tax basis on the date of the ownership change.
ENVIRONMENTAL CONTINGENCIES
While increasing environmental regulation often presents new business
opportunities to the Company and PERC, it likewise often results in increased
operating costs as the Company and PERC strive to conduct their operations in
compliance with applicable laws and regulations, including environmental rules
and regulations, and have as their goal 100% compliance with such laws and
regulations. This effort requires programs to promote compliance, such as
training employees and customers, purchasing health and safety equipment, and in
some cases hiring outside consultants and lawyers. Even with these programs,
management of the Company believes that in the ordinary course of doing
business, companies in the environmental services and waste disposal industry
are faced with governmental enforcement proceedings resulting in fines or other
sanctions and will likely be required to pay civil penalties or to expend funds
for remedial work on waste management facilities. There were no pending
governmental environmental enforcement proceedings where the Company or PERC
believe potential monetary sanctions will exceed $100,000. The possibility
always exists that substantial expenditures could result from governmental
proceedings, which would have a negative impact on earnings for a particular
reporting period. More importantly, federal, state and local regulators have the
power to suspend or revoke permits or licenses needed for operation of the
plants, equipment, and vehicles of the Company PERC or any other operating
subsidiary of the Company based on the applicable company's compliance record,
and customers may decide not to use a particular disposal facility or do
business with a company because of concerns about its compliance record.
Suspension or revocation of permits or licenses would have a negative impact on
the Company's business and operations and could have a material adverse impact
on the Company's financial results.
33
<PAGE> 36
INFLATION
The effect of inflation on operating costs has been minimal in recent
years. Most of the Company's operating expenses are inflation sensitive, with
increases in inflation generally resulting in increased costs of operation. The
effect of inflation-driven cost increases on each of the Company's project's
overall operating costs is not expected to be greater for such project than for
its respective competitors. In addition, each of Maine Energy and PERC can
contractually increase its waste processing fees to municipal customers annually
based on inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and those of its
unconsolidated equity basis investees, Penobscot Energy Recovery Company,
together with the reports of independent auditors thereon and related schedules
appear on pages F-27 to F-37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the Company's definitive proxy statement for
the 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission on or before April 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive proxy statement for
the 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission on or before April 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's definitive proxy statement for
the 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission on or before April 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive proxy statement for
the 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission on or before April 30, 1997.
34
<PAGE> 37
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following financial statements are filed as a part of this report:
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF KTI, INC.:
Report of Independent Auditors..................................................
Consolidated Balance Sheets at December 31, 1996 and 1995.......................
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996.......................................................
Consolidated Statements of Stockholders Equity (Deficit) for each of the three
years in the period ended December 31, 1996...................................
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996.......................................................
Notes to Consolidated Financial Statements......................................
FINANCIAL STATEMENTS OF PENOBSCOT ENERGY RECOVERY COMPANY:
Report of Independent Auditors..................................................
Balance Sheets at December 31, 1996 and 1995....................................
Statements of Income for each of the three years in the period ended
December 31, 1996.............................................................
Statements of Changes in Partners' Capital for each of the three years in the
period ended December 31, 1996................................................
Statements of Cash Flows for each of the three years in the period ended
December 31, 1996.............................................................
Notes to Financial Statements...................................................
</TABLE>
(b) The following exhibits which are furnished with this report or
incorporated herein by reference, are filed as part of this report.
EXHIBIT INDEX
<TABLE>
<C> <S>
*2. Agreement and Plan of Merger (filed as Annex I to the Joint Proxy Statement
Prospectus part of the Registrant's Registration Statement on Form S-4 (No.
33-85234) effective January 6, 1995).
(1)3.1 Restated Certificate of Incorporation of Registrant filed with the Secretary of
State of the State of New Jersey on July 12, 1994, as amended through March 13,
1995.
(12)3.2 By-Laws of Registrant, as amended.
*4.1 Specimen Form of Common Stock Certificate.
(3)4.2 Form of Warrant.
(3)4.3 Loan Agreement dated as of June 1, 1985 between City of Biddeford, Maine and
Maine Energy Recovery Company, as amended.
(3)4.4 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990
in the original principal amount of $14,252,338.39 payable to CNA Realty Corp.
(3)4.5 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990
in the original principal amount of $9,495,327.45 payable to Energy National,
Inc.
(3)4.6 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990
in the original principal amount of $4,737,517.54 payable to Project Capital
1985.
</TABLE>
35
<PAGE> 38
<TABLE>
<C> <S>
(3)4.7 Loan Agreement dated as of April 1, 1986 between Town of Orrington, Maine and
Penobscot Energy Recovery Company, as amended.
(3)4.8 Credit Agreement dated as of May 15, 1986 by and among Penobscot Energy Recovery
Company, PERC Management Company and Energy National, Inc. and The Banking
Institutions Signatory Hereto and Bankers Trust Company, as Agent, as amended.
*10.1 Second Amended and Restated Agreement and Certificate of Limited Partnership of
Penobscot Energy Recovery Company dated May 15, 1986, as amended.
*10.2 Agreement between Penobscot Energy Recovery Company and Bangor Hydro-Electric
Company dated June 21, 1984, as amended.
*10.3 Form of Penobscot Energy Recovery Company Waste Disposal Agreement (City of
Bangor) dated April 1, 1991 and Schedule of Substantially Identical Waste
Disposal Agreements.
*10.4 Operation and Maintenance Agreement Between Esoco Orrington, Inc. and Penobscot
Energy Recovery Company dated June 30, 1989.
*10.5 Residue Disposal Agreement between Penobscot Energy Recovery Company and Sawyer
Environmental Recovery Facilities, Inc. dated September 19, 1985, as amended.
*10.6 Amended and Restated Bypass Agreement between Sawyer Environmental Recovery
Facilities, Inc. and Penobscot Energy Recovery Company dated April 4, 1994.
*10.7 Second Amended and Restated Agreement and Certificate of Limited Partnership of
Maine Energy Recovery Company dated June 30, 1986, as amended.
*10.8 Power Purchase Agreement Between Maine Energy Recovery Company and Central Maine
Power Company dated January 12, 1984, as amended.
*10.9 Operation and Maintenance Agreement Between Maine Energy Recovery Company and KTI
Operations, Inc. dated December 1, 1990.
*10.10 Host Municipalities' Waste Handling Agreement among Biddeford-Saco Solid Waste
Committee, City of Biddeford, City of Saco and Maine Energy Recovery Company
dated June 7, 1991.
*10.11 Form of Maine Energy Recovery Company Waste Handling Agreement (Town of North
Berwick) dated June 7, 1991 and Schedule of Substantially Identical Waste
Disposal Agreements.
*10.12 Material Disposal and Transportation Agreement among Consolidated Waste Service,
Inc., Waste Management of New Hampshire and Maine Energy Recovery Company dated
October 21, 1991.
*10.13 Front-End Process Residue Agreement between Arthur Schofield, Inc. and Maine
Energy Recovery Company dated May 27, 1994.
*10.14 Second Amended and Restated Agreement and Certificate of Limited Partnership of
FTI Limited Partnership dated December 11, 1986, as amended.
*10.15 Land Lease dated November 25, 1985 between City of Lewiston and Fuel
Technologies, Inc. as amended.
*10.16 KTI, Inc. 1994 Long-Term Incentive Award Plan.
*10.17 Employment Agreement between KTI, Inc. and Nicholas Menonna, Jr. dated May 1,
1994.
*10.18 Employment Agreement between KTI, Inc. and Martin J. Sergi dated May 1, 1994.
*10.19 Registration Rights Agreement between Davstar Managed Investments Corp. and KTI
Environmental Group, Inc. dated March 17, 1993.
*10.20 Registration Rights Agreement among KTI Environmental Group, Inc., Martin J.
Sergi and Midlantic National Bank dated May 10, 1994.
*10.21 Registration Rights Agreement among KTI Environmental Group, Inc., Nicholas
Menonna, Jr. and Midlantic National Bank dated May 10, 1994.
</TABLE>
36
<PAGE> 39
<TABLE>
<C> <S>
(2)10.22 KTI, Inc. Directors Stock Option Plan.
(3)10.23 Form of Registration Rights between KTI, Inc. and Mona Kalimian, Mark D.
Kalimian, and Linda Berley dated July 27, 1995 and Schedule of Substantially
Identical Registration Rights Agreements.
(4)10.24 Letter Agreement dated as of November 10, 1995 among Central Maine Power, Maine
Energy Recovery Company and Citizens Lehman Power.
(4)10.25 Global Agreement dated December 28, 1995 between Environmental Capital Holdings,
Inc. and KTI, Inc.
(4)10.26 Agreement of Limited Partnership of American Ash Recycling of Tennessee, Ltd.
dated December 28, 1995.
(4)10.27 Agreement of Limited Partnership of American Ash Recycling of New England, Ltd.
dated December 28, 1995.
(5)10.28 First Amendment to Agreement of Limited Partnership of American Ash Recycling of
Tennessee, Ltd., dated March 16, 1996.
(6)10.29 Agreement dated as of July 19, 1996 by and among KTI, Inc., DataFocus
Incorporated and CIBER, Inc.
(6)10.30 Agreement dated July 19, 1996 by and among KTI, Inc., Thomas Bosanko and
Patrick B. Higbie.
(7)10.31 Operating Agreement of Specialties Environmental Management Company, LLC dated as
of October 18, 1996.
(8)10.32 Amendment to Employment Agreements between KTI, Inc. and Nicholas Menonna, Jr.
and Martin J. Sergi.
(9)10.33 Note Purchase Agreement dated as of October 23, 1996 between KTI, Inc. and
WEXFORD KTI LLC.
(9)10.34 Registration Rights Agreement dated as of October 23, 1996 between KTI, Inc. and
WEXFORD KTI LLC.
(9)10.35 Escrow Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI
LLC and Key Trust of Ohio, N.A.
(10)10.36 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc.,
Continental Casualty Company, CNA Realty Corp., CLE, Inc. and Timber Energy
Investment, Inc. dated as of November 22, 1996.
(11)10.37 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc. and Diane
Goodman and Seth Lehner dated as of November 25, 1996.
(12)10.38 Loan and Security Agreement between KTI, Inc., KTI Environmental Group, Inc.,
Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations, Inc. and
PERC, Inc., Borrowers, and Key Bank of New York, Lender, dated October 29, 1996.
(12)10.39 Pledge Agreement between each Borrower and Key Bank of New York dated October 29,
1996 (6 Agreements).
(12)10.40 Key Trust Company PRISM Prototype Retirement Plan and Trust adopted as of
December 11, 1996.
(12)10.41 Option and Consulting Agreement by and among KTI, Inc. and L.T. Lawrence & Co.,
Inc. dated as of June 1, 1996.
(12)10.42 First Amendment to Option and Consulting Agreement by and among KTI, Inc. and
L.T. Lawrence & Co., Inc. dated as of December 18, 1996.
(12)10.43 Warrant to purchase 200,000 shares of KTI, Inc. common stock at $7.50 per share
issued to L.T. Lawrence & Co., Inc. dated as of December 18, 1996.
</TABLE>
37
<PAGE> 40
<TABLE>
<C> <S>
(12)10.44 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share
issued to Thomas E. Schulze dated as of January 2, 1997.
(12)10.45 Warrant to purchase 3,000 shares of KTI, Inc. common stock at $8.50 per share
issued to John E. Turner dated as of January 2, 1997.
(12)10.46 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share
issued to Robert E. Wetzel dated as of January 2, 1997.
(12)10.47 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $6.00 per share
issued to The Baldwin & Clarke Companies dated as of January 2, 1997.
(12)10.48 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $7.00 per share
issued to The Baldwin & Clarke Companies dated as of January 2, 1997.
(12)10.49 Third Amendment to Second Amended and Restated Certificate and Agreement of
Limited Partnership of FTI Limited Partnership dated as of January 23, 1997.
(12)10.50 Warrant to purchase 2,000 shares of KTI, Inc. common stock at $8.50 per share
issued to Maine Woodchips Associates dated as of January 23, 1997.
(12)10.51 Registration Rights Agreement by and between KTI, Inc. and Maine Woodchips
Associates dated as of January 23, 1997.
(12)21 List of all subsidiaries of Registrant.
(12)23.1 Consent of Ernst & Young LLP
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No. 33-85234)
effective January 6, 1995.
(1) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated March 13, 1995.
(2) Filed as an Exhibit to Registrant's Proxy Statement dated June 5, 1995.
(3) Filed with the Registration Statement on Form S-1 dated December 6, 1995.
(4) Filed with the Amendment No. 1 to the Registration Statement on Form S-1 dated February
2, 1996.
(5) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated April 15, 1996.
(6) Filed with Form 8-K dated July, 1996.
(7) Filed with Form 8-K dated October 18, 1996.
(8) Filed with Form 8-K dated October 23, 1996.
(9) Filed with Form 8-K dated October 24, 1996.
(10) Filed with Form 8-K dated November 22, 1996.
(11) Filed with Form 8-K dated November 25, 1996.
(12) Filed herewith.
</TABLE>
REPORTS ON FORM 8-K FILED DURING THE FOURTH QUARTER OF 1996
Four Reports on Form 8-K were filed in the fourth quarter of 1996. No
financial statements were included with such Forms 8-K. The following is a list
of the Forms 8-K filed and the dates thereof.
(i) A Form 8-K was filed on October 28, 1996 reporting that Nicholas
Menonna, Jr., Chairman of the Board of Directors and Chief Executive
Officer and Martin J. Sergi, President, Chief Operating Officer and Chief
Financial Officer propose to modify certain provisions of their employment
contract with respect to their 1996 bonuses, resulting in a significant
reduction in their expected compensation.
38
<PAGE> 41
(ii) A Form 8-K was filed on October 31, 1996 reporting the execution
of a Note Purchase Agreement with Wexford KTI LLC, a Delaware limited
liability company. Pursuant to the Note Purchase Agreement, the Company
issued an 8%, $5,000,000 convertible subordinated note to Wexford KTI LLC.
(iii) A Form 8-K was filed on December 3, 1996 to report the execution
of an agreement to purchase certain investments in Timber Energy
Investments, Inc.
(iv) A Form 8-K was filed on December, 1996 to report the execution of
an agreement to purchase all of the common stock of Manner, Inc., a
Maryland corporation.
39
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KTI, INC. (Registrant)
<TABLE>
<S> <C>
By: /s/ NICHOLAS MENONNA, JR. Date: March 28, 1997
--------------------------------
Nicholas Menonna, Jr.
Chairman of the Board,
and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<S> <C> <C>
/s/ NICHOLAS MENONNA, JR. Chairman of the Board, Chief March 28, 1997
- ------------------------------------------ Executive Officer and Director
Nicholas Menonna, Jr. (Principal Executive Officer)
/s/ MARTIN J. SERGI Vice Chairman, President, Chief March 28, 1997
- ------------------------------------------ Operating Officer, Chief
Martin J. Sergi Financial Officer and Director
(Principal Financial and
Accounting Officer)
- ------------------------------------------ Director March 28, 1997
Robert M. Davies
/s/ JEFFREY R. POWER Director March 28, 1997
- ------------------------------------------
Jeffrey R. Power
/s/ ROSS PIRASTEH Director March 28, 1997
- ------------------------------------------
Ross Pirasteh
/s/ DIBO ATTAR Director March 28, 1997
- ------------------------------------------
Dibo Attar
Director March 28, 1997
- ------------------------------------------
Jack Polak
</TABLE>
40
<PAGE> 43
KTI, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The following consolidated financial statements and schedules of KTI, Inc. are
included in Item 3:
CONSOLIDATED FINANCIAL STATEMENTS OF KTI, INC.:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995........................... F-3
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996........................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for each
of the three years in the period ended December 31, 1996.......................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996........................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
FINANCIAL STATEMENTS OF PENOBSCOT ENERGY RECOVERY COMPANY:
Report of Independent Auditors...................................................... F-25
Balance Sheets at December 31, 1996 and 1995........................................ F-26
Statements of Income for each of the three years in the period ended December 31,
1996.............................................................................. F-27
Statements of Changes in Partners' Capital for each of the three years in the period
ended December 31, 1996........................................................... F-28
Statements of Cash Flows for each of the three years in the period ended December
31, 1996.......................................................................... F-29
Notes to Financial Statements....................................................... F-30
The following consolidated financial statement schedule of KTI, Inc. is included in
Item 14(d):
II Valuation and Qualifying Accounts.......................................... F-34
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
F-1
<PAGE> 44
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
KTI, Inc.
We have audited the accompanying consolidated balance sheets of KTI, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KTI, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Hackensack, New Jersey
February 28, 1997
F-2
<PAGE> 45
KTI, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..................................... $ 5,227,381 $ 6,454,558
Restricted funds -- current portion........................... 5,163,965 7,042,404
Accounts receivable, net of allowances of $291,939 and
$480,662................................................... 4,080,503 8,983,699
Management fees receivable -- current portion................. 566,634 556,578
Consumables and spare parts................................... 2,100,311 1,258,397
Notes receivable -- officers/shareholders and
affiliates -- current...................................... 57,629 96,225
Other receivables............................................. 398,320 295,723
Other current assets.......................................... 480,034 742,638
------------ ------------
Total current assets.................................. 18,074,777 25,430,222
Restricted funds................................................ 2,903,761 6,502,227
Management fees receivable -- affiliates........................ 2,175,203 2,376,696
Notes receivable -- officers/shareholders and affiliates........ 212,835 224,438
Other receivables............................................... 711,783 495,901
Investment in PERC.............................................. 3,792,429 3,594,638
Deferred costs, net of accumulated amortization of $208,096 and
$524,236...................................................... 1,020,120 3,818,732
Goodwill and other intangibles, net of accumulated amortization
of $297,941 and $539,483...................................... 2,179,466 3,613,621
Deferred project development costs.............................. 909,998
Other assets.................................................... 238,893 486,778
Property, equipment and leasehold improvements, net of
accumulated depreciation of $12,671,949 and $10,108,341....... 90,855,366 86,363,180
------------ ------------
Total assets.......................................... $123,074,631 $132,906,433
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.............................................. $ 2,371,430 $ 2,512,109
Accrued expenses.............................................. 1,829,959 5,322,013
Current portion of long-term debt............................. 4,123,840 7,977,899
Income taxes payable.......................................... 200,000 290,000
Other current liabilities..................................... 465,585 614,837
------------ ------------
Total current liabilities............................. 8,990,814 16,716,858
Other liabilities............................................... 1,308,199 70,368
Long-term debt, less current portion............................ 34,949,148 107,398,263
Minority interest............................................... 10,871,852 1,840,377
Deferred revenue................................................ 41,250,000
Commitments and contingencies
Stockholders' equity
Preferred stock; 10,000,000 shares authorized,
no shares issued or outstanding
Common stock, no par value (stated value $.01 per share);
authorized 13,333,333; issued and outstanding 6,836,766
in 1996 and 5,946,973 in 1995.............................. 68,368 59,470
Additional paid-in capital...................................... 38,575,892 33,427,091
Accumulated (deficit)........................................... (12,939,642) (26,605,994)
------------ ------------
Total stockholders' equity...................................... 25,704,618 6,880,567
------------ ------------
Total liabilities and stockholders' equity............ $123,074,631 $132,906,433
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 46
KTI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Electric power revenues............................... $20,820,860 $26,470,093 $26,836,890
Sale of capacity, net................................. 33,203,252
Waste processing revenues............................. 11,024,265 8,313,434 7,718,172
Other waste handling revenues......................... 3,459,546 3,298,984 3,229,640
----------- ----------- -----------
Total revenues................................ 68,507,923 38,082,511 37,784,702
Costs and expenses:
Electric power and waste processing operating costs... 26,453,290 26,139,179 25,500,606
Selling, general and administrative:.................. 2,389,008 2,940,941 2,401,059
Interest -- net....................................... 4,463,873 9,378,605 9,714,599
----------- ----------- -----------
Total costs and expenses...................... 33,306,171 38,458,725 37,616,264
Equity in net income of PERC............................ 332,655 334,844 324,283
Loss on sale of investments............................. (296,459)
----------- ----------- -----------
Income (loss) from continuing operations before minority
interest, income taxes and extraordinary item......... 35,237,948 (41,370) 492,721
Minority interest....................................... 18,609,797 1,287,005 553,372
Pre-acquisition earnings minority interest -- Maine
Energy................................................ 1,366,968
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes and extraordinary item.......................... 16,628,151 (1,328,375) (1,427,619)
Income taxes............................................ -- 65,000 --
----------- ----------- -----------
Income (loss) from continuing operations before
extraordinary item.................................... 16,628,151 (1,393,375) (1,427,619)
Discontinued operations Loss from discontinued
operations (including a loss on disposal of $549,788
and income taxes of $200,000 in 1996)................. (714,422) (85,897) --
----------- ----------- -----------
Income before extraordinary item........................ 15,913,729 (1,479,272) (1,427,619)
Extraordinary item -- gain (loss) on early
extinguishment of debt, net of minority interest... (2,247,377) 147,778
----------- ----------- -----------
Net income (loss)....................................... $13,666,352 $(1,331,494) $(1,427,619)
=========== =========== ===========
Earnings (loss) per common share and common share
equivalent:
Primary:
Income (loss) from continuing operations.............. $ 2.61 $ (0.26) $ (0.42)
Loss from discontinued operations..................... (0.11) (0.02) --
----------- ----------- -----------
Income (loss) before extraordinary item............... 2.50 (0.28) (0.42)
Extraordinary item.................................... (0.35) 0.03 --
----------- ----------- -----------
Net income (loss)..................................... $ 2.15 $ (0.25) $ (0.42)
=========== =========== ===========
Weighted average number of shares used in
computation........................................ 6,359,593 5,263,797 3,409,081
=========== =========== ===========
Fully-diluted:
Income (loss) from continuing operations.............. $ 2.46 $ (0.26) (0.42)
Loss from discontinued operations..................... (0.10) (0.02) --
----------- ----------- -----------
Income (loss) before extraordinary item............... 2.36 (0.28) (0.42)
Extraordinary item.................................... (0.32) 0.03 --
----------- ----------- -----------
Net income (loss)..................................... $ 2.03 $ (0.25) $ (0.42)
=========== =========== ===========
Weighted average number of shares used in
computation........................................ 6,925,976 5,263,797 3,409,081
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 47
KTI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........ 3,463,110 $34,631 $21,459,154 $(23,398,705) $(1,904,920)
Net loss.......................... (1,427,619) (1,427,619)
Repurchase and cancellation of
common stock................... (86,493) (865) (129,083) (448,176) (578,124)
--------- ------- ----------- ------------ -----------
Balance at December 31,1994......... 3,376,617 33,766 21,330,071 (25,274,500) (3,910,663)
Net loss.......................... (1,331,494) (1,331,494)
Issuance of common stock from
exercise of stock options...... 73,980 740 256,077 256,817
Issuance of common stock in
connection with business
combination.................... 1,801,044 18,010 8,983,708 9,001,718
Issuance of common stock.......... 695,332 6,954 2,857,235 2,864,189
--------- ------- ----------- ------------ -----------
Balance at December 31, 1995........ 5,946,973 59,470 33,427,091 (26,605,994) 6,880,567
Net income........................ 13,666,352 13,666,352
Issuance of common stock under
exercise of stock options...... 55,346 553 280,107 280,660
Issuance of common stock from
exercise of warrants........... 41,183 412 225,114 225,526
Issuance of common stock upon
conversion of debt............. 725,015 7,250 4,044,697 4,051,947
Issuance of stock purchase
warrants....................... 143,738 143,738
Issuance of common stock in
connection with business
combination.................... 68,249 683 455,145 455,828
--------- ------- ----------- ------------ -----------
Balance at December 31, 1996........ 6,836,766 $68,368 $38,575,892 $(12,939,642) $25,704,618
========= ======= =========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 48
KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................................ $ 13,666,352 $(1,331,494) $ (1,427,619)
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Loss on disposal of discontinued operations.................................... 549,788
Extraordinary loss (gain)...................................................... 2,247,377 (147,778)
Depreciation and amortization.................................................. 6,336,252 7,505,364 2,842,655
Minority interest.............................................................. 18,609,797 1,287,005 553,372
Deferred revenue............................................................... 41,250,000 --
Provision for losses on accounts receivable.................................... 323,750 51,335
Provision for asset valuation.................................................. 23,892 520,500
Interest accrued and capitalized on debt....................................... 1,451,005 2,237,816 298,034
Non-cash employee compensation from stock purchase............................. -- 51,962
Non-cash interest expense from issuance of warrants............................ 143,738
Equity in net income of PERC, net of distributions............................. (197,791) (258,467) (324,283)
Loss on sale of assets......................................................... 93,612 83,744 47,000
Loss on sale of debt securities................................................ 296,459
Changes in operating assets and liabilities
Increasing (decreasing) cash:
Accounts receivable.......................................................... 4,702,570 (2,342,539) 1,132,173
Management fees receivable................................................... 191,437 98,930 551,758
Consumables and spare parts.................................................. (841,914) (23,376) (35,440)
Other receivables............................................................ 201,451 513,103 404,192
Other assets................................................................. 814,277 (92,788) 532,722
Notes receivable............................................................. (459,930) 90,000
Accounts payable............................................................. (3,282,978) (318,483) 886,311
Income taxes................................................................. (90,000)
Other liabilities............................................................ (96,130) 157,563 (1,060,164)
------------ ----------- -----------
Net cash provided by operating activities........................................ 85,609,264 8,354,812 4,452,046
INVESTING ACTIVITIES
Additions to property, equipment and leasehold improvements...................... (3,412,428) (2,916,071) (475,888)
Proceeds from sale of assets..................................................... 469,300 468,426 2,892,798
Proceeds from sale of discontinued operation..................................... 5,005,000 --
Deferred project development costs............................................... (909,998) --
Net change in restricted funds:
Cash equivalents............................................................... (2,858) 5,143,775 4,383,808
Debt securities available-for-sale............................................. 5,579,480 (5,875,939)
Costs incurred in connection with merger......................................... -- (449,761) (787,342)
Cash acquired in merger with Convergent Solutions, Inc........................... -- 2,838,188
Purchase of additional partnership interest in Maine Energy...................... (792,340) -- (1,456,059)
Cash acquired in purchase of additional partnership interest in Maine Energy..... -- 1,723,819
Acquisition of businesses, net of cash acquired.................................. (2,956,828)
Notes receivable -- officers/shareholders and affiliates......................... (9,801) 28,053 145,456
------------ ----------- -----------
Net cash provided by (used in) investing activities.............................. 2,969,527 (763,329) 6,426,592
FINANCING ACTIVITIES
Deferred financing costs......................................................... (1,188,463) (2,091,488) (66,482)
Proceeds from issuance of debt................................................... 8,785,955 400,034 4,974,155
Proceeds from sale of common stock............................................... 506,201 2,973,065 --
Principal payments on debt and costs related to early extinguishment............. (97,909,661) (9,804,750) (8,830,096)
------------ ----------- -----------
Net cash used in financing activities............................................ (89,805,968) (8,523,139) (3,922,423)
------------ ----------- -----------
Decrease in cash and cash equivalents............................................ (1,227,177) (931,656) 6,956,215
Cash and cash equivalents at beginning of period................................. 6,454,558 7,386,214 429,999
------------ ----------- -----------
Cash and cash equivalents at end of period....................................... $ 5,227,381 $ 6,454,558 $ 7,386,214
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.................................................................... $ 6,144,505 $ 6,619,869 $ 1,880,890
============ =========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES
Fixed assets disposed of under capital leases.................................... $ 1,427,282
Fixed assets received from AJR in settlement of receivable....................... 707,333
Fixed assets purchased under capital lease....................................... 569,469
Debt issued in connection with:
Purchase of additional partnership interest in Maine Energy.................... $ 164,000 1,572,345
Retirement of common stock for notes receivable -- officer/shareholder........... 578,124
Common Stock issued in connection with the merger with Convergent Solutions,
Inc............................................................................ $ 9,001,718
Liquidation of dent payable to Convergent Solutions, Inc......................... (4,666,127)
Conversion of debt to equity..................................................... 4,051,947
Common Stock issued in connection with the purchase of Manner, Inc............... 455,813
</TABLE>
See accompanying notes.
F-6
<PAGE> 49
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
KTI, Inc. ("KTI") and subsidiaries (collectively, the "Company"), are
engaged in the development of an integrated waste handling business for
municipal solid and specialty wastes through the development, ownership and
operation of facilities which provide recycling, processing and disposal
services to communities, utilities and commercial waste generators. The
Company's operations are located in the eastern United States. These operations
include its wholly-owned consolidated subsidiaries, its majority-owned
consolidated subsidiaries, including Maine Energy Recovery Company ("Maine
Energy"), American Ash Recycling of Tennessee, Ltd. ("AART"), American Ash
Recycling of New England, Ltd. ("AARNE") and its unconsolidated equity basis
investee, Penobscot Energy Recovery Company ("PERC").
Maine Energy and PERC earn a significant portion of their revenue from
municipalities and the local electric utility in their respective geographic
locations within Maine. In addition, the Company's wholly-owned subsidiary,
Timber Energy Investments, Inc. ("TEII"), earns a substantial portion of its
revenue from an electric utility in the State of Florida and AART earns
substantially all of its revenues as a result of a contract with the City of
Nashville.
Maine Energy, PERC and TEII are subject to the provisions of various
federal and state energy laws and regulations, including the Public Utility
Regulatory Policy Act of 1978, as amended. In addition, federal, state and local
environmental laws establish standards governing certain aspects of the
Company's operations. The Company believes it has all permits, licenses and
approvals necessary to operate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of KTI and its
wholly-owned and majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation. As described in Note
7, on September 16, 1994 the Company acquired certain limited partnership
interests in Maine Energy aggregating 40.38%. Prior to this transaction, the
Company was a 10% owner and the sole general partner of Maine Energy. As a
result of the Company's aggregate ownership interest at that date, Maine
Energy's financial statements have been included in the Company's consolidated
statement of operations for the year ended December 31, 1994. In accordance with
Accounting Research Bulletin No. 51, the consolidated statement of operations
includes Maine Energy's operations for the year ended December 31, 1994 as
though the acquisition had occurred at the beginning of the year and includes
adjustments to eliminate minority interest and the pre-acquisition earnings of
Maine Energy attributable to the partnership interests acquired on September 16,
1994.
The Company's investment in PERC is accounted for under the equity method
based on the Company's significant influence over its financial and operating
policies (see Note 8).
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries is recorded as
minority interest. The Company accounts for 100 percent of the losses of those
consolidated subsidiaries in which the minority owners' are limited partners and
their cumulative share of losses has exceeded their capital basis in the
subsidiary. The Company has accounted for losses totaling approximately
$2,471,000 and $2,358,000 attributable to such minority ownership at December
31, 1996 and 1995, respectively. The Company will account for 100 percent of any
income of such less than 100 percent-owned subsidiaries until this balance is
restored.
F-7
<PAGE> 50
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90
days or less when purchased to be cash equivalents.
Restricted Funds
Restricted funds consist of cash, cash equivalents held in trust and, at
December 31, 1995, investments in tax-exempt debt securities ($5,875,939), all
of which are available, under certain circumstances, for current operating
expenses, debt service, capital improvements and repairs and maintenance in
accordance with certain contractual obligations and amounts deposited in a bank
in connection with one of the Company's debt obligations. Restricted funds
available for current operating and debt service purposes are classified as
current assets.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Available-for-sale securities are carried at fair value, with the
unrealized gains and losses reported as a separate component of stockholders'
equity (deficit). The amortized cost of debt securities classified as
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. All costs incurred for additions and
improvements, including interest during construction, are capitalized. The
Company capitalized net interest costs of $110,000 in 1996. Capitalizable
interest costs were not material in 1995 and 1994. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives ranging from three to forty five years. Assets under capital leases are
amortized using the straight-line method over the estimated useful lives ranging
from five to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated
useful life of the improvement.
Goodwill and Intangibles
Goodwill represents costs in excess of net assets of businesses acquired in
purchase transactions. Goodwill is being amortized on a straight-line basis
principally over periods of five to ten years.
Intangible assets included the value assigned to a power purchase agreement
owned by Maine Energy. The unamortized portion of this asset was included in the
determination of the gain on sale of capacity in 1996.
Deferred Financing and Other Deferred Costs
Costs incurred in connection with debt and letter of credit financings have
been deferred and are being amortized over the life of the related debt or
letter of credit issues using the interest method. The unamortized portion of
these costs related to the Maine Energy bonds was included in the determination
of the extraordinary loss in 1996.
Costs incurred in connection with renegotiation of certain municipal waste
contracts were deferred and were amortized over 60 months, which represented the
minimum period covered by the new agreements. These costs were fully amortized
during 1995.
During 1995, the Company deferred approximately $741,000 of costs incurred
in connection with negotiating an amendment to its Power Purchase Agreement (the
"PPA") with Central Maine Power Company ("CMP"). This amount was included in the
determination of the gain on sale of capacity.
F-8
<PAGE> 51
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Project Development Costs
The Company defers certain external direct costs incurred in the
development of new projects. Amortization of these costs begins when the project
becomes operational. If management concludes that the related project will not
be completed, the deferred costs are expensed immediately.
Revenue Recognition
Electric power revenues are earned from the sale of electricity to local
utilities under the specific agreements with the utilities. Revenue is recorded
at the contract rate specified in each agreement as it is delivered. Electric
power revenue also includes the portion of the deferred gain on sale of electric
generating capacity recognized during the respective period. (See Note 3.)
Waste processing revenues consist principally of fees charged to customers
for waste disposal. Substantially all waste processing revenues are earned from
customers located in a geographic region proximate to the facility. Revenue is
generally recorded upon acceptance based on rates specified in the applicable
long-term contracts. Certain of these rates are subject to adjustment based on
the levels of certain operating expenses and net operating income, as defined,
of Maine Energy.
Management fees from affiliates included in other waste handling revenues,
related to providing general partner services to PERC, are recognized in
accordance with the partnership agreement. Service and other revenues in
connection with transportation and waste management are recognized upon
completion of the services.
Income Taxes
Deferred income taxes are determined using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Business Combinations
The Company has accounted for all business combinations under the purchase
method of accounting. Under this method, the purchase price is allocated to the
assets and liabilities of the acquired enterprise as of the acquisition date (to
the extent of the Company's ownership interest) based on their estimated
respective fair values and are subject to revision for a period not to exceed
one year from the date of acquisition. The results of operations of the acquired
enterprise are included in the Company's consolidated financial statements for
the period subsequent to the acquisition.
Earnings (Loss) Per Share
Earnings (loss) per share have been computed based on the weighted average
number of shares outstanding as well as the dilutive effect of outstanding
options and warrants during the periods presented computed in accordance with a
Staff Accounting Bulletin ("SAB") of the Securities and Exchange Commission. The
SAB requires that all stock issued within a twelve month period prior to the
Company's initial public offering of common stock in February, 1995 must be
treated as outstanding for all periods prior to the offering whether dilutive or
anti-dilutive. For purposes of the computation, the number of shares treated as
outstanding is reduced based on the number of shares that could be repurchased
based on the initial public price of the Company's common stock. Fully diluted
earnings per share is computed by adjusting both net income and shares
outstanding as if the conversions of certain debt instruments occurred on the
first day of the year. Primary earnings per share for 1996 would have been $2.32
per share had these conversions occurred on the first day of the year.
F-9
<PAGE> 52
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Evaluation of Long-Lived Assets
The Company assesses long-lived assets for impairment as prescribed by FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Under those rules, goodwill associated with
assets acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable. The Company's evaluation at December 31,
1996 has been based on projected operating results of the businesses giving rise
to the goodwill. Management believes that these projections are reasonable,
however actual future operating results may differ.
Stock Dividend
On February 28, 1997, a 5% stock dividend was declared by the Board of
Directors for shareholders of record on March 14, 1997. The stock dividend is
payable March 28, 1997. All stock related data in the consolidated financial
statements reflect the stock dividend for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. SALE OF ELECTRIC GENERATION CAPACITY AND RESTRUCTURE OF POWER PURCHASE
AGREEMENT
On May 3, 1996, Maine Energy completed a restructuring of its Power
Purchase Agreement ("PPA") with Central Maine Power ("CMP") and the sale of the
rights to its electrical generating capacity to CL Power Sales One, L.L.C. ("CL
One"). At closing, Maine Energy received a payment from CL One of $85,000,000
("Capacity Payment") and the PPA was amended to reflect a reduction in CMP's
purchase price for electric power. In addition, the term of the PPA was extended
from 2007 to 2012. The Company also received reimbursement of certain
transaction costs, including interest on the Capacity Payment from November 6,
1995 to closing and certain other payments.
Under the terms of the agreements, Maine Energy will be liable to CMP for
liquidated damages of $3,750,000 for any calendar year through the year 2006 and
on a pro rata basis for the period from January 1, to May 31, 2007 in which it
does not deliver at least 100,000,000 kWh. Also, if during the same period,
Maine Energy fails to deliver at least 15,000,000 kWh in any calendar year
through the year 2006 and on a pro rata basis for the period from January 1 to
May 31, 2007 it will be liable to CMP for liquidated damages of $45,000,000 less
the product of $3,750,000 times the number of completed calendar years from and
including 1996 to the year of default. Both the 100,000,000 kWh and the
15,000,000 kWh levels are adjusted in the case of a force majeure event, as
defined. Maine Energy produced approximately 170,000,000 kWh of electricity in
1996. In order to secure CMP's right to liquidated damages, Maine Energy has
obtained an irrevocable letter of credit in the initial amount of $45,000,000
which will be reduced by $3,750,000 for each completed year in which no event
requiring the payment of liquidated damages occurs. Under the terms of the
letter of credit agreement, Maine Energy is required to maintain certain
restricted funds. The letter of credit is collateralized by liens on
substantially all of Maine Energy's assets. Based on these contingencies, Maine
Energy deferred an amount totaling $45,000,000 on the date of the transaction.
This amount is being recognized as revenue as the contingencies are eliminated.
As of December 31, 1996, the letter of credit and remaining deferred amount
equaled $41,250,000.
F-10
<PAGE> 53
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maine Energy used the proceeds from the sale of its capacity to repay
$64,500,000 Resource Recovery Bonds and to retire the related bank letter of
credit. This prepayment resulted in the recognition of an extraordinary loss of
$2,247,377 (net of minority interest of $2,213,475). The remaining proceeds were
used together with certain unrestricted cash balances on hand to repay
$29,500,000 of outstanding subordinated notes payable to Maine Energy limited
partners.
4. ACQUISITION AND DISPOSAL OF CONVERGENT SOLUTIONS, INC.
On February 8, 1995, the Company acquired by way of merger (the "Merger")
Convergent Solutions, Inc. ("CSI"), a publicly-owned company engaged in the
development and marketing of computer software products and related services.
The acquisition was completed through the exchange of one share of the Company's
common stock for each share of outstanding CSI common stock. On that date,
1,801,044 shares of the Company's common stock valued at $5.00 per share were
exchanged in the Merger. The purchase price including the stock exchanged and
transaction costs of approximately $2,000,000 was approximately $11,100,000. The
transaction has been accounted for as a purchase. The purchase price exceeded
the fair value of the net assets acquired by approximately $2,655,000 which was
recorded as goodwill and was being amortized over a five year period. In
connection with the acquisition, the Company filed a registration statement with
the Securities and Exchange Commission to register the shares of its common
stock which were issued to complete the Merger.
During 1996, the Company disposed of its computer services segment which
was comprised entirely of CSI. The sale was completed in two separate
transactions. On July 26,1996 certain assets and liabilities of CSI were sold to
Ciber, Inc. for $5,000,000. Also, on July 29, 1996, all of the outstanding
common stock of CSI was sold to certain members of its management for $5,000. In
addition, the Company has notes receivable from the buyers aggregating $444,643
at December 31, 1996. The notes receivable are due on July 29, 2000. The results
of operations of CSI have been classified as discontinued operations in the
accompanying financial statements. CSI's revenues for 1996 and 1995 were
$5,785,050 and $10,198,851, respectively.
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Land............................................. $ 907,839 $ 746,563
Buildings and site improvements.................. 15,397,462 15,729,403
Machinery and equipment.......................... 85,419,005 76,415,325
Transportation equipment......................... 34,929 1,115,796
Furniture and fixtures........................... 1,337,879 1,373,650
Computer equipment............................... 507,195
Leasehold improvements........................... 430,201 583,589
------------ -----------
103,527,315 96,471,521
Less allowances for depreciation and 12,671,949 10,108,341
amortization...................................
------------ -----------
$ 90,855,366 $86,363,180
============ ===========
</TABLE>
Beginning October 1, 1996, Maine Energy revised the estimated average
useful lives used to compute depreciation for substantially all of its plant and
equipment. These revisions were made to more properly reflect the remaining
useful lives of the assets. The change had the effect of increasing income
before extraordinary item and net income by approximately $432,000 ($.07 per
share).
F-11
<PAGE> 54
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER RECEIVABLES
The Company has entered into several sales-type leases related to the sale
of transportation equipment. These leases have original terms of up to 5 years
and provide for fixed monthly payments. Future minimum lease payments, excluding
interest, to be received related to these leases are as follows:
<TABLE>
<S> <C>
1997.............................................. $192,026
1998.............................................. 398,147
</TABLE>
7. ACQUISITIONS
On May 3, 1996, the Company purchased additional limited partnership
interests in Maine Energy aggregating 23.77% from certain other existing limited
partners. The aggregate cost of the acquisitions was approximately $485,000. The
acquisition resulted in a reduction in the carrying value of property and
equipment of approximately $7,800,000. Subsequent to this purchase, the
Company's ownership in Maine Energy aggregated 74.15%.
During the fourth quarter of 1996, the Company acquired all of the
outstanding common stock of TEII. TEII, through its subsidiaries, is engaged in
the generation of electricity and the processing of wood and plastic materials.
The purchase price, including all direct costs, was approximately $2,142,000 in
cash. The cost of the acquisition exceeded the fair value of TEII's net assets
by approximately $2,035,000 which has been recorded as goodwill. In connection
with this acquisition, the Company has an obligation to obtain a letter of
credit to support TEII's outstanding Resource Recovery Revenue Bonds payable in
an amount sufficient to allow the release of a similar letter of credit
guaranteed by a party affiliated with the seller.
On March 31, 1996, the Company acquired a 60% limited partnership interest
in American Ash Recycling Co. of Tennessee, a limited partnership, ("AART").
AART is engaged in the processing of ash residue from a waste-to-energy facility
located in Nashville, Tennessee. The purchase price for the limited partnership
interest was $2,100,000. The cost of the acquisition exceeded the fair value of
AART's net assets by approximately $800,000 which has been recorded as goodwill.
On November 25, 1996, the Company acquired all of the outstanding common
stock of Manner, Inc. ("Manner") a company engaged in the purchase and sale of
recyclable plastic materials. The purchase price was approximately $456,000 and
was entirely financed through the issuance of 65,000 shares of the Company's
common stock. The cost of the acquisition exceeded the fair value of Manner's
net assets by approximately $421,000 which has been recorded as goodwill.
On September 16, 1994, the Company purchased certain limited partnership
interests in Maine Energy aggregating 40.38% from certain of the existing
limited partners. The aggregate cost of the acquisition was approximately $3.1
million and was partially financed through the issuance of notes payable
aggregating $1,572,346 to the sellers. Prior to this transaction, the Company
was a 10% owner and the sole general partner of Maine Energy.
Prior to the September 16, 1994 limited partnership interest acquisition,
the Company accounted for its 10% ownership interest under the equity method.
The difference between the Company's actual capital contributions and its
ownership interest in the partnership's total contributed capital is being
amortized over the term of the partnership's energy sales contract. This amount
is included in goodwill.
In 2007, certain of Maine Energy's municipal customers have the right to
obtain a 20% interest in Maine Energy's cash flows, as defined in certain
agreements, to be applied against the municipalities' future waste disposal
costs. Maine Energy's ability to distribute assets to its partners is restricted
by the provisions of certain agreements among Maine Energy, the partners and
certain third parties.
The following unaudited pro forma summary presents selected operating data
as if the acquisitions described above had occurred as of the beginning of the
respective periods and does not purport to be
F-12
<PAGE> 55
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicative of the results that would have occurred had the merger been completed
as of those dates or of results which may occur in the future.
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net revenues............................................. $79,321 $50,153
Net income (loss) before extraordinary item.............. 22,369 (1,347)
Net income (loss)........................................ 20,122 (1,200)
Net income (loss) per share before extraordinary item.... 3.52 (.26)
Net income (loss) per share.............................. 3.16 (.23)
</TABLE>
The pro forma amounts presented for 1996 include approximately $7,211,000
of income from Maine Energy resulting from the gain on sale of electric
generating capacity attributable to the additional limited partnership interest
acquired in 1996.
8. INVESTMENT IN PERC
PERC is a 25 megawatt waste-to-energy project which began operations in
1988. The Company is a co-general partner and 7% owner of PERC until such time
that the return on equity, as defined, of the limited partners exceeds their
aggregate capital contributions. Commencing on that date and continuing through
the remaining term of the partnership, the Company's ownership interest
increases to 28 percent. Investment in PERC represents the Company's net
investment in the partnership. The PERC partnership agreement provided for the
respective partners to make capital contributions in amounts disproportionate to
their ownership interest in the partnership. Differences between the Company's
capital contributions and its ownership interest in the partnership's total
contributed capital are being amortized over the term of the partnership's power
purchase agreement. Amortization is included in the determination of the
Company's equity in the partnership's net income.
In 2004, certain of PERC's municipal customers have the right to purchase
the waste-to-energy facility for an amount equal to its book value at the
purchase date, as defined, or to receive 50% of the partnerships' cash flows, as
defined, to be applied against the municipalities' future waste disposal costs.
PERC's ability to distribute assets to its partners is restricted by the
provisions of certain agreements among PERC, the partners and certain third
parties.
The Company's ownership interest in PERC is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Credited capital contributions...................... $2,112,587 $2,112,587
Distributions....................................... (211,239) (76,375)
Excess of actual capital contributions over
ownership interest (net of accumulated
amortization of $384,338 and $289,285 at December
31, 1996 and December 31, 1995 respectively)...... 1,331,398 1,392,043
Cumulative interest in partnership income........... 594,090 166,383
---------- ----------
$3,792,429 $3,594,638
========== ==========
</TABLE>
F-13
<PAGE> 56
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information for PERC is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $91,760,278 $94,766,638
Bonds payable (non-recourse)...................... 53,500,000 59,400,000
Total liabilities................................. 59,667,838 66,450,262
Partners' capital................................. 32,092,440 28,316,376
STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... 30,294,859 29,458,979
Operating expenses................................ 21,013,967 20,007,226
Net income........................................ 6,110,107 5,647,488
</TABLE>
9. DEBT
The Company's debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
(A) 8% convertible subordinated note payable............ $ 5,000,000 $ --
(B) 12% term note payable to bank....................... 1,657,448 2,607,448
(C) 10% note payable to Energy National, Inc............ 1,353,479 1,455,430
(D) $1,000,000 bank line of credit at bank prime rate 589,904
plus .25%...........................................
(E) $300,000 bank line of credit at bank prime rate plus 220,000
1.5%................................................
(F) 9.94% secured term notes payable.................... 780,357
(G) Notes payable to limited partners of Maine Energy... 490,063 326,063
(H) 8.63% secured term note payable..................... 400,000
(I) 9.9% secured term notes payable to GE Capital....... 190,368 382,699
(J) 10.13% secured term notes payable................... 179,997 428,193
(K) Note payable to former shareholder.................. 127,137 183,494
(L) Subordinated convertible notes payable.............. -- 3,721,182
Other............................................... 108,250 1,455,558
----------- ------------
11,097,003 10,560,067
Resource Recovery Revenue Bonds Payable.................. 13,400,000 64,500,000
12% Subordinated Notes Payable to Maine Energy Limited
Partners............................................... 14,575,985 40,316,095
----------- ------------
39,072,988 115,376,162
Less current portion................................ 4,123,840 7,977,899
----------- ------------
$ 34,949,148 $107,398,263
=========== ============
</TABLE>
- ---------------
(A) During 1996, the Company issued an 8% convertible subordinated note to a
private lender to fund certain designated acquisitions. The note is due
October 31, 2002 and is convertible into the Company's common stock at a
conversion price of $8.50 per share. Interest on the note is payable
quarterly.
(B) During 1989, a subsidiary of the Company entered into a $4.0 million 5-year
Term Loan Agreement, as amended, with a bank. On September 16, 1994, the
Company and the bank entered into a Purchase and Sales Agreement under which
the Company purchased the subsidiary's debt obligation to the bank.
F-14
<PAGE> 57
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payment of the purchase price included cash of $1.5 million and a $2,607,448
term note payable to the bank bearing interest at the bank's prime rate. On
August 15, 1996, the Company and the bank entered into an Amended and
Restated Term Note for $1,857,448. The term of the note is through July 31,
1998, with principal payments in the amount of $50,000 per month plus
interest at the bank's prime rate (8.25% at December 31, 1996) and a payment
at maturity in the amount of $707,447. During 1995, interest was also
payable monthly at the bank's prime rate (8.5% at December 31, 1995).
(C) This debt arose when Energy National Inc., a co-general partner in PERC,
made an advance on behalf of the Company to meet a capital call by PERC.
Interest and principal are payable annually on the date PERC distributes its
annual and any accrued general partner fees. Annual principal payments are
due in amounts equal to 60 percent of the Company's current and accrued
general partner fees paid from PERC after payment of interest on the
outstanding balance of this obligation. The unpaid balance is secured by all
future general partner fee payments to be made to the Company by PERC.
(D) In October 1996, the Company obtained a line of credit with a bank in the
amount of $1,000,000 bearing interest at the bank's prime rate plus .25%
(8.50% at December 31, 1996). The line of credit is secured by the Company's
investment in certain of its subsidiaries and is subject to renewal on June
30, 1997.
(E) During 1996, certain subsidiaries of the Company obtained a line of credit
with a bank in the amount of $300,000 bearing interest at the bank's prime
rate plus 1.5% (9.75% at December 31, 1996) of which $220,000 is outstanding
at December 31, 1996. The line of credit is secured by accounts receivables
of the Company's subsidiaries and is subject to renewal on April 30, 1997.
(F) AART note payable to a commercial lender bearing interest at 9.94%, with
monthly payments of principal and interest in the amount of $42,500. The
note matures on August 20, 1998. The balance is secured by equipment with an
aggregate net carrying value of $2,776,486 at December 31, 1996.
(G) Aggregate balance due to limited partners of Maine Energy in connection with
the purchase of certain limited partnership interests (see Note 7). The
balance bears interest at one percent over a published prime interest rate
(9.25% and 9.5% at December 31, 1996 and 1995, respectively). These balances
are secured by the limited partnership interests in Maine Energy. The
outstanding balance is due in 1997.
(H) In December 1996, a subsidiary of the Company entered into a secured term
note with a commercial lender. The note bears interest at 8.63% with monthly
principal and interest payments of $8,231. The note matures on December 31,
2001. The balance is secured by equipment with an aggregate net carrying
value of $886,385 at December 31, 1996.
(I) Secured term note payable in monthly installments of principal and interest
of approximately $18,400 through August 1998. Secured by equipment with an
aggregate net carrying value of $361,551 at December 31,1996.
(J) Secured term note payable to a commercial lender with original terms of 48
months. Payable in monthly installments of principal and interest
aggregating approximately $10,900. Secured by equipment with an aggregate
net carrying value of $224,656 at December 31, 1996.
(K) Non-interest bearing note payable to former shareholder in connection with
the repurchase and retirement of certain shares of the Company's common
stock. The note is payable in equal monthly installments of $5,750. The note
has been discounted using an effective interest rate of 8%. The note is
secured by cash deposited in an escrow account with a balance of $117,201
and $181,612 at December 31, 1996 and 1995, respectively.
(L) In March 1993, the Company issued Davstar Managed Investments Corporation a
$1,500,000 subordinated term note payable, 252,248 shares of the Company's
common stock and a warrant to purchase an additional 297,430 shares of the
Company's common stock at a stated purchase price of $5.64. The aggregate
original issue discount representing the fair value of the common stock and
the warrant was $258,989. The note carried interest at a stated rate of 8%
and had an effective interest rate, including the amortization of the
original issue discount of 18%. Various additional subordinated unsecured
12% term
F-15
<PAGE> 58
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notes payable in an aggregate amount of $2,295,000 were issued to foreign
lenders during 1993 and 1994. These lenders were associated with Davstar
Managed Investments Corporation through affiliation of their respective
management. The Company paid all interest on these obligations through
December 31, 1994 by the issuance of additional shares of its common stock.
On January 1, 1996, the terms of these notes were amended. Under this
amended agreement, $500,000 of principal was converted to 74,866 shares of
the Company's common stock at $7.0125 per share and accrued interest of
$50,301 was capitalized. Interest was payable quarterly and principal was
payable in full on April 1, 1997. The amended notes were convertible into
common stock at the option of the holder subsequent to September 30, 1996 at
75% of the market price, as defined, at the time of conversion within the
limits of not less than $5.00 and not more than $13.50 per share, subject to
adjustments. In December 1996, the notes were converted into 650,148 shares
of the Company's common stock.
Resource Recovery Revenue Bonds Payable
The City of Biddeford, on behalf of Maine Energy, issued $81,000,000 of
Resource Recovery Revenue Bonds in June 1985 to partially finance the
construction of the Maine Energy waste-to-energy facility. The bonds carried
interest at variable rates (3.90% at December 31, 1995), which was determined
monthly by the remarketing agent for the bonds. In May 1996, the bonds were
retired.
In connection with the acquisition of TEII, the Company assumed $15,685,000
of Liberty County, Florida Resource Recovery Revenue Bonds. The bonds bear
interest at variable rates (4.20% at December 31, 1996), which are determined
weekly by the remarketing agent for the bonds. The bonds have an annual sinking
fund payment due each October ($1,000,000 due October 1997), with final payment
due January 2003. The bonds are fully secured by an irrevocable letter of credit
issued by a bank. The letter of credit and related agreements require, among
other things, maintenance of various insurance coverages and restricts the
borrowers ability to incur additional indebtedness. The bonds and letter of
credit are collateralized by liens on TEII's electric generating facility
located in Liberty County, Florida.
Subordinated Notes Payable to Maine Energy Limited Partners
These notes, as amended, bear interest at 12%. Payments of principal and
interest are made solely at the discretion of Maine Energy's general partner.
However, all principal and interest must be repaid prior to any partner
distributions. To the extent interest is not paid, accrued interest is
capitalized.
Excluding any amounts which may be paid on the subordinated notes payable
to the Maine Energy Limited Partners, aggregate maturities as of December 31,
1996 of the Company's debt for each of the next five years are as follows:
<TABLE>
<S> <C>
1997............................................. $4,123,840
1998............................................. 3,076,230
1999............................................. 1,755,209
2000............................................. 2,022,411
2001............................................. 1,834,314
</TABLE>
10. STOCKHOLDERS' EQUITY
In connection with certain debt obligations issued during 1996, the Company
issued warrants to purchase 420,572 shares of common stock at $5.71 per share.
The aggregate original issue discount representing the fair value of the
warrants was $143,738.
During July and August of 1995, in a private transaction the Company sold
650,412 shares of its common stock and warrants to purchase an additional
382,031 common shares exercisable during the period
F-16
<PAGE> 59
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commencing from the date of grant of the warrants and terminating not more than
five years from the date of grant at an exercise price of $5.48. The proceeds of
this transaction were $2,512,227, net of expenses of approximately $225,000.
In December 1995, in a private transaction, the Company sold 44,920 shares
of its common stock to an officer of the Company. The cash proceeds of this
transaction were $300,000 and the Company recognized compensation expense of
$51,962.
11. STOCK OPTION PLANS
The Company has four stock option plans; the 1986 Stock Option Plan of KTI,
Inc. (the "1986 Plan"), the KTI, Inc. 1994 Long-Term Incentive Award Plan and
the DataFocus Long-Term Incentive Plan (collectively, the "1994 Incentive
Plans") and the KTI, Inc. Directors Stock Option Plan (the "Directors Plan").
All plans are administered by the Compensation Committee of the Board of
Directors. In addition to options granted under these plans, the Company also
issued statutory non-plan options to purchase 41,503 shares of common stock at
$3.63 per share to certain officers of the Company in 1986. All of these
statutory options were exercised during 1995.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Elements of the various plans include the following:
THE 1986 PLAN. A maximum of 66,190 shares are subject to the 1986 Plan.
Options were granted at prices not less than the fair market value at the date
of grant. All options granted had 10 year terms and vested immediately. No new
options can be granted under this plan.
THE 1994 INCENTIVE PLAN. The 1994 Incentive Plans were adopted by the
Board of Directors during 1994 and approved by the Company's shareholders during
1995. A maximum of 466,666 shares are subject to the 1994 Incentive Plans.
Options may be granted at prices not less than the fair market value at the date
of grant and normally vest at 20% per year beginning one year from the date of
grant. Vested options may be exercised at any time until their expiration which
may be up to ten years from the date of grant. Unvested options are forfeited
upon termination of the employee. As a result of the merger with CSI, options
issued under CSI's previously existing plans were replaced by options to
purchase the Company's common stock having essentially the same terms and
conditions. The sale of CSI's operations during 1996 resulted in the forfeiture
of certain outstanding options.
THE DIRECTORS PLAN. The Directors Plan was adopted by the Board of
Directors and approved by the Company's shareholders during 1995. A maximum of
100,000 shares are subject to the Directors Plan. Under the Directors Plan,
non-employee Directors are automatically granted non-statutory options on August
1 of each year, commencing on August 1, 1995 for the lesser of (i) 4,000 shares
or (ii) a number of shares having a maximum market value of $36,000. Options
granted may not be exercised within one year of grant and have 10 year terms.
In addition to the Plans described above, the Company's Board of Directors
from time to time has granted key employees non-plan options. During 1995, the
Board of Directors made a non-plan option grant. These non-plan options have a
ten year term, were granted at the then current fair market value and vested 20%
per year commencing on the first anniversary of the grant date.
F-17
<PAGE> 60
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activities under the plans and for the non-plan options are detailed
in the following table:
<TABLE>
<CAPTION>
1994 WEIGHTED
INCENTIVE AVERAGE EXERCISE
1986 PLAN PLANS DIRECTOR PLAN NON PLAN PRICE PER SHARE
--------- --------- ------------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1994........ 69,500 -- -- 28,350 $ 3.46
Granted............................. 15,263 -- -- -- $ 3.46
Exercised........................... -- -- -- -- $ --
Forfeited........................... (69,500) -- -- -- $ 3.46
------- -------- ------ ------- -----
Outstanding at January 1, 1995........ 15,263 -- -- 28,350 $ 3.46
Granted............................. -- 162,745 16,800 105,000 $ 6.91
Assumed............................. -- 445,507 -- -- $ 5.66
Exercised........................... -- (1,603) -- (28,350) $ 3.49
Forfeited........................... -- (63,204) -- -- $ 4.63
------- -------- ------ ------- -----
Outstanding at January 1, 1996........ 15,263 543,444 16,800 105,000 $ 6.09
Granted............................. -- 226,574 31,500 -- $ 7.23
Exercised........................... -- (55,346) -- -- $ 5.38
Forfeited........................... -- (292,333) -- -- $ 6.15
------- -------- ------ ------- -----
Outstanding at December 31, 1996...... 15,263 422,340 48,300 105,000 $ 6.62
======= ======== ====== ======= =====
Exercisable at December 31, 1996...... 15,263 122,101 16,800 21,000 $ 5.84
======= ======== ====== ======= =====
Exercisable at December 31, 1995...... 15,263 381,955 -- -- $ 5.75
======= ======== ====== ======= =====
</TABLE>
The weighted-average fair value of options granted was $5.38 and $5.37 for
1996 and 1995, respectively.
At December 31, 1996, for each of the following classes of options as
determined by range of exercise price, the following information regarding
weighted-average exercise prices and weighted-average remaining contractual
lives of each class is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE PRICE WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
NUMBER OF OF REMAINING OPTIONS EXERCISE PRICE OF
OPTIONS OUTSTANDING CONTRACTUAL LIFE OF CURRENTLY OPTIONS CURRENTLY
OPTION CLASS OUTSTANDING OPTIONS OUTSTANDING OPTIONS EXERCISABLE EXERCISABLE
- ------------------------ ----------- ---------------- -------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Prices ranging from
$3.63 - $5.45......... 15,263 $ 3.46 7 15,263 $3.46
Prices ranging from
$6.00 - $8.75......... 575,643 $ 7.25 7.79 159,901 $6.07
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had been
accounting for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
1996 and 1995, respectively: weighted average risk-free interest rates of 6.5%
and 6.4%; no dividends; volatility factors of the expected market price of the
Company's common stock of .642 and .642; and for both periods a weighted-average
expected life of the options of 8 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
F-18
<PAGE> 61
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options granted in 1996 and 1995 is amortized to expense over the options'
vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Pro forma net income (loss)....................... $13,478,958 $(1,379,776)
Pro forma primary earnings (loss) per share....... $ 2.12 $ (.26)
Pro forma fully diluted earnings (loss) per $ 2.00 $ (.26)
share...........................................
</TABLE>
The pro forma disclosures presented above for 1995 reflect compensation
expense only for options granted in 1995 and for 1996 only for options granted
in 1995 and 1996. These amounts may not necessarily be indicative of the pro
forma effect of SFAS No. 123 for future periods in which options may be granted.
F-19
<PAGE> 62
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
At December 31, 1996 the Company has net operating loss carryforwards of
approximately $47,587,000 for income tax purposes that expire in years 2002
through 2010, general business credit carryovers of approximately $530,000 which
expire in years 1999 through 2006 and alternative minimum tax credits of
approximately $687,000, which do not expire. All of these carryforwards are
subject to limitation as described below.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Deferred tax assets
Current:
Reserve on notes and accounts receivable.......... $ 37,000 $ 50,000 $ 53,000
State taxes, net.................................. 14,000 27,000 5,000
Other liabilities................................. 47,000 223,000 --
------------- ------------- -----------
Total current deferred tax assets....... 98,000 300,000 58,000
Valuation allowance for current deferred tax (98,000) (300,000) (58,000)
assets..........................................
------------- ------------- -----------
-- -- --
------------- ------------- -----------
Non-current:
Depreciation...................................... 440,000 255,000 104,000
State taxes, net.................................. 2,083,000 923,000 817,000
General business credit carryforwards............. 530,000 850,000 530,000
Alternative minimum tax credit carryforwards...... 687,000 687,000 --
Deferred development fees......................... 117,000 120,000 126,000
Net operating loss carryforwards.................. 16,655,000 7,702,000 9,066,000
------------- ------------- -----------
Total non-current deferred tax assets... 20,512,000 10,537,000 10,643,000
Valuation allowance for non-current (15,449,000) (10,344,000) (8,981,000)
deferred tax assets.............................
------------- ------------- -----------
Net non-current deferred tax assets..... 5,063,000 193,000 1,662,000
------------- ------------- -----------
Non-current deferred tax liabilities
Equity investments................................ 5,063,000 193,000 1,662,000
------------- ------------- -----------
Net non-current deferred taxes.................... $ -- $ -- $ --
============= ============= ===========
</TABLE>
F-20
<PAGE> 63
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................. $ -- $ -- $ --
State................................ -- 65,000 --
----------- --------- ---------
Total Current.......................... -- 65,000 --
Deferred:
Federal.............................. $ 5,075,000 $(274,000) $(448,000)
State................................ 863,000 (128,000) (57,000)
Valuation allowance.................. (5,938,000) 402,000 505,000
----------- --------- ---------
Total deferred......................... -- -- --
----------- --------- ---------
$ -- $ 65,000 $ --
=========== ========= =========
</TABLE>
The components of the provision for deferred income taxes from continuing
operations for the years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards.... $ 951,000 $ 1,364,000 $(1,579,000)
Equity investments.................. 4,870,000 (1,470,000) 686,000
State taxes, net.................... 110,000 (128,000) (57,000)
Deferred development fees........... 3,000 6,000 6,000
Depreciation........................ (185,000) (142,000) (70,000)
Change in reserve on receivables.... 13,000 25,000 509,000
Accrued and other expenses.......... 176,000 (57,000) --
Change in valuation allowance....... (5,938,000) 402,000 505,000
----------- ----------- -----------
Provision for deferred income
taxes............................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The reconciliation of income tax computed at the federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Tax (benefit) at US statutory rates.... $ 5,033,000 $(452,000) $(486,000)
State income taxes, net of federal tax
benefit.............................. 863,000 (85,000) (57,000)
Amortization of goodwill............... 42,000 191,000 38,000
Change in valuation allowance from
continuing operations................ (5,938,000) 402,000 505,000
Other.................................. -- 9,000 --
----------- --------- ---------
$ -- $ 65,000 $ --
=========== ========= =========
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
potential utilization of net operating loss and tax credit carryforwards in
periods following a corporate "ownership change". In general, for federal income
tax purposes, an ownership change is deemed to occur if the percentage of stock
of a loss corporation owned (actually, constructively and, in some cases,
deemed) by one or more "5% shareholders"
F-21
<PAGE> 64
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has increased by more than 50 percentage points over the lowest percentage of
such stock owned during a three-year testing period. During 1994, such a change
in ownership occurred. As a result of the change, the Company's ability to
utilize certain of its net operating loss carryforwards and general business
credits will be limited to approximately $1,100,000 of taxable income, or
approximately $375,000 of equivalent credit per year. This limitation may be
increased if the Company 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.
During 1995, the Company acquired Convergent Solutions, Inc. As a result of
this combination, the Company recorded deferred tax assets of $1,203,000 and a
related valuation allowance for the same amount.
During 1996, the Company acquired Timber Energy Investments, Inc. ("TEII").
As a result of this acquisition, the Company recorded a deferred tax asset
related to net operating loss carryforwards of $25,580,000, which are also
subject to a corporate "ownership change". As a result of the change, the
Company's ability to utilize the net operating loss carryforwards of TEII is
limited to approximately $874,000 per year.
13. COMMITMENTS
The Company has entered into various facility and equipment operating
leases. The facility lease agreements generally require the Company to pay
certain expenses including maintenance costs and a percentage of real estate
taxes. The lease expires in 2001. The Company entered into a sublease agreement
for certain of its office facilities. Rental expense, net of sublease income,
for all operating leases amounted to $145,000, $133,000, and $100,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. As of December 31,
1996, future minimum rental commitments on noncancelable operating leases, net
of sublease income are as follows:
<TABLE>
<S> <C>
1997.............................................. $279,000
1998.............................................. 237,000
1999.............................................. 186,000
2000.............................................. 189,000
2001.............................................. 165,000
</TABLE>
The Company has entered into employment agreements with certain of its key
employees which provide for fixed compensation and bonuses based on operating
results, as defined. These agreements generally continue until terminated by the
employee or the Company and, under certain circumstances, provide for salary
continuation for a specified period. At December 31, 1996 the Company's maximum
aggregate liability under the agreements if all the employees were terminated by
the Company is $1,490,000.
In connection with their operations, Maine Energy, TEII and PERC have
entered into certain contractual agreements with respect to the supply and
acceptance of municipal solid waste and the sale of electric power.
14. EMPLOYEE BENEFIT PLAN
The Company has established a defined contribution employee savings and
investment retirement plan under Section 401(k) of the Internal Revenue Code.
All employees are eligible to participate in the plan after satisfying certain
eligibility requirements. The Company contributes on behalf of each
participating employee an amount equal to 4% of the employees eligible salary.
The Company's contribution was approximately $164,000 $146,000, and $156,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
F-22
<PAGE> 65
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RELATED PARTY TRANSACTIONS
The Company receives an annual management fee (adjusted annually for
changes in the Consumer Price Index) as co-general partner of PERC. During the
years ended December 31, 1996, 1995 and 1994, the Company earned management fees
of approximately $417,800, $406,500, and $395,700 respectively. As described in
Note 9 above, a portion of these fees are required to be applied to outstanding
interest and principal due to Energy National, Inc. The receivable from PERC was
approximately $2,279,000 and $2,419,000 at December 31, 1996 and December 31,
1995, respectively. Payment of this obligation by PERC is limited by the
provisions of certain agreements to which the Company and PERC are parties. The
Company expects the remaining balance to be realized over a 10-year period.
The Company leases its administrative offices from a company whose
principals include certain officers and shareholders of KTI. Rents for the years
ended December 31, 1996, 1995 and 1994 were $109,500 $101,000, and $97,000,
respectively.
During the years 1988 to 1991, the Company made loans evidenced by
promissory notes, including those related to the sale of the Company's real
estate business (KTI Realty, Inc.), and made certain other advances to a then
officer/shareholder of the Company. The individual's employment as an officer of
the Company was terminated during 1992. During 1992, the Company began legal
action against the former officer for collection of the notes, among other
matters. In February 1994, the former shareholder transferred title to all of
his shares of the Company's common stock to a third party. Based on the former
officer's aggregate obligations to the Company ($1,069,544 at December 31,
1993), management challenged his right to transfer these shares and threatened
additional legal action. In April 1994, the Company and the third party entered
into an agreement under which 82,374 of these shares were transferred to the
Company to settle the former officer's obligations to the Company. The cost of
these shares was $578,124. In addition, the Company entered into an agreement
with the former officer/shareholder under which all of his debts to the Company
were discharged and the related litigation was dismissed. Provision for loss on
the remaining balance due from the former officer had been provided in prior
years.
During 1991, the Company formed EWM Holdings, LP (a limited partnership)
("Eastern") as the sole general partner and a 50% owner and accounted for the
investment using the equity method. EWM Holdings, LP acquired 95% of the
outstanding common stock of Eastern Waste Management Corp. and Rilco Group, Inc.
which were engaged in the ownership and operation of a solid waste transfer
station. In August 1993, Eastern sold its operations. In connection with the
sale of Eastern's operations, N&M Consulting, Inc., a company under the control
of relatives of a Company shareholder and officer, entered into a consulting
agreement under which it receives certain fees from the buyer. N&M Consulting,
Inc. has entered into an agreement with the Company under which it pays the
Company fees equal to the fees it receives from the buyer. The Company received
approximately $25,000 $54,000, and $128,000 under this arrangement in 1996, 1995
and 1994, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The carrying amount and estimated fair
values of financial instruments at December 31, 1996 and 1995 are summarized as
follows:
The following methods and assumptions were used to estimate the fair value
of financial instruments;
Cash, restricted cash and accounts receivable -- the carrying amounts
reported in the balance sheet for cash, cash equivalents, and restricted
funds including debt securities approximate their fair value.
F-23
<PAGE> 66
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management fees receivable -- the fair value is estimated using
discounted cash flow analyses, using estimates of current market interest
rates and periods in which the receivables will be realized.
Notes and other receivables -- the fair value is estimated using
discounted cash flow analyses, using appropriate interest rates.
Resource Recovery Revenue Bonds Payable -- carrying amount of bonds
payable approximates fair value.
Debt -- the fair value is estimated based on discounting the estimated
future cash flows using the Company's incremental borrowing rate for
similar debt instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash................................ $ 3,315,705 $ 3,315,705 $ 6,454,558 $ 6,454,558
Restricted cash..................... 9,979,402 9,979,402 13,544,631 13,544,631
Accounts receivable (net)........... 4,080,503 4,080,503 8,983,699 8,983,699
Management fee receivable........... 2,741,837 2,097,532 2,933,274 2,250,752
Notes receivable (net).............. 270,464 250,071 380,663 309,938
Other receivables................... 1,110,103 912,862 791,624 738,885
LIABILITIES
Resources Recovery
Revenue Bonds Payable.......... 13,400,000 13,400,000 64,500,000 64,500,000
Other debt.......................... 25,672,988 24,792,930 50,876,162 50,106,923
</TABLE>
17. CONTINGENCIES
The Port Authority of New York and New Jersey ("Port Authority") sued
certain wholly-owned subsidiaries of KTI, in the Supreme Court of the State of
New York, New York County on April 11, 1995. Port Authority sought damages in
the amount of $439,819 for the cost of the storage and removal of wood
recyclables that were delivered to the Howland Hook Marine terminal located on
Staten Island and leased by Port Authority from the City of New York. The
Company and the Port Authority have settled this litigation. Pursuant to the
settlement agreement, the Company has paid $100,000 to the Port Authority. An
additional payment of $32,000 is due in April 1997. The Company had fully
provided for the settlement amount in 1995.
The Company is involved in additional outstanding litigation, but the
Company expects to settle all such litigation within the limits of its insurance
policies. In the opinion of Management, the outcome of these matters
individually and in the aggregate will not have a material effect on the
Company's financial position, cash flows or results of operations.
F-24
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
Partners
Penobscot Energy Recovery Company
We have audited the accompanying balance sheets of Penobscot Energy
Recovery Company (a limited partnership) as of December 31, 1996 and 1995, and
the related statements of income, changes in partners' capital and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Penobscot Energy Recovery
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 7, 1997
F-25
<PAGE> 68
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................... $ 5,439,833 $ 6,465,266
Accounts receivable............................................... 4,695,790 3,967,028
Restricted funds.................................................. 8,481,761 8,363,958
Prepaid expenses and other assets................................. 480,561 389,533
Property, plant and equipment, net (Note 3)....................... 71,321,295 73,853,243
Deferred costs, less accumulated amortization of
$4,518,768 in 1996 and $4,838,526 in 1995....................... 1,341,038 1,727,610
----------- -----------
Total................................................... $91,760,278 $94,766,638
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable (Note 6)......................................... $ 1,640,871 $ 1,313,602
Accrued expenses and other liabilities............................ 1,271,103 2,281,092
Management and development fees payable to general partners (Note
6).............................................................. 3,255,864 3,455,568
Bonds payable (Note 4)............................................ 53,500,000 59,400,000
----------- -----------
Total liabilities....................................... 59,667,838 66,450,262
Partners' capital:
Contributed capital............................................. 23,605,435 25,939,478
Retained earnings............................................... 8,487,005 2,376,898
----------- -----------
Total partners' capital................................. 32,092,440 28,316,376
----------- -----------
Total................................................... $91,760,278 $94,766,638
=========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 69
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (Note 2):
Electric power revenues........................... $18,487,405 $18,276,914 $17,888,227
Waste processing revenues......................... 11,807,454 11,182,065 10,585,266
----------- ----------- -----------
Total..................................... 30,294,859 29,458,979 28,473,493
Operating expenses:
Supplemental fuels (Note 6)....................... 1,026,128 872,581 892,517
Electric power purchases.......................... 124,215 110,303 92,967
Disposal costs.................................... 4,879,689 4,253,355 4,436,119
Operating and management fees (Note 6)............ 5,353,385 5,165,224 5,130,913
Equipment and maintenance costs................... 3,196,370 2,527,208 2,347,437
Depreciation...................................... 3,679,624 3,689,987 3,672,193
Real estate taxes................................. 555,690 521,350 486,312
Insurance......................................... 349,820 379,675 368,962
Other............................................. 1,849,046 2,487,543 1,893,177
----------- ----------- -----------
Total..................................... 21,013,967 20,007,226 19,320,597
----------- ----------- -----------
Operating income.................................... 9,280,892 9,451,753 9,152,896
Interest and other financing costs, net (Note 5).... (3,170,785) (3,804,265) (3,656,271)
----------- ----------- -----------
Net income.......................................... $ 6,110,107 $ 5,647,488 $ 5,496,625
=========== =========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 70
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL PARTNERS LIMITED PARTNERS TOTAL
----------------------- ------------------------- -------------------------
RETAINED RETAINED RETAINED
CONTRIBUTED EARNINGS CONTRIBUTED EARNINGS CONTRIBUTED EARNINGS
CAPITAL (DEFICIT) CAPITAL (DEFICIT) CAPITAL (DEFICIT)
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994........ $ 3,016,552 $(876,721) $27,148,974 $(7,890,494) $30,165,526 $(8,767,215)
Capital distributions......... (58,481) (58,481) --
Net income.................... 549,663 4,946,962 -- 5,496,625
---------- --------- ----------- ----------- ----------- -----------
Balance, December 31, 1994...... 3,016,552 (327,058) 27,090,493 (2,943,532) 30,107,045 (3,270,590)
Capital distributions......... (109,107) (4,058,460) (4,167,567) --
Net income.................... 564,749 5,082,739 -- 5,647,488
---------- --------- ----------- ----------- ----------- -----------
Balance, December 31, 1995...... 2,907,445 237,691 23,032,033 2,139,207 25,939,478 2,376,898
Distributions................. (192,663) (2,141,380) (2,334,043)
Net income.................... 611,011 5,499,096 6,110,107
---------- --------- ----------- ----------- ----------- -----------
Balance, December 31, 1996...... $ 2,714,782 $ 848,702 $20,890,653 $ 7,638,303 $23,605,435 $ 8,487,005
========== ========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE> 71
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 6,110,107 $ 5,647,488 $ 5,496,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 4,085,410 4,208,161 4,212,193
Changes in asset and liability accounts:
Increasing (decreasing) cash:
Accounts receivable............................ (728,762) 52,943 (62,621)
Prepaid expenses and other assets.............. (91,028) (141,673) 61,376
Accounts payable............................... 327,269 (50,312) (263,237)
Accrued expenses and other liabilities......... (1,009,989) 716,787 853,632
Management and development fees payable........ (199,704) (105,726) (1,609,391)
------------ ----------- ------------
Net cash provided by operating activities........... 8,493,303 10,327,668 8,688,577
INVESTING ACTIVITIES
Additions to property, plant and equipment.......... (1,191,890) (1,171,925) (1,799,623)
Net change in restricted funds...................... (117,803) (384,211) 526,827
Proceeds from sale of property, plant and
equipment......................................... 25,000
------------ ----------- ------------
Net cash used in investing activities............... (1,284,693) (1,556,136) (1,272,796)
FINANCING ACTIVITIES
Payment of bond principal........................... (5,900,000) (4,900,000) (3,800,000)
Distributions....................................... (2,334,043) (4,167,567) (58,481)
------------ ----------- ------------
Net cash used in financing activities............... (8,234,043) (9,067,567) (3,858,481)
------------ ----------- ------------
(Decrease) increase in cash and cash equivalents.... (1,025,433) (296,035) 3,557,300
Cash and cash equivalents at beginning of year...... 6,465,266 6,761,301 3,204,001
------------ ----------- ------------
Cash and cash equivalents at end of year............ $ 5,439,833 $ 6,465,266 $ 6,761,301
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid....................................... $ 2,425,761 $ 2,980,420 $ 2,224,872
============ =========== ============
</TABLE>
See accompanying notes.
F-29
<PAGE> 72
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND DESCRIPTION OF OPERATIONS
Penobscot Energy Recovery Company ("PERC") is a limited partnership formed
on December 28, 1983 and organized to design, construct, operate, own and manage
a facility located in Orrington, Maine for the conversion of solid waste and
supplemental fuel to electric power (the "Project"). Certain contractual
agreements relating to this facility have been entered into, including
agreements with respect to the supply of solid waste, the sale of electric
power, and operation and maintenance of the facility.
PERC Management Company ("PMC"), which is ultimately owned by KTI, Inc.
("KTI"), and Energy National, Inc. ("ENI") are general partners. ENI and another
entity are limited partners. The ownership interests of the partners are as
follows:
<TABLE>
<CAPTION>
OWNERSHIP INTERESTS
---------------------
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
PMC....................................................... 7%
ENI....................................................... 3 25.7%
Other limited partner..................................... 64.3
--- ---- -
10% 90.0%
=== =====
</TABLE>
Profits and losses are to be allocated 10% to the general partners and 90%
to the limited partners until such time that the return on equity, as defined in
the Partnership Agreement, of the limited partners exceeds their aggregate
capital contributions. Commencing on that date and continuing through the
remaining term of the Partnership, such allocations, including gains and losses
upon net sale or refinancing, shall be 40% to the general partners and 60% to
the limited partners.
According to the Partnership agreement, the Partnership has a limited life
extending to December 31, 2018, unless further extended by a vote of all of the
partners.
The Project is subject to the provisions of various federal and state
energy laws and regulations including the Public Utility Regulatory Policies Act
of 1978, as amended. In addition, federal, state and local environmental laws
establish standards governing certain aspects of the Project's operations. The
Company believes it has all permits, licenses and approvals necessary to operate
the facility.
2. SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. All costs incurred for additions and improvements to the facility,
including interest during construction, are capitalized.
Depreciation is provided on the straight-line method over estimated useful
lives.
Deferred Costs
Costs incurred by PERC in connection with permanent financings have been
deferred and are being amortized over the life of the related debt issues using
the interest method.
During 1991, PERC finalized negotiations with municipalities and entered
into new long-term waste handling agreements which resulted in higher waste
handling fees. Costs associated with the renegotiation were deferred and
amortized over 60 months which represented the minimum period covered by the new
agreements.
F-30
<PAGE> 73
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Funds
Restricted funds consist of cash and cash equivalents held in trust which
are available for debt service, certain capital improvements and repairs and
maintenance.
Revenues
Electric power revenues are earned from the sale of electricity to Bangor
Hydro-Electric Company ("BHE"), a utility serving a portion of the State of
Maine, under a Power Purchase Agreement (the "Agreement"). Revenue is recorded
at the contract rate specified in the Agreement as the electricity is delivered.
Waste processing revenues consist principally of fees charged to customers
for waste disposal. Substantially all waste processing revenues are earned from
customers located in a geographic region proximate to the facility. Revenue is
generally recorded upon delivery based on rates specified in the applicable
long-term contracts. Certain of these contract rates are adjusted quarterly
based on actual costs incurred in the prior quarter.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
There is no provision in the financial statements for income taxes as the
income or loss is included in the income tax returns of the partners.
Statements of Cash Flows
For purposes of the statements of cash flows, PERC considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, cash equivalents and restricted funds
The carrying amounts reported in the balance sheet for cash, cash
equivalents and restricted funds approximate their fair value.
Bonds payable
The carrying amount of the Company's borrowings under its bonds
payable approximates their fair value.
F-31
<PAGE> 74
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Machinery and equipment......................... $ 66,727,285 $ 66,191,892
Buildings and site improvements................. 30,426,327 30,098,486
Furniture and fixtures.......................... 799,576 787,609
Parts and supplies.............................. 2,041,659 1,783,380
Land............................................ 322,783 322,783
------------ ------------
Total........................................... 100,317,630 99,184,150
Less accumulated depreciation................... (28,996,335) (25,330,907)
------------ ------------
Property, plant and equipment, net.............. $ 71,321,295 $ 73,853,243
============ ============
</TABLE>
4. FINANCING TRANSACTIONS
On May 22, 1986, the Town of Orrington, on behalf of PERC, issued
$50,400,000 of Floating Rate Demand Resource Recovery Revenue Bonds to finance
the Project. Commencing May 1, 1988, the bonds became variable rate obligations
based on rates for certain tax-exempt obligations, as determined weekly by the
remarketing agent for the bonds (4.125% and 5.875% at December 31, 1996 and
1995, respectively).
Additionally, on December 3, 1986, the Town of Orrington, on behalf of
PERC, issued $30,600,000 of Floating Rate Demand Resource Recovery Revenue Bonds
to supplement the previous financing of the Project. These bonds also bear
interest based on rates for certain tax-exempt obligations, as determined weekly
by the remarketing agent for the bonds (4.25% and 6.125% at December 31, 1996
and 1995, respectively).
The bonds are subject to mandatory redemption in quarterly installments of
varying amounts through November 2003 and are subject to redemption at the
option of PERC at the redemption price of 100% of the principal amount thereof
plus accrued interest.
Aggregate principal maturities for the next five years and thereafter are
as follows:
<TABLE>
<S> <C>
1997............................................................ $ 4,800,000
1998............................................................ 6,200,000
1999............................................................ 7,000,000
2000............................................................ 7,800,000
2001............................................................ 8,800,000
Thereafter...................................................... 18,900,000
-----------
Total........................................................... $53,500,000
===========
</TABLE>
The bonds are fully secured by irrevocable letters of credit from a group
of banks. The bonds and letter of credit are collateralized by liens on
substantially all of PERC's assets and contain certain restrictive covenants
which require, among other things, maintenance of working capital, as defined,
and restrict PERC's ability to incur additional indebtedness, make loans and
acquire investments. If necessary, the limited partners are obligated to fund up
to $5,000,000 to reimburse any shortfalls in principal and interest payments
under the bond and related letter of credit agreements.
F-32
<PAGE> 75
PENOBSCOT ENERGY RECOVERY COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INTEREST AND OTHER FINANCING COSTS -- NET
Interest and other financing costs for the years ended December 31, 1996,
1995 and 1994 consist of:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest expense........................... $2,262,680 $2,963,143 $2,433,048
Letter of credit fees...................... 976,982 1,075,143 1,148,917
Amortization of deferred bond financing
costs.................................... 351,252 376,894 398,720
Remarketing and bank fees.................. 288,436 153,904 180,528
Interest income............................ (708,565) (764,819) (504,942)
---------- ---------- ----------
Interest and other financing
costs -- net............................. $3,170,785 $3,804,265 $3,656,271
========== ========== ==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
PERC incurred management fees payable to the general partners of $595,408,
$580,668, and $565,165 in 1996, 1995 and 1994, respectively, in accordance with
the Partnership Agreement. PERC purchases a portion of its supplemental fuel
(wood chips) from KTI BioFuels, L.P., an affiliate of PMC. During 1996, 1995 and
1994, these purchases totalled approximately $279,700, $153,600 and $148,546,
respectively. Accounts payable includes $21,070 and $8,748 due to KTI BioFuels,
L.P. at December 31, 1996 and 1995, respectively.
Effective May 1, 1989, PERC entered into an Operation and Maintenance
Agreement with ESOCO Orrington, Inc., an affiliate of ENI. For the years ended
December 31, 1996, 1995 and 1994, PERC paid operating and maintenance fees to
ESOCO of approximately $4,500,000, $4,400,000 and $4,200,000, respectively, plus
additional approved pass through operating costs. The amounts payable as of
December 31, 1996 and 1995 were $346,359 and $349,031, respectively.
PERC had waste processing revenue of approximately $615,546, $603,820 and
$564,942 from Orrington Waste Ltd. (a limited partnership including certain
general and limited partners of PERC) (OWL) in 1996, 1995 and 1994,
respectively. OWL and PERC have a long-term put-pay agreement under which OWL
pays waste disposal fees to PERC equivalent to those charged to other
municipalities. Included in accounts receivable at December 31, 1996 and 1995 is
approximately $60,160 and $87,296, respectively, related to the waste processing
revenue recognized.
7. WASTE HANDLING AGREEMENTS
Certain of PERC's long-term, put-pay contracts with municipalities for
disposal of solid waste contain provisions which, at the date the bonds are
fully paid, allow the municipalities to purchase the facility or terminate or
extend the contracts.
Certain of the long-term, put-pay contracts with municipalities contain
provisions which allow the municipalities to receive a portion of PERC's annual
cash flows, as defined. Based on PERC's cash flows, as defined, approximately
$619,000, $1,418,000 and $440,000 was payable to these municipalities for 1996,
1995 and 1994, respectively. These amounts are included in other expenses.
F-33
<PAGE> 76
SCHEDULE II
KTI, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- --------- ------------------------- ------------ ----------
ADDITIONS
-------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ---------------------------------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Deducted from assets accounts:
Allowance for doubtful accounts... $ 480,662 23,632 $ 212,355(1) $ 291,939
YEAR ENDED DECEMBER 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts... 156,912 323,750 480,662
YEAR ENDED DECEMBER 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts... 105,577 51,335 156,912
Allowance for notes receivable --
officers/shareholders and
affiliates...................... 1,097,065 618,941(1) 0
478,124(1)
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
F-34
<PAGE> 1
EXHIBIT 3.2
Amended and Restated
as of February 28, 1997
BY-LAWS
OF
KTI, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the State of New Jersey.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of New Jersey as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of the shareholders for the
election of Directors or for any other purpose shall be held at such time and
place, either within or without the State of New Jersey as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meeting of Shareholders for the
election of Directors, and the transaction of such other business as may
properly come before such meeting shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the Meeting. Written notice of the Annual Meeting stating the
place, date and hour and purpose or purposes of the meeting shall be given to
each shareholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Shareholders, for any
purpose or purposes, may be called by a majority of the Board of Directors, the
Chairman of the Board of Directors (the "Chairman") or the President. Such
request shall state the purpose or purposes of the proposed Meeting. Unless
<PAGE> 2
otherwise required by law, written notice of a Special Meeting stating the
place, date and hour of the Meeting and the purpose or purposes for which the
Meeting is called shall be given not less than ten nor more than sixty days
before the date of the Meeting to each shareholder entitled to vote at such
meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all Meetings of Shareholders
for the transaction of business. If, however, such quorum shall not be present
or represented at any Meeting of Shareholders, the shareholders entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the Meeting from time to time, without notice other than announcement at the
Meeting, until a quorum shall be present or represented. At such adjourned
Meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the Meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned Meeting, a notice of
the adjourned Meeting shall be given to each shareholder entitled to vote at the
Meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any Meeting of
Shareholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Unless otherwise provided by law
or the Certificate of Incorporation, each shareholder represented at a Meeting
of Shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. Such votes may be cast
in person or by proxy, but no proxy shall be voted on or after 11 months from
its date, unless such proxy provides for a longer period, and in no event shall
a proxy be valid after three years from its date. The Board of Directors, in its
discretion, or the Officer of the Corporation presiding at a Meeting of
Shareholders, in such Officer's discretion, may require that any votes cast at
such Meeting shall be cast by written ballot, and such ballot shall be so
required at an election of Directors if a shareholder so demands at the election
and before the voting begins.
Section 6. Consent of Shareholders in Lieu of Meeting. Unless otherwise
provided by law or in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Shareholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if all the shareholders entitled to vote thereon consent thereto in
writing; provided that in the case of action taken pursuant to Chapter 10 of the
New Jersey Business Corporation Act (the "NJBCA"), such action may be taken
without a meeting only if all shareholders entitled to vote thereon sign the
written consent and the advance notice required by subsection 14A:5-6 of the
NJBCA is given to all other shareholders. Unless otherwise provided by law or in
the Certificate of Incorporation any action required or permitted to be taken at
any Annual or Special Meeting of Shareholders of the Corporation, other than the
annual election of Directors, may be taken without a meeting and without a vote
upon the written consent of shareholders who would have been entitled to cast
the minimum number of votes which would be necessary to authorize such action at
a meeting at which all shareholders entitled to vote thereon were present and
voting; provided that if such written consent is not signed by all shareholders
who would have been entitled to vote thereon, the advance notice required by
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subsection 14A:5-6 of the NJBCA, if applicable, shall be given to those
shareholders who have not consented in writing.
Section 7. List of Shareholders Entitled to Vote. The Officer or agent
of the Corporation who has charge of the stock transfer books of the Corporation
shall make and certify before every Meeting of Shareholders, a complete list of
the shareholders entitled to vote at the Meeting, arranged in alphabetical order
within each class, series or group of shareholders maintained by the Corporation
for convenience of reference, and showing the address of each shareholder and
the number of shares registered in the name of each shareholder. The list shall
also be produced and kept at the time and place of the Meeting during the whole
time thereof, and may be inspected by any shareholder of the Corporation who is
present. The list shall be prima facie evidence as to who are the shareholders
entitled to examine such list or to vote in person or by proxy at any Meeting of
Shareholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist of not less than three Directors, with the actual number to be
fixed from time to time by a vote of the majority of the Directors then in
office. A Director shall hold office until the Annual Meeting of Shareholders or
thereafter when such Director's successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Except as provided in Section 2 of this Article, Directors
shall be elected by a plurality of the votes cast at Annual Meetings of
Shareholders. Any Director may resign at any time upon notice to the
Corporation. Directors need not be shareholders.
Section 2. Nominations. Nominations for the election of Directors may
be made by the Board of Directors, by a committee appointed by the Board of
Directors or by any shareholder entitled to vote in the election of Directors
generally. Any shareholder entitled to vote in the election of Directors
generally may nominate one or more persons for election as Directors at a
Shareholders' Meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Chairman not later than (i)
with respect to an election to be held at an Annual Meeting of Shareholders 90
days prior to the anniversary date of the immediately preceding Annual Meeting,
and (ii) with respect to an election to be held at a Special Meeting of
Shareholders for the election of Directors, the close of business on the tenth
day following the date on which notice of such Meeting is first given to the
shareholders. Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nominations and of the person or persons to
be nominated; (b) each nominee's age and principal occupation or employment; (c)
the number of shares of stock of the Corporation beneficially owned by each
nominee; (d) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such Meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (e) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are
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to be made by the shareholder; (f) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission and any other information or tangible evidence, such as fingerprints,
which any governmental agency may require the Corporation to provide pursuant to
any federal or state law, rule or regulation and (g) the consent of each nominee
to serve as a Director of the Corporation if so elected. A shareholder who does
not comply with the foregoing procedures may be precluded from nominating a
candidate for election as a Director at a Meeting of Shareholders.
Notwithstanding anything to the contrary contained in this Section 2, if the
Corporation is required to obtain the consent of any governmental agency prior
to the election of any person nominated by a shareholder or if the Board of
Directors or any committee of the Board of Directors determines that a nominee
if elected would jeopardize the retention of any authorization held by the
Corporation issued by a governmental agency, the Board of Directors or any
committee of the Board of Directors may strike such nominee from the ballot or
determine not to place the nominee on the ballot.
Section 3. Vacancies. Any vacancy on the Board of Directors that
results from an increase in the number of Directors may be filled by a majority
of the Board of Directors then in office, and any other vacancy occurring in the
Board of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director.
Section 4. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
shareholders.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of New
Jersey. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as may from time to time be determined by the Board
of Directors. Special meetings of the Board of Directors may be called by the
Chairman, the Vice Chairman, if there be one or more,, the President, or any two
Directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each Director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone, facsimile or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 6. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors or any committee thereof, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the
majority of the directors on any committee present at any meeting shall
constitute a quorum for such committee. The act of a majority at such meeting
shall be the act of the Board of Directors or of the committee. If a quorum
shall not be present at any meeting of the Board of Directors or of any
committee the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
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Section 7. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation of these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.
Section 9. Committees. The Board of Directors shall have four standing
committees, the Audit Committee, the Compensation Committee, the Executive
Committee and the Nominating Committee. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more additional committees, each committee to consist of one or more of the
Directors of the Corporation. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Each committee,
having more than one Director as a member shall elect a director on such
committee as the Chairperson of such committee. Any committee, to the extent
allowed by law and as expressly provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
except that no committee shall have the power to declare dividends, to elect or
remove officers, or to authorize the issue of any class of stock of the
Corporation. Each committee shall keep regular minutes and report to the Board
of Directors when required.
Section 9.A. The Audit Committee. The Audit Committee shall consist of
not less than three Directors, who are not employees of the Corporation or of
any of its subsidiaries and who do not have any significant personal or
corporate business relationships with Corporation or any of its subsidiaries.
The members of the Audit Committee shall be elected by the Board of Directors.
The Audit Committee is authorized and directed to: (a) review the procedures and
policies of the Corporation and its subsidiaries, including but not limited to:
(i) internal security of cash and other assets, (ii) financial controls and
policies, and (iii) risk management and insurance coverages; (b) to confer with
the Officers of the Corporation responsible for financial matters and with
auditors (i) to develop a recommendation to the Board of Directors of the
Corporation for the scope of the audit, (ii)to cause bids to be obtained to
audit the financial statements of the
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Corporation, (iii) to make recommendations to the Board of Directors of a firm
of independent certified public accountants to employ for the annual audit, (iv)
to meet with the auditors upon completion of the audit to review the financial
statements, internal financial controls and to receive comments as to
deficiencies, if any, and (v) to review management responses to such comments
and (c) to carry out such other duties and functions as are customary for the
Audit Committee of a publicly traded corporation or are assigned to the Audit
Committee by the Board of Directors of the Corporation.
The Audit Committee shall meet not less than twice per year and at such other
times as it deems advisable (a) to make recommendations as to the scope of the
audit and to recommend an auditor to conduct the annual audit and (b) to receive
the report of the auditors and thereafter to report its recommendations or
findings to the Board of Directors. The Audit Committee shall keep minutes of
its meetings. The Audit Committee may confer directly with any Officer or
employee of the Corporation at its sole discretion.
Section 9.B. The Compensation Committee. The Compensation Committee
shall consist of not less than two Directors, who are not employees of the
Corporation or of any of its subsidiaries and who do not have any significant
personal or corporate business relationships with Corporation or any of its
subsidiaries. The members of the Compensation Committee shall be elected by the
Board of Directors. The Compensation Committee shall administer the
Corporation's 1994 Long-Term Compensation Incentive Award Plan and any successor
or similar plans, the making of recommendations concerning other bonuses, stock
options, performance, achievement or other incentive plans, and the
determination of salaries of employees who are Directors of the Corporation.
Section 9.C. The Executive Committee. The Executive Committee shall
consist of not less than three Directors. The members of the Executive Committee
shall be elected by the Board of Directors. The function of the Executive
Committee is to review the businesses of the Corporation and to advise the Board
of Directors and the Officers of the Corporation as to potential business
opportunities, strategies and acquisitions and divestitures. The Executive
Committee does not make decisions but acts in an advisory capacity only.
Section 9.D. The Nominating Committee. The Nominating Committee shall
consist of not less than three Directors, at least one of whom is not an
employee of the Corporation or of any of its subsidiaries and who do not have
any significant personal or corporate business relationships with Corporation or
any of its subsidiaries. The members of the Nominating Committee shall be
elected by the Board of Directors. The Nominating Committee shall consider the
size and composition of the Board of Directors, review the performance of
Officers and Directors, and recommend individuals for retention or election as
Officers or Directors
Section 10. Compensation. The Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary or retainer as director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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Section 11. Interested Directors. No contract or transaction between
the Corporation and one or more of its Directors or Officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its Directors or Officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or Officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such Director's or
Officer's or their votes are counted for such purpose if (i) the material facts
as to such Director's or Officer's or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes, approves, or ratifies the contract or transaction by the affirmative
vote of a majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or (ii) the material facts as to such
Director's or Officer's or their relationship or interest and as to the contract
or transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically authorized, approved or
ratified in good faith by the shareholders; or (iii) the contract or transaction
is fair and reasonable as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof or the
shareholders. Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The Officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board of Directors, a
President, the Chairman of the Executive Committee, a Secretary, a Treasurer and
a Controller. The Board of Directors, in its discretion, may also choose one or
more Vice Chairman of the Board of Directors (each of whom must be a Director)
and one or more Senior Vice Presidents, one or more Vice Presidents, one or more
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
Officers of the Corporation need not be shareholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, the Chairman of
the Executive Committee and any Vice Chairman of the Board of Directors, need
such Officers be Directors of the Corporation.
Section 2. Election. The Board of Directors shall elect the Officers of
the Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman,
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any Vice Chairman, the President, the Chairman of the Executive Committee, any
Senior Vice President or any Vice President and any such Officer may, in the
name of and on behalf of the Corporation, take all such action as any such
Officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman shall
preside at all Meetings of Shareholders and of the Board of Directors, and may
be the Chief Executive Officer of the Corporation. Except where by law the
signature of the President is required, the Chairman shall possess the same
power as the President to sign all contracts, certificates and other instruments
of the Corporation which may be authorized by the Board of Directors. The
Chairman shall also perform such other duties and may exercise such other powers
as from time to time may be assigned to the Chairman by these By-Laws or by the
Board of Directors. During the absence or disability of the President, the
Chairman shall exercise all the powers and discharge all the duties of the
President.
Section 5. Chief Executive Officer. The Chief Executive Officer shall,
subject to the control of the Board of Directors, have general supervision of
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. Such Officer shall execute all
bonds, mortgages, contracts and other instruments of the Corporation requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except that the other Officers of
the Corporation may sign and execute documents when so authorized by these
By-Laws, the Board of Directors or the Chief Executive Officer. In the absence
or disability of the Chairman of the Board of Directors, or if there be none,
the President shall preside at all Meetings of Shareholders and the Board of
Directors. The Chief Executive Officer shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to Such
Officer by these By-Laws or by the Board of Directors.
Section 6. President. The Board of Directors shall appoint a President
who may have the duties of the Chief Operating Officer unless another officer of
the Corporation is so designated. The President shall have such duties as
delegated to Such Officer by the Chief Executive Officer, and such other
responsibilities as are delegated to the President by law, the Certificate of
Incorporation or these By-Laws.
Section 7. Chief Operating Officer. The Chief Operating Officer shall,
subject to the control of the Board of Directors and the Chief Executive
Officer, have general supervision over the operations of the Corporation and
shall see that all orders and resolutions of the Board of Directors and all
orders of the Chief Executive Officer are carried into effect.
Section 7.A. The Chairman of the Executive Committee. The Chairman of
the Executive Committee shall preside at all meeting of the Executive Committee
and shall have primary
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responsibility for the review of all acquisitions or divestitures by the
Corporation of new or existing businesses.
Section 8. Senior Vice Presidents, Vice Presidents and Assistant Vice
Presidents. At the request of the Chief Executive Officer or in such Officer's
absence or in the event of such Officer's inability or refusal to act, the Chief
Operating Officer, the President, the Chairman of the Executive Committee, the
Senior Vice President or the Senior Vice Presidents if there are more than one
(in the order designated by the Board of Directors), the Vice President or the
Vice Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer. Each Senior Vice President and each Vice
President shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer, the Chairman, the Chief
Operating Officer, the President or the Chairman of the Executive Committee from
time to time may prescribe. If there be no Chief Executive Officer, no Chairman,
no Chief Operating Officer, no President, no Chairman of the Executive
Committee, no Senior Vice President and no Vice President, the Board of
Directors shall designate the Officer of the Corporation who, in the absence of
the Chief Executive Officer or in the event of the inability or refusal of the
Chief Executive Officer to act, shall perform the duties of the Chief Executive
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Executive Officer. Assistant Vice Presidents
shall perform such duties and have such powers as the Board of Directors, the
Chairman or the President from time to time may prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all Meetings of Shareholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all Meetings
of Shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
Chief Executive Officer, under whose supervision Such Officer shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
Chief Executive Officer may choose another Officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
Such Officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the
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Board of Directors, the Chief Executive Officer, the Chairman, the Chief
Operating Officer, the President or the Chairman of the Executive Committee,
taking proper vouchers for such disbursements, and shall render to the Chief
Executive Officer and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all such person's transactions
as Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, the Treasurer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of such Officer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in such person's possession or control belonging
to the Corporation.
Section 11. Controller. The Controller shall have such duties and
responsibilities as may be assigned to such person by the Chairman, the
President, The Chairman of the Executive Committee or the Treasurer.
Section 12. Assistant Secretaries. Except as may be otherwise provided
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the Chief Executive Officer, or the Secretary, and in the
absence of the Secretary or in the event of such Secretary's disability or
refusal to act, shall perform the duties of the Secretary, and when so acting,
shall have all the power of and be subject to all the restrictions upon the
Secretary.
Section 12. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chief Executive Officer, the
Chairman, the President, the Chairman of the Executive Committee or the
Treasurer, and in the absence of the Treasurer or in the event of such
Treasurer's disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of such office and for the restoration to
the corporation, in case of death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in such person's possession or control belonging to the Corporation.
Section 13. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors, the Chairman, the
President The Chairman of the Executive Committee. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
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Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman or a Vice Chairman of the Board of Directors, or
the President or a Senior Vice President or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. The certificate shall state upon its face that the
Corporation is organized under the laws of the State of New Jersey, the name of
the person to whom issued, and the number and class of shares, and the
designation of series, if any, which such certificate represents.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such Officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any Meeting of Shareholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to the date
fixed for tabulation of written consents (or, if no tabulation date has been
fixed, no more than sixty days prior to the last day on which consents received
may be counted under the NJBCA), nor more than sixty days prior to any other
action. A determination of shareholders of record entitled to notice of or to
vote at a Meeting of Shareholders shall apply to
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any adjournment of the Meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned Meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or shareholder, such notice may be given by mail,
addressed to such director, member of a committee or shareholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telecopy, telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or shareholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such Officer or Officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
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Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, New Jersey". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed, in whole
or in part, or new By-Laws may be adopted by the shareholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-Laws be contained in the notice of such Meeting of
Shareholders or Board of Directors as the case may be. All such amendments must
be approved either by the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
Section 2. Entire Board of Directors. As used in this Article VIII and
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies
in the actual number then fixed.
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<PAGE> 1
EXHIBIT 10.38
LOAN AND SECURITY AGREEMENT
BETWEEN
KTI, INC., KTI ENVIRONMENTAL GROUP, INC.,
KUHR TECHNOLOGIES INC., KTI LIMITED PARTNERS, INC.,
KTI OPERATIONS, INC. AND PERC, INC.,
BORROWERS,
AND
KEY BANK OF NEW YORK,
LENDER.
DATED: OCTOBER 29, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS............................................ 1
ARTICLE 2. THE REVOLVING LOAN..................................... 6
2.1. Advances............................................... 6
2.2. Manner of Borrowing.................................... 6
2.3. Overadvances........................................... 6
2.4. Evidence of Borrower's Obligations..................... 6
2.5. Payments............................................... 7
2.6. Application of Payments and Collections................ 7
ARTICLE 3. LENDER'S COMPENSATION.................................. 7
3.1. Interest............................................... 7
3.2. Underwriting Fee....................................... 7
3.3. Facility Fee........................................... 7
3.4. Computation of Interest and Fees....................... 7
ARTICLE 4. APPLICATION OF PROCEEDS................................ 8
ARTICLE 5. SECURITY INTEREST IN COLLATERAL........................ 8
ARTICLE 6. RECOURSE TO SECURITY................................... 8
ARTICLE 7. INDUCING REPRESENTATIONS............................... 8
7.1. Organization and Qualifications........................ 8
7.2. Corporate Name and Address............................. 9
7.3. Subsidiaries........................................... 9
7.4. Legally Enforceable Agreement.......................... 9
7.5. Solvent Financial Condition............................ 9
7.6. Financial Statements................................... 9
7.7. Forecasts.............................................. 10
7.8. Joint Ventures......................................... 10
7.9. Patents, Trademarks, Copyrights and Licenses........... 10
7.10. Existing Business Relationship......................... 10
7.11. Broker's Fees.......................................... 10
7.12. Investment Company Act; Federal Reserve Board
Regulations................... 10
7.13. Tax Returns............................................ 11
7.14. Litigation............................................. 11
7.15. Penobscot Energy Recovery Company and Maine Energy
Recovery Company Limited Partnership................... 11
7.16. Power Purchase Contracts............................... 11
7.17. KTI Operations Operation and Maintenance Agreement..... 11
(i)
<PAGE> 3
7.18. Receivables Locations................................ 12
7.19. Existing Indebtedness................................ 12
7.20. Existing Liens....................................... 12
7.21. Material Agreements.................................. 12
7.22. Corporate Restrictions............................... 12
7.23. Survival of Representations and Warranties........... 12
ARTICLE 8. FINANCIAL STATEMENTS AND INFORMATION;
CERTAIN NOTICES TO LENDER.......................... 12
8.1. Financial Data....................................... 12
8.2. Projections.......................................... 13
8.3. Notice of Event of Default and Other Adverse Business
Developments....................................... 13
8.4. Other Information.................................... 14
ARTICLE 9. ACCOUNTING........................................... 14
ARTICLE 10. AFFIRMATIVE COVENANTS................................ 15
10.1. Business and Existence............................... 15
10.2. Transactions with Affiliates......................... 15
10.3. Taxes................................................ 15
10.4. Compliance with Laws................................. 15
10.5. Compliance with ERISA................................ 15
10.6. Business Records..................................... 15
10.7. Litigation........................................... 15
10.8. Events of Default.................................... 15
10.9. Name Change.......................................... 15
10.10. Access to Books and Records.......................... 16
10.11. Solvent.............................................. 16
10.12. Compliance with Environmental Laws................... 16
10.13. Primary Deposit Accounts............................. 16
10.13. Revolving Loan Balances.............................. 16
ARTICLE 11. NEGATIVE COVENANTS................................... 16
11.1. Indebtedness......................................... 16
11.2. Guaranties........................................... 16
11.3. Mergers; Consolidations.............................. 16
11.4. New Business......................................... 16
11.5. Sale or Disposition.................................. 16
11.6. Acquisitions......................................... 17
11.7. Defaults............................................. 17
11.8. Loans................................................ 17
11.9. Limitations on Liens................................. 17
11.11. Affiliate Transactions............................... 18
(ii)
<PAGE> 4
11.12. Borrower's Name and Offices.......................... 18
11.14. Fiscal Year.......................................... 18
11.16. Subsidiaries......................................... 18
ARTICLE 12. FINANCIAL COVENANTS.................................. 18
12.1. Minimum Current Ratio................................ 18
12.2. Maximum Leverage Ratio............................... 19
ARTICLE 13. FURTHER RIGHTS OF LENDER............................. 19
13.1. Lender's Right to Take Certain Actions............... 19
13.2. Lender's Rights to Perform Borrower's Obligations.... 19
13.3. Lender's Right to Set-Off............................ 19
13.4. Lender's Right of Inspection......................... 20
ARTICLE 14. CONDITIONS PRECEDENT; CLOSING........................ 20
ARTICLE 15. TERM................................................. 21
ARTICLE 16. EVENTS OF DEFAULT.................................... 21
16.1. Defaults............................................. 22
16.2. Obligations Immediately Due.......................... 22
16.3. Continuation of Security Interests................... 22
ARTICLE 17. REMEDIES OF LENDER................................... 22
17.1. Rights Under Uniform Commercial Code................. 22
17.2. Waiver of Rights by Borrower......................... 23
17.3. Lender's Rights...................................... 23
17.4. Borrower to Pay Costs................................ 24
ARTICLE 18. GENERAL PROVISIONS................................... 24
18.1. Rights Cumulative.................................... 24
18.2. Successors and Assigns............................... 24
18.3. Notice............................................... 24
18.4. Strict Performance................................... 25
18.5. Waiver of Right to Jury Trial........................ 26
18.6. Amendments........................................... 26
18.7. Waiver............................................... 26
18.8. Conflict of Laws..................................... 26
18.9. Expenses............................................. 27
(iii)
<PAGE> 5
LIST OF EXHIBITS
EXHIBIT A Schedule of Receivables' Records' Locations
EXHIBIT B Schedule of Litigation
EXHIBIT C Form of Revolving Loan Note
EXHIBIT D List of Subsidiaries and Affiliates of Each Borrower
EXHIBIT E List of Existing Indebtedness of Each Borrower
EXHIBIT F Form of Pledge Agreement
EXHIBIT G Partnership Agreement for Penobscot Energy Recovery
Company, L.P.
EXHIBIT H Partnership Agreement for Maine Energy Recovery
Company, L.P.
EXHIBIT I List of Existing Power Purchase, Waste Handling and
Additional Material Contracts
EXHIBIT J List of all Tradenames
EXHIBIT K List and Description of Borrowers' Joint Ventures
EXHIBIT L List of Existing Liens Affecting the Borrowers
EXHIBIT M Operation and Maintenance Agreement between Maine
Energy Recovery Company and KTI Operations, Inc.
(iv)
<PAGE> 6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT made this 29th day of October, 1996,
by and between KTI, INC., a New Jersey corporation with its principal office and
place of business at 7000 Boulevard East, Guttenberg, New Jersey 07093 ("KTI"),
KTI Environmental Group, Inc., a New Jersey corporation with its principal
office and place of business at 7000 Boulevard East, Guttenberg, New Jersey
07093 ("KTI Environmental"), Kuhr Technologies Inc., a New Jersey corporation
with its principal office and place of business at 7000 Boulevard East,
Guttenberg, New Jersey 07093 ("Kuhr"), KTI Limited Partners, Inc., a Delaware
corporation with its principal office and place of business at 7000 Boulevard
East, Guttenberg, New Jersey 07093 ("KTI Limited"), KTI Operations, Inc., a
Delaware corporation with its principal office and place of business at 7000
Boulevard East, Guttenberg, New Jersey 07093 ("KTI Operations") and PERC, INC.,
a Delaware corporation with its principal office and place of business at 7000
Boulevard East, Guttenberg, New Jersey 07093 ("PERC") (KTI, KTI Environmental,
Kuhr, KTI Limited, KTI Operations and PERC referred to herein individually, as
the "Borrower" and, collectively, as the "Borrowers"), and KEY BANK OF NEW YORK,
a New York banking corporation, with its principal executive office and place of
business at 66 South Pearl Street, Albany, New York 12207 (the "Lender").
RECITALS:
A. Borrowers have requested that Lender extend a One Million Dollar
($1,000,000.00) line of credit facility to provide Borrowers with continued
working capital support.
B. Lender is willing to provide Borrowers with a line of credit
facility on the terms and conditions set forth herein.
AGREEMENT:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):
1.1. "Account Debtor" shall mean any Person who is or may become
obligated under or on account of any Receivable.
1.2. "Advance" shall mean any loan or advance by the Lender with
respect to the Revolving Loan.
1.3. "Affiliate" shall mean any Person: (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, any
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<PAGE> 7
Borrower; (ii) which beneficially owns or holds 5% or more of any class of the
Voting Stock of any Borrower; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of the equity interest)
of which is beneficially owned or held by any Borrower. For purposes hereof,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
1.4. "Base Rate" shall mean the rate of interest set, determined or
announced on a periodic basis by Lender as its "Base Rate" which rate of
interest is not necessarily the lowest rate charged by Lender on loans and other
credits which may be extended by Lender at rates both above and below the Base
Rate.
1.5. "Capital Expenditures" shall mean expenditures which are required
to be capitalized in accordance with Generally Accepted Accounting Principles
and shall include all payments in respect of Capital Leases and leasehold
improvements.
1.6. "Closing Date" shall mean the date on which all of the conditions
precedent set forth in Section 14 are satisfied and the initial Advance is made
hereunder.
1.7. "Collateral" shall mean all of the Property and interests in
Property described in Section 5 hereof, and all other personal Property of
Borrower and interests of Borrower in personal Property that now or hereafter
secures the payment and performance of any of the Obligations pursuant to any of
the Loan Documents or otherwise.
1.8. "Current Assets" shall mean at any date the amount at which all of
the current assets of KTI would be properly classified as current assets on
KTI's consolidated balance sheet at such date in accordance with Generally
Accepted Accounting Principles.
1.9. "Current Liabilities" shall mean at any date the amount at which
all of the current liabilities of KTI would be properly classified as current
liabilities on a consolidated balance sheet at such date in accordance with
Generally Accepted Accounting Principles. Obligations to Lender under this
Agreement in respect of the Revolving Loan shall be treated as Current
Liabilities.
1.10. "Current Ratio" shall mean, for any fiscal period of KTI, the
ratio of (i) Current Assets for such period to (ii) Current Liabilities for such
period.
1.11. "Default" shall mean an event or condition the occurrence of
which would, with the lapse of time or the giving of notice, or both, become an
Event of Default.
1.12. "Environment" shall mean any water or water vapor, any land
including land surface or subsurface, air, fish, wildlife, biota and all other
natural resources.
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<PAGE> 8
1.13. "Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
Environment and/or governing use, storage, treatment, generation,
transportation, processing, handling, production or disposal of hazardous
substances and the rules, regulations, policies, guidelines, interpretations,
decisions orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
1.14. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.15. "Events of Default" shall have the meaning set forth in Article
16 of this Agreement.
1.16. "Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles consistently applied and maintained throughout
the period indicated and consistent with the prior financial practice of the
Borrowers and any predecessor, except for changes mandated by the Financial
Accounting Standards Board or any similar accounting authority of comparable
standing. Whenever any accounting term is used herein which is not otherwise
defined, it shall be interpreted in accordance with Generally Accepted
Accounting Principles.
1.17. "Indebtedness" shall mean and include all obligations for
borrowed money of any kind or nature, including funded and unfunded debt,
contingent obligations under letters of credit, and all obligations for the
acquisition or use of any fixed asset, including capitalized leases, or
improvements which are payable over a period longer than one year, regardless of
the term thereof or the person or persons to whom the same is payable.
1.18. "Leverage Ratio" shall mean the ratio of Borrowers' (i) total
Liabilities to (ii) Tangible Net Worth.
1.19. "Liabilities" shall have the meaning given to that term in
accordance with Generally Accepted Accounting Principles. Liabilities to
Affiliates shall be treated as Liabilities except where excluded by
consolidation in accordance with Generally Accepted Accounting Principles.
1.20. "Lien" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and including,
but not limited to, the security interest, security title or lien arising from a
security agreement, mortgage, deed of trust, deed to secure debt, encumbrance
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For the
purpose of this Agreement, Borrowers shall be deemed to be the owners of any
Property which it has acquired or holds subject to a conditional
3
<PAGE> 9
sale agreement or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security purposes.
1.21. "Loan" shall mean the loans and Advances made by the Lender
hereunder, and shall include the Revolving Loan.
1.22. "Loan Documents" shall mean all documents and instruments to be
delivered by Borrowers under this Agreement or in connection with the Loan, as
the same may be amended, modified or supplemented from time to time.
1.23. "Maximum Amount of the Revolving Facility" shall mean One Million
Dollars ($1,000,000.00).
1.24. "Obligations" shall mean and include all loans (including the
Loans), advances, debts, liabilities, obligations, covenants and duties owing by
any Borrower to Lender (or to any entity under common control with Lender) of
any kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under this Agreement, the Loan
Documents or under any other agreement or by operation of law, whether or not
for the payment of money, whether arising by reason of an extension of credit,
opening, guaranteeing or confirming of a letter of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
due or hereafter arising and however acquired. The term includes, but without
limitation, all interest, charges, expenses, commitment, facility, collateral
management or other fees, attorneys' fees, and any other sum chargeable to any
Borrower under this Agreement, the Loan Documents or any other agreement with
Lender.
1.25. "Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, joint stock company, land trust,
business trust or unincorporated organization, or a government or agency or
political subdivision thereof.
1.26. "Plan" means an employee benefit plan or other plan now or
hereafter maintained for employees of any Borrower or any subsidiary and covered
by Title IV of ERISA.
1.27. "Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
1.28. "Purchase Money Indebtedness" means and includes (i) any
Indebtedness (other than the Obligations) for the payment of all or any part of
the purchase price of any fixed assets, (ii) any Indebtedness (other than the
Obligations) incurred at the time of or within ten (10) days prior to or after
the acquisition of any fixed assets for the purpose of financing all or any part
of the purchase price thereof, and (iii) any renewals, extensions or
refinancings thereof and any increases not greater than ten percent (10%) in the
principal amounts thereof, outstanding at the time.
4
<PAGE> 10
1.29. "Receivables" shall mean and include all present and future
accounts, contract rights, promissory notes, chattel paper, instruments and
documents, bonds, certificates and policies of insurance and insurance proceeds,
investment securities, notes, instruments and deposit accounts, book accounts,
credits and reserves and all forms of obligations whatsoever owing, together
with all instruments, all documents of title representing any of the foregoing,
and all rights in any merchandise or goods which any of the same may represent,
all files and records with respect to any collateral or security given by any
Borrower to Lender, together with all right, title, security and guaranties with
respect to each Receivable, including any right of stoppage in transit, whether
now owned or hereafter created or acquired by any Borrower or in which any
Borrower now has or hereafter acquires any interest.
1.30. "Reportable Event" shall have the meaning assigned to that term
in Title IV of ERISA.
1.31. "Revolving Loan" shall mean the loan and Advances to be made by
Lender to Borrower pursuant to Article 2 of this Agreement.
1.32. "Revolving Loan Note" shall mean the promissory note
substantially in the form annexed hereto as Exhibit "C", to be given by
Borrowers to Lender to evidence the Revolving Loan.
1.33. "Solvent" shall mean when used with respect to any Person, such
Person (i) owns property the fair value of which is greater than the amount
required to pay all of such Person's Indebtedness (including contingent debts),
(ii) owns property the present fair salable value of which is greater than the
amount that will be required to pay the probable liabilities of such Person on
its then existing Indebtedness as such become absolute and matured, (iii) is
able to pay all of its Indebtedness as such Indebtedness matures, and (iv) has
capital sufficient to carry on its then existing business.
1.34. "Tangible Net Worth" shall mean at any date a sum equal to:
(i) the consolidated stockholders' equity of KTI and its
consolidated subsidiaries plus the amount reported by Maine Energy
Recovery Company as "deferred revenue" on its balance sheet (net of any
minority interests) as a result of the sale of electric power capacity
to Central Maine Power Company pursuant to a power purchase agreement
dated May 3, 1996,
MINUS
(ii) the amount (to the extent reflected in determining such
consolidated stockholders' equity) of (i) all investments in
unconsolidated subsidiaries, (ii) all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organization or developmental
expenses of other intangible items; provided, however, that in no event
shall KTI's
5
<PAGE> 11
investment in PERC be treated as including an amount determined in
accordance with this paragraph.
1.35. "This Agreement" shall include all amendments, modifications and
supplements and shall refer to this Agreement as the same may be in effect at
the time such reference becomes operative.
1.36. "Voting Stock" shall mean securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
2. THE REVOLVING LOAN.
2.1. Advances. For so long as no Default or Event of Default exists,
Lender, in its sole discretion, shall lend to Borrowers on the request of any
Borrower a sum equal up to the Maximum Amount of the Revolving Loan. A
determination of whether to make any requested Advance shall be within Lender's
sole discretion. The outstanding principal balance of the Revolving Loan shall
be payable on demand. The above provisions and certain other provisions of this
Agreement are intended to set forth the manner of computation of certain
limitations of the amounts which the Lender intends to loan or advance to
Borrower but neither the Lender's discretionary right to make additional loans
and advances to Borrower nor the security interests, liens or mortgages granted
to Lender in any collateral shall in any way be limited by any such provision or
by the type or types of collateral utilized in making any such computation.
2.2. Manner of Borrowing. The Borrowers shall give Lender telephonic
notice (promptly confirmed in writing, if Lender so requests) of each Advance
requested by it not later than 12:00 noon (prevailing time) on the date such
Advance is to be made. Providing no Event of Default has occurred, Lender shall
make such Advance on such date by transferring the amount thereof in immediately
available funds for credit to such account (other than a payroll account) at a
bank in the United States as the Borrower may specify. Lender shall not be
responsible for any failure of any amount so transferred to be credited to any
such account, unless such failure is due to Lender's gross negligence or willful
misconduct.
2.3. Overadvances. Borrowers acknowledge that Lender has advised it
that Lender does not presently intend to permit Borrowers to incur Obligations
at any time in a principal amount exceeding the Maximum Amount of the Revolving
Loan. However, it is agreed that should Obligations of Borrowers to Lender
incurred under the Revolving Loan or otherwise exceed that figure or any other
limitation herein set forth, all such obligations shall nevertheless constitute
Obligations under this Agreement and shall be entitled to the benefit of all
security and protection under this Agreement and all Loan Documents.
2.4. Evidence of Borrowers' Obligations. Borrowers' obligation to pay
the principal of, and interest on, the Revolving Loan shall be evidenced by the
Revolving Loan Note,
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<PAGE> 12
executed by Borrowers and delivered to Lender on the date hereof, in the form of
Exhibit "C" hereto.
2.5. Payments. All payments with respect to the Obligations shall be
made by Borrowers to Lender in U.S. currency and without any defense, offset or
counterclaim of any kind, at 66 South Pearl Street, Albany, New York by noon
(Albany, New York time) on the date when due. Whenever any payment to be made
shall otherwise be due on a day that is not a business day, such payment shall
be made on the next succeeding business day and such extension of time shall be
included in computing interest in connection with any such payment. Lender is
hereby authorized, in its sole and absolute discretion from time to time (and
without regard to whether or not a Default or Event of Default exists) to charge
any account of Borrowers maintained with Lender for each payment of any of the
Obligations as they become due.
2.6. Application of Payments and Collections. Borrowers irrevocably
waive the right to direct the application of any and all payments and
collections at any time or times hereafter received by Lender from or on behalf
of Borrowers and Borrowers do hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all such payments
and collections received at any time or times hereafter by Lender against the
Obligations, in such manner as Lender may deem advisable, notwithstanding any
entry by Lender upon any of its books and records. Credit will be given to
Borrowers for funds received during business hours one (1) business day after
receipt thereof by Lender conditional upon final collection.
3. LENDER'S COMPENSATION.
3.1. Interest. Borrowers shall pay interest monthly on the first day of
each month for the preceding month, commencing November 1, 1996, on the average
daily unpaid principal amount of the Revolving Loan, at a fluctuating rate which
is equal to the Base Rate plus one quarter percent (1/4%). On and after the
occurrence of an Event of Default hereunder, Borrowers shall pay interest on all
Obligations due to Lender at a fluctuating rate which is equal to the Base Rate
plus three and one-quarter percent (3 1/4%). In no event shall any interest to
be paid hereunder or under any Loan Document exceed the maximum rate permitted
by law.
3.2. Underwriting Fee. Borrowers shall pay Lender on the Closing Date
an underwriting fee in the amount of Five Thousand Dollars ($5,000.00).
3.3. Facility Fee. Borrowers shall pay Lender on the Closing Date a
facility fee in the amount of Two Thousand Five Hundred Dollars ($2,500.00).
3.4. Computation of Interest and Fees. All interest and fees hereunder
shall be computed on the basis of a year consisting of three hundred sixty (360)
days for the number of days actually elapsed and may be charged by Lender to any
account of Borrowers with Lender or any Affiliate of Lender.
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4. APPLICATION OF PROCEEDS. The proceeds of the Loan shall be used
solely by Borrowers as working capital needed in the normal operation of
Borrowers' businesses. Any advance of loan proceeds by any Borrower to any
Affiliate (other than a Borrower) shall be deemed an Event of Default hereunder.
5. SECURITY INTEREST IN COLLATERAL. To secure the prompt payment and
performance of all of Borrowers' Obligations to Lender, Borrowers jointly and
severally transfer and assign to Lender and grant Lender, subject to those Liens
specifically described on Exhibit "E" attached, a first priority Lien on and
first security interest in all of the following Property and interests in
Property of Borrowers, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located:
(A) All Receivables;
(B) All monies or other Property of any kind, now or at any time
or times hereafter, in the possession or under the control of
Lender or any entity under common control with Lender or any
representative, agent or correspondent of Lender;
(C) All of the issued and outstanding capital stock, or other
equity interest, as the case may be, of any first level
subsidiary of any of the Borrowers. Such security shall be
evidenced by the execution and deliver of pledge agreements in
substantially the form of Exhibit "F" attached;
(D) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), and (C)
above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of
the Collateral and claims against any Person for loss of,
damage to, or destruction of any or all of the Collateral; and
(E) All books and records (including, without limitation, customer
lists, credit files, computer programs, printouts and other
computer materials and records) of Borrowers pertaining to any
of (A), (B), (C) and (D) above.
6. RECOURSE TO SECURITY. Recourse to security shall not be required for
any Obligation hereunder upon the occurrence and during the continuance of any
Event of Default. The Lender shall not be required to exercise any remedy
granted hereunder with respect to the Collateral as a condition of enforcing its
rights against the Borrowers.
7. INDUCING REPRESENTATIONS. In order to induce Lender to make the
Loan, Borrowers jointly and severally make the following representations and
warranties to Lender:
7.1. Organization and Qualifications. Each of KTI, KTI Environmental,
and Kuhr is a corporation duly organized and existing under the laws of the
State of New Jersey. Each of
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KTI Limited, KTI Operations and PERC is a corporation duly organized and
existing under the laws of the State of Delaware. Each Borrower is qualified to
do business in every jurisdiction where the nature of its business requires it
to be so qualified and where failure to so qualify might materially affect its
business or assets.
7.2. Corporate Name and Address. Other than as listed on Exhibit "J",
during the preceding five (5) years, no Borrower has been known as or used any
corporate, fictitious or trade names. Borrowers' executive offices are at the
addresses set forth above.
7.3. Subsidiaries. Other than as listed on Exhibit "D" hereto, no
Borrower has any subsidiaries or Affiliates (not including individuals). Exhibit
"D" also contains, as of the date hereof, an organizational chart of the
Borrowers and their Affiliates, accurately reflecting, among other things, all
equity interests owned by each in any Borrower or their Affiliates. All
Affiliates listed on Exhibit "D" are either limited partnerships, corporations
or limited liability companies duly organized and existing under the laws of the
state designated on such chart as their respective states of incorporation or
organization, as the case may be.
7.4. Legally Enforceable Agreement. The execution, delivery and
performance of this Agreement, and each and all of the other Loan Documents and
all and any other instruments and documents to be delivered by Borrowers or
their Affiliates hereunder and the creation of all Liens, mortgages and security
interests provided for herein are within each Borrower's corporate power, have
been duly authorized by all necessary or proper corporate action (including the
consent of shareholders where required), are not in contravention of any
agreement or indenture to which any Borrower is a party or by which it is bound,
or of the Certificate of Incorporation or By-Laws of any Borrower, and to the
best of each Borrower's knowledge are not in contravention of any provision of
law and the same do not require the consent or approval of any governmental
body, agency, authority or any other person which has not been obtained and a
copy thereof furnished to Lender.
7.5. Solvent Financial Condition. Each Borrower is Solvent.
7.6. Financial Statements. The consolidated balance sheet and income
statements of KTI as of December 31, 1995, certified by KTI's regularly retained
certified public accountants, and the internally prepared consolidated balance
sheet as of June 30, 1996 of KTI, and consolidated income statement for the
period ending June 30, 1996 of KTI, copies of which have been delivered to
Lender, fairly present its financial condition and results of operations as
relevant and as of such dates and there have been no material adverse changes
since such dates. To the best of KTI's knowledge, after due investigation by
KTI, as of December 31, 1995, KTI had no contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments, or unrealized or unanticipated
losses from any unfavorable commitments which were not disclosed in such
December 31, 1995 financial statements or the notes thereto which either
individually or in the aggregate would be material.
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7.7. Forecasts. Prior to the Closing Date, KTI shall deliver to Lender
forecasted financial statements consisting of consolidated balance sheets, cash
flow statements and income statements together with appropriate supporting
details and a statement of the underlying assumptions, ranges and limitations
(the "Forecasts"). Such Forecasts shall cover the one-year period commencing on
January 1, 1997 and be prepared on a monthly basis. Such shall be prepared in
good faith and, subject to the limitations and uncertainties inherent in trying
to project future economic and business trends or results, shall represent the
good faith opinion of KTI and its senior management and have a reasonable basis.
The Forecasts shall indicate all material assumptions used in preparing such
Forecasts, including the issuance of preferred or common stock, the disposition
of Datafocus, and the acquisition of other entities or additional ownership in
existing subsidiaries or Affiliates.
7.8. Joint Ventures. Other than as listed and described on Exhibit "K",
no Borrower is engaged in any joint venture or partnership with any other
person.
7.9. Patents, Trademarks, Copyrights and Licenses. Each Borrower owns
or possesses all the patents, trademarks, service marks, trade names, copyrights
and licenses necessary for the present and planned future conduct of its
business without any known material conflict with the rights of others.
7.10. Existing Business Relationship. There exists no actual or
threatened termination, cancellation or limitation of, or any materially adverse
modification or change in, the business relationship of any Borrower with any
customer or group of customers whose purchases individually or in the aggregate
are material to the operations of any Borrower, or with any material supplier
(other than in the ordinary course of business where one supplier is replaced by
another offering terms not materially different to Borrower).
7.11. Broker's Fees. No broker's or finder's fees or commissions will
be payable by Borrower to any person in connection with the transactions
contemplated by this Agreement.
7.12. Investment Company Act: Federal Reserve Board Regulations. No
Borrower is an "investment company", or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (15 U.S.C.
Sections 80(a)(1), et seq.). The makings of the Loan hereunder by Lender,
the application of the proceeds and repayment thereof by the Borrowers and the
performance of the transactions contemplated by this Agreement will not violate
any provision of said Act, or any rule, regulation or order issued by the
Securities and Exchange Commission thereunder. No Borrower owns any margin
security as that term is defined in Regulation U of the Board of Governors of
the Federal Reserve System and the proceeds of the borrowings made pursuant to
this Agreement will be used only for the purposes contemplated hereunder. None
of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin security or for any other purpose which might constitute any of the loans
under this Agreement a "purpose credit" within the meaning of said
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Regulation U or Regulations G or X of the Federal Reserve Board. No Borrower
will take, or permit any agent acting on its behalf to take, any action which
might cause this Agreement or any document or instrument delivered pursuant
hereto to violate any regulation of the Federal Reserve Board.
7.13. Tax Returns. Borrowers have filed all tax returns (Federal, State
or local) required to be filed to date and paid all taxes shown thereon to be
due including interest and penalties or has provided adequate reserves therefor.
No assessments have been made against any Borrower by any taxing authority nor
has any penalty or deficiency been made by any such authority. No Federal income
tax return of any Borrower is presently being examined by the Internal Revenue
Service nor are the results of any prior examination by the Internal Revenue
Service or any State or local tax authority being contested by any Borrower.
7.14. Litigation. Other than as described on Exhibit "B" attached
hereto, no action or proceeding which, if adversely decided, would materially
affect or impair any Borrower's business or financial condition, is now pending
or, to the knowledge of any Borrower, is threatened against any Borrower at law,
in equity or otherwise, before any court, board, commission, agency or
instrumentality of the Federal or State government or of any municipal
government or any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators and no Borrower has accepted liability for any such action
or proceeding. There is no proceeding pending before any governmental agency
(Federal, State or local) and, to the best of each Borrower's knowledge, no
investigation has been commenced before any such government agency the effect of
which, if adversely decided, would materially affect or impair any Borrower's
business or financial condition.
7.15. Penobscot Energy Recovery Company, L.P. and Maine Energy Recovery
Company, L.P. Exhibit "G" and "H" contain, respectively, the limited partnership
agreements of Penobscot Energy Recovery Company ("Penobscot Energy") and Maine
Energy Recovery Company Limited Partnership ("Maine Energy"), including all
amendments thereto. Both Penobscot Energy and Maine Energy are limited
partnerships duly organized and existing under the laws of Maine, and each are
qualified to do business in every jurisdiction where the nature of their
businesses require them to be so qualified and where failure to so qualify might
materially affect their respective businesses or assets.
7.16. Power Purchase Contracts. Exhibit "I" contains a list of all
existing power purchase, waste handling and similar contracts entered into by
Penobscot Energy and Maine Energy, providing information regarding such
contracts in such form as may be required by Lender.
7.17. KTI Operations Operation and Maintenance Agreement. Exhibit "M"
contains a copy of the current Operation and Maintenance Agreement between Maine
Energy Recovery Company and KTI Operations, including all amendments thereto.
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7.18. Receivables Locations. Annexed hereto as Exhibit "A" is a list
showing all places at which the Borrowers maintain, or will maintain, records
relating to Receivables.
7.19. Existing Indebtedness. No Borrower has any existing Indebtedness
other than described on Exhibit "E."
7.20. Existing Liens. No Borrower is subject to any Lien other than
those described on Exhibit "L."
7.21. Material Agreement. No Borrower is in default under any contract,
lease, loan, indenture, mortgage, security agreement or other material agreement
or obligation to which it is a party or by which any of its properties are
bound.
7.22. Corporate Restrictions. No Borrower is a party to any indenture,
agreement, instrument or lease or subject to any charter by-law or other
corporate restriction materially and adversely affecting the business,
operations, properties or assets of any Borrower.
7.23. Survival of Representations and Warranties. Borrowers jointly and
severally covenant, warrant and represent to Lender that all representations and
warranties of Borrowers contained in this Agreement or any of the other Loan
Documents shall be true at the time of each Borrower's execution of this
Agreement and the other Loan Documents, and Lender's right to bring an action
for breach of any such representation or warranty or to exercise any remedy
hereunder based upon the breach of such representation or warranty shall survive
the execution, delivery and acceptance hereof by the Lender and the closing of
the transactions described herein or related hereto.
8. FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO LENDER. So
long as Borrowers shall have any Obligation to Lender under this Agreement, they
shall deliver or cause to be delivered to Lender:
8.1. Financial Data.
(i) Quarterly Financial Data. As soon as practicable and in
any event within forty-five (45) days after the end of the first three
quarters of each fiscal year, commencing with the fiscal quarter ending
September 30, 1996, an unaudited consolidated and consolidating balance
sheet of KTI and unaudited consolidated and consolidating statement of
operations and cash flow for KTI reflecting results of operations from
the beginning of KTI's fiscal year to the end of such quarter and for
such quarter, fairly presenting the financial condition and results of
operations of KTI as of the applicable dates and for the applicable
periods and prepared in accordance with GAAP applied on a consistent
basis with prior practices (except as otherwise stated therein and
except that such statements need not contain all footnotes), subject to
changes resulting from normal year-end and audit adjustments, setting
forth in each case in comparative form consolidated and consolidating
figures for such periods and for the
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corresponding periods in the preceding fiscal year and certified by the
chief financial officer of KTI, subject to changes for year-end and
audit adjustments; (ii) as soon as practicable, and in any event upon
the earlier of (A) the filing by KTI of its report on Form 10-K with
the Securities and Exchange Commission or (B) one hundred five (105)
days after the end of each fiscal year, audited consolidated and
unaudited consolidating balance sheets of KTI as at the end of such
year, setting forth in each case in comparative form corresponding
figures from the budget referred to in clause (iii) hereof and from the
preceding annual audit, all in reasonable detail, and, in the case of
such consolidated financial statements, examined by independent public
accountants of recognized national standing selected by KTI, whose
report shall state that the scope of the examination was made in
accordance with GAAP; (iii) not later than 30 days prior to the
commencement of each upcoming fiscal year of KTI, beginning with the
fiscal year commencing January 1, 1997, the annual budget of KTI
presenting monthly and annual information on a consolidated and
consolidating basis; (iv) at the time of the delivery of the financial
statements required by clauses (i) and (ii) of this Section 8.1, a
certificate of the chief financial officer of KTI (A) to the effect
that to the best knowledge of KTI there exists no Event of Default, or
if such Event of Default exists, specifying the nature thereof, the
period of existence thereof and the action KTI proposes to take with
respect thereto, and (B) also setting forth the calculations required
to establish whether KTI is in compliance with Section 12; (v) as soon
as available, any written report pertaining to material deficiencies in
respect of KTI's internal control matters submitted to KTI by KTI's
independent accountants in connection with each annual or interim
special audit of the financial condition of KTI made by such
independent public accountants and, upon a request by Lender, a written
statement prepared by the chief financial officer of KTI summarizing
the actions that KTI proposes to take in response thereto; (vi) with
reasonable promptness, such other financial information, or information
respecting results of operations, business or prospects of KTI, as
Lender may reasonably request.
8.2. Projections. Not more than thirty (30) days following the end of
each fiscal year of Borrowers, projections prepared by Borrowers consisting of
projected balance sheets, cash flow statements, and profit and loss statements,
on a monthly basis for each of the forthcoming twelve months, together with such
appropriate supporting details and statements of assumptions as Lender may
reasonably request;
8.3. Notice of Event of Default and Other Adverse Business
Developments. Within five (5) days after becoming aware of the existence of a
Default or any Event of Default under this Agreement or after becoming aware of
any developments or other information which more likely than not would
materially or adversely affect its properties, business, prospects, profits or
condition (financial or otherwise) or its ability to perform this Agreement,
including, without limitation, the following:
(i) any substantial dispute that may arise between any Borrower and any
governmental regulatory body or law enforcement authority, including
any action by the
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United States Securities and Exchange Commission and any action
relating to any tax liability of any Borrower;
(ii) all litigation commenced against any Borrower where the amount
claimed in any one suit or action is $100,000.00 or more and all
litigation where the amount claimed in the aggregate is $100,000.00 or
more except when the same is fully covered by insurance and the insurer
accepts liability therefor;
(iii) any labor controversy resulting in or threatening to result in a
strike or work stoppage against any Borrower;
(iv) any proposal by any public authority to acquire the assets or
business of any Borrower;
(v) any proposed or actual change of any Borrower's name, identity or
corporate structure; and
(vi) any other matter which has resulted or may result in a material
adverse change in any Borrower's financial condition or operations.
In each case, such Borrower will provide Lender with telephonic or
telegraphic notice specifying and describing the nature of such Event of Default
or development or information, and such anticipated effect, which telephonic or
telegraphic notice shall be promptly confirmed in writing within five (5) days;
and
8.4. Other Information. Such other information respecting the financial
condition of any Borrower or any property of any Borrower in which Lender may
have a Lien as Lender may, from time to time, reasonably request. Each Borrower
authorizes Lender, upon the occurrence and during the continuance of an Event of
Default and upon reasonable notice to Borrowers, to communicate directly with
the Borrowers' independent certified public accountants and authorizes those
accountants to disclose to Lender any and all financial statements and other
information of any kind that they may have with respect to the Borrowers and
their business and financial and other affairs. Lender shall treat information
so obtained as confidential. Borrowers shall deliver a letter addressed to such
accountants instructing them to comply with the provisions of this Section .
9. ACCOUNTING. Lender will account monthly to Borrowers. Each and every
account shall be deemed final, binding and conclusive upon the Borrower in all
respects, as to all matters reflected therein, unless Borrowers, within thirty
(30) business days after the date the account was rendered, delivers to Lender
written notice of any objections which it may have to any such account and in
that event only those items expressly objected to in such notice shall be deemed
to be disputed by Borrowers.
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10. AFFIRMATIVE COVENANTS. Borrowers jointly and severally represent
and warrant that, so long as any Borrower shall have any Obligation to Lender
hereunder, it will:
10.1. Business and Existence. Preserve and maintain its separate
corporate existence and rights, privileges and franchises in connection
herewith. Each Borrower will transact business in its own name and will invoice
all Receivables in its own name;
10.2. Transactions with Affiliates. Wherever it engages in transactions
with any of its Affiliates conduct the same on an arms-length basis or other
basis more favorable to Borrowers;
10.3. Taxes. Pay and discharge all taxes, assessments, government
charges and levies imposed upon it, its income or its profits or upon any
property belonging to it prior to the date on which penalties attach thereto,
except where the same may be contested in good faith by appropriate proceedings;
10.4. Compliance With Laws. Comply with all Federal, State or local
laws and regulations regarding the collection, payment and deposit of employees'
income, unemployment and Social Security taxes;
10.5. Compliance With ERISA. Comply with all applicable provisions of
ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). No
Borrower will engage in any transaction which would subject it to tax, penalty
or liability for prohibited transactions imposed by ERISA or the Code;
10.6. Business Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with sound bookkeeping practices reflecting all financial
transactions of each Borrower;
10.7. Litigation. Give Lender prompt notice of any suit at law or in
equity against itself involving money or property valued in excess of One
Hundred Thousand Dollars ($100,000.00) except where the same is fully covered by
insurance and the insurer accepts liability therefor, or any investigation or
proceeding before or by any administrative or governmental agency the effect of
which would be to limit materially, prohibit or restrict the manner in which the
Borrower presently conducts its business or to declare any substance contained
in any product manufactured or distributed by any Borrower to be dangerous; and
10.8. Events of Default. Borrower shall provide Lender within five (5)
days after Borrower becomes aware of the existence of an Event of Default with
telephonic or telegraphic notice specifying the nature of such default.
10.9. Name Change. Provide Lender with written notice of any change of
name or the creation of any subsidiary.
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10.10. Access to Books and Records. Provide Lender with such reports
and with such access to each Borrower's books and records as Lender deems
reasonably necessary to enable Lender to monitor this credit facility.
10.11. Solvent. Borrower shall continue to be Solvent.
10.12. Compliance With Environmental Laws. Comply in all material
respects with all applicable Environmental Laws.
10.13. Primary Deposit Accounts. Unless otherwise approved by Lender,
in writing, maintain each Borrower's primary depository accounts, if any, with
Lender.
10.14. Revolving Loan Balances. Cause the outstanding principal balance
of the Revolving Loan to be zero for a period of not less than thirty (30)
consecutive days each year.
11. NEGATIVE COVENANTS. So long as any Borrower shall have any
Obligation to Lender hereunder and unless Lender has first consented thereto in
writing, no Borrower will:
11.1. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except Obligations to Lender, Indebtedness for Capital
Expenditures, trade debt incurred in the ordinary course of Borrowers' business,
and existing Indebtedness described on Exhibit "E" (as well as any renewals,
extensions or refinancings of such Indebtedness and any increases not greater
than ten percent (10%) in the principal amounts thereof, outstanding at the
time).
11.2. Guaranties. Assume, guarantee or endorse or otherwise become
directly or contingently liable in connection with any other liability of any
other person, firm or corporation without Lender's prior written consent, which
shall not be unreasonably withheld, provided, however, that the foregoing shall
not prohibit the endorsement of negotiable instruments for deposit or collection
and similar transactions in the ordinary course of business;
11.3. Mergers; Consolidations. Except for the transactions expressly
provided in Section 6.1(c) in the Note Purchase Agreement dated as of October
23, 1996 between KTI and Wexford KTI LLC by Wexford, merge into or consolidate
with any other entity nor acquire all or any substantial part of the properties
of any Person without Lender's prior written consent, which shall not be
unreasonably withheld;
11.4. New Business. Enter into any new business other than its present
business without Lender's prior written consent, which shall not be unreasonably
withheld;
11.5. Sale or Disposition. Sell or dispose of any assets (as that term
is defined in accordance with Generally Accepted Accounting Principles) in
excess of a total amount of Fifty Thousand Dollars ($50,000.00) in any calendar
year or grant any Person an option to acquire any such assets;
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11.6. Acquisitions. Acquire or commit or agree to acquire all or any
material portion of the stock, securities or assets of any other Person without
Lender's prior written consent, which shall not be unreasonably withheld;
11.7. Defaults. Permit any landlord, mortgagee, trustee under deed of
trust or lienholder to declare a default under any lease, mortgage, deed of
trust or lien on real estate owned or leased by any Borrower, which default
remains uncured for a period in excess of thirty (30) days from its occurrence
or if such default is of a nature that it cannot with due diligence be cured
within thirty (30) days, if any Borrower shall fail to commence to cure such
default within such thirty (30) days period and thereafter prosecute to such
cure diligently;
11.8. Loans. Make any loan or advance or extend any credit in amounts
exceeding, individually, or in the aggregate, one hundred thousand dollars
($100,000.00) (except in the ordinary course of business) to any Person (whether
or not an Affiliate of any Borrower) or make any investment in any Person or its
securities; or enter into any management agreement with any Person other than
employment contracts entered into in the regular course of its business;
11.9. Limitations on Liens. Suffer any Lien, encumbrance, mortgage or
security interest on any of its property, except:
(a) Liens at any time granted in favor of Lender;
(b) Liens for taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due or being contested, but
only if such Lien does not affect adversely Lender's rights or the
priority of Lender's Liens in any of the collateral;
(c) Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons for
labor, materials, supplies or rentals incurred in the ordinary course
of Borrowers' business, but only if the payment thereof is not at the
time required and only if such Liens are junior in priority to the
Liens in favor of Lender;
(d) Liens resulting from deposits made in the ordinary course
of business in connection with workmen's compensation, unemployment
insurance, social security and other like laws;
(e) attachment, judgment and other similar non-tax Liens
(excluding liens in favor of any governmental entity arising under or
in connection with any environmental law or regulation) arising in
connection with court proceedings, but only if and for so long as the
execution or other enforcement of such Liens is and continues to be
effectively stayed and bonded on appeal in a manner satisfactory to
Lender for the full amount thereof, the validity and amount of the
claims secured thereby are being actively contested in good faith and
by appropriate lawful proceedings, such Liens do not, in the
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aggregate, materially detract from the value of the property of any
Borrower or materially impair the use thereof in the operation of
Borrowers' business and such Liens are and remain junior in priority to
the Liens in favor of Lender;
(f) reservations, exceptions, easements, rights of way, and
other similar consensual encumbrances affecting real Property, provided
that, in Lender's reasonable judgment, they do not in the aggregate
materially detract from the value of said Properties or materially
interfere with their use in the ordinary conduct of Borrower's
business;
(g) such other Liens as appear on Exhibit "L" attached hereto;
(h) Liens in respect of Purchase Money Indebtedness granted to
the vendor or person financing the vendor of Equipment so long as the
Lien granted is limited to the specific Equipment so acquired and the
debt secured by the Lien is the unpaid balance of the acquisition cost
of the specific Equipment on which the Lien is granted and the
transaction does not violate any other provision of this Agreement; and
(i) such other Liens as Lender may hereafter approve in
writing.
11.10. Affiliate Transactions. (i) Divest itself of any material assets
by (x) transferring them to any existing subsidiary or any future subsidiary to
whose existence Lender may hereafter have consented or (y) by entering into a
partnership, joint venture, or similar arrangement, or (ii) make any material
change in its capital structure or enter into any management contract permitting
a third party management rights with respect to any Borrower's business;
11.11. Borrowers' Name and Offices. Transfer its executive offices or
change its corporate name or maintain records (including computer printouts and
programs) with respect to Receivables or keep Inventory or Equipment at any
locations other than those at which the same are presently kept or maintained,
except with Lender's prior written consent and after the delivery to Lender of
financing statements in form satisfactory to Lender. If such financing
statements shall be delivered, Lender will not unreasonably withhold its
consent;
11.12. Fiscal Year. Change its fiscal year.
11.13. Subsidiaries. Create any subsidiary or permit itself to become a
subsidiary of any other Person without Lender's prior written consent, which
shall not be unreasonably withheld.
12. FINANCIAL COVENANTS. KTI covenants that it shall for the fiscal
year ending December 31, 1996:
12.1. Minimum Current Ratio. Maintain a Current Ratio of not less than
2.0 to 1.0.
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12.2. Maximum Leverage Ratio. Maintain a Leverage Ratio not greater
than 2.0 to 1.0.
13. FURTHER RIGHTS OF LENDER.
13.1. Lender's Right to Take Certain Actions. Each Borrower shall do
all reasonable things and shall deliver all reasonable instruments requested by
Lender to protect or perfect any security interest, mortgage or lien given
hereunder including, without limitation, financing statements under the Uniform
Commercial Code and all documents and instruments necessary under the Federal
Assignment of Claims Act. Lender may examine, inspect and copy or make extracts
from all property and all books and records of Borrowers at any time during
regular business hours. Borrower authorizes Lender to execute alone any
financing statement or other documents or instruments that Lender may require to
perfect, protect or establish any Lien or security interest hereunder and
further authorizes Lender to sign each Borrower's name on the same. Upon the
occurrence and during the continuation of any Event of Default, each Borrower
appoints such person or persons as Lender may designate as its attorney-in-fact
to endorse the name of Borrower on any checks, notes, drafts or other forms of
payment or security that may come into the possession of either Lender or any
Affiliate of Lender, to sign each Borrower's name on invoices or bills of
lading, drafts against customers, notice of assignment, verifications and
schedules and, generally, to do all things necessary to carry out this
Agreement. The powers granted herein, being coupled with an interest, are
irrevocable, and each Borrower approves and ratifies all acts of the
attorney-in-fact. Neither the Lender nor the attorney-in-fact shall be liable
for any act or omission, error in judgment or mistake of law so long as the same
is not malicious or grossly negligent.
13.2. Lender's Right to Perform Borrowers' Obligations. In the event
that any Borrower shall fail to pay any tax, assessment, government charge or
levy (unless any Borrower has contested and is diligently prosecuting a claim
with respect to any such tax, assessment, government charge of levy), except as
the same may be otherwise permitted hereunder, or in the event that any lien,
encumbrance or security interest prohibited hereby shall not be paid in full or
discharged, or in the event that any Borrower shall fail to perform or comply
with any other covenant, promise or Obligation to Lender hereunder or under any
Loan Document, Lender may, but shall not be required to, perform, pay, satisfy,
discharge or bond the same for the account of Borrowers, and all monies so paid
by Lender, including reasonable attorneys' fees, shall be treated as an advance
hereunder to Borrowers.
13.3. Lender's Right of Set-Off. Lender may, at any time upon the
occurrence and during the continuance of an Event of Default hereunder which
Lender, in its reasonable judgment, deems material and without any further
notice to Borrowers (such notice being expressly waived), set-off or apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held by, or any other indebtedness at any time owing by Lender or any
Affiliate of Lender or any participant in Lender's loans to Borrowers to or for
the credit or the account of Borrowers against any Obligation irrespective of
whether any demand has been made hereunder or whether such Obligation is mature.
The rights given hereunder are cumulative with all of the other rights and
remedies of Lender, including other rights of set-off,
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<PAGE> 25
under this or any Agreement or by operation of law or otherwise and shall also
constitute a security interest in such deposits. Lender shall promptly notify
Borrowers of any such set-off and application but failure so to do shall not
affect the validity of such set-off.
13.4. Lender's Right of Inspection. At any time and from time to time,
(a) after the occurrence of any Event of Default or (b) with Borrower's consent,
which shall not be unreasonably withheld, Lender or any agents or
representatives of Lender, upon reasonable notice to Borrowers (unless an Event
of Default shall have occurred hereunder, in which event no notice to Borrowers
shall be required) may examine and make copies of and abstracts from the records
and books of account of, and visit and inspect the properties (including, but
without limitation, the locations of the Equipment) of, Borrowers and discuss
the affairs, finances and accounts of Borrowers with any of its officers,
employees, directors and accountants.
14. CONDITIONS PRECEDENT; CLOSING. As conditions precedent to the
making of any loan or Advance hereunder, Borrowers shall deliver to Lender, or
shall cause to be delivered to Lender, the following documents duly executed and
in form satisfactory to Lender and its counsel;
(a) the Revolving Loan Note and each of the other Loan
Documents duly executed and delivered by the appropriate parties
thereto;
(b) Copies of all filing receipts or acknowledgements issued
by any governmental authority to evidence any filing or recordation
necessary to perfect the Liens of Lender in the Collateral and evidence
in a form acceptable to Lender that such Liens constitute valid and
perfected first priority security interests and Liens;
(c) Appropriate corporate resolutions of the Board of
Directors of each Borrower;
(d) A closing certificate executed by the Chief Executive
Officer and Chief Financial Officer of KTI certifying that (i) the
representations and warranties set forth in this Agreement are true and
correct in all material respects on and as of such date, (ii) there has
been no material adverse change in the financial conditions of KTI
since September 30, 1996, and (iii) on such date no Event of Default
has occurred or is continuing.
(e) The letter to accountants required by Section 8.5 of this
Agreement;
(f) The favorable written opinion of McDermott, Will & Emery,
counsel to the Borrowers, in form and substance satisfactory to Lender;
(g) The favorable written opinion of Robert E. Wetzel,
in-house counsel to the Borrowers, in form and substance satisfactory
to Lender;
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<PAGE> 26
(h) A copy of each Borrower's Certificate of Incorporation and
By-Laws, and all amendments thereto;
(i) A Good Standing Certificate issued by the Secretary of
State of each jurisdiction where the conduct of any Borrower's business
activities or the ownership of its Properties necessitates
qualification; and
(j) Such other documents, instruments, agreements, and
information as Lender or its counsel shall reasonably request.
15. TERM. This Agreement shall terminate on June 30, 1997.
16. EVENTS OF DEFAULT.
16.1. Defaults. Upon the happening of any of the following Events of
Default:
(a) if any of the Borrowers shall fail to make payment when
due of any Obligation under this Agreement or any Loan Document; or
(b) if any of the Borrowers shall fail to comply with any
term, condition, covenant, warranty or representation of or in this
Agreement, any other Loan Document or any other agreement between
Lender and the Borrower and such failure continues for a period in
excess of thirty (30) days after notice thereof is given by Lender to
Borrower; or
(c) if any Borrower shall cease to be Solvent, make an
assignment for the benefit of its creditors, call a meeting of its
creditors to obtain any general financial accommodation, suspend
business or if any case under any provision of the Bankruptcy Code,
including provisions for reorganizations, shall be commenced by or
against Borrower, unless such case is dismissed within thirty (30) days
of the date of its commencement; or
(d) if any statement or representation contained in any
financial statement or certificate delivered by any Borrower to Lender
shall be willfully and materially false when made and Lender reasonably
believes that such statement or representation affects the
creditworthiness of any Borrower; or
(e) if any federal tax lien of more than Twenty-Five Thousand
Dollars ($25,000.00) is filed of record against any Borrower and is not
bonded or discharged within ten (10) days; or
(f) if Borrowers' independent public accountants shall refuse
to deliver any opinion required by this Agreement; or
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<PAGE> 27
(g) if a receiver shall be appointed for all or any material
portion of the assets of any Borrower and the same shall not have been
discharged within sixty (60) days; or
(h) if a judgment for more than Fifty Thousand Dollars
($50,000.00) shall be entered against any Borrower and shall not be
stayed, vacated, bonded, paid or discharged within sixty (60) days
except a judgment where the claim is covered by insurance and the
insurance company has accepted liability therefor; or
(i) upon the happening of any Reportable Event which Lender in
good faith determines might constitute grounds for the termination of
any Plan, or if a trustee shall be appointed by an appropriate United
States District Court or other court of administrative tribunal to
administer any Plan, or if the Pension Benefit Guaranty Corporation
shall institute proceedings to terminate any Plan or to appoint a
trustee to administer any Plan; or
(j) upon the occurrence and continuance of any condition
which, in the Lender's reasonable opinion, has or may have a material
adverse effect on the business, prospects or financial condition of any
Borrower,
then and in any such event, Lender may terminate this Agreement without prior
notice or demand to Borrowers or may demand payment of all Obligations (whether
otherwise then payable on demand or not) without terminating this Agreement and
shall, in any event, be under no further responsibility to extend any credit or
afford any financial accommodation to Borrowers, whether under this Agreement or
otherwise.
16.2. Obligations Immediately Due. Upon the effective date of
termination for any reason, all of Borrowers' Obligations to Lender, including
but not limited to the Revolving Loan, shall immediately become due and payable
without further notice or demand.
16.3. Continuation of Security Interests. Notwithstanding any
termination, until all Obligations of Borrower shall have been fully paid and
satisfied, Lender shall retain all security in and title to all existing and
future Receivables, and other collateral held by it hereunder or under any other
agreement and Borrowers shall continue to assign Receivables to Lender and
continue to turn over collections to it.
17. REMEDIES OF LENDER.
17.1. Rights Under Uniform Commercial Code. Upon the occurrence of any
Event of Default which Lender, in its judgment, deems to be material or upon any
termination of this Agreement following an Event of Default which Lender, in its
reasonable judgment, deems to be material, then Lender shall have, in addition
to all of its other rights under this Agreement or otherwise (which rights shall
be cumulative), all of the rights and remedies of a secured party under the
Uniform Commercial Code and shall have the right to enter upon any premises
where the Collateral is kept and peacefully retake possession thereof. Lender
may, without demand,
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<PAGE> 28
advertising or notice all of which Borrowers hereby waive (except as the same
may be required by law), sell, lease, dispose of, deliver and grant options to a
third party to purchase, lease or otherwise dispose of any and all Receivables
or other security or Collateral held by it or for its account at any time or
times in one or more public or private sales or other dispositions, for cash, on
credit or otherwise, as such prices and upon such terms as Lender, in its sole
reasonable discretion, deems advisable. Notice of any public sale shall be
sufficient if it describes the security or Collateral to be sold in general
terms, stating the amounts thereof, the nature of the business in which such
Collateral was created and the location and nature of the properties covered by
the other security interests or mortgages and the prior liens thereon, and is
published at least once in The Times Union or The Wall Street Journal, not less
than five (5) business days prior to the date of sale. If The Times Union or The
Wall Street Journal are not then being published, publication may be made in
lieu thereof in any newspaper then being circulated in the City of Albany, New
York which the Lender may elect. All requirements of reasonable notice under
this Article shall be met if such notice is mailed via certified or registered,
postage prepaid, to Borrowers at their address set forth above or such other
address as they may have, in writing, provided to Lender, at least five (5) days
before the time of such sale or disposition. Lender may, if it deems it
reasonable, postpone or adjourn any sale of any Collateral from time to time by
an announcement at the time and place of the sale to be so postponed or
adjourned without being required to give a new notice of sale, provided,
however, that Lender shall provide Borrowers with written notice of the time and
place of such postponed or adjourned sale. Lender may be the purchaser at any
such sale if it is public, and payment may be made, in whole or in part, in
respect of such purchase price by the application of Obligations due from
Borrowers to Lender. Borrowers shall be obligated for, and the proceeds of sale
shall be applied first to, the costs of retaking, refurbishing, storing,
guarding, insuring, preparing for sale, and selling the collateral, including
the fees and disbursements of attorneys, auctioneers, appraisers and accountants
employed by Lender. Proceeds shall then be applied to the payment in whatever
order Lender may elect, of all Obligations of the Borrowers. Lender shall
immediately return any excess to the Borrowers and Borrowers shall remain liable
for any deficiency.
17.2. Waiver of Rights by Borrowers. Except as may be otherwise
specifically provided herein or in any other agreement between Lender and
Borrowers which may be applicable, Borrowers waive, to the extent permitted by
law, any bonds, security or sureties required by any statute, rule or otherwise
by law as an incident to any taking of possession by Lender of Property subject
to Lender's Lien. Upon the occurrence and during the continuance of an Event of
Default, Borrowers also consent that Lender may enter upon any premises owned by
or leased to it without obligation to pay rent or for use and occupancy, through
self help, without judicial process and without having first given notice to
Borrowers or obtained an order of any court. These waivers and all other waivers
provided for in this Agreement and any other agreements or instruments executed
in connection herewith have been negotiated by the parties.
17.3. Lender's Rights. Borrowers agree that Lender shall not have any
obligation to preserve rights to any Collateral against prior parties or to
marshall any Collateral of any kind for the benefit of any other creditor of
Borrowers or any other person. Upon the occurrence and
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<PAGE> 29
during the continuance of any Event of Default which Lender, in its reasonable
judgment, deems material, Lender is hereby granted a license or other right to
use, without charge, Borrowers' labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrowers'
rights under all licenses and any franchise, sales or distribution agreements
shall inure to Lender's benefit for such purpose.
17.4. Borrowers to Pay Costs. Borrowers agree that (a) after the
occurrence of an Event of Default or (b) in the event that Borrowers request
that Lender take, consider taking or forbear from taking any action, whether
under this Agreement or otherwise, it shall pay all reasonable costs and
expenses which may be incurred by Lender, including but not limited to the costs
and expenses of amending, implementing, perfecting, collecting, defending,
declaring, monitoring and enforcing Lender's rights, security interests and
Collateral hereunder or under any instrument or agreement delivered in
connection herewith, including, but not limited to, searches and filings at all
times, and Lender's reasonable attorneys' fees (regardless of whether any
litigation is commenced, whether default is declared hereunder, and regardless
of tribunal or jurisdiction).
18. GENERAL PROVISIONS.
18.1. Rights Cumulative. Lender's rights and remedies under this
Agreement shall be cumulative and non-exclusive of any other rights or remedies
which it may have under any other agreement or instrument, by operation of law
or otherwise.
18.2. Successors and Assigns. This Agreement is entered into for the
benefit of the parties hereto and their successors and assigns. It shall be
binding upon and shall inure to the benefit of the said parties, their
successors and assigns.
18.3. Notice. Wherever this Agreement provides for notice to either
party (except as expressly provided to the contrary), it shall be given by
messenger, electronic transmission, telegram or certified or registered mail,
return receipt requested, effective when received by the corporate party to whom
addressed, and shall be addressed as follows, or to such other address as the
party affected may hereafter designate.
If to Lender: Key Bank of New York
66 South Pearl Street
Albany, New York 12207
Attention: John Stewart, Vice President
With a copy to: Patrick K. Greene, Esq.
Crane, Kelley, Greene & Parente
90 State Street, Suite 1500
Albany, New York 12207
24
<PAGE> 30
If to Borrower: KTI, INC.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
KTI Environmental Group, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
Kuhr Technologies Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
KTI Limited Partners, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
KTI Operations, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
PERC, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq.
With a copy to: Brian Hoffman, Esq.
McDermott, Will & Emery
50 Rockefeller Plaza
New York, NY 10020-5400
18.4. Strict Performance. The failure, at any time or times hereafter,
to require strict performance by Borrowers of any provision of this Agreement
shall not waive, affect or diminish any right of Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Lender
of any Event of Default by Borrowers under this Agreement or any of the other
Loan Documents shall not suspend, waive or affect any other Event of Default by
Borrowers under this Agreement or any of the other Loan Documents, whether the
same is prior or subsequent thereto and whether of the same or a different type.
25
<PAGE> 31
18.5. WAIVER OF RIGHT TO JURY TRIAL. BORROWERS JOINTLY AND SEVERALLY
WAIVE THE RIGHT TO TRIAL BY JURY IN THE EVENT OF ANY ACTION, SUIT, PROCEEDING,
COUNTERCLAIM OR OTHER LITIGATION TO WHICH THE LENDER AND ANY BORROWER ARE
PARTIES IN RESPECT OF ANY MATTER ARISING UNDER THIS AGREEMENT OR ANY OTHER
MATTER INVOLVING BORROWERS AND LENDER, WHETHER OR NOT OTHER PERSONS ARE ALSO
PARTIES THERETO. BORROWERS ACKNOWLEDGE THAT THE FOREGOING WAIVER IS A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
ON THE FOREGOING WAIVER IN ITS FUTURE DEALINGS WITH BORROWERS. BORROWERS
REPRESENT AND WARRANT THAT THEY HAVE REVIEWED THIS JURY WAIVER PROVISION WITH
THEIR LEGAL COUNSEL, AND HAS MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY.
18.6. Amendments. This Agreement and the other agreements to which it
refers constitute the complete agreement between the parties with respect to the
subject matter and may not be changed, modified, waived, amended or terminated
orally, but only by a writing signed by the party to be charged.
18.7. Waiver. Upon the occurrence and during the continuance of any
Event of Default, Borrowers waive presentment, protest, notice of dishonor and
notice of protest upon any instrument on which it may be liable to Lender as
maker, endorser, guarantor or otherwise.
18.8. Conflict of Laws. This Agreement shall be deemed to have been
made in Albany, New York, and shall be governed by and construed in accordance
with the internal laws of the State of New York; provided, however, that if any
of the Collateral shall be located in any jurisdiction other than New York, the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Lenders' lien upon such Collateral and the enforcement of
Lenders' other remedies in respect of such Collateral to the extent that the
laws of such jurisdiction are different from or inconsistent with the laws of
New York. As part of the consideration for new value received, and regardless of
any present or future domicile or principal place of business of any Borrower or
Lender, Borrowers hereby consent and agree that any court in Albany County, New
York, or at Lender's option, the United States District Court for the Northern
District of New York, shall have jurisdiction to hear and determine any claims
or disputes between Borrowers and Lender pertaining to this Agreement or to any
matter arising out of or related to this Agreement; provided, however, Lender
may, at its option, commence any action, suit or proceeding in any other
appropriate forum or jurisdiction to obtain possession of or foreclose upon any
Collateral, to obtain equitable relief or to enforce any judgment or order
obtained by Lender against Borrowers or with respect to any Collateral, to
enforce any other right or remedy under this Agreement or to obtain any other
relief deemed appropriate by Lender. Borrowers expressly submit and consent in
advance to such jurisdiction in any action or suit commenced in any such court,
and Borrowers hereby waive any objection which Borrowers may have based upon
lack of personal jurisdiction, improper venue or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court.
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<PAGE> 32
18.9. Expenses. If, at any time or times prior or subsequent to the
date hereof, regardless of whether or not an Event of Default then exists or any
of the transactions contemplated hereunder are concluded, Lender employs counsel
for advice or other representation, or incurs legal expenses or other costs or
out-of-pocket expenses in connection with: (A) the negotiation and preparation
of this Agreement or any of the other Loan Documents, any amendment of or
modification of this Agreement or any of the other Loan Documents; (B) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (C) periodic audits and appraisals
performed by Lender; (D) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrowers or any other Person) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents or
Borrowers' affairs; (E) any attempt to enforce any rights or remedies of Lender
against any Borrower or any other Person which may be obligated to Lender by
virtue of this Agreement or any of the other Loan Documents, including, without
limitation, the Account Debtors; or (F) any attempt to inspect, verify, protect,
preserve, restore, collect, sell, liquidate or otherwise dispose of or realize
upon the Collateral; then, in any such event, the reasonable attorneys' fees
arising from such services and all reasonable expenses, costs, charges and other
reasonable fees of such counsel of Lender or relating to any of the events or
actions described in this Section shall be payable by Borrowers to Lender, and
shall be additional Obligations hereunder secured by the Collateral.
Additionally, if any taxes (excluding taxes imposed upon or measured by the net
income of Lender, but including any intangibles tax, stamp tax or recording tax)
shall be payable on account of the execution or delivery of this Agreement, or
the execution, delivery, issuance or recording of any of the other Loan
Documents, or the creation of any of the Obligations hereunder, by reason of any
existing or hereafter enacted federal or state statute, Borrowers will pay (or
will promptly reimburse Lender for the payment of) all such taxes, including,
but not limited to, any interest and penalties thereon, and will indemnify and
hold Lender harmless from and against liability in connection therewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized on the day and year first
above written.
KTI, INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
KTI ENVIRONMENTAL GROUP, INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
27
<PAGE> 33
KUHR TECHNOLOGIES INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
KTI LIMITED PARTNERS, INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
KTI OPERATIONS, INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
PERC, INC.
By: /s/ Martin J. Sergi
------------------------
Name: Martin J. Sergi
Title: President
KEY BANK OF NEW YORK
By: /s/ John Stewart
------------------------
Name: John Stewart
Title: Vice President
28
<PAGE> 34
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of KTI,
Inc., the corporation described in, and which executed the above instrument; and
that he signed his name thereto by like order of the Board of Directors of said
corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of KTI
Environmental Group, Inc., the corporation described in, and which executed the
above instrument; and that he signed his name thereto by like order of the Board
of Directors of said corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of Kuhr
Technologies Inc., the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
29
<PAGE> 35
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of KTI
Limited Partners, Inc., the corporation described in, and which executed the
above instrument; and that he signed his name thereto by like order of the Board
of Directors of said corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of KTI
Operations, Inc., the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of
PERC, Inc., the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
/s/ Francis J. Elenio
---------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
30
<PAGE> 36
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came John
Stewart, to me known, who being by me duly sworn, did depose and say that he
resides at _________________, New York, that he is the Vice President of Key
Bank of New York, the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
--------------------
Notary Public
31
<PAGE> 1
EXHIBIT 10.39
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made as of this 29th day of October, 1996,
between KTI, INC., with its principal office and place of business at 7000
Boulevard East, Guttenberg, New Jersey 07093 (the "Pledgor"), and KEY BANK OF
NEW YORK, a New York state banking corporation with its principal office at 66
South Pearl Street, New York, New York 12207 (the "Pledgee").
Pledgor has entered into a Loan and Security Agreement dated of even
date herewith between the Pledgor and the Pledgee (the "Loan Agreement").
In order to induce Pledgee to make the advances provided for in the
Loan Agreement, Pledgor wishes to grant security and assurance to Pledgee in
order to secure its performance of the obligations under the Loan Agreement and
Note (as defined in the Loan Agreement), and to that effect to pledge to Pledgee
all of the issued and outstanding capital stock of KTI Environmental Group,
Inc., a New Jersey corporation (the "Pledged Shares").
NOW, THEREFORE, in consideration of the foregoing and for $1.00 and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto mutually agree as follows:
1. Security Interest. As security for the obligations under the Note,
including any renewals or extensions thereof, Pledgor hereby delivers, pledges
and assigns to Pledgee and creates in Pledgee for its benefit a first security
interest in, all of its right, title and interest in and to all of the Pledged
Shares together with all rights and privileges of Pledgor with respect thereto,
all proceeds, income and profits thereof and all property received in addition
thereto, in exchange thereof or in substitution therefor (the "Collateral").
2. Stock Dividends, Options, or Other Adjustments. Prior to the full
payment and performance of the obligations, Pledgee shall receive, as
Collateral, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the Collateral pledged hereunder, whether
in the form of stock dividends, warrants, partial liquidation, conversion,
prepayments or redemptions (in whole or in part) liquidation or otherwise, with
the sole exception of cash dividends or cash interest payments, as the case may
be. For the term of this Agreement the Pledged Shares shall be held by Pledgee.
If any additional shares of capital stock, instruments, or other property
against which a security interest can only be perfected by possession by
Pledgee, which are distributable on or by reason of the Collateral pledged
hereunder, shall come into the possession or control of Pledgor, Pledgor shall
hold or control and forthwith transfer and deliver the same to Pledgee subject
to the provisions of this Agreement.
3. Delivery of Share Certificates; Stock Powers. Instruments and stock
certificates representing the Collateral are being delivered to Pledgee
simultaneously herewith together with stock powers duly executed in blank by
Pledgor. Pledgor shall promptly deliver to Pledgee, or cause the corporations or
other entity issuing the Collateral to deliver directly to Pledgee, share
<PAGE> 2
certificates or other documents representing Collateral acquired or received
after the date of this Agreement with a stock power duly executed by Pledgor. If
at any time Pledgee notifies Pledgor that additional stock powers endorsed in
blank held by Pledgee with respect to the Collateral are required, Pledgor shall
promptly execute in blank and deliver such stock powers as Pledgee may request.
4. Power of Attorney. Pledgor hereby constitutes and irrevocably
appoints Pledgee, with full power of substitution and revocation by Pledgee, as
Pledgor's true and lawful attorney-in-fact, to affix to certificates and
documents representing the Collateral the stock powers delivered with respect
thereto, to transfer or cause the transfer of the Collateral, or any part
thereof on the books of the corporation or other entity issuing the same, to the
name of Pledgee or Pledgee's nominee and thereafter exercise as to such
Collateral all the rights, power and remedies of an owner. The power of attorney
granted pursuant to this Agreement and all authority hereby conferred are
granted and conferred solely to protect Pledgee's interest in the Collateral and
shall not impose any duty upon Pledgee to exercise any power. This power of
attorney shall be irrevocable as one coupled with an interest prior to the
payment in full and/or satisfaction and termination of all obligations to
Pledgee.
5. Inducing Representations of Pledgor. Pledgor represents and warrants
to Pledgee with respect to its collateral that:
(a) Pledgor is the sole legal and beneficial owner of, and has
good and marketable title to, the Collateral, free and clear of all pledges,
liens, security interests and other encumbrances and restrictions on the
transfer and assignment thereof, other than the security interest created by
this Agreement, and Pledgor has the requisite right and authority to execute
this Agreement and to pledge the Collateral to Pledgee as provided for herein;
(b) There are no outstanding options, warrants or other
agreements with respect to the Collateral;
(c) The Collateral has been validly issued and is fully paid
and non-assessable and is not subject to any charter, by-law, statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control, except that sale may be limited in the absence of an effective
registration under the Securities Act of 1933, as amended, and under applicable
state securities laws or of an opinion of counsel satisfactory to the issuer
that the sale or transfer is exempt from registration under said act and laws.
(d) Any consent, approval or authorization of or designation
or filing with any authority on the part of Pledgor which is required in
connection with the pledge and security interest granted under this Agreement
has been obtained or effected;
(e) The execution and delivery of this Agreement by Pledgor,
and the performance by Pledgor of its obligations hereunder, will not result in
a violation of the certificate of incorporation, by-laws, or of any mortgage,
indenture, contract, instrument,
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<PAGE> 3
judgment, decree, order, statute, rule or regulation to which Pledgor is
subject;
(f) Pledgor has delivered to Pledgee the Pledged Shares duly
endorsed in blank or accompanied by an assignment or assignments sufficient to
transfer title thereto and/or the local equivalent necessary to perfect the
security interest; and
(g) The Pledged shares constitute all the issued and
outstanding capital stock of the issuers thereof.
6. Obligations of Pledgor. Pledgor further covenants to Pledgee with
respect to the Collateral that:
(a) Pledgor will not sell, transfer or convey any interest in,
or suffer or permit any lien or encumbrance to be created upon or with respect
to, any of the Collateral (other than as created under this Agreement) during
the term of the pledge established hereby; and
(b) Pledgor will, at its own expense, at any time and from
time to time at Pledgee's reasonable request, do, make, procure, execute and
deliver all acts, things, writings, assurances and other documents as may be
proposed by Pledgee to further enhance, preserve, establish, demonstrate or
enforce Pledgee's rights, interests and remedies created by, provided in or
emanating from this Agreement.
7. Rights of Pledgor. So long as no Event of Default has occurred and
is continuing (as used herein "Event of Default" shall mean the occurrence of
any Event of Default under the Note, Loan Agreement, any note, document or
instrument delivered or to be delivered pursuant or in connection with the Loan
Agreement (collectively, the "Loan Documents") or the failure of Pledgor to
perform any obligation, or the breach of any covenant, under this Agreement),
and so long as Pledgee has not transferred the Collateral to its own name under
Section 4 hereof:
(a) Pledgor shall be entitled to receive and retain any cash
dividends or cash interest payments paid on the Collateral; and
(b) Pledgor shall be entitled to vote or consent with respect
to the Collateral in any manner not inconsistent with this Agreement, the Note
and Security Agreement. Pledgor hereby grants to Pledgee an irrevocable proxy to
vote the Collateral which proxy shall be effective immediately upon the
occurrence of any Event of Default. Upon request of Pledgee, Pledgor agrees to
deliver to Pledgee such further evidence of such irrevocable proxy as Pledgee
may request.
8. Rights of Pledgee. At any time after the occurrence of an Event of
Default, and so long as such Event of Default continues, without notice, Pledgee
may:
(a) Cause the Collateral to be transferred to its name or to
the name of its nominee or nominees and thereafter exercise as to such
Collateral all of the rights, powers and
3
<PAGE> 4
remedies of an owner;
(b) Collect by legal proceedings or otherwise all dividends,
interest, principal payments, capital distributions and other sums now or
hereafter payable on account of the Collateral, and hold the same as part of the
Collateral, or apply the same to any of the obligations in such manner and order
as Pledgee may decide in its sole discretion;
(c) Enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement relating to
or affecting the Collateral, and in connection therewith deposit or surrender
control of the Collateral thereunder, and accept other property in exchange
therefor and hold and apply such property or money so received in accordance
with the provisions hereof; and
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral, pay for the maintenance and
preservation of the Collateral, or pay for insurance on the Collateral; the
amount of such payments, plus any and all fees, costs and expenses of Pledgee
(including attorneys' fees and disbursements), in connection therewith, shall,
at Pledgee's option, be reimbursed by Pledgor on demand or added to the
obligations secured hereby.
9. Event of Default; Remedies. Upon the occurrence and continuance of
an Event of Default as hereinbefore defined:
(a) In addition to all the rights and remedies of a secured
party under the Uniform Commercial Code in effect in the State of New York at
that time, Pledgee shall have the right, and without demand or performance or
other demand, advertisement or notice of any kind, except as specified below, to
or upon the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange, broker's
board or at any of Pledgee's offices or elsewhere at such prices and on such
terms (including, without limitation, a requirement that any purchaser of all or
any part of the Collateral shall be required to purchase any securities
constituting the Collateral solely for investment and without any intention to
make a distribution thereof) as Pledgee deems to be commercially reasonable. If
any notification of intended disposition of the Collateral is required by law,
such notification shall be deemed reasonable and properly given if mailed,
postage prepaid, at least ten (10) days before any such disposition to Pledgor's
address indicated above. Any disposition of the Collateral or any part thereof
may be for cash or on credit or for future delivery without assumption of any
credit risk, with the right to Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is hereby
expressly waived or released by the Pledgor.
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<PAGE> 5
(b) All of the Pledgee's rights and remedies, including but
not limited to the foregoing, shall be cumulative and not exclusive and shall be
enforceable alternatively, successively or concurrently as Pledgee may deem
expedient.
(c) Pledgee may elect to obtain the advice of any independent
nationally-known investment banking firm with respect to the method and manner
of sale or other disposition of any of Collateral, the best price reasonably
obtainable therefor, the consideration of cash and/or credit terms, or any other
details concerning such sale or disposition. Pledgee, in its sole discretion,
may elect to sell on such credit terms which it deems reasonable. The sale of
any of the Collateral on credit terms shall not relieve Pledgor or the Borrowers
of their liability under any of the Obligations until the full purchase price
for the Collateral has been paid in full. All payments received by Pledgee in
respect of a sale of Collateral shall be applied to the obligations in the
manner provided in Section 10 of this Agreement, as and when such payments are
received.
(d) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in any applicable securities law, but may be compelled to resort to
more private sales to a restricted group of purchases who will be obliged to
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view for the distribution or resale thereof. Pledgor
agrees that private sales so made may be at prices and on other terms less
favorable to the seller than if the Collateral were sold at public sale, and
that Pledgee has no obligation to delay the sale of any Collateral for the
period of time necessary to permit the registration of the Collateral for public
sale under the Act. Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Collateral, or any
partial disposition of the Collateral, Pledgor will execute all such
applications and other instruments as may be required in connection with
securing any such consent, approval or authorization, and will otherwise use its
best efforts to secure the same. Pledgor further agrees to use its best efforts
to secure such sale or other disposition of the Collateral as Pledgee may deem
necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, Pledgee shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold or disposed of. Each purchaser at any such sale or other disposition
(including Pledgee) shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of Pledgor. Pledgor
specifically waives all rights of redemption, stay or appraisal which it had or
may have under any rule of law or statute now existing or hereafter adopted.
(g) Pledgee shall not be obligated to make any sale or other
disposition, unless the terms thereof shall be satisfactory to it. Pledgee may,
without notice or publication, adjourn
5
<PAGE> 6
any private or public sale, and, upon ten (10) days' prior notice to Pledgor,
hold such sale at any time or place to which the same may be so adjourned. In
case of any sale of all or any part of the Collateral, on credit or future
delivery, the Collateral so sold may be retained by Pledgee until the selling
price is paid by the purchaser thereof, but Pledgee shall incur no liability in
case of the failure of such purchaser to take up and pay for the property so
sold and, in case of any such failure, such property may again be sole as herein
provided.
10. Disposition of Proceeds.
(a) The proceeds of any sale or disposition of all or any part of
the Collateral shall be applied by Pledgee in the following order:
(i) to the payment in full of the costs and expenses of such
sale or sales, collections, and the protection, declaration and enforcement of
any security interest granted hereunder, including the compensation of Pledgee's
agents and attorneys;
(ii) to the payment of the obligations; and
(iii) to the payment to Pledgor of any surplus then remaining
from such proceeds, subject to the rights of any holder of a lien on the
Collateral of which Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other disposition
are insufficient to cover the amount of the obligations, Pledgor shall remain
liable for any deficiency.
11. Termination. This Agreement shall continue to full force and effect
until all obligations shall have been paid in full and satisfied and the Loan
Agreement shall have been terminated. Subject to any sale or other disposition
by Pledgee of the Collateral or any part thereof pursuant to this Agreement, the
Collateral shall be returned to Pledgor upon full payment, satisfaction and
termination of all of the obligations of Pledgor.
12. Expenses of Pledgee. All expenses (including Pledgee's fees and
charges and fees and disbursements of counsel) incurred by Pledgee in connection
with the perfection and continuation of the security interest granted hereunder
and any actual or attempted sale, exchange of, or any enforcement, collection,
compromise or settlement respecting, the Collateral, or any other action taken
by Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power
of attorney or other authorization therein conferred, for the purpose of
satisfaction of the liability of Borrowers and Pledgor for failure to pay the
obligations or as additional amounts owing by Pledgor to cover Pledgee's costs
of acting against the Collateral, shall be deemed an obligation of Pledgor for
all purposes of this Agreement and Pledgee may apply the Collateral to payment
of or reimbursement of itself and the Bank for such liability.
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<PAGE> 7
13. General Provisions.
(a) Pledgee or its designee is hereby appointed the
attorney-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Pledgee
reasonably may deem necessary and advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable as one coupled with an
interest.
(b) Pledgee and its assigns shall have no obligation in respect to
the Collateral, except to use reasonable care in holding the Collateral and to
hold and dispose of the same in accordance with the terms of this Agreement.
(c) Any notice or other communication given hereunder shall be in
writing and sent by registered or certified mail, postage prepaid, as follows;
If to Pledgor:
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq., General Counsel
With a copy thereof to:
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Martin Sergi, President
If to Pledgee:
Key Bank of New York
66 South Pearl Street
Albany, New York 12207
Attention: John Stewart, Vice President
With a copy thereof to:
Crane, Kelley, Greene & Parente
90 State Street
Albany, New York 12207
Attention: Patrick K. Greene, Esq.
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<PAGE> 8
Either party hereto may change its address for notice by giving notice thereof
to the other party in accordance with the provisions of this paragraph.
(d) NO FAILURE ON THE PART OF PLEDGEE TO EXERCISE, AND NO
DELAY IN EXERCISING, ANY RIGHT, POWER OR REMEDY HEREUNDER SHALL OPERATE AS A
WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE BY PLEDGEE OF ANY
RIGHT,POWER OR REMEDY HEREUNDER PRECLUDE ANY OTHER OR FUTURE EXERCISE THEREOF,
OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR REMEDY. THE REMEDIES HEREIN
PROVIDED ARE CUMULATIVE AND ARE NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW OR
ANY OTHER AGREEMENT. THE REPRESENTATIONS, COVENANTS AND AGREEMENTS OF PLEDGOR
HEREIN CONTAINED SHALL SURVIVE THE DATE HEREOF. NEITHER THIS AGREEMENT NOR THE
PROVISIONS HEREOF CAN BE CHANGED, WAIVED OR TERMINATED ORALLY. THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS, LEGAL REPRESENTATIVES AND ASSIGNS. THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE COUNTERPARTS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
KTI, INC.
By: /s/ Martin J. Sergi
----------------------
Name: Martin J. Sergi
Title: President
KEY BANK OF NEW YORK
By: /s/ John Stewart
----------------------
Name: John Stewart
Title: Vice President
8
<PAGE> 9
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Danville, New Jersey, that he is the President of KTI,
Inc., the corporation described in, and which executed the above instrument; and
that he signed his name thereto by like order of the Board of Directors of said
corporation.
/s/ Francis J. Elenio
-----------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came John
Stewart, to me known, who being by me duly sworn, did depose and say that he
resides at _________________, New York, that he is the Vice President of Key
Bank of New York, the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
---------------------
Notary Public
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<PAGE> 10
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made as of this 29th day of October, 1996,
between KTI ENVIRONMENTAL GROUP, INC., with its principal office and place of
business at 7000 Boulevard East, Guttenberg, New Jersey 07093 (the "Pledgor"),
and KEY BANK OF NEW YORK, a New York state banking corporation with its
principal office at 66 South Pearl Street, New York, New York 12207 (the
"Pledgee").
Pledgor has entered into a Loan and Security Agreement dated of even
date herewith between the Pledgor and the Pledgee (the "Loan Agreement").
In order to induce Pledgee to make the advances provided for in the
Loan Agreement, Pledgor wishes to grant security and assurance to Pledgee in
order to secure its performance of the obligations under the Loan Agreement and
Note (as defined in the Loan Agreement), and to that effect to pledge to Pledgee
all of the issued and outstanding capital stock of Kuhr Technologies, a New
Jersey corporation, KTI Limited Partners, Inc., a Delaware corporation and KTI
Operations Inc., a Delaware corporation (collectively, the "Pledged Shares").
NOW, THEREFORE, in consideration of the foregoing and for $1.00 and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto mutually agree as follows:
1. Security Interest. As security for the obligations under the Note,
including any renewals or extensions thereof, Pledgor hereby delivers, pledges
and assigns to Pledgee and creates in Pledgee for its benefit a first security
interest in, all of its right, title and interest in and to all of the Pledged
Shares together with all rights and privileges of Pledgor with respect thereto,
all proceeds, income and profits thereof and all property received in addition
thereto, in exchange thereof or in substitution therefor (the "Collateral").
2. Stock Dividends, Options, or Other Adjustments. Prior to the full
payment and performance of the obligations, Pledgee shall receive, as
Collateral, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the Collateral pledged hereunder, whether
in the form of stock dividends, warrants, partial liquidation, conversion,
prepayments or redemptions (in whole or in part) liquidation or otherwise, with
the sole exception of cash dividends or cash interest payments, as the case may
be. For the term of this Agreement the Pledged Shares shall be held by Pledgee.
If any additional shares of capital stock, instruments, or other property
against which a security interest can only be perfected by possession by
Pledgee, which are distributable on or by reason of the Collateral pledged
hereunder, shall come into the possession or control of Pledgor, Pledgor shall
hold or control and forthwith transfer and deliver the same to Pledgee subject
to the provisions of this Agreement.
3. Delivery of Share Certificates; Stock Powers. Instruments and stock
certificates representing the Collateral are being delivered to Pledgee
simultaneously herewith together with stock powers duly executed in blank by
Pledgor. Pledgor shall promptly deliver to Pledgee, or
<PAGE> 11
cause the corporations or other entity issuing the Collateral to deliver
directly to Pledgee, share certificates or other documents representing
Collateral acquired or received after the date of this Agreement with a stock
power duly executed by Pledgor. If at any time Pledgee notifies Pledgor that
additional stock powers endorsed in blank held by Pledgee with respect to the
Collateral are required, Pledgor shall promptly execute in blank and deliver
such stock powers as Pledgee may request.
4. Power of Attorney. Pledgor hereby constitutes and irrevocably
appoints Pledgee, with full power of substitution and revocation by Pledgee, as
Pledgor's true and lawful attorney-in-fact, to affix to certificates and
documents representing the Collateral the stock powers delivered with respect
thereto, to transfer or cause the transfer of the Collateral, or any part
thereof on the books of the corporation or other entity issuing the same, to the
name of Pledgee or Pledgee's nominee and thereafter exercise as to such
Collateral all the rights, power and remedies of an owner. The power of attorney
granted pursuant to this Agreement and all authority hereby conferred are
granted and conferred solely to protect Pledgee's interest in the Collateral and
shall not impose any duty upon Pledgee to exercise any power. This power of
attorney shall be irrevocable as one coupled with an interest prior to the
payment in full and/or satisfaction and termination of all obligations to
Pledgee.
5. Inducing Representations of Pledgor. Pledgor represents and warrants
to Pledgee with respect to its collateral that:
(a) Pledgor is the sole legal and beneficial owner of, and has
good and marketable title to, the Collateral, free and clear of all pledges,
liens, security interests and other encumbrances and restrictions on the
transfer and assignment thereof, other than the security interest created by
this Agreement, and Pledgor has the requisite right and authority to execute
this Agreement and to pledge the Collateral to Pledgee as provided for herein;
(b) There are no outstanding options, warrants or other
agreements with respect to the Collateral;
(c) The Collateral has been validly issued and is fully paid
and non-assessable and is not subject to any charter, by-law, statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control, except that sale may be limited in the absence of an effective
registration under the Securities Act of 1933, as amended, and under applicable
state securities laws or of an opinion of counsel satisfactory to the issuer
that the sale or transfer is exempt from registration under said act and laws.
(d) Any consent, approval or authorization of or designation
or filing with any authority on the part of Pledgor which is required in
connection with the pledge and security interest granted under this Agreement
has been obtained or effected;
(e) The execution and delivery of this Agreement by Pledgor,
and the performance by Pledgor of its obligations hereunder, will not result in
a violation of the
2
<PAGE> 12
certificate of incorporation, by-laws, or of any mortgage, indenture, contract,
instrument, judgment, decree, order, statute, rule or regulation to which
Pledgor is subject;
(f) Pledgor has delivered to Pledgee the Pledged Shares duly
endorsed in blank or accompanied by an assignment or assignments sufficient to
transfer title thereto and/or the local equivalent necessary to perfect the
security interest; and
(g) The Pledged shares constitute all the issued and
outstanding capital stock of the issuers thereof.
6. Obligations of Pledgor. Pledgor further covenants to Pledgee with
respect to the Collateral that:
(a) Pledgor will not sell, transfer or convey any interest in,
or suffer or permit any lien or encumbrance to be created upon or with respect
to, any of the Collateral (other than as created under this Agreement) during
the term of the pledge established hereby; and
(b) Pledgor will, at its own expense, at any time and from
time to time at Pledgee's reasonable request, do, make, procure, execute and
deliver all acts, things, writings, assurances and other documents as may be
proposed by Pledgee to further enhance, preserve, establish, demonstrate or
enforce Pledgee's rights, interests and remedies created by, provided in or
emanating from this Agreement.
7. Rights of Pledgor. So long as no Event of Default has occurred and
is continuing (as used herein "Event of Default" shall mean the occurrence of
any Event of Default under the Note, Loan Agreement, any note, document or
instrument delivered or to be delivered pursuant or in connection with the Loan
Agreement (collectively, the "Loan Documents") or the failure of Pledgor to
perform any obligation, or the breach of any covenant, under this Agreement),
and so long as Pledgee has not transferred the Collateral to its own name under
Section 4 hereof:
(a) Pledgor shall be entitled to receive and retain any cash
dividends or cash interest payments paid on the Collateral; and
(b) Pledgor shall be entitled to vote or consent with respect
to the Collateral in any manner not inconsistent with this Agreement, the Note
and Security Agreement. Pledgor hereby grants to Pledgee an irrevocable proxy to
vote the Collateral which proxy shall be effective immediately upon the
occurrence of any Event of Default. Upon request of Pledgee, Pledgor agrees to
deliver to Pledgee such further evidence of such irrevocable proxy as Pledgee
may request.
8. Rights of Pledgee. At any time after the occurrence of an Event of
Default, and so long as such Event of Default continues, without notice, Pledgee
may:
(a) Cause the Collateral to be transferred to its name or to
the name of its
3
<PAGE> 13
nominee or nominees and thereafter exercise as to such Collateral all of the
rights, powers and remedies of an owner;
(b) Collect by legal proceedings or otherwise all dividends,
interest, principal payments, capital distributions and other sums now or
hereafter payable on account of the Collateral, and hold the same as part of the
Collateral, or apply the same to any of the obligations in such manner and order
as Pledgee may decide in its sole discretion;
(c) Enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement relating to
or affecting the Collateral, and in connection therewith deposit or surrender
control of the Collateral thereunder, and accept other property in exchange
therefor and hold and apply such property or money so received in accordance
with the provisions hereof; and
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral, pay for the maintenance and
preservation of the Collateral, or pay for insurance on the Collateral; the
amount of such payments, plus any and all fees, costs and expenses of Pledgee
(including attorneys' fees and disbursements), in connection therewith, shall,
at Pledgee's option, be reimbursed by Pledgor on demand or added to the
obligations secured hereby.
9. Event of Default; Remedies. Upon the occurrence and continuance of
an Event of Default as hereinbefore defined:
(a) In addition to all the rights and remedies of a secured
party under the Uniform Commercial Code in effect in the State of New York at
that time, Pledgee shall have the right, and without demand or performance or
other demand, advertisement or notice of any kind, except as specified below, to
or upon the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange, broker's
board or at any of Pledgee's offices or elsewhere at such prices and on such
terms (including, without limitation, a requirement that any purchaser of all or
any part of the Collateral shall be required to purchase any securities
constituting the Collateral solely for investment and without any intention to
make a distribution thereof) as Pledgee deems to be commercially reasonable. If
any notification of intended disposition of the Collateral is required by law,
such notification shall be deemed reasonable and properly given if mailed,
postage prepaid, at least ten (10) days before any such disposition to Pledgor's
address indicated above. Any disposition of the Collateral or any part thereof
may be for cash or on credit or for future delivery without assumption of any
credit risk, with the right to Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is hereby
expressly waived or released by the
4
<PAGE> 14
Pledgor.
(b) All of the Pledgee's rights and remedies, including but
not limited to the foregoing, shall be cumulative and not exclusive and shall be
enforceable alternatively, successively or concurrently as Pledgee may deem
expedient.
(c) Pledgee may elect to obtain the advice of any independent
nationally-known investment banking firm with respect to the method and manner
of sale or other disposition of any of Collateral, the best price reasonably
obtainable therefor, the consideration of cash and/or credit terms, or any other
details concerning such sale or disposition. Pledgee, in its sole discretion,
may elect to sell on such credit terms which it deems reasonable. The sale of
any of the Collateral on credit terms shall not relieve Pledgor or the Borrowers
of their liability under any of the Obligations until the full purchase price
for the Collateral has been paid in full. All payments received by Pledgee in
respect of a sale of Collateral shall be applied to the obligations in the
manner provided in Section 10 of this Agreement, as and when such payments are
received.
(d) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in any applicable securities law, but may be compelled to resort to
more private sales to a restricted group of purchases who will be obliged to
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view for the distribution or resale thereof. Pledgor
agrees that private sales so made may be at prices and on other terms less
favorable to the seller than if the Collateral were sold at public sale, and
that Pledgee has no obligation to delay the sale of any Collateral for the
period of time necessary to permit the registration of the Collateral for public
sale under the Act. Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Collateral, or any
partial disposition of the Collateral, Pledgor will execute all such
applications and other instruments as may be required in connection with
securing any such consent, approval or authorization, and will otherwise use its
best efforts to secure the same. Pledgor further agrees to use its best efforts
to secure such sale or other disposition of the Collateral as Pledgee may deem
necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, Pledgee shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold or disposed of. Each purchaser at any such sale or other disposition
(including Pledgee) shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of Pledgor. Pledgor
specifically waives all rights of redemption, stay or appraisal which it had or
may have under any rule of law or statute now existing or hereafter adopted.
5
<PAGE> 15
(g) Pledgee shall not be obligated to make any sale or other
disposition, unless the terms thereof shall be satisfactory to it. Pledgee may,
without notice or publication, adjourn any private or public sale, and, upon ten
(10) days' prior notice to Pledgor, hold such sale at any time or place to which
the same may be so adjourned. In case of any sale of all or any part of the
Collateral, on credit or future delivery, the Collateral so sold may be retained
by Pledgee until the selling price is paid by the purchaser thereof, but Pledgee
shall incur no liability in case of the failure of such purchaser to take up and
pay for the property so sold and, in case of any such failure, such property may
again be sole as herein provided.
10. Disposition of Proceeds.
(a) The proceeds of any sale or disposition of all or any part
of the Collateral shall be applied by Pledgee in the following order:
(i) to the payment in full of the costs and expenses
of such sale or sales, collections, and the protection, declaration and
enforcement of any security interest granted hereunder, including the
compensation of Pledgee's agents and attorneys;
(ii) to the payment of the obligations; and
(iii) to the payment to Pledgor of any surplus then
remaining from such proceeds, subject to the rights of any holder of a lien on
the Collateral of which Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other
disposition are insufficient to cover the amount of the obligations, Pledgor
shall remain liable for any deficiency.
11. Termination. This Agreement shall continue to full force and effect
until all obligations shall have been paid in full and satisfied and the Loan
Agreement shall have been terminated. Subject to any sale or other disposition
by Pledgee of the Collateral or any part thereof pursuant to this Agreement, the
Collateral shall be returned to Pledgor upon full payment, satisfaction and
termination of all of the obligations of Pledgor.
12. Expenses of Pledgee. All expenses (including Pledgee's fees and
charges and fees and disbursements of counsel) incurred by Pledgee in connection
with the perfection and continuation of the security interest granted hereunder
and any actual or attempted sale, exchange of, or any enforcement, collection,
compromise or settlement respecting, the Collateral, or any other action taken
by Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power
of attorney or other authorization therein conferred, for the purpose of
satisfaction of the liability of Borrowers and Pledgor for failure to pay the
obligations or as additional amounts owing by Pledgor to cover Pledgee's costs
of acting against the Collateral, shall be deemed an obligation of Pledgor for
all purposes of this Agreement and Pledgee may apply the Collateral to payment
of or reimbursement of itself and the Bank for such liability.
6
<PAGE> 16
13. General Provisions.
(a) Pledgee or its designee is hereby appointed the
attorney-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Pledgee
reasonably may deem necessary and advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable as one coupled with an
interest.
(b) Pledgee and its assigns shall have no obligation in
respect to the Collateral, except to use reasonable care in holding the
Collateral and to hold and dispose of the same in accordance with the terms of
this Agreement.
(c) Any notice or other communication given hereunder shall be
in writing and sent by registered or certified mail, postage prepaid, as
follows;
If to Pledgor:
KTI Environmental Group, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq., General Counsel
With a copy thereof to:
KTI Environmental Group, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Martin Sergi, President
If to Pledgee:
Key Bank of New York
66 South Pearl Street
Albany, New York 12207
Attention: John Stewart, Vice President
With a copy thereof to:
Crane, Kelley, Greene & Parente
90 State Street
Albany, New York 12207
Attention: Patrick K. Greene, Esq.
7
<PAGE> 17
Either party hereto may change its address for notice by giving notice thereof
to the other party in accordance with the provisions of this paragraph.
(d) NO FAILURE ON THE PART OF PLEDGEE TO EXERCISE, AND NO
DELAY IN EXERCISING, ANY RIGHT, POWER OR REMEDY HEREUNDER SHALL OPERATE AS A
WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE BY PLEDGEE OF ANY
RIGHT,POWER OR REMEDY HEREUNDER PRECLUDE ANY OTHER OR FUTURE EXERCISE THEREOF,
OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR REMEDY. THE REMEDIES HEREIN
PROVIDED ARE CUMULATIVE AND ARE NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW OR
ANY OTHER AGREEMENT. THE REPRESENTATIONS, COVENANTS AND AGREEMENTS OF PLEDGOR
HEREIN CONTAINED SHALL SURVIVE THE DATE HEREOF. NEITHER THIS AGREEMENT NOR THE
PROVISIONS HEREOF CAN BE CHANGED, WAIVED OR TERMINATED ORALLY. THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS, LEGAL REPRESENTATIVES AND ASSIGNS. THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE COUNTERPARTS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
KTI ENVIRONMENTAL GROUP, INC.
By: /s/ Martin J. Sergi
----------------------------------
Name: Martin J. Sergi
Title: President
KEY BANK OF NEW YORK
By: /s/ John Stewart
---------------------------------
Name: John Stewart
Title: Vice President
8
<PAGE> 18
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville, N.J., that he is the President of KTI
Environmental Group, Inc., the corporation described in, and which executed the
above instrument; and that he signed his name thereto by like order of the Board
of Directors of said corporation.
/s/ Francis J. Elenio
-----------------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came John
Stewart, to me known, who being by me duly sworn, did depose and say that he
resides at _________________, New York, that he is the Vice President of Key
Bank of New York, the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
-----------------------------
Notary Public
9
<PAGE> 19
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made as of this 29th day of October, 1996,
between KTI LIMITED PARTNERS, INC., with its principal office and place of
business at 7000 Boulevard East, Guttenberg, New Jersey 07093 (the "Pledgor"),
and KEY BANK OF NEW YORK, a New York state banking corporation with its
principal office at 66 South Pearl Street, New York, New York 12207 (the
"Pledgee").
Pledgor has entered into a Loan and Security Agreement dated of even
date herewith between the Pledgor and the Pledgee (the "Loan Agreement").
In order to induce Pledgee to make the advances provided for in the
Loan Agreement, Pledgor wishes to grant security and assurance to Pledgee in
order to secure its performance of the obligations under the Loan Agreement and
Note (as defined in the Loan Agreement), and to that effect to pledge to Pledgee
all of the issued and outstanding capital stock of PERC Management Company, a
Maine limited partnership and Maine Energy Recovery Co., a Maine limited
partnership (collectively, the "Pledged Shares").
NOW, THEREFORE, in consideration of the foregoing and for $1.00 and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto mutually agree as follows:
1. Security Interest. As security for the obligations under the Note,
including any renewals or extensions thereof, Pledgor hereby delivers, pledges
and assigns to Pledgee and creates in Pledgee for its benefit a first security
interest in, all of its right, title and interest in and to all of the Pledged
Shares together with all rights and privileges of Pledgor with respect thereto,
all proceeds, income and profits thereof and all property received in addition
thereto, in exchange thereof or in substitution therefor (the "Collateral").
2. Stock Dividends, Options, or Other Adjustments. Prior to the full
payment and performance of the obligations, Pledgee shall receive, as
Collateral, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the Collateral pledged hereunder, whether
in the form of stock dividends, warrants, partial liquidation, conversion,
prepayments or redemptions (in whole or in part) liquidation or otherwise, with
the sole exception of cash dividends or cash interest payments, as the case may
be. For the term of this Agreement the Pledged Shares shall be held by Pledgee.
If any additional shares of capital stock, instruments, or other property
against which a security interest can only be perfected by possession by
Pledgee, which are distributable on or by reason of the Collateral pledged
hereunder, shall come into the possession or control of Pledgor, Pledgor shall
hold or control and forthwith transfer and deliver the same to Pledgee subject
to the provisions of this Agreement.
3. Delivery of Share Certificates; Stock Powers. Instruments and stock
certificates representing the Collateral are being delivered to Pledgee
simultaneously herewith together with stock powers duly executed in blank by
Pledgor. Pledgor shall promptly deliver to Pledgee, or
<PAGE> 20
cause the corporations or other entity issuing the Collateral to deliver
directly to Pledgee, share certificates or other documents representing
Collateral acquired or received after the date of this Agreement with a stock
power duly executed by Pledgor. If at any time Pledgee notifies Pledgor that
additional stock powers endorsed in blank held by Pledgee with respect to the
Collateral are required, Pledgor shall promptly execute in blank and deliver
such stock powers as Pledgee may request.
4. Power of Attorney. Pledgor hereby constitutes and irrevocably
appoints Pledgee, with full power of substitution and revocation by Pledgee, as
Pledgor's true and lawful attorney-in-fact, to affix to certificates and
documents representing the Collateral the stock powers delivered with respect
thereto, to transfer or cause the transfer of the Collateral, or any part
thereof on the books of the corporation or other entity issuing the same, to the
name of Pledgee or Pledgee's nominee and thereafter exercise as to such
Collateral all the rights, power and remedies of an owner. The power of attorney
granted pursuant to this Agreement and all authority hereby conferred are
granted and conferred solely to protect Pledgee's interest in the Collateral and
shall not impose any duty upon Pledgee to exercise any power. This power of
attorney shall be irrevocable as one coupled with an interest prior to the
payment in full and/or satisfaction and termination of all obligations to
Pledgee.
5. Inducing Representations of Pledgor. Pledgor represents and warrants
to Pledgee with respect to its collateral that:
(a) Pledgor is the sole legal and beneficial owner of, and has
good and marketable title to, the Collateral, free and clear of all pledges,
liens, security interests and other encumbrances and restrictions on the
transfer and assignment thereof, other than the security interest created by
this Agreement, and Pledgor has the requisite right and authority to execute
this Agreement and to pledge the Collateral to Pledgee as provided for herein;
(b) There are no outstanding options, warrants or other
agreements with respect to the Collateral;
(c) The Collateral has been validly issued and is fully paid
and non-assessable and is not subject to any charter, by-law, statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control, except that sale may be limited in the absence of an effective
registration under the Securities Act of 1933, as amended, and under applicable
state securities laws or of an opinion of counsel satisfactory to the issuer
that the sale or transfer is exempt from registration under said act and laws.
(d) Any consent, approval or authorization of or designation
or filing with any authority on the part of Pledgor which is required in
connection with the pledge and security interest granted under this Agreement
has been obtained or effected;
(e) The execution and delivery of this Agreement by Pledgor,
and the performance by Pledgor of its obligations hereunder, will not result in
a violation of the
2
<PAGE> 21
certificate of incorporation, by-laws, or of any mortgage, indenture, contract,
instrument, judgment, decree, order, statute, rule or regulation to which
Pledgor is subject;
(f) Pledgor has delivered to Pledgee the Pledged Shares duly
endorsed in blank or accompanied by an assignment or assignments sufficient to
transfer title thereto and/or the local equivalent necessary to perfect the
security interest; and
(g) The Pledged shares constitute all the issued and
outstanding capital stock of the issuers thereof.
6. Obligations of Pledgor. Pledgor further covenants to Pledgee with
respect to the Collateral that:
(a) Pledgor will not sell, transfer or convey any interest in,
or suffer or permit any lien or encumbrance to be created upon or with respect
to, any of the Collateral (other than as created under this Agreement) during
the term of the pledge established hereby; and
(b) Pledgor will, at its own expense, at any time and from
time to time at Pledgee's reasonable request, do, make, procure, execute and
deliver all acts, things, writings, assurances and other documents as may be
proposed by Pledgee to further enhance, preserve, establish, demonstrate or
enforce Pledgee's rights, interests and remedies created by, provided in or
emanating from this Agreement.
7. Rights of Pledgor. So long as no Event of Default has occurred and
is continuing (as used herein "Event of Default" shall mean the occurrence of
any Event of Default under the Note, Loan Agreement, any note, document or
instrument delivered or to be delivered pursuant or in connection with the Loan
Agreement (collectively, the "Loan Documents") or the failure of Pledgor to
perform any obligation, or the breach of any covenant, under this Agreement),
and so long as Pledgee has not transferred the Collateral to its own name under
Section 4 hereof:
(a) Pledgor shall be entitled to receive and retain any cash
dividends or cash interest payments paid on the Collateral; and
(b) Pledgor shall be entitled to vote or consent with respect
to the Collateral in any manner not inconsistent with this Agreement, the Note
and Security Agreement. Pledgor hereby grants to Pledgee an irrevocable proxy to
vote the Collateral which proxy shall be effective immediately upon the
occurrence of any Event of Default. Upon request of Pledgee, Pledgor agrees to
deliver to Pledgee such further evidence of such irrevocable proxy as Pledgee
may request.
8. Rights of Pledgee. At any time after the occurrence of an Event of
Default, and so long as such Event of Default continues, without notice, Pledgee
may:
(a) Cause the Collateral to be transferred to its name or to
the name of its
3
<PAGE> 22
nominee or nominees and thereafter exercise as to such Collateral all of the
rights, powers and remedies of an owner;
(b) Collect by legal proceedings or otherwise all dividends,
interest, principal payments, capital distributions and other sums now or
hereafter payable on account of the Collateral, and hold the same as part of the
Collateral, or apply the same to any of the obligations in such manner and order
as Pledgee may decide in its sole discretion;
(c) Enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement relating to
or affecting the Collateral, and in connection therewith deposit or surrender
control of the Collateral thereunder, and accept other property in exchange
therefor and hold and apply such property or money so received in accordance
with the provisions hereof; and
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral, pay for the maintenance and
preservation of the Collateral, or pay for insurance on the Collateral; the
amount of such payments, plus any and all fees, costs and expenses of Pledgee
(including attorneys' fees and disbursements), in connection therewith, shall,
at Pledgee's option, be reimbursed by Pledgor on demand or added to the
obligations secured hereby.
9. Event of Default; Remedies. Upon the occurrence and continuance of
an Event of Default as hereinbefore defined:
(a) In addition to all the rights and remedies of a secured
party under the Uniform Commercial Code in effect in the State of New York at
that time, Pledgee shall have the right, and without demand or performance or
other demand, advertisement or notice of any kind, except as specified below, to
or upon the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange, broker's
board or at any of Pledgee's offices or elsewhere at such prices and on such
terms (including, without limitation, a requirement that any purchaser of all or
any part of the Collateral shall be required to purchase any securities
constituting the Collateral solely for investment and without any intention to
make a distribution thereof) as Pledgee deems to be commercially reasonable. If
any notification of intended disposition of the Collateral is required by law,
such notification shall be deemed reasonable and properly given if mailed,
postage prepaid, at least ten (10) days before any such disposition to Pledgor's
address indicated above. Any disposition of the Collateral or any part thereof
may be for cash or on credit or for future delivery without assumption of any
credit risk, with the right to Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is hereby
expressly waived or released by the
4
<PAGE> 23
Pledgor.
(b) All of the Pledgee's rights and remedies, including but
not limited to the foregoing, shall be cumulative and not exclusive and shall be
enforceable alternatively, successively or concurrently as Pledgee may deem
expedient.
(c) Pledgee may elect to obtain the advice of any independent
nationally-known investment banking firm with respect to the method and manner
of sale or other disposition of any of Collateral, the best price reasonably
obtainable therefor, the consideration of cash and/or credit terms, or any other
details concerning such sale or disposition. Pledgee, in its sole discretion,
may elect to sell on such credit terms which it deems reasonable. The sale of
any of the Collateral on credit terms shall not relieve Pledgor or the Borrowers
of their liability under any of the Obligations until the full purchase price
for the Collateral has been paid in full. All payments received by Pledgee in
respect of a sale of Collateral shall be applied to the obligations in the
manner provided in Section 10 of this Agreement, as and when such payments are
received.
(d) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in any applicable securities law, but may be compelled to resort to
more private sales to a restricted group of purchases who will be obliged to
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view for the distribution or resale thereof. Pledgor
agrees that private sales so made may be at prices and on other terms less
favorable to the seller than if the Collateral were sold at public sale, and
that Pledgee has no obligation to delay the sale of any Collateral for the
period of time necessary to permit the registration of the Collateral for public
sale under the Act. Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Collateral, or any
partial disposition of the Collateral, Pledgor will execute all such
applications and other instruments as may be required in connection with
securing any such consent, approval or authorization, and will otherwise use its
best efforts to secure the same. Pledgor further agrees to use its best efforts
to secure such sale or other disposition of the Collateral as Pledgee may deem
necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, Pledgee shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold or disposed of. Each purchaser at any such sale or other disposition
(including Pledgee) shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of Pledgor. Pledgor
specifically waives all rights of redemption, stay or appraisal which it had or
may have under any rule of law or statute now existing or hereafter adopted.
5
<PAGE> 24
(g) Pledgee shall not be obligated to make any sale or other
disposition, unless the terms thereof shall be satisfactory to it. Pledgee may,
without notice or publication, adjourn any private or public sale, and, upon ten
(10) days' prior notice to Pledgor, hold such sale at any time or place to which
the same may be so adjourned. In case of any sale of all or any part of the
Collateral, on credit or future delivery, the Collateral so sold may be retained
by Pledgee until the selling price is paid by the purchaser thereof, but Pledgee
shall incur no liability in case of the failure of such purchaser to take up and
pay for the property so sold and, in case of any such failure, such property may
again be sole as herein provided.
10. Disposition of Proceeds.
(a) The proceeds of any sale or disposition of all or any part
of the Collateral shall be applied by Pledgee in the following order:
(i) to the payment in full of the costs and expenses
of such sale or sales, collections, and the protection, declaration and
enforcement of any security interest granted hereunder, including the
compensation of Pledgee's agents and attorneys;
(ii) to the payment of the obligations; and
(iii) to the payment to Pledgor of any surplus then
remaining from such proceeds, subject to the rights of any holder of a lien on
the Collateral of which Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other
disposition are insufficient to cover the amount of the obligations, Pledgor
shall remain liable for any deficiency.
11. Termination. This Agreement shall continue to full force and effect
until all obligations shall have been paid in full and satisfied and the Loan
Agreement shall have been terminated. Subject to any sale or other disposition
by Pledgee of the Collateral or any part thereof pursuant to this Agreement, the
Collateral shall be returned to Pledgor upon full payment, satisfaction and
termination of all of the obligations of Pledgor.
12. Expenses of Pledgee. All expenses (including Pledgee's fees and
charges and fees and disbursements of counsel) incurred by Pledgee in connection
with the perfection and continuation of the security interest granted hereunder
and any actual or attempted sale, exchange of, or any enforcement, collection,
compromise or settlement respecting, the Collateral, or any other action taken
by Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power
of attorney or other authorization therein conferred, for the purpose of
satisfaction of the liability of Borrowers and Pledgor for failure to pay the
obligations or as additional amounts owing by Pledgor to cover Pledgee's costs
of acting against the Collateral, shall be deemed an obligation of Pledgor for
all purposes of this Agreement and Pledgee may apply the Collateral to payment
of or reimbursement of itself and the Bank for such liability.
6
<PAGE> 25
13. General Provisions.
(a) Pledgee or its designee is hereby appointed the
attorney-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Pledgee
reasonably may deem necessary and advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable as one coupled with an
interest.
(b) Pledgee and its assigns shall have no obligation in
respect to the Collateral, except to use reasonable care in holding the
Collateral and to hold and dispose of the same in accordance with the terms of
this Agreement.
(c) Any notice or other communication given hereunder shall be
in writing and sent by registered or certified mail, postage prepaid, as
follows;
If to Pledgor:
KTI Limited Partners, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq., General Counsel
With a copy thereof to:
KTI Limited Partners, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Martin Sergi, President
If to Pledgee:
Key Bank of New York
66 South Pearl Street
Albany, New York 12207
Attention: John Stewart, Vice President
With a copy thereof to:
Crane, Kelley, Greene & Parente
90 State Street
Albany, New York 12207
Attention: Patrick K. Greene, Esq.
7
<PAGE> 26
Either party hereto may change its address for notice by giving notice thereof
to the other party in accordance with the provisions of this paragraph.
(D) NO FAILURE ON THE PART OF PLEDGEE TO EXERCISE, AND NO
DELAY IN EXERCISING, ANY RIGHT, POWER OR REMEDY HEREUNDER SHALL OPERATE AS A
WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE BY PLEDGEE OF ANY
RIGHT,POWER OR REMEDY HEREUNDER PRECLUDE ANY OTHER OR FUTURE EXERCISE THEREOF,
OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR REMEDY. THE REMEDIES HEREIN
PROVIDED ARE CUMULATIVE AND ARE NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW OR
ANY OTHER AGREEMENT. THE REPRESENTATIONS, COVENANTS AND AGREEMENTS OF PLEDGOR
HEREIN CONTAINED SHALL SURVIVE THE DATE HEREOF. NEITHER THIS AGREEMENT NOR THE
PROVISIONS HEREOF CAN BE CHANGED, WAIVED OR TERMINATED ORALLY. THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS, LEGAL REPRESENTATIVES AND ASSIGNS. THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE COUNTERPARTS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
KTI LIMITED PARTNERS, INC.
By:/s/ Martin J. Sergi
-------------------------------
Name: Martin J. Sergi
Title: President
KEY BANK OF NEW YORK
By: /s/ John Stewart
-------------------------------
Name: John Stewart
Title: Vice President
8
<PAGE> 27
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at ________________________________, that he is the President of KTI
Limited Partners, Inc., the corporation described in, and which executed the
above instrument; and that he signed his name thereto by like order of the Board
of Directors of said corporation.
/s/ Francis J. Elenio
-------------------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came John
Stewart, to me known, who being by me duly sworn, did depose and say that he
resides at _________________, New York, that he is the Vice President of Key
Bank of New York, the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
-------------------------------
Notary Public
9
<PAGE> 28
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made as of this 29th day of October, 1996,
between KUHR TECHNOLOGIES INC., with its principal office and place of business
at 7000 Boulevard East, Guttenberg, New Jersey 07093 (the "Pledgor"), and KEY
BANK OF NEW YORK, a New York state banking corporation with its principal office
at 66 South Pearl Street, New York, New York 12207 (the "Pledgee").
Pledgor has entered into a Loan and Security Agreement dated of even
date herewith between the Pledgor and the Pledgee (the "Loan Agreement").
In order to induce Pledgee to make the advances provided for in the
Loan Agreement, Pledgor wishes to grant security and assurance to Pledgee in
order to secure its performance of the obligations under the Loan Agreement and
Note (as defined in the Loan Agreement), and to that effect to pledge to Pledgee
all of the issued and outstanding capital stock of PERC, Inc., a Delaware
corporation and Maine Energy Recovery Co., a Maine limited partnership
(collectively, the "Pledged Shares").
NOW, THEREFORE, in consideration of the foregoing and for $1.00 and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto mutually agree as follows:
1. Security Interest. As security for the obligations under the Note,
including any renewals or extensions thereof, Pledgor hereby delivers, pledges
and assigns to Pledgee and creates in Pledgee for its benefit a first security
interest in, all of its right, title and interest in and to all of the Pledged
Shares together with all rights and privileges of Pledgor with respect thereto,
all proceeds, income and profits thereof and all property received in addition
thereto, in exchange thereof or in substitution therefor (the "Collateral").
2. Stock Dividends, Options, or Other Adjustments. Prior to the full
payment and performance of the obligations, Pledgee shall receive, as
Collateral, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the Collateral pledged hereunder, whether
in the form of stock dividends, warrants, partial liquidation, conversion,
prepayments or redemptions (in whole or in part) liquidation or otherwise, with
the sole exception of cash dividends or cash interest payments, as the case may
be. For the term of this Agreement the Pledged Shares shall be held by Pledgee.
If any additional shares of capital stock, instruments, or other property
against which a security interest can only be perfected by possession by
Pledgee, which are distributable on or by reason of the Collateral pledged
hereunder, shall come into the possession or control of Pledgor, Pledgor shall
hold or control and forthwith transfer and deliver the same to Pledgee subject
to the provisions of this Agreement.
3. Delivery of Share Certificates; Stock Powers. Instruments and stock
certificates representing the Collateral are being delivered to Pledgee
simultaneously herewith together with stock powers duly executed in blank by
Pledgor. Pledgor shall promptly deliver to Pledgee, or
<PAGE> 29
cause the corporations or other entity issuing the Collateral to deliver
directly to Pledgee, share certificates or other documents representing
Collateral acquired or received after the date of this Agreement with a stock
power duly executed by Pledgor. If at any time Pledgee notifies Pledgor that
additional stock powers endorsed in blank held by Pledgee with respect to the
Collateral are required, Pledgor shall promptly execute in blank and deliver
such stock powers as Pledgee may request.
4. Power of Attorney. Pledgor hereby constitutes and irrevocably
appoints Pledgee, with full power of substitution and revocation by Pledgee, as
Pledgor's true and lawful attorney-in-fact, to affix to certificates and
documents representing the Collateral the stock powers delivered with respect
thereto, to transfer or cause the transfer of the Collateral, or any part
thereof on the books of the corporation or other entity issuing the same, to the
name of Pledgee or Pledgee's nominee and thereafter exercise as to such
Collateral all the rights, power and remedies of an owner. The power of attorney
granted pursuant to this Agreement and all authority hereby conferred are
granted and conferred solely to protect Pledgee's interest in the Collateral and
shall not impose any duty upon Pledgee to exercise any power. This power of
attorney shall be irrevocable as one coupled with an interest prior to the
payment in full and/or satisfaction and termination of all obligations to
Pledgee.
5. Inducing Representations of Pledgor. Pledgor represents and warrants
to Pledgee with respect to its collateral that:
(a) Pledgor is the sole legal and beneficial owner of, and has
good and marketable title to, the Collateral, free and clear of all pledges,
liens, security interests and other encumbrances and restrictions on the
transfer and assignment thereof, other than the security interest created by
this Agreement, and Pledgor has the requisite right and authority to execute
this Agreement and to pledge the Collateral to Pledgee as provided for herein;
(b) There are no outstanding options, warrants or other
agreements with respect to the Collateral;
(c) The Collateral has been validly issued and is fully paid
and non-assessable and is not subject to any charter, by-law, statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control, except that sale may be limited in the absence of an effective
registration under the Securities Act of 1933, as amended, and under applicable
state securities laws or of an opinion of counsel satisfactory to the issuer
that the sale or transfer is exempt from registration under said act and laws.
(d) Any consent, approval or authorization of or designation
or filing with any authority on the part of Pledgor which is required in
connection with the pledge and security interest granted under this Agreement
has been obtained or effected;
(e) The execution and delivery of this Agreement by Pledgor,
and the performance by Pledgor of its obligations hereunder, will not result in
a violation of the
2
<PAGE> 30
certificate of incorporation, by-laws, or of any mortgage, indenture, contract,
instrument, judgment, decree, order, statute, rule or regulation to which
Pledgor is subject;
(f) Pledgor has delivered to Pledgee the Pledged Shares duly
endorsed in blank or accompanied by an assignment or assignments sufficient to
transfer title thereto and/or the local equivalent necessary to perfect the
security interest; and
(g) The Pledged shares constitute all the issued and
outstanding capital stock of the issuers thereof.
6. Obligations of Pledgor. Pledgor further covenants to Pledgee with
respect to the Collateral that:
(a) Pledgor will not sell, transfer or convey any interest in,
or suffer or permit any lien or encumbrance to be created upon or with respect
to, any of the Collateral (other than as created under this Agreement) during
the term of the pledge established hereby; and
(b) Pledgor will, at its own expense, at any time and from
time to time at Pledgee's reasonable request, do, make, procure, execute and
deliver all acts, things, writings, assurances and other documents as may be
proposed by Pledgee to further enhance, preserve, establish, demonstrate or
enforce Pledgee's rights, interests and remedies created by, provided in or
emanating from this Agreement.
7. Rights of Pledgor. So long as no Event of Default has occurred and
is continuing (as used herein "Event of Default" shall mean the occurrence of
any Event of Default under the Note, Loan Agreement, any note, document or
instrument delivered or to be delivered pursuant or in connection with the Loan
Agreement (collectively, the "Loan Documents") or the failure of Pledgor to
perform any obligation, or the breach of any covenant, under this Agreement),
and so long as Pledgee has not transferred the Collateral to its own name under
Section 4 hereof:
(a) Pledgor shall be entitled to receive and retain any cash
dividends or cash interest payments paid on the Collateral; and
(b) Pledgor shall be entitled to vote or consent with respect
to the Collateral in any manner not inconsistent with this Agreement, the Note
and Security Agreement. Pledgor hereby grants to Pledgee an irrevocable proxy to
vote the Collateral which proxy shall be effective immediately upon the
occurrence of any Event of Default. Upon request of Pledgee, Pledgor agrees to
deliver to Pledgee such further evidence of such irrevocable proxy as Pledgee
may request.
8. Rights of Pledgee. At any time after the occurrence of an Event of
Default, and so long as such Event of Default continues, without notice, Pledgee
may:
(a) Cause the Collateral to be transferred to its name or to
the name of its
3
<PAGE> 31
nominee or nominees and thereafter exercise as to such Collateral all of the
rights, powers and remedies of an owner;
(b) Collect by legal proceedings or otherwise all dividends,
interest, principal payments, capital distributions and other sums now or
hereafter payable on account of the Collateral, and hold the same as part of the
Collateral, or apply the same to any of the obligations in such manner and order
as Pledgee may decide in its sole discretion;
(c) Enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement relating to
or affecting the Collateral, and in connection therewith deposit or surrender
control of the Collateral thereunder, and accept other property in exchange
therefor and hold and apply such property or money so received in accordance
with the provisions hereof; and
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral, pay for the maintenance and
preservation of the Collateral, or pay for insurance on the Collateral; the
amount of such payments, plus any and all fees, costs and expenses of Pledgee
(including attorneys' fees and disbursements), in connection therewith, shall,
at Pledgee's option, be reimbursed by Pledgor on demand or added to the
obligations secured hereby.
9. Event of Default; Remedies. Upon the occurrence and continuance of
an Event of Default as hereinbefore defined:
(a) In addition to all the rights and remedies of a secured
party under the Uniform Commercial Code in effect in the State of New York at
that time, Pledgee shall have the right, and without demand or performance or
other demand, advertisement or notice of any kind, except as specified below, to
or upon the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange, broker's
board or at any of Pledgee's offices or elsewhere at such prices and on such
terms (including, without limitation, a requirement that any purchaser of all or
any part of the Collateral shall be required to purchase any securities
constituting the Collateral solely for investment and without any intention to
make a distribution thereof) as Pledgee deems to be commercially reasonable. If
any notification of intended disposition of the Collateral is required by law,
such notification shall be deemed reasonable and properly given if mailed,
postage prepaid, at least ten (10) days before any such disposition to Pledgor's
address indicated above. Any disposition of the Collateral or any part thereof
may be for cash or on credit or for future delivery without assumption of any
credit risk, with the right to Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is hereby
expressly waived or released by the
4
<PAGE> 32
Pledgor.
(b) All of the Pledgee's rights and remedies, including but
not limited to the foregoing, shall be cumulative and not exclusive and shall be
enforceable alternatively, successively or concurrently as Pledgee may deem
expedient.
(c) Pledgee may elect to obtain the advice of any independent
nationally-known investment banking firm with respect to the method and manner
of sale or other disposition of any of Collateral, the best price reasonably
obtainable therefor, the consideration of cash and/or credit terms, or any other
details concerning such sale or disposition. Pledgee, in its sole discretion,
may elect to sell on such credit terms which it deems reasonable. The sale of
any of the Collateral on credit terms shall not relieve Pledgor or the Borrowers
of their liability under any of the Obligations until the full purchase price
for the Collateral has been paid in full. All payments received by Pledgee in
respect of a sale of Collateral shall be applied to the obligations in the
manner provided in Section 10 of this Agreement, as and when such payments are
received.
(d) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in any applicable securities law, but may be compelled to resort to
more private sales to a restricted group of purchases who will be obliged to
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view for the distribution or resale thereof. Pledgor
agrees that private sales so made may be at prices and on other terms less
favorable to the seller than if the Collateral were sold at public sale, and
that Pledgee has no obligation to delay the sale of any Collateral for the
period of time necessary to permit the registration of the Collateral for public
sale under the Act. Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Collateral, or any
partial disposition of the Collateral, Pledgor will execute all such
applications and other instruments as may be required in connection with
securing any such consent, approval or authorization, and will otherwise use its
best efforts to secure the same. Pledgor further agrees to use its best efforts
to secure such sale or other disposition of the Collateral as Pledgee may deem
necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, Pledgee shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold or disposed of. Each purchaser at any such sale or other disposition
(including Pledgee) shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of Pledgor. Pledgor
specifically waives all rights of redemption, stay or appraisal which it had or
may have under any rule of law or statute now existing or hereafter adopted.
5
<PAGE> 33
(g) Pledgee shall not be obligated to make any sale or other
disposition, unless the terms thereof shall be satisfactory to it. Pledgee may,
without notice or publication, adjourn any private or public sale, and, upon ten
(10) days' prior notice to Pledgor, hold such sale at any time or place to which
the same may be so adjourned. In case of any sale of all or any part of the
Collateral, on credit or future delivery, the Collateral so sold may be retained
by Pledgee until the selling price is paid by the purchaser thereof, but Pledgee
shall incur no liability in case of the failure of such purchaser to take up and
pay for the property so sold and, in case of any such failure, such property may
again be sole as herein provided.
10. Disposition of Proceeds.
(a) The proceeds of any sale or disposition of all or any part
of the Collateral shall be applied by Pledgee in the following order:
(i) to the payment in full of the costs and expenses
of such sale or sales, collections, and the protection, declaration and
enforcement of any security interest granted hereunder, including the
compensation of Pledgee's agents and attorneys;
(ii) to the payment of the obligations; and
(iii) to the payment to Pledgor of any surplus then
remaining from such proceeds, subject to the rights of any holder of a lien on
the Collateral of which Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other
disposition are insufficient to cover the amount of the obligations, Pledgor
shall remain liable for any deficiency.
11. Termination. This Agreement shall continue to full force and effect
until all obligations shall have been paid in full and satisfied and the Loan
Agreement shall have been terminated. Subject to any sale or other disposition
by Pledgee of the Collateral or any part thereof pursuant to this Agreement, the
Collateral shall be returned to Pledgor upon full payment, satisfaction and
termination of all of the obligations of Pledgor.
12. Expenses of Pledgee. All expenses (including Pledgee's fees and
charges and fees and disbursements of counsel) incurred by Pledgee in connection
with the perfection and continuation of the security interest granted hereunder
and any actual or attempted sale, exchange of, or any enforcement, collection,
compromise or settlement respecting, the Collateral, or any other action taken
by Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power
of attorney or other authorization therein conferred, for the purpose of
satisfaction of the liability of Borrowers and Pledgor for failure to pay the
obligations or as additional amounts owing by Pledgor to cover Pledgee's costs
of acting against the Collateral, shall be deemed an obligation of Pledgor for
all purposes of this Agreement and Pledgee may apply the Collateral to payment
of or reimbursement of itself and the Bank for such liability.
6
<PAGE> 34
13. General Provisions.
(a) Pledgee or its designee is hereby appointed the
attorney-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Pledgee
reasonably may deem necessary and advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable as one coupled with an
interest.
(b) Pledgee and its assigns shall have no obligation in
respect to the Collateral, except to use reasonable care in holding the
Collateral and to hold and dispose of the same in accordance with the terms of
this Agreement.
(c) Any notice or other communication given hereunder shall be
in writing and sent by registered or certified mail, postage prepaid, as
follows;
If to Pledgor:
Kuhr Technologies Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel, Esq., General Counsel
With a copy thereof to:
Kuhr Technologies Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Martin Sergi, President
If to Pledgee:
Key Bank of New York
66 South Pearl Street
Albany, New York 12207
Attention: John Stewart, Vice President
With a copy thereof to:
Crane, Kelley, Greene & Parente
90 State Street
Albany, New York 12207
Attention: Patrick K. Greene, Esq.
7
<PAGE> 35
Either party hereto may change its address for notice by giving notice thereof
to the other party in accordance with the provisions of this paragraph.
(d) NO FAILURE ON THE PART OF PLEDGEE TO EXERCISE, AND NO
DELAY IN EXERCISING, ANY RIGHT, POWER OR REMEDY HEREUNDER SHALL OPERATE AS A
WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE BY PLEDGEE OF ANY
RIGHT,POWER OR REMEDY HEREUNDER PRECLUDE ANY OTHER OR FUTURE EXERCISE THEREOF,
OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR REMEDY. THE REMEDIES HEREIN
PROVIDED ARE CUMULATIVE AND ARE NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW OR
ANY OTHER AGREEMENT. THE REPRESENTATIONS, COVENANTS AND AGREEMENTS OF PLEDGOR
HEREIN CONTAINED SHALL SURVIVE THE DATE HEREOF. NEITHER THIS AGREEMENT NOR THE
PROVISIONS HEREOF CAN BE CHANGED, WAIVED OR TERMINATED ORALLY. THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS, LEGAL REPRESENTATIVES AND ASSIGNS. THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE COUNTERPARTS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
KUHR TECHNOLOGIES, INC.
By:/s/ Martin J. Sergi
----------------------------
Name: Martin J. Sergi
Title: President
KEY BANK OF NEW YORK
By: /s/ John Stewart
----------------------------
Name: John Stewart
Title: Vice President
8
<PAGE> 36
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came Martin J.
Sergi, to me known, who being by me duly sworn, did depose and say that he
resides at 17 Ridge Road, Denville N.J., that he is the President of Kuhr
Technologies, Inc., the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
/s/ Francis J. Elenio
----------------------------
Notary Public
FRANCIS J. ELENIO
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 25, 2000
STATE OF NEW JERSEY )ss.:
COUNTY OF HUDSON )
On this 29th day of October, 1996, before me personally came John
Stewart, to me known, who being by me duly sworn, did depose and say that he
resides at _________________, New York, that he is the Vice President of Key
Bank of New York, the corporation described in, and which executed the above
instrument; and that he signed his name thereto by like order of the Board of
Directors of said corporation.
----------------------------
Notary Public
9
<PAGE> 1
03/24/95 EXHIBIT 10.40
BASIC PLAN DOCUMENT # 05
PLAN # 002
IRS LETTER SERIAL NO.: D363689a
PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST
SECTION 401(k) PROFIT SHARING PLAN
(NONSTANDARDIZED)
ADOPTION AGREEMENT(1)
The Employer(2), designated below, hereby establishes a profit-sharing plan
(optionally including a cash or deferred arrangement (as defined in Section
401(k) of the Internal Revenue Code)) for all Eligible Employees as defined in
this Adoption Agreement pursuant to the terms of the PRISM(R) PROTOTYPE
RETIREMENT PLAN & TRUST BASIC PLAN DOCUMENT # 05.
A. EMPLOYER INFORMATION:
1. NAME: K T I , Inc.
2. ADDRESS: 7000 Boulevard East
3. ADDRESS: Guttenberg, NJ 07093
4. ATTENTION: Francis J. Elenio TELEPHONE: 201-854-7777
5. EMPLOYER TAXPAYER IDENTIFICATION NUMBER(3): 22-2665282
B. BASIC PLAN PROVISIONS:
1. PLAN NAME (SELECT ONE):
a. [ ] This plan is established effective _____, 19__,
(the "Effective Date") as a profit sharing plan
and trust (optionally with a "cash or deferred
arrangement" as defined in Code Section 401(k)) to
be known as _____ Plan and Trust (the "Plan") in
the form of the PRISM(R) PROTOTYPE RETIREMENT PLAN
& TRUST.
- ---------------
(1) Footnotes in this Adoption Agreement are not to be construed as part of
the Plan provisions but are explanatory only. To the extent a footnote is
inconsistent with the provisions of the Basic Plan Document or applicable
law, the provisions of the Plan shall be construed in conformity with the
Basic Plan Document or law.
(2) Terms that are capitalized are defined in the PRISM(R) PROTOTYPE
RETIREMENT PLAN & TRUST BASIC PLAN DOCUMENT.
(3) The Plan will have an individual TIN, distinct from the Employer TIN.
<PAGE> 2
b. [X]This plan is an amendment and restatement in the
form of the PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST,
effective January 1, 1997, (the "Effective Date") of the
K T I 401(k) Savings & Investment Plan Plan and Trust
(the "Plan"), originally effective as of January 1, 1987
(the "Original Effective Date").
2. EMPLOYER'S THREE DIGIT PLAN NUMBER: 002
3. COMMITTEE MEMBERS(4):
Francis J. Elenio, Bradley Hughes, Robert E. Wetzel
4. DEFINITIONS:
a. COMPENSATION for allocation purposes:
i Will be determined over the following applicable period
(select only one):
(a)[X]the Plan Year
(b)[ ]the period of Plan participation during the
Plan Year
(c)[ ]a consecutive 12 month period commencing on
_________________and ending with, or within, the
Plan Year.
ii [ ]If selected, Compensation will include Employer
contributions made pursuant to a Salary Reduction
Agreement, or other arrangement, which are not
includible in the gross income of the Employee under
Sections 125, 402(e)(3), 402(h)(1)(B) Or 403(b)
of the Internal Revenue Code.
iii Shall NOT include (select as many as desired):
(a)[X]Bonuses
(b)[ ]Commissions
(c)[X]Taxable fringe benefits identified below:
Car allowances
(d)[ ]Other items of remuneration identified below:
_____________________
iv Shall be limited to $____, which shall be the maximum
amount of compensation considered for plan allocation
purposes (but not for testing purposes), and may not be
an amount in excess of the Internal
- -------
(4) Committee members direct the day to day operation of the Plan. Committee
members serve at the pleasure of the Employer. See Section 11.4 for
changes in Committee membership. If no Committee members are specified,
the Employer shall assume responsibility for the operations of the Plan.
PAGE 2
<PAGE> 3
Revenue Code Section 401(a)(17) limit in effect for the
Plan Year(5). If no amount is specified, Compensation
shall be limited to the Internal Revenue Code Section
401(a)(17) amount, as adjusted by the Secretary of the
Treasury from time to time.
b. EARLY RETIREMENT DATE:
i [ ] is not applicable to this Plan
ii [X] is the latter of the date on which the
Participant attains age 55 (not less than 55) and
the date on which the Participant completes 10
Years of Service.
c. HOUR OF SERVICE shall be determined on the basis of the method
selected below. Only one method may be selected. The method
shall be applied to all Employees covered under the Plan as
follows (select only one):
i [X] On the basis of actual hours for which an
Employee is paid, or entitled to be paid.
ii [ ] On the basis of days worked. An Employee shall be
credited with ten (10) Hours of Service if under
Section 1.1(U) of the Plan such Employee would be
credited with at least one (1) Hour of Service
during the day.
iii [ ] On the basis of weeks worked. An Employee shall be
credited with forty-five (45) Hours of Service if
under Section 1.1(U) of the Plan such Employee
would be credited with at least one (1) Hour of
Service during the week.
iv [ ] On the basis of semi-monthly payroll periods. An
Employee shall be credited with ninety-five (95)
Hours of Service if under Section 1.1(U) of the
Plan such Employee would be credited with at least
one (1) Hour of Service during the semi-monthly
payroll period.
v [ ] On the basis of months worked. An Employee shall
be credited with one hundred ninety (190) Hours of
Service if under Section 1.1(U) of the Plan such
Employee would be credited with at least one (1)
Hour of Service during the month.
d. LIMITATION YEAR shall mean the 12 month period commencing
on January 1 and ending on December 31.
- --------
(5) If no amount is specified, the maximum amount of Compensation allowed under
Code Section 401(a)(17) (THE "$150,000 limit" ("$200,000 limit" prior to
the Plan Year beginning before January 1, 1994)), as adjusted from time to
time, shall be used.
PAGE 3
<PAGE> 4
e. NORMAL RETIREMENT DATE for each Participant shall mean
(select one):
i [X] the date the Participant attains age: 65 (not
to exceed 65)
ii [ ] the latter of the date the Participant attains
age (not to exceed 65) or the (not to exceed
5th) anniversary of the participation
commencement date. If for the Plan Years
beginning before January 1, 1988, Normal
Retirement Date was determined with reference
to the anniversary of the participation
commencement date (more than 5 but not to
exceed 10 years), the anniversary date for
Participants who first commenced participation
under the Plan before the first Plan Year
beginning on or after January 1, 1988 shall be
the earlier of (A) the tenth anniversary of the
date the Participant commenced participation in
the Plan (or such anniversary as had been
elected by the employer, if less than 10) or
(B) the fifth anniversary of the first day of
the first Plan Year beginning on or after
January 1, 1988. Notwithstanding any other
provisions of the Plan, the participant
commencement date is the first day of the first
Plan Year in which the Participant commenced
participation in the Plan.
f. PERMITTED DISPARITY LEVEL, for purposes of allocating
Employer Contributions, shall mean (select only one):
i [X] Not applicable - the Plan does not use
permitted disparity.
ii [ ] The Taxable Wage Base, which is the contribution
and benefit base under section 230 of the Social
Security Act at the beginning of the year.
iii [ ] _______% (not greater than 100%) of the Taxable
Wage Base as defined in B(4)(f)(ii) above.
iv [ ] $______, provided that the amount does not exceed
the Taxable Wage Base as defined in B(4)(f)(ii)
above.
g. PLAN YEAR shall mean (select and complete only one of the
following):
i [X] the 12-consecutive month period which coincides
with the Limitation Year. The first Plan Year
shall be the period commencing on the Effective
Date and ending on the last day of the Limitation
Year.
ii [ ] the 12-consecutive month period commencing on
, 19 , and each annual anniversary
thereof.
iii [ ] the calendar year (January 1 through December 31).
PAGE 4
<PAGE> 5
h. QUALIFIED DISTRIBUTION DATE, for purposes of making
distributions under the provisions of a Qualified Domestic
Relations Order (as defined in Internal Revenue Code Section
414(p)), [X] SHALL [ ] SHALL NOT be the date the order is
determined to be qualified. If SHALL is selected, the
Alternate Payee will be entitled to an immediate
distribution of benefits as directed by the Qualified
Domestic Relations Order. If SHALL NOT is selected, the
Alternate Payee may only take a distribution on the
earliest date that the Participant is entitled to a
distribution.
i. SPOUSE:
[ ] If selected, Spouse shall mean only that person who
has actually been the Participant's spouse for at
least one year.
j. YEAR OF SERVICE shall mean:
i For ELIGIBILITY purposes (select one of the following):
(a) [X] the 12 consecutive months during which an
Employee is credited with 1000 (not more than
1000) Hours of Service.
(b) [ ] a Period of Service (using the elapsed
time method of counting Service, as
described in Section 1.1(N)(3) of the Plan).
ii For ALLOCATION accrual purposes (select one of the
following):
(a) [X] the 12 consecutive months during which an
Employee is credited with 1000 (not more than
1000) Hours of Service.
(b) [ ] a Period of Service (using the elapsed time
method of counting Service, as described in
Section 1.1(N)(3) of the Plan).
iii For VESTING service purposes (select one of the
following):
(a) [X] the 12 consecutive months during which an
Employee is credited with 1000 (not more than
1000) Hours of Service.
(b) [ ] a Period of Service (using the elapsed time
method of counting Service, as described in
Section 1.1(N)(3) of the Plan).
PAGE 5
<PAGE> 6
iv For purpose of computing Years of Service in plans where
Year of Service is defined in terms of Hours of Service),
the consecutive 12 month period shall be:
(a)For ELIGIBILITY purposes, the first Year of Service
shall be computed using the 12 month period commencing
on the Employee's date of hire and ending on the first
annual anniversary of the Employee's date of hire (the
"Initial Computation Period"). In the event an employee
does not complete an eligibility Year of Service during
this initial computation period, the computation period
shall be (select only one):
(1) [ ] the period commencing on each annual
anniversary of the Employee's date of hire
and ending on the next annual anniversary of
the Employee's date of hire.
(2) [X] the Plan Year, commencing with the Plan Year
in which the Initial Computation Period
ends.
(b)For VESTING purposes, Years of Service shall be computed
on the basis of:
(1) [ ] the period commencing on each annual
anniversary of the Employee's date of hire
and ending on the next annual anniversary of
the Employee's date of hire.
(2) [X] the Plan Year, commencing with the first
Plan Year an Employee completes an Hour of
Service.
(c)For ALLOCATION accrual purposes, Year of Service shall
be computed on the basis of the Plan Year.
v [X] For ELIGIBILITY purposes, Years of Service with
the following Predecessor Employers shall count
in fulfilling the eligibility requirements for
this Plan:
K T I Holdings, Inc.
vi [ ] For VESTING purposes, Years of Service with the
following Predecessor Employers shall count for
purposes of determining the nonforfeitable amount
of a Participant's account:
K T I Holdings, Inc.
5. COVERAGE:
PAGE 6
<PAGE> 7
This Plan is extended by the Employer to the following Employees who
have met the eligibility requirements (select as many as
appropriate):
i [ ] All Employees
ii [ ] Salaried Employees
iii [ ] Sales Employees
iv [ ] Hourly Employees
v [ ] Leased Employees
vi [X] All Employees except (select as applicable):
(a) [X] those who are members of a unit of
Employees covered by a collective
bargaining agreement between the Employer
and Employee representatives, if
retirement benefits were the subject of
good faith bargaining and if two percent
or less of the Employees who are covered
pursuant to that agreement are
professionals as defined in Section
1.410(b)-9 of the Regulations. For this
purpose, the term "Employee
representative" does not include any
organization more than half of whose
members are Employees who are owners,
officers, or executives of the Employer.
(b) [X] those who are nonresident aliens (within
the meaning of Internal Revenue Code
Section 7701(b)(1)(B)) and who receive no
earned income (within the meaning of
Internal Revenue Code Section 911(d)(2))
from the Employer which constitutes
income from sources within the United
States (within the meaning of Internal
Revenue Code Section 861(a)(3)).
vii [ ] Union Employees (who are members of the following
unions or union affiliates:
viii [ ] Other Employees, described as follows:
6. ELIGIBILITY:
An Employee covered by the Plan may become a Participant upon
completion of the following eligibility requirements:
PAGE 7
<PAGE> 8
a. SERVICE(6):
i [ ] There shall be no minimum service requirement
for an Employee to become a Participant.
ii [X] The Employee must complete 1 year of Service (not
more than 2 years) to be a Participant for
purposes of receiving allocations of Employer
Profit Sharing Contributions.
b. AGE:
i [ ] There shall be no minimum age requirement for
an Employee to become a Participant.
ii [X] The Employee must attain age 21 (not more than
21) to be a Participant in the Plan.
c. WAIVER OF AGE AND SERVICE REQUIREMENTS:
i [ ] Notwithstanding the provisions of Items B(6)(a)
and (b), Employees who have not satisfied the age
and service requirements, but would otherwise be
eligible to participate in the plan, shall be
eligible to participate on the Effective Date.
ii [ ] For new Plans, notwithstanding the provisions of
Items B(6)(a) and (b), Employees who have not
satisfied the age and service requirements, but
would otherwise be eligible to participate in the
plan, shall be eligible to participate on the
Effective Date.
d. ENTRY DATES:
Upon completion of the eligibility requirements, an Employee
shall commence participation in the Plan (select only one):
i [ ] As soon as practicable under the payroll practices
utilized by the Employer, and consistently applied
to all Employees, or if earlier, the first day of
the Plan Year(7).
ii [ ] As of the first day of the month following the
completion of the eligibility requirements.
- ----------------
6 If a fractional year is elected, the elapsed time method of computing
service shall be used for the fractional year. Eligibility provisions for
optional cash or deferred arrangements are contained in Item C of this
Adoption Agreement.
7 Notwithstanding the foregoing, an Employee who has met the eligibility
requirements may not enter the Plan later than six months following the
date on which the Employee first completes the eligibility requirements.
PAGE 8
<PAGE> 9
iii [X] As of the earliest of the first day of the Plan
Year, fourth, seventh or tenth month of the Plan
Year next following completion of the eligibility
requirements.
iv [ ] As of the earliest of the first day of the Plan
Year or seventh month of the Plan Year next
following completion of the eligibility
requirements.
v [ ] As of the first day of the Plan Year next
following completion of the eligibility
requirements (may only be selected if the
eligibility year of service requirement is 6
months or less).
7. VESTING:
a. The percentage of a Participant's Employer Contribution
Account (attributable to Employer Profit Sharing
Contributions) to be vested in him or her upon termination of
employment prior to attainment of the Plan's Normal Retirement
Date shall be(8):
COMPLETED YEARS OF SERVICE
1 2 3 4 5 6 7
--- --- --- --- --- --- ---
i [ ] 100%
--- ---
ii [ ] 100%
--- --- ---
iii [ ] 20% 40% 60% 80% 100%
--- --- --- --- --- ---
iv [ ] 20% 40% 60% 80% 100%
--- --- --- --- --- --- ---
v [ ] 10% 20% 30% 40% 60% 80% 100%
--- --- --- --- --- --- ---
vi [X] 20% 40% 60% 80% 100%
--- --- --- --- --- --- ---
vii [ ] 100%
--- --- --- --- --- --- ---
vii [ ] Full and immediate vesting upon entry into the Plan(9)
Notwithstanding anything to the contrary in the Plan,
the amount inserted in the blanks above shall not exceed
the limits specified in Code Section 411(a)(2).
b. For purposes of computing a Participant's vested account
balance. Years of Service for vesting purposes [X] SHALL [ ]
SHALL NOT include Years of Service before the Employer
maintained this Plan or any predecessor plan, and [ ] SHALL
[X] SHALL NOT include Years of Service before the Employee
attained age 18.
- -----------
8 Notwithstanding the selection made in this Item B(7)(a), a Participant
shall be fully vested in his or her Employer Contribution Accounts if the
Participant dies or becomes Disabled while in the employ of the Employer.
9 If more than one Year of Service is an eligibility requirement, Item viii
must be selected.
PAGE 9
<PAGE> 10
c. Notwithstanding the provisions of this Item B(7)(c) of the
Adoption Agreement, a Participant shall become fully vested
in his Participant's Employer Contribution if:(10)
i [ ] the Participant's job is eliminated without the
Participant being offered a comparable position
elsewhere with the Employer.
ii [ ] for such reason as is described below:
8. EMPLOYER PROFIT SHARING CONTRIBUTIONS:
a. CONTRIBUTIONS:
i [X] In its discretion, the Employer may contribute
Employer Profit Sharing Contributions to the
Plan.
ii [ ] The Employer shall contribute Employer Profit
Sharing Contributions to the Plan in the amount of
% of the Compensation of all Eligible
Participants
under the Plan.
iii [X] If selected, the Employer may make Employer Profit
Sharing Contributions without regard to current or
accumulated Net Profits of the Employer for the
taxable year ending with, or within the Plan Year.
iv [ ] If selected, the Employer may designate all or
any part of the Employer Profit Sharing
Contributions as Qualified Nonelective
Contributions, provided, however, that
contributions so designated will be subject to
the same vesting, distribution, and withdrawal
restrictions as Before Tax Contributions(11).
b. ALLOCATIONS:
Employer Profit Sharing Contributions shall be allocated to
the accounts of eligible Participants according to the
following selected allocation formula:
i [ ] The Employer Profit Sharing Contributions shall be
allocated to each eligible Participant's account
in the ratio which the Participant's Compensation
bears to the Compensation of all eligible
Participants. Employer Profit Sharing Plan
Contributions, shall be allocated to the accounts
of
- -------------
10 The provisions of this section will be administered by the Employer on a
consistent and nondiscriminatory basis.
11 Amounts designated as Qualified Nonelective Contributions will be
allocated pursuant to Section 3.1(A)(14) of the Basic Plan Document.
PAGE 10
<PAGE> 11
Participants who have completed a Year of
Service(12) (select one):
(a) [ ] as of the last day of the month
preceding the month in which the
contribution was made.
(b) [ ] as of the last day of the Plan quarter
preceding the quarter in which the
contribution was made.
(c) [X] as of the last day of the Plan Year.
ii [ ] The Employer Profit Sharing Contributions shall
be allocated in accordance with the following
formula:
(a)If the Plan is Top-Heavy, the contribution
shall be first credited to each eligible
Participant's Account in the ratio which the
Participant's Compensation bears to the total
Compensation of all eligible Participants, up
to 3% of each Participant's Compensation.
(b)If the Plan is Top-Heavy, any Employer Profit
Sharing Contribution remaining after the
allocation in (a) above shall be credited to
each eligible Participant's account in the
ratio which the Participant's Excess
Compensation(13) bears to the total Excess
Compensation of all eligible Participants, up
to 3% of each eligible Participant's Excess
Compensation.
(c)Any contributions remaining after the
allocation in (b) above shall be credited to
each eligible Participant's account in the
ratio which the sum of the Participant's total
Compensation and Excess Compensation bears to
the sum of the total Compensation and Excess
Compensation of all eligible Participants, up
to an amount equal to the maximum Excess
Percentage times the sum of the Participant's
Compensation and Excess Compensation. If the
Plan is Top-Heavy, the maximum Excess
Percentage is N/A% (insert percentage). If the
Plan is not Top-Heavy, the maximum Excess
Percentage is N/A% (insert percentage, which
shall not exceed the prior Excess Percentage
limitation specified by more than 3).
- -----------------
12 In the event contributions are allocated on a basis other than a full plan
year, the Year of Service shall be based on the elapsed time method of
calculation, and a Participant shall be deemed to have completed an
appropriate Period of Service for allocation purposes if the Participant
has completed a pro-rata Period of Service corresponding to the interval
on which contributions are allocated.
13 Excess Compensation means a Participant's Compensation in excess of the
Permitted Disparity Level specified in the Definitions section of this
Adoption Agreement.
PAGE 11
<PAGE> 12
NOTE: If the Permitted Disparity Level defined at
Item B(4)(f) is the Taxable Wage Base (which
is the contribution and benefit base under
section 230 of the Social Security Act at
the beginning of the year), then the maximum
Excess Percentage should be 2.7% if the Plan
is Top-Heavy and 5.7% if the Plan is not
Top-Heavy.
If the Permitted Disparity Level defined at
Item B(4)(f) is greater than 80% but less than
100% of the Taxable Wage Base, then the maximum
Excess Percentage should be 2.4% if the Plan is
Top-Heavy and 5.4% if the Plan is not
Top-Heavy.
If the Permitted Disparity Level defined at
Item B(4)(f) is greater than the greater of
$10,000 or 20% of the Taxable Wage Base, but
not more than 80%, then the maximum Excess
Percentage should be 1.3% if the Plan is
Top-Heavy and 4.3% if the Plan is not
Top-Heavy.
(d)Any remaining Employer Profit Sharing
Contribution shall be allocated among eligible
Participants' accounts in the ratio which the
Participant's Compensation bears to the total
Compensation of all Participants.
iii [X] If selected, and the Employer has elected to
allocate Employer Profit Sharing Plan
Contributions as of the last day of the Plan Year,
a Participant must be employed by the Employer on
the last day of the Plan Year in order to receive
an allocation(14).
iv [X] A Participant who terminates before the end of
the period for which contributions are
allocated shall share in the allocation of
Employer Profit Sharing Contributions if
termination of employment was the result of
(select all that apply):
(a) [X] retirement
(b) [X] disability
(c) [X] death
(d) [ ] other, as specified below:
9. ROLLOVER & TRANSFER CONTRIBUTIONS (SELECT ONE):
- ---------------
14 This option shall only be effective if Item 8(b)(i)(c) has been selected.
Even if this Item is selected, the provisions of Section 4.8 of the Basic
Plan Document may supersede this requirement if necessary to satisfy Code
Sections 401(a)(26) and 410(b).
PAGE 12
<PAGE> 13
a. [X] Subject to policies, applied in a consistent and
nondiscriminatory manner, adopted by the Committee, each
Employee, who would otherwise be eligible to participate
in the Plan except that such Employee has not yet met
the eligibility requirements, and each Participant may
make a Rollover Contribution as described in Internal
Revenue Code Sections 402(a)(5), 403(a)(4) or
408(d)(3).
b. [ ] Subject to policies, applied in a consistent and
nondiscriminatory manner, adopted by the Committee, each
Participant may make a Rollover Contribution as
described in Internal Revenue Code Sections
402(a)(5), 403(a)(4) or 408(d)(3).
c. [ ] No Employee shall make Rollover Contributions to the
Plan.
10. DISTRIBUTIONS:
a. DISTRIBUTIONS UPON SEPARATION FROM SERVICE:
The Normal Form of Benefit under the Plan shall be a single
lump sum distribution, made [X] (if selected) as soon as
administratively practical after receipt of a distribution
request from a Participant entitled to a distribution or [ ]
(if selected) upon the Participant's attainment of the Plan's
Early Retirement Date or the Plan's Normal Retirement Date,
whichever is earlier.
In addition to the Normal Form of Benefit, the Participant
shall be entitled to select from among the following optional
forms of benefit specified by the employer (select as many as
apply):
i [X] Installment payments
ii [ ] Such other forms as may be specified below:
b. IN-SERVICE DISTRIBUTIONS (SELECT AS MAY BE APPROPRIATE):
i [X] There shall be no in-service distribution of
Participant account balances derived from Employer
Profit Sharing Contributions.
ii [ ] Participants may request an in-service
distribution of their account balance attributable
to Employer Profit Sharing Contributions, for the
following reasons:
(a) [ ] For purposes of satisfying a financial
hardship, as determined in accordance
with the uniform nondiscriminatory
policy of the Committee;
PAGE 13
<PAGE> 14
(b) [ ] Attainment of age 59-1/2 by the
Participant; or
(c) [ ] Attainment of the Plan's Normal
Retirement Date by the Participant.
11. FORFEITURES:
a. Forfeitures of amounts attributable to Employer Profit
Sharing Contributions shall be reallocated as of:
i [ ] the last day of the Plan Year in which the
Forfeiture occurred.
ii [X] the last day of the Plan Year following the
Plan Year in which the Forfeiture occurred.
iii [ ] the last day of the Plan Year in which the
Participant suffering the Forfeiture has incurred
five consecutive One Year Breaks in Service.
b. Forfeitures of Employer Profit Sharing Contributions shall
be reallocated as follows:
i [ ] Not applicable as Employer Profit Sharing
Contributions are always 100% vested and
nonforfeitable.
ii [ ] Used first to pay the expenses of administering
the Plan, and then allocated pursuant to one of
the following two options(15):
iii [ ] Forfeitures shall be allocated to Participant's
accounts in the same manner as Employer Profit
Sharing Contributions, Employer Matching
Contributions, Qualified Nonelective Contributions
or Qualified Matching Contributions, in the
discretion of the Employer, for the year in which
the Forfeiture arose.
iv [X] Forfeitures shall be applied to reduce the
Employer Profit Sharing Contributions, Employer
Matching Contributions, Qualified Nonelective
Contributions or Qualified Matching
Contributions, in the discretion of the
Employer, for the Plan Year following the Plan
Year in which the Forfeiture arose.
12. LIMITATIONS ON ALLOCATIONS:
- ---------------
15 If this option is selected, iii or iv must be selected to reallocate
Forfeitures of Employer Profit Sharing Contributions remaining after
expenses of administering the Plan have been paid.
PAGE 14
<PAGE> 15
If the Employer maintains or ever maintained another qualified
retirement plan in which any Participant in this Plan is (or was) a
participant, or could possibly become a participant, the Employer
must complete the following:
a. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer other than a
Master or Prototype Plan:
i [ ] The provisions of this Plan shall apply as if
the other plan were a Master or Prototype plan;
or,
ii [ ] The following provisions will be effective to
limit the total Annual Additions to the Maximum
Permissible Amount, and will properly reduce any
Excess Amounts, in a manner that precludes
Employer discretion:
b. If the Participant is or ever has been a participant in a
qualified defined benefit plan maintained by the Employer, the
following provisions will be effective to satisfy the 1.0
limitation of Internal Revenue Code Section 415(e), in a
manner that precludes Employer discretion:
13. INTERNAL REVENUE CODE SECTION 411(d)(6) PROTECTED BENEFITS:
[ ] If selected, the Plan has Internal Revenue Code Section
411(d)(6) Protected Benefits from a prior plan that this Plan
amends, that must be protected.
14. TOP-HEAVY PLAN PROVISIONS:
For each Plan Year in which the Plan is a Top-Heavy Plan the
following provisions will apply:
a. The percentage of a Participant's Employer Contribution
Account to be vested in him upon termination of employment
prior to retirement shall be:
i [ ] a percentage determined in accordance with the
following schedule:
YEARS OF SERVICE PERCENTAGE
---------------- ----------
Less than two 0
Two but less than three 20
Three but less than four 40
Four but less than five 60
Five but less than six 80
Six or more 100;
PAGE 15
<PAGE> 16
ii [ ] 100% vesting after (not to exceed 3) Years of
Service; provided, however, that Years of
Service may not exceed two (2) if the service
requirement for eligibility exceeds 1 year; or
iii [X] computed in accordance with the vesting schedule
selected by the Employer in Items B(7)(a) or
C(4)(d), as long as the benefits under the vesting
schedule in Items B(7)(a) or C(4)(d) vest at least
as rapidly as the two options specified in this
Item B(14)(a), above.
If the vesting schedule under the Plan shifts in or out of the
schedules above for any Plan Year because of the Plan's
Top-Heavy status, such shift is an amendment to the vesting
schedule and the election in Section 2.2 of the Basic Plan
Document applies.
b. For purposes of minimum Top-Heavy allocations, contributions
and forfeitures equal to 3.0% (not less than 3%) of each
Non-key Employee's Compensation will be allocated to each
Participant's Contribution Account when the Plan is a
Top-Heavy Plan, except as otherwise provided in the Basic Plan
Document. This Item 14 will not apply to any Participant to
the extent the Participant is covered under any other plan or
plans of the Employer and the Employer completes the
following: (Insert the name of the plan or plans which will
meet the minimum allocation or benefit requirement applicable
to Top-Heavy plans.)
c. The Valuation Date as of which account balances or accrued
benefits are valued for purposes of computing the Top-Heavy
Ratio shall be the last day of each Plan Year.
d. If the Employer maintains or has ever maintained one or more
defined benefit plans which have covered or could cover a
Participant in this Plan, complete the following:
Present Value: For purposes of establishing Present Value to
compute the Top-Heavy Ratio, any benefit shall be discounted
only for mortality and interest based on the following:
Interest rate ______% Mortality table _____
15. INVESTMENTS:
a. Investments made pursuant to the investment direction
provisions of the Basic Plan Document shall be made into any
appropriate Investment Fund as selected by the Employer. In
addition, investment of Plan assets is expressly authorized,
as required by Revenue Ruling 81-100, in each of the
PAGE 16
<PAGE> 17
following common or collective funds sponsored by the Trustee,
or an affiliate of the Trustee(16):
SOCIETY NATIONAL BANK EB MANAGED GUARANTEED INCOME
CONTRACT FUND, THE SOCIETY NATIONAL BANK MULTIPLE
INVESTMENT TRUST FOR EMPLOYEE BENEFIT TRUSTS, AND OTHER
COLLECTIVE TRUSTS EXEMPT FROM TAX UNDER IRC SECTION 501
AND AS DESCRIBED IN REV. RUL. 81-100.
b. [X] If selected, an Employer Stock Fund shall be available
as an Investment Fund pursuant to the terms of the Basic
Plan Document.
[X] If selected, and an Employer Stock Fund is
available as an Investment Fund, Participants will
have the right, notwithstanding any other
provisions of the Plan, to direct that a portion
of the Plan assets held for their benefit and
invested in the Employer Stock Fund be diversified
pursuant to the provisions of Section 10.7(F) of
the Basic Plan Document.
c. Participants may make changes of existing account balances
and future contributions from among the Investment Funds
offered:
i [X] Once during each business day that the Trustee
and the New York Stock Exchange are open.
ii [ ] Once during each calendar month.
iii [ ] Once during each quarter of the Plan Year.
iv [ ] Once during each rolling day period.
d. [ ] If selected, the Participant shall be restricted in
making changes of existing account balances from any
Investment Fund, as specified in the terms or conditions
of such Investment Fund, and the Employer shall attach
an addendum specifying such restriction.
e. The Participant will designate into which Investment Funds all
contributions to their accounts are made, EXCEPT the
following:
i [ ] Employer Profit Sharing Contributions
ii [ ] Employer Mandatory Matching Contributions
iii [ ] Employer Discretionary Matching Contributions
iv [ ] Qualified Matching Contributions
v [ ] Qualified Nonelective Contributions
- -------------------
16 This Item is for use in identifying collective trust funds, which,
pursuant to Revenue Ruling 81-100 must be specifically referenced in the
Plan. Actual Investment Funds are referenced on the Investment Fund
Designation form attached to this Adoption Agreement.
PAGE 17
<PAGE> 18
f. [ ] If selected, and to the extent a selection is made
above, the Employer shall attach an Investment Direction
Addendum specifying how the contributions so specified
shall be invested among the Investment Fund.
g. [ ] If selected, the Participant shall be restricted in
the use of the Employer Stock Fund as an Investment
Fund for designating the investment of contributions
in the Participant's account, as follows:
i [ ] The Participant may not direct the
investment of Plan assets held in their
account into the Employer Stock Fund.
ii [ ] The Participant may direct % of the
following contributions into the Employer
Stock Fund:
(a) [ ] Employer Profit Sharing
Contributions
(b) [ ] Employer Mandatory Matching
Contributions
(c) [ ] Employer Discretionary Matching
Contributions
(d) [ ] Qualified Matching Contributions
(e) [ ] Qualified Nonelective
Contributions
iii [ ] % of the following contributions will be
invested into the Employer Stock Fund, with
the balance invested among:
(a) [ ] the other Investment Funds,
including the Employer Stock
Fund
(b) [ ] the other Investment Funds, NOT
including the Employer Stock
Fund
16. LOANS (SELECT ONE):
a. [X] Loans may be made from the Plan in accordance with the
Basic Plan Document and such policies and procedures as
the Committee may adopt and apply on a consistent and
nondiscriminatory basis(17).
b. [ ] No loans shall be made from the Plan.
17. TRUSTEE:
- -------------
17 If this option is selected, the Employer must establish appropriate
procedures for implementation of the Plan's loan program.
PAGE 18
<PAGE> 19
The Trustee of this Plan shall be Key Trust Company (a bank or trust
company affiliated with KeyCorp within the meaning of Internal
Revenue Code Section 1504).
18. EFFECTIVE DATE ADDENDUM:
[ ] If selected, the following provisions shall have the
specified effective dates (which are different from the
date specified in Item B(1)):
PAGE 19
<PAGE> 20
C. SECTION 401(K) PLAN PROVISIONS:
1. SERVICE:
An Eligible Employee shall be required to fulfill the following
eligibility service requirements in order to participate in the Plan
through a salary reduction agreement and for purposes of receiving
an allocation of Employer Matching Contributions:
a. [X] The Employee must complete 1 Year of Service (not more
than 1 year) to be a Participant for purposes of
receiving allocations of Employer Matching
Contributions.
b. [X] The Employee must complete 1 Year of Service (not more
than 1 year) to be a Participant for purposes of
entering into a Salary Reduction Agreement and having
Employee Before Tax Contributions or Employee After Tax
Contributions contributed to the Plan on the Employee's
behalf.
2. EMPLOYEE SALARY DEFERRALS:
a. [X] Participants shall be entitled to enter into a Salary
Reduction Agreement providing for Before Tax
Contributions to be made to the Plan.
i The minimum Before Tax Contribution shall be 1% of
the Participant's Compensation.
ii The maximum Before Tax Contribution shall be 15% of
the Participant's Compensation.
b. [ ] Participants shall be entitled to enter into a Salary
Reduction Agreement providing for After Tax
Contributions to be made to the Plan.
i The minimum After Tax Contribution shall be % of
the Participant's Compensation.
ii The maximum After Tax Contribution shall be % of
the Participant's Compensation.
iii [ ] If selected, notwithstanding the above, a
Participant shall not be able to enter into
a Salary Reduction Agreement providing for
After Tax Contributions to be made to the
Plan unless the Participant has entered into
a Salary Reduction Agreement that provides
for Before Tax Contributions to be made to
PAGE 20
<PAGE> 21
the Plan in an amount of at least % of the
Participant's Compensation.
c. [ ] If selected, a Participant shall be entitled to enter
into a Salary Reduction Agreement providing that any
extraordinary item of compensation, not yet payable
(including bonuses), be withheld from the
Participant's Compensation and contributed to the
Plan as either a Before Tax Contribution, or After
Tax Contribution (provided such contributions are
authorized above, and to the extent that such
contribution, when aggregated with either the
Participants other Before Tax Contributions or After
Tax Contributions do not exceed the limitations
specified above, on an annual basis).
3. CONTRIBUTION CHANGES:
a. Participants may increase or decrease the amount of
contributions made to the Plan pursuant to a Salary Reduction
Agreement once each:
i [ ] Plan Year
ii [ ] Semi-annual period, based on the Plan Year
iii [X] Quarter, based on the Plan Year
iv [ ] Month
v [ ] Other, as specified below (provided that it is at
least once per year):
b. Claims for returns of Excess Before Tax Contributions for the
Participant's preceding taxable year must be made in writing,
and submitted to the Committee by March 15 (specify a date
between March 1 and April 15).(18)
4. EMPLOYER MATCHING CONTRIBUTIONS(19):
a. MANDATORY MATCHING CONTRIBUTIONS:
The Employer shall make contributions to the Plan, in an
amount as specified below:
i [X] An amount, equal to 75% of each Participant's
Before Tax Contributions, however, no match shall
be made on
- ------------
18 The date specified is for the refund of amount deferred in excess of the
Code Section 402(g) limit (the $7,000 limit) for the Participant's taxable
year.
19 The Employer shall have the right to designate all, or any portion of
Employer Matching Contributions as Qualified Matching Contributions, which
shall then be subject to the same vesting, distribution, and withdrawal
restrictions as Before Tax Contributions.
PAGE 21
<PAGE> 22
Participant's Before Tax Contributions in excess
of 5% (or $_____) of the Participant's
Compensation.
ii [ ] An amount, equal to _____% of each Participant's
After Tax Contributions, but not to exceed _____%
of the Participant's Compensation, or $_____.
iii [ ] An amount, equal to _____% of each Participant's
contributions made pursuant to a Salary Reduction
Agreement (including both Before Tax Contributions
and After Tax Contributions), but only if the
Participant has entered into a Salary Reduction
Agreement providing for Before Tax Contributions
of at least _____% of the Participant's
Compensation, but not to exceed _____% of the
Participant's Compensation, or $_____.
iv [ ] An amount equal to the sum of the following:
(a) _____% of the first ______% of the
Participant's Compensation deferred
pursuant to a Salary Reduction
Agreement; plus,
(b) _____% of the next _____% of the Participant's
Compensation deferred pursuant to a
Salary Reduction Agreement; plus,
(c) _____% of the next _____% of the Participant's
Compensation deferred pursuant to a
Salary Reduction Agreement, but not to
exceed _____% of the Participant's
Compensation, or $_____.
v [ ] An amount equal to $_____, for each Participant
who enters into a Salary Reduction Agreement
providing for [ ] Before Tax Contributions, [ ]
After Tax Contributions, or [ ] either Before Tax
Contributions or After Tax Contributions (or a
combination of both) equal to or exceeding _____%
of the Participant's Compensation. Such
contributions shall be made and allocated:
(a) [ ] only during the first Plan Year the
Plan is in effect, or if a
restatement, for the first Plan Year
beginning with, or containing the
restatement Effective Date.
(b) [ ] each Plan Year that a Participant has
in force a Salary Reduction Agreement
meeting the criteria specified above.
(c) [ ] during the first Plan Year that the
Participant participates through a
Salary Reduction Agreement meeting the
criteria specified above.
PAGE 22
<PAGE> 23
b. DISCRETIONARY MATCHING CONTRIBUTIONS:
[ ] The Employer shall make contributions to the Plan, in an
amount determined by resolution of the Board of
Directors on an annual basis. The Board resolution shall
provide for the percentage and/or amount of Before Tax
Contributions and/or After Tax Contributions to be
matched and the maximum percentage and/or amount of
Before Tax Contributions and/or After Tax Contributions
eligible for matching.
c. ALLOCATION OF MATCHING CONTRIBUTIONS:
Employer Matching Contributions shall be allocated pursuant to
the terms of the Basic Plan Document, notwithstanding the
foregoing:
i [X] A Participant who terminates before the end of the
period for which contributions are allocated shall
share in the allocation of Employer Matching
Contributions if termination of employment was the
result of (select all that apply):
(a) [X] retirement
(b) [X] disability
(c) [X] death
(d) [ ] other, as specified below:
ii [X] Employer Matching Contributions shall be allocated
to the accounts of Participants (select one):
(a) [ ] as of each pay period for which a
contribution was made pursuant to a
Salary Reduction Agreement.
(b) [ ] semi-monthly.
(c) [ ] as of the last day of the month
preceding the month in which the
contribution was made.
(d) [ ] as of the last day of the Plan quarter
preceding the quarter in which the
contribution was made.
(e) [X] as of the last day of the Plan year.
PAGE 23
<PAGE> 24
iii [X] If selected, the Employer may make Employer
Matching Contributions without regard to current
or accumulated Net Profits of the Employer for the
taxable year ending with, or within the Plan
Year(20).
d. The percentage of a Participant's Employer Matching
Contribution Account(21) (attributable to Employer Matching
Contributions) to be vested in him or her upon termination of
employment prior to attainment of the Plan's Normal Retirement
Date shall be(22):
COMPLETED YEARS OF SERVICE
1 2 3 4 5 6 7
--- --- --- --- --- --- ---
i [ ] 100%
--- ---
ii [ ] 100%
--- --- ---
iii [ ] 20% 40% 60% 80% 100%
--- --- --- --- --- ---
iv [ ] 20% 40% 60% 80% 100%
--- --- --- --- --- --- ---
v [ ] 10% 20% 30% 40% 60% 80% 100%
--- --- --- --- --- --- ---
vi [X] 20% 40% 60% 80% 100%
--- --- --- --- ---
vii [ ] 100%
--- --- --- --- --- --- ---
vii [ ] Full and immediate vesting upon entry into the Plan
Notwithstanding anything to the contrary in the Plan,
the amount inserted in the blanks above shall not exceed
the limits specified in Code Section 411(a)(2).
e. Notwithstanding the provisions of this Item C(4)(e) of the
Adoption Agreement, a Participant shall become fully vested
in his Participant's Employer Matching Contribution Account
if(23):
i [ ] the Participant's job is eliminated without the
Participant being offered a comparable position
elsewhere with the Employer.
ii [ ] for such reason as is described below:
- ---------------
20 Net Profits will never be required for the contribution of Before Tax
Contributions, After Tax Contributions, Qualified Nonelective
Contributions or Qualified Matching Contributions.
21 Notwithstanding anything in the Adoption Agreement to the contrary,
amounts in a Participant's account attributable to Before Tax
Contributions, Qualified Nonelective Contributions, and Qualified Matching
Contributions shall be 100% vested and nonforfeitable at all time.
22 Notwithstanding the selection made in this Item B(7)(b), a Participant
shall be fully vested in his or her Employer Contribution Accounts if the
Participant dies or becomes Disabled while in the employ of the Employer.
23 The provisions of this section will be administered by the Employer on a
consistent and nondiscriminatory basis.
PAGE 24
<PAGE> 25
f. CORRECTIVE CONTRIBUTIONS:
i [X] If selected, the Employer shall be authorized to
make Qualified Matching Contributions, subject to
the terms of the Basic Plan Document, in an amount
determined by resolution of the Board of Directors
on an annual basis.
ii [X] If selected, the Employer shall be authorized to
make Qualified Nonelective Contributions, subject
to the terms of the Basic Plan Document, in an
amount determined by resolution of the Board of
Directors on an annual basis.
5. GAP EARNINGS:
[ ] If selected, Gap Earnings, as defined in Section 3.2(G)(1)
of the Basic Plan Document, will be calculated for Excess
Elective Deferrals, Excess Contributions and Excess
Aggregate Contributions, and refunded to the Participant as
provided for in Article III of the Basic Plan Document.
6. FORFEITURES:
a. Forfeitures of amounts attributable to Employer Matching
Contributions shall be reallocated as of:
i [ ] the last day of the Plan Year in which the
Forfeiture occurred.
ii [X] the last day of the Plan Year following the
Plan Year in which the Forfeiture occurred.
iii [ ] the last day of the Plan Year in which the
Participant suffering the Forfeiture has incurred
the fifth consecutive One Year Break in Service.
b. Forfeitures of Employer Matching Contributions shall be
reallocated as follows:
i [ ] Not applicable as Employer Matching Contributions
are always 100% vested and nonforfeitable.
ii [ ] Used first to pay the expenses of administering
the Plan, and then allocated pursuant to one of
the following two options:
iii [ ] Forfeitures shall be allocated to Participant's
accounts in the same manner as Employer Profit
Sharing Contributions, Employer Matching
Contributions, Qualified Nonelective Contributions
or Qualified Matching Contributions, in the
PAGE 25
<PAGE> 26
discretion of the Employer, for the year in which
the Forfeiture arose.
iv [X] Forfeitures shall be applied to reduce the
Employer Profit Sharing Contributions, Employer
Matching Contributions, Qualified Nonelective
Contributions or Qualified Matching
Contributions, in the discretion of the
Employer, for the Plan Year following the Plan
Year in which the Forfeiture arose.
c. Forfeitures of Excess Aggregate Contributions shall be:
i [X] Applied to reduce Employer contributions for the
Plan Year in which the excess arose, but allocated
as below, to the extent the excess exceeds
Employer contributions for the Plan Year, or the
Employer has already contributed for such Plan
Year.
ii [ ] Allocated after all other forfeitures under the
Plan:
(a) [ ] to the Matching Contribution account
of each Non-highly Compensated
Participant who made Before Tax
Contributions or After Tax
Contributions in the ratio which each
such Participant's Compensation for
the Plan Year bears to the total
Compensation of all such Participants
for the Plan Year; or,
(b) [X] to the Matching Contribution account
of each Non-highly Compensated
Eligible Participant in the ratio
which each Eligible Participant's
Compensation for the Plan Year bears
to the total Compensation of all
Eligible Participants for the Plan
Year.
7. IN-SERVICE DISTRIBUTIONS (SELECT AS MAY BE APPROPRIATE):
a. [ ] There shall be no in-service distribution of
Participant account balances derived from Before Tax
Contributions (including Qualified Nonelective
Contributions and Qualified Matching Contributions
treated as Before Tax Contributions under the terms
of the Basic Plan Document), or Employer Matching
Contributions.
b. [ ] Participants may request an in-service distribution
of their account balance attributable to Employer
Matching Contributions, for the following reasons:
PAGE 26
<PAGE> 27
i [ ] For purposes of satisfying a financial
hardship, as determined in accordance
with the uniform nondiscriminatory policy
of the Committee;
ii [ ] Attainment of age 59-1/2 by the
Participant; or
iii [ ] Attainment of the Plan's Normal
Retirement Date by the Participant.
c. [X] Participants may request an in-service distribution
of their account balance attributable to Employee
Before Tax Contributions, for the following reasons:
i [ ] For purposes of satisfying a financial
hardship, as determined by the facts and
circumstances of an Employee's situation, in
accordance with the provisions of Section
3.9 of the Basic Plan Document;
ii [X] For purposes of satisfying a financial
hardship, using the "safe harbor" provisions
of Section 3.9 of the Basic Plan Document.
iii [ ] Attainment of age 59-1/2 by the Participant;
or
iv [ ] Attainment of the Plan's Normal
Retirement Date by the Participant.
PAGE 27
<PAGE> 28
NOTICE: The adopting Employer may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service as evidence that the Plan is
qualified under the provisions of Section 401 of the Internal Revenue Code. In
order to obtain reliance with respect to the Plan's qualification, the Employer
must apply to the Key District Office of the Internal Revenue Service for a
determination letter.
This Adoption Agreement may only be used in conjunction with Basic Plan Document
# 05.
This Plan document may only be used under the express authority of KeyCorp, its
subsidiaries and affiliates, and is not effective as completed until executed by
a duly authorized officer of KeyCorp, one of its subsidiaries or affiliates, and
approved by KeyCorp's counsel.
KeyCorp, as sponsor, may amend or discontinue this prototype plan document upon
proper notification to all adopting Employers pursuant to Revenue Ruling 89-13.
Failure to properly fill out an Adoption Agreement may result in
disqualification of the Plan, and adverse tax consequences to the Employer and
Plan Participants.
This Plan is sponsored by:
KeyCorp, on behalf of its operating subsidiaries, banking and trust company
affiliates
127 Public Square
Cleveland, Ohio 44114
(800) 982-3811
PAGE 28
<PAGE> 29
IN WITNESS WHEREOF, the Employer and the Trustee, by their respective duly
authorized officers, have caused this Adoption Agreement to be executed on this
_____ day of _____, 19__.
EMPLOYER: KTI, Inc.
By:__________________________________________
Title:_______________________________________
TRUSTEE: Key Trust Company
By:__________________________________________
Title:_______________________________________
and
By:__________________________________________
Title:_______________________________________
APPROVED ON BEHALF OF TRUSTEE:
Initials: _________________ Date:____________
PAGE 29
<PAGE> 30
INVESTMENT FUND DESIGNATION
KTI, Inc. (the "Named Fiduciary"), as an independent fiduciary with respect
to the KTI, Inc. 401(k) Savings and Investment Plan (the "Plan"), an employee
pension benefit plan covered by the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and its employees
who participate therein (the "Participants"), hereby designates the following
investment funds from among the investment fund options available for adopting
employers of the PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST (as defined in
Section 10.7 of the Plan), available for selection by Participants for the
investment of Plan assets held for their benefit:
(a) E.B. Money Market Fund
(b) The Bond Fund of America
(c) The George Putnam Fund of Boston
(d) The Victory Stock Index Fund
(e) The Victory Growth Fund
(f) Putnam Vista Fund
(g) _____
(h) _____
[X] In addition, if selected, an Employer Stock Fund will also be available.
In making the selection of Investment Funds, the Named Fiduciary hereby confirms
and acknowledges that:
- The Named Fiduciary has had made available to it copies of the
prospectuses (to the extent required under applicable federal
securities law and regulation) for each investment fund available for
selection by adopting employers of the PRISM(R) PROTOTYPE RETIREMENT
PLAN & TRUST, and has received copies of each such prospectus for the
Investment Funds selected;
- The Named Fiduciary acknowledges that the Trustee of the Plan
may receive certain fees for services provide to, or on behalf
of an Investment Fund, or the sponsors or distributors
thereof, pursuant to plans of distribution adopted by the fund
under the provisions of Rule 12b-1 of the Investment Company
Act of 1940, and further acknowledges that (i) such fee, if
paid, is appropriate for services rendered to the fund, and
when aggregated with other fees for service payable to the
Trustee constitutes reasonable compensation for the Trustee's
services to the Plan; and (ii) the Plan will be able to redeem
its interest in any such Investment Fund on reasonably short
notice without penalty;
- The Named Fiduciary further acknowledges that it has selected the
Investment Funds on its determination, after due inquiry, that the
Investment Funds are appropriate vehicles for the investment of Plan
assets pursuant to the terms of the Plan, considering all relevant
facts and circumstances, including but not limited to (i) the
investment policy and philosophy of the Named Fiduciary developed
pursuant to ERISA Section 404; (ii) the ability of Participants, using
an appropriate mix of Investment Funds, to diversify the investment of
Plan as-
PAGE 30
<PAGE> 31
sets held for their benefit; and, (iii) the ability of Participants to,
utilizing an appropriate mix of Investment Funds, to structure an
investment portfolio within their account in the Plan with risk and
return characteristics within the normal range of risk and return
characteristics for individuals with similar investment backgrounds,
experience and expectations; and,
- The Named Fiduciary acknowledges that it has not relied on any
representations or recommendations from the Trustee or any of its
employees in selecting the Investment Funds.
The Trustee agrees to follow the Named Fiduciary's direction with respect to
offering the Investment Funds available for selection by the Participants in the
Plan for the investment of Plan assets held for their benefit:
IN WITNESS WHEREOF, the Employer, by its duly authorized representative, has
executed this document in connection with adoption of the Plan utilizing the
PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST documents, as provided by the
Trustee.
NAMED FIDUCIARY: KTI, Inc.
By:___________________________________________
Title:________________________________________
Seen and accepted by the Trustee, who shall provide the Investment Funds
selected by the Employer pursuant to the terms of this document, and pursuant to
the Plan.
TRUSTEE: Key Trust Company
By:___________________________________________
Title:________________________________________
PAGE 31
<PAGE> 1
EXHIBIT 10.41
OPTION AND CONSULTING AGREEMENT
AGREEMENT, dated as of June 1, 1996, by and between KTI, Inc., a New
Jersey corporation ("KTI") and L.T. Lawrence & Co., Inc., having its principal
offices at Three New York Plaza, New York, New York 10004 ("Consultant").
WHEREAS, KTI has retained Consultant to provide certain advisory and
other services (collectively, "Consultation Services"), as more particularly set
forth in Section 12 hereof; and
WHEREAS, KTI desires to grant Consultant the right to acquire shares of
its common stock, n o part value ("Common Stock"), upon the terms hereinafter
provided.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. Letter of Intent. The Letter of Intent, dated March 27, 1996,
between KTI and Consultant (the "Letter of Intent"), is hereby terminated and
canceled and of no further force or effect and neither KTI nor the Consultant
shall have any rights or obligations thereunder from and after the date hereof.
2. Engagement. KTI agrees to engage Consultant and Consultant agrees to
provide Consultation Services as more particularly set forth herein subject to
applicable rules, regulations and policies of the National Association of
Securities Dealers, Inc. ("NASD") and the Securities and Exchange Commission
(the "Commission").
3. Consultation Services. (a) In consideration of the Option granted
hereunder and the other compensation contemplated by Section 4(a) hereof, the
Consultant shall perform the Consultation Services for a term commencing on the
date hereof and ending on June 1, 1999 (the "Term"). The Consultation Services
shall consist of providing consulting advice in respect of financial and
corporate finance matters, public and private securities markets consultation
and advice regarding corporate and other acquisitions, including but not limited
to, purchases or sales of assets and/or securities, mergers, acquisitions or
joint ventures (any of the foregoing, a "Transaction") and the preparation of
analysts' reports on KTI and its subsidiaries. Notwithstanding anything to the
contrary contained herein, the issuance of the Option and the vesting and
exercise thereof and the other compensation payable pursuant to Section 4(a)
hereof is not contingent on KTI's satisfaction with the Consulting Services. KTI
specifically acknowledges and agrees, however, that the Consultation Services to
be rendered by the Consultant shall be conducted on a "best-efforts" basis and
Consultant has not, cannot and does not guarantee that Consultant's efforts will
have any impact on KTI's business or that any subsequent financial improvement
will result from Consultant's efforts.
(b) All Consultation Services to be performed hereunder shall
be subject to Consultant's reasonable availability for such performance, in view
of the nature of the requested service and the amount of notice provided by KTI.
Consultant shall devote such time and effort to the performance of the
Consultation Services as it shall determine is reasonably necessary for
<PAGE> 2
such performance. KTI shall furnish to Consultant all information relevant to
the performance by Consultant of the Consultation Services under this agreement,
so as to permit Consultant to know all the facts material to the Consultation
Services to be rendered, and all material or other information reasonably
requested by Consultant.
(c) Anything to the contrary herein notwithstanding, it is
agreed that Consultant's services will not include any services that constituted
the rendering of legal opinions or performance of work that is in the ordinary
purview of a certified public accountant or any work that is in the ordinary
purview of a registered broker/dealer or in connection with or related to the
offer or sale of securities of KTI in a capital raising transaction.
4. Compensation and Expenses. (a) In consideration for the Consultation
Services rendered by Consultant hereunder, KTI shall pay to Consultant on the
first day of each month the sum of Six Thousand ($6,000) Dollars per month
during the Term (as hereinafter defined). KTI shall receive a credit of
Twenty-Five Thousand Dollars ($25,000) towards any amounts due hereunder, in
consideration of KTI's previous payment to Consultant of Twenty-Five Thousand
Dollars ($25,000) under the Letter of Intent. Accordingly, the first payment due
under this Section 4 shall be made on October 1, 1996 in the amount of $5,000.
(b) KTI shall reimburse Consultant for any and all reasonable
expenses incurred by Consultant in the performance of its duties hereunder upon
submission of reasonably satisfactory documentation to KTI of such cost or
expense.
5. Grant of Option; Reservation of Shares. In further consideration of
the Consulting Services, KTI hereby grants to the Consultant the continuing
right and option (the "Option") to purchase from KTI, at any time or form time
to time during the Exercise Period (as defined below), up to an aggregate of TWO
HUNDRED THOUSAND (200,000) shares of Common Stock (the "Option Shares") upon the
terms and conditions herein set forth, as adjusted pursuant to Appendix A
hereto. KTI shall at all times during the Exercise Period keep reserved and
available for issuance upon exercise of the Option and total number of Option
Shares then subject to the Options.
6. Exercise Price. The Option shall be exercisable with respect to the
TWO HUNDRED THOUSAND (200,000) Option Shares issuable upon exercise of the
Option for an exercise price equal to $7.50 per Option Share as adjusted
pursuant to Appendix A hereto. The Option Shares, when issued upon payment of
the applicable exercise price (the "Exercise Price"), shall be validly issued
fully paid and non-assessable and free from all liens, charges, taxes or other
encumbrances.
7. Term of Option. The Option shall be exercisable in whole or in part
during the period (the "Exercise Period") commencing on the date hereof and
ending on June 1, 2001. Upon expiration of the Option, the Option shall be of no
further force and effect.
8. Mechanics of Exercise. To exercise the Option, Consultant shall, at
any time or form time to time during the Exercise Period, deliver to KTI: (I) a
written notice of exercise (each an "Exercise Note") stating the number of
Option Shares with respect to which the Option is then being exercised, which
number shall not be less than 10,000 Option Shares, provided, however, that an
Option Notice which effects an exercise with respect to the then remaining
<PAGE> 3
Option Shares if less than 10,000 may state a number that is less than 10,000
Option Shares; and (ii) the Exercise Price payable in respect of the Option
Shares which are the subject of such Exercise Notice. The Option shall be deemed
to be exercised with respect to the Option Shares stated in an Exercise Notice,
and such Option Shares shall be deemed to be issued (whether or not a
certificate representing such Shares has been delivered to Consultant), at the
time such Option Notice and Exercise Price is received by KTI.
9. Non-Transferability. The Option and the rights attendant thereto may
be assigned, pledged, hypothecated or otherwise transferred by Consultant in its
sole discretion at any time, in whole or in part.
10. Dilution Protection. The Exercise Price, and the number of Option
Shares (or other securities or property) issuable upon exercise of the Option
shall be subject to adjustment from time to time upon the occurrence of certain
events, as provided in Appendix A attached to this Agreement.
11. Registration; Registration Rights. KTI hereby covenants and agrees
that Consultant shall have the right to cause KTI to register under the
Securities Act of 1993, as amended (the "Securities Act") the offer and sale of
the Option Shares issuable upon the exercise of the Option in accordance with
the procedures set forth in Appendix B attached hereto.
12. Right of First Refusal. In addition to Consultant's other rights
hereunder, Consultant shall have a right of first refusal to underwrite or place
any public or private sale for cash of debt or equity securities (excluding (I)
sales to employees and borrowings from banks or other financial institutions for
ordinary working capital purposes, (ii) any project finance transaction and
(iii) financing for the DataFocus transaction) of KTI or any subsidiary or
successor of KTI during the two-year period following the date hereof, except
for securities that may be issued by KTI in connection with (a) the closing of
the Company's $2,003,314 private placement (the "Private Placement") of
short-term notes due not earlier than July 31, 1996 and 333,882 five-year
warrants exercisable at $6.00 per share, (b) the transactions referenced under
the heading "Recent Developments") in the Company's Registration Statement on
Form S-1 declared effective by the Securities and Exchange Commission on
February 14, 1996 (Registration No. 33-80087) and (c) the additional
transactions and events referred to on Appendix C hereto. If Consultant elects
to exercise the right of first refusal, KTI shall have the right to require
Consultant to act as the non-lead co-manager of any such underwriting or
placement (with al allotment in such offering or placement in an amount
reasonably acceptable to Consultant but not less than 30% of the total amount of
securities offered) but KTI's right to effect such requirement shall apply only
if the lead manager thereof is one of the "21 major bracket" underwriting firms.
It is understood that any such proposed financing shall be offered to Consultant
in writing and Consultant shall have 30 days in which to determine whether or
not to accept such offer. If Consultant refuses on two occasions, and provided
that such financings are consummated (I) upon substantially the same terms and
conditions as those offered to Consultant, and (ii) within 12 months after the
end of the aforesaid 30-day period, then this right of first refusal shall
terminate.
13. Finder Services. KTI hereby agrees that KTI shall for a period of
three (3) years from the date hereof pay to Consultant a fee as follows based on
the consideration paid or received by KTI or any subsidiary or successor of KTI
or stockholder thereof in any Transaction,
<PAGE> 4
except as provided in the last sentence of this Section 13, such fee to be paid
in cash at the closing of the Transaction to which it relates:
5% of the fist $1 million of consideration;
4% of the second $1 million of consideration;
3% of the third $1 million of consideration; and
2% of the consideration in excess of $4 million.
The amount of consideration paid in a Transaction shall include, for the
purposes of calculating such fee, all forms of consideration paid by KTI or any
subsidiary or Penobscot Energy Recovery Company ("PERC"), or received by KTI,
its stockholders, or any subsidiary of KTI or PERC including, but not limited
to, cash, stock or evidence or indebtedness, or any combination thereof. In
addition, if KTI shall within two years immediately following the third
anniversary of the date hereof, consummate a Transaction with any party
introduced by Consultant to KTI prior to the third anniversary of the date
hereof, KTI shall pay to Consultant a fee with respect to such Transaction
calculated in accordance with this Section 13. Notwithstanding the foregoing,
Consultant shall not be entitled to receive a fee pursuant to this Section 13
for any Transaction unless (I) Consultant introduces KTI to the other party to
the Transaction in question, or (ii) KTI requests in writing Consultant to serve
as its financial consultant in such Transaction, in consideration for the fee
set forth above.
14. Non-Exclusive Services. KTI understands that Consultant is
currently providing certain advisory and financial consulting services to other
individuals and entities and agrees that Consultant is not prevented or barred
from rendering services of the same nature or a similar nature to any other
individuals or entities and acknowledges that such Services may from time to
time conflict with the timing of and the rendering of Consultant's services. In
addition, Consultant understands and agrees that KTI shall not be prevented or
barred from retaining other persons or entities to provide services of the same
or similar nature as those provided by Consultant.
15. Consultant Not an Agent or Employee. Consultant's obligations under
this Agreement consist solely of the services described herein. In no event
shall Consultant be considered to be acting as an employee or agent of KTI or
otherwise representing or binding KTI. For the purposes of this Agreement,
Consultant is an independent contractor. All final decisions with respect opt
acts of KTI or its affiliates, whether or not made pursuant to or in reliance on
information or advice furnished by Consultant hereunder, shall be those of KTI
or such affiliates and Consultant shall, under no circumstances, be liable for
any expenses incurred or losses suffered by KTI as a consequent of such actions.
Consultant agrees that all of his work product relating to the Services to be
rendered pursuant to this agreement, shall become the exclusive property of KTI.
The parties acknowledge that the Consultation Services provided by the
Consultant hereunder are not in connection with any offering or sale of
securities of KTI in a capital raising transaction.
16. Liability of Consultant. In furnishing KTI with management advice
and other services as herein provided, Consultant shall not be liable to KTI or
its creditors for errors of judgment or for anything except malfeasance or gross
negligence e in the performance of his duties or reckless disregard of his
obligations and duties under the terms of this Agreement.
<PAGE> 5
It is further understood and agreed that Consultant may rely upon
information furnished to it reasonably believed to be accurate and reliable and
that, except as set forth herein in the first paragraph of this Section 16,
Consultant shall not be accountable for any loss suffered by KTI by reason of
KTI's action or non-action on the basis of any advice, recommendation or
approval of Consultant.
The parties further acknowledge that Consultant undertakes no
responsibility for the accuracy of any statements to be made by management
contained in press releases or other communications, including, but not limited
to, filings with the commission and the NASD.
17. Indemnification. (a) KTI agrees to indemnify and hold harmless the
Consultant form and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation reasonable attorneys' fees and costs
incurred in the investigation, defense and settlement of the matter) suffered or
incurred by Consultant which arises out of this Agreement or otherwise out of
the performance by the Consultant of its obligations hereunder (collectively,
"Damages"), unless, any of such Damages are found by a final determination of a
court of competent jurisdiction to have arisen out of bad faith, gross
negligence or malfeasance of the Consultant in performing his services hereunder
(pending any such final determination, the indemnification and reimbursement
provision of this Agreement shall apply and KTI shall be obligated to reimburse
the consultant for his expenses provided, however, that the Consultant shall
reimburse KTI for any such expenses if it is ultimately determined that the
Consultant was not entitled to indemnification hereunder). If for any reason the
foregoing indemnification is unavailable to the Consultant, or insufficient to
hold him harmless, then KTI shall contribute to the amount paid or payable by
the Consultant as a result of such Damages in such proportion as is appropriate
to reflect not only the relative benefits received by KTI on the one hand and
the Consultant on the other hand, but also the relative fault of KTI and the
Consultant, as well as any other relevant equitable considerations. The
reimbursement, indemnity and contribution obligations of KTI under this
paragraph shall be in addition to any liability which KTI may otherwise have and
shall be binding and inure to the benefit of any respective successors, assigns,
heirs and personal representatives of KTI and the Consultant.
(b) If any action is brought against Consultant or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against KTI pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify KTI in writing of the institution of such
action (but the failure so to notify shall not relieve KTI from any liability
other than pursuant to this Section 17(b)) and KTI shall promptly assume the
defense of such action including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) provided that the indemnified
party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by KTI in connection with the defense of such action
or KTI shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to KTI, in any
of which events such fees and expenses shall be borne by KTI and KTI shall not
have the right to direct the defense of such
<PAGE> 6
action on behalf of the indemnified party or parties. Anything in this Section
17 to the contrary notwithstanding, KTI shall not be liable for any settlement
of any such claim or action effected without its written consent, which shall
not be unreasonably withheld. KTI shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be south hereunder (whether or not any
indemnified party is a party thereto) unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. KTI agrees promptly to
notify Consultant of the commencement of any litigation or proceedings against
KTI or any of its officers or directors in connection with the sale of any
Option Shares or any preliminary prospectus, prospectus, registration statement,
or amendment or supplement thereto, or any application relating to any sale of
any Option Shares.
18. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and delivered by hand delivery,
registered first-class mail, telex, or telecopier, addressed as follows:
If to KTI: KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Nicholas Menonna, Jr..,
Chairman of the Board and Chief
Executive Officer
Telephone No. (201) 854-7777
Telecopier No. (201) 854-1771
with a copy to: Brian Hoffman, Esq.
McDermott, Will & Emery
1211 Avenue of the Americas
New York, New York 10036
If to Consultant: L.T. Lawrence & Co., Inc.
Three New York Plaza
New York, New York 10004
Attention: Lawrence Principato
and Todd Roberti
Telephone No. (212) 361-6037
Telecopier No. (212) 361-6280
with a copy to: Eric M. Lerner, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Telephone No. (212) 940-7157
<PAGE> 7
Telecopier No. (212) 94-8776
All such notices and communications shall be deemed to have been
received: upon delivery if delivered by hand; two business days after being
deposited in the mail, postage prepaid, if mailed; when answered back if
telexed; and when receipt is acknowledged if telecopied.
19. Severability. In the event that any provision of this Agreement
shall be deemed unenforceable or invalid under any applicable law or be so held
by applicable court decision, such unenforceability or invalidity will not
render this Agreement unenforceable or invalid as a whole, and, in such event,
such provision will be changed and interpreted so as to accomplish the
objectives of such provision within the limited of applicable law or applicable
court decision.
20. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to New
York's principles of conflicts of law.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which when taken together shall
constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
KTI, INC.
By: _______________________________
Nicholas Menonna, r.
Chairman of the Board and
Chief Executive Officer
L.T. LAWRENCE & CO., INC.
By: _______________________________
<PAGE> 8
APPENDIX A
DILUTION PROTECTION
a. Adjustments Generally. The Exercise Price, and the number of Option
Shares (or other securities or property) issuable upon exercise of the Option
shall be subject to adjustment from time to time upon the occurrence of certain
events, as provided in this Appendix A.
b. Common Stock Reorganization. If KTI shall subdivided its outstanding
shares of Common Stock into a small number of shares (any such event being
called a "Common Stock Reorganization"), then (a) the Exercise Price shall be
adjusted, effective immediately after the record date at which the holders of
shares of Common Stock are determined for purposes of such Common Stock
Reorganization, to a price determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of
which hall be the number of shares of Common Stock outstanding on such record
date before giving effect to such Common Stock Reorganization and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such Common Stock Reorganization, and (b) the number of
Option Shares subject to purchase upon exercise of the Option shall be adjusted,
effective at such time, to a number determined by multiplying the number of
Option Shares immediately before such Common Stock Reorganization by a fraction,
the numerator of which shall be the number of shares outstanding after giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such Common
Stock Reorganization.
c. Special Dividends. If KTI shall issue or distribute to all or
substantially all holders of shares of Common Stock evidences in indebtedness,
any other securities of KTI or any cash, property or other assets, and if such
issuance or distribution does not constitute a regular cash dividend out of
surplus or net profits legally available therefor (determined in accordance with
generally accepted accounting principles, consistently applied) or a Common
Stock Reorganization (any such nonexcluded event being herein called a "Special
Dividend"), (a) the number of Option Shares issuable upon exercise of the Option
shall be increased but not decreased), effective immediately after the record
date at which the holders of shares of Common Stock are determined for purposes
of such Special Dividend, to the number determined by multiplying the number of
Option Shares issuable upon exercise immediately before such Special Dividend by
a fraction, the numerator of which shall be the Fair Market Value per share of
outstanding Common Stock on such record date and the denominator of which shall
be the Fair Market Value per share of outstanding Common Stock of KTI on such
record date less the then Fair Market Value of the evidences of indebtedness,
securities, cash, or property or other assets issued or distributed in such
Special Dividend with respect to one share of Common Stock, and (b) the Exercise
Price shall be decreased (but not increased) to a price determined by
multiplying the Exerciser Price then in effect by a fraction, the numerator of
which shall be the number of Option Shares issuable upon exercise of the Option
immediately before such Special Dividend and the denominator of which shall be
the number of Option Shares issuable upon exercise of the Option immediately
after such Special Dividend.
d. Capital Reorganization, If there shall be any consolidation or
merger to which KTI is a party, other than a consolidation or a merger in which
KTI is a continuing corporation
<PAGE> 9
and which does not result in any reclassification of, or change (other than a
Common stock Reorganization or a change in par value), in, outstanding shares of
Common Stock, or any sale or conveyance of the property of KTI as an entirety or
substantially as an entirety (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, Consultant shall have the right to purchase, upon exercise of
the Option, the kind and amount of shares of stock and other securities and
property (including cash, but if all cash, then the Option must be exercised
within 30 days after such effective date, as the end of which period the Option
shall terminate) which Consultant would have owned or have been entitled to
receive after such Capital Reorganization if the Option had been exercised
immediately prior to such Capital Reorganization, assuming Consultant (i) is not
a person with which KTI consolidated or into which KTI merged or which merged
into KTI or to which such sale or conveyance was made, as the case may be
("constituent person"), or an affiliate of a constituent person and (ii) failed
to exercise its rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization
(provided that if the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization is not the same for each share of
Common Stock held immediately prior to such consolidated, merger, sale or
conveyance by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercise
("non-electing share"), then for the purposes of this Appendix A the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
As a condition to effecting any Capital Reorganization, KTI or the successor or
surviving corporation thereto, as the case may be, shall execute and deliver to
Consultant an agreement as to Consultant's rights in accordance with this
Section (d), providing for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Appendix A. The provisions
of this Section (d) shall similarly apply to successive Capital Reorganizations.
e. Adjustment Rules. (1) Any adjustments pursuant to this Appendix A
shall be made successively whenever an event referred to herein shall occur.
(2) If KTI shall set a record date to determine the holders of shares
of Common Stock for purposes of a Common Stock Reorganization, Special Dividend
or Capital Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to this
Appendix A in respect of such action.
(3) No adjustment in the number of Option Shares issuable upon exercise
of the option or in the Exercise Price shall be made hereunder unless such
adjustment increase or decreases such amount or price by one percent or more,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall serve to adjust such amount or price by one
percent or more.
(4) "Fair Market Value" means the fair market value of the business or
property in question, as determined in good faith by the Board of Directors of
KTI; provided, however, that the Fair Market Value of any security for which a
Closing Price (as defined below) is available shall be the Market Price (as
defined below) of such security. The Fair Market Value of KTI shall be the Fair
Market Value of KTI (including subsidiaries) as a going concern. Notwithstanding
the foregoing, if, at any date of determination of the Fair market Value of KTI,
the securities of any
<PAGE> 10
cash shall then be publicly traded, the Fair Market Value of KTI on such date
shall be the Market Value of KTI, the securities of any class shall then be
publicly traded, the Fair Market Value of KTI on such date shall be the Market
Price on such date multiplied by the number of securities then outstanding.
"Closing Price" with respect to any security on any day means (a) if such
security is listed or admitted for trading on a national securities exchange,
the reported last sales price regular way or, if no such reported sale occurs on
such day, the average of the closing bid and asked prices regular way on such
day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (b) if such security is not listed or admitted to trading on any
national securities exchange, the last quoted sales price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
on such day as reported by The National Association of Securities Dealers, Inc.
Automated Quotation System or any comparable system then in use or, if not so
reported, as reported by any New York Stock Exchange member firm reasonably
selected by KTI for such purpose. "Market Price" with respect to any security on
any day means the average of the daily Closing Prices of a share or unit of such
security for the 10 consecutive business days ending on the most recent business
day for which a Closing Price is available; provided, however, that in the event
that the Market Price is determined during a period following the announcement
by KTI of (A) a dividend or distribution, or (B) any subdivision, combination or
reclassification of its securities and prior to the expiration of 20 business
days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the Market Price shall be appropriately adjusted to reflect the
current market price per share equivalent of its securities.
Upon each determination of Fair Market Value hereunder, KTI shall
promptly give written notice thereof to Consultant, setting forth in reasonable
detail the calculation of such Fair Market Value and the method and basis of
determination thereof, as the case may be. If, at any date of determination of
the Fair Market Value of KTI, the securities of any class shall not then be
publicly traded, and if Consultant shall disagree with such determination and
shall, by written notice to KTI given within 15 days after KTI's notice of such
determination, elect to dispute such determination, such dispute shall be
resolved in accordance with this Section (e)4. In the event that a determination
of Fair Market Value is disputed, such dispute shall be submitted, at KTI's
choice and expense, to a nationally recognized independent investment banking
firm that has not provided investment banking services to KTI within two years
of the selection date; and the determination by such firm of Fair Market Value
shall be binding on KTI and Consultant (the "Appraisal Procedure").
(5) All references in this Appendix A to the "Exercise Price" shall,
for purpose of making any required adjustments hereto pursuant to this Appendix
A, mean each Exercise Price set forth in Section 2 of the Agreement to which
this Appendix A is attached (as each such Exercise Price may be adjusted from
time t time pursuant to the provisions of this Appendix A) applicable to Option
Shares which are, at the time of any such adjustment, subject to issuance upon
exercise of the Option.
f. Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require any adjustment
pursuant to this Appendix A, KTI shall take any action which may be necessary in
order that KTI may thereafter validly and legally
<PAGE> 11
issue as fully paid and nonassessable all Option Shares which Consultant is
entitled to receive upon exercise of the Option.
g. Notice of Adjustment. Not less than 10 nor more than 60 days prior
to the record date or effective date, as the case may be, of any action which
requires or might require an adjustment or readjustment pursuant to this
Appendix A, KTI shall give notice to Consultant or such event, describing such
event in reasonable detail and specifying the record date or effective date, as
the case may be, and, if determinable, the required adjustment and the
computation thereof. If the required adjustment is not determinable at the time
of such notice, KTI shall give notice to Consultant of such adjustment and
computation promptly after such adjustment becomes determinable.
<PAGE> 12
APPENDIX B
REGISTRATION PROCEDURES
1. Registration.
a. Demand Registration. Consultant may at any time, on any two
separate occasions, from the date hereof until June 1, 2003, request that KTI,
at KTI's sole cost and expense (other than the fees and disbursements of counsel
for Consultant and the underwriting discounts, if any, payable in respect of the
Option Shares sold by Consultant) with respect to the first such request and at
Consultant's sole cost and expense with respect to the second such request,
register the sale of all or part of the Option Shares. Upon receipt of any such
request, KTI shall, as promptly as practicable,. prepare and file with the
Commission a registration statements sufficient to permit the public offering
and sale of the Option Shares through the facilities of all appropriate
securities exchanges and the other-the-counter market, and will use its good
faith best efforts through its officers, directors, auditors, and counsel to
cause such registration statement to become effective as promptly as
practicable.
b. Piggyback Registration. In addition to KTI's obligations
under Section 1.a. of this Appendix B and not in limitation thereof, KTI shall
give Consultant at least 30 days' prior written notice of each filing by KTI of
a registration statement (other than a registration statement on Form S-4 or
Form S-8 or on any successor form thereto) with the Commission. If requested by
Consultant in writing at any time and from time to time, from the date hereof
until June 1, 2003, within 20 days after receipt of any such notice, KTI shall,
at KTI's sole expense (other than the fees and disbursements of counsel for
Consultant, and the underwriting discounts, if any, payable in respect of the
Option Shares sold by Consultant), register all or, at Consultant's option, any
portion of the Option Shares, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Option Shares through the facilities of the Nasdaq National Market or any
other securities exchange, if any, on which the Common Stock is being sold or on
the over-the-counter market, and will use its reasonable best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable. For purposes of this
Appendix B, "Options Shares" shall not include Option Shares which have been
previously sold pursuant to a registration statement or Rule 144 promulgated
under the Securities Act. If the managing underwriter of any such offering shall
determine and advise KTI that, in its opinion, the distribution of all or a
portion of the Option Shares requested to be included in the registration
concurrently with the securities being registered by KTI would materially
adversely affect the distribution of such securities by KTI then KTI will
include in such registration first, the securities that KTI purposes to sell and
second, the Option Shares requested to be included in such registration, to the
extent permitted by the managing underwriter. In the event KTI is advised by the
staff of the Commission, NASDAQ, self-regulatory or state securities agency that
the inclusion of the Option Shares will prevent, preclude or materially delay
the effectiveness of a registration statement filed, KTI, in good faith, may
amend such registration statement to exclude the Option Shares.
c. In the event of a registration pursuant to the provisions
of this Appendix B, KTI shall use its reasonable best efforts to cause the
option Shares so registered to be registered or qualified for sale under these
securities or blue sky laws of such jurisdictions as Consultant may
<PAGE> 13
reasonably request; provided, however, that KTI shall not be required to qualify
to do business in any state by reason of this paragraph d. in which it is not
otherwise required to quality to do business.
d. KTI shall keep effective any registration or qualification
contemplated by this Appendix B and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication until the earlier of (i) one
year from the effective date thereof and (ii) the date on which all Option
Shares issuable upon the exercise of the Option covered by such registration
statement shall have been sold.
e. In the event of a registration pursuant to the provisions
of this Appendix B, KTI shall furnish to Consultant such reasonable number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Securities Act and the rules and regulations thereunder, and such other
documents, as Consultant may reasonably request to facilitate the disposition of
the Option Shares included in such registration.
f. KTI shall notify Consultant promptly when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed.
g. KTI shall advise Consultant, promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement, or the
initiation or threatening of any proceeding from that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
h. KTI shall promptly notify Consultant at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, would include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the reasonable requirement of
Consultant prepare and furnish to it such number of copies of a supplement to or
an amendment to such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Option Shares or securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
i. If requested by the underwriter for any underwritten
offering of Option Shares, KTI and Consultant will enter into an underwriting
agreement with such underwriter for such offering, which shall be reasonably
satisfactory in substance and form to KTI, KTI's counsel, Consultant,
Consultant's counsel and the underwriter, and such agreement shall contain such
representations and warranties by KTI and Consultant and such other terms and
provisions as are customarily contained in an underwriting agreement with
respect to secondary distributions solely
<PAGE> 14
by selling stockholders, including, without limitation, indemnities
substantially to the effect and to the extent provided in Section 2 of this
Appendix B.
j. If requested by the underwriter for any underwritten
offering of Option Shares, Consultant shall execute "lock-up" agreements with
respect thereto, on substantially the same terms and conditions as lock-up
agreements executed by the other selling shareholder in such underwritten
offering; provided, however, that in no event shall Consultant be obligated to
execute a lock-up agreement for a term of greater that 120 days,.
k. KTI agrees that until all the Option Shares have been sold
under a registration statement or pursuant to Rule 144 promulgated under the
Securities Act, it shall, upon becoming subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), use its
reasonable best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit KTI to
maintain its eligibility to use a Form S-3 registration statement and to permit
Consultant to sell the Option Shares under Rule 144.
l. KTI shall furnish to Consultant and to each underwriter, if
any, a signed counterpart, addressed to Consultant or each underwriter, of (i)
an opinion of counsel to KTI; dated the effective dated of such registration
statements (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement), and
(ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued report on KTI's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of securities
provided, however, that the terms of this subparagraph k shall not apply if the
Option Shares are registered in a "piggyback" registration pursuant to Section
1(b) of this Appendix B in which the party seeking registration does not receive
an opinion of counsel or a "cold comfort letter."
m. Consultant understands that KTI makes no representations of
any kind concerning its intent or ability to offer or sell any of the Option
Shares in the public offering or otherwise and that its sole right to have the
Options Shares registered under the Securities Act is contained in this
Agreement.
2. Indemnification.
a. Subject to the conditions set forth below, KTI agrees to
indemnify and hold harmless Consultant, its officer, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 2, but not be limited to, attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any
<PAGE> 15
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation) as and when incurred, arising out of, based upon, or in connection
with(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus, or final
prospectus (as from time to time amended and supplemented) or any amendment or
supplement thereto, relating to the sale of any of the Option Shares or (B) in
any application or other document or communication (in this Section 2
collectively called a "application") executed by KTI or based upon written
information furnished by or on behalf of KTI filed in any jurisdiction in order
to register or qualify any of the Option Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities exchange; or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading, unless
(x) such statement or omission was made in reliance upon and in conformity with
written information furnished to KTI with respect to Consultant by or on behalf
of Consultant expressly for inclusion in any registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be, or (y) such loss, liability, charge, claim,
damage or expense arises out of Consultant's failure to comply with the terms
and provisions of this Agreement, or (ii) any breech of any representation,
warranty, covenant, or agreement of KTI contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability KTI may
otherwise have, including liabilities arising under this Agreement.
If any action is brought against Consultant or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against KTI pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify KTI in writing of the institution of such
action (but the failure so to notify shall not relive KTI from any liability
other than pursuant to this Section 2(a)) and KTI shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) provided that the indemnified
party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by KTI in connection with the defense of such action
or KTI shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to KTI, in any
of which events such fees and expenses shall be borne by KTI and KTI shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties. Anything in this Section n2 to the contrary notwithstanding,
KTI shall not be liable for any settlement of any such claim or action effected
without its written consent, which shall not be unreasonably withheld. KTI shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto)
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. KTI agrees promptly to notify Consultant of the commencement of any
litigation or proceedings against KTI or any of its officers or directors in
connection with the sale of any Option Shares or any preliminary
<PAGE> 16
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Option Shares.
b. Consultant agrees to indemnify and hold harmless KTI, each director
of KTI, each officer of KTI who shall have signed any registration statement
covering Option Shares held by Consultant, each other person, if any, who
controls KTI within the meaning of Section n15 of the Securities Act or Section
20(a) of the Exchange Act, and its or their respective counsel, to the same
extent as the foregoing indemnity from KTI to Consultant in Section 2(a) but
only with respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented) or any amended or supplement thereto, or in any
application, in reliance upon and in conformity with written information
furnished to KTI with respect to Consultant by or on behalf of Consultant,
expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amended or supplement thereto, or in any
application, as the case may be. If any action shall be brought against KTI or
any other person so indemnified based on any such registration statement,
preliminary prospectus, or final prospectus or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may be sought
against Consultant pursuant to this Section 2(b) Consultant shall have the
rights and duties given to KTI, and KTI and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section n2(a).
c. To provide for just and equitable contribution, if (i() an
indemnified party makes a claim for indemnification pursuant to Section 2(a) or
2 (b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act or otherwise, then
KTI (including for this purpose any contribution made by or on behalf of any
director of KTI, any officer of KTI who signed any such registration statement,
any controlling person of KTI, and its or their respective counsel) as one
entity, and Consultant (including for this purpose any contribution by or on
behalf of an indemnified party) as a second entity, shall contribute to the
losses, liabilities, claims, damages, and expense whatsoever to which any of
them may be subject, on the basis of relevant equitable considerations such as
the relative fault of KTI and Consultant in connection with the facts which
results in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission,
or alleged omission shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by KTI or by Consultant, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. KTI and Consultant
agree that it would be unjust and inequitable if the respective obligations of
KTI and Consultant for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if Consultant and the other indemnified parties were treated as one entity
for such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 2(c). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section n2(c)
each person, if any, who controls Consultant within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent and
<PAGE> 17
counsel of Consultant or control person shall have the same rights to
contribution as Consultant or control person and each person, if any, who
controls KTI within the meaning of Section 15 of the Securities Act or Section
n20(a) of the Exchange Act, each officer of KTI who shall have signed any such
registration statement, each director of KTI, and its or their respective
counsel shall have the same rights to contribution as KTI, subject to each case
to the provisions of this Section 2(c). Anything in this Section 2(c) to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 2(c) is intended to supersedes any right to contribution under the
Securities Act, the Exchange Act or otherwise.
<PAGE> 18
APPENDIX C
1. Closing of the sale of Maine Energy Recovery Company's available power
generation capacity and the related restructuring of the Central Maine
Purchase Agreement, dated January 12, 1984.
2. Closing of the purchase of the first tranche of CNA Financial
Corporation's interest in Maine Energy Recovery Company.
3. Closing of the purchase of the second tranche of CNA Financial
Corporation's interest in Maine Energy Recovery Company.
4. Acquisition of any interest in the stock, securities or assets of
Environmental Waste Technology, Inc.
5. Acquisition of any partnership interest in PERC from Prudential Power
Funding.
6. Acquisition of any interest in the stock, securities or assets of Paper
Chase Exchange, Inc. and the acquisitions of any warrants to purchase
stock, options to purchase stock, stock or assets of Prins Recycling
Corp.
7. Acquisition of any interest in the stock, securities or assets of
Polymeric, Inc. or of TriMax, Inc.
8. Acquisition of any interest in the stock, securities or assets of Power
Sources, Inc.
9. Acquisition of any interest in the stock, securities or assets of
Timber Energy Investment, Inc. or of any of its subsidiaries.
10. Offering of approximately $500,000 in short term notes and warrants to
purchase shares of KTI, Inc. common stock at a price of $6.00 per
share.
11. Sale of DataFocus.
<PAGE> 1
EXHIBIT 10.42
FIRST AMENDMENT
TO
OPTION AND CONSULTING AGREEMENT
This First Amendment, dated as of December 18, 1996 to an Option and Consulting
Agreement dated as of June 1, 1996, by and among KTI, Inc., a New Jersey
corporation ("KTI") and L.T. Lawrence & Co., Inc., a New York corporation (the
"Consultant").
Whereas, KTI retained the Consultant to provide certain advisory and other
services (collectively, Consulting Services') as set forth in such Option and
Consulting Agreement; and
Whereas, the Consultant has the right to one demand registration at the expense
of KTI pursuant to Section 1. a. of APPENDIX B to such Option and Consulting
Agreement; and
Whereas, the Consultant has made a written demand to KTI to file a registration
statement pursuant to such provision;
Now therefore, KTI and the Consultant hereby agree as follows:
1. Section 3. of the Option and Consulting Agreement is amended by changing the
end of the Term from June 1, 1999 to June 1, 1997.
2. Section 4. (a) is amended by deleting the phrase "during the Term (as
hereinafter defined)" and by inserting "until June 1, 1997" in lieu thereof.
3. Section 4. (b) is amended by inserting the phrase "prior to October 16, 1996"
immediately after the word "Consultant" on line two thereof.
4. Section 7. is amended by changing the Term of the Option from June 1, 2001 to
June 1, 1999.
5. Section 12. is hereby deleted in its entirety and the words "Intentionally
left blank" inserted in lieu thereof.
6. Section 13. is hereby deleted in its entirety and the words "Intentionally
left blank" inserted in lieu thereof.
7. Section 17 is hereby amended by inserting "prior to October 16, 1996" in line
eight immediately after the word "hereunder".
8. APPENDIX A, 1. a., line four is amended by inserting " until June 1, 1999"
immediately after the phrase "from time to time".
9. APPENDIX B, 1. a., line three is amended by deleting "2003" and by inserting
"2001" in lieu thereof.
<PAGE> 2
10. KTI shall file a registration statement not later than February 15, 1997
including the KTI common stock covered by the Consultant's warrants and shall
keep such registration statement effective for not less than one year. Upon such
filing, KTI shall have satisfied its obligations to file one registration at
KTI's sole expense.
11. KTI shall pay $23,000.0 to the Consultant in satisfaction of all fees and
expenses due under the Option and Consulting Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
duly executed as of the date first above written.
KTI, Inc. L.T.Lawrence and Co., Inc.
By:____________________ By:______________
Nicholas Menonna, Jr. Todd Roberti
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.43
Warrant No. D-6 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: L. T. Lawrence & Co., Inc.
Three New York Plaza
New York, New York 10004
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number
of shares of Common Stock that the registered owner of this Warrant is entitled
to receive upon exercise of this Warrant is 200,000 shares of Common Stock. The
Corporation shall, at all times, authorize and reserve for issuance such number
of shares of Common Stock as shall be issuable upon the exercise of this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon payment and
issuance therefore, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may
purchased upon exercise of this Warrant is Seven and 50/100 Dollars ($7.50) per
share (the "Exercise Price"). The Exercise Price of this Warrant is subject to
adjustment pursuant to Section 8 hereof.
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<PAGE> 2
4. Exercise.
This Warrant shall be exercisable on and after
December 18, 1996 and shall become void unless it is exercised and payment of
the Exercise Price is received by the Corporation prior to June 1, 1999 (the
"Expiration Date"); provided that in case of dissolution of the Corporation, but
subject to the provisions of paragraph 8(b), this Warrant shall become void on
the date of such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by
actual delivery of the Exercise Price in cash, certified check, or official bank
draft in lawful money of the United States of America, and by actual delivery of
a duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer
of this Warrant, the Corporation may deem and treat the registered Holder or
Holders of this Warrant as its absolute owner or owners for all purposes, as the
person or persons exclusively entitled to receive notices concerning this
Warrant, and as the person or persons otherwise entitled to exercise rights
under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby
covenants and agrees that:
(a) the Holder will not offer for sale or sell this
Warrant or the shares of Common Stock issuable upon the exercise of
this Warrant unless pursuant to:
i. an effective registration statement under the
Securities Act ("Registration Statement") filed
by the Company covering such offer and sale; or
ii. an exemption from registration under the
Securities Act; provided that prior to any such
proposed transfer, the Holder shall give five
(5) days' written notice to the Company of the
Holder's intentions to affect such transfer,
which notice shall be accompanied by such
evidence (including the provision of an opinion
of counsel (which counsel and opinion (in form
scope, and substance) shall be reasonably
acceptable to the Corporation) that such
registration is not required as to such sale or
offer as may be
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<PAGE> 3
reasonably satisfactory to the Company that the
proposed transfer may be effected without
registration under the Securities Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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<PAGE> 4
Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such stock option or other benefit plans, or (iii)
the issuance of Common Stock in connection with an acquisition or
merger of any type (the antidilution provision of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Corporation as long as the Corporation is the survivor thereof), and
(iv) in connection with compensation arrangements for present or former
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<PAGE> 5
officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which
shall be cash, the amount of the cash consideration
therefor shall be deemed to be the amount of cash
received by the Corporation for such shares (or, if
shares of Common Stock are offered by the
Corporation for subscription, the subscription
price, or, if either of such securities shall be
sold to underwriters or dealers for public offering
without a subscription offering, the initial public
offering price for such shares) before deducting
therefrom any compensation paid or discount allowed
in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing
similar services, or any expenses incurred in
connection therewith.
ii. In case of the issuance or sale (otherwise than as
a dividend or other distribution on any capital
stock of the Corporation) of shares of Common Stock
for a consideration part or all of which shall be
other than cash, the amount of the consideration
therefor other than cash shall be deemed to be the
value of such consideration as determined in good
faith by the Board of Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common Stock into
securities including shares of Common Stock shall
be deemed to involve the issuance of such shares of
Common Stock for a consideration other than cash
immediately prior to the close of business on the
date fixed for the determination of security
holders entitled to receive such shares, and the
value of the consideration allocable to such shares
of Common Stock shall be determined in good faith
by the Board of Directors of the Corporation.
Page 5
<PAGE> 6
iv. The number of shares of Common Stock at any one
time outstanding shall include the aggregate number
of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon
the exercise of options, rights, and warrants and
upon the conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under such
options, rights or warrants shall be deemed to be
issued and outstanding at the time such options,
rights or warrants were issued, and for a
consideration equal to the minimum purchase price
per share provided for in such options, rights or
warrants at the time of issuance, plus the
consideration (determined in the same manner as
consideration received on the issue or sale of
shares in accordance with the terms of this
Warrant), if any, received by the Corporation for
such options, rights or warrants.
ii. The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any
convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of
issuance of such securities, and for a
consideration equal to the consideration
(determined in the same manner as consideration
received on the issue or sale of shares of Common
Stock in accordance with the terms of this Warrant)
received by the Corporation for such securities,
plus the minimum consideration, if any, receivable
by the Corporation upon the conversion or exchange
thereof.
iii. If any change shall occur in the price per share
provided for in any of the options, rights, or
warrants or convertible or exchangeable securities
referred to in this subsection (b) of this
paragraph 9, such options, rights or warrants or
conversion or exchange rights, as the case may be,
shall be deemed to have expired or terminated on
the date when such price change became effective in
respect of shares not theretofore issued and the
Corporation shall be deemed to have issued upon
such date new options,
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<PAGE> 7
rights or warrants or convertible or exchangeable
securities at the new price per share in respect of
the number of shares issuable upon the exercise of
such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable
securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the corporation shall
mail or cause to be mailed to the Holder at the time outstanding a
notice specifying, as the case may be, (i) the date on which
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<PAGE> 8
a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any, to be
fixed as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified
and this Warrant may be exercised prior to said date during the term of
the Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this eighteen day of December, 1996.
KTI, INC.
By:
---------------------------------------------
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
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Signature
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Print Name of Signatory
Address:
---------------------------
---------------------------
Social Security No.
or other identifying number:
---------------------------
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
---------------------------
(Please print)
Address:
---------------------------
---------------------------
Social Security No.
or other identifying number:
---------------------------
Signature:
---------------------------
---------------------------
Print Name of Signatory
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<PAGE> 1
EXHIBIT 10.44
Warrant No. D-1 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A SECURITY INTEREST,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS OR
PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION RECEIVES AN OPINION OF
COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND SUBSTANCE) SHALL BE
REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH REGISTRATION IS NOT REQUIRED
AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: Thomas E. Schulze
124 Hewes Street
North Barrington, Illinois 60010
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number of shares
of Common Stock that the registered owner of this Warrant is entitled to receive
upon exercise of this Warrant is 6,000 shares of Common Stock. The Corporation
shall, at all times, authorize and reserve for issuance such number of shares of
Common Stock as shall be issuable upon the exercise of this Warrant. The
Corporation covenants and agrees that all shares of Common Stock that may be
issued upon the exercise of this Warrant shall, upon payment and issuance
therefore, be duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the purchase and the issuance
of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may purchased
upon exercise of this Warrant is Eight and 50/100 Dollars ($8.50) per share (the
"Exercise Price"). The Exercise Price of this Warrant is subject to adjustment
pursuant to Section 8 hereof.
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4. Exercise.
This Warrant shall be exercisable on and after January 1, 1997
and shall become void unless it is exercised and payment of the Exercise Price
is received by the Corporation prior to December 31, 1999 (the "Expiration
Date"); provided that in case of dissolution of the Corporation, but subject to
the provisions of paragraph 8(b), this Warrant shall become void on the date of
such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by actual
delivery of the Exercise Price in cash, certified check, or official bank draft
in lawful money of the United States of America, and by actual delivery of a
duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer of this
Warrant, the Corporation may deem and treat the registered Holder or Holders of
this Warrant as its absolute owner or owners for all purposes, as the person or
persons exclusively entitled to receive notices concerning this Warrant, and as
the person or persons otherwise entitled to exercise rights under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby covenants and
agrees that:
(a) the Holder will not offer for sale or sell this Warrant or
the shares of Common Stock issuable upon the exercise of this Warrant
unless pursuant to:
i. an effective registration statement under the Securities
Act ("Registration Statement") filed by the Company
covering such offer and sale; or
ii. an exemption from registration under the Securities Act;
provided that prior to any such proposed transfer, the
Holder shall give five (5) days' written notice to the
Company of the Holder's intentions to affect such
transfer, which notice shall be accompanied by such
evidence (including the provision of an opinion of
counsel (which counsel and opinion (in form scope, and
substance) shall be reasonably acceptable to the
Corporation) that such registration is not required as to
such sale or offer as may be
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reasonably satisfactory to the Company that the proposed
transfer may be effected without registration under the
Securities Act.
(b) The certificates representing the shares of Common Stock
issued upon exercise hereof, unless the same are registered under the
Securities Act prior to exercise of this Warrant, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares of Common
Stock issued upon exercise hereof shall be made in accordance with the
federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable on the exercise of
this Warrant shall be the number derived by dividing such adjusted pertinent
Exercise Price into the original Exercise Price. The Exercise Price shall be
subject to adjustment as follows:
(a) In the event, prior to the termination of this Warrant by
exercise thereof or by its terms, the Corporation shall issue any
shares of its Common Stock as a share dividend or shall declare a stock
split or otherwise subdivide the number of outstanding shares of Common
Stock into a greater number of shares, then, in either of such events
(referred to hereinafter as an "Adjustment Event"), the Exercise Price
per share of Common Stock that may be purchased pursuant to this
Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while this
Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8, no
adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this Warrant by
exercise thereof or by its terms, the Corporation shall determine to
take a record of the holders of its Common Stock for the purpose of
determining shareholders entitled to receive any share dividend or
other right which will cause any change or adjustment in the number,
amount, price or nature of the shares of Common Stock or other
securities or assets deliverable on exercise of this Warrant pursuant
to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to this
Section 8 or Section 9 shall be made as a result of or in connection
with (i) the issuance of Common Stock pursuant to options, warrants and
share purchase agreements outstanding or in effect on the date hereof,
(ii) the establishment of additional stock option or other benefit
plans of the Corporation, the modification, renewal or extension of any
stock option or other benefit plan now in effect or hereafter created,
or the issuance of Common Stock on exercise of any options pursuant to
such stock option or other benefit plans, or (iii) the issuance of
Common Stock in connection with an acquisition or merger of any type
(the antidilution provision of this Section 8 will not apply in the
event a merger or acquisition is undertaken by the Corporation as long
as the Corporation is the survivor thereof), and (iv) in connection
with compensation arrangements for present or former
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officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash,
the amount of the cash consideration therefor shall be
deemed to be the amount of cash received by the
Corporation for such shares (or, if shares of Common
Stock are offered by the Corporation for subscription,
the subscription price, or, if either of such securities
shall be sold to underwriters or dealers for public
offering without a subscription offering, the initial
public offering price for such shares) before deducting
therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar
services, or any expenses incurred in connection
therewith.
ii. In case of the issuance or sale (otherwise than as a
dividend or other distribution on any capital stock of
the Corporation) of shares of Common Stock for a
consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than
cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of
Directors of the Corporation.
iii. The reclassification of securities of the Corporation
other than shares of Common Stock into securities
including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the
close of business on the date fixed for the determination
of security holders entitled to receive such shares, and
the value of the consideration allocable to such shares
of Common Stock shall be determined in good faith by the
Board of Directors of the Corporation.
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iv. The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares
issued or issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of options,
rights, and warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except as hereinafter provided, in case the Corporation
shall at any time after the date hereof issue or sell options, rights
or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock
(other than the issuances or sales referred to in paragraph 9(c)), for
a consideration per share less than the then current fair market value
of the share of the Common Stock immediately prior to the issuance of
such options, rights or Warrants, or such convertible or exchangeable
securities, or without consideration, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon the exercise of such convertible or exchangeable
securities, by (B) the then current fair market value per share of
Common Stock immediately prior to such issuance or sale multiplied by
the total number of shares of Common Stock that would be outstanding
immediately after the exercise of such convertible or exchangeable
securities provided that:
i. The aggregate maximum number of shares of Common Stock,
as the case may be, issuable under such options, rights
or warrants shall be deemed to be issued and outstanding
at the time such options, rights or warrants were issued,
and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received
on the issue or sale of shares in accordance with the
terms of this Warrant), if any, received by the
Corporation for such options, rights or warrants.
ii. The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible
or exchangeable securities shall be deemed to be issued
and outstanding at the time of issuance of such
securities, and for a consideration equal to the
consideration (determined in the same manner as
consideration received on the issue or sale of shares of
Common Stock in accordance with the terms of this
Warrant) received by the Corporation for such securities,
plus the minimum consideration, if any, receivable by the
Corporation upon the conversion or exchange thereof.
iii. If any change shall occur in the price per share provided
for in any of the options, rights, or warrants or
convertible or exchangeable securities referred to in
this subsection (b) of this paragraph 9, such options,
rights or warrants or conversion or exchange rights, as
the case may be, shall be deemed to have expired or
terminated on the date when such price change became
effective in respect of shares not theretofore issued and
the Corporation shall be deemed to have issued upon such
date new options,
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rights or warrants or convertible or exchangeable
securities at the new price per share in respect of the
number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange
of such convertible or exchangeable securities.
(c) Exclusions. The provisions of subsection 9(b) above shall
not apply to any options issued pursuant to stock option plans of the
Corporation in effect on the date hereof, to renewals of any existing
options, rights or warrants or to any options, rights or warrants
issued to employees of the Corporation or any of its subsidiaries on
the date hereof. Moreover, the provisions of subsection 9(b) shall
terminate at such time as there is in effect a registration statement
filed with the Securities and Exchange Commission with respect to the
shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this paragraph 9,
the number of shares of Common Stock issuable upon the exercise of this
Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
10. Fractional Shares.
No fractional shares or script representing fractional shares
of Common Stock shall be issued upon the exercise of this Warrant. No
adjustment to the shares of Common Stock that may be purchased upon the
exercise of this Warrant will result in any fractional shares to be
issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a shareholder in the Corporation, either at law or equity, and the
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the holders of its
Common Stock (or other securities at the time receivable upon the
exercise of the Warrant) for the purpose of entitling them to receive
any dividend (other than a cash dividend payable out of earned surplus)
or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation (other
than a stock split or reverse stock split), any reclassification of the
capital stock of the Corporation, any consolidation or merger of the
Corporation with or into another corporation (other than a merger for
purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation;
then, in each such case, the corporation shall mail or cause
to be mailed to the Holder at the time outstanding a notice specifying,
as the case may be, (i) the date on which
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a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any, to be
fixed as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified
and this Warrant may be exercised prior to said date during the term of
the Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by its duly
authorized officer this second day of January, 1997.
KTI, INC.
By:
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors
and Chief Executive Officer
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EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby irrevocably
elects to exercise the rights to purchase ______ shares of Common Stock of KTI,
Inc. by exercise of the within Warrant, according to the terms and conditions
therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of Common
Stock shall be issued in the name set forth below.
Dated: , 199__
_____________________________
Signature
_____________________________
Print Name of Signatory
Address: _____________________________
_____________________________
Social Security No.
or other identifying number: _____________________
If said number of shares of Common Stock and Warrants shall not be all
the shares under the within Warrant, the undersigned requests that a new Warrant
for the unexercised portion shall be registered in the name of:
_____________________________
(Please print)
Address: _____________________________
Social Security No.
or other identifying number: _____________________
Signature: ___________________________
_____________________________
Print Name of Signatory
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EXHIBIT 10.45
Warrant No. D-2 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: John E. Turner
400 West Hickory Street
Hinsdale, Illinois 60521
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number of shares
of Common Stock that the registered owner of this Warrant is entitled to receive
upon exercise of this Warrant is 3,000 shares of Common Stock. The Corporation
shall, at all times, authorize and reserve for issuance such number of shares of
Common Stock as shall be issuable upon the exercise of this Warrant. The
Corporation covenants and agrees that all shares of Common Stock that may be
issued upon the exercise of this Warrant shall, upon payment and issuance
therefore, be duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the purchase and the issuance
of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may purchased
upon exercise of this Warrant is Eight and 50/100 Dollars ($8.50) per share (the
"Exercise Price"). The Exercise Price of this Warrant is subject to adjustment
pursuant to Section 8 hereof.
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4. Exercise.
This Warrant shall be exercisable on and after January 1, 1997
and shall become void unless it is exercised and payment of the Exercise Price
is received by the Corporation prior to December 31, 1999 (the "Expiration
Date"); provided that in case of dissolution of the Corporation, but subject to
the provisions of paragraph 8(b), this Warrant shall become void on the date of
such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by actual
delivery of the Exercise Price in cash, certified check, or official bank draft
in lawful money of the United States of America, and by actual delivery of a
duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer of this
Warrant, the Corporation may deem and treat the registered Holder or Holders of
this Warrant as its absolute owner or owners for all purposes, as the person or
persons exclusively entitled to receive notices concerning this Warrant, and as
the person or persons otherwise entitled to exercise rights under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby covenants and
agrees that:
(a) the Holder will not offer for sale or sell this Warrant or
the shares of Common Stock issuable upon the exercise of this Warrant
unless pursuant to:
i. an effective registration statement under the
Securities Act ("Registration Statement") filed by
the Company covering such offer and sale; or
ii. an exemption from registration under the Securities
Act; provided that prior to any such proposed
transfer, the Holder shall give five (5) days'
written notice to the Company of the Holder's
intentions to affect such transfer, which notice
shall be accompanied by such evidence (including the
provision of an opinion of counsel (which counsel and
opinion (in form scope, and substance) shall be
reasonably acceptable to the Corporation) that such
registration is not required as to such sale or offer
as may be
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reasonably satisfactory to the Company that the
proposed transfer may be effected without
registration under the Securities Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such stock option or other benefit plans, or (iii)
the issuance of Common Stock in connection with an acquisition or
merger of any type (the antidilution provision of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Corporation as long as the Corporation is the survivor thereof), and
(iv) in connection with compensation arrangements for present or former
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<PAGE> 5
officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of
Common Stock for a consideration part or all
of which shall be cash, the amount of the
cash consideration therefor shall be deemed
to be the amount of cash received by the
Corporation for such shares (or, if shares
of Common Stock are offered by the
Corporation for subscription, the
subscription price, or, if either of such
securities shall be sold to underwriters or
dealers for public offering without a
subscription offering, the initial public
offering price for such shares) before
deducting therefrom any compensation paid or
discount allowed in the sale, underwriting
or purchase thereof by underwriters or
dealers or others performing similar
services, or any expenses incurred in
connection therewith.
ii. In case of the issuance or sale (otherwise
than as a dividend or other distribution on
any capital stock of the Corporation) of
shares of Common Stock for a consideration
part or all of which shall be other than
cash, the amount of the consideration
therefor other than cash shall be deemed to
be the value of such consideration as
determined in good faith by the Board of
Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common
Stock into securities including shares of
Common Stock shall be deemed to involve the
issuance of such shares of Common Stock for
a consideration other than cash immediately
prior to the close of business on the date
fixed for the determination of security
holders entitled to receive such shares, and
the value of the consideration allocable to
such shares of Common Stock shall be
determined in good faith by the Board of
Directors of the Corporation.
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iv. The number of shares of Common Stock at any
one time outstanding shall include the
aggregate number of shares issued or issuable
(subject to readjustment upon the actual
issuance thereof) upon the exercise of
options, rights, and warrants and upon the
conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable
under such options, rights or warrants shall
be deemed to be issued and outstanding at
the time such options, rights or warrants
were issued, and for a consideration equal
to the minimum purchase price per share
provided for in such options, rights or
warrants at the time of issuance, plus the
consideration (determined in the same manner
as consideration received on the issue or
sale of shares in accordance with the terms
of this Warrant), if any, received by the
Corporation for such options, rights or
warrants.
ii. The aggregate maximum number of shares of
Common Stock issuable upon conversion or
exchange of any convertible or exchangeable
securities shall be deemed to be issued and
outstanding at the time of issuance of such
securities, and for a consideration equal to
the consideration (determined in the same
manner as consideration received on the
issue or sale of shares of Common Stock in
accordance with the terms of this Warrant)
received by the Corporation for such
securities, plus the minimum consideration,
if any, receivable by the Corporation upon
the conversion or exchange thereof.
iii. If any change shall occur in the price per
share provided for in any of the options,
rights, or warrants or convertible or
exchangeable securities referred to in this
subsection (b) of this paragraph 9, such
options, rights or warrants or conversion or
exchange rights, as the case may be, shall
be deemed to have expired or terminated on
the date when such price change became
effective in respect of shares not
theretofore issued and the Corporation shall
be deemed to have issued upon such date new
options,
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<PAGE> 7
rights or warrants or convertible or
exchangeable securities at the new price per
share in respect of the number of shares
issuable upon the exercise of such options,
rights or warrants or the conversion or
exchange of such convertible or exchangeable
securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the corporation
shall mail or cause to be mailed to the Holder at the time outstanding
a notice specifying, as the case may be, (i) the date on which
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a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any, to be
fixed as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified
and this Warrant may be exercised prior to said date during the term of
the Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this second day of January, 1997.
KTI, INC.
By:________________________________________________
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
______________________________
Signature
______________________________
Print Name of Signatory
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
______________________________
(Please print)
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
Signature:_____________________________
_____________________________
Print Name of Signatory
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EXHIBIT 10.46
Warrant No. D-3 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: Robert E. Wetzel
20 Braeburn Lane
Barrington Hills, Illinois 60010-9802
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number
of shares of Common Stock that the registered owner of this Warrant is entitled
to receive upon exercise of this Warrant is 6,000 shares of Common Stock. The
Corporation shall, at all times, authorize and reserve for issuance such number
of shares of Common Stock as shall be issuable upon the exercise of this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon payment and
issuance therefore, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may
purchased upon exercise of this Warrant is Eight and 50/100 Dollars ($8.50) per
share (the "Exercise Price"). The Exercise Price of this Warrant is subject to
adjustment pursuant to Section 8 hereof.
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4. Exercise.
This Warrant shall be exercisable on and after
January 1, 1997 and shall become void unless it is exercised and payment of the
Exercise Price is received by the Corporation prior to December 31, 1999 (the
"Expiration Date"); provided that in case of dissolution of the Corporation, but
subject to the provisions of paragraph 8(b), this Warrant shall become void on
the date of such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by
actual delivery of the Exercise Price in cash, certified check, or official bank
draft in lawful money of the United States of America, and by actual delivery of
a duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer
of this Warrant, the Corporation may deem and treat the registered Holder or
Holders of this Warrant as its absolute owner or owners for all purposes, as the
person or persons exclusively entitled to receive notices concerning this
Warrant, and as the person or persons otherwise entitled to exercise rights
under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby
covenants and agrees that:
(a) the Holder will not offer for sale or sell this
Warrant or the shares of Common Stock issuable upon the exercise of
this Warrant unless pursuant to:
i. an effective registration statement under
the Securities Act ("Registration
Statement") filed by the Company covering
such offer and sale; or
ii. an exemption from registration under the
Securities Act; provided that prior to any
such proposed transfer, the Holder shall
give five (5) days' written notice to the
Company of the Holder's intentions to affect
such transfer, which notice shall be
accompanied by such evidence (including the
provision of an opinion of counsel (which
counsel and opinion (in form scope, and
substance) shall be reasonably acceptable to
the Corporation) that such registration is
not required as to such sale or offer as may
be
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reasonably satisfactory to the Company that
the proposed transfer may be effected
without registration under the Securities
Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such stock option or other benefit plans, or (iii)
the issuance of Common Stock in connection with an acquisition or
merger of any type (the antidilution provision of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Corporation as long as the Corporation is the survivor thereof), and
(iv) in connection with compensation arrangements for present or former
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officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of
Common Stock for a consideration part or all
of which shall be cash, the amount of the
cash consideration therefor shall be deemed
to be the amount of cash received by the
Corporation for such shares (or, if shares
of Common Stock are offered by the
Corporation for subscription, the
subscription price, or, if either of such
securities shall be sold to underwriters or
dealers for public offering without a
subscription offering, the initial public
offering price for such shares) before
deducting therefrom any compensation paid or
discount allowed in the sale, underwriting
or purchase thereof by underwriters or
dealers or others performing similar
services, or any expenses incurred in
connection therewith.
ii. In case of the issuance or sale (otherwise
than as a dividend or other distribution on
any capital stock of the Corporation) of
shares of Common Stock for a consideration
part or all of which shall be other than
cash, the amount of the consideration
therefor other than cash shall be deemed to
be the value of such consideration as
determined in good faith by the Board of
Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common
Stock into securities including shares of
Common Stock shall be deemed to involve the
issuance of such shares of Common Stock for
a consideration other than cash immediately
prior to the close of business on the date
fixed for the determination of security
holders entitled to receive such shares, and
the value of the consideration allocable to
such shares of Common Stock shall be
determined in good faith by the Board of
Directors of the Corporation.
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iv. The number of shares of Common Stock at any
one time outstanding shall include the
aggregate number of shares issued or
issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise
of options, rights, and warrants and upon
the conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable
under such options, rights or warrants shall
be deemed to be issued and outstanding at
the time such options, rights or warrants
were issued, and for a consideration equal
to the minimum purchase price per share
provided for in such options, rights or
warrants at the time of issuance, plus the
consideration (determined in the same manner
as consideration received on the issue or
sale of shares in accordance with the terms
of this Warrant), if any, received by the
Corporation for such options, rights or
warrants.
ii. The aggregate maximum number of shares of
Common Stock issuable upon conversion or
exchange of any convertible or exchangeable
securities shall be deemed to be issued and
outstanding at the time of issuance of such
securities, and for a consideration equal to
the consideration (determined in the same
manner as consideration received on the
issue or sale of shares of Common Stock in
accordance with the terms of this Warrant)
received by the Corporation for such
securities, plus the minimum consideration,
if any, receivable by the Corporation upon
the conversion or exchange thereof.
iii. If any change shall occur in the price per
share provided for in any of the options,
rights, or warrants or convertible or
exchangeable securities referred to in this
subsection (b) of this paragraph 9, such
options, rights or warrants or conversion or
exchange rights, as the case may be, shall
be deemed to have expired or terminated on
the date when such price change became
effective in respect of shares not
theretofore issued and the Corporation shall
be deemed to have issued upon such date new
options,
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rights or warrants or convertible or
exchangeable securities at the new price per
share in respect of the number of shares
issuable upon the exercise of such options,
rights or warrants or the conversion or
exchange of such convertible or exchangeable
securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the corporation
shall mail or cause to be mailed to the Holder at the time outstanding
a notice specifying, as the case may be, (i) the date on which
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a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any, to be
fixed as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified
and this Warrant may be exercised prior to said date during the term of
the Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this second day of January, 1997.
KTI, INC.
By:________________________________________________
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
______________________________
Signature
______________________________
Print Name of Signatory
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
______________________________
(Please print)
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
Signature:_____________________________
_____________________________
Print Name of Signatory
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EXHIBIT 10.47
Warrant No. D-4 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: The Baldwin & Clarke Companies
Coldstream Park
116B South River Road
Bedford, New Hampshire 03110
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number
of shares of Common Stock that the registered owner of this Warrant is entitled
to receive upon exercise of this Warrant is 15,000 shares of Common Stock. The
Corporation shall, at all times, authorize and reserve for issuance such number
of shares of Common Stock as shall be issuable upon the exercise of this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon payment and
issuance therefore, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may
purchased upon exercise of this Warrant is Six and no/100 Dollars ($6.00) per
share (the "Exercise Price"). The Exercise Price of this Warrant is subject to
adjustment pursuant to Section 8 hereof.
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4. Exercise.
This Warrant shall be exercisable on and after
January 1, 1997 and shall become void unless it is exercised and payment of the
Exercise Price is received by the Corporation prior to April 30, 2001 (the
"Expiration Date"); provided that in case of dissolution of the Corporation, but
subject to the provisions of paragraph 8(b), this Warrant shall become void on
the date of such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by
actual delivery of the Exercise Price in cash, certified check, or official bank
draft in lawful money of the United States of America, and by actual delivery of
a duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer
of this Warrant, the Corporation may deem and treat the registered Holder or
Holders of this Warrant as its absolute owner or owners for all purposes, as the
person or persons exclusively entitled to receive notices concerning this
Warrant, and as the person or persons otherwise entitled to exercise rights
under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby
covenants and agrees that:
(a) the Holder will not offer for sale or sell this
Warrant or the shares of Common Stock issuable upon the exercise of
this Warrant unless pursuant to:
i. an effective registration statement under
the Securities Act ("Registration
Statement") filed by the Company covering
such offer and sale; or
ii. an exemption from registration under the
Securities Act; provided that prior to any
such proposed transfer, the Holder shall
give five (5) days' written notice to the
Company of the Holder's intentions to affect
such transfer, which notice shall be
accompanied by such evidence (including the
provision of an opinion of counsel (which
counsel and opinion (in form scope, and
substance) shall be reasonably acceptable to
the Corporation) that such registration is
not required as to such sale or offer as may
be
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reasonably satisfactory to the Company that
the proposed transfer may be effected
without registration under the Securities
Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such stock option or other benefit plans, or (iii)
the issuance of Common Stock in connection with an acquisition or
merger of any type (the antidilution provision of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Corporation as long as the Corporation is the survivor thereof), and
(iv) in connection with compensation arrangements for present or former
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officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of
Common Stock for a consideration part or all
of which shall be cash, the amount of the
cash consideration therefor shall be deemed
to be the amount of cash received by the
Corporation for such shares (or, if shares
of Common Stock are offered by the
Corporation for subscription, the
subscription price, or, if either of such
securities shall be sold to underwriters or
dealers for public offering without a
subscription offering, the initial public
offering price for such shares) before
deducting therefrom any compensation paid or
discount allowed in the sale, underwriting
or purchase thereof by underwriters or
dealers or others performing similar
services, or any expenses incurred in
connection therewith.
ii. In case of the issuance or sale (otherwise
than as a dividend or other distribution on
any capital stock of the Corporation) of
shares of Common Stock for a consideration
part or all of which shall be other than
cash, the amount of the consideration
therefor other than cash shall be deemed to
be the value of such consideration as
determined in good faith by the Board of
Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common
Stock into securities including shares of
Common Stock shall be deemed to involve the
issuance of such shares of Common Stock for
a consideration other than cash immediately
prior to the close of business on the date
fixed for the determination of security
holders entitled to receive such shares, and
the value of the consideration allocable to
such shares of Common Stock shall be
determined in good faith by the Board of
Directors of the Corporation.
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iv. The number of shares of Common Stock at any
one time outstanding shall include the
aggregate number of shares issued or
issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise
of options, rights, and warrants and upon
the conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable
under such options, rights or warrants shall
be deemed to be issued and outstanding at
the time such options, rights or warrants
were issued, and for a consideration equal
to the minimum purchase price per share
provided for in such options, rights or
warrants at the time of issuance, plus the
consideration (determined in the same manner
as consideration received on the issue or
sale of shares in accordance with the terms
of this Warrant), if any, received by the
Corporation for such options, rights or
warrants.
ii. The aggregate maximum number of shares of
Common Stock issuable upon conversion or
exchange of any convertible or exchangeable
securities shall be deemed to be issued and
outstanding at the time of issuance of such
securities, and for a consideration equal to
the consideration (determined in the same
manner as consideration received on the
issue or sale of shares of Common Stock in
accordance with the terms of this Warrant)
received by the Corporation for such
securities, plus the minimum consideration,
if any, receivable by the Corporation upon
the conversion or exchange thereof.
iii. If any change shall occur in the price per
share provided for in any of the options,
rights, or warrants or convertible or
exchangeable securities referred to in this
subsection (b) of this paragraph 9, such
options, rights or warrants or conversion or
exchange rights, as the case may be, shall
be deemed to have expired or terminated on
the date when such price change became
effective in respect of shares not
theretofore issued and the Corporation shall
be deemed to have issued upon such date new
options,
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<PAGE> 7
rights or warrants or convertible or
exchangeable securities at the new price per
share in respect of the number of shares
issuable upon the exercise of such options,
rights or warrants or the conversion or
exchange of such convertible or exchangeable
securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the corporation
shall mail or cause to be mailed to the Holder at the time outstanding
a notice specifying, as the case may be, (i) the date on which
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a record is to be taken for the purpose of such
dividend, distribution or right, and stating the
amount and character of such dividend, distribution
or right, or (ii) the date on which such
reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, to
be fixed as to which the holders of record of Common
Stock (or such other securities at the time
receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or
such other securities) for securities or other
property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice
shall be mailed at least twenty (20) days prior to
the date therein specified and this Warrant may be
exercised prior to said date during the term of the
Warrant no later than five (5) days prior to said
date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this second day of January, 1997.
KTI, INC.
By:________________________________________________
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
______________________________
Signature
______________________________
Print Name of Signatory
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
______________________________
(Please print)
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
Signature:_____________________________
_____________________________
Print Name of Signatory
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<PAGE> 1
EXHIBIT 10.48
Warrant No. D-5 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: The Baldwin & Clarke Companies
Coldstream Park
116B South River Road
Bedford, New Hampshire 03110
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number
of shares of Common Stock that the registered owner of this Warrant is entitled
to receive upon exercise of this Warrant is 15,000 shares of Common Stock. The
Corporation shall, at all times, authorize and reserve for issuance such number
of shares of Common Stock as shall be issuable upon the exercise of this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon payment and
issuance therefore, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of such shares.
3. Exercise Price.
The price at which the shares of Common Stock may
purchased upon exercise of this Warrant is Seven and no/100 Dollars ($7.00) per
share (the "Exercise Price"). The Exercise Price of this Warrant is subject to
adjustment pursuant to Section 8 hereof.
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<PAGE> 2
4. Exercise.
This Warrant shall be exercisable on and after
January 1, 1997 and shall become void unless it is exercised and payment of the
Exercise Price is received by the Corporation prior to April 30, 2001 (the
"Expiration Date"); provided that in case of dissolution of the Corporation, but
subject to the provisions of paragraph 8(b), this Warrant shall become void on
the date of such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by
actual delivery of the Exercise Price in cash, certified check, or official bank
draft in lawful money of the United States of America, and by actual delivery of
a duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer
of this Warrant, the Corporation may deem and treat the registered Holder or
Holders of this Warrant as its absolute owner or owners for all purposes, as the
person or persons exclusively entitled to receive notices concerning this
Warrant, and as the person or persons otherwise entitled to exercise rights
under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby
covenants and agrees that:
(a) the Holder will not offer for sale or sell this
Warrant or the shares of Common Stock issuable upon the exercise of
this Warrant unless pursuant to:
i. an effective registration statement under
the Securities Act ("Registration
Statement") filed by the Company covering
such offer and sale; or
ii. an exemption from registration under the
Securities Act; provided that prior to any
such proposed transfer, the Holder shall
give five (5) days' written notice to the
Company of the Holder's intentions to affect
such transfer, which notice shall be
accompanied by such evidence (including the
provision of an opinion of counsel (which
counsel and opinion (in form scope, and
substance) shall be reasonably acceptable to
the Corporation) that such registration is
not required as to such sale or offer as may
be
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reasonably satisfactory to the Company that
the proposed transfer may be effected
without registration under the Securities
Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder hereof is in the same economic position
as such Holder was in prior to such share combination. Any dividend
paid or distributed on the Common Stock in shares of any other class of
capital stock of the Corporation or securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable on the conversion
thereof. An adjustment in the Exercise Price or the number of shares of
Common
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Stock to be received upon exercise of this Warrant made pursuant to
this Section 8(a) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the record date,
if any, for such Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such stock option or other benefit plans, or (iii)
the issuance of Common Stock in connection with an acquisition or
merger of any type (the antidilution provision of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Corporation as long as the Corporation is the survivor thereof), and
(iv) in connection with compensation arrangements for present or former
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<PAGE> 5
officers, direct employees or agents of the Corporation or any indirect
or direct subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of
Common Stock for a consideration part or all
of which shall be cash, the amount of the
cash consideration therefor shall be deemed
to be the amount of cash received by the
Corporation for such shares (or, if shares
of Common Stock are offered by the
Corporation for subscription, the
subscription price, or, if either of such
securities shall be sold to underwriters or
dealers for public offering without a
subscription offering, the initial public
offering price for such shares) before
deducting therefrom any compensation paid or
discount allowed in the sale, underwriting
or purchase thereof by underwriters or
dealers or others performing similar
services, or any expenses incurred in
connection therewith.
ii. In case of the issuance or sale (otherwise
than as a dividend or other distribution on
any capital stock of the Corporation) of
shares of Common Stock for a consideration
part or all of which shall be other than
cash, the amount of the consideration
therefor other than cash shall be deemed to
be the value of such consideration as
determined in good faith by the Board of
Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common
Stock into securities including shares of
Common Stock shall be deemed to involve the
issuance of such shares of Common Stock for
a consideration other than cash immediately
prior to the close of business on the date
fixed for the determination of security
holders entitled to receive such shares, and
the value of the consideration allocable to
such shares of Common Stock shall be
determined in good faith by the Board of
Directors of the Corporation.
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iv. The number of shares of Common Stock at any
one time outstanding shall include the
aggregate number of shares issued or
issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise
of options, rights, and warrants and upon
the conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable
under such options, rights or warrants shall
be deemed to be issued and outstanding at
the time such options, rights or warrants
were issued, and for a consideration equal
to the minimum purchase price per share
provided for in such options, rights or
warrants at the time of issuance, plus the
consideration (determined in the same manner
as consideration received on the issue or
sale of shares in accordance with the terms
of this Warrant), if any, received by the
Corporation for such options, rights or
warrants.
ii. The aggregate maximum number of shares of
Common Stock issuable upon conversion or
exchange of any convertible or exchangeable
securities shall be deemed to be issued and
outstanding at the time of issuance of such
securities, and for a consideration equal to
the consideration (determined in the same
manner as consideration received on the
issue or sale of shares of Common Stock in
accordance with the terms of this Warrant)
received by the Corporation for such
securities, plus the minimum consideration,
if any, receivable by the Corporation upon
the conversion or exchange thereof.
iii. If any change shall occur in the price per
share provided for in any of the options,
rights, or warrants or convertible or
exchangeable securities referred to in this
subsection (b) of this paragraph 9, such
options, rights or warrants or conversion or
exchange rights, as the case may be, shall
be deemed to have expired or terminated on
the date when such price change became
effective in respect of shares not
theretofore issued and the Corporation shall
be deemed to have issued upon such date new
options,
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<PAGE> 7
rights or warrants or convertible or
exchangeable securities at the new price per
share in respect of the number of shares
issuable upon the exercise of such options,
rights or warrants or the conversion or
exchange of such convertible or exchangeable
securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the corporation
shall mail or cause to be mailed to the Holder at the time outstanding a notice
specifying, as the case may be, (i) the date on which
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<PAGE> 8
a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any, to be
fixed as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified
and this Warrant may be exercised prior to said date during the term of
the Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this second day of January, 1997.
KTI, INC.
By:________________________________________________
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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<PAGE> 9
EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
______________________________
Signature
______________________________
Print Name of Signatory
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
______________________________
(Please print)
Address:_______________________________
________________________________
Social Security No.
or other identifying number:____________________
Signature:_____________________________
_____________________________
Print Name of Signatory
Page 9
<PAGE> 1
EXHIBIT 10.49
THIRD AMENDMENT TO SECOND AMENDED
AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP
OF FTI LIMITED PARTNERSHIP
This Third Amendment to the Second Amended and Restated Certificate and
Agreement of Limited Partnership of FTI Limited Partnership (the "Third
Amendment") dated as of January 23, 1997, is entered into by and between KTI
Management of Maine, Inc., a Maine corporation ("KMM") and Maine Woodchips
Associates, a Maine partnership ("Woodchips"), witnesseth that:
Whereas, Woodchips wishes to sell its 25% interest as a limited partner
in FTI Limited Partnership, a Maine limited partnership ("FTI");
Whereas, KMM wishes to purchase such 25% interest as a limited partner
in FTI;
Now therefore, it is hereby agreed as follows:
1. Woodchips hereby sells, assigns and transfers all of its
right, title, interest and obligations in and to FTI to KMM. KMM hereby
purchases all of Woodchips' right, title, interest and obligations in
and to FTI from Woodchips.
2. Purchase Price:
(a) KMM shall deliver 10,000 shares of KTI, Inc. common stock
and a warrant to purchase 2,000 shares of KTI, Inc. common stock at a
price of $8.50 per share. The warrant will expire three years after the
date of closing. The stock certificate evidencing such shares and the
warrant shall bear customary restrictive legends indicating that such
shares, the warrant and the shares underlying the warrant are
unregistered.
(b) KTI, Inc. and Woodchips shall have executed and exchanged
duplicate originals of a Registration Rights Agreement with each other.
The Registration Rights Agreement shall be in the form of Exhibit I
hereto.
3. Woodchips hereby represents and warrants to KMM that:
(a) it has all requisite power and authority to sell the 25%
interest as a limited partner in FTI that it owns. This Third Amendment
is, and when executed and delivered, will be, the legal, valid and
binding obligation of Woodchips, enforceable in accordance with its
terms.
(b) The execution and delivery of this Third Amendment by
Woodchips and the consummation of the transactions contemplated hereby
will not violate any statute or law or any judgment, decree, order,
regulation or rule of any domestic or foreign court or governmental
authority applicable to Woodchips.
<PAGE> 2
(c) No person has been authorized by Woodchips, or by anyone
acting on its behalf, to act as a broker, finder or in any other
similar capacity in connection with the transactions contemplated by
this Third Amendment.
(d) Woodchips has no present intention to sell any of the
shares of KTI common stock to be delivered upon execution of this Third
Amendment. Woodchips further agrees that it will not sell the shares so
received, except in compliance with the securities laws of the United
States of America or any state thereof, or any exemption thereto.
(e) No representation or warranty made by Woodchips in this
Third Amendment nor any statement, certificate or other document
attached as an exhibit hereto, nor any other document delivered by
Woodchips to KMM or any of its representatives in connection with this
Third Amendment, is false or misleading in any material respect or
contains any material misstatement of fact or omits to state any fact
necessary to be stated make the statements made in any such
representation or warranty false or misleading in any material respect.
4. KMM represents and warrants to Woodchips as follows:
(a) KMM is a corporation duly formed, validly existing and in
good standing under the laws of the State of Maine and has all
requisite power and authority to carry on its business as it is now
being conducted and to own, lease and operate its properties and assets
as and in the places where such business is now conducted and where
such properties and assets are now owned, leased or operated.
(b) KMM has all requisite power and authority to execute,
deliver and perform its obligations under this Third Amendment. This
Third Amendment is valid and binding upon KMM, enforceable in
accordance with its terms.
(c) Neither the execution and delivery of this Amendment by
KMM nor the consummation of the transactions contemplated hereby by KMM
will violate any provisions of the Certificate of Incorporation of KMM,
or be in conflict with, or constitute a default (or an event which,
with or without notice, lapse of time or both, would constitute a
default) under, or result in the termination or invalidity of, or
accelerate the performance required by, or cause the acceleration of
the maturity of any debt or obligation pursuant to, any agreement or
commitment to which KMM is a party or by which KMM is bound, or violate
any statute or law or any judgment, decree, order, regulation or rule
of any court or governmental authority.
5. Woodchips' assignment of its rights, title, interest and obligations
as a limited partner in FTI is hereby approved and agreed to in all
respects.
6. All references to Woodchips in the Agreement, as amended, shall be
deemed to refer to KMM.
7. The limited partnership interest of Woodchips shall be deemed to
have been converted to a general partnership interest in FTI upon
execution and delivery of this Third Amendment.
<PAGE> 3
In witness whereof, the parties have executed this Third Amendment to
the Second Amended and Restated Certificate and Agreement of Limited Partnership
of FTI Limited Partnership as of the day and date first written above.
KTI Management of Maine, Inc. Maine Woodchips Associates
- ------------------------------ ------------------------------
Its Chairman and Chief Its Partner
Executive Officer
<PAGE> 4
County of Hudson )
)ss.
State of New Jersey )
On the 27th day of January, 1997, before me, the undersigned Notary
Public, personally appeared Nicholas Menonna, Jr., the Chairman of the Board of
Directors and Chief Executive Officer of KTI Management of Maine, Inc.., known
to me to be the person whose name is subscribed to the within instrument, who,
being duly sworn, declared that the foregoing is true, that the execution hereof
was his free act and deed and the free act and deed of the said corporation and
that the execution hereof was made for the purposes herein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- -----------------------
Notary Public
My commission expires:
<PAGE> 5
)
)ss.
)
On the day of January 1997, before me, the undersigned Notary Public,
personally appeared , a partner of Maine Woodchips Associates, known to me to
be the person whose name is subscribed to the within
instrument, who, being duly sworn, is declared that the foregoing is true, that
the execution hereof was h__ free act and deed and the free act and deed of the
said entity and that the execution hereof was made for the purposes herein
contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- -----------------------------
Notary Public
My commission expires:
<PAGE> 1
EXHIBIT 10.50
Warrant No. D-7 Right to Purchase Common Shares
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR PURSUANT TO AN EXEMPTION THEREFROM IF THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION (IN FORM, SCOPE, AND
SUBSTANCE) SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION) THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
KTI, INC.
A NEW JERSEY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Registered Owner: Maine Woodchips Associates
c/o James R. Beers
Beers & Cutler
1250 Connecticut Avenue N
Fourth Floor
Washington, DC
For Value Received, KTI, Inc., a New Jersey corporation (the
"Corporation") grants the following rights to the registered owner of this
Warrant (the "Holder") and the Holder hereby acknowledges and agrees that:
1. Issue.
Upon tender of this Warrant to the Corporation, the
Corporation shall issue to the registered owner hereof the number of shares
specified in paragraph 2 hereof of fully paid and nonassessable shares of common
stock of the Corporation, no par value (the "Common Stock"), that the registered
owner is otherwise entitled to purchase.
2. Number of Shares.
Subject to the provisions of paragraph 8, the number
of shares of Common Stock that the registered owner of this Warrant is entitled
to receive upon exercise of this Warrant is 2,000 shares of Common Stock. The
Corporation shall, at all times, authorize and reserve for issuance such number
of shares of Common Stock as shall be issuable upon the exercise of this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon payment and
issuance therefore, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of such shares.
3. Exercise Price.
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<PAGE> 2
The price at which the shares of Common Stock may
purchased upon exercise of this Warrant is Eight and 50/100 Dollars ($8.50) per
share (the "Exercise Price"). The Exercise Price of this Warrant is subject to
adjustment pursuant to Section 8 hereof.
4. Exercise.
This Warrant shall be exercisable on and after
January 23, 1997 and shall become void unless it is exercised and payment of the
Exercise Price is received by the Corporation prior to January 31, 2000 (the
"Expiration Date"); provided that in case of dissolution of the Corporation, but
subject to the provisions of paragraph 8(b), this Warrant shall become void on
the date of such dissolution.
5. Tender.
The exercise of this Warrant must be accomplished by
actual delivery of the Exercise Price in cash, certified check, or official bank
draft in lawful money of the United States of America, and by actual delivery of
a duly executed exercise form, a copy of which is attached to this Warrant as
"Exhibit A", properly executed by the registered owner of the Warrant, and by
surrender of this Warrant. The payment and exercise form must be delivered,
personally or by mail, to the offices of the Corporation at 7000 Boulevard East,
Guttenberg, New Jersey 07093 or such other address or addresses as the
Corporation shall notify the Holder including the address of a stock transfer
agent, authorized by the Company. Documents sent by mail shall be deemed to be
delivered when they are received by the Corporation. If this Warrant should be
exercised in part only, the Corporation shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder. Upon receipt by the Corporation of an exercise form properly
executed, payment of the Exercise Price, and this Warrant at its office, or by
the authorized stock transfer agent of the Corporation at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Corporation shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder.
6. Recognition of the Registered Owner.
Prior to due presentment for registration of transfer
of this Warrant, the Corporation may deem and treat the registered Holder or
Holders of this Warrant as its absolute owner or owners for all purposes, as the
person or persons exclusively entitled to receive notices concerning this
Warrant, and as the person or persons otherwise entitled to exercise rights
under this Warrant.
7. Restricted Securities.
The Holder, by acquiring this Warrant, hereby
covenants and agrees that:
(a) the Holder will not offer for sale or sell this
Warrant or the shares of Common Stock issuable upon the exercise of
this Warrant unless pursuant to:
i. an effective registration statement under the
Securities Act ("Registration Statement") filed
by the Company covering such offer and sale; or
ii. an exemption from registration under the
Securities Act; provided that prior to any such
proposed transfer, the Holder shall give five
(5) days'
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<PAGE> 3
written notice to the Company of the Holder's
intentions to affect such transfer, which
notice shall be accompanied by such evidence
(including the provision of an opinion of
counsel (which counsel and opinion (in form
scope, and substance) shall be reasonably
acceptable to the Corporation) that such
registration is not required as to such sale or
offer as may be reasonably satisfactory to the
Company that the proposed transfer may be
effected without registration under the
Securities Act.
(b) The certificates representing the shares of
Common Stock issued upon exercise hereof, unless the same are
registered under the Securities Act prior to exercise of this Warrant,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of any
state. The shares of common stock have been acquired for
investment and not with a view to distribution or resale, and
may not be sold, assigned, made subject to a security
interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration statement under
the Securities Act and applicable state laws or pursuant to an
exemption therefrom if the Company receives an opinion of
counsel (which counsel and opinion (in form, scope and
substance, shall be reasonably acceptable to the Corporation)
that such registration is not required as to such sale or
offer."
(c) Any offer or sale of this Warrant or the shares
of Common Stock issued upon exercise hereof shall be made in accordance
with the federal and state securities laws of applicable jurisdictions
(including the prospectus delivery requirements of the Securities Act),
and any other applicable law.
8. Adjustment of Exercise Price and Shares.
After each adjustment of the Exercise Price pursuant
to this Section 8, the number of shares of Common Stock purchasable on the
exercise of this Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) In the event, prior to the termination of this
Warrant by exercise thereof or by its terms, the Corporation shall
issue any shares of its Common Stock as a share dividend or shall
declare a stock split or otherwise subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in either
of such events (referred to hereinafter as an "Adjustment Event"), the
Exercise Price per share of Common Stock that may be purchased pursuant
to this Warrant in effect at the time of such action shall be reduced
proportionately and the number of shares of Common Stock that may be
purchased pursuant to this Warrant shall be increased proportionately
to the nearest full amount so as to ensure that the Holder hereof is in
the same economic position as such Holder was in prior to such share
dividend or subdivision. Conversely, in the event the Corporation shall
reduce the number of shares of its outstanding Common Stock by
declaring a reverse stock split or otherwise combining such shares into
a smaller number of shares, then, in such event, the Exercise Price per
share that may be purchased pursuant to this Warrant in effect at the
time of such action shall be increased proportionately and the number
of shares of Common Stock at that time purchasable pursuant to this
Warrant shall be decreased proportionately to the nearest full amount
so as to ensure that the Holder
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<PAGE> 4
hereof is in the same economic position as such Holder was in prior to
such share combination. Any dividend paid or distributed on the Common
Stock in shares of any other class of capital stock of the Corporation
or securities convertible into shares of Common Stock shall be treated
as a dividend paid in Common Stock to the extent that shares of Common
Stock are issuable on the conversion thereof. An adjustment in the
Exercise Price or the number of shares of Common Stock to be received
upon exercise of this Warrant made pursuant to this Section 8(a) shall
become effective immediately after the effective date of such
Adjustment Event retroactive to the record date, if any, for such
Adjustment Event.
(b) In the event the Corporation, at any time while
this Warrant shall remain unexpired and unexercised, shall (i) effect a
reorganization, (ii) consolidate with or merge into any person, (iii)
transfer or sell all or substantially all of its property, or (iv)
dissolve, liquidate or wind up its affairs (a "Reorganization Event"),
the Corporation will take prompt action to ensure that proportionate,
equitable, lawful and adequate provision shall be made as part of the
terms of any such Reorganization Event such that the Holder of this
Warrant may thereafter receive, on exercise thereof, in lieu of each
share of Common Stock which such Holder would have been entitled to
receive, the same kind and amount of any share, securities, or assets
as may be issuable, distributable or payable pursuant to such
Reorganization Event with respect to each share of Common Stock which
the Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such Reorganization Event.
Upon any Reorganization Event referred to in this paragraph 8(b), this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to all securities and other property receivable on
the exercise of this Warrant after the consummation of such
Reorganization Event; and shall be binding upon the issuer of any such
securities or other property, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person
shall have expressly assumed the terms of this Warrant.
(c) Notwithstanding the provisions of this Section 8,
no adjustment of the Exercise Price or the shares of Common Stock to be
received upon exercise of the Warrant shall be made unless Exercise
Price is the aggregate of such adjustments to the Exercise Price equals
or exceeds $0.005.
(d) In the event, prior to the expiration of this
Warrant by exercise thereof or by its terms, the Corporation shall
determine to take a record of the holders of its Common Stock for the
purpose of determining shareholders entitled to receive any share
dividend or other right which will cause any change or adjustment in
the number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of this Warrant
pursuant to the foregoing provisions, the Corporation shall give to the
registered Holder of this Warrant at such Holder's address as may
appear on the books of the Corporation at least fifteen (15) days'
prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is
to be taken, and the number, amount, price and nature of the Common
Stock or other shares, securities or assets which will be deliverable
on exercise of this Warrant after the action for which such record will
be taken has been completed. Without limiting the obligation of the
Corporation to provide notice to the registered Holder of this Warrant
of any corporate action hereunder, the failure of the Corporation to
give notice shall not invalidate such corporate action of the
Corporation.
(e) No adjustment of the Exercise Price pursuant to
this Section 8 or Section 9 shall be made as a result of or in
connection with (i) the issuance of Common Stock pursuant to options,
warrants and share purchase agreements outstanding or in effect on the
date hereof, (ii) the establishment of additional stock option or other
benefit plans of the Corporation, the modification, renewal or
extension of any stock option or other benefit plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any
options pursuant to such
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<PAGE> 5
stock option or other benefit plans, or (iii) the issuance of Common
Stock in connection with an acquisition or merger of any type (the
antidilution provision of this Section 8 will not apply in the event a
merger or acquisition is undertaken by the Corporation as long as the
Corporation is the survivor thereof), and (iv) in connection with
compensation arrangements for present or former officers, direct
employees or agents of the Corporation or any indirect or direct
subsidiary of the Corporation, and the like.
9. Other Adjustments to Purchase Price and Number of
Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Corporation shall at any time after
the date of this Warrant issue or sell any shares of Common Stock
(other than an issuance or sale referred to in paragraph 8(e)) for a
consideration per share less than the then current fair market value of
a share of the Common Stock ("fair market value" of the Common Stock to
mean the average closing price of the Common Stock on the immediately
preceding ten (10) days on which such shares of Common Stock may be
traded in the NASDAQ National Market or other securities exchange) then
immediately upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the Exercise Price in effect prior to
such issuance or sale multiplied by the quotient derived by dividing
(A) an amount equal to the sum of (X) the then current fair market
value per share of Common Stock immediately prior to such issuance or
sale multiplied by the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the
aggregate of the amount of all consideration, if any, to be received by
the Corporation upon such issuance or sale, by (B) the then current
fair market value per share of Common Stock immediately prior to such
issuance or sale multiplied by the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided
that:
i. In case of the issuance or sale of shares of
Common Stock for a consideration part or all
of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be
the amount of cash received by the Corporation
for such shares (or, if shares of Common Stock
are offered by the Corporation for
subscription, the subscription price, or, if
either of such securities shall be sold to
underwriters or dealers for public offering
without a subscription offering, the initial
public offering price for such shares) before
deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or
others performing similar services, or any
expenses incurred in connection therewith.
ii. In case of the issuance or sale (otherwise
than as a dividend or other distribution on
any capital stock of the Corporation) of
shares of Common Stock for a consideration
part or all of which shall be other than cash,
the amount of the consideration therefor other
than cash shall be deemed to be the value of
such consideration as determined in good faith
by the Board of Directors of the Corporation.
iii. The reclassification of securities of the
Corporation other than shares of Common Stock
into securities including shares of Common
Stock shall be deemed to involve the issuance
of such shares of Common Stock for a
consideration other than cash immediately
prior to the close of business on the date
fixed for the determination of security
holders entitled to receive such shares, and
the value of the consideration allocable to
such shares of
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<PAGE> 6
Common Stock shall be determined in good faith
by the Board of Directors of the Corporation.
iv. The number of shares of Common Stock at any
one time outstanding shall include the
aggregate number of shares issued or issuable
(subject to readjustment upon the actual
issuance thereof) upon the exercise of
options, rights, and warrants and upon the
conversion or exchange of convertible or
exchangeable securities.
(b) Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except as hereinafter provided, in case the
Corporation shall at any time after the date hereof issue or sell
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances or sales referred to in
paragraph 9(c)), for a consideration per share less than the then
current fair market value of the share of the Common Stock immediately
prior to the issuance of such options, rights or Warrants, or such
convertible or exchangeable securities, or without consideration, the
Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the
Exercise Price in effect prior to such issuance or sale multiplied by
the quotient derived by dividing (A) an amount equal to the sum of (X)
the then current fair market value per share of Common Stock
immediately prior to such issuance or sale multiplied by the total
number of shares of Common Stock outstanding immediately prior to such
issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, to be received by the Corporation upon the
exercise of such convertible or exchangeable securities, by (B) the
then current fair market value per share of Common Stock immediately
prior to such issuance or sale multiplied by the total number of shares
of Common Stock that would be outstanding immediately after the
exercise of such convertible or exchangeable securities provided that:
i. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable
under such options, rights or warrants shall
be deemed to be issued and outstanding at the
time such options, rights or warrants were
issued, and for a consideration equal to the
minimum purchase price per share provided for
in such options, rights or warrants at the
time of issuance, plus the consideration
(determined in the same manner as
consideration received on the issue or sale
of shares in accordance with the terms of
this Warrant), if any, received by the
Corporation for such options, rights or
warrants.
ii. The aggregate maximum number of shares of
Common Stock issuable upon conversion or
exchange of any convertible or exchangeable
securities shall be deemed to be issued and
outstanding at the time of issuance of such
securities, and for a consideration equal to
the consideration (determined in the same
manner as consideration received on the issue
or sale of shares of Common Stock in
accordance with the terms of this Warrant)
received by the Corporation for such
securities, plus the minimum consideration,
if any, receivable by the Corporation upon
the conversion or exchange thereof.
iii. If any change shall occur in the price per
share provided for in any of the options,
rights, or warrants or convertible or
exchangeable securities referred to in this
subsection (b) of this paragraph 9, such
options, rights or warrants or conversion or
exchange rights, as the case may be, shall be
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<PAGE> 7
deemed to have expired or terminated on the
date when such price change became effective
in respect of shares not theretofore issued
and the Corporation shall be deemed to have
issued upon such date new options, rights or
warrants or convertible or exchangeable
securities at the new price per share in
respect of the number of shares issuable upon
the exercise of such options, rights or
warrants or the conversion or exchange of such
convertible or exchangeable securities.
(c) Exclusions. The provisions of subsection 9(b)
above shall not apply to any options issued pursuant to stock option
plans of the Corporation in effect on the date hereof, to renewals of
any existing options, rights or warrants or to any options, rights or
warrants issued to employees of the Corporation or any of its
subsidiaries on the date hereof. Moreover, the provisions of subsection
9(b) shall terminate at such time as there is in effect a registration
statement filed with the Securities and Exchange Commission with
respect to the shares of Common Stock underlying the Warrant.
(d) Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this
paragraph 9, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
10. Fractional Shares.
No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the exercise of
this Warrant. No adjustment to the shares of Common Stock that may be
purchased upon the exercise of this Warrant will result in any
fractional shares to be issued to the Holders hereof.
11. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Corporation, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant and are
not enforceable against the Corporation except to the extent set forth herein.
12. Notices of Record Date, Etc. In case:
(a) the Corporation shall take a record of the
holders of its Common Stock (or other securities at the time receivable
upon the exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of earned
surplus) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Corporation
(other than a stock split or reverse stock split), any reclassification
of the capital stock of the Corporation, any consolidation or merger of
the Corporation with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
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<PAGE> 8
then, in each such case, the corporation shall
mail or cause to be mailed to the Holder at the time outstanding a
notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, to be fixed as to
which the holders of record of Common Stock (or such other securities
at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at
least twenty (20) days prior to the date therein specified and this
Warrant may be exercised prior to said date during the term of the
Warrant no later than five (5) days prior to said date.
13. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of this Warrant from time to time
outstanding.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of any indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
IN WITNESS WHEREOF, the Corporation has signed this Warrant by
its duly authorized officer this eighteen day of December, 1996.
KTI, INC.
By:
----------------------------------------------
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors and
Chief Executive Officer
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<PAGE> 9
EXHIBIT A
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the rights to purchase ______ shares of Common
Stock of KTI, Inc. by exercise of the within Warrant, according to the terms and
conditions therein and payment of the Exercise Price in full.
The undersigned requests that certificates for such shares of
Common Stock shall be issued in the name set forth below.
Dated: , 199__
------------------------------
Signature
------------------------------
Print Name of Signatory
Address:
------------------------------
------------------------------
Social Security No.
or other identifying number:
-----------------------------
If said number of shares of Common Stock and Warrants shall
not be all the shares under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
------------------------------
(Please print)
Address:
------------------------------
------------------------------
Social Security No.
or other identifying number:
------------------------------
Signature:
------------------------------
------------------------------
Print Name of Signatory
Page 9
<PAGE> 1
EXHIBIT 10.51
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of the 23rd day of January, 1997, by and between KTI, Inc.,
a New Jersey corporation (the "Company"), and Maine Woodchips Associates (the
"Holder").
The parties hereby agree as follows:
1. Securities Subject to this Agreement.
(a) Subject Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities, as defined below.
(b) Holders of Registrable Securities. A Person is deemed to
be a holder (a "Holder") of Registrable Securities whenever such Person owns
Registrable Securities or has the present right to acquire such Registrable
Securities, whether or not such acquisition has actually been effected.
(c) Selling Holders. A Holder is deemed to be a "Selling
Holder" of Registrable Securities whenever such Holder exercises its rights to
register its Registrable Securities pursuant to this Agreement.
2. Demand Registration
(a) Demand. At any time after February 1, 1998 upon the
written request (a "Demand") by the Holders of a majority of the Registrable
Securities, the Company will, subject to the terms of this Agreement, use its
reasonable best efforts to register as soon as practicable under the Securities
Act for public sale in accordance with the method or methods of disposition
specified in the Demand, the number of shares of Registrable Securities
specified in the Demand (a "Demand Registration"). Subject to the foregoing, the
Holders shall be entitled to a Demand Registration of the shares of Common Stock
issuable upon exercise of the Purchase and sell such shares pursuant to an
effective registration filed pursuant to this Agreement without exercising such
Purchase any earlier than the time for the sale of such shares of Common Stock
pursuant to such Demand Registration. The Company shall be obligated to register
Registrable Securities pursuant to this Section on one (1) occasion only. Within
ten (10) days after receipt of any Demand, the Company shall give written notice
of such Demand to all other Holders of Registrable Securities and will also
include in any such registration all Registrable Securities with respect to
which the Company has received a Demand from any of such Holders for inclusion
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<PAGE> 2
therein (which Demand shall specify the intended method or methods of
disposition) within twenty (20) days after the date of such notice.
Notwithstanding anything to the contrary contained herein, the Company shall be
entitled, at its election, to join in any such registration with respect to
securities to be offered by it. The Company may postpone for a reasonable period
of time, not to exceed one hundred twenty (120) days, the filing or
effectiveness of any registration statement hereunder, or the undertaking of any
work by the Company with respect to the preparation of any such registration
statement, if the Board of Directors of the Company in good faith determines
that such filing or registration might have a material adverse effect on any
plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction. Such right of
delay may not be exercised more than once in any one-year period.
(b) Other Registrations. Except for registration statements on
Form S-4, Form S-8 (or Form S-3, if such registration covers an offering of the
type contemplated by Form S-8) or any successor forms thereto, the Company will
not file with the Commission any other registration statement with respect to
its Common Stock or other equity security (together with its Common Stock, the
Company's "Equity Securities"), whether for its own account or that of others,
from the date of receipt of a Demand until the completion of the period of
distribution of the Demand Registration contemplated thereby if, and only if,
such Demand relates to an underwritten offering.
(c) Registration Statement Form. Demand Registrations under
this Section shall be on such appropriate registration form of the Commission
(i) as shall be selected by the Company and (ii) as shall permit the disposition
of such Registrable Securities in accordance with the intended method or methods
of disposition specified in the Demand or Demands. In addition to the required
information, the Company agrees to include in any such registration statement
all information with respect to the Company which the Holders participating in
such Demand Registration shall reasonably request from time to time in writing
and which is customarily found in registration statements; provided that the
inclusion of such information does not create an undue burden to the Company.
Each of the Holders participating in such Demand Registration shall provide (x)
such information required for the preparation of such registration statement
with respect to each such Holder and (y) the intended method or methods of
distribution of its Registrable Securities and shall otherwise cooperate in such
manner as the Company shall reasonably request from time to time in writing.
(d) Underwritten Offerings. If the Holders participating in
such Demand Registration intend to distribute Registrable Securities by means of
an underwriting, they shall so advise the Company in the Demand and the Company
shall include such information in the written notice to other Holders referred
to in Section 2(a). The right of any Holder to registration pursuant to this
Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested. Any underwriter or underwriters thereof
shall be selected by the majority of Holders participating in such underwriting,
subject to the approval of the Company, which
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<PAGE> 3
approval shall not be unreasonably withheld. Upon request of the underwriters,
the Company shall (together with all Holders proposing to distribute their
Registrable Securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected by the
Holders sending the Demand, subject to the approval of the Company, which
approval shall not be unreasonably withheld. The following provisions shall
apply to any such underwriting:
(i) Notwithstanding any other provision of this Section , if
the managing underwriter of such underwritten offering determines that marketing
factors require a limitation of the number of shares to be underwritten and so
advises the Company in writing, then the Company shall so advise all Selling
Holders of the number of shares of Registrable Securities that, according to the
managing underwriter, may be included in the registration, and the underwriting
shall be allocated among all such Selling Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing of the registration statement. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration.
(ii) If any Holder disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. The Registrable Securities so
withdrawn from such underwriting shall also be withdrawn from such registration.
(iii) If the managing underwriter has not limited the number
of shares of Registrable Securities to be underwritten, the Company may include
shares of Common Stock for its own account or the account of others in such
registration in accordance with Section 2(a) if the managing underwriter so
agrees and if the number of shares of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(iv) Notwithstanding the foregoing, if the Company is to offer
its own shares of Equity Securities in an underwritten offering and if the
managing underwriter limits the number of shares of Registrable Securities and
the Company's shares of Equity Securities to be underwritten, then in connection
with such underwriting the number of shares of Equity Securities and Registrable
Securities that may be included in such underwriting shall be allocated first to
the Selling Holders as set forth in subdivision (i) above and, if additional
shares may be sold, such additional shares shall be allocated to the Company.
(e) Expenses. The Company shall, whether or not any Demand
Registration shall become effective under the Securities Act, pay all
Registration Expenses incident to its performance of or compliance with this
Section , including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or "blue sky" laws, printing
expenses, messenger and delivery expenses, fees and disbursements of counsel for
the Company and all independent public accountants (including the expenses of
any audit or "cold comfort" letter required hereby) and other Persons retained
by the Company and any fees and disbursements of
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<PAGE> 4
underwriters customarily paid by issuers or sellers of securities (excluding any
underwriting commissions and discounts). In all cases, any allocation of Company
personnel or other general overhead expenses of the Company or other expenses
for the preparation of financial statements or other data normally prepared by
the Company in the ordinary course of its business shall be borne by the
Company.
(f) Effective Registration Statement. A Demand Registration
shall be deemed to have been effected and the Company's obligation under this
Section satisfied if a registration statement has become effective and such
registration statement shall have been continuously effective for one hundred
twenty (120) days or until all Registrable Securities covered thereby have been
sold, if earlier; provided that a Demand Registration which does not become
effective after the Company has commenced preparation of a registration
statement by reason of the withdrawal from such registration, prior to
effectiveness, by Holders of a majority of the Registrable Securities
participating in such registration (other than a withdrawal based upon the
advice of counsel relating to a matter primarily with respect to disclosure
relating to the Company) shall be deemed to have been effected by the Company
upon the Demand of such Holders unless such Holders shall have elected to pay
all Registration Expenses in connection with such registration. Notwithstanding
the foregoing, a Demand Registration shall not be deemed to have been effected
(i) if the offering is prevented by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason other than by reason of some act or omission of any Holder of Registrable
Securities participating in such Demand Registration or (ii) if the conditions
to closing agreed to by the Company specified in the Subscription Agreement or
an underwriting agreement, if any, entered into in connection with such Demand
Registration are not satisfied by reason of a breach by the Company of its
covenants contained therein.
3. Incidental Registration
(a) Right to Include Registrable Securities. If at any time
after the date of this Agreement and up to and including the third anniversary
of such date the Company at any time proposes to register for sale for cash any
shares of its Equity Securities under the Securities Act, whether for its own
account or for the account of other security holders or both, on any form other
than Form S-4, Form S-8 (or Form S-3, if such registration covers an offering of
the type contemplated by Form S-8) or any successor or similar forms and other
than by a registration pursuant to an agreement which, by its terms, would
prohibit the inclusion of Registrable Securities, unless such prohibition is
waived, it will give written notice (a "Registration Notice") to each Holder of
Registrable Securities of its intention to do so and whether such registration
relates to an underwritten offering. Upon the written request of any Holder of
Registrable Securities made within twenty (20) business days after the receipt
of any Registration Notice (which request shall specify the Registrable
Securities intended to be disposed of by such Holders and, if the offering by
the Company is not an underwritten offering, the intended method or methods of
disposition thereof), the Company will, subject to the terms of this Agreement,
use its reasonable best efforts to effect the registration under the Securities
Act of all Registrable
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<PAGE> 5
Securities which the Company has been so requested to register by such Holders,
to the extent requisite to permit the disposition (if not an underwritten
offering, in accordance with the intended method or methods thereof as aforesaid
to the extent permitted by the registration form being used by the Company) of
the Registrable Securities so to be registered, by inclusion of such Registrable
Securities in the registration statement that covers the Equity Securities which
the Company proposes to register (an "Incidental Registration"); provided that
the provisions of this Section 3(a) are subject in all respects to the
provisions of Section 3(c) regarding underwritten offerings. No registration
effected under this Section 3 shall relieve the Company of its obligation to
effect any Demand Registration under Section 2. Each Holder participating in an
Incidental Registration hereunder shall provide such information with respect to
it for inclusion in such offering in such manner as the Company shall reasonably
request from time to time in writing. Notwithstanding anything to the contrary
contained herein, the Company shall have no obligation to include Registrable
Securities in any Incidental Registration pursuant to the provisions hereof
unless so requested by such Holder after delivery of a Registration Notice as
provided in this paragraph 3(a).
(b) Delay or Cancellation of Registration. If, at any time
after delivery of a Registration Notice and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of its Equity Securities, the Company may, at its election, give written notice
of such determination to each Holder of Registrable Securities, and thereupon
(i) in the case of a determination not to register its Equity Securities, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay any
Registration Expenses otherwise required to be paid by it in connection
therewith), without prejudice, however, to the rights of a majority of the
Holders of Registrable Securities to request that such registration be effected
as a Demand Registration under Section 2, and (ii) in the case of a
determination to delay such registration, shall be permitted to delay
registering any Registrable Securities for any period it deems necessary.
(c) Underwritten Offerings. If the Company at any time
proposes to register any of its Equity Securities under the Securities Act as
contemplated by this Section 3 and such securities are to be distributed by or
through one or more underwriters, the Company will, subject to subdivision
3(c)(i) below, use reasonable efforts to arrange for such underwriters (it being
understood that the Selling Holders shall not be entitled to use any other
underwriters) to include all the Registrable Securities to be offered and sold
by such underwriters. Upon request of the Company or the underwriters, each of
such Selling Holders shall be a party to the underwriting agreement between the
Company and the underwriters and any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement may be
conditions precedent to the obligations of such Holders. No Holder of
Registrable Securities shall be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Selling Holder, its
Registrable Securities, and any other representations, warranties or agreements
reasonably requested by the Company or the underwriters and customarily made in
underwritten offerings,
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<PAGE> 6
and any other representation or warranty required by law. The following
provisions shall apply to any such underwriting:
(i) Notwithstanding any other provisions of this Section , if
the managing underwriter of such underwritten offering determines that marketing
factors require a limitation of the number of shares to be underwritten and so
advises the Company in writing, then the Company shall so advise all of the
Selling Holders of the number of shares of Registrable Securities that may be
included in the registration, and the underwriting shall be allocated first to
the Company and, if additional shares may be sold, subject to any agreement
which by its terms would give any other Person priority over the Selling Holders
relating to the inclusion of shares in such registration statement, such
additional shares shall be allocated among all Selling Holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
initially sought to be registered by such Selling Holders in connection with
such registration statement. No Registrable Securities excluded from the
underwriting by reason of the managing underwriter's marketing limitation shall
be included in such registration.
(ii) The rights of the Company under this Section 3(c) shall
not be deemed to limit the Company's rights not to include Registrable
Securities in any such registration pursuant to the other provisions of this
Section 3.
(iii) If any Holder disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. The Registrable Securities so
withdrawn from such underwriting shall also be withdrawn from such registration.
(d) Expenses. The Company will pay all Registration Expenses
in connection with any Incidental Registration.
4. Registration Procedures. If and whenever the Company is required to
use its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Agreement,
the Company shall, subject to the other provisions of this Agreement and subject
to the full cooperation of the Holders of Registrable Securities requested to be
included in any such registration, as expeditiously as is reasonably
practicable:
(i) use its reasonable best efforts to prepare and file with
the Commission within sixty (60) days after receipt of a Demand for registration
pursuant to Section 2(a) with respect to such Registrable Securities, a
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of the Registrable Securities in accordance with the intended
methods of distribution thereof, and use its reasonable best efforts to cause
such registration statement to become and remain effective; provided, however,
that the Company may discontinue any registration pursuant to Section 3 at any
time; provided, further, that the Company shall have no obligation to cause any
registration statement filed pursuant to Section 2 to remain effective
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<PAGE> 7
for longer than one hundred twenty (120) days; and provided, further, that
before filing with the Commission a registration statement or prospectus or any
amendments or supplements thereto, the Corporation will notify each Selling
Holder of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than one hundred twenty (120) days or such shorter period
that will terminate when all shares of the securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period referred to in Section 4(3) of the
Securities Act and Rule 174, or any successor provision thereto, thereunder, if
applicable) and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
Selling Holders set forth in such registration statement;
(iii) furnish to each Selling Holder and each underwriter, if
any, of the securities covered by such registration statement, such number of
conformed copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), and the prospectus used
in connection therewith (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents, in each case, as such Holders and the underwriters, if any, may
reasonably request;
(iv) use its reasonable best efforts to register or qualify
all Registrable Securities included in such registration statement under such
other securities laws or "blue sky" laws of such reasonable number of United
States jurisdictions as any Selling Holder or any underwriter, if any, of the
Registrable Securities being sold by such Holders shall reasonably request, and
to use reasonable best efforts to keep such registrations or qualifications in
effect for so long as such registration statement remains in effect, and to do
any and all other things that may be reasonably necessary or advisable to enable
such Holders and each underwriter, if any, to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holders; provided that
the Company shall not for any such purpose be required to (A) qualify generally
to do business as a foreign corporation in any jurisdiction where it would not
otherwise be required to qualify but for the requirements of this subdivision
(iv), (B) subject itself to taxation in any such jurisdiction, or (C) consent to
general service of process in any such jurisdiction;
(v) use its reasonable best efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the
7
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Company to enable the Holders thereof to consummate the disposition of such
Registrable Securities.
(vi) use its reasonable best efforts to furnish to each
Selling Holder a signed counterpart, addressed to each such Holder (and the
underwriters, if any) of (A) an opinion of counsel for the Company customary for
transactions similar to the transactions contemplated by this Agreement, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), reasonably satisfactory to the
Holders of a majority of the Registrable Securities being sold, and (B) a
"comfort letter," dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a comfort letter
dated the date of the closing under the underwriting agreement), signed by the
independent public accountants who have certified the Company's financial
statements included in such registration statement, reasonably satisfactory to
the Holders of a majority of the Registrable Securities being sold, and covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of the accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in "comfort letters" of issuer's accountants delivered
to the underwriters in underwritten public offerings of securities;
immediately notify each Selling Holder, during any time when a
registration statement relating thereto is effective under the Securities Act,
of the happening of any event which comes to the Company's attention if as a
result of such event the prospectus included in such registration statement, as
then in effect, contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (and each Selling Holder agrees to promptly advise the Company at
any time that it learns of any of the foregoing), and as soon as reasonably
practicable the Company shall prepare and file with the Commission and furnish
to such Selling Holders and each underwriter, if any, a reasonable number of
copies of a supplement to or any amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(vii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
Selling Holders of a majority (by number of shares) of the Registrable
Securities being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such shares, including
indemnification in the form set forth in Section 7 hereof;
(viii) make available for inspection by any Selling Holder,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney,
8
<PAGE> 9
accountant or other agent retained by any such Selling Holder or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries, if any, as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company and its subsidiaries' officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any such Person
in connection wit such registration statement;
(ix) use its reasonable best efforts to list all Registrable
Securities covered by such registration statement on any securities exchange on
which any of the securities of the same class as the Registrable Securities are
then listed; and
(x) otherwise use its reasonable best efforts to comply with
all applicable rules and regulation of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first day of the Company's
first full fiscal quarter ending after the effective date of such registration
statement (as the term "effective date" is defined in Rule 158(c) under the
Securities Act), which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158, or any successor provision
thereto, thereunder.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subdivision (vii) of this Section 4 (or should it otherwise learn of any such
occurrence), it will forthwith discontinue its offer and sale or other
dispositions of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until it has been advised by the Company
that it is permissible to recommence such offer, sale or other disposition and
until it has received the copies of the supplemented or amended prospectus
contemplated by subdivision (vii) of this Section 4 and, if so directed by the
Company, will deliver to the Company all copies, other than permanent file
copies, then in its possession of the prospectus relating to such Registrable
Securities that is current at the time of receipt of such notice. In the event
the Company shall give any such notice, the period mentioned in subdivision (ii)
of this Section 4 shall be extended by the length of the period from and
including the date when each Selling Holder of any Registrable Securities
covered by such registration statement shall have received such notice to the
date on which each such Selling Holder has received the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 4.
5. Holdback Agreements.
(a) Holders. If any registration pursuant to this Agreement
shall be in connection with an underwritten public offering, the Holders agree,
if so reasonably required by the managing underwriter in connection with such
underwritten offering, not to effect any public sale or distribution, including
any sale pursuant to Rule 144 or Rule 144A, or any successor provisions, under
the Securities Act, of any Equity Security of the Company or of any security
9
<PAGE> 10
convertible into or exchangeable or exercisable for any Equity Security of the
Company (in each case, other than as part of such underwritten offering), during
such period prior to and after the effective date of any registration as may be
reasonably required by the managing underwriter in connection with such
underwritten offering (except as part of such registration); provided, however,
that in no case shall such period prior to and after the effective date of any
such registration exceed seven (7) days and one hundred eighty (180) days,
respectively; and provided, further, that if the agreement by the Holders
pursuant to this paragraph shall apply to Registrable Securities covered by such
registration statement, the Company shall use its best efforts to cause such
registration statement to remain effective through the period ending at least
thirty (30) days after the expiration of the period during which the Holders
shall not be permitted to effect any sale or distribution of such Registrable
Securities.
(b) The Company. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, the
Company agrees, if so reasonably required by the managing underwriter in
connection with such underwritten offering, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 or Rule 144A, or any
successor provisions, under the Securities Act, of any Equity Security of the
Company or of any security convertible into or exchangeable or exercisable for
any Equity Security of the Company (in each case, other than as part of such
underwritten offering), during such period prior to and after the effective date
of any underwritten registration as may be reasonably required by the managing
underwriter in connection with such underwritten offering (provided, however,
that in no case shall such period prior to and after the effective date of any
such registration exceed seven (7) days and one hundred eighty (180) days,
respectively) except (i) as part of such registration or (ii) pursuant to
registrations in connection with (A) any merger or consolidation by the Company
or any of its subsidiaries, (B) the acquisition by the Company or any of its
subsidiaries of the capital stock or substantially all of the assets of another
Person, or (C) any employee stock option or other benefit plan.
6. Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the representative of the
Selling Holders, such Selling Holders' underwriters, if any, and such Selling
Holders' and such underwriters' respective counsel and accountants, the
reasonable opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act (provided that the
Company shall be required to afford such access only after the receipt of
confidentiality agreements containing customary provisions in form and substance
which are reasonably acceptable to the Company).
7. Indemnification.
10
<PAGE> 11
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless in the case of
any registration statement filed pursuant to this Agreement each Holder of
Registrable Securities, its directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Holder or any such underwriter
within the meaning of Section 15 of the Securities Act against any and all
losses, claims, damages or liabilities, joint or several, including reasonable
costs of investigation, to which they or any of them may become subject under
the Securities Act or any other statute or law, including any amount paid in
settlement of any litigation, commenced or threatened, if such settlement is
effected with the consent of the Company, and to reimburse them for any legal or
other expenses incurred by them in connection with investigating any claims and
defending any actions (subject to Section 7(c) below), insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, or any post-effective amendment thereof, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used before the effective date of such registration
statement, or contained in the prospectus as amended or supplemented if the
Company files any amendment thereof or supplement thereto with the Commission,
if used within the period during which the Company is required to keep the
registration statement to which such prospectus relates current pursuant to the
terms hereof, or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and subject to the
provisions of Section 7(c), the Company will reimburse such Holder and each such
director, officer, underwriter and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
(x) the Company shall not be liable to such Holder in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument executed
by such Holder specifically stating that it is for use in the preparation
thereof and (y) the Company shall not be liable to any underwriter or Person
controlling such underwriter in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument executed by such underwriter specifically
stating that it is for use in preparation thereof; provided, further, that the
Company shall not be liable to any Person who participates as
11
<PAGE> 12
an underwriter in the offering or sale of Registrable Securities or to any other
Person, if any, who controls such underwriter within the meaning of Section 15
of the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
securities by such Holder.
(b) Indemnification by the Holders of Registrable Securities.
The Company may require, as a condition to including any Registrable Securities
in any registration statement filed pursuant to this Agreement, that the Company
shall have received an undertaking satisfactory to it from each Holder of
Registrable Securities participating in the registration to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
7(a)) the Company, each Person who participates as an underwriter in the
offering or sale of such securities, and each other Person, if any, who controls
the Company or any such underwriter within the meaning of Section 15 of the
Securities Act, and their directors and officers, with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, or any post-effective amendment thereof, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or any such underwriter through an
instrument executed by such Holder (or such other Person) specifically stating
that it is for use in the preparation of such registration statement, or any
post-effective amendment thereof, preliminary prospectus, final prospectus, or
summary prospectus, or any amendment or supplement thereto: provided that such
Holder shall not be liable to any Person who participates as an underwriter in
the offering or sale of Registrable Securities or to any other Person, if any,
who controls such underwriter within the meaning of Section 15 of the Securities
Act, in any such case to the extent that any such loss, claim, damage, liability
(or investigation, action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company, each underwriter, any
controlling persons thereof, and each director or officer thereof, and shall
survive the transfer of such securities by such Holder.
(c) Notices of Claims, etc. Promptly after receipt by a party
entitled to indemnity under this Section 7 (an "indemnified party") of notice of
a claim, a threat of litigation or the commencement of any action or proceeding
or threat of claim involving a claim referred to
12
<PAGE> 13
in the preceding subdivisions of this Section 7, such indemnified party will, if
a claim in respect thereof is to be made against another party against whom
indemnity may be sought pursuant to this Section 7 (an "indemnifying party"),
give written notice to the indemnifying party of the commencement of such action
or threat of claim; provided that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 7, except to the
extent that the indemnifying party is materially prejudiced in its ability to
defend against or settle such action by such failure to give notice. In
addition, any failure to give such notice shall not relieve the indemnifying
party from any other liability that it may have to such indemnified party.
Notice given within ten (10) days of commencement of the action shall be
conclusively presumed not to adversely affect the indemnifying party's ability
to defend or settle the action. In case any such action is brought against an
indemnified party, unless and except to the extent that in the reasonable
judgment of the indemnified party and the indemnifying party, based on advise of
their respective counsel, a conflict of interest between such indemnified and
indemnifying parties exists in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
acknowledgement in writing by the indemnifying party that the claim in question
is one for which the indemnifying party is obligated to indemnify the
indemnified party, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation made at the request of the indemnifying party; provided, however,
that if such indemnified party has a reasonable basis to believe, and does
believe, that its interests in such action conflict with those of the
indemnifying party, the indemnified party may so notify such indemnifying party
and the indemnifying party will remain liable to such indemnified party for all
fees, costs and expenses incurred by such indemnified party in retaining one
separate counsel to participate in the defense of such action. No indemnified
party shall consent to entry of any judgment or enter into any settlement of any
such action the defense of which has been assumed by an indemnifying party
without the consent of such indemnifying party, which consent shall not be
unreasonably withheld.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 7 (with appropriate
modifications) shall be given by the Company and the Selling Holders with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority, other than
the Securities Act.
(e) Contribution. If the indemnification provided for in this
Section 7 is unavailable to the indemnified parties for any reason, then each
such indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the aggregate amount paid or payable by such indemnified party as
a result of such losses, claims, damages, liabilities or expenses as between the
Company on the one hand and each Holder of Registrable Securities on the other,
in
13
<PAGE> 14
such proportions as are appropriate to reflect the relative fault of the
Company and each such Holder in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and each Holder of Registrable Securities on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Holders of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this Section
7(e) were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any expenses reasonably incurred by such
indemnified party in connection with investigating any such action or claim.
Notwithstanding the foregoing provisions of this Section 7(e), (i) no Holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities of such
Holder were offered to the public exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, and (ii) no person guilty of
fraudulent misrepresentations (within the meaning of Section 11 of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each Person, if any, who controls the Holders of Registrable Securities or the
Company within the meaning of Section 15 of the Securities Act, each officer of
the Company who shall have signed the registration statement, and each officer
of the Holders or the Company shall have the same rights to contribution as the
Holders or the Company subject in each case to the provisions of subdivision
(ii) of the preceding sentence. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this Section 7, notify such party
from whom contribution may be sought, and such notice shall be a condition
precedent to the other party's liability under this Section 7 or otherwise.
8. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"NASD": The National Association of Securities Dealers, Inc.
"Registrable Securities": Any share of Common Stock or other Equity
Security sold pursuant to a Subscription Agreement or private placement or
issued or issuable upon exercise of the Purchase, and any securities issued or
issuable with respect to any such securities by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
14
<PAGE> 15
merger, consolidation, reorganization or other such event. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144, or any successor provision, under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, (d)
they shall have ceased to be outstanding, or (e) in the written opinion of
counsel to the Company, they may be freely transferred without registration or
qualification under the Securities Act or any similar state law then in force
(provided, however, that, in such event, the Company shall remove the
restrictive legend upon presentation of the stock certificates for such
purpose).
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with the registration provisions of this Agreement,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or "blue sky" laws, all word
processing, duplicating and printing expenses of the Company, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any "cold comfort" letters required by or
incident to such performance and compliance, the fees and disbursements of not
more than one firm of legal counsel retained by the Selling Holders chosen by
the majority of such Holders, and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any.
9. Miscellaneous.
(a) The Company agrees to use its reasonable best efforts to
file with the Commission in a timely manner all reports and other documents
required by the Company under the Securities Act and the Exchange Act at any
time it is subject to such reporting requirements and to furnish to a holder of
Registrable Securities upon request a written statement of the Company as to its
compliance with the reporting requirements of Rule 144 and of the Securities Act
and the Exchange Act (at any time it is subject to such reporting requirements),
a copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as the holder may reasonably request solely
for the purpose of availing itself of any rule or regulation of the Commission
allowing the holder to sell any such Registrable Securities without
registration.
(b) THIS AGREEMENT AND ANY TERM HEREOF MAY BE CHANGED, WAIVED,
DISCHARGED OR TERMINATED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTY
AGAINST WHICH ENFORCEMENT OF SUCH CHANGE, WAIVER, DISCHARGE OR TERMINATION IS
SOUGHT. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
15
<PAGE> 16
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. THE SECTION
HEADINGS IN THIS AGREEMENT ARE FOR PURPOSES OF CONVENIENCE ONLY AND SHALL NOT
CONSTITUTE A PART HEREOF.
10. Notices. To be effective, all notices and demands under this
Agreement must be in writing and must be given (a) by depositing the same in the
United States mail, postage prepaid, certified or registered, return receipt
requested, or (b) by delivering the same in person and receiving a signed
receipt therefor, or (c) by telefacsimile. Notices to a Holder shall be directed
to the most recent address or telefacsimile number given by such Holder to the
Company, which addresses and numbers initially are, with respect to the Holders,
set forth on the signature page hereto; notices to the Company shall be directed
to KTI, Inc., 7000 Boulevard East, Guttenberg, New Jersey 07093, telefax number:
(201) 854-1771, Attention: Nicholas Menonna, Jr., with a copy to McDermott, Will
& Emery, 1211 Avenue of the Americas, New York, New York 10036-8701, telefax
number: (212) 547-5444, Attention: Brian Hoffmann, Esq. Notices mailed in
accordance with the foregoing shall be deemed to have been given and made five
(5) days following the date so mailed. Any party may designate a different
address to which notices or demands shall thereafter be directed and such
designation shall be made by written notice given in the manner hereinabove
required.
11. Owner of Registrable Securities. The Company will maintain, or will
cause its registrar and transfer agent to maintain, a stock book with respect to
the Common Stock or other Equity Securities of the Company, in which all
transfers of Registrable Securities of which the Company has received notice
will be recorded. The Company may deem and treat the person in whose name
Registrable Securities are registered in the stock book of the Company as the
owner thereof for all purposes, including, without limitation, the giving of
notices under this Agreement.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including assignees of the Common Stock or the Purchase rights of the Holders of
Registrable Securities; provided that no Holder of Registrable Securities may
assign its rights hereunder to any Person unless such Person agrees in writing
to be bound by and to perform all of the terms and conditions of this Agreement.
[ Remainder of page intentionally left blank ]
16
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the year and date first above written.
KTI, INC., a New Jersey corporation
By: ______________________________
Name: Nicholas Menonna, Jr.
Title: Chairman of the Board of Directors
and Chief Executive Officer
MAINE WOODCHIPS ASSOCIATES,
a Maine Partnership
By: ______________________________
Name:
Title: Partner
address: c/o James R. Beers
Beers & Cutler
1250 Connecticut Avenue N
Fourth Floor
Washington, DC 20036
telephone number 202-331-0300
telefacsimile number: 202-778-0259
17
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant:
American Ash Recycling of New England, Limited Partners, a Florida
Limited Partnership (60% owned)
American Ash Recycling of Tennessee, Limited Partners, a Florida Limited
Partnership (60% owned)
EWM Holdings, L.P., a Delaware Limited Partnership (50% owned)
Eastern Waste Management Corp., a New York Corporation (a 95% owned
subsidiary of EWM Holdings, L.P.)
RILCO Group, Inc., a New York Corporation (a 95% owned subsidiary of EWM
Holdings, L.P.)
KTI Ash Recycling, Inc., a Delaware Corporation
KTI Bio Fuels, Inc., a Maine Corporation (100% owned subsidiary of Kuhr)
KTI Environmental Group, Inc., a New Jersey Corporation
KTI Limited Partners, Inc., a Delaware Corporation
KTI Operations, Inc., a Delaware Corporation
KTI Recycling, Inc., a Delaware Corporation
KTI Specialty Waste Services, Inc., a Maine Corporation
KTI Transportation Services, Inc., a Maine Corporation
Kuhr Technologies, Inc., a New Jersey Corporation ("Kuhr") (83% owned)
Maine Energy Recovery Company Limited Partnership, a Maine Limited
Partnership (a 10% owned subsidiary of Kuhr and a 64.15% owned
subsidiary of the Registrant)
Manner Resins, Inc., a Maryland Corporation
PERC, Inc., a Delaware Corporation (a 100% owned subsidiary of Kuhr)
PERC Management Company, a Maine Limited Partnership (a 59.7% owned
subsidiary of Kuhr and a 40.3% owned subsidiary of the Registrant)
Power Ship Transport, Inc., a Delaware Corporation
Timber Energy Investments, Inc., a Delaware Corporation
Timber Energy Plastic Recycling, Inc., a Delaware Corporation
Timber Energy Resources, Inc., a Texas Corporation
Specialties Environmental Management Company, a Maine limited liability
company (55% owned)
All subsidiaries are 100% owned, unless otherwise indicated above.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-89664) pertaining to the 1986 Stock Option Plan of KTI, Inc.,
the Convergent Solutions, Inc. 1989 Stock Option Plan and the Non-Plan Options
to Acquire Shares of KTI, Inc. Common Stock and (Form S-8 No. 33-89666)
pertaining to the KTI, Inc. 1994 Long-Term Incentive Award Plan and the 1994
Datafocus Incorporated Long-Term Incentive Award Plan of our reports dated
February 28, 1997 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 (a Limited Partnership), respectively,
included in the Annual Report (Form 10-K) of KTI, Inc. for the year ended
December 31, 1996.
Ernst & Young LLP
Hackensack, New Jersey
March 28, 1997
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