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As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
KTI, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2665282
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7000 Boulevard East
Guttenberg, New Jersey 07093
(201) 854-7777
(Address, including zip code, and telephone including area code, of registrant's
principal executive offices)
Robert E. Wetzel, Esq.
c/o KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
(201) 854-7777
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Brian Hoffmann, Esq.
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020
(212) 547-5400
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. |X|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Title of each class Amount to be Proposed Proposed maximum Amount of
of securities to be registered maximum offering aggregate offering registration fee
registered price per share price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8 3/4% Series B Convertible Exchangeable 846,000 $25(1) $21,150,000 $6,239.25(4)
Preferred Stock, no par value
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, issuable 1,839,364 (2) (2) (2)
upon conversion of the 8 3/4% Series B
Convertible Exchangeable Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------------
8 3/4% Convertible Subordinated Notes, due 21,150,000 (3) (3) (3)
August 15, 2004, issuable in exchange for
the 8 3/4% Series B Convertible
Exchangeable Preferred Stock
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</TABLE>
(1) Represents the per-share sales price ($25.00) of the 8 3/4% Series B
Convertible Exchangeable Preferred Stock sold by the Registrant in an
institutional private placement in August, 1997, each share having a
stated value of $25.00.
(2) Common Stock issued upon conversion of the 8 3/4% Series B Convertible
Exchangeable Preferred Stock will be issued for no additional
consideration and no additional registration fee is required with respect
to the registration thereof.
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(3) 8 3/4% Convertible Subordinated Notes issued in exchange for the 8 3/4%
Series B Convertible Exchangeable Preferred Stock will be issued for no
additional consideration and no additional registration fee is required
with respect to the registration thereof.
(4) The Registrant is hereby amending Registration No. 333-44507, pursuant to
Rule 429, of which 1,431,724 shares of Common Stock, no par value, of the
Registrant issuable upon conversion of the 8 3/4% Series B Convertible
Exchangeable Preferred Stock remains unsold. Such shares have an estimated
maximum aggregate offering price of $23,086,549.50. The registration fee
associated with such previously registered securities, which fee was
previously paid with Registration Statement No. 333-44507, was $6,879.71.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to section 8(a), may
determine.
<PAGE> 3
KTI, Inc.
846,000 Shares of 8 3/4% Series B Convertible Exchangeable Preferred Stock
1,839,364 Shares of Common Stock
$21,150,000 8 3/4% Convertible Subordinated Notes due August 15, 2004
---------------
This prospectus relates to the resale of an aggregate of 846,000 shares of
8 3/4% Series B Convertible Exchangeable Preferred Stock, no par value, (the
"Series B Preferred Stock"), of KTI, Inc., a New Jersey corporation (the
"Company"), all of which 846,000 shares have been previously issued by the
Company to the selling shareholders named herein (the "Selling Shareholders"),
1,839,364 shares of common stock, no par value (the "Common Stock"), of the
Company issuable upon conversion of the Series B Preferred Stock plus any
accrued and unpaid dividends, and $21,150,000 aggregate principal amount of 8
3/4% Convertible Subordinated Notes due August 15, 2004 (the "Exchange Notes")
issuable in exchange for the Series B Preferred Stock. The shares of Series B
Preferred Stock and Common Stock offered hereby (the "Shares") and the Exchange
Notes offered hereby may be offered for sale from time to time by the Selling
Shareholders or their respective pledgees, donees, transferees or other
successors in interest in the open market, on the NASDAQ National Market (in the
case of Common Stock), in the over-the-counter market, in privately negotiated
transactions, or a combination of such methods, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Shares and Exchange Notes are intended to be sold through
one or more broker-dealers or directly to purchasers. Such broker-dealers may
receive compensation in the form of commissions, discounts or concessions from
the Selling Shareholders or purchasers of the Shares and Exchange Notes for whom
such broker-dealers may act as agent, or to whom the Selling Shareholders may
sell as principal, or both (which compensation as to a particular broker-dealer
may be in excess of customary concessions). The Selling Shareholders and any
broker-dealers who act in connection with the sale of Shares and Exchange Notes
hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by them and proceeds of any resale of the Shares and Exchange Notes may
be deemed to be underwriting discounts and commissions under the Act. See
"Selling Security Holders" and "Plan of Distribution."
Annual cumulative dividends of $2.1875 per share of Series B Preferred
Stock accruing from August 15, 1997 will be payable quarterly on each of
February 1, May 1, August 1 and November 1. Except in limited circumstances, the
Series B Preferred Stock is not entitled to voting rights. The Series B
Preferred Stock will be redeemed on August 15, 2004 at an amount equal to the
liquidation preference plus accrued and unpaid dividends. It is also subject to
earlier redemption at the option of the Company after August 15, 2000 or, in
certain circumstances, after August 15, 1999, at prices ranging from $26.47 to
$25 per share. The Series B Preferred Stock, at the option of the holder, may be
converted into Common Stock, at a conversion price of $11.75 per share, subject
to adjustment, and, at the option of the Company, may be exchanged for the
Exchange Notes. See "Description of Securities--Series B Preferred Stock."
The Exchange Notes will bear interest at the rate of 8 3/4% per annum,
payable quarterly in arrears on February 1, May 1, August 1 and November 1 of
each year, commencing on the first such date following the date on which the
Exchange Notes are issued. The Exchange Notes will be general unsecured
obligations of the Company, subordinated in right of payment to all senior debt.
The Company may repurchase the Exchange Notes after August 15, 2000 or, in
certain circumstances, after August 15, 1999, at prices ranging from 105.9% to
100%. The Exchange Notes, at the option of the holder, may be converted into
Common Stock at a conversion price of $11.75 per share subject to adjustment.
See "Description of Securities-- Exchange Notes."
All of the shares of Series B Preferred Stock offered hereby are presently
issued and outstanding. The 1,839,364 shares of Common Stock offered hereby are
issuable upon conversion of the Series B Preferred. The $21,150,000 Exchange
Notes offered hereby are issuable in exchange for the Series B Preferred Stock.
The Common Stock is listed on the NASDAQ National Market System under the
symbol "KTIE." On February __, 1998, the last reported sale price of the Common
Stock, as reported on the NASDAQ National Market System, was $___ per share.
AN INVESTMENT IN THE SECURITIES OFFERED PURSUANT TO THIS
PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" AT PAGES __ TO __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February __, 1998.
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Stockholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the shares to any person or by anyone
in any jurisdiction in which such offer or solicitation may not lawfully be
made.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (referred to herein, together
with all other amendments and exhibits, as the "Registration Statement") under
the Securities Act for the registration of the Series B Preferred Stock, Common
Stock and the Exchange Notes offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement, certain items of which are omitted from
this Prospectus in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the shares of Series B
Preferred Stock and Common Stock offered hereby, reference is made to the
Registration Statement, exhibits, schedules thereto, and the financial statement
and notes thereto filed or incorporated by reference as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Commission. Such reports, proxy statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at its office at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site that contains registration
statements, reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission at http://www.sec.gov.
The Common Stock is traded on the NASDAQ National Market System. Reports,
proxy statements and other information concerning the Company may be inspected
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.
Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference and made a part of this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1996;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
as amended on Form 10-Q/A;
(iv) Quarterly Report on Form 10-Q for the quarter ended September 30,
1997;
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(v) Report on Form 8-K dated May 28, 1997;
(vi) Report on Form 8-K dated June 4, 1997;
(vii) Report on Form 8-K dated June 19, 1997;
(viii) Report on Form 8-K dated July 29, 1997;
(ix) Report on Form 8-K dated August 12, 1997;
(x) Report on Form 8-K dated August 15, 1997;
(xi) Report on Form 8-K dated September 16, 1997;
(xii) Report on Form 8-K dated September 30, 1997, as amended on Form
8-K/A;
(xiii) Report on Form 8-K dated November 12, 1997, as amended on Form
8-K/A;
(xiv) Report on Form 8-K dated November 14, 1997, as amended on Form
8-K/A;
(xv) Report on Form 8-K dated January 15, 1998; and
(xvi) Report on Form 8-K dated February 2, 1998.
No other report has been filed by the Company since the end of its fiscal year
ended December 31, 1996.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference herein (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates). Requests
should be directed to:
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert E. Wetzel
Telephone Number: (201) 854-7777
This Prospectus is accompanied by a copy of the Company's Form 10-K filed
with the Commission for the fiscal year of the Company ended December 31, 1996.
This Prospectus shall be accompanied by a copy of the Company's Form 10-K,
together with any amendments thereto, filed with the Commission for each
subsequent fiscal year of the Company during the duration of this Offering and
by a copy of the Company's
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Proxy Statement used for the solicitation of stockholders for each subsequent
annual meeting of stockholders held during the duration of this Offering.
The Company shall deliver without charge to each person to whom this
Prospectus is delivered, a copy of the Company's latest Form 10-Q filed with the
Commission with respect to the most recent fiscal quarter which ends after the
end of the latest fiscal year of the Company for which the Company has delivered
the Form 10-K as described above. The Company shall also provide without charge
a copy of each Form 8-K, if any, filed with the Commission since the end of the
latest fiscal year of the Company for which the audited financial statements
were included in the latest Form 10-K filed with the Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements contained herein or incorporated by reference herein that
are not historical facts, including but not limited to statements regarding the
Company's current business strategy, prospective joint ventures, and plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors in
addition to the foregoing that could cause actual results to differ materially
are the following: (i) the availability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company; (ii) competitive
factors such as availability of less expensive waste disposal outlets or
expanded recycling programs that may significantly reduce the amount of waste
products available to the Company's facilities; (iii) any further restructuring
of the Company's power purchase agreement with Central Maine Power Company or
any restructuring of the Company's power purchase agreements with Bangor-Hydro
Electric Power Company and Florida Power Company (iv) changes in labor,
equipment and capital costs; (v) the ability of the Company to consummate any
contemplated joint ventures and/or restructuring on terms satisfactory to the
Company; (vi) changes in regulations affecting the waste disposal and recycling
industries; (vii) the ability of the Company to comply with the restrictions
imposed upon it in connection with its outstanding indebtedness; (viii) future
acquisitions or strategic partnerships; (ix) general business and economic
conditions; and (x) other factors described from time to time in the Company's
reports filed with the Commission and in the "Risk Factors" section of this
Prospectus. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference
herein. All share numbers have been adjusted to give effect to a 5% stock
dividend paid on March 28, 1997.
The Company
KTI, Inc. (individually and collectively with its subsidiaries, the
"Company") was incorporated in New Jersey in 1985. The Company is a holding
company, and substantially all of its operating assets are owned by corporate
and partnership subsidiaries. The principal executive offices of the Company are
located at 7000 Boulevard East, Guttenberg, New Jersey 07093. Its telephone
number is (201) 854-7777.
The Company's objectives are focused on the development of an integrated
waste handling business, providing wood, paper, corrugated, metals, plastic and
glass processing and recycling, municipal solid waste processing and disposal
capabilities, specialty waste disposal services, facility operations and
recycling of ash combustion residue. The Company's integrated waste handling
business emphasizes the use of low cost processing to add value to the various
waste products delivered. The Company believes that by adding these processing
steps to its system it is competitive with traditional landfill alternatives
while producing superior environmental results and meeting social and political
mandates. The Company also markets recyclable metals, plastic, paper and
corrugated processed at its facilities and by third parties.
As part of its integrated waste handling business, the Company owns eleven
processing facilities and seven marketing offices in the United States.
The Company's current business plan for its integrated waste handling
business includes the following elements: (i) to maximize refuse derived fuel
("RDF") production and operating efficiencies at the Company's waste-to-energy
facilities, (ii) to continue to focus on lowering expenses of its
waste-to-energy facilities, by identifying less costly means of disposing of or
recycling MSW process and ash combustion residues produced by its
waste-to-energy facilities, (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 municipal solid waste ("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 waste, (iv) to enhance the value of its wood waste processing business by
expanding the utilization of available capacity through the acquisition of
additional materials and expanding the menu of materials processed, (v) to
recycle ash produced by waste-to-energy facilities, (vi) to expand its waste
brokerage service, and (vii) to utilize its experience gained in restructuring
the power supply contract of one of the Company's waste-to-energy facilities, in
waste handling and processing, in turning around troubled facilities and in
operating waste facilities by acquiring an interest in or assuming operational
responsibility for other waste disposal or recycling facilities in financial or
operational distress.
The implementation of parts of the foregoing business plan has only
recently commenced and there can be no assurance that such plan will be
successful.
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Recent Developments
On September 19, 1997, the Company entered into an Agreement of
Reorganization and Merger with K-C Industries, Inc., an Oregon corporation, and
KES, Inc. a Delaware corporation, and a subsidiary of the Company. Pursuant to
such agreement, the Company acquired K-C Industries, Inc. for $1.2 million in
cash and 425,013 shares of Common Stock, subject to its existing indebtedness in
the amount of $5.1 million. The merged entity operates under the name K-C
International, Ltd. ("K-C"). K-C purchases pulp, paper and secondary fiber
products from recycling operators throughout the United States and sells such
products worldwide.
On September 30, 1997, the Company purchased a 49.5% limited partnership
interest in Penobscot Energy Recovery Company, Limited Partnership, a Maine
limited partnership ("PERC"), one of the Company's waste-to-energy facilities,
from the Prudential Insurance Company of America ("Prudential") for $11.7
million in cash. In addition, the Company assumed certain liabilities of
Prudential in the amount of $200,000 and issued letters of credit to Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") for approximately $3.9
million replacing obligations of Prudential to Morgan Guaranty. Also on
September 30, 1997, the Company paid Prudential an additional $300,000 for an
option to purchase Prudential's remaining 14.79% limited partnership interest in
PERC for $2.1 million. The Company exercised its option on November 12, 1997. As
a result, the Company's interest in PERC has increased to 71.29%. The remaining
interests in PERC are held by Energy National, Inc., a subsidiary of NRG Energy,
Inc.
On November 14, 1997, the Company completed the acquisition of three
recycling facilities located in Franklin Park, Illinois, a suburb of Chicago,
Charlestown, Massachusetts, a suburb of Boston, and in Newark, New Jersey. The
facilities are operated by wholly-owned subsidiaries of the Company under the
name of KTI Recycling Inc. The three facilities are capable of processing
approximately 50,000 tons of post-consumer and commercial recyclables per month.
The facilities were purchased as part of an asset purchase from Prins Recycling
Corp. and its subsidiaries ("Prins") pursuant to an order of the Bankruptcy
Court for the District of New Jersey. In addition to the facilities, the Company
purchased substantially all of the remaining assets of Prins, including cash,
accounts receivable and certain causes of action. The purchase price was
approximately $15 million. The purchase was financed in part by a term loan of
$7.5 million provided by KeyBank, National Association ("KeyBank"), bearing
interest at KeyBank's base rate plus 1.25% per annum, with level monthly
principal payments amortized over 84 months. The term loan is secured by a
mortgage on the Franklin Park, Illinois facility, all property and equipment at
the three facilities not pledged to third parties and the accounts receivable
generated by the three facilities. The balance of the purchase price was paid
with cash on hand and by borrowings of approximately $4.0 million against the
Company's revolving $11.0 million line of credit with KeyBank.
A subsidiary of the Company operated Prins from May 1, 1997 until the
closing of the purchase. pursuant to an Operations and Management Agreement with
PNC Bank, National Association ("PNC"). Pursuant to such agreement, the Company
received a one-time management fee of $700,000, paid by PNC.
One of the Company's indirect subsidiaries, Kuhr Technologies, Inc.
("Kuhr") is the 10% general partner of Maine Energy Recovery Company, Limited
Partnership, a Maine limited partnership ("Maine Energy"), one of the Company's
waste-to-energy facilities. Another subsidiary of the Company holds a 64.15%
limited partner interest in Maine Energy.
As the result of the consummation of a reverse stock split on December 22,
1997, the Company now indirectly owns 100% of the shares of Kuhr common stock.
Prior to the consummation of the reverse stock split,
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the Company indirectly held 98% of the 5 million outstanding shares of common
stock of Kuhr, and the remaining shares were acquired by the Company at five
cents per share.
On September 30, 1997, the Company purchased approximately one-sixth, or
approximately $2.5 million, of Maine Energy's subordinated debt. Such debt bears
interest at a rate of 12% per annum. Pursuant to the terms of such subordinated
debt, all of Maine Energy's cash available for distribution is to be applied to
the payment of principal and interest.
On January 15, 1998, the Company acquired Vel-A-Tran Recycling, Inc.
("Vel-A-Tran") for $1.1 million in cash, subject to existing debt of $150,000.
Vel-A-Tran has its headquarters in Billerica, Massachusetts. Vel-A-Tran is in
the business of recycling high-grade paper and fiber products in the New England
area. The Company expects to consolidate Vel-A-Tran's operations into the
Company's facilities in Charlestown, Massachusetts. Vel-A-Tran had revenues of
approximately $1.0 million in 1997. The management of Vel-A-Tran will be
responsible for managing the high grade paper and fiber recycling operations of
the Company in the New England area.
On January 30, 1998, the partners in PERC, Municipal Review Committee,
Inc., a Maine not-for-profit corporation (the "MRC"), which represents 130
municipalities served by PERC (the "Charter Municipalities"), and Bangor-Hydro
Electric Power Company ("Bangor Hydro"), executed an agreement, dated as of
December 31, 1997 (the "Restructuring Agreement"), outlining the principal terms
of a restructuring of the Power Purchase Agreement between PERC and Bangor Hydro
and certain provisions relating to amendments to the Waste Disposal Agreements
between PERC and the 130 municipalities represented by the MRC. At the same
time, the partners in PERC and Bangor Hydro entered into a commitment with The
Finance Authority of Maine ("FAME") to refinance the existing tax exempt bonds
issued to finance the original construction of the PERC facility. Both documents
contain significant conditions, which are not entirely in the control of the
parties to such documents. Accordingly, no assurance can be given that the
Company will be able to complete the transactions contemplated by such
documents.
The Restructuring Agreement provides that Bangor Hydro will make a one
time payment of $6 million to PERC at the time of the closing of the refinancing
of the existing tax-exempt debt, and will make additional quarterly payments of
$250,000 per quarter for four years, for an additional total of $4 million, and
issue warrants for two million shares which will be divided equally to the MRC
on behalf of its member municipalities and to the PERC partners. The exercise
price of such warrants is $7.00 per share and the warrants will expire 10 years
after issuance. The right to exercise such warrants will vest over 4 years. In
exchange for such consideration, Bangor Hydro will be entitled, assuming
performance of all of its obligations under the Power Purchase Agreement, to
receive a rebate of a portion of its purchase price of electric power from PERC,
equal to one third of the cash available for distribution from PERC. This
transaction is contingent upon, among other things, the closing of a reissuance
of the tax-exempt bonds, pursuant to the FAME commitment.
The FAME commitment provides for a refinancing of the existing tax-exempt
debt which matures in 2004, with an adjustable rate tax-exempt security with an
extended maturity of 20 years, with customary fees. The FAME bonds would be
backed by the moral obligation of the State of Maine. The refinanced bonds will
be secured by substantially all of the assets of the PERC project (including the
$10 million to be received from Bangor Hydro), a guaranty of $3 million from the
Company and a guaranty of annual debt service, subject to a maximum amount of
$4.2 million, by Bangor Hydro. The guaranty by Bangor Hydro is dependent upon
receipt of all necessary orders and consents from the Maine Public Utility
Commission and Bangor Hydro's lenders.
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The amendments to the Waste Disposal Agreements will be effective upon
receipt of acceptance of not less than 50% of the Charter Municipalities (as
determined by tonnage delivered to PERC). PERC may terminate the transactions if
25% or more of the Charter Municipalities reject or otherwise object to the
transactions. The amendments permit the Charter Municipalities: (a) to make
equity contributions to PERC, only and to the extent of the MRC's share of
distributable cash from PERC and one-half of the Bangor Hydro quarterly
payments, of up to $31 million, which will be used to prepay the FAME bonds
outstanding, (if all $31 million are contributed the municipalities will own a
50% partnership interest in PERC); (b) purchase all of the remaining PERC
interests in 2018 at the then fair market value, in lieu of the existing right
to purchase PERC at its then book value in 2004; (c) extend the term of the
Waste Disposal Agreements to 2018 and (d) to reduce cash available for
distribution to the Charter Municipalities to one third from one half.
The transactions are expected to close in May, 1998. The term sheet
provides that if the closing is after May 1, 1998, all numbers will be adjusted
retroactive to that date.
On February 4, 1998, the Company purchased Total Waste Management
Corporation ("Total Waste Management") for $1.375 million in cash, subject to
existing debt of $775,000. Total Waste Management has its headquarters in
Newington, New Hampshire. Total Waste Management is in the business of emergency
response, site remediation, tank cleaning, assessment and removal, waste oil and
waste water recycling and hazardous and non-hazardous waste management in the
New England area. Total Waste Management had revenues of approximately $4.2
million in 1997.
On February 5, 1998, all of the 444,000 issued and outstanding shares of
the Company's Series A Convertible Preferred Stock were converted into 444,000
shares of Common Stock.
The Offering
This prospectus relates to the resale of up to an aggregate of 846,000
shares of Series B Preferred Stock, all of which are issued and outstanding,
1,839,364 shares of Common Stock, which are issuable upon the conversion of the
Series B Preferred Stock, and $21,150,000 aggregate principal amount of Exchange
Notes.
Series B Preferred Stock
Series B Preferred Stock: Annual cumulative dividends of $2.1875 per share
accruing from August 15, 1997 will be payable
quarterly on each February 1, May 1, August 1 and
November 1.
Ranking: The Series B Preferred Stock ranks senior to all
Common Stock and on parity with holders of all
other preferred stock.
Liquidation Preference: $25 per share, plus accrued and unpaid dividends.
Voting Rights: The Series B Preferred Stock is not entitled to
voting rights. Holders of the Series B Preferred
may elect one member to the Company's Board of
Directors in the event that dividends on the
Series B Preferred Stock are in arrears for more
than four consecutive quarters, and two members to
the Company's Board of Directors in the event that
the Company fails to redeem the Series B Preferred
on any mandatory redemption date.
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<PAGE> 12
Protective Provisions: Consent of the holders of a majority of Series B
Preferred Stock is required for any corporate
action which (i) alters or changes the rights,
preferences or privileges of the Series B
Preferred Stock materially and adversely; (ii)
creates any new class or series of shares having a
preference over or being on a parity with Series B
Preferred Stock, unless the pro forma ratios of
latest twelve months of a) net income available
for preferred dividends to preferred dividends
would be not less that 1:1 and b) earnings before
interest, taxes, depreciation and amortization
less capital expenditures, securities amortization
and redemption, cash taxes and changes in working
capital to preferred dividends would be not less
that 1.2:1; and (iii) adversely affects or is
adversely affected by certain other events.
Mandatory Redemption: The Company must redeem the Series B Preferred
Stock on August 15, 2004 at an amount equal to the
then liquidation preference plus accrued and
unpaid dividends thereon. Such redemption may be
made at the option of the Company either (i) in
cash at 100% or (ii) in Common Stock at 95% of the
average closing price of Common Stock during the
20 trading days prior to such redemption.
Optional Redemption: The Company has the right to call for cash
redemption of Series B Preferred Stock, in whole
or in part, (i) during the twelve month period
beginning on August 15 of the years indicated
below as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................$26.10 per share
2001........................$25.73 per share
2002........................$25.37 per share
2003 and thereafter.........$25.00 per share
</TABLE>
or (ii) after August 15, 1999, the Company may, at
its option, redeem the Series B Preferred Stock at
$26.47 per share, plus accumulated and unpaid
dividends thereon, if the Common Stock bid price
has averaged not less than 1.5 times the
Conversion Price during the preceding 20
consecutive trading days.
Conversion Price: $11.75 per share, subject to adjustment as
provided below in "Antidilution Provisions".
Conversion: The Series B Preferred Stock may be converted, at
the option of the holder, in whole or in part, at
any time, into shares of Common Stock at the
conversion price, subject to adjustment as
provided under "Antidilution Provisions".
Exchange: Upon not less than 30 days and not more than 60
days' written notice to the holders of Series B
Preferred, the Company may exchange at any time,
in whole but not in part, on any dividend payment
date, the Series B Preferred for Exchange Notes of
the Company having similar terms and conditions.
In the event of such exchange, the interest rate
of the Exchange Notes will be equivalent to the
dividend rate of the Series B Preferred Stock,
without adjustment for the dividends received
deduction.
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<PAGE> 13
Antidilution Provisions: The conversion price shall be subject to
adjustments (i) for Common Stock splits and
recapitalizations, and (ii) to prevent dilution,
on a weighted average basis, in the event the
Company issues additional Common Stock, or rights
to purchase Common Stock, at a purchase price less
than the then applicable market price.
Change of Control: In the event of a change of control, holders of
the Series B Preferred Stock may require the
Company to redeem the Series B Preferred Stock at
$25 per share plus accrued and unpaid dividends
thereon. Such redemption may be made at the option
of the Company either (i) in cash at 100% or (ii)
in Common Stock at 95% of the average trading
price of Common Stock during the 20 trading days
prior to such redemption.
Exchange Notes
Exchange Notes: The Exchange Notes will bear interest at the rate
of 8 3/4% per annum, payable quarterly in arrears
on February 1, May 1, August 1 and November 1 of
each year, commencing on the first such date
following the date on which the Exchange Notes are
issued.
Subordination: The Exchange Notes will be general unsecured
obligations of the Company, subordinated in right
of payment to all senior debt.
Maturity: The Exchange Notes will be due August 15, 2004.
Optional Redemption: The Company has the right to repurchase the
Exchange Notes, in whole or in part, (i) during
the twelve month period beginning on August 15 of
the years indicated below as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................104.4%
2001........................102.9%
2002........................101.5%
2003 and thereafter.........100%
</TABLE>
or (ii) after August 15, 1999, the Company may, at
its option, repurchase the Exchange Notes at
105.9%, plus accumulated and unpaid dividends
thereon, if the Common Stock bid price has
averaged not less than 1.5 times the conversion
price during 20 consecutive trading days.
Conversion Price: $11.75 per share, subject to adjustment.
Conversion: The Exchange Notes may be converted, at the option
of the holder, in whole or in part, at any time,
into shares of Common Stock at the conversion
price, subject to adjustment.
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<PAGE> 14
RISK FACTORS
Investors should consider very carefully each of the following risk
factors and all other information contained in this prospectus.
Holding Company Status of the Company; Restrictions on Utilization of Assets
The Company is a legal entity separate and distinct from its subsidiaries,
which operate substantially all of the Company's businesses. Accordingly, the
right of the Company to utilize any assets or earnings or cash flow of any one
subsidiary to finance the growth of any other of its subsidiaries is necessarily
subject to the prior claims of creditors of the subsidiaries. In addition, the
payment of management fees and the distribution of the cash flow of the Company
generated by certain subsidiaries of the Company are subject to substantial
restrictions as a result of agreements with their respective lenders. Certain
financing agreements and the long-term waste handling agreements of Maine
Energy, the owner and operator of a waste-to-energy facility in which the
Company has an approximately 74.15% ownership interest, require that all
available cash flow be applied to the redemption of indebtedness in full before
any distribution to partners. In addition, certain financing agreements to which
PERC, in which the Company has a 71.29% ownership interest, Timber Energy
Resources, Inc., a Texas corporation ("TERI") wholly-owned by the Company, K-C
International, Ltd., an Oregon corporation ("K-C") wholly-owned by the Company,
and other subsidiaries of the Company are parties also restrict the ability of
such entities to make distributions to the Company.
Currently, the Company's ability to utilize internally generated cash flow
as a means of financing expansion is limited to distributions from its operating
subsidiaries. As a result, the liquidity of the Company is adversely affected,
which could result in the need to raise additional cash through the sale of
securities of the Company, some of which may include sales of Common Stock at
less than the then prevailing market prices which may dilute existing
shareholders and make less likely the payment of cash dividends on Common Stock.
Reliance on Electric Utilities and Power Purchase Agreements
The Company's waste-to-energy business, which accounted for approximately
61% of the Company's revenue during 1997, is dependent upon electric utilities
that purchase energy produced at the Company's waste-to-energy plant. Pursuant
to power purchase agreements between Maine Energy and Central Maine with a term
through 2012, between PERC and Bangor Hydro with a term through 2018, and
between the TERI plant in Telogia, Florida (the "Telogia Facility") and Florida
Power Corporation with a term through 2002, these utilities have agreed to
purchase electricity generated by the Company's waste-to-energy facilities at
contractually agreed rates. Sales of electricity to these utilities accounted
for approximately 63%, 59% and 96% of revenues of Maine Energy, PERC and the
Telogia Facility, respectively, in 1997. In the event of the deregulation of
electric utilities, certain electric companies may no longer be financially
viable. To the extent that any of the electric utilities with whom the Company
contracts is adversely impacted by deregulation, such utilities may not be able
to perform their obligations under such purchase power agreements. The State of
Maine has recently enacted deregulation legislation which will require the local
utilities to transfer their respective contracts with Maine Energy and PERC to
newly formed regulated transmission and distribution companies. The costs of
such contracts will be passed through to the rate-payers beginning in the year
2000 through these transmission and distribution companies.
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<PAGE> 15
Governmental Regulation and Environmental Risks
Federal, state, and local environmental laws govern discharges of
pollutants and the generation, transportation, storage, treatment and disposal
of solid waste. These laws (i) establish standards governing most aspects of the
operation of the waste-to-energy facilities, wood waste processing facilities,
its ash recycling facility, and the Telogia Facility and (ii) generally require
multiple governmental permits in order to continue the operation of these
facilities. The Company believes it has all permits necessary to operate its
facilities in the manner that each of them is currently operating. However,
there can be no assurance that all required permits will be renewed following
their expiration. In some cases the renewal process may entail public hearings.
The standards established pursuant to environmental statutes and
regulations, the interpretation of statutes and regulations and the policies
governing their enforcement may change, requiring new pollution control
technology or stricter standards for the control of discharge of air or water
pollutants or for solid waste or ash handling and disposal. For example, the
United States Supreme Court, in a 1994 decision interpreting the Resource
Conservation and Recovery Act, held that ash from the combustion of
non-hazardous household and commercial waste, if tested and found to have
hazardous characteristics, will be treated as a hazardous waste. In addition,
new statutory and regulatory provisions may be implemented which could have
retroactive application. Both Maine Energy and PERC have been testing their ash
since initial start-up and the ash has generally tested as non-hazardous. If any
hazardous waste is detected, it would be disposed of appropriately. There can be
no assurance, however, that disposing of hazardous waste, if ever detected,
would not entail substantial costs.
The waste-to-energy facilities in which the Company has an interest are
also subject to the provisions of various federal and state laws and regulations
including the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as
amended. PURPA requires that electric utilities purchase electricity generated
by qualifying power producers at a price equal to the purchasing utility's full
"avoided cost". Avoided costs are defined by PURPA as the incremental costs to
the electric utility of electric energy or capability, or both. The Company's
facilities could be materially and adversely affected if the various benefits of
PURPA were repealed or substantially reduced. Changes in laws, regulations or
policies or new interpretations of existing laws, regulations or policies, could
have a material impact on the profitability, level of capital expenditures or
continued operation of the waste-to-energy facilities, wood processing and ash
recycling operations in which the Company has an interest.
Competition
The Company experiences significant competition in each of its waste
handling markets. Maine Energy and PERC compete with landfills and several
waste-to-energy facilities and municipal incinerators in Maine and the New
England region. However, the volume of MSW produced in the New England region
has historically increased and the Company believes that it is likely to
continue to increase while the availability of landfills for waste disposal is
likely to continue to decline. There can be no assurance, however, that these
trends will continue. Even though the implementation of recycling programs to
reduce MSW has increased, the Company believes that there are limits on the
percentage of MSW that ultimately can be recycled and that alternatives for
disposal of MSW will continue to be needed. There can be no assurance, however,
that new recycling technologies will not be developed.
12
<PAGE> 16
The wood waste processing facility operated by KTI Bio Fuels, Inc., a
subsidiary of the Company ("KTI Bio Fuels"), in Lewiston, Maine competes with
landfills and operators of portable wood chipping equipment.
The Telogia Facility competes for biomass fuel supply with paper companies
which employ on-site power generation. As the Company increasingly utilizes
tipping fee based waste fuels, this facility's dependence on the current fuel
supply is expected to decrease. The Telogia Facility is permitted to combust
100% of such tipping fee based fuels. Competition for tipping fee based material
will principally come from landfills whose cost structure is higher than that of
the Telogia Facility. Local landfill costs for biomass waste products range from
$15 to $25 per ton, while the cost of processing the material ranges from $5 to
$8 per ton at the Telogia Facility. There can be no assurance, however, that
such cost structure will not change in a manner adverse to the Company.
Competition for the Company's ash recycling subsidiary is primarily from
ash landfills. The Company believes its ash recycling facilities will be able to
compete favorably based on historical prices charged by these landfill
operators, although there can be no assurance that they will do so.
Manner Resins, Inc., acquired by the Company in November, 1996,
("Manner"), competes with several other recycled plastic brokers and direct
marketing from plastic recycling plants for the post-industrial plastic scrap
and with materials recovery facilities for post-consumer plastics.
The Company's other recycling subsidiaries which are primarily involved in
the waste paper brokerage business face extensive competition. Such businesses
operate with thin profit margins. In order to be profitable, the waste paper
broker must arrange to simultaneously buy and sell waste paper, while providing
a great enough spread to cover transportation costs and insurance. Generally,
paper mills purchase paper under long-term contracts which provide for purchase
prices that are adjusted in accordance with a relevant paper price index. A
significant portion of the sales made by K-C are to foreign customers, and such
sales are contingent upon the availability of letters of credit for such
customers.
KTI Recycling, which operates recycling plants in Boston, Chicago and
Newark, formerly owned by Prins, faces significant price competition in all of
its market. The Newark recycling market is burdened with industry-wide
overcapacity and continual price pressure. Combined with high labor costs, the
Newark market currently operates with very low profitability. In the Chicago
market, the Company's recycling plant has relatively low utilization and price
competition is extensive.
Dependence upon Sources of Supply of Fuel
The waste-to-energy facilities operated by Maine Energy, PERC and the
Telogia Facility are dependent upon spot market waste material in order to run
at high capacity. In 1997, approximately 70% of the total MSW processed by Maine
Energy was received from sources other than parties with whom Maine Energy has
long-term waste disposal agreements. Competition within the waste handling and
disposal industry for spot market MSW may impede a steady, reliable supply of
MSW. The Telogia Facility is in the process of changing its fuel mix from
purchased residual material to tipping fee-driven bio-mass waste which has
reduced net fuel costs. As its fuel mix continues to change over time, the
Telogia Facility expects to have tipping revenue in excess of its cost of
purchased bio-mass material for its boiler fuel. There can be no assurance,
however, that it will have tipping revenue in excess of its cost of purchased
bio-mass material. The Telogia Facility may be subject to competition from other
waste disposal companies as it continues to penetrate the bio-mass waste market.
13
<PAGE> 17
Timber Energy Resources, Inc.'s Reliance on One Chip Mill Customer
TERI's chip mill (the "Timber Chip Mill") relies on one customer, Stone
Container Corporation ("Stone Container"), for all of its business. The Timber
Chip Mill was constructed as a result of establishing a 15 year "process-or-pay"
contract with Stone Container, whereby the Timber Chip Mill receives a tolling
fee upon receipt of raw wood. The contract expires on December 1, 2004 and
includes an option to extend it for an additional five years. Loss of this
contract would require the Company to obtain an additional source of supply or
possibly shut down the facility. Additionally, Stone Container has the right to
purchase the Timber Chip Mill at a specified price which decreases each year.
Management believes it is unlikely that Stone Container will exercise its right
to purchase.
Flow Control
The availability of reliable and continuous sources of MSW or other
combustible waste is critical to the operations of the waste-to-energy
facilities in which the Company has an interest. MSW availability has been
assured, to some extent, by the enactment by municipalities in the service
territories of Maine Energy and PERC of ordinances requiring that waste
generated within their respective jurisdictions be brought exclusively to the
Maine Energy or PERC facilities. Such ordinances are referred to as "flow
control". A 1994 decision of the United States Supreme Court overturned a flow
control ordinance of a New York municipality on the basis that it was an
improper regulation of interstate commerce. In New Jersey, flow control laws
also have been overturned and the State of New Jersey is in the process of
appealing such decisions. Accordingly, the present questionable validity of all
flow control ordinances introduces some degree of uncertainty in the waste
handling business.
Need for Additional Financing; Liquidity
The Company's strategy to foster expansion of its business includes, in
part, the development of new businesses or the acquisition of the ownership of,
or operational responsibility for, additional businesses in the waste handling
industry. This strategy may require the Company to raise additional cash through
offerings of either equity or non-recourse and recourse debt, or both. The
success of the Company's planned expansion will depend upon a number of factors
not entirely within the Company's control, including, among others, the terms
and availability of additional financing, the regulatory climate in which the
Company operates, and other general economic and business conditions. There can
be no assurance that additional funding, through bank borrowings, debt or equity
financings or otherwise, will be available to the Company on acceptable terms.
Availability of Acquisition Targets; Integration of Future Acquisitions.
The Company's ongoing acquisition program is a key element of the growth
strategy for expanding its integrated waste management operations. Consequently,
the future growth of the Company depends in a large part upon the successful
continuation of this acquisition program. The Company may encounter substantial
competition in its efforts to acquire waste-to-energy facilities, ash recycling
facilities, pre and post consumer recycling facilities or any other facilities
relating to integrated waste management business. There can be no assurance that
the Company will succeed in locating or acquiring appropriate acquisition
candidates at price levels and on terms and conditions that the Company
considers appropriate. In addition, if in the future the Company is successful
in acquiring targeted companies, it will need to integrate those acquired
companies into the Company's operations. There can be no assurance that the
Company will successfully integrate future acquisitions into its operations.
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<PAGE> 18
Dependence on Key Personnel
The Company believes that its success depends, to a significant extent, on
the efforts and abilities of its senior management. In particular, the loss of
any one of Ross Pirasteh, Chairman of the Board of Directors, Martin J. Sergi,
the Company's Vice Chairman, President and Chief Financial Officer, David E.
Hill, the Company's Chief Operating Officer or William Kaiser, the Company's
Executive Vice President and Treasurer, could have a material adverse effect on
the Company. In addition, the Company believes that its success will depend in
large part upon its ability to attract, retain and motivate skilled employees
and other senior management personnel. Although the Company expects to continue
to attract sufficient numbers of such persons for the foreseeable future, there
can be no assurance that the Company will be able to do so. In addition, because
the Company may acquire one or more businesses in the future, the Company's
success will depend, in part, upon its ability to retain and integrate its own
operations personnel with personnel from acquired entities who are necessary to
the continued success or successful integration of the acquired business.
Seasonality
The Company's wood waste and MSW revenues for KTI BioFuels, Maine Energy
and PERC tend to be lower in the winter months. This is primarily attributable
in the case of KTI BioFuels to the volume of waste relating to construction and
demolition activities which increases in the spring and summer months; and in
the case of Maine Energy and PERC to the summer population in Maine which is
roughly 30% higher than any other season of the year. Generally, the supply of
recycled paper is highest in the winter months and decreases during the summer
months. The Company's recycled plastic volume is highest during the fourth
quarter.
No Cash Dividends on Common Stock
The Company has not paid any cash dividends on its Common Stock to date
and the Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company is required to pay annual dividends
of $1,872,500 in the aggregate on the Series B Preferred Stock. Additionally,
the Company's bank credit facility and the Series B Preferred Stock contain
restrictions on the payment of cash dividends on the Common Stock.
Potential Anti-Takeover Effects of State Law; Preferred Stock
Certain provisions of New Jersey law and the Company's Restated
Certificate of Incorporation could delay or impede the removal of incumbent
directors and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for the Company's securities.
Shares of preferred stock may be issued by the Board of Directors of the
Company without Common Stock shareholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The issuance of preferred stock could make the possible takeover
of the Company or the removal of management of the Company more difficult,
discourage hostile bids for control of the Company in which shareholders may
receive premiums for their shares of Common Stock, or otherwise dilute the
rights of holders of the Common Stock and depress the market price of the
Company's securities.
In addition, the Restated Certificate of Incorporation of the Company
provides for "supermajority" and "fair price" anti-takeover measures which could
affect the price shareholders could receive for shares of Common Stock. The
supermajority provision requires that in the event of a merger or consolidation
of the Company with
15
<PAGE> 19
another corporation or the sale, lease, exchange or other disposition of all or
substantially all the assets of the Company, an affirmative vote of at least 80%
of all outstanding shares of voting stock shall be required to approve such
transaction unless it is approved by at least the greater of three fourths of
the directors or two directors who are not affiliated with said transaction.
The fair price provision as set forth in the Restated Certificate of
Incorporation requires a potential acquiring entity to obtain the approval of at
least 80% of all outstanding shares of voting stock of the Company, obtain the
approval of at least three fourths of the directors on the Board who are not
affiliated with the transaction, or satisfy several conditions that include,
among other things, holders of capital stock of the Company receiving fair
market value for their shares, the payment of all outstanding dividends on
capital stock of the Company, the receipt of a proxy or information statement by
all holders of Common Stock describing the proposed transaction and complying
with the requirements of the Exchange Act and the approval of not less than the
majority of the directors not affiliated with said transaction. See "Description
of Common Stock."
Limitation on Use of Tax Loss Carryforwards
As of December 31, 1996, the Company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $47,587,000 that
expire in the years 2002 through 2010. As a result of an "ownership change"
which occurred during 1994, the Company's ability to utilize its pre-ownership
change NOLs is limited under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code"), to an amount equal to approximately $1,100,000 of
taxable income per year. If the value of the Company's capital stock immediately
before the 1994 ownership change were determined to be lower than that
calculated by management of the Company, the annual allowable NOL deduction of
$1,100,000 per year for the Company, other than TERI, would be reduced
proportionately. The net operating loss carryforward of TERI is limited to
approximately $874,000 per year. This limitation may be increased if the Company
or TERI recognizes a gain on the disposition of an asset which had a fair market
value greater than its tax basis on the date of the ownership change.
USE OF PROCEEDS
The Company will not receive proceeds from the sale of any of the Shares
offered by the Selling Shareholders pursuant to this prospectus.
THE BUSINESS
The Company was incorporated in New Jersey in 1985. The Company is a
holding company, and substantially all of its operating assets are owned by
corporate and partnership subsidiaries.
The Company's objectives are focused on the development of an integrated
waste handling business, providing wood, paper, corrugated, metals, plastic and
glass processing and recycling, municipal solid waste processing and disposal
capabilities, specialty waste disposal services, facility operations and
recycling of ash combustion residue. The Company's integrated waste handling
business emphasizes the use of low cost processing to add value to the various
waste products delivered. The Company believes that by adding these processing
steps to its system it is competitive with traditional landfill alternatives
while producing superior environmental results and meeting social and political
mandates. The Company also markets recyclable metals, plastic, paper and
corrugated processed at its facilities and by third parties.
16
<PAGE> 20
As part of its integrated waste handling business, the Company owns eleven
processing facilities and seven marketing offices in the United States.
Two of the Company's facilities in Maine are 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. These facilities process the MSW prior to combustion to
separate and beneficially reuse non-combustible materials such as ferrous
metals, glass and grit. The remaining combustible material is further processed
to increase the surface volume and reduce size. After processing, the fuel value
of the waste is greatly enhanced allowing for a more efficient and cleaner
combustion process with substantially lower residues. The Company has developed
and currently owns majority interests in these two facilities. The first
facility is owned by the Company'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 the Company's 71.29% owned
subsidiary Penobscot Energy Recovery Company, Limited Partnership, also 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 280 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. A
third waste-to-energy facility located in Telogia, Florida which was acquired in
late 1996 utilizes biomass waste as its source of fuel to be combusted for the
production of electricity for sale to the local electric utility. During May and
June of 1997 the Company retrofitted this facility to increase its processing
capabilities prior to combustion and upgrade its combustion technologies for
life extension and to be in line with the company's other waste-to-energy
facilities. This is the first example of the Company's strategy of acquiring
troubled facilities at substantial discounts to replacement value, retrofitting
the facility with increased processing capacity and improved combustion
technology, beneficially utilizing by-products of processing and combustion and
financially re-engineering the facilities capital structure. The Company also
operates two wood processing facilities in Lewiston, Maine and Cairo, Georgia.
The Company's facilities in Maine provide 60% of the long-term MSW disposal
capacity for the State of Maine.
The Company also owns a 60% limited partnership interest in a limited
partnership which operates a permitted municipal waste combustor ("MWC") ash
recycling facility in Nashville, Tennessee (the "Nashville Facility"). This
facility, which commenced operations in 1993, is the first commercially
operational MWC ash recycling facility in the United States.
To solidify its business base in Maine and expand its integrated waste
handling business vertically and geographically, the Company made a number of
strategic acquisitions and financings during 1997.
The Company acquired the exclusive right to own and operate a similar MWC
ash recycling facility in the State of Maine utilizing American Ash Recycling
Technology ("AAR").
AAR's MWC proprietary ash recycling process, which is being utilized in
the Nashville Facility, 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 beneficial 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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<PAGE> 21
In June 1997, the Company refinanced $13.4 million of tax-exempt debt
issued on behalf of Timber Energy. The transaction resulted in replacing
variable rate bonds with 7% fixed coupon rates with average maturity of 4 years
and eliminating the credit enhancement provided by the Bank of Montreal. The
credit enhancement elimination had been a condition in the original acquisition
from CNA Financial Corporation ("CNA Financial") which was completed in November
1996.
Also in June 1997, the Company sold $3.9 million of its Series A
Convertible Preferred Stock to a fund managed by First Analysis Corporation of
Chicago and certain individuals.
In August 1997, the Company acquired I. Zaitlin and Sons, Inc.
("Zaitlin"), an environmental recycling company based in Biddeford, Maine.
Zaitlin operates processing, brokering and storage facilities in Maine and
Massachusetts. The acquisition also included Data Destruction Services, Inc., a
company engaged in the destruction of confidential records. The purchase price
was $500,000 in cash, 200,000 shares of Common Stock and the assumption of $2.3
million of debt. Zaitlin has been in the recycling industry since 1917 and deals
in all grades of waste paper, non-ferrous metals and some plastics. Sam Zaitlin
joined the Company in an executive capacity. Mr. Zaitlin formerly served as a
member and chairman of Maine's Board of Environmental Protection. He is a recent
past chair of the Maine Chamber and Business Alliance, the state's leading
business organization.
In August, the Company's line of credit with KeyBank was increased from $1
million to $6 million. The line with KeyBank was then increased to $11 million
in November.
In August, the Company sold Timber Energy Plastics Recycling Company
in Tuscaloosa, Alabama to a group of investors and employees for $280,000 in
cash and notes. The Tuscaloosa facility was acquired last November as part of
the Timber Energy acquisition package. The sale of the Tuscaloosa facility,
which is involved in film plastic recycling, is consistent with management's
strategy of focusing on the Company's core business.
In August, the Company closed a placement of $21,400,000 of Series B
Preferred Stock.
In September 1997, the Company acquired K-C, an international marketing
and trading company specializing in secondary fiber, pulp and paper worldwide.
K-C was established in 1976 and is headquartered in Portland, Oregon with
offices in Lakewood, New Jersey, Hartford, Connecticut, Los Angeles, Rio de
Janeiro, Seoul and Barcelona. The purchase price was $1.85 million in cash and
425,013 shares of Common Stock. K-C's current sales volume approximates 460,000
tons per year. K-C rounded out the Company's full service materials handling and
processing strategy by integrating K-C's marketing team with the Company's
existing operational and financial expertise. K-C broadens the Company's
marketing and distribution channels by adding to the capabilities which already
exist in KTI Specialty Waste, Zaitlin, the Charlestown Facility, the Chicago
Facility, the Newark Facility and Manner Resins.
In September and November 1997, the Company increased its ownership in
PERC to 71.29% by purchasing a 64.29% limited partnership interest from
Prudential Insurance Company of America in two separate transactions for $14.1
million. The completion of these transactions are part of the Company's ongoing
strategy to maximize its ownership of the waste to energy facilities which it
operates.
In October 1997, Wexford Management Company LLC of Greenwich Connecticut
converted $5 million of 8% convertible notes into 618,609 shares of Common Stock
reducing the Company debt.
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In November 1997, the Company completed the acquisition of three
state-of-the-art high capacity recycling plants in Boston, Chicago and Newark
which are capable of processing and marketing approximately 50,000 tons per
month of post consumer and commercial recyclables. Purchased pursuant to an
order from a bankruptcy court, the plants are the former assets of Prins
Recycling Corp. The purchase price of the acquisition was approximately $15
million. This acquisition added municipal and commercial recycling programs to
the Company's comprehensive solid waste disposal services.
On January 15, 1998, the Company acquired Vel-A-Tran for $1.1 million in
cash, subject to existing funded debt of $150,000. Vel-A-Tran has its
headquarters in Billerica, Massachusetts. Vel-A-Tran is in the business of
recycling high-grade paper and fiber products in the New England area. The
Company expects to consolidate Vel-A-Tran's operations into the Company's
facilities in Charlestown, Massachusetts. Vel-A-Tran had revenues of
approximately $1.0 million in 1997. The management of Vel-A-Tran will be
responsible for managing the high grade paper and fiber recycling operations of
the Company in the New England area.
On February 4, 1998, the Company purchased Total Waste Management for
$1.375 million in cash, subject to existing funded debt of $775,000. Total Waste
Management has its headquarters in Newington, New Hampshire. Total Waste
Management is in the business of emergency response, site remediation, tank
cleaning, assessment and removal, waste oil and waste water recycling and
hazardous and non-hazardous waste management in the New England area. Total
Waste Management had revenues of approximately $4.2 million in 1997.
On February 5, 1998, all of the 444,000 issued and outstanding shares of
the Company's Series A Convertible Preferred Stock were converted into 444,000
shares of Common Stock.
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 at the Company's waste-to-energy facilities, (ii) to
continue to focus on lowering expenses of its waste-to-energy facilities, by
identifying less costly means of disposing of or recycling of MSW process and
ash combustion residues processed by its waste-to-energy facilities, (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, turning around troubled facilities and 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 MSW 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,
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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, 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 has acquired the exclusive rights for the State of Maine
to utilize AAR's ash recycling technology and is seeking the regulatory
approvals required to recycle its ash residues at its facilities, 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.
Waste-to-Energy Facilities
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% 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 NRG
Energy, Inc. ("NRG"), 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 1997 was 254,346 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.
In May 1996, the Biddeford Bonds and the associated Letter of Credit were
retired.
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During 1997 the Company acquired $2,456,457 of the subordinated
loans from Project Capital. Maine Energy also retired $2,000,000 of subordinated
loans during 1997. The balance of the subordinated loans due to CNA Realty and
ENI at December 31, 1997 was $11,949,509. 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, 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 $43,000
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 $202,016, $203,200 and $127,454 have been paid to Operations
employees during 1995, 1996 and 1997, respectively.
Power Purchase Agreement
The electricity produced by the Maine Energy facility is sold to
Central Maine pursuant to 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 1997, Maine Energy
derived approximately $15,488,000, or 62.85% 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 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
kilowatt hour ("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.
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
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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 1997, the 15,000,000 kWh test was met in January and the 100,000,000
kWh test in August, resulting in a reduction of the amount of the ING letter of
credit to $37.5 million. The 1998 15,000,000 kWh test was met in February of
1998.
Management of the Company restructured its relationship with Central
Maine because it believes that the Agreements which reduced the outstanding
indebtedness of Maine Energy, should allow the Company upon refinancing or
repayment of the reduced subordinated debt access to Maine Energy's available
cash flow. The newly restructured Central Maine PPA will allow Maine Energy to
be more competitive when electric utility deregulation legislation passed during
1997 by the State of Maine becomes effective in the year 2000. 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, 1997 from $20.75
per ton, in the case of the two host municipalities of Biddeford and Saco, to
$41.50 per ton, which are subject to adjustment. 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 interest costs and
disposal fees for residues. The municipalities are also responsible for costs
associated with changes in law. Maine Energy was not entitled to an increase in
tipping fees in 1997 for variable "pass through" or change in law costs.
Approximately 28% of Maine Energy's total waste handling revenues in 1997 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 up to 110% of each municipality's Guaranteed Annual Tonnage. The total
tonnage processed under long-term agreements in 1997 was only 28.6% 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
"Risk Factors--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
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municipalities would exercise their respective rights to terminate their
agreements, as there are currently no less costly alternative long-term 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 1998 through 2003 that provide Maine
Energy with approximately 64,000 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 94,000 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 71.29% general and limited partnership interest
in PERC. The other partner of PERC is ENI, which has both a general and limited
partnership interest representing an aggregate 28.71% ownership percentage.
During 1997, the Company acquired a limited partnership interest representing a
64.29% ownership percentage. The Company acquired the interest in two
installments for a total amount of $14.1 million.
Acquisition of Limited Partnership Interests
On September 30, 1997, the Company purchased a 49.5% limited
partnership interest in PERC from Prudential for approximately $11.7 million in
cash. In addition, the Company assumed certain liabilities of Prudential in the
amount of $200,000 and issued Letters of Credit to Morgan Guaranty for
approximately $3.9 million, replacing obligations of Prudential to Morgan
Guaranty. At the same time, the Company purchased an option for $300,000 to buy
the remaining 14.79% interest of Prudential in PERC for a price of $2.1 million.
On November 12, 1997 the Company exercised its option and purchased the
remaining 14.79% interest held by Prudential.
With these purchases, the Company's interest in PERC has increased
to 71.29%. A subsidiary of NRG Energy, Inc. holds the remaining 28.71% interest
in PERC, 3% as general partner and 25.71% as a limited partner.
Prior to the September 30, 1997 limited partnership acquisition, the
Company accounted for its 7% ownership interest under the equity method.
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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
275,405 and 253,523 tons of MSW in 1997 and 1996, respectively. The Company
intends to increase the annual processed total to approximately 325,000 tons
over the next ten years.
Management and Fees
ENI and a subsidiary of the Company are both general partners of
PERC. ENI and a subsidiary of the Company 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 $430,633 for
the year ended December 31, 1997. The subsidiary of the Company was due
$2,151,070 on account of accrued management fees as of December 31, 1997, 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 $54,872 for the year ended December 31, 1997.
In 1997, the Company was entitled to receive $686,364 as a result of
PERC's operations during 1996, $389,382 of which was paid to ENI in repayment of
contributions to PERC made by ENI on behalf of the Company. As of December 31,
1997, the balance due to ENI was $1,072,349.
The Power Purchase Agreement
The electricity produced by the PERC facility is sold to Bangor
Hydro pursuant to 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
1997, PERC derived approximately 58.8% 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). The Bangor Hydro PPA rate formula
is currently favorable to PERC, providing a contract rate of 11.7 cents per kWh
for 1997 up to a maximum of approximately 166,000,000 kilowatt hours in a
calendar year, net of electricity consumed at the facility. PERC is paid at a
lower rate for electricity generated above this level. A portion of
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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.
On January 30, 1998, the partners in PERC, the Municipal Review
Committee, Inc., a Maine not-for-profit corporation (the "MRC"), which
represents 130 municipalities served by PERC, and Bangor Hydro, executed an
agreement, dated as of December 31, 1997 (the "Restructuring Agreement"),
outlining the principal terms of a restructuring of the Power Purchase Agreement
between PERC and Bangor Hydro and certain provisions relating to amendments to
the Waste Disposal Agreements between PERC and the 130 municipalities
represented by the MRC. At the same time, the partners in PERC and Bangor Hydro
entered into a commitment with The Finance Authority of Maine ("FAME") to
refinance the existing tax exempt bonds issued to finance the original
construction of the PERC facility. Both documents contain significant
conditions, which are not entirely in the control of the parties to such
documents. Accordingly, no assurance can be given that the Company will be able
to complete the transactions contemplated by such documents.
The Restructuring Agreement provides that Bangor Hydro will make a
one time payment of $6 million to PERC at the time of the closing of the
refinancing of the existing tax-exempt debt, and will make additional quarterly
payments of $250,000 per quarter for four years, for an additional total of $4
million, and issue warrants for two million shares which will be divided equally
to the MRC on behalf of its member municipalities and to the PERC partners. The
exercise price of such warrants is $7.00 per share and the warrants will expire
10 years after issuance. The right to exercise such warrants will vest over 4
years. In exchange for such consideration, Bangor Hydro will be entitled,
assuming performance of all of its obligations under the Power Purchase
Agreement, to receive a rebate of a portion of its purchase price of electric
power from PERC, equal to one third of the cash available for distribution from
PERC. This transaction is contingent upon, among other things, the closing of a
reissuance of the tax-exempt bonds, pursuant to the FAME commitment.
The FAME commitment provides for a refinancing of the existing
tax-exempt debt which matures in 2004, with an adjustable rate tax-exempt
security with an extended maturity of 20 years, with customary fees. The FAME
bonds would be backed by the moral obligation of the State of Maine. The
refinanced bonds will be secured by substantially all of the assets of the PERC
project (including the $10 million to be received from Bangor Hydro), a guaranty
of $3 million from the Company and a guaranty of annual debt service, subject to
a maximum amount of $4.2 million, by Bangor Hydro. The guaranty by Bangor Hydro
is dependent upon receipt of all necessary orders and consents from the Maine
Public Utility Commission and Bangor Hydro's lenders.
The amendments to the Waste Disposal Agreements will be effective
upon receipt of acceptance of not less than 50% of the Charter Municipalities
(as determined by tonnage delivered to PERC). PERC may terminate the
transactions if 25% or more of the Charter Municipalities reject or otherwise
object to the transactions. The amendments permit the Charter Municipalities:
(a) to make equity contributions to PERC, only and to the extent of the MRC's
share of distributable cash from PERC and one-half of the Bangor Hydro quarterly
payment, of up to $31 million, which will be used to prepay the FAME bonds
outstanding, (if all $31 million are contributed the municipalities will own a
50% partnership interest in PERC); (b) purchase all of the remaining PERC
interests in 2018 at the then fair market value, in lieu of the existing right
to purchase PERC at its then book value in 2004; (c) extend the term of the
Waste Disposal Agreements to 2018 and (d) to reduce cash available for
distribution to the Charter Municipalities to one third from one half.
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The transactions are expected to close in May, 1998. The term sheet
provides that if the closing is after May 1, 1998, all numbers will be adjusted
retroactive to that date.
Long-Term Waste Handling Agreements.
As of December 31, 1997, PERC had in place 127 long-term waste
handling agreements, of which 90 cover approximately 130 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 195,000 tons per year of MSW. In addition, PERC receives
approximately 18,000 tons per year of MSW from municipalities with whom PERC has
short-term waste handling agreements, 20,000 tons per year from commercial
haulers and 30,000 tons per year from the spot market. As of December 31, 1997,
the municipalities under the PERC long-term waste handling agreements pay an
average tipping fee of $49.18 per ton to PERC for the disposal of their waste.
Total waste processing revenues of PERC in 1997 were approximately $12,808,000
of which approximately 80% 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 1996 in
the amount of $619,163 were paid in 1997. The amount due for 1997 which will be
paid during 1998 is approximately $1,101,000.
On one year's notice, a PERC Charter Municipality may terminate its
long-term waste handling agreement as of 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, 2000. 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. Upon consummation of the Restructuring Agreement,
all the options of the PERC Charter Communities described in this paragraph will
be terminated. There can be no assurance, however, that the Restructuring
Agreement will be consummated.
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Timber Energy
General
Timber Energy Investments, Inc. ("TEII") was formed in 1994 as a
holding company, which ultimately owned a majority of common stock of TERI and
all of the outstanding stock of Timber Energy Plastics Recycling, Inc. ("TEPRI")
and Timber Energy Trucking, Inc. ("TET").
Acquisition by the Company
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 and equity interests
in TEII to the Company for $1.85 million. The remaining ownership interest in
TEII and the minority interest in TERI were purchased from the group of ten
individual investors for an additional approximately $170,000.
The Company acquired TERI subject to $13.4 million of tax exempt
debt. As part of its purchase agreement with CNA the Company had also agreed to
obtain the release of CNA's reimbursement obligation to the Bank of Montreal,
which provided credit enhancement for the $13,400,000 of outstanding bonds. On
June 4, 1997, the outstanding bonds, together with accrued interest and
associated closing costs including the funding of a debt service reserve of
$1,340,000 were paid or retired from the proceeds of $13,736,000 of Series 1997A
and 1997B bonds and from cash on hand.
Timber Energy Plastic Recycling, Inc.
In June 1995, TEPRI purchased certain assets and discharged certain
obligations of Southeastern Recycling, Inc., a debtor-in-possession. Previously,
on May 24, 1995, the United States Bankruptcy Court approved the sale of assets
free and clear to CNA or its designee. CNA designated TEPRI as the purchaser.
TEPRI recycles post consumer low density plastic waste into products that are
sold to manufacturers of plastic products at the facility it acquired which is
located in Tuscaloosa, Alabama (the "Tuscaloosa Facility").
On August 12, 1997, the Company sold TEPRI, to the management of
TEPRI for $30,000 in cash and a $250,000 8% promissory note due on November 10,
1997 which was paid in full when due. From January 1, 1997 to August 12, 1997,
TEPRI had revenue of $1,167,300 and losses of $244,370.
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 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.
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Power Purchase Agreement
Electricity generated by the Facility is sold to Florida Power
Corporation under the Florida Power PPA. Flower Power Corporation serves more
than 1.3 million customers in a 20,000 square mile service area in central and
northern Florida. During 1997, approximately 96.4% of TERI's revenue was derived
from the sale of electricity to Florida Power, with the majority of the
remainder in the form of tipping fees paid by third parties. Under the terms of
the Florida Power PPA, Florida Power has agreed to purchase all of the energy
generated by the Telogia facility, net of energy consumed by the facility. The
contract rate paid by Florida Power is composed of a monthly capacity fee of
$308,530 plus a short-term energy only rate ("STEO") for each kWh delivered.
STEO rates ranged from 1.69(cent) to 2.09(cent) per kWh. To earn the monthly
capacity charge the Telogia facility must produce power at a rolling 12-month
capacity factor of 70%. The Telogia facility had a 80% capacity factor for 1997.
This capacity factor is lower than what would be expected in future periods as
the facility underwent a major retrofit during 1997. Although future performance
cannot be guaranteed by past results the Telogia facility has never failed to
meet this delivery obligation.
The Telogia facility is an example of the Company's strategy of
acquiring under-performing waste-to-energy plants at a discount to replacement
cost, retrofitting the facility as soon as practical with increased processing
capabilities and updated combustion technology to improve the financial,
environmental and operating results of such facility. The Telogia facility
retrofit cost approximately $1.2 million.
Biomass Waste Supply
In 1991, to further improve the supply and lower the 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. The Company improved this processing line during the renovation of the
facility in 1997. The Telogia facility is continually expanding its menu of
biomass waste products that it can process and ultimately dispose of through
combustion. Currently the facility receives waxed corrugated, non-recyclable
paper, construction and demolition wood wastes, residues from the wood
processing industry and waste plastics. The Company is looking to expand the
menu further to include waste carpet, which is abundant in the area. When the
Company acquired the biomass facility the fuel was procured through middlemen,
such as waste brokers. As a result when transportation costs were included, the
Telogia facility paid $1,176,000 in 1996 for fuel. The Company objective is to
convert this paid for fuel into tipping fee based material improving the overall
economics of the facility. In 1997 through this process the Telogia facility's
net cost of fuel including transportation was reduced to $421,000. The tipping
fee material is principally generated under short term contracts and the spot
market. During 1997, the Telogia Facility processed approximately 112,000 tons
of wood waste and 35,000 tons of waste paper, and generated approximately 98,000
megawatt-hours of electricity, which represented 80% of its annual capacity.
Wood Waste Processing
KTI Bio Fuels
General
The Company's Maine wood waste processing business is operated by
the Company's subsidiary, KTI Bio Fuels. KTI Bio Fuels owned a 75% ownership
interest in a predecessor partnership, KTI Bio Fuels, L.P. The sole limited
partner of KTI Bio Fuels L.P. was Maine Woodchips Associates, a Maine
partnership
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("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 25% ownership interest,
the Company liquidated the partnership and moved the operation into its wholly
owned subsidiary, KTI Bio Fuels. KTI Bio Fuels was organized in 1986 for the
purpose of developing and operating the Lewiston Facility to convert treated and
untreated wood waste materials into woodchips used 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.
Timber Energy Cairo Facility
TERI also owns a 400,000 tons per shift wood chip mill located in
Cairo, Georgia (the "Cairo Facility"). The Cairo Facility was constructed in
1988 to produce wood chips for Stone Container and incidentally to provide an
additional source for a continuing, dependable and economical fuel supply for
the Telogia Facility. The Cairo Facility commenced operations in December 1989.
Pulpwood is processed for Stone Container under a "process or pay" contract. The
contract requires Stone Container to pay $3.40 per ton for up to 240,000 tons
per year and $3.00 per ton for all tons processed over 240,000 tons per year.
Bark trimmings from the Cairo Facility could provide up to 20% of fuel
requirement for the Telogia Facility. During 1997, the Cairo Facility processed
approximately 365,000 tons of virgin wood, which represented 91.3% of its single
shift annual capacity, and produced approximately 317,000 tons of wood chips and
approximately 48,000 tons of bark trimmings. During 1997 the Company began to
market the bark produced to mulch processors. As the Telogia Facility eliminates
it's need for the Cairo Facility's bark by replacing its purchased biomass fuel
with tipping fee material the Company will increase its marketing activities of
the bark for alternative uses.
KTI Ash Recycling, Inc.
Effective March 29, 1996, KTI Ash purchased a 60% interest as a
limited partner in AART. The general partner, AART American Ash Recycling Corp.
of Tennessee, a Florida corporation and an affiliate of AAR, is the previous
owner of the Nashville Facility. The partnership is carrying on the business of
the Nashville Facility. The Company has a priority on the annual distributions
of earnings and cash flow from the Nashville 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.
In April, 1996, the Company entered into agreements with American
Ash Recycling Corp., a Florida corporation ("AAR"), pursuant to which the
Company acquired a 60% limited partnership interest in a
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limited partnership formed to operate a municipal waste combuster ("MWC") ash
recycling facility in the State of Maine (the "Maine Partnership"). Until
recently, the Maine Partnership was in the process of obtaining its federal,
state and local permits. The Company had originally agreed to become a 60%
limited partner, if appropriate, in up to eight (8) more ash recycling
facilities that may be developed by AAR through December, 1999.
The Company believes that the Company's efforts to obtain operating
permits for the Maine Partnership's ash recycling facility were instrumental in
Maine Energy's ability to negotiate a reduced disposal fee with a third-party
ash landfill owner. Under the renegotiated contract, Maine Energy's ash disposal
fee was reduced to $46 per ton from $76 per ton. Maine Energy contractually
agreed to pay 30% of the ash disposal fee savings to the Maine Partnership.
On October 31, 1997, KTI Specialty Waste Services, Inc. acquired
AAR's 40% general partner interest in the Maine Partnership for $560,000, and
the Maine Partnership has been renamed KTI Ash Recycling of New England, L.P.
Since the Company now owns all of the interests in such partnership, the Company
has received all of the ash disposal fee savings payable to the partnership
since November 1, 1997. After the consummation of the acquisition of AAR's
general partner interest, the Company's agreement to become a limited partner in
up to eight additional cash recycling facilities was terminated. In addition,
the Maine Partnership is attempting to establish an ash recycling operation at
one of the Company's waste-to-energy facilities.
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.
KTI Post Consumer and Commercial Recycling Facilities
Acquisition of I. Zaitlin and Sons, Inc.
On August 1, 1997, KTI Recycling, Inc., a subsidiary of the Company
acquired I. Zaitlin and Data Destruction Services, Inc. a Maine corporation
("DDS"). The Company purchased I. Zaitlin and DDS for 200,000 shares of Common
Stock and also purchased two parcels of real estate, used by I. Zaitlin and
owned by the shareholders of Zaitlin, for cash in the amount of $500,000. The
Company purchased I. Zaitlin, DDS and the real estate subject to certain
liabilities of approximately $2,300,000.
Zaitlin and DDS have their headquarters in Biddeford, Maine. I.
Zaitlin, formed in 1917, has processing, brokering and storage facility in
Biddeford, Maine. It formerly had a processing, brokerage and storage facility
in Woburn, Massachusetts. That facility has been closed and the business
transferred to the Company's facility in Charlestown, Massachusetts. It buys and
sells more than 100,000 tons of recycled materials in the Northeastern United
States and Canada, handling all grades of waste paper, non-ferrous metals and
some plastics. In addition to the expansion of services provided in the Maine
market through the Biddeford Facility, Zaitlin's expertise in non-ferrous metal
processing and marketing expands the Company's ability to market and process
non-ferrous metals at its waste-to-energy plants and wood processing facilities.
Maine Energy is enhancing its front end processing in 1998 to recover
non-ferrous metals, such as aluminum, as a direct result of working with Zaitlin
personnel. To date Maine Energy only has recovered ferrous metals from the
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waste stream. The Company's focus is to utilize Zaitlin to increase Maine's
recycling percentage which has been historically low due to Maine's rural
population. By utilizing the Company's Biddeford and Charlestown facilities for
recycling, the State of Maine can enjoy the economies of scale more typical of
large urban recycling units. The Company would transfer higher priced MSW from
the Boston area with the same trucks used to transfer recyclables sent from
Maine to Charlestown.
DDS is in the confidential records destruction business. DDS
provides an additional service for the Company's customers who desire their
waste to be confidentially destructed, including banks and law firms. DDS
provides both on and off-site document destruction. An additional benefit of DDS
is that the shredded documents can either be recycled at one of the Company's
paper recycling facilities or utilized as processed fuel at one of the Company's
waste-to-energy facilities.
The operations of the Woburn, Massachusetts commercial paper
recycling facility have been consolidated into the Company's Charlestown
commercial recycling facility. This consolidation allowed for reductions in
duplicative administrative and operating costs.
Acquisition of Prins Recycling Units
On November 14, 1997, the Company completed the acquisition of three
recycling facilities located in Franklin Park, Illinois, a suburb of Chicago,
Charlestown, Massachusetts, a borough of Boston, and in Newark, New Jersey. The
facilities are operated by wholly owned subsidiaries of the Company under the
name of KTI Recycling. The three facilities are large capacity facilities,
capable of processing approximately 50,000 tons of post consumer and commercial
recyclables per month.
The facilities were purchased as part of an asset purchase from
Prins pursuant to an order of the Bankruptcy Court for the District of New
Jersey. In addition to the facilities, the Company purchased substantially all
of the remaining assets of Prins, including cash, accounts receivable and causes
of action.
The purchase price was approximately $15 million. The purchase was
financed in part by a term loan of $7.5 million provided by KeyBank, National
Association, bearing interest at said Bank's base rate plus 1.25% per annum,
with level monthly principal payments amortized over 84 months. The term loan is
secured by a mortgage on the Franklin Park, Illinois facilities, all property
and equipment at the three facilities not pledged to third parties and the
accounts receivable generated by the three facilities. The balance of the
purchase price was paid by cash on hand and by a temporary draw of a portion of
the company's revolving line of credit of $11 million, provided by KeyBank,
National Association.
Charlestown Facility
The Charlestown Facility consists of two buildings leased from two
separate landlords. In one building the Company processes residential or post
consumer recyclables and in another building the Company processes commercial
recyclables such as high grade paper from printers. The residential building
receives old newspaper ("ONP") old corrugated containers ("OCC") and commingled
bottles and cans. The building processes the ONP and OCC on a series of
processing lines which separate various grades of paper and OCC through the use
of mechanical processes and labor at various picking stations. The process also
eliminates waste and non-recyclable paper and plastics from the recyclables. The
waste and non-recyclable are delivered to Maine Energy for combustion. The
resulting processed ONP and OCC is then baled and shipped to domestic and
international paper mills.
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The commingled bottles and cans are processed on a separate set of
processing lines in the residential building. The material is separated by both
mechanical methods such as eddy current separators for aluminum and belt magnets
for ferrous metal and labor at picking stations to separate various grades of
plastic and glass by color. The separated products are baled in the case of
plastics, ferrous metal and aluminum or crushed in the case of glass. Any
residual material is either delivered to Maine Energy for combustion or in the
case of mixed color glass used as aggregate or landfill cover. These separated
products are sold to manufacturers for use as raw material in the production of
intermediate and finished products.
The residential building receives ONP, OCC and commingled bottles
and cans from several commercial haulers and local municipalities including the
City of Boston and numerous surrounding municipalities which are under contracts
ranging from 5 to 13 years. The ONP and OCC delivered by the communities is paid
for by a tipping fee which ranges from $18 per ton for Boston as host city to
$25 per ton, subject to rebate. If ONP #8 as listed in an industry publication
exceeds a preset price (usually $33 per ton) the communities will receive a
rebate in the amount equal to the excess over this preset base price. The
Company has structured these variable fee rebate contracts in order to obtain a
processing fee from the communities which will not be subject to the swings in
the commodity market. As a result of the historic volatility in ONP and OCC
prices, communities previously have chosen to bid the services required for
their recycling needs annually. The variable fee rebate structure also allows
the community to commit for longer periods of time. The commingled bottles and
cans delivered under contracts with the communities require a tipping fee per
ton to be paid which ranges from $20 per ton for Boston as host city to $35 per
ton. There is no rebate structure under this portion of the contract.
The Charlestown commercial recycling building processes high grade
paper in order to grade the incoming material in several grades including sorted
office waste. The Charlestown commercial recycling building primarily processes
a wide variety of high grade paper products. These range from direct pulp
substitutes to deinking grades, such as sorted office paper, print shop waste
and sorted white ledger. In addition, the facility handles overissue newsprint
and OCC, both of which are purchased from large commercial generators or from
commercial haulers.
Each of these items is run over a sorting line, where contaminants
are removed and higher value items are extracted for upgrading and separate
baling. Thus, direct grades of secondary fiber are produced to meet the demands
of specific paper mills, and higher values are obtained. The graded paper is
baled and shipped to domestic and international paper mills.
In addition to consolidating Zaitlin's Woburn facility into the
commercial building, the Company also acquired Vel-A-Tran of Billerica,
Massachusetts in January 1998. Vel-A-Tran is also in the business of recycling
high grade paper and fiber in the New England area. Vel-A-Tran operations are
also being consolidated into the commercial building.
Newark Facility
The Newark facility consists of three processing buildings, a small
separate office building, and a separate scalehouse, all located within an
industrial park. In one building the Company processes ONP and OCC. In a second
building the Company processes post-consumer office wastes, as well as
pre-consumer papers from printers and document publishing houses. In a third
building the Company is capable of processing either post-consumer or
pre-consumer paper. This building is also currently serving as a commingled
materials transloading site.
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Non-recyclable residuals in Newark are handled by third parties. The
ONP currently comes mostly from other recyclers and not directly from
municipalities. The OCC comes from haulers. Almost all ONP and OCC pricing is
determined each month based on local end-market prices. The marketplace is very
competitive, due to the presence of several other large operations within a 20
mile radius.
A third source of material for the first building is another
recycling firm located nearby, which pays a fixed fee to have its material
processed and baled at the Company's facility, then markets it directly from the
Newark Facility. This firm provides up to 25% of the total material processed in
this building.
The second building has two parallel sorting lines which are
designed to handle office waste and other mixed grades coming from commercial
establishments. The first sorting line accepts "dirty" office mixes which may
have glass, cans, and other non-fiber material in it. The material is first
passed over a screening device which allows all small particles and objects to
fall through, while all the paper is carried over onto the sort line. Pickers
then remove the corrugated and other mixed paper, leaving the higher quality
office papers to collect at the end.
The second office paper line is designed for clean office mixes with
no cans, glass, grit or dirt. On this line, pickers pull out high grades such as
computer paper and clean white ledger. The remaining material is collected after
processing to be sold as low grade paper.
A section of the second building is also used both to cut books
received from printers to extract the high-quality paper inside, and also to
segregate and store other high-quality pre-consumer papers from printers. In
some cases, the Company is principally transloading clean, baled material.
The third building has a sort line and several work areas which can
be used for either low grade or high grade paper as well as a tipping area for
commingled materials. While the facility currently does not process commingled
material, it accepts such materials if accompanied by newspapers. Commingled
materials are sold to a third party for a flat $20 per ton rate. Most commingled
materials are tipped at no cost.
Chicago
The Chicago facility currently serves the high-grade, pre-consumer
market. It consists of a single one-story building with two adjoining buildings
that enclose rail sidings, one on each side of the central structure. Each
siding is capable of storing six 40-foot boxcars indoors. On one side of the
central building is a loading door for each railcar. That side of the building
is principally used for inventory storage. On the other side, there is a single
baler fed by a sunken conveyor. The rail siding for that building is not in use
currently.
Much of the material which arrives at the Chicago facility has been
baled at the supplier's facility. The suppliers generally are large printing
operations with significant recycling and paper recovery activities of their
own. The baled material is off-loaded from either supplier's trucks or the
Company's own trucks. When sufficient material of one grade exists, the bales
are put onto outbound trailers for shipment to customers. Material which arrives
loose is loaded onto the conveyor, baled and sold to domestic paper mills.
The Company's contracts usually call for a rebate based on a
percentage of the Official Board Markets' (an industry publication) price for
that material for that month. The contracts are for periods ranging from two to
five years. There are fewer suppliers for the Chicago facility than for the
Newark or Boston commercial operations; this is due to the volume generated by
the very large printers with whom the Company
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has contracted. Almost all of Chicago's material is sold to domestic paper
mills, as compared to Boston and Newark, which sell more than half of their
materials to overseas customers.
Marketing
The Company's current marketing activity has broadened during 1997 with
the acquisition of K-C, Manner and Zaitlin. The Company's marketing services
have increased from its historical focus on contract acquisition for biomass,
municipal solid and specialty waste materials supply to the Maine Energy
facility, the Lewiston Facility, the TERI Telogia and Cairo Facilities and the
PERC facility. The Company now markets a wide variety of recycled commodities,
including all grades of secondary fiber and ferrous and non-ferrous metals and
plastics. 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 movement in regional disposal fees. The Company has
recently assumed additional marketing responsibilities at PERC due to its
increase ownership under which the Company will attempt to fill the
approximately 75,000 tons of 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 Services, Inc. ("KTI Specialty"). On October 18, 1996, KTI Specialty
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"). On
February 4, 1998, the Company acquired Total Waste Management, a company engaged
in waste management in the New England area. SEMCO and Total Waste Management
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.
Each of SEMCO and Total Waste Management 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.
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,
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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.
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. When transportation costs are
included, the Telogia Facility paid approximately $1.2 million for fuel in 1996.
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's
objective is to convert the paid for fuel into tipping fee based material
thereby improving the overall economics of the Telogia Facility. 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. In 1997, the Telogia Facility's net cost for fuel
was reduced to approximately $421,000. 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.
K-C markets secondary fiber, pulp and paper worldwide with offices in
Portland, Oregon, Lakewood, New Jersey, Hartford, Connecticut, Los Angeles,
California, Rio de Janeiro, Brazil, Seoul, South Korea and Barcelona, Spain. K-C
is responsible for marketing all of the Company's recycled paper and OCC,
including all domestic and international shipping requirements. K-C has
integrated into its operations the marketing personnel from Zaitlin, Prins and
Vel-A-Tran. K-C also actively trades secondary fiber pulp and paper for third
party recyclers and paper producers.
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
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MSW has increased, the Company believes that there are limits on the percentage
of MSW that ultimately can be recycled and that alternatives for disposal of MSW
will continue to be needed. In addition, the Company has begun to focus on the
industrial waste market as an ancillary source of waste for the Maine Energy and
PERC facilities and as a means of reducing its reliance upon the MSW market.
Specifically, KTI Specialty 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.
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 as
the primary goal is to eliminate the current cost of fuel for the 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.
Manner competes with several other recycled plastic brokers and direct
marketing from plastic recycling plants for the post industrial plastic scrap
and with materials recovery facilities for post consumer plastics.
The Company's other recycling subsidiaries which are primarily involved in
the waste paper brokerage business face extensive competition. Such businesses
operate with thin profit margins. In order to be profitable, the waste paper
broker must arrange to simultaneously buy and sell waste paper, while providing
a great enough spread to cover transportation costs and insurance. Generally,
paper mills purchase paper under long-term contracts which provide for purchase
prices that are adjusted in accordance with a relevant paper price index. A
significant portion of the sales made by K-C are to foreign customers, and such
sales are contingent upon the availability of letters of credit for such
customers.
KTI Recycling, which operates recycling plants in Boston, Chicago and
Newark, formerly owned by Prins, faces significant price competition in all of
its market. The Newark recycling market is burdened with industry-wide
overcapacity and continual price pressure. Combined with high labor costs, the
Newark market currently operates with very low profitability. In the Chicago
market, the Company's recycling plant has relatively low utilization and price
competition is extensive.
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 approved wood burning energy production
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.
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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.
DDS provides on and off-site document destruction services for banks, law
firms and other commercial establishments who desire confidential destruction.
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. PERC received approximately 94% of its raw materials in 1997 from
these municipalities. Maine Energy received 30.4% of its raw materials in 1996
from 18 Maine municipalities under long-term waste handling agreements and the
majority 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.
The Charlestown Facility receives a majority of its recyclable material
for processing from local municipalities under long-term contracts. These
contracts provide that all recyclables generated in the jurisdiction of each
municipality will be delivered to the Charlestown Facility. The quantity of
material delivered by these communities depends on the level of source
separation at the constituent households.
Zaitlin, Vel-A-Tran and the Charlestown Facility's commercial building
receive high grade paper from printers and publishing houses. The Chicago
Facility's suppliers of high grade, pre-consumer recyclable paper are generally
large printing operations with significant recycling and paper recovery
operations of their own. The Newark Facility receives a majority of its OCC and
ONP from other recyclers and haulers and its pre-consumer paper is received from
printers and publishing houses.
37
<PAGE> 41
The Nashville Facility relies on the City of Nashville to deliver ash
produced by the city's waste-to-energy facility for its raw materials. If in any
year the city does not provide sufficient ash for the Nashville Facility, the
Nashville Facility may mine ash from the city's landfill.
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.
K-C, Zaitlin, the Charlestown Facility and the Newark Facility experience
increased quantities of ONP and OCC in November and December, followed by
reduced quantities in January, due to increased newspaper advertising and retail
activity during the holiday season.
Governmental Regulation
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 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 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 and PERC
38
<PAGE> 42
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 at the present time because of the existence of excess
energy capacity in the New England area. The rates in the 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.
Bangor Hydro has negotiated buy-outs of long-term power purchase
agreements with certain of its independent producers in order to eliminate or
decrease its purchase requirements at high rates.
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 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
39
<PAGE> 43
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 the 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. In
Maine Energy's case, the application was submitted in compliance with state
mandate during August 1996. Thereafter, in December 1996, a public hearing was
held by the Maine Department of Environmental Protection on the 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. In the case of PERC, a renewal application was submitted in
advance of the deadline. Final approval is expected in December 1998.
Management of the Company believes that Maine Energy and PERC are in compliance
with the federal Clean Air Act, its implementing regulations and all other
applicable regulations and, therefore, anticipates that the permits will be
renewed following the hearings. There can be no assurance, however, that new
40
<PAGE> 44
conditions will not be imposed in the permits or that the permits will be
renewed.
Management of Maine Energy and PERC believe that relationships with
Maine environmental regulators are 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 facility, monitors applicable
environmental standards and evaluates its selection of technology to ensure that
applicable standards are being met.
The United States Supreme Court 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 non-hazardous 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.
41
<PAGE> 45
Total Waste Management in involved in the transportation, temporary
storage and destruction or other disposal of hazardous waste materials.
Accordingly, it is subject to comprehensive regulation, including stringent
requirements for record keeping on the nature of all wastes received or shipped,
the destination and method of destruction or disposal of such waste and the
transporters used.
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 provided cash
advances in the form of notes receivable to the buyers aggregating $444,643 at
December 31, 1996. The notes receivable are due on July 29, 2000, but were
prepaid on September 24, 1997.
Employees
As of December 31, 1997, the Company had a total of 493 full time
employees, comprised of twenty-two (22) full time employees on its corporate
staff, eighty (80) full time employees at the Maine Energy facility, sixteen
(16) full time employees at the Lewiston Facility, thirty one (31) full time
employees at the Telogia facility, six (6) full time employees at the Cairo
facility, fifteen (15) full time employees at the Manner facility, ninety two
(92) full time employees at the KTI Recycling of New England facility, one
hundred forty seven (147) full time employees at the KTI Recycling of New Jersey
facility, twenty three (23) full time employees at the KTI Recycling of Illinois
facility, twenty seven (27) full time employees at the Zaitlin facility,
thirteen (13) full time employees at the Data Destruction facility, three (3)
full time employees at the Zaitlin-Massachusetts facility and eighteen (18) full
time employees at the K-C facilities. 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.
SELLING SHAREHOLDERS
The following sets forth certain information with respect to the Selling
Shareholders which has been provided to the Company by each such Selling
Shareholder. The Company has no knowledge of the intentions of any of the
Selling Shareholders to actually sell any of the shares listed under the column
"Shares Available for Sale." Each of the Selling Shareholders has the
contractual right to sell shares. No Selling Shareholder has a material
relationship with the Company other than as a result of ownership of the Shares
and the Exchange Notes. All amounts indicated are as of February 2, 1998.
Series B Preferred Stock
<TABLE>
<CAPTION>
Percentage of
Shares Offered Class Owned
Ownership Prior to Pursuant to this After
Selling Shareholder Offering Prospectus(1) Offering(2)
-------- -------------- -----------
<S> <C> <C> <C>
Armstrong Fund Equity Account 4,100 4,100 *
Bell South 10,400 10,400 *
Berwyn Income Fund, Inc. 50,000 50,000 *
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C> <C>
Cardinal Special Situations 800 800 *
Fund, L.P.
Cardinal Value Equity Partners 19,900 19,900 *
Catholic Mutual Relief Society 12,000 12,000 *
of America
Catholic Mutual Relief Society 8,000 8,000 *
Retirement Plan and Trust
Century National Insurance Company 16,000 16,000 *
Commonwealth Life Insurance 20,000 20,000 *
Company (Teamsters-Camden
Non-Enhanced)
Credit Research & Trading LLC 4,300 4,300 *
Fidelity Financial Trust: 178,800 178,800 *
Fidelity Convertible Security Fund
Foundation Account No. 1 8,000 8,000 *
HBK Finance L.P. 14,200 14,200 *
HBK Securities Ltd. 23,200 23,200 *
Highbridge International LDC 65,000 65,000 *
JMG Capital Investments, Inc. 25,000 25,000 *
JSS Investments, L.L.C. 10,000 10,000 *
KF Company Limited 600 600 *
LACERA 10,400 10,400 *
Metropolitan Life Insurance Co.
Separate Account #184 10,000 10,000 *
Navesink Equity Derivative Fund, 15,000 15,000 *
LDC
Paloma Securities LLC 12,000 12,000 *
Remy Capital Partners II L.P. 9,800 9,800 *
RH Capital Associates #1, L.P. 46,000 46,000 *
Silverton International Fund Limited 8,000 8,000 *
SoundShore Partners L.P. 131,500 131,500 *
State Street Research Equity Income 40,000 40,000 *
Fund
State Street Research High Income
Fund 10,000 10,000 *
TQA Arbitrage Fund, L.P. 14,000 14,000 *
Triton Capital Investments, Inc. 25,000 25,000 *
Zazove Convertible Fund, L.P. 44,000 44,000 *
--------
Total 846,000
</TABLE>
Common Stock
<TABLE>
<CAPTION>
Percentage of
Shares Offered Class Owned
Ownership Prior to Pursuant to this After
Selling Shareholder Offering Prospectus(1) Offering(2)
-------- -------------- -----------
<S> <C> <C> <C>
Armstrong Fund Equity Account 8,914(1) 8,914 *
</TABLE>
43
<PAGE> 47
<TABLE>
<S> <C> <C> <C>
Bell South 22,611(2) 22,611 *
Berwyn Income Fund, Inc. 108,710(3) 108,710 *
Cardinal Special Situations 1,739(4) 1,739 *
Fund, L.P.
Cardinal Value Equity Partners 43,266(5) 43,266 *
Catholic Mutual Relief Society 26,090(6) 26,090 *
of America
Catholic Mutual Relief Society 17,393(7) 17,393 *
Retirement Plan and Trust
Century National Insurance Company 34,787(8) 34,787 *
Commonwealth Life Insurance 43,484(9) 43,484 *
Company (Teamsters-Camden
Non-Enhanced)
Credit Research & Trading LLC 9,349(10) 9,349 *
Fidelity Financial Trust: 388,747(11) 388,747 *
Fidelity Convertible Security Fund
Foundation Account No. 1 17,393(12) 17,393 *
HBK Finance L.P. 30,873(13) 30,873 *
HBK Securities Ltd. 50,441(14) 50,441 *
Highbridge International LDC 141,323(15) 141,323 *
JMG Capital Investments, Inc. 54,355(16) 54,355 *
JSS Investments, L.L.C. 21,742(17) 21,742 *
KF Company Limited 1,304(18) 1,304 *
LACERA 22,611(19) 22,611 *
Metropolitan Life Insurance Co.
Separate Account #184 21,742(20) 21,742 *
Navesink Equity Derivative Fund, 32,613(21) 32,613 *
LDC
Paloma Securities LLC 26,090(22) 26,090 *
Remy Capital Partners II L.P. 21,307(23) 21,307 *
RH Capital Associates #1, L.P. 100,013(24) 100,013 *
Silverton International Fund Limited 17,393(25) 17,393 *
SoundShore Partners L.P. 285,907(26) 285,907 *
State Street Research Equity Income 86,968(27) 86,968 *
Fund
State Street Research High Income
Fund 21,742(28) 21,742 *
TQA Arbitrage Fund, L.P. 30,438(29) 30,438 *
Triton Capital Investments, Inc. 54,355(30) 54,355 *
Zazove Convertible Fund, L.P. 95,664(31) 95,664 *
--------
Total 1,839,364
</TABLE>
(1) Represents shares of Common Stock issuable upon conversion of 4,100 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
44
<PAGE> 48
(2) Represents shares of Common Stock issuable upon conversion of 10,400
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(3) Represents shares of Common Stock issuable upon conversion of 50,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(4) Represents shares of Common Stock issuable upon conversion of 800 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(5) Represents shares of Common Stock issuable upon conversion of 19,900
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(6) Represents shares of Common Stock issuable upon conversion of 12,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(7) Represents shares of Common Stock issuable upon conversion of 8,000 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(8) Represents shares of Common Stock issuable upon conversion of 16,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(9) Represents shares of Common Stock issuable upon conversion of 20,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(10) Represents shares of Common Stock issuable upon conversion of 4,300 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(11) Represents shares of Common Stock issuable upon conversion of 178,800
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(12) Represents shares of Common Stock issuable upon conversion of 8,000 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(13) Represents shares of Common Stock issuable upon conversion of 14,200
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(14) Represents shares of Common Stock issuable upon conversion of 23,200
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(15) Represents shares of Common Stock issuable upon conversion of 65,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(16) Represents shares of Common Stock issuable upon conversion of 25,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(17) Represents shares of Common Stock issuable upon conversion of 10,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
45
<PAGE> 49
(18) Represents shares of Common Stock issuable upon conversion of 600 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(19) Represents shares of Common Stock issuable upon conversion of 10,400
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(20) Represents shares of Common Stock issuable upon conversion of 10,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(21) Represents shares of Common Stock issuable upon conversion of 15,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(22) Represents shares of Common Stock issuable upon conversion of 12,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(23) Represents shares of Common Stock issuable upon conversion of 9,800 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(24) Represents shares of Common Stock issuable upon conversion of 46,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(25) Represents shares of Common Stock issuable upon conversion of 8,000 shares
of Series B Preferred Stock plus accumulated and unpaid dividends.
(26) Represents shares of Common Stock issuable upon conversion of 131,500
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(27) Represents shares of Common Stock issuable upon conversion of 40,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(28) Represents shares of Common Stock issuable upon conversion of 10,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(29) Represents shares of Common Stock issuable upon conversion of 14,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(30) Represents shares of Common Stock issuable upon conversion of 25,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
(31) Represents shares of Common Stock issuable upon conversion of 44,000
shares of Series B Preferred Stock plus accumulated and unpaid dividends.
46
<PAGE> 50
<TABLE>
<CAPTION>
Percentage of
Class Owned
Exchange Notes Ownership Prior to Notes Offered Pursuant After
Selling Shareholder Offering to this Prospectus(1) Offering(2)
-------- -------------------- -----------
<S> <C> <C>
Armstrong Fund Equity Account $102,000(1) $102,000 *
Bell South 260,000(2) 260,000 *
Berwyn Income Fund, Inc. 1,250,000(3) 1,250,000 *
Cardinal Special Situations 20,000(4) 20,000 *
Fund, L.P.
Cardinal Value Equity Partners 497,000(5) 497,000 *
Catholic Mutual Relief Society 300,000(6) 300,000 *
of America
Catholic Mutual Relief Society 200,000(7) 200,000 *
Retirement Plan and Trust
Century National Insurance Company 400,000(8) 400,000 *
Commonwealth Life Insurance 500,000(9) 500,000 *
Company (Teamsters-Camden
Non-Enhanced)
Credit Research & Trading LLC 107,000(10) 107,000 *
Fidelity Financial Trust: 4,470,000(11) 4,470,000 *
Fidelity Convertible Security Fund
Foundation Account No. 1 200,000(12) 200,000 *
HBK Finance L.P. 355,000(13) 355,000 *
HBK Securities Ltd. 580,000(14) 580,000 *
Highbridge International LDC 1,625,000(15) 1,625,000 *
JMG Capital Investments, Inc. 625,000(16) 625,000 *
JSS Investments, L.L.C. 250,000(17) 250,000 *
KF Company Limited 15,000(18) 15,000 *
LACERA 260,000(19) 260,000 *
Metropolitan Life Insurance Co.
Separate Account #184 250,000(20) 250,000 *
Navesink Equity Derivative Fund, 375,000(21) 375,000 *
LDC
Paloma Securities LLC 300,000(22) 300,000 *
Remy Capital Partners II L.P. 245,000(23) 245,000 *
RH Capital Associates #1, L.P. 1,150,000(24) 1,150,000 *
Silverton International Fund Limited 200,000(25) 200,000 *
SoundShore Partners L.P. 3,287,000(26) 3,287,000 *
State Street Research Equity Income 1,000,000(27) 1,000,000 *
Fund
State Street Research High Income
Fund 250,000(28) 250,000 *
TQA Arbitrage Fund, L.P. 350,000(29) 350,000 *
Triton Capital Investments, Inc. 625,000(30) 625,000 *
Zazove Convertible Fund, L.P. 1,100,000(31) 1,100,000 *
--------
Total $21,148,000
</TABLE>
47
<PAGE> 51
(1) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 4,100 shares of Series B Preferred Stock.
(2) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 10,400 shares of Series B Preferred Stock.
(3) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 50,000 shares of Series B Preferred Stock.
(4) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 800 shares of Series B Preferred Stock.
(5) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 19,900 shares of Series B Preferred Stock.
(6) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 12,000 shares of Series B Preferred Stock.
(7) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 8,000 shares of Series B Preferred Stock.
(8) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 16,000 shares of Series B Preferred Stock.
(9) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 20,000 shares of Series B Preferred Stock.
(10) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 4,300 shares of Series B Preferred Stock.
(11) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 178,800 shares of Series B Preferred Stock.
(12) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 8,000 shares of Series B Preferred Stock.
(13) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 14,200 shares of Series B Preferred Stock.
(14) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 23,200 shares of Series B Preferred Stock.
(15) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 65,000 shares of Series B Preferred Stock.
(16) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 25,000 shares of Series B Preferred Stock.
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(17) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 10,000 shares of Series B Preferred Stock.
(18) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 600 shares of Series B Preferred Stock.
(19) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 10,400 shares of Series B Preferred Stock.
(20) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 10,000 shares of Series B Preferred Stock.
(21) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 15,000 shares of Series B Preferred Stock.
(22) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 12,000 shares of Series B Preferred Stock.
(23) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 9,800 shares of Series B Preferred Stock.
(24) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 46,000 shares of Series B Preferred Stock.
(25) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 8,000 shares of Series B Preferred Stock.
(26) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 131,500 shares of Series B Preferred Stock.
(27) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 40,000 shares of Series B Preferred Stock.
(28) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 10,000 shares of Series B Preferred Stock.
(29) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 14,000 shares of Series B Preferred Stock.
(30) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 25,000 shares of Series B Preferred Stock.
(31) Represents aggregate principal amount of Exchange Notes issuable in
exchange for 44,000 shares of Series B Preferred Stock.
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PLAN OF DISTRIBUTION
The Shares and Exchange Notes may be offered for sale from time to time by
the Selling Shareholders or their respective pledgees, donees, transferees or
other successors in interest in the open market, on the NASDAQ National Market
(in the case of Common Stock), in the over-the-counter market, in privately
negotiated transactions, through the writing of options (whether such options
are listed on an options exchange or otherwise), settlement of short sales of
the Shares and Exchange Notes, or a combination of such methods, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale, or at
negotiated or fixed prices, in each case, as determined by the Selling
Shareholders or by agreement between the Selling Shareholders and underwriters,
brokers, dealers or agents, or purchasers. The sale or distribution of the
Shares and Exchange Notes may be effected directly to purchasers by the Selling
Shareholders or through one or more brokers, dealers or agents, from time to
time, in one or more transactions. If the Selling Shareholders effect such
transactions by selling shares to or through underwriters, brokers, dealers or
agents, such underwriters, brokers, dealers or agents may receive compensation
in the form of commissions, discounts or concessions from the Selling
Shareholders and/or purchasers of the Shares and Exchange Notes for whom they
may act as agent, or to whom they may sell as principal, or both (which
compensation as to a particular underwriter, broker, dealer or agent may be in
excess of those customary in the type of transaction involved). The Selling
Shareholders and any brokers, dealers or agents who act in connection with the
sale of Shares and Exchange Notes hereunder may be deemed to be "underwriters"
within the meaning of the Act, and any commissions, discounts or concessions
received by any such brokers, dealers or agents and proceeds of any resale of
the Shares and Exchange Notes may be deemed to be underwriting discounts and
commissions under the Act.
Under the securities laws of certain states, the Shares and Exchange Notes
may be sold in such states only through registered or licensed brokers or
dealers. In addition, in certain states the Shares and Exchange Notes may be not
be sold unless the Shares and Exchange Notes have been registered or qualified
for sale in any such state or an exemption from registration or qualification is
available and complied with.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Shares to the public hereunder other than commissions,
fees and discounts of underwriters, brokers, dealers or agents. The Company will
not receive any of the proceeds of the sale of any of the Shares and Exchange
Notes by the Selling Shareholders.
DESCRIPTION OF SECURITIES
Authorized Stock
The Company's Restated Certificate of Incorporation, as amended,
authorizes the issuance of 13,333,333 shares of Common Stock and 10,000,000
shares of "blank check" preferred stock, no par value, and, pursuant to a
Certificate of Amendment to the Company's Restated Certificate of Incorporation
filed on May 16, 1997, 20,000,000 shares of Common Stock. As of January 31,
1998, there were 8,980,381 shares of Common Stock issued and outstanding and
held of record by 201 shareholders of record, and 856,000 shares of the
Company's Series B Preferred Stock issued and outstanding and held of record by
2 shareholders.
Common Stock
Shareholders are entitled to one vote for each share of the Common Stock
held of record on all matters to be voted by shareholders. Shareholders are not
entitled to cumulate their votes in the election of directors.
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Subject to the prior rights of holders of additional preferred stock of the
Company which may be issued, the holders of Common Stock are entitled to
dividends, when and if declared by the Board of Directors, out of funds legally
available therefor. The Credit Facility and the Series B Preferred Stock
however, contain restrictions on the payment of cash dividends. See "Risk
Factors -- No Cash Dividends." In the event of the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of Common
Stock have no preemptive rights and have no right to convert Common Stock into
any other securities. All outstanding shares of Common Stock are fully paid and
nonassessable.
Series B Preferred Stock
Ranking
The Series B Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, rank (i) senior to all classes of Common Stock of the Company and to
each other class of capital stock or series of preferred stock established after
July, 1997 by the Board of Directors the terms of which do not expressly provide
that it ranks senior to or on a parity with the Series B Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the Common Stock of
the Company as "Junior Securities"); (ii) subject to certain conditions, on a
parity with any class of capital stock or series of preferred stock issued by
the Company established after the date of the issuance of the Series B Preferred
Stock by the Board of Directors, the terms of which expressly provide that such
class or series will rank on a parity with the Series B Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to as "Parity Securities");
and (iii) subject to certain conditions, junior to each class of capital stock
or series of preferred stock issued by the Company established after the date of
the issuance of the Series B Preferred Stock by the Board of Directors the terms
of which expressly provide that such class or series will rank senior to the
Series B Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities"). The Series B Preferred Stock will be subject to the
issuance of series of Junior Securities, Parity Securities and Senior
Securities, provided that the Company may not issue any new class of Parity
Securities or Senior Securities without the approval of the holders of at least
a majority of the shares of Series B Preferred Stock then outstanding, voting or
consenting, as the case may be, together as one class unless the pro forma
ratios for the latest twelve months of (i) net income available for preferred
dividends to preferred dividends is not less than 1:1 and (ii) earnings before
interest, taxes, depreciation and amortization, exclusive of non-recurring
items, less capital expenditures, securities amortization and redemption, cash
taxes and changes in working capital to preferred dividends is not less than
1.2:1.
In addition, the Series B Preferred Stock will rank junior in right of
payment to all indebtedness and other debt obligations of the Company.
Dividends
Holders of the Series B Preferred Stock will be entitled to receive, when,
as and if declared by the Board of Directors, from any source of funds legally
available therefor, dividends on the Series B Preferred Stock at a rate per
annum equal to 8 3/4% of $25.00 per share plus accumulated and unpaid dividends
thereon, payable quarterly. All dividends will be cumulative whether or not
earned or declared on a daily basis from the date of issuance of the Series B
Preferred Stock and will be payable quarterly in arrears on February 1, May 1,
August 1 and November 1 of each year, commencing on November 1, 1997. Upon the
occurrence of an Event of Default
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under certain of the Company's existing indebtedness, the Company is restricted
from paying, and future agreements of the Company may restrict the payment of,
cash dividends on the Series B Preferred Stock.
Dividends will be payable to holders of record of the Series B Preferred
Stock on the stock register of the Company on the record date for such purpose
fixed by the Board of Directors of the Company, which shall not be less than 10
nor more than 60 days preceding the dividend payment date. Dividends will be
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in any period of less than one month.
No dividends may be declared or paid or funds set apart for the payment of
dividends on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in cash or
declared and a sum in cash set apart for such payment on the Series B Preferred
Stock. If full dividends in cash are not so paid, the Series B Preferred Stock
will share dividends pro rata with the Parity Securities. No dividends may be
paid or set apart for such payment on Junior Securities (except dividends on
Junior Securities in additional shares of Junior Securities) and no Junior
Securities or Parity Securities may be repurchased, redeemed or otherwise
retired, nor may funds be set apart for payment with respect thereto, if full
cumulative dividends for all past dividend periods have not been paid in cash on
the Series B Preferred Stock.
Mandatory Redemption
On August 15, 2004, the Company shall redeem from any source of funds
legally available therefor, all of the then outstanding shares of Series B
Preferred Stock at a redemption price equal to $25.00 per share plus accumulated
and unpaid dividends thereon. Such redemption may be made at the option of the
Company either in (i) cash at 100% or (ii) Common Stock valued at 95% of the
average closing price of the Common Stock during the 20 trading days prior to
such redemption.
Optional Redemption
The Series B Preferred Stock will be redeemable for cash on or after
August 15, 2000, at the option of the Company, from any source of funds legally
available therefor, from time to time, in whole or in part, at the redemption
prices set forth herein, together with all accumulated and unpaid dividends to
the redemption date ("Redemption Price"). The Redemption Prices are as follows,
plus all accumulated and unpaid dividends to the redemption date, for shares of
Series B Preferred Stock redeemed during the twelve month period beginning on
August 15, of the years indicated:
Year Price
- -------------------------- ---------------------------
2000 $ 26.10 per share
2001 $ 25.73 per share
2002 $ 25.37 per share
2003 and thereafter $ 25.00 per share
Notwithstanding the foregoing, on or after August 15, 1999, the Company
may, at its option, redeem the Series B Preferred Stock at $26.47 per share plus
accumulated and unpaid dividends thereon if the Common Stock bid price has
averaged not less than 1.5 times the conversion price during the preceding 20
consecutive trading days.
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No optional redemption may be authorized or made unless, prior to giving
the applicable redemption notice, all accumulated and unpaid dividends for
dividend periods ended prior to the date of such redemption notice shall have
been paid in cash. In the event of partial redemptions of Series B Preferred
Stock, the shares to be redeemed will be determined pro rate or by lot, as
determined by the Company; provided that the Company may redeem all shares held
by holders of fewer than 100 shares of Series B Preferred Stock (or by holders
that would hold fewer than 100 shares of Series B Preferred Stock following such
redemption) prior to its redemption of other shares of Series B Preferred Stock.
Conversion Rights
Each share of Series B Preferred Stock will be convertible at any time at
the option of the holder thereof into Common Stock of the Company, at a
conversion price equal to $11.75 per share, except that the right to convert
shares of Series B Preferred Stock called for redemption will terminate at the
close of business on the business day preceding the redemption date and will be
lost if not exercised prior to that time, unless the Company defaults in making
the payment due upon redemption.
The conversion price will be subject to adjustment in certain events,
including: (i) the payment of dividends (and other distributions) payable in
Common Stock on any class of capital stock of the Company; (ii) the issuance to
all holders of Common Stock of rights, warrants or options entitling them to
subscribe for or purchase Common Stock at less than the current market price (as
defined in the Certificate of Incorporation); (iii) subdivisions, combinations
and reclassifications of Common Stock; (iv) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of any class of
capital stock, cash or other assets (including securities, but excluding those
dividends, issuance of rights, warrants, and options and distributions referred
to above and dividends and distributions paid in cash out of the retained
earnings of the Company, unless the sum of all such cash dividends and
distributions made and the amount of cash and the fair market value of other
consideration paid in respect of any repurchase of Common Stock by the Company
or any of its subsidiaries, in each case within the preceding 12 months in
respect of which no adjustment has been made, exceeds 20% of the product of the
then current market price of the Common Stock times the aggregate number of
shares of Common Stock outstanding on the record date for such dividend or
distribution).
No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted. In addition to the foregoing adjustments, the Company will be
permitted to make such reductions in the conversion price as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of the
Common Stock.
In the case of certain consolidations or mergers to which the Company is a
party or the transfer of substantially all of the assets of the Company, each
share of Series B Preferred Stock then outstanding will become convertible only
to the kind and amount of securities, cash and other property receivable upon
the consolidation, merger or transfer by a holder of the number of shares of
Common Stock into which such share of Series B Preferred Stock might have been
converted immediately prior to such consolidation, merger or transfer (assuming
such holder of Common Stock failed to exercise any rights of election and
received per share the kind and amount receivable per share by a plurality of
non-electing shares).
No fractional shares of Common Stock will be issued upon conversion; in
lieu thereof, the Company will pay a cash adjustment based upon the closing
price of the Common Stock on the business day prior to the conversion date.
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The holder of record of a share of Series B Preferred Stock at the close
of business on a record date with respect to the payment of dividends on the
Series B Preferred Stock will be entitled to receive such dividends with respect
to such share of the Series B Preferred Stock on the corresponding dividend
payment date, notwithstanding the conversion of such share after such record
date and prior to such dividend payment date. A share of Series B Preferred
Stock surrendered for conversion during the period from the close of business on
any record date for the payment of dividends to the opening of business of the
corresponding dividend payment date must be accompanied by a payment in cash in
an amount equal to the dividends payable on such dividend payment date, unless
such share of Series B Preferred Stock has been called for redemption on a
redemption date occurring during the period from the close of business on any
record date for the payment of dividends to the close of business on the
business day immediately following the corresponding dividend payment date. The
dividend payment with respect to a share of Series B Preferred Stock called for
redemption on a date during the period from the close of business on any record
date for the payment of dividends to the close of business on the business day
immediately following the corresponding dividend payment date will be payable on
such dividend payment date to the record holder of such share on such record
date, notwithstanding the conversion of such share after such record date and
prior to such dividend payment date. No payment or adjustment will be made upon
conversion of shares of Series B Preferred Stock for accumulated and unpaid
dividends or for dividends with respect to the Common Stock issued upon such
conversion.
Change of Control
Upon the occurrence of a Change of Control (as defined below), at the
option of the holders of a majority of the Series B Preferred Stock the Company
will be required to make an offer (a "Change of Control Offer") to repurchase
all or any part of each holder's Series B Preferred Stock at an offer price
equal to $25.00 per share plus accumulated and unpaid dividends thereon to the
date of repurchase. Such redemption may be made at the option of the Company
either in (i) cash at 100% or (ii) Common Stock valued at 95% of the average
closing price of the Common Stock during the 20 trading days prior to such
redemption. Within 30 days following a Change of Control, the Company will mail
a notice to each holder of Series B Preferred Stock describing the transaction
that constitutes the Change of Control and offering to repurchase the Series B
Preferred Stock pursuant to the procedures required by the Certificate of
Incorporation and described in such notice; provided that, prior to complying
with the provisions of this covenant, but in any event within 90 days following
a Change of Control, the Company will either repay all outstanding indebtedness
or obtain the requisite consents, if any, under all agreements governing
outstanding indebtedness to permit the repurchase of the Series B Preferred
Stock required by this covenant.
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following: (a) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole, (b) the adoption of a plan
relating to the liquidation or dissolution of the Company, (c) the consummation
of any transaction (including, without limitation, any merger or consolidation)
the result of which is that any "person" or "group" (as such terms are, used in
Section 13(d)(3) of the Exchange Act), other than a group including any one of
Nicholas Menonna Jr., Martin Sergi or Ross Pirasteh, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly through one or more intermediaries, of more than
50% of the voting power of the outstanding voting stock of the Company, unless
the closing price per share of Common Stock for any five trading days within the
period of ten consecutive trading days ending immediately after the announcement
of such Change of Control equals or exceeds 105% of the conversion price of the
Series B Preferred Stock or the Exchange Notes, as the case may be, in effect on
each such trading day, or (d) the first day on which more than a majority of the
Board of Directors are not Continuing Directors (as defined below); provided,
however, that a transaction in which the
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Company becomes a subsidiary of another entity shall not constitute a Change of
Control if (i) the shareholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or more
intermediaries, at least a majority of the voting power of the outstanding
voting stock of the Company immediately prior to such transaction, no "person"
or "group" (as such terms are defined above), other than such other entity (but
including holders of equity interests of such other entity), "beneficially owns"
(as such term is defined above), directly or indirectly through one or more
intermediaries, more than 50% of the voting power of the outstanding voting
stock of the Company.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (a) was a member of the Board of
Directors on the date of original issuance of the Series B Preferred Stock or
(b) was nominated for election to the Board of Directors with the approval of,
or whose election to the Board of Directors was ratified by, at least two-thirds
of the Continuing Directors who were members of the Board of Directors at the
time of such nomination or election.
Except as described above with respect to a Change of Control, the
Certificate of Incorporation does not contain provisions that permit the holders
of the Series B Preferred Stock to require that the Company repurchase or redeem
the Series B Preferred Stock in the event of a takeover, recapitalization or
similar transaction. In addition, the Company could enter into certain
transactions, including acquisitions, refinancing or other recapitalizations,
that could affect the Company's capital structure or the value of the Series B
Preferred Stock or the Common Stock, but that would not constitute a Change of
Control.
The occurrence of a Change of Control may result in default under certain
indebtedness of the Company. In addition, certain indebtedness of the Company
could restrict the Company's ability to repurchase the Series B Preferred Stock
for cash upon a Change of Control. In the event a Change of Control occurs at a
time when the Company is prohibited from repurchasing the Series B Preferred
Stock for cash, the Company could seek the consent of its lenders to the
repurchase of the Series B Preferred Stock or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
repurchasing the Series B Preferred Stock for cash. The Company's failure to
make a Change of Control Offer or to repurchase the Series B Preferred Stock
tendered in a Change of Control Offer would constitute a Voting Rights
Triggering Event (as defined below). Finally, the Company's ability to
repurchase Series B Preferred Stock following a Change of Control may be limited
by the Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Certificate of Incorporation applicable to a Change of Control
Offer made by the Company and purchases all of the Series B Preferred Stock
validly tendered and not withdrawn under such Change of Control Offer.
Exchange
The Company at its option, upon 60 days' written notice to the holders of
Series B Preferred Stock, may exchange all, but not less than all, of the then
outstanding shares of Series B Preferred Stock into its 8 3/4% Exchange Notes on
any dividend payment date, provided that on the date of such exchange: (a) there
are no accumulated and unpaid dividends on the Series B Preferred Stock
(including the dividends payable on such date) or other contractual impediment
to such exchange; (b) there shall be legally available funds sufficient
therefor; (c) a registration statement relating to the Exchange Notes shall have
been declared effective under the
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Securities Act of 1933, as amended (the "Securities Act"), prior to such
exchange and shall continue to be in effect on the date of such exchange or the
Company shall have obtained a written opinion of counsel that an exemption from
the registration requirements of the Securities Act is available for such
exchange and that upon receipt of such Exchange Notes pursuant to such exchange
made in accordance with such exemption, the holders (assuming such holder is not
an affiliate of the Company) thereof will not be subject to any restrictions
imposed by the Securities Act upon the resale thereof, other than any such
restriction to which the holder thereof already is subject on the Exchange Date
(as defined below), and such exemption is relied upon by the Company for such
exchange; (d) the indenture in respect of the Exchange Notes (the "Exchange Note
Indenture") and the trustee thereunder shall have been qualified under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"); (e) immediately
after giving effect to such exchange, no Default or Event of Default (each as
defined in the Exchange Note Indenture) would exist under the Exchange Note
Indenture; and (f) the Company shall have delivered to the Trustee under the
Exchange Note Indenture a written opinion of counsel, dated the date of
exchange, regarding the satisfaction of the conditions set forth in clauses (a),
(b), (c) and (d). The Company shall send a written notice of exchange by mail to
each holder of record of shares of Series B Preferred Stock, which notice shall
state, among other things, (i) that the Company is exercising its option to
exchange the Series B Preferred Stock for Exchange Notes pursuant to the
Certificate of Incorporation and (ii) the date of exchange (the "Exchange Date")
which date shall not be less than 30 days nor more than 60 days following the
date on which such notice is mailed. On the Exchange Date, the Company shall
issue Exchange Notes in exchange for the Series B Preferred Stock as provided
below.
The holders of outstanding shares of Series B Preferred Stock will be
entitled to receive $1,000 principal amount of Exchange Notes for each 40 shares
of Series B Preferred Stock (the liquidation preference of which equals $1,000).
The Exchange Notes will be issued in registered form, without coupons. Exchange
Notes issued in exchange for Series B Preferred Stock will be issued in
principal amounts of $1,000 and integral multiples thereof. The Company will pay
cash in lieu of issuing an Exchange Note in a principal amount less than $1,000.
On and after the Exchange Date, dividends will cease to accrue on the
outstanding shares of Series B Preferred Stock, and all rights of the holders of
Series B Preferred (except the right to receive the Exchange Notes, an amount in
cash equal to the accumulated and unpaid dividend and Liquidated Damages, if
any, to the Exchange Date and, if the Company so elects, cash in lieu of any
Exchange Note which in an amount that is not an integral multiple of $1,000)
will terminate. The person entitled to receive the Exchange Notes issuable upon
such exchange will be treated for all purposes as registered holder of such
Exchange Notes.
Liquidation Preference
Upon any voluntary liquidation, dissolution or winding-up of the Company,
holders of Series B Preferred Stock will be entitled to be paid, out of the
assets of the Company available for distribution, $25.00 per share plus
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up, the "Liquidation Preference"), before
any distribution is made on any Junior Securities, including, without
limitation, Common Stock of the Company. If, upon any voluntary or involuntary
liquidation dissolution or winding-up of the Company, the amount payable with
respect to the Series B Preferred Stock and all other Parity Securities is not
paid in full, the holders of the Series B Preferred Stock and the Parity
Securities will share equally and ratably in any distribution of assets of the
Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the Liquidation Preferences to
which they are entitled, the holders of shares of Series B Preferred Stock will
not be entitled to any further participation in any distribution of assets of
the Company. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
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substantially all of the property or assets of the Company nor the consolidation
or merger of the Company with or into one or more entities should be deemed to
be a liquidation, dissolution or winding-up of the Company.
The Certificate of Incorporation for the Series B Preferred Stock does not
contain any provision requiring funds to be set aside to protect the Liquidation
Preference of the Series B Preferred Stock, although such Liquidation Preference
will be substantially in excess of the par value of such shares of Series B
Preferred Stock. In addition, the Company is not aware of any provision of New
Jersey law or any controlling decision of the courts of the State of New Jersey
(the state of incorporation of the Company) that requires a restriction upon the
surplus of the Company solely because the Liquidation Preference of the
preferred stock will exceed its par value. Consequently, there will be no
restriction upon the surplus of the Company solely because the Liquidation
Preference of the Series B Preferred Stock will exceed the par value thereof and
there will be no remedies available to holders of the Series B Preferred Stock
before or after the payment of any dividend, other than in connection with the
liquidation of the Company, solely by reason of the fact that such dividend
would reduce the surplus of the Company to an amount less than the difference
between the liquidation preference of the Series B Preferred Stock and its par
value.
Voting Rights
Holders of the Series B Preferred Stock are not entitled or permitted to
vote on any matter required or permitted to be voted upon by the shareholders of
the Company, except as otherwise required by New Jersey law or the Certificate
of Incorporation.
Pursuant to the Certificate of Incorporation, so long as any shares of the
Series B Preferred Stock are outstanding, the affirmative vote of the holders of
at least a majority of the outstanding shares of Series B Preferred Stock voting
separately as one class, is required before:
(a) the Company can authorize or issue any new class of Parity
Securities or Senior Securities, or increase the authorized number
of shares of any such class or series, or reclassify any authorized
stock of the Company into any such class or series, or authorize any
obligation or security convertible into or evidencing the right to
purchase any such Parity Securities or Senior Securities unless the
pro forma ratios for the latest twelve months of (i) net income
available for preferred dividends to preferred dividends is not less
than 1: I and (ii) earning before interest, taxes, depreciation and
amortization, less capital expenditures, securities amortization and
redemption, cash taxes and changes in working capital to preferred
dividends is not less than 1.2:1;
(b) the Company can amend the Certificate of Incorporation so as to
affect adversely the voting rights, preferences, privileges or
relative participating, optional or other specified rights of the
holders of Series B Preferred Stock or to authorize the issuance of
any additional shares of Series B Preferred Stock; provided that any
such amendment that adversely changes the dividend payable on, or
the liquidation preference of, the Series B Preferred Stock shall
require the affirmative vote or consent of all holders of Series B
Preferred Stock; and
(c) the Company can amend or modify the Exchange Note Indenture from the
form as existing on the date of issue of the Series B Preferred
Stock (except as expressly provided therein), until the exchange of
Series B Preferred Stock for Exchange Notes.
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<PAGE> 61
Upon the failure by the Company to (a) declare and pay in full dividends
accumulated and owing on any dividend payment date for more than four
consecutive dividend payment dates; (b) satisfy any mandatory redemption
obligation with respect to the Series B Preferred Stock or make a Change of
Control Offer in the time period set forth therein (each of the events,described
in clauses (a) and (b) being referred to herein as a "Voting Rights Triggering
Event"), then the number of directors constituting the Board of Directors shall
thereupon automatically be increased by one, in the case of clause (a) above and
two, in the case of clause (b) above, and the holders of a majority of the
outstanding shares of Series B Preferred Stock, voting separately as one class
(or as a class together with the holders of shares of Parity Securities, if such
holders are entitled to elect additional directors pursuant to any provisions of
the Certificate of Incorporation that are similar to those of the holders of the
Series B Preferred Stock), shall be entitled to elect such members to the Board
of Directors at a special meeting therefor called upon the occurrence of such
Voting Rights Triggering Event and at every subsequent meeting at which the
terms of office of the directors so elected expire. In no event shall the
holders of the Series B Preferred Stock and the holders of Parity Securities
voting together as a class be entitled to elect a total of more than two
additional directors to the Board of Directors of the Company
The right of the holders of the Series B Preferred Stock to elect
directors shall continue until such time as all accumulated dividends that are
in arrears on the Series B Preferred Stock are paid in full or such other Voting
Rights Triggering Event has been completely cured, at which time (a) the special
right of such holders so to vote for the election of directors and (b) the term
of office of the directors elected by such holders shall terminate, and the
directors elected by the holders of Common Stock shall constitute the entire
Board of Directors and the authorized number of directors of the Company shall
thereupon return to the number of authorized directors otherwise in effect, but
subject always to the same provisions for the renewal and divestment of such
special voting rights in the case of any future Voting Rights Triggering Event.
At any time after voting power to elect directors shall have become vested
and be continuing in the holders of the Series B Preferred Stock or if vacancies
shall exist in the offices of directors elected by such holders, a proper
officer of the Company may, and upon the written request of any holder of record
of the Series B Preferred addressed to the Secretary of the Company at the
Company's principal executive office shall, call special meeting of such holders
for the purpose of electing the directors that such holders are entitled to
elect. If such meeting shall not be called by the proper officer of the Company
within 20 days after personal service of such written request upon the Secretary
of the Company, or within 20 days after mailing the same within the United
States by certified mail, addressed to the Secretary of the Company at its
principal executive offices, then any holder of the Series B Preferred Stock may
designate in writing one of their number to call such meeting at the expense of
the Company, and such meeting may be called by the person so designated upon the
notice required for special meetings of shareholders of the Company and shall be
held at the place for holding the annual meetings of shareholders. Any holder so
designated shall have, and the Company shall provide, access to the lists of
holders to be called pursuant to the provisions hereof.
At any meeting held for the purpose of electing directors at which the
holders of the Series B Preferred Stock shall have the right to elect directors,
the presence in person or by proxy of the holders of at least a majority of the
outstanding Series B Preferred Stock shall be required to constitute a quorum of
such Series B Preferred Stock.
Any vacancy occurring in the office of a director elected by the holders
of the Series B Preferred Stock (or such holders and holders of Parity
Securities) may be filled by the Board of Directors with a person nominated by
the remaining director, if any, elected by such holders (or such holders and
holders of such Parity Securities) unless and until such vacancy shall be filled
by such holders (or such holders and holders of such Parity Securities) by
calling a special meeting of such holders as provided above.
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In any case in which the holders of Series B Preferred Stock shall be
entitled to vote pursuant to the Certificate of Incorporation or pursuant to New
Jersey law, each such holder shall be entitled to one vote for each share of
Series B Preferred Stock held.
Merger, Consolidation and Sale of Assets
Without the vote or consent of the holders of a majority of the then
outstanding shares of Series B Preferred Stock, the Company may not consolidate
or merge with or into, or sell, assign, transfer, lease convey or otherwise
dispose of 80% or more of its assets to, any person unless (a) the entity formed
by such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (in any such case, the "resulting entity") is a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia; (b) if the Company is not the resulting entity, the Series
B Preferred Stock is converted into or exchanged for and becomes shares of such
resulting entity, having in respect of such resulting entity the same (or more
favorable) powers, preferences and relative participating, optional or other
special rights thereof that the Series B Preferred Stock had immediately prior
to such transaction; and (c) immediately after giving effect to such
transaction, no Voting Rights Triggering Event has occurred and is continuing.
The resulting entity of such transaction shall thereafter be deemed to be the
"Company" for all purposes of the Certificate of Incorporation.
Exchange Notes
The Exchange Notes, if issued, will be issued pursuant to the Exchange
Note Indenture between the Company and a trustee to be chosen by the Company
prior to the issuance of the Exchange Notes. The terms of the Exchange Notes
include those stated in the Exchange Note Indenture and those made part of the
Exchange Note Indenture by reference to the Trust Indenture Act. The Exchange
Notes are subject to all such terms, and prospective investors are referred to
the Exchange Note Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Exchange Note Indenture does
not purport to be complete.
General
The Exchange Note Indenture authorizes the issuance of an aggregate
principal amount of Exchange Notes equal to the aggregate liquidation preference
of the then outstanding shares of Series B Preferred Stock at the time such
shares are exchanged for Exchange Notes as described under "--Series B Preferred
Stock-Exchange". The Exchange Notes will mature on August 15, 2004. The Exchange
Notes will bear interest at the rate of 8 3/4% per annum, payable quarterly in
arrears on February 1, May 1, August 1 and November 1 of each year, commencing
on the first such date following the date on which the Exchange Notes are issued
(the "Exchange Date"), to the holders of record at the close of business on the
April 1 and October 1 next preceding such interest payment date. Interest will
initially accrue from the Exchange Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. The Exchange Notes will be issued in
fully registered form only in denominations of $1,000 and integral multiples
thereof, other than as described under "--Series B Preferred Stock--Exchange".
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all Senior Debt (as defined below). See "--
Subordination."
Principal, premium and interest will be payable, and the Exchange Notes
may be presented for redemption, repurchase, exchange or transfer, at the office
of the paying agent and registrar and at any other office or agency maintained
by the Company for such purpose. The Trustee will initially act as registrar and
paying agent. The
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<PAGE> 63
Company may change the registrar or paying agent without prior notice to holders
and the Company or any subsidiary of the Company may act in such capacity.
Optional Redemption
The Exchange Notes will be redeemable for cash on or after August 15,
2000, at the option of the Company, in whole or from time to time in part, at
the redemption prices set forth herein, together with all accrued and unpaid
interest thereon to the redemption date. The redemption prices (expressed as
percentages of principal amount) are as follows for Exchange Note redeemed
during the twelve-month period beginning on August 15, of the years
indicated:
<TABLE>
<CAPTION>
Year Percentage
-------------------------- ----------------------
<S> <C>
2000 104.4%
2001 102.9%
2002 101.5%
2003 and thereafter 100%
</TABLE>
Notwithstanding the foregoing, on or after August 15, 1999, the Company
may, at its option, redeem the Exchange Notes at 105.9% of the principal amount
plus accrued and unpaid interest thereon if the Common Stock bid price has
averaged not less than 1.5 times the Conversion Price during 20 consecutive
trading days.
Selection and Notice
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Exchange Notes will be redeemed in multiples of
$1,000. At least 30 but not more than 60 days before the redemption date, a
public notice of the redemption shall be made and notice of redemption shall be
mailed by first class mail to each holder of Exchange Notes to be redeemed at
its registered address. If any Exchange Note is to be redeemed in part only, the
notice of redemption that relates to such Exchange Note shall state the portion
of the principal amount thereof to be redeemed. A new Exchange Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Exchange Note. Interest will
cease to accrue on Exchange Notes or portions thereof called for redemption on
the redemption date.
Mandatory Redemption
Except as set forth under "--Change of Control," the Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Exchange Notes.
Subordination
The payment of principal of and premium and interest on the Exchange Notes
will be subordinated in right of payment to the prior payment in full of all
Senior Debt, whether outstanding on the Exchange Date or thereafter incurred.
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<PAGE> 64
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors of any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all monetary obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of Exchange Notes
will be entitled to receive any payment with respect to the Exchange Notes, and
until all monetary obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of Exchange Notes would be entitled shall be
made to the holders of such Senior Debt (except that holders of Exchange Notes
may receive securities, including capital stock, that are subordinated at least
to the same extent as the Exchange Notes to Senior Debt and any securities
issued in exchange for Senior Debt).
The Company also may not make any payment upon or in respect of the
Exchange Notes (except in such capital stock or subordinated securities) if (a)
a default on the payment of the principal of or premium or interest on any
Senior Debt occurs and is continuing beyond any applicable period of grace or
(b) any other default occurs and is continuing with respect to any Designated
Senior Debt (as defined below) that permits holders of such Designated Senior
Debt to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the representative of
holders of such Designated Senior Debt. Payments on the Exchange Notes may and
shall be resumed (i) in the case of a payment default, upon the date on which
such nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated and remains unpaid. No new period of
payment blockage may be commenced unless and until 360 days have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice. No
non-payment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Brokage Notice.
"Senior Debt" means (a) all obligations of the Company under the Existing
Indebtedness (as defined in the Exchange Note Indenture), as it may be amended,
modified, restated, supplemented, deferred, extended, renewed, replaced,
refunded or refinanced from time to time, and (b) any other Indebtedness of the
Company, whether outstanding on the date of issuance of the Exchange Notes or
thereafter incurred, unless the instrument under which such indebtedness is
incurred expressly provides that it is subordinated in right of payment to any
Senior Debt; provided, however, that Senior Debt will not include (i) any
liability for federal, state, local or other taxes owed or owing by the Company,
(ii) any Indebtedness of the company to any of its subsidiaries or (iii) any
trade payables.
"Indebtedness" means any indebtedness, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or similar
instrument or letters of credit (or reimbursement agreements in respect thereof)
or banker's acceptances or representing capital lease obligations or the balance
deferred and unpaid of the purchase price of any property or representing any
hedging obligations, except any such balance that constitutes an accrued expense
or trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and hedging obligations) would appear as a liability upon
a balance sheet prepared in accordance with generally accepted accounting
principles.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Existing Indebtedness and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $5.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
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<PAGE> 65
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. In
addition, neither the Certificate of Incorporation nor the Exchange Note
Indenture will limit the amount of Senior Debt that the Company may incur in the
future.
Change of Control
Upon the occurrence of a Change of Control, at the option of the holders
of a majority in principal amount of the Exchange Notes, the Company will be
required to make an offer (an "Exchange Note Change of Control Offer") to
repurchase all or any part of each holder's Exchange Notes at an offer price
equal to 100% of the aggregate principal amour thereof, plus accrued and unpaid
interest thereon to the date of repurchase. Such repurchase may be made at the
option of the Company either in (i) cash at 100% or (ii) Common Stock value at
95% of average closing price of the Common Stock during the 20 trading days
prior to such redemption. Within 30 days following a Change of Control, the
Company will mail a notice to each holder of Exchange Note describing the
transaction that constitutes the Change of Control and offering to repurchase
the Exchange Notes pursuant to the procedures required by the Exchange Note
Indenture and described in such notice; provided that, prior to complying with
the provisions of this covenant, but in any event within 90 days following a
Change of Control, the Company will either repay all outstanding Senior Debt or
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of the Exchange Notes required
by this covenant. The Company will comply with the requirements of the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Exchange Notes as a result of a Change of Control.
Except as described above with respect to a Change of Control, the
Exchange Note Indenture does not contain provisions that permit the holders of
the Exchange Notes to require that the Company repurchase or redeem the Exchange
Notes in the event of a takeover, recapitalization or similar transaction. In
addition, the Company could enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that could affect the
Company's capital structure or the value of the Exchange Notes or the Common
Stock but that would not constitute a Change of Control.
The occurrence of a Change of Control may result in a default under
certain of the Existing Indebtedness or other Senior Debt. In addition, certain
of the Existing Indebtedness or other Senior Debt could restrict the Company's
ability to repurchase Exchange Notes for cash upon a Change of Control. In the
event a Change of Control occurs at a time when the Company is prohibited from
repurchasing Exchange Notes for cash, the Company could seek the consent of its
lenders to the repurchase of Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
repurchasing Exchange Notes for cash. The Company's failure to make an Exchange
Note Change of Control Offer or to repurchase Exchange Notes tendered in an
Exchange Note Change of Control Offer would constitute an event of default under
the Exchange Note Indenture, which could, in turn, constitute a default under
the Company's existing indebtedness or other Senior Debt. In such circumstances,
the subordination provisions in the Exchange Note Indenture would likely
restrict payments to the holders of Exchange Notes. See "--Subordination."
Finally, the Company's ability to repurchase Exchange Notes following a Change
of Control may be limited by the Company's then existing financial resources.
The Company will not be required to make an Exchange Note Change of
Control Offer following a Change of Control if a third party makes the Exchange
Note Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Exchange Note Indenture
applicable to an
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<PAGE> 66
Exchange Note Change of Control Offer made by the Company and purchases all
Exchange Notes validly tendered and not withdrawn under such Exchange Note
Change of Control Offer.
Conversion Rights
Each Exchange Note will be convertible at any time at the option of the
holder thereof into Common Stock of the Company at a conversion rate equal to
the principal amount of such Exchange Note divided by the conversion price then
applicable, except that the right to convert Exchange Notes called for
redemption will terminate at the close of business on the business day preceding
the redemption date and will be lost if not exercised prior to that time, unless
the Company defaults in making the payment due upon redemption, or if not
exercised prior to the maturity of the Exchange Notes.
The conversion price initially will be the conversion price with respect
to the Series B Preferred Stock on the Exchange Date and will be subject to
adjustment as set forth under "--Series B Preferred Stock--Conversion Rights".
In the case of certain consolidations or mergers to which the Company is a
party or the transfer of substantially all of the assets of the Company, the
Exchange Notes then outstanding would become convertible only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger or transfer by a holder of the number of shares of Common Stock into
which such Exchange Notes might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Common Stock failed
to exercise any rights of election and received per share the kind and amount
receivable per share by a plurality of non-electing shares).
No fractional shares of Common Stock will be issued upon conversion; in
lieu thereof, the Company will pay a cash adjustment based upon the closing
price of the Common Stock on the business day prior to the conversion date.
The holder of record of an Exchange Note at the close of business on a
record date with respect to the payment of interest on the Exchange Notes will
be entitled to receive such interest with respect to such Exchange Notes on the
corresponding interest payment date notwithstanding the conversion of such
Exchange Notes after such record date and prior to such interest payment date.
Exchange Notes surrendered for conversion during the period from the close of
business on any record date for the payment of interest to the opening of
business on the corresponding interest payment date must be accompanied by a
payment in cash in an amount equal to the interest payable on such interest
payment date, unless such Exchange Notes have been called for redemption on a
redemption date occurring during the period from the, close of business on any
record date for the payment of interest to the close of business on the business
day immediately following the corresponding interest payment date. The interest
payment with respect to an Exchange Note called for redemption on a date during
the period from the close of business on any record date for the payment of
interest to the close of business on the business day immediately following the
corresponding interest payment date will be payable on such interest payment
date to the record holder of such Exchange Note on such record date, not
withstanding the conversion of such Exchange Note after such record date and
prior to such interest payment date. No payment or adjustment will be made upon
conversion of Exchange Notes for accrued and unpaid interest or for dividends
with respect to the Common Stock issued upon such conversion.
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<PAGE> 67
Other Provisions of the Company's Restated Certificate of Incorporation
The Company's Restated Certificate of Incorporation contains certain
provisions known as "supermajority" and "fair price" provisions which are
anti-takeover measures and could affect the price shareholders could receive for
shares of Common Stock.
Supermajority Provision. The "supermajority" provision is intended to
encourage a corporation seeking to enter into a merger or consolidation with the
Company or a sale of all or substantially all of the assets of the Company to
negotiate these transactions with the "Disinterested Directors" (as defined) to
ensure that such transactions have the substantial support of such directors
before submission to the shareholders.
The supermajority provision requires for approval of a merger or
consolidation between the Company and another corporation, or a sale of
substantially all of the assets of the Company, the affirmative vote of at least
80% of the combined voting power of the then outstanding voting stock voting
together as a single class (an "80% Shareholder Vote") in addition to any other
shareholder vote required. The 80% Shareholder Vote would not apply if the
proposed transaction is approved by the greater of (i) at least three-fourths of
the Disinterested Directors or (ii) two Disinterested Directors. A Disinterested
Director is any person who is a member of the Board of Directors, while such
person is a member of the Board, who is not an Affiliate, Associate (as those
terms are defined in Rule 12b-2 under the Exchange Act) or representative of the
other party to the transaction with the Company and who was either a member of
the Board at the time the supermajority provision was approved by the Board, or
who was recommended for election to the Board, or elected to fill a vacancy on
the Board, by a majority of Disinterested Directors.
Fair Price Provision. The "fair price" provision is intended to (i)
override New Jersey's corporation law which provides that a majority in interest
of shareholders voting thereon is required for a merger by a corporation, unless
such corporation's certificate of incorporation specifies a higher percentage
and (ii) prevent a two-tier front-end loaded pricing method for corporate
takeovers. In this type of takeover attempt, the bidder tenders for that
percentage of shares which will give it sufficient votes to approve a merger
providing for the elimination of minority shareholders, as the method of buying
the remaining shares. The consideration given for a corporation's shares in this
type of merger can be, and frequently is, in a different form than that given in
the tender offer. For example, the bidder may pay cash to purchase a controlling
position and thereafter approve a merger in which the remaining shareholders
receive securities of the bidder (or one of its subsidiaries). Moreover, the
value of the securities exchanged in the second step may be substantially less
than the amount of cash or the value of the other consideration given in the
first step. Accordingly, the shareholders are induced to tender initially.
The fair price provision requires an 80% Shareholder Vote for certain
transactions with an Interested Shareholder (as defined) unless specified price
criteria and procedural requirements are met and a majority of the entire Board
of Directors approves the Business Combination (as defined) or the approval of
not less than three-fourths of the Continuing Directors (as defined) is given.
If the latter occurred, then the proposed Business Combination would be subject
to the normal approval requirements under New Jersey law.
An "Interested Shareholder" is defined as any person, other than the
Company or any subsidiary or any employee benefit plan of the Company or of any
subsidiary or fiduciary of such a plan, or any person who was a director of the
Company on the date the provision was adopted by the Board of Directors (such
persons being Messrs. Nicholas Menonna, Jr., Martin J. Sergi and Marshall S.
Sterman) who (i) is the beneficial owner of voting stock representing 10% or
more of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock, (ii) is an Affiliate (as defined) or Associate of the
Company and within the prior two
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<PAGE> 68
years was the beneficial owner of voting stock representing 10% or more of the
votes entitled to be cast by the holders of all then outstanding shares of
voting stock, or (iii) is the assignee of or has otherwise succeeded to the
beneficial ownership of any voting stock beneficially owned by an Interested
Shareholder within such two-year period, if such assignment or succession
occurred pursuant to a transaction or any series of transactions not involving a
public offering within the meaning of the Securities Act. The term "beneficial
owner" includes any person directly or indirectly owning or having the right to
vote or acquire shares.
The terms "Affiliate" and "Associate" have the respective meanings
ascribed to such terms in Rule 12b-2 under the Exchange Act, as in effect on
December 31, 1993.
A "Business Combination" includes the following transactions: (1) a merger
or consolidation of the Company or any of its subsidiaries with an Interested
Shareholder or any other corporation which is or after such transaction becomes
an Affiliate or Associate of an Interested Shareholder; (2) the sale or other
disposition to, with or by any Interested Shareholder or any Affiliate or
Associate of an Interested Shareholder involving any assets or securities of the
Company, any subsidiary or any Interested Shareholder or any Affiliate or
Associate of an Interested Shareholder valued at $20,000,000 or more; (3) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company proposed by or on behalf of an Interested Shareholder or any Affiliate
or Associate of an Interested Shareholder; (4) any reclassification of
securities or recapitalization of the Company, merger or consolidation of the
Company with any subsidiary or other transaction which has the effect, directly
or indirectly, of increasing the proportionate share of any class or series of
the Company's stock, or securities convertible into stock of any class or series
of the Company's stock or into equity securities of any subsidiary, that is
beneficially owned by an Interested Shareholder or any Affiliate or Associate of
an Interested Shareholder; or (5) any agreement, contract or other arrangement
providing for any one or more of the actions referred to above.
A "Continuing Director" is any member of the Board, while a member of the
Board, who is not an Affiliate or Associate or a representative of the
Interested Shareholder and either was a director at the time the fair price
provision was adopted by the Board or was recommended for election to the Board,
or elected to fill a vacancy on the Board, by a majority of the Continuing
Directors.
An 80% Shareholder Vote would not be required if the proposed Business
Combination is approved by not less than three-fourths of the Continuing
Directors or certain minimum price criteria and procedural requirements are
satisfied and not less than a majority of the entire Board of Directors approves
the transaction.
LEGAL MATTERS
The law firm of McDermott, Will & Emery, 50 Rockefeller Plaza, New York,
New York 10020 acted as counsel for the Company in connection with the validity
of the Shares and the Exchange Notes offered hereby.
EXPERTS
The consolidated financial statements and schedule of the Company and the
financial statements of PERC appearing in the Company's Annual Report (Form
10-K) for the year ended December 31, 1996, and the consolidated statements of
Prins Recycling Corp. (debtor-in-possession) appearing in the Company's Current
Report (Form 8-K, dated November 14, 1997, as amended by Form 8-K/A) have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by
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<PAGE> 69
reference. Such financial statements and schedule are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
INDEMNIFICATION
The registrant's Restated Certificate of Incorporation provides that it
shall indemnify its officers, directors, employees and agents to the full extent
permitted by law. Statutory authority for such indemnification is contained in
Title 14A, New Jersey Business Corporation Act, Revised Statutes of New Jersey,
N.J.S.A. 14A:3-5.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to officers, directors and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the company has
been advised that in the opinion of the Securities and Exchange Commission it is
against public policy as expressed in the Security Act of 1933 and is,
therefore, unenforceable.
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<PAGE> 70
No dealer, salesman or any other
person has been authorized to give any
information or to make any representation
other than those contained in this
Prospectus and, if given or made, such
information or representation must not be
relied upon as having been authorized by
the Company, by any Selling Shareholder or
by any other person. This Prospectus does
not constitute an offer to sell or a
solicitation of an offer to buy the
securities offered hereby to any person or
by anyone in any jurisdiction in which
such offer or solicitation may not
lawfully be made. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any circumstances,
create any implication that there has been
no change in the affairs of the Company
since the date hereof, or that the
information herein contained is correct as
of any time subsequent to its date.
---------------
TABLE OF CONTENTS
Page
----
Available Information...................
Incorporation of Certain Information
by Reference..........................
Special Note Regarding Forward Looking
Statements............................
Summary.................................
The Offering............................
Risk Factors............................
Use of Proceeds.........................
Business................................
Selling Shareholders....................
Plan of Distribution....................
Description of Securities...............
Legal Matters...........................
Experts.................................
Indemnification.........................
846,000
Shares of Series B Convertible
Exchangeable Preferred Stock
1,839,364
Shares of Common Stock
$21,150,000
Subordinated Convertible Notes
KTI, INC.
-----------
PROSPECTUS
-----------
February __, 1998
67
<PAGE> 71
PART II
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
offering described in this Registration Statement. The Company has agreed to pay
all of the costs and expenses of this Offering.
<TABLE>
<S> <C>
SEC Registration fee $6,239.25
*Blue Sky fees and expenses 0
*Legal fees and expenses 30,000.00
*Accounting fees and expenses 10,000.00
*Miscellaneous 2,000.00
--------
*TOTAL $48,239.25
==========
</TABLE>
*Estimated
Item 15. Indemnification of Directors and Officers.
The registrant's Restated Certificate of Incorporation provides that it
shall indemnify its officers, directors, employees and agents to the full extent
permitted by law.
Statutory authority for such indemnification is contained in Title 14A,
New Jersey Business Corporation Act, Revised Statutes of New Jersey, N.J.S.A.
14A:3-5, the material provisions of which may be summarized as follows:
Non-derivative Proceedings (proceedings other than those brought by or in
the right of the corporation). A corporation may indemnify an actual or
prospective party to a proceeding or investigation if he became such because he
is or was a director, officer, employee or agent of the corporation, or of a
constituent corporation absorbed by such corporation in a consolidation or
merger, or is or was serving at the request of the indemnifying or constituent
corporation as a director, officer, trustee, employee or agent of another
enterprise. To be eligible for such indemnity, the party must have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and also, in a criminal proceeding, he must have
had no reasonable cause to believe that his conduct was unlawful. Such indemnity
may be against judgments, fines, settlements, and penalties and reasonable
expenses (including counsel fees) incurred in connection with such proceeding.
Derivative Proceedings (proceedings by or in the right of the
corporation). A corporation may indemnify such actual or prospective party to a
proceeding or investigation against his reasonable expenses (including counsel
fees) if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, but not against
judgments, fines, settlements or penalties in connection with such proceedings
or investigation. However, if such party has been adjudged to be liable to the
corporation, he may be indemnified for expenses only if a court determines that,
despite such adjudication of liability, in the circumstances of the case
indemnity of such party is fair and reasonable.
Determination Regarding Indemnification. Indemnification of a party
(unless ordered by a court) is dependent upon a determination that such
indemnification is proper because the party has met the above standards
applicable to him, such determination to be made by (a) the Board of Directors
or a committee thereof acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceedings or
(b) under certain circumstances, by independent legal counsel in a written
opinion or by the
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<PAGE> 72
shareholders of the corporation. Upon the making of such determination in the
appropriate manner, a corporation may advance expenses in connection with a
proceeding upon receipt of an undertaking by the party to repay them if it is
ultimately determined that he is not entitled to indemnification.
Other Material Provisions. In all cases, if the party has been successful
in a proceeding on the merits or otherwise, or in defense of any matter therein,
he is entitled to indemnification for his reasonable expenses (including counsel
fees). The indemnification provided by statute is not exclusive of other rights
of indemnification and inures to the benefit of the party's legal
representative. A corporation may purchase and maintain insurance against
expenses incurred by, and liabilities asserted against, directors, officers,
employees or agents whether or not the corporation would be empowered to provide
such indemnity.
Item 16. Exhibits.
The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement.
EXHIBIT INDEX
2.1 Agreement of Reorganization and Merger among KTI, Inc., a New Jersey
corporation, K-C Industries, Inc., an Oregon corporation and KES,
Inc., a Delaware corporation, dated September 22, 1997 (1)
4.1 Specimen Form of Common Stock Certificate (2)
4.3 Certificate of Amendment to Registrant's Restated Certificate of
Certificate of Incorporation, filed August 8, 1997 (3)
*4.4 Certificate of Correction to Certificate of Amendment to
Registrant's Restated Certificate of Certificate of Incorporation,
filed October 31, 1997
**4.5 Indenture
**4.6 Form of Exchange Note
**5 Opinion of McDermott, Will & Emery re: legality
10.1 Loan Agreement dated as of June 1, 1985 between City of Biddeford,
Maine and Maine Energy Recovery Company, as amended (4)
10.2 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. (4)
10.3 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. (4)
10.4 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 (4)
10.5 Loan Agreement dated as of April 1, 1986 between Town of Orrington,
Maine and Penobscot Energy Recovery Company, as amended (4)
10.6 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 (4)
10.7 Second Amended and Restated Agreement and Certificate of Limited
Partnership of Penobscot Energy Recovery Company dated May 15, 1986,
as amended (2)
10.8 Agreement between Penobscot Energy Recovery Company and Bangor
Hydro-Electric Company dated June 21, 1984, as amended (2)
10.9 Form of Penobscot Energy Recovery Company Waste Disposal Agreement
(City of Bangor) dated April 1, 1991 and Schedule of Substantially
Identical Waste Disposal Agreements (2)
10.10 Operation and Maintenance Agreement Between Esoco Orrington, Inc.
and Penobscot Energy Recovery Company dated June 30, 1989 (2)
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<PAGE> 73
10.11 Residue Disposal Agreement between Penobscot Energy Recovery Company
and Sawyer Environmental Recovery Facilities, Inc. dated September
19, 1985, as amended (2)
10.12 Amended and Restated Bypass Agreement between Sawyer Environmental
Recovery Facilities, Inc. and Penobscot Energy Recovery Company
dated April 4, 1994 (2)
10.13 Second Amended and Restated Agreement and Certificate of Limited
Partnership of Maine Energy Recovery Company dated June 30, 1986, as
amended (2)
10.14 Power Purchase Agreement Between Maine Energy Recovery Company and
Central Maine Power Company dated January 12, 1984, as amended (2)
10.15 Operation and Maintenance Agreement Between Maine Energy Recovery
Company and KTI Operations, Inc. dated December 1, 1990 (2)
10.16 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 (2)
10.17 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 (2)
10.18 Material Disposal and Transportation Agreement among Consolidated
Waste Service, Inc., Waste Management of New Hampshire and Maine
Energy Recovery Company dated October 21, 1991 (2)
10.19 Front-End Process Residue Agreement between Arthur Schofield, Inc.
and Maine Energy Recovery Company dated May 27, 1994 (2)
10.20 Second Amended and Restated Agreement and Certificate of Limited
Partnership of FTI Limited Partnership dated December 11, 1986, as
amended (2)
10.21 Land Lease dated November 25, 1985 between City of Lewiston and Fuel
Technologies, Inc. as amended (2)
10.22 KTI, Inc. 1994 Long-Term Incentive Award Plan (2)
10.23 Employment Agreement between KTI, Inc. and Martin J. Sergi dated May
1, 1994 (2)
10.24 Registration Rights Agreement between Davstar Managed Investments
Corp. and KTI Environmental Group, Inc. dated March 17, 1993 (2)
10.25 Registration Rights Agreement among KTI Environmental Group, Inc.,
Martin J. Sergi and Midlantic National Bank dated May 10, 1994 (2)
10.26 Registration Rights Agreement among KTI Environmental Group, Inc.,
Nicholas Menonna, Jr. and Midlantic National Bank dated May 10, 1994
(2)
10.27 KTI, Inc. Directors Stock Option Plan (5)
10.28 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)
10.29 Letter Agreement dated as of November 10, 1995 among Central Maine
Power, Maine Energy Recovery Company and Citizens Lehman Power (6)
10.30 Global Agreement dated December 28, 1995 between Environmental
Capital Holdings, Inc. and KTI, Inc. (6)
10.31 Agreement of Limited Partnership of American Ash Recycling of
Tennessee, Ltd. dated December 28, 1995 (6)
10.32 Agreement of Limited Partnership of American Ash Recycling of New
England, Ltd. dated December 28, 1995 (6)
10.33 First Amendment to Agreement of Limited Partnership of American Ash
Recycling of Tennessee, Ltd., dated March 16, 1996 (7)
10.34 Agreement dated as of July 19, 1996 by and among KTI, Inc.,
DataFocus Incorporated and CIBER, Inc. (8)
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<PAGE> 74
10.35 Agreement dated July 19, 1996 by and among KTI, Inc., Thomas Bosanko
and Patrick B. Higbie (8)
10.36 Operating Agreement of Specialties Environmental Management Company,
LLC dated as of October 18, 1996 (9)
10.37 Amendment to Employment Agreements between KTI, Inc. and Nicholas
Menonna, Jr. and Martin J. Sergi (10)
10.38 Note Purchase Agreement dated as of October 23, 1996 between KTI,
Inc. and WEXFORD KTI LLC (11)
10.39 Registration Rights Agreement dated as of October 23, 1996 between
KTI, Inc. and WEXFORD KTI LLC (11)
10.40 Escrow Agreement dated as of October 23, 1996 between KTI, Inc. and
WEXFORD KTI LLC and Key Trust of Ohio, N.A. (11)
10.41 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 (12)
10.42 Securities Purchase Agreement by and among KTI Plastic Recycling,
Inc. and Diane Goodman and Seth Lehner dated as of November 25, 1996
(13)
10.43 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 (14)
10.44 Pledge Agreement between each Borrower and Key Bank of New York
dated October 29, 1996 (14)
10.45 Key Trust Company PRISM(R) Prototype Retirement Plan and Trust
adopted as of December 11, 1996 (14)
10.46 Option and Consulting Agreement by and among KTI, Inc. and L.T.
Lawrence & Co., Inc. dated as of June 1, 1996 (14)
10.47 First Amendment to Option and Consulting Agreement by and among KTI,
Inc. and L.T. Lawrence & Co., Inc. dated as of December 18, 1996
(14)
10.48 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 (14)
10.49 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
(14)
10.50 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 (14)
10.51 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
(14)
10.52 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 (14)
10.53 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 (14)
10.54 Third Amendment to Second Amended and Restated Certificate and
Agreement of Limited Partnership of FTI Limited Partnership dated as
of January 23, 1997 (14)
10.55 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 (14)
10.56 Registration Rights Agreement by and between KTI, Inc. and Maine
Woodchips Associates dated as of January 23, 1997 (14)
10.57 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 (15)
10.58 Term sheet (Purchase of assets of Prins Recycling Corp. and
subsidiaries) (16)
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<PAGE> 75
10.59 Agreement, dated as of April 21, 1997 between KTI Recycling, Inc.
and its subsidiaries and PNC Bank (16)
10.60 Operations and Maintenance Agreement, dated as of April 21, 1997, by
and between Prins Recycling Corp. and its subsidiaries and KTI
Operations, Inc. (16)
10.61 Order of the Bankruptcy Court for the District of New Jersey dated
June 19, 1997 (16)
10.62 Asset Purchase Agreement, dated as of June 24, 1997, between Prins
Recycling Corp. and its subsidiaries and KIT Recycling, Inc. and its
subsidiaries (16)
10.63 Securities Purchase Agreement by and among I. Zaitlin & Sons, Inc.,
a Maine corporation, Data Destruction Services, Inc., a Maine
corporation, Samuel M. Zaitlin, Steven G. Suher and George G. Deely
and KTI Recycling, Inc., a Delaware corporation (17)
10.64 First amendment, dated as of August 14, 1997, to the Loan and
Security Agreement between KTI, Inc., KTI Environmental Group, Inc.,
Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations,
Inc. and PERC, Inc. (18)
10.65 Securities Purchase Agreement, dated as of August 12, 1997, by and
among KTI, Inc., and Wenoha Corporation, John G. Mills, L. Don
Norton, Glen Wade Stewart, Bruce D. Wentworth and Donald E.
Wentworth (18)
10.66 Placement Agreement dated August 7, 1997 between KTI, Inc. and
Credit Research & Trading LLC (19)
10.67 Warrant Agreement dated August 7, 1997 between KIT, Inc. and Credit
Research & Trading LLC (19)
10.68 Registration Rights Agreement dated August 15, 1997 between KIT,
Inc. and the purchases named therein (19)
10.69 Purchase and Option Agreement by and between PERC Management Company
Limited Partnership and The Prudential Insurance Company of America
dated September 30, 1997 (20)
10.70 Second Amendment to the Second Amended and Restated Agreement and
Certificate of Limited Partnership of Penobscot Energy Recovery
Company, Limited Partnership dated as of September 29, 1997 (20)
10.71 Assignment and Assumption Agreement between The Prudential Insurance
Company of America and PERC Management Company Limited (20)
Partnership dated as of September 29, 1997 re Penobscot Energy
Recovery Company, Limited Partnership (20)
10.72 Amendment No. 1 to Reimbursement Agreement and Release of Assignment
dated as of September 29, 1997 to the Reimbursement Agreement dated
as of May 28, 1991 of Penobscot Energy Recovery Company, Limited
Partnership in favor of Morgan Guaranty Trust Company of New York re
Penobscot Energy Recovery Company, Limited Partnership (20)
10.73 Assignment and Assumption Agreement between The Prudential Insurance
Company of America and PERC Management Company Limited Partnership
dated as of September 29, 1997 re Orrington Waste Ltd., Limited
Partnership (20)
10.74 Amendment no. 1 to Reimbursement Agreement and Release of Assignment
dated as of September 29, 1997 to the Reimbursement Agreement dated
as of May 28, 1991 of Penobscot Energy Recovery Company, Limited
Partnership in favor of Morgan Guaranty Trust Company of New York re
Orrington Waste Ltd. (20)
10.75 Securities Purchase Agreement dated as of January 1, 1998, by and
among Vel-A-Tran Recycling, Inc., a Massachusetts corporation,
Raymond Vellucci and KTI Recycling of New England, Inc., a Delaware
corporation (21)
10.76 Securities Purchase Agreement dated as of January 27, 1998 among
Total Waste Management Corporation, Donald A. Littlefield, William
Kaylor and KTI Specialty Waste Services, Inc., a Maine corporation
(22)
**11 Statement of computation of per share earnings
**12 Statement of computation of earnings to fixed charges
*23.1 Consent of Ernst & Young LLP
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<PAGE> 76
*23.2 Consent of McDermott, Will & Emery (contained in Exhibit 5)
*24 Power of Attorney (on signature page)
**25 Statement of Form of Eligibility of Trustee
- ----------------------------------
(1) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
September 16, 1997
(2) Filed as an Exhibit to Registrant's Registration Statement on Form S-4
(No. 33-85234) dated January 6, 1995.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
August 15, 1997.
(4) Filed with the Registration Statement on Form S-1 dated December 6, 1995.
(5) Filed as an Exhibit to Registrant's Proxy Statement dated June 5, 1995.
(6) Filed with the Amendment No. 1 to the Registration Statement on Form S-1
dated February 2, 1996.
(7) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated April
15, 1996.
(8) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July
19, 1996.
(9) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 18, 1996.
(10) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 23, 1996.
(11) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 24, 1996.
(12) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 22, 1996.
(13) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 25, 1996.
(14) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
(15) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 26, 1996.
(16) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated June
19, 1997
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July
29, 1997.
(18) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
August 12, 1997.
(19) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
August 15, 1997.
(20) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
September 30, 1997.
(21) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
January 15, 1998.
(22) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
February 4, 1998.
* Filed herewith.
** To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
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<PAGE> 77
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Guttenberg in the State of New Jersey, on February
10, 1998.
KTI, INC.
By: /s/ Martin J. Sergi
---------------------------
Martin J. Sergi
President
By: /s/ Ross Pirasteh
---------------------------
Ross Pirasteh
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Ross Pirasteh and Martin J. Sergi or any
of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Dated
- --------- ----- -----
/s/ Ross Pirasteh Chairman of the Board of February 10, 1998
- ------------------------------ Directors, Chairman of the
Ross Pirasteh Executive Committee and
Director
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<PAGE> 79
Signature Title Dated
- --------- ----- -----
/s/ Martin J. Sergi Vice Chairman, President, February 10, 1998
- ------------------------------
Martin J. Sergi and Director (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Dibo Attar Director February 10, 1998
- ------------------------------
Dibo Attar
/s/ Paul Kleinaitis Director February 10, 1998
- ------------------------------
Paul Kleinaitis
/s/ Jack Polak Director February 10, 1998
- ------------------------------
Jack Polak
/s/ Jeffrey R. Power Director February 10, 1998
- ------------------------------
Jeffrey R. Power
/s/ Wilbur Ross Director February 10, 1998
- ------------------------------
Wilbur Ross
II-9
<PAGE> 80
EXHIBIT INDEX
2.1 Agreement of Reorganization and Merger among KTI, Inc., a New Jersey
corporation, K-C Industries, Inc., an Oregon corporation and KES,
Inc., a Delaware corporation, dated September 22, 1997 (1)
4.1 Specimen Form of Common Stock Certificate (2)
4.3 Certificate of Amendment to Registrant's Restated Certificate of
Certificate of Incorporation, filed August 8, 1997 (3)
*4.4 Certificate of Correction to Certificate of Amendment to
Registrant's Restated Certificate of Certificate of Incorporation,
filed October 31, 1997
**4.5 Indenture
**4.6 Form of Exchange Note
**5 Opinion of McDermott, Will & Emery re: legality
10.1 Loan Agreement dated as of June 1, 1985 between City of Biddeford,
Maine and Maine Energy Recovery Company, as amended (4)
10.2 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. (4)
10.3 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. (4)
10.4 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 (4)
10.5 Loan Agreement dated as of April 1, 1986 between Town of Orrington,
Maine and Penobscot Energy Recovery Company, as amended (4)
10.6 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 (4)
10.7 Second Amended and Restated Agreement and Certificate of Limited
Partnership of Penobscot Energy Recovery Company dated May 15, 1986,
as amended (2)
10.8 Agreement between Penobscot Energy Recovery Company and Bangor
Hydro-Electric Company dated June 21, 1984, as amended (2)
10.9 Form of Penobscot Energy Recovery Company Waste Disposal Agreement
(City of Bangor) dated April 1, 1991 and Schedule of Substantially
Identical Waste Disposal Agreements (2)
10.10 Operation and Maintenance Agreement Between Esoco Orrington, Inc.
and Penobscot Energy Recovery Company dated June 30, 1989 (2)
<PAGE> 81
10.11 Residue Disposal Agreement between Penobscot Energy Recovery Company
and Sawyer Environmental Recovery Facilities, Inc. dated September
19, 1985, as amended (2)
10.12 Amended and Restated Bypass Agreement between Sawyer Environmental
Recovery Facilities, Inc. and Penobscot Energy Recovery Company
dated April 4, 1994 (2)
10.13 Second Amended and Restated Agreement and Certificate of Limited
Partnership of Maine Energy Recovery Company dated June 30, 1986, as
amended (2)
10.14 Power Purchase Agreement Between Maine Energy Recovery Company and
Central Maine Power Company dated January 12, 1984, as amended (2)
10.15 Operation and Maintenance Agreement Between Maine Energy Recovery
Company and KTI Operations, Inc. dated December 1, 1990 (2)
10.16 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 (2)
10.17 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 (2)
10.18 Material Disposal and Transportation Agreement among Consolidated
Waste Service, Inc., Waste Management of New Hampshire and Maine
Energy Recovery Company dated October 21, 1991 (2)
10.19 Front-End Process Residue Agreement between Arthur Schofield, Inc.
and Maine Energy Recovery Company dated May 27, 1994 (2)
10.20 Second Amended and Restated Agreement and Certificate of Limited
Partnership of FTI Limited Partnership dated December 11, 1986, as
amended (2)
10.21 Land Lease dated November 25, 1985 between City of Lewiston and Fuel
Technologies, Inc. as amended (2)
10.22 KTI, Inc. 1994 Long-Term Incentive Award Plan (2)
10.23 Employment Agreement between KTI, Inc. and Martin J. Sergi dated May
1, 1994 (2)
10.24 Registration Rights Agreement between Davstar Managed Investments
Corp. and KTI Environmental Group, Inc. dated March 17, 1993 (2)
10.25 Registration Rights Agreement among KTI Environmental Group, Inc.,
Martin J. Sergi and Midlantic National Bank dated May 10, 1994 (2)
10.26 Registration Rights Agreement among KTI Environmental Group, Inc.,
Nicholas Menonna, Jr. and Midlantic National Bank dated May 10, 1994
(2)
10.27 KTI, Inc. Directors Stock Option Plan (5)
10.28 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)
10.29 Letter Agreement dated as of November 10, 1995 among Central Maine
Power, Maine Energy Recovery Company and Citizens Lehman Power (6)
10.30 Global Agreement dated December 28, 1995 between Environmental
Capital Holdings, Inc. and KTI, Inc. (6)
10.31 Agreement of Limited Partnership of American Ash Recycling of
Tennessee, Ltd. dated December 28, 1995 (6)
10.32 Agreement of Limited Partnership of American Ash Recycling of New
England, Ltd. dated December 28, 1995 (6)
10.33 First Amendment to Agreement of Limited Partnership of American Ash
Recycling of Tennessee, Ltd., dated March 16, 1996 (7)
10.34 Agreement dated as of July 19, 1996 by and among KTI, Inc.,
DataFocus Incorporated and CIBER, Inc. (8)
<PAGE> 82
10.35 Agreement dated July 19, 1996 by and among KTI, Inc., Thomas Bosanko
and Patrick B. Higbie (8)
10.36 Operating Agreement of Specialties Environmental Management Company,
LLC dated as of October 18, 1996 (9)
10.37 Amendment to Employment Agreements between KTI, Inc. and Nicholas
Menonna, Jr. and Martin J. Sergi (10)
10.38 Note Purchase Agreement dated as of October 23, 1996 between KTI,
Inc. and WEXFORD KTI LLC (11)
10.39 Registration Rights Agreement dated as of October 23, 1996 between
KTI, Inc. and WEXFORD KTI LLC (11)
10.40 Escrow Agreement dated as of October 23, 1996 between KTI, Inc. and
WEXFORD KTI LLC and Key Trust of Ohio, N.A. (11)
10.41 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 (12)
10.42 Securities Purchase Agreement by and among KTI Plastic Recycling,
Inc. and Diane Goodman and Seth Lehner dated as of November 25, 1996
(13)
10.43 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 (14)
10.44 Pledge Agreement between each Borrower and Key Bank of New York
dated October 29, 1996 (14)
10.45 Key Trust Company PRISM(R) Prototype Retirement Plan and Trust
adopted as of December 11, 1996 (14)
10.46 Option and Consulting Agreement by and among KTI, Inc. and L.T.
Lawrence & Co., Inc. dated as of June 1, 1996 (14)
10.47 First Amendment to Option and Consulting Agreement by and among KTI,
Inc. and L.T. Lawrence & Co., Inc. dated as of December 18, 1996
(14)
10.48 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 (14)
10.49 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
(14)
10.50 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 (14)
10.51 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
(14)
10.52 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 (14)
10.53 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 (14)
10.54 Third Amendment to Second Amended and Restated Certificate and
Agreement of Limited Partnership of FTI Limited Partnership dated as
of January 23, 1997 (14)
10.55 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 (14)
10.56 Registration Rights Agreement by and between KTI, Inc. and Maine
Woodchips Associates dated as of January 23, 1997 (14)
10.57 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 (15)
10.58 Term sheet (Purchase of assets of Prins Recycling Corp. and
subsidiaries) (16)
<PAGE> 83
10.59 Agreement, dated as of April 21, 1997 between KTI Recycling, Inc.
and its subsidiaries and PNC Bank (16)
10.60 Operations and Maintenance Agreement, dated as of April 21, 1997, by
and between Prins Recycling Corp. and its subsidiaries and KTI
Operations, Inc. (16)
10.61 Order of the Bankruptcy Court for the District of New Jersey dated
June 19, 1997 (16)
10.62 Asset Purchase Agreement, dated as of June 24, 1997, between Prins
Recycling Corp. and its subsidiaries and KIT Recycling, Inc. and its
subsidiaries (16)
10.63 Securities Purchase Agreement by and among I. Zaitlin & Sons, Inc.,
a Maine corporation, Data Destruction Services, Inc., a Maine
corporation, Samuel M. Zaitlin, Steven G. Suher and George G. Deely
and KTI Recycling, Inc., a Delaware corporation (17)
10.64 First amendment, dated as of August 14, 1997, to the Loan and
Security Agreement between KTI, Inc., KTI Environmental Group, Inc.,
Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations,
Inc. and PERC, Inc. (18)
10.65 Securities Purchase Agreement, dated as of August 12, 1997, by and
among KTI, Inc., and Wenoha Corporation, John G. Mills, L. Don
Norton, Glen Wade Stewart, Bruce D. Wentworth and Donald E.
Wentworth (18)
10.66 Placement Agreement dated August 7, 1997 between KTI, Inc. and
Credit Research & Trading LLC (19)
10.67 Warrant Agreement dated August 7, 1997 between KIT, Inc. and Credit
Research & Trading LLC (19)
10.68 Registration Rights Agreement dated August 15, 1997 between KIT,
Inc. and the purchases named therein (19)
10.69 Purchase and Option Agreement by and between PERC Management Company
Limited Partnership and The Prudential Insurance Company of America
dated September 30, 1997 (20)
10.70 Second Amendment to the Second Amended and Restated Agreement and
Certificate of Limited Partnership of Penobscot Energy Recovery
Company, Limited Partnership dated as of September 29, 1997 (20)
10.71 Assignment and Assumption Agreement between The Prudential Insurance
Company of America and PERC Management Company Limited (20)
Partnership dated as of September 29, 1997 re Penobscot Energy
Recovery Company, Limited Partnership (20)
10.72 Amendment No. 1 to Reimbursement Agreement and Release of Assignment
dated as of September 29, 1997 to the Reimbursement Agreement dated
as of May 28, 1991 of Penobscot Energy Recovery Company, Limited
Partnership in favor of Morgan Guaranty Trust Company of New York re
Penobscot Energy Recovery Company, Limited Partnership (20)
10.73 Assignment and Assumption Agreement between The Prudential Insurance
Company of America and PERC Management Company Limited Partnership
dated as of September 29, 1997 re Orrington Waste Ltd., Limited
Partnership (20)
10.74 Amendment no. 1 to Reimbursement Agreement and Release of Assignment
dated as of September 29, 1997 to the Reimbursement Agreement dated
as of May 28, 1991 of Penobscot Energy Recovery Company, Limited
Partnership in favor of Morgan Guaranty Trust Company of New York re
Orrington Waste Ltd. (20)
10.75 Securities Purchase Agreement dated as of January 1, 1998, by and
among Vel-A-Tran Recycling, Inc., a Massachusetts corporation,
Raymond Vellucci and KTI Recycling of New England, Inc., a Delaware
corporation (21)
10.76 Securities Purchase Agreement dated as of January 27, 1998 among
Total Waste Management Corporation, Donald A. Littlefield, William
Kaylor and KTI Specialty Waste Services, Inc., a Maine corporation
(22)
**11 Statement of computation of per share earnings
**12 Statement of computation of earnings to fixed charges
*23.1 Consent of Ernst & Young LLP
<PAGE> 84
*23.2 Consent of McDermott, Will & Emery (contained in Exhibit 5)
*24 Power of Attorney (on signature page)
**25 Statement of Form of Eligibility of Trustee
- ----------------------------------
(1) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
September 16, 1997
(2) Filed as an Exhibit to Registrant's Registration Statement on Form S-4
(No. 33-85234) dated January 6, 1995.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
August 15, 1997.
(4) Filed with the Registration Statement on Form S-1 dated December 6, 1995.
(5) Filed as an Exhibit to Registrant's Proxy Statement dated June 5, 1995.
(6) Filed with the Amendment No. 1 to the Registration Statement on Form S-1
dated February 2, 1996.
(7) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated April
15, 1996.
(8) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July
19, 1996.
(9) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 18, 1996.
(10) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 23, 1996.
(11) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 24, 1996.
(12) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 22, 1996.
(13) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 25, 1996.
(14) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
(15) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
November 26, 1996.
(16) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated June
19, 1997
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July
29, 1997.
(18) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
August 12, 1997.
(19) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
August 15, 1997.
(20) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
September 30, 1997.
(21) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
January 15, 1998.
(22) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
February 4, 1998.
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
Exhibit 4.4
- ---------------------------------------
Check Appropriate Statute:
|X| Title 14A:1-6 (5) New Jersey Business Corporation Act (File in
DUPLICATE)
|_| Title 15A:1-7 (e) New Jersey Business Corporation Act (File in
TRIPLICATE)
- ---------------------------------------
CERTIFICATE OF CORRECTION OF:
Corporation Name: KTI, Inc.
Corporation Number:
The undersigned hereby submits for filing a Certificate of Correction
executed on behalf of the above named Corporation, pursuant to the provisions of
the appropriate Statute, checked above, of the New Jersey Statutes.
1. The Certificate to be corrected is: Certificate of Amendment to the Restated
Certificate of Incorporation of KTI, Inc. (the "Corporation"), filed August 8,
1997 (the "Certificate").
2. The inaccuracies in the Certificate are (indicate inaccuracies or defects):
(a) The word "fractional" on the thirteenth line on page 6 of the
Certificate was incorrectly spelled "factional".
(b) The last line of Section 6(b)(i) on page 14 of the Certificate refers
to the redemption price, as opposed to the Redemption Date.
(c) Section 8(a)(i) on page 20 of the Certificate failed to state the rate
at which the Corporation may convert the Series B Convertible Exchangeable
Preferred Stock into the Corporation's 8 3/4% Convertible Subordinated
Notes due 2004.
(d) Section 9(a) on page 23 of the Certificate failed to specify that a
Change of Control Payment may be made at the option of the Corporation
either in cash or, in certain circumstances, shares of common stock of the
Corporation.
3. The Certificate of Correction hereby reads as follows:
(a) The word "factional" on the thirteenth line on page 6 of the
Certificate is hereby deleted and replaced with the word "fractional".
(b) The last line of Section 6(b)(i) on page 14 of the Certificate is
hereby amended by deleting "redemption price" and replacing it with
"Redemption Date".
(c) Section 8(a)(i) of the Certificate is amended by adding the following
after "8 3/4% Convertible Subordinated Notes due 2004 (the "Exchange
Notes") on any Dividend Payment Date":
<PAGE> 2
"at a rate of $25.00 principal amount of Exchange Notes for each
share of Series B Preferred and which Exchange Notes will be
convertible into Common Stock of the Corporation at the Conversion
Price which would have been applicable to the Series B Preferred if
the Series B Preferred had remained outstanding,"
(d) The following shall be added to the end of Section 9(a) of the
Certificate:
"The Change of Control Payment shall be made at the option of the
Corporation either in (a) cash or (b) fully registered shares of
Common Stock of the Corporation valued at 95% of the average closing
price of the Common Stock during the 20 trading days prior to such
Change of Control Payment if the Board of Directors has determined
that the payment in the form of fully registered shares of Common
Stock of the Corporation will not adversely affect the voting
rights, preferences, privileges or relative, participating, optional
or other specified rights of the holders of the Series B Preferred
or the holders of the Common Stock."
<PAGE> 3
Signature: /s/ Robert E. Wetzel
------------------------
Name: Robert E. Wetzel
------------------------
Title: Senior Vice President
------------------------
Date: October 31, 1997
------------------------
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-2) and related Prospectus of KTI, Inc. for the
registration of 846,000 shares of its Series B Convertible Exchangeable
Preferred Stock, 1,839,364 shares of its common stock and an aggregate principal
amount of $21,150,000 of its 8.75% Convertible Subordinated Notes due August 15,
2004, and to the incorporation by reference therein 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, and of our report dated January 16, 1998 with respect to the
consolidated financial statements of Prins Recycling Corp.
(debtor-in-possession) included in the Current Report (Form 8-K, dated November
14, 1997, as amended by Form 8-K/A) of KTI, Inc., as filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hackensack, New Jersey
February 9, 1998
