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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 13, 1998
KTI, INC.
(Exact name of Registrant as specified in Charter)
New Jersey 33-85234 22-2665282
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(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
Number)
7000 Boulevard East, Guttenberg, New Jersey 07093
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(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code- (201) 854-7777
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Not Applicable
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(Former name and former address, as changed since last report)
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Item 5. Other Events.
On February 13, 1998, the Finance Authority of Maine ("FAME")
executed and delivered a commitment (the "FAME Commitment") to KTI, Inc., a New
Jersey corporation (the "Company" or the "Registrant") to refinance existing
tax-exempt bonds issued by the Town of Orrington, Maine to finance the
construction of the facility owned by Penobscot Energy Recovery Company, Limited
Partnership ("PERC"). The current tax-exempt bonds mature in 2004. The FAME
commitment provides for an extension of the maturity to approximately 20 years
from the date of reissuance. The FAME bonds would be backed by the moral
obligation of the State of Maine and would be secured by substantially all of
the assets of PERC, a guaranty of $3 million from the Company and a guaranty of
annual debt service from Bangor Hydro-Electric Company ("Bangor Hydro"),
subject to a maximum annual amount of $4.2 million. The guaranty is subject to
receipt of all necessary orders and consents from the Maine Public Utility
Commission and Bangor Hydro's lenders.
The partners in PERC, Bangor Hydro and the Municipal Review
Committee, Inc., a Maine not-for-profit corporation (the "MRC"), which
represents 130 municipalities serviced by PERC executed an agreement, dated as
of December 31, 1997 (the "Restructuring Agreement"), outlining the principal
terms of a restructuring of the Purchase Power Agreement (the "PPA") between
PERC and Bangor Hydro and certain amendments to the Waste Disposal Agreements
between PERC and the 130 municipalities. Both the Restructuring Agreement and
the FAME Commitment contain significant conditions, which are not entirely in
the control of the parties to such agreements. The Company, accordingly, can
give no assurances that it will be able to complete the transactions
contemplated in these agreements.
The Restructuring Agreement provides that Bangor Hydro will make a
one time payment of $6 million to PERC at the time of the refinancing of the tax
exempt debt, will make additional quarterly payments of $250,000 per quarter for
four years, for an additional total of $4 million, and issue warrants to
purchase 2 million shares of Bangor Hydro common stock. The warrants will be
divided equally between the partners in PERC and the MRC on behalf of its member
municipalities. The exercise price of such warrants will be $7.00 per share and
the warrants will expire 10 years after issuance. The right to exercise such
warrants will vest over a four-year period. In exchange for such consideration,
Bangor Hydro will be entitled, assuming performance of all of its obligations
under the PPA, 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 the reissuance of the tax-exempt bonds pursuant to the FAME
Commitment.
The proposed amendments to the Waste Disposal Agreements will be
effective upon receipt of acceptance of not less than 50% of the municipalities,
as determined by delivered tonnage, having long term waste disposal agreements
with PERC. PERC may terminate the transaction if 25% or more of such
municipalities reject or otherwise object to the transactions. The proposed
amendments permit such municipalities to: (a) make equity contributions to PERC,
only to the extent of the MRC's share of distributable cash from PERC and
one-half of the Bangor Hydro quarterly distribution, of up to $31 million, which
will be used to prepay the FAME tax-exempt bonds (If the entire $31 million is
contributed, such municipalities will own a
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50% partnership interest in PERC.); purchase all of the remaining PERC interests
in 2018 at their 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) reduce cash available for distribution to
such municipalities from one half to one third.
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Item 7. Financial Statements and Exhibits
(c) Exhibits.
Exhibit Number Description
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4.1 Commitment Letter from the Finance Authority of Maine
dated February 13,1998 re Electric Rate Stabilization
for Penobscot Energy Recovery Company, Limited
Partnership
4.2 News Release dated February 23, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KTI, Inc.
(the Registrant)
Dated: February 23, 1998 By: /s/ Martin J. Sergi
-------------------------
Name: Martin J. Sergi
Title: President
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FAME
February 13, 1998
Martin J. Sergi, President
KTI, Inc., PERC Managing General Partner Energy National, Inc.
7000 Boulevard East 500 N.E. Multonmah St., Suite 900
Guttenberg, NJ 07093 Portland, OR 97232-2039
RE: Electric Rate Stabilization Program Loan For Penobscot Energy Recovery
Company, Limited Partnership (PERC)
Dear Messrs. Sergi and Wareham:
The Authority has approved Penobscot Energy Recovery Company, Limited
Partnership's (hereinafter referred to as "PERC" or the "Borrower") request for
funds under the Electric Rate Stabilization Program. Financing is subject to
full compliance with the following terms and conditions:
A. Borrower: Penobscot Energy Recovery Company, Limited
Address: Partnership
Rte. 15, P.O. Box 160
Orrington, ME 04474
B. Loan Amount: An amount equal to the outstanding principal
amount of the Original Bonds as of the Loan
Closing Date,not to exceed $50,000,000.
C. Use of Proceeds: An Electric Rate Stabilization Project refunding
an existing Town of Orrington Floating Rate
Demand Resource Recovery Bonds (1986 Series A
and B) for Penobscot Energy Recovery Company
(the "Original Bonds"). The Original Bonds
partially financed the acquisition of land,
construction and equipping of a 25.3 megawatt
waste-to-energy facility in Orrington, Maine.
D. Interest Rate: Tax Exempt Market Rate.
E. FAME Fees:
1. a) A Loan Commitment Fee equal to 1% of the first
$7,000,000 of the loan plus 0.5% (50 basis points) of
the Loan amount above $7,000,000.
b) The Borrower has provided $25,000 to the Authority,
which amount will be credited to the Commitment Fee. The
Borrower must provide an additional $75,000 to be
applied to the Commitment Fee upon acceptance of this
commitment letter. In the event the Loan does not close
this amount will be used to pay costs and expenses
accrued by the Authority and its counsel, including bond
counsel. The Authority may request additional advances
toward the Loan Commitment Fee prior to Loan Closing, or
may require additional fees to cover accrued costs in
the event the Loan does not close. If, upon the failure
of the Loan to close, the Authority has amounts not
necessary to pay accrued costs and expenses, such
amounts will be refunded to the Borrower.
c) The Authority shall deposit an amount equal to 25 basis
points of the principal amount of the Bonds, up to
$119,000 (the "Deposit") in an interest bearing account.
In the event the Moral Obligation of the State of Maine
is replaced or otherwise terminated or the Loan is paid
in full on or before March 31, 2003, the Authority will
rebate to the Borrower the Deposit plus all accrued
interest as of the date of the termination of the
State's Moral Obligation or the date of redemption of
the Bond (together referred to as the "Termination
Date"). In the event the Moral Obligation of the State
of Maine is replaced or otherwise terminated or the Loan
is paid in full on or before March 31, 2005, the
Authority will rebate $75,000 plus interest thereon
calculated at the average interest rate on the account
for the period from the date of Loan Closing through the
Termination Date; in the event the Moral Obligation of
the State of Maine is replaced or otherwise terminated
or the Loan is paid in full on or before July 31, 2007,
the Authority will rebate $50,000 to the Borrower with
interest thereon calculated at the average interest rate
on the account for the period from the date of Loan
Closing through the Termination Date.
2. Annual Capital Reserve Premium equal to 0.5% (50 basis points)
of the outstanding Loan amount. The premium amount on which
the quarterly payment is based will be calculated based on the
Loan Amount outstanding at Loan Closing and on each the
anniversary date of the Loan
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Closing, except that the first quarterly premium payment is
due at Loan Closing. The Premium will be due quarterly, in
advance, thirty (30) days prior to the commencement of the
quarter.
3. The Borrower is responsible for all costs and expenses of Loan
Closing, including, without limitation, all costs and expenses
incurred by the Authority, its underwriters, and its legal
counsel. In the event the Loan does not close for any reason,
the Borrower agrees that it will pay all such costs and
expenses incurred by the Authority or its agents in relation
to the Loan and hold them harmless from all costs and expenses
they may have accrued or incurred. In the event the Loan or
the Bonds do not close because of market conditions or other
matters not within the control of the Authority or the
Borrower, the maximum amount to be paid by the Borrower will
be $100,000.
F. Term/Payment: Twenty (20) years, with principal amortizing over
the term, in approximately equal annual payments.
G. Collateral:
1. First mortgage on all real property associated with the PERC
Facility.
2. A first priority security interest in any and all TANGIBLE
PROPERTY and INTANGIBLE PROPERTY, including but not being
limited to (1) inventory (2) equipment (3) instruments (4)
documents (5) accounts (6) chattel paper and (7) general
intangibles whether any of the same are now owned or hereafter
acquired and wherever located, and proceeds (including but not
being limited to proceeds in the form of accounts, general
intangibles, instruments, chattel paper and cash and rights to
withdraw cash, now owned or hereafter acquired and wherever
located) and products thereof and fixtures and accessions
thereto. Provided, however, the Borrower may maintain a first
priority purchase money security interest in the Equipment
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identified on Schedule B (the "Schedule B Equipment")
attached hereto, and all replacements of and
substitutions of the Schedule B Equipment. Further
provided that the "CMRA Account" in which the
Municipalities have a first possessory and priority lien
is excepted herefrom.
3. Assignment of all Waste Disposal Agreements, including,
without limitation, the revenues derived therefrom with
acknowledgment and consent of each Municipality.
4. Assignment of the Bangor Hydro-Electric Company Power
Purchase Agreement, including, without limitation, the
revenues derived therefrom with acknowledgment and
consent of Bangor Hydro-Electric Company.
H. Pledge and Maintenance of Specific Reserve Accounts
1. At Loan Closing, Bangor Hydro-Electric Company shall
provide $6,000,000 in cash to PERC to be deposited with
the Trustee to be maintained as a Capital Reserve Fund,
such amount shall be maintained by the Trustee as fully
pledged cash security for the loan.
2. At Loan Closing, PERC shall provide $3,000,000 in cash
to be deposited with the Trustee in an interest bearing
account (subject to any arbitrage limitations) to be
maintained as a PERC operating reserve (the "Operating
Reserve Fund"). In the event the Operating Reserve Fund
is drawn upon it must be replenished from Distributable
Cash, as defined in paragraph H.3 below before any
Distributable Cash is applied as described in paragraphs
H.3-H.7 below. FAME, at the sole discretion of the Chief
Executive Officer, may use the funds to serve as a debt
service repayment source in the event that monies
available to the Trustee are insufficient therefore.
3. At or before Loan Closing, PERC shall provide $1,000,000
in cash to be deposited with the Trustee to be
maintained as a PERC capital improvement fund (the
"Capital Improvement Fund"). Monies may be drawn from
the Capital Improvement Fund only after monies in the so
called CMRA account are exhausted or cannot reasonably
be drawn upon. It must be replenished from the revenues
derived from the operation of the PERC Facility before
any distribution of payments are made under the Letter
Agreement among the Borrower, Bangor Hydro-Electric
Company, and the Municipal Review Committee (the "MRC")
dated December __, 1997 (the "Parity Agreement") which
terms shall be incorporated into the amended Waste
Disposal Agreements (such
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distributable amounts, without regard to the recipient
thereof, but net of payments therefrom required by the
bond indenture to pay debt service and operating costs
and replenish the Operating Reserve Fund and the Capital
Reserve Fund and the Capital Improvement Fund and
replenish draws if drawn on the Guaranty provided by
Bangor Hydro-Electric Company are referred to herein as
"Distributable Cash"). FAME, at the sole discretion of
the Chief Executive Officer, may use the amounts in the
Capital Improvement Fund to serve as a debt service
repayment source in the event that monies available to
the Trustee are insufficient therefore.
4. Bangor Hydro-Electric Company shall capitalize a
$2,000,000 prepayment account (the "Bangor Hydro
Prepayment Account"). The Bangor Hydro Prepayment
Account shall be capitalized with payments of $125,000
quarterly which may be derived from Bangor
Hydro-Electric Company's share of Distributable Cash.
In the event Bangor Hydro-Electric Company's portion of
Distributable Cash is insufficient in any quarter to
capitalize the Bangor Hydro Prepayment Account as
required herein, Bangor Hydro-Electric Company shall
fund such payments from other resources. All amounts
which were not funded shall be funded in the next
succeeding quarter in which there is available
Distributable Cash from Bangor Hydro-Electric Company's
portion of Distributable Cash. At the direction of the
MRC, the amounts in the Bangor Hydro Prepayment Account
may be used to redeem Bonds or paid pursuant to the last
sentence of paragraph H.6 below.
5. Bangor Hydro-Electric Company shall capitalize a
$2,000,000 reserve account (the "Bangor Hydro Reserve
Account"). The Bangor Hydro Reserve Account shall be
capitalized with payments of $125,000 quarterly, which
may be derived from Bangor Hydro-Electric Company's
share of Bangor Hydro-Electric Company's portion of
Distributable Cash. In the event Distributable Cash is
insufficient in any quarter to capitalize the Bangor
Hydro Reserve Account as required herein, Bangor
Hydro-Electric Company shall fund such payments from
other resources. All amounts which were
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not funded, shall be funded in the next succeeding
quarter in which there is available Distributable Cash
from Bangor Hydro-Electric Company's portion of
Distributable Cash.
6. The municipalities receiving a distribution pursuant to
the Parity Agreement (the "Municipalities") shall make
contributions or otherwise capitalize a Principal
Reserve & Redemption account (the "MRC Prepayment
Account") equal to 15% of their share of Distributable
Cash. Contributions must be made at least quarterly. The
contribution of the Municipalities is capped at
$2,500,000 and may be made either from their portion of
Distributable Cash deposited into the MRC Prepayment
Account or by the purchase of Bonds from other resources
in an amount equal to or greater than 15% of its share
of Distributable Cash. FAME, at its sole discretion, may
use the funds to serve as a debt service repayment
source in the event that monies available to the Trustee
are insufficient. To the extent the Municipalities make
contributions in excess of an amount equal to 15% of its
share of Distributable Cash to redeem outstanding Bonds,
the Municipalities may draw down an equal amount from
funds deposited in the Bangor Hydro Prepayment Account
by Bangor Hydro-Electric Company. Amounts drawn from the
Bangor-Hydro Prepayment Account will not be separately
credited to the $2,500,000 required funding of the MRC
Prepayment Account. All amounts applied by the MRC to
redeem bonds or applied to debt service or other
payments on the Bonds as described in this paragraph
shall be attributed to the $2,500,000 required to fund
the MRC Prepayment Account, whether or not such funds
were received by the Trustee. Any payments required to
be made by or to the Municipalities may be made or
accepted on their behalf by a Custodian designated by
the MRC in writing.
7. PERC shall make contributions to or otherwise capitalize
a reserve account (the "PERC Reserve Account") in an
amount equal to 15% of its share of Distributable Cash.
Contributions must be made at least quarterly. The
contribution of PERC is capped at $2,500,000. FAME, at
its sole discretion, may use the PERC Reserve Account to
serve as a debt service repayment source in the event
that monies available to the Trustee are insufficient.
8. All accounts identified in #s 1-7 must be pledged to
secure the Bonds.
9. The Borrower must fund or otherwise pay for any
additional capital reserve amounts required by any
financial institution providing a letter of credit for
the Bonds or serving as Trustee. The Borrower shall have
a
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reasonable opportunity to approve/negotiate with the
financial institution providing any letters of credit.
10. Nothing shall require the Capital Reserve Fund to be
drawn upon in any amount prior to using the other
pledged funds described above for payments of debt
service or other required payments on the Bonds.
11. The CMRA account shall continue to be required to be
funded at the level required by the Parity Agreement.
12. Interest on all the reserve accounts may be distributed
quarterly by the Trustee, provided there has not been an
Event of Default. (a) Interest earned on the Capital
Reserve Fund will be distributed equally to the
Borrower, the MRC, and Bangor Hydro-Electric Company;
(b) Interest earned on the Operating Reserve Fund will
be distributed equally to the Borrower, the MRC, and
Bangor Hydro-Electric Company; (c) Interest earned on
the Capital Improvement Fund will be distributed equally
to the Borrower, the MRC, and Bangor Hydro-Electric
Company; (d) Interest earned on the Bangor Hydro
Prepayment Account will be distributed to the MRC; (e)
Interest earned on the Bangor Hydro Reserve Account will
be distributed equally to the Borrower ; (f) Interest
earned on the MRC Prepayment Account will be distributed
to the MRC; and (g) Interest earned on the PERC Reserve
Account will be distributed to the Borrower.
I. Guarantors:
1. Bangor Hydro-Electric Company shall provide its
unlimited Corporate Guarantee of the Loan. The Bangor
Hydro-Electric Company Corporate Guarantee will not be
payable in an amount greater than an amount equal to the
highest possible debt service payable in a year, plus
applicable costs. The guarantee and the ability to
include any payments thereunder in rates must be
approved by an Order of the Maine Public Utilities
Commission satisfactory to the Authority.
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2. KTI, Inc., shall provide a Corporate Guarantee of the
Loan capped at $3,000,000 in substantially the form of
the Guarantee attached as Exhibit B hereto.
J. Conditions Precedent:
The fulfillment by the Authority of its obligations hereunder
is subject to compliance by the Borrower with the following
conditions:
1. Title Searches. The Borrower shall supply the Authority
with a complete, and acceptable title opinion and title
insurance showing no recorded liens or security
interests in property securing the Loan other than those
granted in connection with the Loan, except as may be
specifically approved in writing in advance by the
Authority. The Borrower shall provide a statement
identifying any unrecorded liens it believes may exist
on the property.
2. Conformance, compliance, completion and absence of
defaults. The Borrower and each Guarantor shall provide
the Authority with such information and documentation as
the Authority may require demonstrating that the
Borrower knows of no event of default by the Borrower
and each Guarantor under any instrument, document or
agreement executed in connection with any other loan or
otherwise, or any event or condition which with the
passage of time or the giving of notice, or both, could
constitute an event of default, or which would
constitute an event of default under any of the
Financing Documents i.e. Indenture, Loan Agreement, the
Parity Agreement, the Waste Disposal Agreement, the
Power Purchase Agreement, etc.).
3. No adverse change. The Borrower and each Guarantor shall
provide the Authority with such evidence as the
Authority may request demonstrating to the Authority's
satisfaction that no material adverse change in the
Borrower or any Guarantor, its respective financial
status, the PERC Facility or the financing has occurred
since the date of the Borrower's application to the
Authority. An adverse change is any change which, in the
opinion of the Authority, increases the credit risk of
the Loan, reduces the value of the security for the
Loan, including, without limitation, the PERC Facility
or the collateral for the Loan, or otherwise negatively
impacts the viability of the PERC Facility or the
Borrower or any Guarantor. Such information may include,
at the option of the Authority, without limitation,
financial information, a litigation report and analysis,
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independent appraisals, or updates on any information
provided to the Authority in connection with the
application for financing and analyses regarding the
effect of the shutdown of Maine Yankee on Bangor
Hydro-Electric Company and the effect of this
transaction on Bangor Hydro Electric Company's contract
with Unitil.
4. Opinions of Counsel. The Borrower and each Guarantor
shall provide the Authority with an acceptable opinion
of counsel opining that the Borrower and each Guarantor
is not in default of any obligation of law or contract,
that the Financing Documents are legal, valid and
binding obligations of the Borrower or Guarantor, as
applicable to each, enforceable in accordance with their
terms, and disclosing and analyzing all pending or
threatened litigation, claims, proceedings or
assessments with respect to the Borrower and each
Guarantor. An opinion that the Borrower's use of land
and operation of its business comply with all federal,
state and local land use laws, regulations, ordinances
and orders may also be requested by the Authority. An
opinion that no registration is required under Federal
securities laws with respect to the Loan Agreement and
the Guaranties. An opinion from counsel to Bangor
Hydro-Electric Company that the financing will have no
effect on Bangor Hydro-Electric Company's contract with
Unitil. The Borrower and each Guarantor shall also
provide the Authority with an acceptable opinion of
counsel regarding its legal existence, the existence and
validity of its organizational documents and partnership
votes authorizing execution of all Financing Documents,
which opinions may be provided by in-house counsel. The
Authority may require such other opinions of counsel
from any party which the Chief Executive Officer,
Counsel to the Authority or Board Counsel determines to
be necessary or desirable. All opinions must be in form
and substance satisfactory to Board Counsel and the
Authority.
5. Special Conditions. The Borrower and each Guarantor,
where applicable, shall comply with all Special
Conditions set forth on Exhibit A, attached hereto, to
the satisfaction of the Authority.
6. The Financing Documents shall be satisfactory to the
Authority, in its sole discretion.
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K. Loan Closing Date:
This Commitment shall expire, and the Authority shall have no
further obligation hereunder, at 5:00 p.m. on March 31, 1998
(such date, or such earlier date on which all of the Financing
Documents have been executed, being referred to as the "Loan
Closing Date" or the "Loan Closing", unless the Loan Closing
Date has been extended by written agreement of all the parties
to this Commitment upon such terms and conditions as they may
agree. The Authority shall be under no obligation to agree to
any extension of the Loan Closing Date, and may condition such
agreement as it may deem desirable.
L. Termination:
This Commitment may be terminated, at the Authority's
discretion, under any of the following circumstances:
1. Any of the Conditions Precedent set forth in section J
of this Commitment shall not have been satisfied and
complied with as of the Loan Closing Date set forth in
section K, or on such earlier date as the Authority may
set if it determines in its sole discretion that the
Conditions Precedent set forth in section J cannot be or
are unlikely to be, in the Authority's estimation, fully
complied with and satisfied on or before the Loan
Closing Date.
2. Any party to this Commitment other than the Authority
breaches its obligations or agreement hereunder or
notifies the Authority that it does not intend to
proceed further with the implementation, operation or
financing as contemplated by this Commitment.
3. An appeal related to the transactions contemplated in
this Commitment Letter is taken by any person or entity
from any action or failure to act on the part of the
Authority or the Maine Public Utilities commission with
respect to the Borrower or any Guarantors, or the
collateral for the Loan, or any other legal action or
proceeding is commenced challenging the issuance of the
Bonds, or the matters contemplated by this Commitment,
and such appeal, action or proceeding is not dismissed
with prejudice or finally disposed of by a court of
competent jurisdiction to the satisfaction of the
Authority on or prior to the Loan Closing Date.
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M. Release and Indemnification.
The Borrower and each Guarantor acknowledge that the Authority
or its agent may fail or be unable to fund the Loan due to
inability to market the Bonds for any reason. The Borrower and
each Guarantor agree that the Authority shall not be liable
for any loss or damage to the Borrower or any other party in
the event that the Authority or its agent is unable to sell
sufficient Bonds to make the Loan. The Borrower hereby
expressly agrees to indemnify and hold the Authority harmless
from and against any and all claims, suits, actions,
proceedings, demands and liabilities of any nature arising out
of or in connection with, directly or indirectly, the Loan or
the transactions contemplated by this Commitment, other than
any such claims arising out of the Authority's gross
negligence or willful misconduct.
N. Borrower's Covenants.
1. The Borrower agrees that between the date of this
Commitment and the Loan Closing Date, it will:
a. Notify the Authority promptly upon acquiring
knowledge of any event or condition which
constitutes or may with the passage of time
constitute a breach of this Commitment or any
other instrument, document or agreement, or which
would be a material adverse change in the PERC
Facility or the financial condition of the
Borrower.
b. Refrain from transferring any interest in or
rights under this Commitment.
c. Comply with all governmental laws, orders,
ordinances and decrees with respect to the PERC
Facility and its business operations.
2. The Guarantors agree that between the date of this
Commitment and the Loan Closing Date, they will:
a. Notify the Authority promptly upon acquiring
knowledge of any event or condition which
constitutes or may with the passage of time
constitute a breach of this Commitment or any
other instrument, document or agreement, or which
would be a material adverse change in the PERC
Facility or the financial condition of the
Guarantor.
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b. Comply with all governmental laws, orders,
ordinances and decrees with respect to the PERC
Facility and its business operations.
3. The Financing Documents will include such additional
covenants as may be deemed necessary by counsel to the
Authority.
O. Oral Statements Not Enforceable.
Under Maine law, no promise, contract, or agreement to lend
money, extend credit, forbear from collection of a debt, or
make any other accommodation for the repayment of a debt for
more than $250,000 may be enforced in court against the
Authority unless the promise, contract or agreement is in
writing and signed by the Authority. Accordingly, the Borrower
cannot enforce any oral promise unless it is contained in a
loan document signed by the Authority, nor can any change,
forbearance, or other accommodation relating to the loan, this
agreement or any other loan document be enforced, unless it is
in writing signed by the Authority. Borrower also understands
that all future promises, contracts, or agreements of the
Authority relating to any other transaction between Borrower
and the Authority cannot be enforced in court unless they are
in writing signed by the Authority. Borrower further agrees
that the requirement of a writing described in this paragraph
shall apply to this commitment, the loans of credit described
herein, any extension, modification, renewal, forbearance, or
other accommodation relating to the transactions contemplated
by this commitment, and to any other credit relationship
between Borrower and the Authority, (whether existing now or
created in the future) whether or not the amount involved
exceeds $250,000.
P. Miscellaneous.
This Commitment shall be construed in accordance with Maine
law, shall be effective when duly executed by the parties
named below and shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto. This
Commitment may not be modified except by written agreement
executed by each of the parties hereto.
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If the above terms and conditions are acceptable to you, please sign below
to acknowledge your review and acceptance and return to me. Unless previously
accepted, this Commitment will expire on December 31, 1997. This Commitment will
expire if the conditions of this Commitment are not fully complied with on or
prior to March 31, 1998.
Sincerely,
/s/ David S. Markovchick
-----------------------------
David S. Markovchick
Director, Business Development
Accepted:
PENOBSCOT ENERGY RECOVERY COMPANY, LIMITED PARTNERSHIP, Borrower
By: PERC Management Company Limited
Partnership
By: Energy National, Inc. By: PERC, Inc.
Its: General Partner Its: General Partner
/s/ Leonard Bluhm /s/ Martin J.Sergi
- ------------------------ -------------------
By: By: Martin J. Sergi
Its: Its: President
A Duly Authorized Representative
KTI, INC., Guarantor
/s/ Martin J. Sergi
- -------------------
By: Martin J. Sergi
Its: President
BANGOR HYDRO-ELECTRIC COMPANY, Guarantor
/s/ Robert Briggs
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By: Robert Briggs
Its: President & CEO
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EXHIBIT A
1. The Borrower may not change its ownership structure and composition
without the written consent of the Authority, except that it is
acknowledged that the Charter Municipalities may acquire up to 50%
ownership of PERC according to the terms and conditions of the Parity
Agreement and existing General and Limited Partners may transfer ownership
interests among themselves.
2. The Borrower and each Guarantor must promptly notify the Authority of the
occurrence of any litigation (including litigation concerning affiliates
or subsidiaries) which may materially impact the Borrower or the
Guarantor. "Material" includes, but is not limited to any claim or action
with a demand of $1,000,000 or greater. Such notice must be in writing and
must describe the matter and the steps being taken by the Borrower or
Guarantor (or its affiliates or subsidiaries) affected with respect
thereto. A prompt copy of any filing with the Securities and Exchange
Commission is adequate notification.
3. KTI, Inc. and Bangor Hydro-Electric Company ("Guarantors") must provide
the Authority with copies of each filing and report made by each of the
Guarantors or any Subsidiary of a Guarantor with or to the Securities and
Exchange Commission including, without limitation, all 10-Q, 10-K and 8-K
Reports (other than registration statements that have not become effective
under the Securities Act of 1933, filings and reports with respect to
dividend reinvestment, employee benefits, or other similar plans, and
filings pertaining to sales of or other transactions in securities of the
Guarantors or any Subsidiary by persons other than the Guarantors or such
Subsidiary), and of each communication from the Guarantors or any
Subsidiary to public shareholders generally, promptly upon the filing or
making thereof. The Guarantors must meet periodically with the Authority
at the Authority's request to provide information on financial conditions
(whether or not included in such filings) and any other issue raised by
the Authority.
4. The Borrower must furnish the Authority with copies of its annual business
plan and projections for each ensuing fiscal year pertaining to the
business or the financial condition of the Borrower at the same time as
such reports are provided to the Partners of the Borrower and as may be
reasonably required from time to time.
5. The Borrower must provide the Authority with a quarterly report within
forty-five days of the end of each quarter. The report must be in form and
substance satisfactory to the Chief Executive Officer.
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6. The Borrower must provide a copy of its annual audited financial
statements within 90 days of the close of its fiscal year.
7. The Borrower must furnish the Authority, prior to Loan Closing, signed
copies of the amended Waste Disposal or "Put-Pay" Agreements incorporating
all material terms of the Parity Agreement not proposed by conflicting
requirements of this Commitment, and all other agreements related to the
transaction. Each must be acceptable to the Authority and its counsel. The
agreements may not be materially amended without the prior written consent
of the Chief Executive Officer.
8. The Borrower must provide, prior to Loan Closing, fully executed contracts
with Municipalities providing for a minimum of 101,000 tons of municipal
solid waste to be delivered or that the Municipality will be responsible
to pay the borrower fees equal to the amount the Borrower would have
derived from receipt of that amount of waste, each contract must be
supported by authorizations from the respective municipality as well as a
legal opinion satisfactory to Bond Counsel that each municipality was
authorized to enter into the contract and as to the contract's
enforceability against the municipality. The contracts must be for no less
that twenty (20) years. The Borrower has a continuing obligation after
Loan Closing to provide the Authority with assignments of all amended
waste disposal agreements entered into subsequent to Loan Closing.
9. Bangor Hydro-Electric Company must furnish, prior to Loan Closing, the
final signed non-appealable order of the Maine Public Utilities
Commission, approving the Certificate of Approval and all related
financing, including, without limitation, (a) the issuance of bonds or
other financing of the $6,000,000 to be provided by Bangor Hydro-Electric
Company for the Capital Reserve Fund, and (b) the provision of the
Guaranty. The Maine Public Utilities Commission must determine that both
(a) and (b) are includable in rates.
10. The Borrower and each Guarantor will observe and comply in all material
respects with all laws, regulations, ordinances, rules, and orders
(including without limitation those relating to zoning, land use,
environmental protection, air, water and land pollution, wetlands, health,
equal opportunity, minimum wages, worker's compensation and employment
practices) of any federal, state, municipal or other governmental
authority except during any period during which the Borrower at its
expense and in its name shall be in good faith contesting its obligations
to comply therewith.
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11. Bangor Hydro-Electric Company must provide to the Authority a copy of its
Regulatory Update when each is distributed or any successor internal
publication and such other information regarding pending or anticipated
filings as the Authority may reasonably request.
12. Prior to Loan Closing, the Borrower must provide the Authority with a copy
of an Environmental Site Assessment. The report must be acceptable to the
Chief Executive Officer of the Authority.
13. Prior to Loan Closing, the Borrower must provide the Authority with an
engineering report verifying replacement value and the operational
longevity of the plant for a period in excess of twenty years from the
Loan Closing Date. The report must be prepared by an engineer satisfactory
to the Chief Executive Officer of the Authority and must be provided in
form and content satisfactory to the Chief Executive Officer of the
Authority.
14. The Borrower may not create, incur, assume or permit to exist any
mortgage, lien, charge, security interest or other encumbrance on any
property or asset of the Borrower, except substitutions for or replacement
of that Equipment listed on Schedule B.
15. The Borrower must apply Loan proceeds only in accordance with the "Use of
Proceeds" listed on page 1.
16. The Borrower is to promptly notify the Authority of any material adverse
change in its business operations or financial condition occurring either
before or after the Loan Closing Date.
17. Enforcement actions of the Authority may include but shall not be limited
to any action the Authority may deem necessary or desirable before the
Maine Public Utilities Commission, or any other administrative body, to
reasonably assure payment of the Loan and compliance with the Financing
Documents.
18. The Borrower must pay all costs and expenses incurred by the Authority in
connection with the issuance of the Bonds and servicing of the Loan and
the Bonds. This includes costs and expenses of employees of the Authority
including in-house counsel in processing servicing requests during the
term of the loan. The Authority acknowledges that pursuant to separate
agreement, costs and expenses may be paid by the Guarantors.
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19. Bangor Hydro-Electric Company agrees, unless it is legally precluded, that
it will file for appropriate rate relief from the Maine Public Utilities
Commission in the event it is unable to make any payments or perform any
financial obligation under its Guarantee Agreement.
20. Bangor Hydro-Electric Company, as Guarantor, hereby waives any objection
to the Authority's standing in any matter in which the Borrower or any
Subsidiary may be a party before the Maine Public Utilities Commission.
21. Bangor Hydro-Electric Company must not incur any additional debt in excess
of $15,000,000.
22. Bangor Hydro-Electric Company may not incur additional debt in excess of
$15,000,000 unless (a) such debt is refunding debt, which does not
increase Bangor Hydro-Electric Company's aggregate level of debt or (b)
the issuance of such debt does not reduce the Debt Service Coverage (as
defined below) below the lesser of (i) the debt service coverage prior to
the issuance of new debt or (ii) 1.3x or (c) the Chief Executive Officer
of the Authority provides written consent.
For the purpose of this covenant, Debt Service Coverage means: earnings
before income taxes + interest for the previous 12 months + depreciation
for the previous 12 months + amortization for the previous 12 months (less
or plus extraordinary1 income or losses) divided by: interest for the
previous 12 months + principal payments for the previous 12 months + the
projected 12 months of principal and interest for all debt.
23. The Borrower shall submit a Budget for operations and maintenance annually
(the "0&M Budget"). In the event the Borrower requests any requisition
which will make the aggregate amount requested in excess of 110% of the
0&M Budget Amount the Authority may, at the expense of the Borrower,
retain the services of a consultant to provide a report on the Borrower
and its operations, management and such other matters as the Chief
Executive Officer deems pertinent.
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1 Extraordinary is defined as a nonrecurring occurrence that must be explained
by note on the financial statements or in a filing. Earnings are adjusted by
adding or subtracting the extraordinary occurrence.
24. The Borrower must maintain all reserve accounts required to be provided by
the Borrower as set forth in section H. In the event the Authority or
Borrower draws on any of the accounts and the Borrower fails to bring the
Account to the full required amount by the end of the next succeeding
quarter, the Authority may, at the expense of the Borrower, retain the
services of a consultant to provide a report on the Borrower and its
operations, management and such other matters as the Chief Executive
Officer deems pertinent.
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25. The Financing Documents will include other conditions, representations,
and warranties as deemed reasonably necessary or expedient by the Chief
Executive Officer of the Authority or counsel to the Authority.
26. Bangor Hydro-Electric Company acknowledges that the continuation of
payments under the PPA were an inducement for the Authority to enter into
this Commitment Letter and agrees that, at the request of the Authority,
Bangor Hydro-Electric Company will defend the validity of the PPA.
27. The Borrower and Guarantors agree that all terms and conditions herein may
be modified or additional terms and conditions included as required by any
financial institution providing a letter of credit or serving as Trustee.
The Borrower shall have a reasonable opportunity to approve/negotiate with
the financial institutions serving as Trustee or providing a letter of
credit.
28. The Financing Documents may include such incentives for the early payment
of the Bonds or the substitution of credit enhancement mechanisms as the
Chief Executive Officer of the Authority deems reasonable or desirable.
29. The Borrower must assign to the Trustee all payments and revenues it is
entitled to receive under any agreement for the sale of power, energy,
steam, waste disposal services or other output capacity for services of
the PERC Facility or the receipt of waste by the PERC Facility.
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NEWS RELEASE
FOR IMMEDIATE RELEASE
FINANCE AUTHORITY OF MAINE (FAME) APPROVES $50,000,000
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FINANCING FOR PENOBSCOT ENERGY RECOVERY COMPANY (PERC) IN
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REVISED POWER AGREEMENT WITH KTI, INC.
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GUTTENBERG, N.J. (FEB. 23, 1998) -- KTI, Inc. (Nasdaq: KTIE) announced
today that it has signed an agreement with the Finance Authority of Maine
(FAME) which will provide up to $50,000,000 in financing to the Penobscot
Energy Recovery Company (PERC) under FAME'S Electric Rate Stabilization
Program. KTI is a 71.3% owner and general partner in PERC.
The PERC financing, which will have a twenty year term, will be used to
refund existing Industrial Revenue Bonds which helped finance the original
development and construction of PERC. FAMES's financing for PERC was made
possible by a recent amendment by the Maine Legislature to the Electric Rate
Stabilization Program which allows independent power producers (IPP's) to
qualify for financing.
Under the terms of the agreement, the State of Maine's "moral
obligation" will support the non-recourse debt. Bangor Hydro-Electric Company
and KTI will also provide limited guarantees for the PERC borrowing.
The PERC financing agreement is intended to enhance the financial
stability of Bangor Hydro-Electric, which is contractually obligated to
purchase PERC's power output for 30 years through 2017. The agreement addresses
Bangor Hydo's desire to reduce the burden on its ratepayers caused by the
existing power purchase agreement (PPA) with PERC. The restructuring will also
stabilize tipping fees for 130 municipalities in exchange for their commitment
to provide up to 180,000 tons of municipal solid waste each year to PERC through
2018.
At the financial closing Bangor Hydro will make a one time payment of $6
million to PERC at the time of the refinancing of the debt and will make
additional quarterly payment of $250,000 for four years, amounting to a total
of $4 million. In addition, at the financial closing Bangor Hydro will issue
one million warrants to PERC and one million warrants to the Municipal Review
Committee (MRC) which represents the 130 charter municipalities. Each warrant
entitles the warrant holder to acquire one share of Bangor Hydro common stock
at a price of $7 per share. The warrants will vest over four years and will
expire 10 years after the date of issue.
Finally, it was agreed by the parties that the balance of any funds
available for distribution will be distributed one-third to the charter
municipalities, one-third to Bangor Hydro and one-third to PERC owners.
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Martin J. Sergi, president of KTI said, "We're gratified that FAME has
approved this financing for PERC. We see this as a win-win situation for all
parties involved. KTI is pleased with our part in helping Bangor Hydro
ratepayers achieve lower electricity rates. In addition, 130 municipalities in
Maine will have secured an environmentally-sound solution and stabilized rates
for their waste disposal. Bangor Hydro and PERC will also mutually benefit from
the restructured power purchase agreement."
Located in Orrington, Maine, PERC processes approximately 250,000 tons
of municipal solid waste a year from 230 Maine communities and generates 25
megawatts of electricity which is sold to Bangor Hydro Electric Company. In
1997, PERC generated $31.6 million revenue and net income of $7.3 million.
28.3% of PERC is owned by Energy National, Inc. (ENI), a subsidiary of
NRG Energy, which is also a general partner of PERC.
The Finance Authority of Maine was established in 1983 as Maine's
business finance agency. FAME is charged with supporting the start up,
expansion and growth plans of Maine's business community by working closely
with Maine's lending community to improve access to capital as well as to help
fill gaps that exist in the State's capital delivery system. FAME offers a wide
array of business assistance programs, ranging from traditional loan guarantee
programs for both small and larger businesses, to tax credits for investments
that individuals make in dynamic, growth oriented, manufacturing or export
related firms. The Finance Authority has also established taxable and tax
exempt bond financing programs that allow strong creditworthy firms in Maine
to access capital at very favorable rates and terms.
KTI is a fully integrated waste management company whose core
reputation was established in the waste-to-energy sector. KTI currently owns
and operates two waste-to-energy facilities in Maine; a biomass-to-energy plant
in Florida, and wood processing operations in Maine and Georgia. Collectively,
these businesses handle in excess of 1,000,000 tons of material annually.
KTI also owns and operates major recycling facilities in Boston, Newark
and Chicago, holds a majority interest in America's only commercially
operational municipal waste ash recycling facility in Nashville, Tenn. and owns
a full-service environmental company based in Newington, N.H., a Maryland
company specializing in marketing post-industrial recycled plastics, a paper and
metals recycling company in Biddeford, Maine and a world wide secondary fiber
marketing company based in Portland, Ore.
For further information, contact Marty Sergi at KTI, Inc. (201)
854-7777 or Frank N. Hawkins, Jr. or Julie Marshall at Hawk Associates, Inc.
(305) 852-2383. Copies of KTI press releases, SEC filings, current price
quotes, stock charts, analysts' comments and other valuable information for
investors may be found on the website http://www.hawkassociates.com
This release contains various forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 which represent the company's expectations or
beliefs concerning future events of the company's financial performance. These
forward looking statements are qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements. Results actually achieved may differ materially from expected
results included in these statements.
