-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H+bZspoCquN52Cda+3HLmWYO3KMYYmIzk4RhRnPTLvbUab9DGp2ioG1nQamLLhJX njRrNlpF+wlQT5SkngVrhQ== 0000950123-98-001897.txt : 19980224 0000950123-98-001897.hdr.sgml : 19980224 ACCESSION NUMBER: 0000950123-98-001897 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980213 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KTI INC CENTRAL INDEX KEY: 0000931581 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 222665282 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-25490 FILM NUMBER: 98547636 BUSINESS ADDRESS: STREET 1: 7000 BLVD E CITY: GUTTENBERG STATE: NJ ZIP: 07093 BUSINESS PHONE: 2018547777 MAIL ADDRESS: STREET 1: 7000 BOULEVARD EAST CITY: GUTTENBERG STATE: NJ ZIP: 07093 8-K 1 KTI, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- 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 - -------------------------------------------------------------------------------- (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification Number) 7000 Boulevard East, Guttenberg, New Jersey 07093 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number including area code- (201) 854-7777 - -------------------------------------------------------------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name and former address, as changed since last report) 2 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 3 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. 4 Item 7. Financial Statements and Exhibits (c) Exhibits. Exhibit Number Description - -------------- ----------- 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 5 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 EX-4.1 2 COMMITMENT LETTER 1 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 2 2 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 3 3 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 4 4 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 5 5 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 6 6 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. 7 7 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, 8 8 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. 9 9 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. 10 10 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. 11 11 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. 12 12 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 - -------------------- By: Robert Briggs Its: President & CEO 13 13 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. 1 14 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. 2 15 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. 3 16 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. - --------------------- 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. 4 17 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. 5 EX-4.2 3 NEW RELEASE 1 NEWS RELEASE FOR IMMEDIATE RELEASE FINANCE AUTHORITY OF MAINE (FAME) APPROVES $50,000,000 ----------------------------------------------------- FINANCING FOR PENOBSCOT ENERGY RECOVERY COMPANY (PERC) IN --------------------------------------------------------- REVISED POWER AGREEMENT WITH KTI, INC. -------------------------------------- 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. 2 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. -----END PRIVACY-ENHANCED MESSAGE-----