-----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, I9TDab5O/vSJhgLBkcEMh5KAxBsOcDiivHB9Lzwy/I+2eLhzfF3+YDi4ZHG/7i7B D2v7cxekKYFFhk0ygSKu+Q== 0000950123-98-004857.txt : 19980513 0000950123-98-004857.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950123-98-004857 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980512 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: S-2/A SEC ACT: SEC FILE NUMBER: 333-46057 FILM NUMBER: 98616748 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 S-2/A 1 AMENDMENT NO. 1 TO FORM S-2 1 As filed with the Securities and Exchange Commission on May 12, 1998 Registration No. 333-46057 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------- AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 KTI, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2665282 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7000 Boulevard East Guttenberg, New Jersey 07093 (201) 854-7777 (Address, including zip code, and telephone including area code, of registrant's principal executive offices) Robert E. Wetzel, Esq. c/o KTI, Inc. 7000 Boulevard East Guttenberg, New Jersey 07093 (201) 854-7777 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Brian Hoffmann, Esq. McDermott, Will & Emery 50 Rockefeller Plaza New York, New York 10020 (212) 547-5400 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. |X| If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Section 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
=============================================================================================================================== Title of each class Amount to be Proposed Proposed maximum Amount of of securities to be registered maximum offering aggregate offering registration fee registered price per share price - ------------------------------------------------------------------------------------------------------------------------------- 8 3/4% Series B Convertible Exchangeable 856,000 $25(1) $21,400,000 $6,313 Preferred Stock, no par value - ------------------------------------------------------------------------------------------------------------------------------- Common Stock, no par value, issuable 1,861,105 (2) (2) (2) upon conversion of the 8 3/4% Series B Convertible Exchangeable Preferred Stock - ------------------------------------------------------------------------------------------------------------------------------- 8 3/4% Convertible Subordinated Notes, $21,398,000 (3) (3) (3) due August 15, 2004, issuable in exchange for the 8 3/4% Series B Convertible Exchangeable Preferred Stock ===============================================================================================================================
(1) Represents the per-share sales price ($25.00) of the 8 3/4% Series B Convertible Exchangeable Preferred Stock sold by the Registrant in an institutional private placement in August, 1997, each share having a stated value of $25.00. (2) Common Stock issued upon conversion of the 8 3/4% Series B Convertible Exchangeable Preferred Stock will be issued for no additional consideration and no additional registration fee is required with respect to the registration thereof. 2 (3) 8 3/4% Convertible Subordinated Notes issued in exchange for the 8 3/4% Series B Convertible Exchangeable Preferred Stock will be issued for no additional consideration and no additional registration fee is required --------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to section 8(a), may determine. 3 KTI, Inc. 856,000 Shares of 8 3/4% Series B Convertible Exchangeable Preferred Stock 1,861,105 Shares of Common Stock $21,398,000 8 3/4% Convertible Subordinated Notes due August 15, 2004 --------------- This prospectus relates to the resale of an aggregate of 856,000 shares of 8 3/4% Series B Convertible Exchangeable Preferred Stock, no par value, (the "Series B Preferred Stock"), of KTI, Inc., a New Jersey corporation (the "Company"), all of which 856,000 shares have been previously issued by the Company to the selling shareholders named herein (the "Selling Shareholders"), 1,861,105 shares of common stock, no par value (the "Common Stock"), of the Company issuable upon conversion of the Series B Preferred Stock plus any accrued and unpaid dividends, and $21,398,000 aggregate principal amount of 8 3/4% Convertible Subordinated Notes due August 15, 2004 (the "Exchange Notes") issuable in exchange for the Series B Preferred Stock. The shares of Series B Preferred Stock and Common Stock offered hereby (the "Shares") and the Exchange Notes offered hereby may be offered for sale from time to time by the Selling Shareholders or their respective pledgees, donees, transferees or other successors in interest in the open market, on the NASDAQ National Market (in the case of Common Stock), in the over-the-counter market, in privately negotiated transactions, or a combination of such methods, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Shares and Exchange Notes are intended to be sold through one or more broker-dealers or directly to purchasers. Such broker-dealers may receive compensation in the form of commissions, discounts or concessions from the Selling Shareholders or purchasers of the Shares and Exchange Notes for whom such broker-dealers may act as agent, or to whom the Selling Shareholders may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary concessions). The Selling Shareholders and any broker-dealers who act in connection with the sale of Shares and Exchange Notes hereunder may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and any commissions received by them and proceeds of any resale of the Shares and Exchange Notes may be deemed to be underwriting discounts and commissions under the Act. See "Selling Security Holders" and "Plan of Distribution." Annual cumulative dividends of $2.1875 per share of Series B Preferred Stock accruing from August 15, 1997 will be payable quarterly on each of February 1, May 1, August 1 and November 1. Except in limited circumstances, the Series B Preferred Stock is not entitled to voting rights. The Series B Preferred Stock will be redeemed on August 15, 2004 at an amount equal to the liquidation preference plus accrued and unpaid dividends. It is also subject to earlier redemption at the option of the Company after August 15, 2000 or, in certain circumstances, after August 15, 1999, at prices ranging from $26.47 to $25 per share. The Series B Preferred Stock, at the option of the holder, may be converted into Common Stock, at a conversion price of $11.75 per share, subject to adjustment, and, at the option of the Company, may be exchanged for the Exchange Notes. See "Description of Securities--Series B Preferred Stock." The Exchange Notes will bear interest at the rate of 8 3/4% per annum, payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, commencing on the first such date following the date on which the Exchange Notes are issued. The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to all senior debt. The Company may repurchase the Exchange Notes after August 15, 2000 or, in certain circumstances, after August 15, 1999, at prices ranging from 105.9% to 100%. The Exchange Notes, at the option of the holder, may be converted into Common Stock at a conversion price of $11.75 per share subject to adjustment. See "Description of Securities-- Exchange Notes." All of the shares of Series B Preferred Stock offered hereby are presently issued and outstanding. The 1,861,105 shares of Common Stock offered hereby are issuable upon conversion of the Series B Preferred. The $21,398,000 Exchange Notes offered hereby are issuable in exchange for the Series B Preferred Stock. The Common Stock is listed on the NASDAQ National Market System under the symbol "KTIE." On May 8, 1998, the last reported sale price of the Common Stock, as reported on the NASDAQ National Market System, was $21.25 per share. AN INVESTMENT IN THE SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGES 7 TO 12. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is May 12, 1998. 4 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offering made hereby, and if given or made, such information or representations must not be relied upon as having been authorized by the Company, any Selling Stockholder or by any other person. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the shares to any person or by anyone in any jurisdiction in which such offer or solicitation may not lawfully be made. 5 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-2 (referred to herein, together with all other amendments and exhibits, as the "Registration Statement") under the Securities Act for the registration of the Series B Preferred Stock, Common Stock and the Exchange Notes offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are omitted from this Prospectus in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the shares of Series B Preferred Stock and Common Stock offered hereby, reference is made to the Registration Statement, exhibits, schedules thereto, and the financial statement and notes thereto filed or incorporated by reference as a part thereof. Statements made in this Prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits thereto are on file at the offices of the Commission and may be obtained upon payment of the prescribed fee or may be examined without charge at the public reference facilities of the Commission described below. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements, and other information with the Commission. Such reports, proxy statements, and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site that contains registration statements, reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission at http://www.sec.gov. The Common Stock is traded on the NASDAQ National Market System. Reports, proxy statements and other information concerning the Company may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W. Washington, D.C. 20006. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents have been filed with the Commission and are incorporated herein by reference and made a part of this Prospectus: Current Report on Form 8-K, dated November 14, 1997, as amended on Form 8-K/A; Annual Report on Form 10-K for the year ended December 31, 1997; and Current Report on Form dated May 6, 1998. 2 6 No other report has been filed by the Company since the end of its fiscal year ended December 31, 1997. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all of the documents incorporated by reference herein (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Requests should be directed to: KTI, Inc. 7000 Boulevard East Guttenberg, New Jersey 07093 Attention: Robert E. Wetzel Telephone Number: (201) 854-7777 This Prospectus is accompanied by a copy of the Company's Form 10-K filed with the Commission for the fiscal year of the Company ended December 31, 1997. This Prospectus shall be accompanied by a copy of the Company's Form 10-K, together with any amendments thereto, filed with the Commission for each subsequent fiscal year of the Company during the duration of this Offering and by a copy of the Company's 3 7 Proxy Statement used for the solicitation of stockholders for each subsequent annual meeting of stockholders held during the duration of this Offering. The Company shall deliver without charge to each person to whom this Prospectus is delivered, a copy of the Company's latest Form 10-Q filed with the Commission with respect to the most recent fiscal quarter which ends after the end of the latest fiscal year of the Company for which the Company has delivered the Form 10-K as described above. The Company shall also provide without charge a copy of each Form 8-K, if any, filed with the Commission since the end of the latest fiscal year of the Company for which the audited financial statements were included in the latest Form 10-K filed with the Commission. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS All statements contained herein or incorporated by reference herein that are not historical facts, including but not limited to statements regarding the Company's current business strategy, prospective joint ventures, and plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors in addition to the foregoing that could cause actual results to differ materially are the following: (i) the availability of sufficient capital to finance the Company's business plan on terms satisfactory to the Company; (ii) competitive factors such as availability of less expensive waste disposal outlets or expanded recycling programs that may significantly reduce the amount of waste products available to the Company's facilities; (iii) any further restructuring of the Company's power purchase agreement with Central Maine Power Company or any restructuring of the Company's power purchase agreements with Bangor-Hydro Electric Power Company and Florida Power Company (iv) changes in labor, equipment and capital costs; (v) the ability of the Company to consummate any contemplated joint ventures and/or restructuring on terms satisfactory to the Company; (vi) changes in regulations affecting the waste disposal and recycling industries; (vii) the ability of the Company to comply with the restrictions imposed upon it in connection with its outstanding indebtedness; (viii) future acquisitions or strategic partnerships; (ix) general business and economic conditions; and (x) other factors described from time to time in the Company's reports filed with the Commission and in the "Risk Factors" section of this Prospectus. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. 4 8 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed information and financial statements, including the notes thereto, appearing elsewhere or incorporated by reference herein. All share numbers have been adjusted to give effect to a 5% stock dividend paid on March 28, 1997. The Company KTI, Inc. (individually and collectively with its subsidiaries, the "Company") was incorporated in New Jersey in 1985. The Company is a holding company, and substantially all of its operating assets are owned by corporate and partnership subsidiaries. The principal executive offices of the Company are located at 7000 Boulevard East, Guttenberg, New Jersey 07093. Its telephone number is (201) 854-7777. The Company's objectives are focused on the development of an integrated waste handling business, providing wood, paper, corrugated, metals, plastic and glass processing and recycling, municipal solid waste processing and disposal capabilities, specialty waste disposal services, facility operations and recycling of ash combustion residue. The Company's integrated waste handling business emphasizes the use of low cost processing to add potential value to the various waste products delivered and in certain cases the generation of electric power. The Company believes that by adding these processing steps to its system, it is competitive with traditional landfill alternatives while producing superior environmental results and meeting social and political mandates. The Company also markets recyclable metals, plastic, paper and corrugated processed at its facilities and by third parties. As part of its integrated waste handling business, the Company owns eleven processing facilities and seven marketing offices in the United States. 5 9 The Offering This prospectus relates to the resale of up to an aggregate of 856,000 shares of Series B Preferred Stock, all of which are issued and outstanding, 1,861,105 shares of Common Stock, which are issuable upon the conversion of the Series B Preferred Stock, and $21,398,000 aggregate principal amount of Exchange Notes. Series B Preferred Stock Series B Preferred Stock: Annual cumulative dividends of $2.1875 per share accruing from August 15, 1997 will be payable quarterly on each February 1, May 1, August 1 and November 1. Ranking: The Series B Preferred Stock ranks senior to all Common Stock and on parity with holders of all other preferred stock. Liquidation Preference: $25 per share, plus accrued and unpaid dividends. Voting Rights: The Series B Preferred Stock is not entitled to voting rights. Holders of the Series B Preferred may elect one member to the Company's Board of Directors in the event that dividends on the Series B Preferred Stock are in arrears for more than four consecutive quarters, and two members to the Company's Board of Directors in the event that the Company fails to redeem the Series B Preferred on any mandatory redemption date. 6 10 Protective Provisions: Consent of the holders of a majority of Series B Preferred Stock is required for any corporate action which (i) alters or changes the rights, preferences or privileges of the Series B Preferred Stock materially and adversely; (ii) creates any new class or series of shares having a preference over or being on a parity with Series B Preferred Stock, unless the pro forma ratios of latest twelve months of a) net income available for preferred dividends to preferred dividends would be not less that 1:1 and b) earnings before interest, taxes, depreciation and amortization less capital expenditures, securities amortization and redemption, cash taxes and changes in working capital to preferred dividends would be not less that 1.2:1; and (iii) adversely affects or is adversely affected by certain other events. Mandatory Redemption: The Company must redeem the Series B Preferred Stock on August 15, 2004 at an amount equal to the then liquidation preference plus accrued and unpaid dividends thereon. Such redemption may be made at the option of the Company either (i) in cash at 100% or (ii) in Common Stock at 95% of the average closing price of Common Stock during the 20 trading days prior to such redemption. Optional Redemption: The Company has the right to call for cash redemption of Series B Preferred Stock, in whole or in part, (i) during the twelve month period beginning on August 15 of the years indicated below as follows:
2000........................$26.10 per share 2001........................$25.73 per share 2002........................$25.37 per share 2003 and thereafter.........$25.00 per share
or (ii) after August 15, 1999, the Company may, at its option, redeem the Series B Preferred Stock at $26.47 per share, plus accumulated and unpaid dividends thereon, if the Common Stock bid price has averaged not less than 1.5 times the Conversion Price during the preceding 20 consecutive trading days. Conversion Price: $11.75 per share, subject to adjustment as provided below in "Antidilution Provisions". Conversion: The Series B Preferred Stock may be converted, at the option of the holder, in whole or in part, at any time, into shares of Common Stock at the conversion price, subject to adjustment as provided under "Antidilution Provisions". Exchange: Upon not less than 30 days and not more than 60 days' written notice to the holders of Series B Preferred, the Company may exchange at any time, in whole but not in part, on any dividend payment date, the Series B Preferred for Exchange Notes of the Company having similar terms and conditions. In the event of such exchange, the interest rate of the Exchange Notes will be equivalent to the dividend rate of the Series B Preferred Stock, without adjustment for the dividends received deduction. 7 11 Antidilution Provisions: The conversion price shall be subject to adjustments (i) for Common Stock splits and recapitalizations, and (ii) to prevent dilution, on a weighted average basis, in the event the Company issues additional Common Stock, or rights to purchase Common Stock, at a purchase price less than the then applicable market price. Change of Control: In the event of a change of control, holders of the Series B Preferred Stock may require the Company to redeem the Series B Preferred Stock at $25 per share plus accrued and unpaid dividends thereon. Such redemption may be made at the option of the Company either (i) in cash at 100% or (ii) subject to certain conditions, in Common Stock at 95% of the average trading price of Common Stock during the 20 trading days prior to such redemption. Exchange Notes Exchange Notes: The Exchange Notes will bear interest at the rate of 8 3/4% per annum, payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, commencing on the first such date following the date on which the Exchange Notes are issued. Subordination: The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to all senior debt. Maturity: The Exchange Notes will be due August 15, 2004. Optional Redemption: The Company has the right to repurchase the Exchange Notes, in whole or in part, (i) during the twelve month period beginning on August 15 of the years indicated below as follows:
2000........................104.4% 2001........................102.9% 2002........................101.5% 2003 and thereafter.........100%
or (ii) after August 15, 1999, the Company may, at its option, repurchase the Exchange Notes at 105.9%, plus accumulated and unpaid dividends thereon, if the Common Stock bid price has averaged not less than 1.5 times the conversion price during 20 consecutive trading days. Conversion Price: $11.75 per share, subject to adjustment. Conversion: The Exchange Notes may be converted, at the option of the holder, in whole or in part, at any time, into shares of Common Stock at the conversion price, subject to adjustment. 8 12 RISK FACTORS Investors should consider very carefully each of the following risk factors and all other information contained in this prospectus. Holding Company Status of the Company; Restrictions on Utilization of Assets The Company is a legal entity separate and distinct from its subsidiaries, which operate substantially all of the Company's businesses. Accordingly, the right of the Company to utilize any assets or earnings or cash flow of any one subsidiary to finance the growth of any other of its subsidiaries is necessarily subject to the prior claims of creditors of the subsidiaries. In addition, the payment of management fees and the distribution of the cash flow of the Company generated by certain subsidiaries of the Company are subject to substantial restrictions as a result of agreements with their respective lenders. Certain financing agreements and the long-term waste handling agreements of Maine Energy, the owner and operator of a waste-to-energy facility in which the Company has a 74.15% ownership interest, require that all available cash flow be applied to the redemption of indebtedness in full before any distribution to partners. In addition, certain financing agreements to which Penobscot Energy Recovery Company, Limited Partnership, a Maine limited partnership ("PERC"), in which the Company has a 71.29% ownership interest, Timber Energy Resources, Inc., a Texas corporation ("TERI") wholly-owned by the Company, K-C International, Ltd., an Oregon corporation ("K-C") wholly-owned by the Company, and other subsidiaries of the Company are parties also restrict the ability of such entities to make distributions to the Company. Currently, the Company's ability to utilize internally generated cash flow as a means of financing expansion is limited to distributions from its operating subsidiaries. As a result, the liquidity of the Company is adversely affected, which could result in the need to raise additional cash through the sale of securities of the Company, some of which may include sales of Common Stock at less than the then prevailing market prices which may dilute existing shareholders and make less likely the payment of cash dividends on Common Stock. Reliance on Electric Utilities and Power Purchase Agreements The Company's waste-to-energy business, which accounted for approximately 73% of the Company's revenue during 1997, is dependent upon electric utilities that purchase energy produced at the Company's waste-to-energy plant. Pursuant to power purchase agreements between Maine Energy and Central Maine with a term through 2012, between PERC and Bangor Hydro Electric Company with a term through 2018, and between the TERI plant in Telogia, Florida (the "Telogia Facility") and Florida Power Corporation with a term through 2002, these utilities have agreed to purchase electricity generated by the Company's waste-to-energy facilities at contractually agreed rates. Sales of electricity to these utilities accounted for approximately 63%, 59% and 96% of revenues of Maine Energy, PERC and the Telogia Facility, respectively, in 1997. In the event of the deregulation of electric utilities, certain electric companies may no longer be financially viable. To the extent that any of the electric utilities with whom the Company contracts is adversely impacted by deregulation, such utilities may not be able to perform their obligations under such purchase power agreements. The State of Maine has recently enacted deregulation legislation which will require the local utilities to transfer their respective contracts with Maine Energy and PERC to newly formed regulated transmission and distribution companies. The costs of such contracts will be passed through to the rate-payers beginning in the year 2000 through these transmission and distribution companies. 9 13 Governmental Regulation and Environmental Risks Federal, state, and local environmental laws govern discharges of pollutants and the generation, transportation, storage, treatment and disposal of solid waste. These laws (i) establish standards governing most aspects of the operation of the waste-to-energy facilities, wood waste processing facilities, its ash recycling facility, and the Telogia Facility and (ii) generally require multiple governmental permits in order to continue the operation of these facilities. The Company believes it has all permits necessary to operate its facilities in the manner that each of them is currently operating. However, there can be no assurance that all required permits will be renewed following their expiration. In some cases the renewal process may entail public hearings. The standards established pursuant to environmental statutes and regulations, the interpretation of statutes and regulations and the policies governing their enforcement may change, requiring new pollution control technology or stricter standards for the control of discharge of air or water pollutants or for solid waste or ash handling and disposal. For example, the United States Supreme Court, in a 1994 decision interpreting the Resource Conservation and Recovery Act, held that ash from the combustion of non-hazardous household and commercial waste, if tested and found to have hazardous characteristics, will be treated as a hazardous waste. In addition, new statutory and regulatory provisions may be implemented which could have retroactive application. Both Maine Energy and PERC have been testing their ash since initial start-up and the ash has generally tested as non-hazardous. If any hazardous waste is detected, it would be disposed of appropriately. There can be no assurance, however, that disposing of hazardous waste, if ever detected, would not entail substantial costs. The waste-to-energy facilities in which the Company has an interest are also subject to the provisions of various federal and state laws and regulations including the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as amended. PURPA requires that electric utilities purchase electricity generated by qualifying power producers at a price equal to the purchasing utility's full "avoided cost". Avoided costs are defined by PURPA as the incremental costs to the electric utility of electric energy or capability, or both. The Company's facilities could be materially and adversely affected if the various benefits of PURPA were repealed or substantially reduced. Changes in laws, regulations or policies or new interpretations of existing laws, regulations or policies, could have a material impact on the profitability, level of capital expenditures or continued operation of the waste-to-energy facilities, wood processing and ash recycling operations in which the Company has an interest. Competition The Company experiences significant competition in each of its waste handling markets. Maine Energy and PERC compete with landfills and several waste-to-energy facilities and municipal incinerators in Maine and the New England region. However, the volume of MSW produced in the New England region has historically increased and the Company believes that it is likely to continue to increase while the availability of landfills for waste disposal is likely to continue to decline. There can be no assurance, however, that these trends will continue. Even though the implementation of recycling programs to reduce MSW has increased, the Company believes that there are limits on the percentage of MSW that ultimately can be recycled and that alternatives for disposal of MSW will continue to be needed. There can be no assurance, however, that new recycling technologies will not be developed. 10 14 The wood waste processing facility operated by KTI Bio Fuels, Inc., a subsidiary of the Company ("KTI Bio Fuels"), in Lewiston, Maine competes with landfills and operators of portable wood chipping equipment. The Telogia Facility competes for biomass fuel supply with paper companies which employ on-site power generation. As the Company increasingly utilizes tipping fee based waste fuels, this facility's dependence on the current fuel supply is expected to decrease. The Telogia Facility is permitted to combust 100% of such tipping fee based fuels. Competition for tipping fee based material will principally come from landfills whose cost structure is higher than that of the Telogia Facility. Local landfill costs for biomass waste products range from $15 to $25 per ton, while the cost of processing the material ranges from $5 to $8 per ton at the Telogia Facility. There can be no assurance, however, that such cost structure will not change in a manner adverse to the Company. Competition for the Company's ash recycling subsidiary is primarily from ash landfills. The Company believes its ash recycling facilities will be able to compete favorably based on historical prices charged by these landfill operators, although there can be no assurance that they will do so. Manner Resins, Inc., acquired by the Company in November, 1996, ("Manner"), competes with several other recycled plastic brokers and direct marketing from plastic recycling plants for the post-industrial plastic scrap and with materials recovery facilities for post-consumer plastics. The Company's other recycling subsidiaries which are primarily involved in the waste paper brokerage business face extensive competition. Such businesses operate with thin profit margins. In order to be profitable, the waste paper broker must arrange to simultaneously buy and sell waste paper, while providing a great enough spread to cover transportation costs and insurance. Generally, paper mills purchase paper under long-term contracts which provide for purchase prices that are adjusted in accordance with a relevant paper price index. A significant portion of the sales made by K-C are to foreign customers, and such sales are contingent upon the availability of letters of credit for such customers. KTI Recycling, which operates recycling plants in Boston, Chicago and Newark, formerly owned by Prins Recycling Corp. and its subsidiaries, faces significant price competition in all of its market. The Newark recycling market is burdened with industry-wide overcapacity and continual price pressure. Combined with high labor costs, the Newark market currently operates with very low profitability. In the Chicago market, the Company's recycling plant has relatively low utilization and price competition is extensive. Dependence upon Sources of Supply of Fuel The waste-to-energy facilities operated by Maine Energy, PERC and the Telogia Facility are dependent upon spot market waste material in order to run at high capacity. In 1997, approximately 71% of the total MSW processed by Maine Energy was received from sources other than parties with whom Maine Energy has long-term waste disposal agreements. Competition within the waste handling and disposal industry for spot market MSW may impede a steady, reliable supply of MSW. The Telogia Facility is in the process of changing its fuel mix from purchased residual material to tipping fee-driven bio-mass waste which has reduced net fuel costs. As its fuel mix continues to change over time, the Telogia Facility expects to have tipping revenue in excess of its cost of purchased bio-mass material for its boiler fuel. There can be no assurance, however, that it will have tipping revenue in excess of its cost of purchased bio-mass material. The Telogia Facility may be subject to competition from other waste disposal companies as it continues to penetrate the bio-mass waste market. 11 15 Timber Energy Resources, Inc.'s Reliance on One Chip Mill Customer TERI's chip mill (the "Timber Chip Mill") relies on one customer, Stone Container Corporation ("Stone Container"), for all of its business. The Timber Chip Mill was constructed as a result of establishing a 15 year "process-or-pay" contract with Stone Container, whereby the Timber Chip Mill receives a tolling fee upon receipt of raw wood. The contract expires on December 1, 2004 and includes an option to extend it for an additional five years. Loss of this contract would require the Company to obtain an additional source of supply or possibly shut down the facility. Additionally, Stone Container has the right to purchase the Timber Chip Mill at a specified price which decreases each year. Management believes it is unlikely that Stone Container will exercise its right to purchase. Flow Control The availability of reliable and continuous sources of MSW or other combustible waste is critical to the operations of the waste-to-energy facilities in which the Company has an interest. MSW availability has been assured, to some extent, by the enactment by municipalities in the service territories of Maine Energy and PERC of ordinances requiring that waste generated within their respective jurisdictions be brought exclusively to the Maine Energy or PERC facilities. Such ordinances are referred to as "flow control". A 1994 decision of the United States Supreme Court overturned a flow control ordinance of a New York municipality on the basis that it was an improper regulation of interstate commerce. In New Jersey, flow control laws also have been overturned and the State of New Jersey is in the process of appealing such decisions. Accordingly, the present questionable validity of all flow control ordinances introduces some degree of uncertainty in the waste handling business. Need for Additional Financing; Liquidity The Company's strategy to foster expansion of its business includes, in part, the development of new businesses or the acquisition of the ownership of, or operational responsibility for, additional businesses in the waste handling industry. This strategy may require the Company to raise additional cash through offerings of either equity or non-recourse and recourse debt, or both. The success of the Company's planned expansion will depend upon a number of factors not entirely within the Company's control, including, among others, the terms and availability of additional financing, the regulatory climate in which the Company operates, and other general economic and business conditions. There can be no assurance that additional funding, through bank borrowings, debt or equity financings or otherwise, will be available to the Company on acceptable terms. Availability of Acquisition Targets; Integration of Future Acquisitions. The Company's ongoing acquisition program is a key element of the growth strategy for expanding its integrated waste management operations. Consequently, the future growth of the Company depends in a large part upon the successful continuation of this acquisition program. The Company may encounter substantial competition in its efforts to acquire waste-to-energy facilities, ash recycling facilities, pre and post consumer recycling facilities or any other facilities relating to integrated waste management business. There can be no assurance that the Company will succeed in locating or acquiring appropriate acquisition candidates at price levels and on terms and conditions that the Company considers appropriate. In addition, if in the future the Company is successful in acquiring targeted companies, it will need to integrate those acquired companies into the Company's operations. There can be no assurance that the Company will successfully integrate future acquisitions into its operations. 12 16 Dependence on Key Personnel The Company believes that its success depends, to a significant extent, on the efforts and abilities of its senior management. In particular, the loss of any one of Ross Pirasteh, Chairman of the Board of Directors, Martin J. Sergi, the Company's Vice Chairman, President and Chief Financial Officer, David E. Hill, the Company's Chief Operating Officer or William Kaiser, the Company's Executive Vice President and Treasurer, could have a material adverse effect on the Company. In addition, the Company believes that its success will depend in large part upon its ability to attract, retain and motivate skilled employees and other senior management personnel. Although the Company expects to continue to attract sufficient numbers of such persons for the foreseeable future, there can be no assurance that the Company will be able to do so. In addition, because the Company may acquire one or more businesses in the future, the Company's success will depend, in part, upon its ability to retain and integrate its own operations personnel with personnel from acquired entities who are necessary to the continued success or successful integration of the acquired business. Seasonality The Company's wood waste and MSW revenues for KTI BioFuels, Maine Energy and PERC tend to be lower in the winter months. This is primarily attributable in the case of KTI BioFuels to the volume of waste relating to construction and demolition activities which increases in the spring and summer months; and in the case of Maine Energy and PERC to the summer population in Maine which is roughly 30% higher than any other season of the year. Generally, the supply of recycled paper is highest in the winter months and decreases during the summer months. The Company's recycled plastic volume is highest during the fourth quarter. No Cash Dividends on Common Stock The Company has not paid any cash dividends on its Common Stock to date and the Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company is required to pay annual dividends of $1,872,500 in the aggregate on the Series B Preferred Stock. Additionally, the Company's bank credit facility and the Series B Preferred Stock contain restrictions on the payment of cash dividends on the Common Stock. Potential Anti-Takeover Effects of State Law; Preferred Stock Certain provisions of New Jersey law and the Company's Restated Certificate of Incorporation could delay or impede the removal of incumbent directors and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company's securities. Shares of preferred stock may be issued by the Board of Directors of the Company without Common Stock shareholder approval on such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The issuance of preferred stock could make the possible takeover of the Company or the removal of management of the Company more difficult, discourage hostile bids for control of the Company in which shareholders may receive premiums for their shares of Common Stock, or otherwise dilute the rights of holders of the Common Stock and depress the market price of the Company's securities. In addition, the Restated Certificate of Incorporation of the Company provides for "supermajority" and "fair price" anti-takeover measures which could affect the price shareholders could receive for shares of Common Stock. The supermajority provision requires that in the event of a merger or consolidation of the Company with 13 17 another corporation or the sale, lease, exchange or other disposition of all or substantially all the assets of the Company, an affirmative vote of at least 80% of all outstanding shares of voting stock shall be required to approve such transaction unless it is approved by at least the greater of three fourths of the directors or two directors who are not affiliated with said transaction. The fair price provision as set forth in the Restated Certificate of Incorporation requires a potential acquiring entity to obtain the approval of at least 80% of all outstanding shares of voting stock of the Company, obtain the approval of at least three fourths of the directors on the Board who are not affiliated with the transaction, or satisfy several conditions that include, among other things, holders of capital stock of the Company receiving fair market value for their shares, the payment of all outstanding dividends on capital stock of the Company, the receipt of a proxy or information statement by all holders of Common Stock describing the proposed transaction and complying with the requirements of the Exchange Act and the approval of not less than the majority of the directors not affiliated with said transaction. See "Description of Common Stock." Limitation on Use of Tax Loss Carryforwards As of December 31, 1997, the Company had net operating loss carryforwards ("NOLs") for federal income tax purposes of approximately $46,100,000 that expire in the years 2002 through 2010. As a result of an "ownership change" which occurred during 1994, the Company's ability to utilize its pre-ownership change NOLs is limited under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), to an amount equal to approximately $1,200,000 of taxable income per year. If the value of the Company's capital stock immediately before the 1994 ownership change were determined to be lower than that calculated by management of the Company, the annual allowable NOL deduction of $1,200,000 per year for the Company, other than TERI, would be reduced proportionately. The net operating loss carryforward of TERI is limited to approximately $988,000 per year. This limitation may be increased if the Company or TERI recognizes a gain on the disposition of an asset which had a fair market value greater than its tax basis on the date of the ownership change. USE OF PROCEEDS The Company will not receive proceeds from the sale of any of the Shares offered by the Selling Shareholders pursuant to this prospectus. 14 18 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth the Company's consolidated ratios of earnings to combined fixed charges and preferred stock dividends for the periods shown. The information appearing below should be read in conjunction with information appearing in the Company's consolidated financial statements, the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, which is incorporated herein by reference.
Year Ended December 31, ---------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Ratio of Earnings to Combined Fixed 1.73 4.23 (1) (1) 1.55 Charges and Preferred Stock Dividends (unaudited)
Earnings used to compute this ratio are earnings from continuing operations before income taxes and before fixed charges (excluding, for purposes of such computation, interest capitalized during the period and dividends on the Company's Series B Preferred Stock). Fixed charges consist of interest, whether expensed or capitalized, amortization of debt discount and expense, the portion of rental expense representative of an interest factor and dividends on the Company's Series B Preferred Stock. (1) Fixed charges and preferred stock dividends for the years ended December 31, 1995 and 1994 exceeded earnings, as adjusted by $1,328 and $1,428, respectively. SELLING SHAREHOLDERS The following sets forth certain information with respect to the Selling Shareholders which has been provided to the Company by each such Selling Shareholder. The Company has no knowledge of the intentions of any of the Selling Shareholders to actually sell any of the shares listed under the column "Shares Available for Sale." Each of the Selling Shareholders has the contractual right to sell shares. No Selling Shareholder has a material relationship with the Company other than as a result of ownership of the Shares and the Exchange Notes. All amounts indicated are as of May 6, 1998. Series B Preferred Stock
Percentage of Shares Offered Class Owned Ownership Prior to Pursuant to this After Selling Shareholder Offering Prospectus(1) Offering(2) -------- -------------- ----------- Armstrong Fund Equity Account 1,800 1,800 * Bell South 4,500 4,500 * Berwyn Income Fund, Inc. 50,000 50,000 *
15 19 Cardinal Special Situations 800 800 * Fund, L.P. Cardinal Value Equity Partners 10,600 10,600 * Catholic Mutual Relief Society 7,000 7,000 * of America Catholic Mutual Relief Society 4,000 4,000 * Retirement Plan and Trust Century National Insurance Company 10,000 10,000 * Commonwealth Life Insurance 20,000 20,000 * Company (Teamsters-Camden Non-Enhanced) Credit Research & Trading LLC 26,000 26,000 * Deutsche Bank A.G. 23,200 23,200 * Fidelity Financial Trust: 178,800 178,800 * Fidelity Convertible Security Fund Foundation Account No. 1 8,000 8,000 * HBK Finance L.P. 14,200 14,200 * Highbridge International LDC 65,000 65,000 * JMG Convertible Investments, L.P. 65,000 65,000 * JSS Investments, L.L.C. 10,000 10,000 * KF Company Limited 600 600 * LACERA 5,900 5,900 * Metropolitan Life Insurance Co. Separate Account #184 10,000 10,000 * Navesink Equity Derivative Fund, 15,000 15,000 * LDC Paloma Securities LLC 12,000 12,000 * Remy Capital Partners II L.P. 4,600 4,600 * RH Capital Associates #1, L.P. 46,000 46,000 * Silverton International Fund Limited 8,000 8,000 * SoundShore Partners L.P. 131,500 131,500 * State Street Research Alpha 40,000 40,000 * Fund State Street Research High Income Fund 10,000 10,000 * TQA Arbitrage Fund, L.P. 14,000 14,000 * Triton Capital Investments, Inc. 42,500 42,500 * Zazove Convertible Fund, L.P. 17,000 17,000 * -------- Total 856,000
Common Stock
Percentage of Shares Offered Class Owned Ownership Prior to Pursuant to this After Selling Shareholder Offering Prospectus(1) Offering(2) -------- -------------- ----------- Armstrong Fund Equity Account 3,913(1) 3,913 *
16 20 Bell South 9,783(2) 9,783 * Berwyn Income Fund, Inc. 108,710(3) 108,710 * Cardinal Special Situations 1,739(4) 1,739 * Fund, L.P. Cardinal Value Equity Partners 23,046(5) 23,046 * Catholic Mutual Relief Society 15,219(6) 15,219 * of America Catholic Mutual Relief Society 8,696(7) 8,696 * Retirement Plan and Trust Century National Insurance Company 21,742(8) 21,742 * Commonwealth Life Insurance 43,484(9) 43,484 * Company (Teamsters-Camden Non-Enhanced) Credit Research & Trading LLC 56,529(10) 56,529 * Deutsche Bank A.G. 50,411(11) 50,411 * Fidelity Financial Trust: 388,747(12) 388,747 * Fidelity Convertible Security Fund Foundation Account No. 1 17,393(13) 17,393 * HBK Finance L.P. 30,873(14) 30,873 * Highbridge International LDC 141,323(15) 141,323 * JMG Convertible Investments, L.P. 141,323(16) 141,323 * JSS Investments, L.L.C. 21,742(17) 21,742 * KF Company Limited 1,304(18) 1,304 * LACERA 12,827(19) 12,827 * Metropolitan Life Insurance Co. Separate Account #184 21,742(20) 21,742 * Navesink Equity Derivative Fund, 32,613(21) 32,613 * LDC Paloma Securities LLC 26,090(22) 26,090 * Remy Capital Partners II L.P. 10,001(23) 10,001 * RH Capital Associates #1, L.P. 100,013(24) 100,013 * Silverton International Fund Limited 17,393(25) 17,393 * SoundShore Partners L.P. 285,907(26) 285,907 * State Street Research Alpha 86,968(27) 86,968 * Fund State Street Research High Income Fund 21,742(28) 21,742 * TQA Arbitrage Fund, L.P. 30,438(29) 30,438 * Triton Capital Investments, Inc. 92,403(30) 92,403 * Zazove Convertible Fund, L.P. 32,961(31) 32,961 * -------- Total 1,861,104
(1) Represents shares of Common Stock issuable upon conversion of 1,800 shares of Series B Preferred Stock plus accumulated and unpaid dividends. 17 21 (2) Represents shares of Common Stock issuable upon conversion of 4,500 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (3) Represents shares of Common Stock issuable upon conversion of 50,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (4) Represents shares of Common Stock issuable upon conversion of 800 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (5) Represents shares of Common Stock issuable upon conversion of 10,600 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (6) Represents shares of Common Stock issuable upon conversion of 7,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (7) Represents shares of Common Stock issuable upon conversion of 4,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (8) Represents shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (9) Represents shares of Common Stock issuable upon conversion of 20,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (10) Represents shares of Common Stock issuable upon conversion of 26,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (11) Represents shares of Common Stock issuable upon conversion of 23,200 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (12) Represents shares of Common Stock issuable upon conversion of 178,800 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (13) Represents shares of Common Stock issuable upon conversion of 8,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (14) Represents shares of Common Stock issuable upon conversion of 14,200 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (15) Represents shares of Common Stock issuable upon conversion of 65,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (16) Represents shares of Common Stock issuable upon conversion of 65,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (17) Represents shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. 18 22 (18) Represents shares of Common Stock issuable upon conversion of 600 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (19) Represents shares of Common Stock issuable upon conversion of 5,900 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (20) Represents shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (21) Represents shares of Common Stock issuable upon conversion of 15,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (22) Represents shares of Common Stock issuable upon conversion of 12,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (23) Represents shares of Common Stock issuable upon conversion of 4,600 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (24) Represents shares of Common Stock issuable upon conversion of 46,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (25) Represents shares of Common Stock issuable upon conversion of 8,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (26) Represents shares of Common Stock issuable upon conversion of 131,500 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (27) Represents shares of Common Stock issuable upon conversion of 40,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (28) Represents shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (29) Represents shares of Common Stock issuable upon conversion of 14,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (30) Represents shares of Common Stock issuable upon conversion of 42,500 shares of Series B Preferred Stock plus accumulated and unpaid dividends. (31) Represents shares of Common Stock issuable upon conversion of 17,000 shares of Series B Preferred Stock plus accumulated and unpaid dividends. 19 23
Percentage of Class Owned Exchange Note s Ownership Prior to Notes Offered Pursuant After Selling Shareholder Offering to this Prospectus(1) Offering(2) -------- -------------------- ----------- Armstrong Fund Equity Account $ 45,000(1) $ 45,000 * Bell South 112,000(2) 112,000 * Berwyn Income Fund, Inc. 1,250,000(3) 1,250,000 * Cardinal Special Situations 20,000(4) 20,000 * Fund, L.P. Cardinal Value Equity Partners 265,000(5) 265,000 * Catholic Mutual Relief Society 175,000(6) 175,000 * of America Catholic Mutual Relief Society 100,000(7) 100,000 * Retirement Plan and Trust Century National Insurance Company 250,000(8) 250,000 * Commonwealth Life Insurance 500,000(9) 500,000 * Company (Teamsters-Camden Non-Enhanced) Credit Research & Trading LLC 650,000(10) 650,000 * Deutsche Bank A.G. 580,000(11) 580,000 * Fidelity Financial Trust: 4,470,000(11) 4,470,000 * Fidelity Convertible Security Fund Foundation Account No. 1 200,000(12) 200,000 * HBK Finance L.P. 355,000(13) 355,000 * Highbridge International LDC 1,625,000(15) 1,625,000 * JMG Convertible Investments, L.P. 1,625,000(16) 1,625,000 * JSS Investments, L.L.C. 250,000(17) 250,000 * KF Company Limited 15,000(18) 15,000 * LACERA 147,000(19) 147,000 * Metropolitan Life Insurance Co. 250,000(20) 250,000 * SeparateAccount #184 Navesink Equity Derivative Fund, 375,000(21) 375,000 * LDC Paloma Securities LLC 300,000(22) 300,000 * Remy Capital Partners II L.P. 115,000(23) 115,000 * RH Capital Associates #1, L.P. 1,150,000(24) 1,150,000 * Silverton International Fund Limited 200,000(25) 200,000 * SoundShore Partners L.P. 3,287,000(26) 3,287,000 * State Street Research Alpha Fund 1,000,000(27) 1,000,000 * State Street Research High Income Fund 250,000(28) 250,000 * TQA Arbitrage Fund, L.P. 350,000(29) 350,000 * Triton Capital Investments, Inc. 1,062,000(30) 1,062,000 * Zazove Convertible Fund, L.P. 425,000(31) 425,000 * ----------- Total $21,397,000
20 24 (1) Represents aggregate principal amount of Exchange Notes issuable in exchange for 1,800 shares of Series B Preferred Stock. (2) Represents aggregate principal amount of Exchange Notes issuable in exchange for 4,500 shares of Series B Preferred Stock. (3) Represents aggregate principal amount of Exchange Notes issuable in exchange for 50,000 shares of Series B Preferred Stock. (4) Represents aggregate principal amount of Exchange Notes issuable in exchange for 800 shares of Series B Preferred Stock. (5) Represents aggregate principal amount of Exchange Notes issuable in exchange for 10,600 shares of Series B Preferred Stock. (6) Represents aggregate principal amount of Exchange Notes issuable in exchange for 7,000 shares of Series B Preferred Stock. (7) Represents aggregate principal amount of Exchange Notes issuable in exchange for 4,000 shares of Series B Preferred Stock. (8) Represents aggregate principal amount of Exchange Notes issuable in exchange for 10,000 shares of Series B Preferred Stock. (9) Represents aggregate principal amount of Exchange Notes issuable in exchange for 20,000 shares of Series B Preferred Stock. (10) Represents aggregate principal amount of Exchange Notes issuable in exchange for 26,000 shares of Series B Preferred Stock. (11) Represents aggregate principal amount of Exchange Notes issuable in exchange for 23,200 shares of Common Stock. (12) Represents aggregate principal amount of Exchange Notes issuable in exchange for 178,800 shares of Series B Preferred Stock. (13) Represents aggregate principal amount of Exchange Notes issuable in exchange for 8,000 shares of Series B Preferred Stock. (14) Represents aggregate principal amount of Exchange Notes issuable in exchange for 14,200 shares of Series B Preferred Stock. (15) Represents aggregate principal amount of Exchange Notes issuable in exchange for 65,000 shares of Series B Preferred Stock. (16) Represents aggregate principal amount of Exchange Notes issuable in exchange for 65,000 shares of Series B Preferred Stock. 21 25 (17) Represents aggregate principal amount of Exchange Notes issuable in exchange for 10,000 shares of Series B Preferred Stock. (18) Represents aggregate principal amount of Exchange Notes issuable in exchange for 600 shares of Series B Preferred Stock. (19) Represents aggregate principal amount of Exchange Notes issuable in exchange for 5,900 shares of Series B Preferred Stock. (20) Represents aggregate principal amount of Exchange Notes issuable in exchange for 10,000 shares of Series B Preferred Stock. (21) Represents aggregate principal amount of Exchange Notes issuable in exchange for 15,000 shares of Series B Preferred Stock. (22) Represents aggregate principal amount of Exchange Notes issuable in exchange for 12,000 shares of Series B Preferred Stock. (23) Represents aggregate principal amount of Exchange Notes issuable in exchange for 4,600 shares of Series B Preferred Stock. (24) Represents aggregate principal amount of Exchange Notes issuable in exchange for 46,000 shares of Series B Preferred Stock. (25) Represents aggregate principal amount of Exchange Notes issuable in exchange for 8,000 shares of Series B Preferred Stock. (26) Represents aggregate principal amount of Exchange Notes issuable in exchange for 131,500 shares of Series B Preferred Stock. (27) Represents aggregate principal amount of Exchange Notes issuable in exchange for 40,000 shares of Series B Preferred Stock. (28) Represents aggregate principal amount of Exchange Notes issuable in exchange for 10,000 shares of Series B Preferred Stock. (29) Represents aggregate principal amount of Exchange Notes issuable in exchange for 14,000 shares of Series B Preferred Stock. (30) Represents aggregate principal amount of Exchange Notes issuable in exchange for 42,500 shares of Series B Preferred Stock. (31) Represents aggregate principal amount of Exchange Notes issuable in exchange for 17,000 shares of Series B Preferred Stock. 22 26 PLAN OF DISTRIBUTION The Shares and Exchange Notes may be offered for sale from time to time by the Selling Shareholders or their respective pledgees, donees, transferees or other successors in interest in the open market, on the NASDAQ National Market (in the case of Common Stock), in the over-the-counter market, in privately negotiated transactions, through the writing of options (whether such options are listed on an options exchange or otherwise), settlement of short sales of the Shares and Exchange Notes, or a combination of such methods, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale, or at negotiated or fixed prices, in each case, as determined by the Selling Shareholders or by agreement between the Selling Shareholders and underwriters, brokers, dealers or agents, or purchasers. The sale or distribution of the Shares and Exchange Notes may be effected directly to purchasers by the Selling Shareholders or through one or more brokers, dealers or agents, from time to time, in one or more transactions. If the Selling Shareholders effect such transactions by selling shares to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of commissions, discounts or concessions from the Selling Shareholders and/or purchasers of the Shares and Exchange Notes for whom they may act as agent, or to whom they may sell as principal, or both (which compensation as to a particular underwriter, broker, dealer or agent may be in excess of those customary in the type of transaction involved). The Selling Shareholders and any brokers, dealers or agents who act in connection with the sale of Shares and Exchange Notes hereunder may be deemed to be "underwriters" within the meaning of the Act, and any commissions, discounts or concessions received by any such brokers, dealers or agents and proceeds of any resale of the Shares and Exchange Notes may be deemed to be underwriting discounts and commissions under the Act. Under the securities laws of certain states, the Shares and Exchange Notes may be sold in such states only through registered or licensed brokers or dealers. In addition, in certain states the Shares and Exchange Notes may be not be sold unless the Shares and Exchange Notes have been registered or qualified for sale in any such state or an exemption from registration or qualification is available and complied with. The Company will pay all of the expenses incident to the registration, offering and sale of the Shares to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers or agents. The Company will not receive any of the proceeds of the sale of any of the Shares and Exchange Notes by the Selling Shareholders. DESCRIPTION OF SECURITIES Authorized Stock The Company's Restated Certificate of Incorporation, as amended, authorizes the issuance of 13,333,333 shares of Common Stock and 10,000,000 shares of "blank check" preferred stock, no par value, and, pursuant to a Certificate of Amendment to the Company's Restated Certificate of Incorporation filed on May 16, 1997, 20,000,000 shares of Common Stock. As of March 19, 1998, there were 9,477,953 shares of Common Stock issued and outstanding and held of record by 201 shareholders of record, and 856,000 shares of the Company's Series B Preferred Stock issued and outstanding and held of record by 2 shareholders. Common Stock Shareholders are entitled to one vote for each share of the Common Stock held of record on all matters to be voted by shareholders. Shareholders are not entitled to cumulate their votes in the election of directors. 23 27 Subject to the prior rights of holders of additional preferred stock of the Company which may be issued, the holders of Common Stock are entitled to dividends, when and if declared by the Board of Directors, out of funds legally available therefor. The Credit Facility and the Series B Preferred Stock however, contain restrictions on the payment of cash dividends. See "Risk Factors -- No Cash Dividends." In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of Common Stock have no preemptive rights and have no right to convert Common Stock into any other securities. All outstanding shares of Common Stock are fully paid and nonassessable. Series B Preferred Stock Ranking The Series B Preferred Stock will, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all classes of Common Stock of the Company and to each other class of capital stock or series of preferred stock established after July, 1997 by the Board of Directors the terms of which do not expressly provide that it ranks senior to or on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the Common Stock of the Company as "Junior Securities"); (ii) subject to certain conditions, on a parity with any class of capital stock or series of preferred stock issued by the Company established after the date of the issuance of the Series B Preferred Stock by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"); and (iii) subject to certain conditions, junior to each class of capital stock or series of preferred stock issued by the Company established after the date of the issuance of the Series B Preferred Stock by the Board of Directors the terms of which expressly provide that such class or series will rank senior to the Series B Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). The Series B Preferred Stock will be subject to the issuance of series of Junior Securities, Parity Securities and Senior Securities, provided that the Company may not issue any new class of Parity Securities or Senior Securities without the approval of the holders of at least a majority of the shares of Series B Preferred Stock then outstanding, voting or consenting, as the case may be, together as one class unless the pro forma ratios for the latest twelve months of (i) net income available for preferred dividends to preferred dividends is not less than 1:1 and (ii) earnings before interest, taxes, depreciation and amortization, exclusive of non-recurring items, less capital expenditures, securities amortization and redemption, cash taxes and changes in working capital to preferred dividends is not less than 1.2:1. In addition, the Series B Preferred Stock will rank junior in right of payment to all indebtedness and other debt obligations of the Company. Dividends Holders of the Series B Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors, from any source of funds legally available therefor, dividends on the Series B Preferred Stock at a rate per annum equal to 8 3/4% of $25.00 per share plus accumulated and unpaid dividends thereon, payable quarterly. All dividends will be cumulative whether or not earned or declared on a daily basis from the date of issuance of the Series B Preferred Stock and will be payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, commencing on November 1, 1997. Upon the occurrence of an Event of Default 24 28 under certain of the Company's existing indebtedness, the Company is restricted from paying, and future agreements of the Company may restrict the payment of, cash dividends on the Series B Preferred Stock. Dividends will be payable to holders of record of the Series B Preferred Stock on the stock register of the Company on the record date for such purpose fixed by the Board of Directors of the Company, which shall not be less than 10 nor more than 60 days preceding the dividend payment date. Dividends will be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period of less than one month. No dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Securities for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid in cash or declared and a sum in cash set apart for such payment on the Series B Preferred Stock. If full dividends in cash are not so paid, the Series B Preferred Stock will share dividends pro rata with the Parity Securities. No dividends may be paid or set apart for such payment on Junior Securities (except dividends on Junior Securities in additional shares of Junior Securities) and no Junior Securities or Parity Securities may be repurchased, redeemed or otherwise retired, nor may funds be set apart for payment with respect thereto, if full cumulative dividends for all past dividend periods have not been paid in cash on the Series B Preferred Stock. Mandatory Redemption On August 15, 2004, the Company shall redeem from any source of funds legally available therefor, all of the then outstanding shares of Series B Preferred Stock at a redemption price equal to $25.00 per share plus accumulated and unpaid dividends thereon. Such redemption may be made at the option of the Company either in (i) cash at 100% or (ii) Common Stock valued at 95% of the average closing price of the Common Stock during the 20 trading days prior to such redemption. Optional Redemption The Series B Preferred Stock will be redeemable for cash on or after August 15, 2000, at the option of the Company, from any source of funds legally available therefor, from time to time, in whole or in part, at the redemption prices set forth herein, together with all accumulated and unpaid dividends to the redemption date ("Redemption Price"). The Redemption Prices are as follows, plus all accumulated and unpaid dividends to the redemption date, for shares of Series B Preferred Stock redeemed during the twelve month period beginning on August 15, of the years indicated: Year Price - -------------------------- --------------------------- 2000 $ 26.10 per share 2001 $ 25.73 per share 2002 $ 25.37 per share 2003 and thereafter $ 25.00 per share Notwithstanding the foregoing, on or after August 15, 1999, the Company may, at its option, redeem the Series B Preferred Stock at $26.47 per share plus accumulated and unpaid dividends thereon if the Common Stock bid price has averaged not less than 1.5 times the conversion price during the preceding 20 consecutive trading days. 25 29 No optional redemption may be authorized or made unless, prior to giving the applicable redemption notice, all accumulated and unpaid dividends for dividend periods ended prior to the date of such redemption notice shall have been paid in cash. In the event of partial redemptions of Series B Preferred Stock, the shares to be redeemed will be determined pro rate or by lot, as determined by the Company; provided that the Company may redeem all shares held by holders of fewer than 100 shares of Series B Preferred Stock (or by holders that would hold fewer than 100 shares of Series B Preferred Stock following such redemption) prior to its redemption of other shares of Series B Preferred Stock. Conversion Rights Each share of Series B Preferred Stock will be convertible at any time at the option of the holder thereof into Common Stock of the Company, at a conversion price equal to $11.75 per share, except that the right to convert shares of Series B Preferred Stock called for redemption will terminate at the close of business on the business day preceding the redemption date and will be lost if not exercised prior to that time, unless the Company defaults in making the payment due upon redemption. The conversion price will be subject to adjustment in certain events, including: (i) the payment of dividends (and other distributions) payable in Common Stock on any class of capital stock of the Company; (ii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock at less than the current market price (as defined in the Certificate of Incorporation); (iii) subdivisions, combinations and reclassifications of Common Stock; (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, shares of any class of capital stock, cash or other assets (including securities, but excluding those dividends, issuance of rights, warrants, and options and distributions referred to above and dividends and distributions paid in cash out of the retained earnings of the Company, unless the sum of all such cash dividends and distributions made and the amount of cash and the fair market value of other consideration paid in respect of any repurchase of Common Stock by the Company or any of its subsidiaries, in each case within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the product of the then current market price of the Common Stock times the aggregate number of shares of Common Stock outstanding on the record date for such dividend or distribution). No adjustment of the conversion price will be required to be made until cumulative adjustments amount to 1% or more of the conversion price as last adjusted. In addition to the foregoing adjustments, the Company will be permitted to make such reductions in the conversion price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the Common Stock. In the case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, each share of Series B Preferred Stock then outstanding will become convertible only to the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such share of Series B Preferred Stock might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount receivable per share by a plurality of non-electing shares). No fractional shares of Common Stock will be issued upon conversion; in lieu thereof, the Company will pay a cash adjustment based upon the closing price of the Common Stock on the business day prior to the conversion date. 26 30 The holder of record of a share of Series B Preferred Stock at the close of business on a record date with respect to the payment of dividends on the Series B Preferred Stock will be entitled to receive such dividends with respect to such share of the Series B Preferred Stock on the corresponding dividend payment date, notwithstanding the conversion of such share after such record date and prior to such dividend payment date. A share of Series B Preferred Stock surrendered for conversion during the period from the close of business on any record date for the payment of dividends to the opening of business of the corresponding dividend payment date must be accompanied by a payment in cash in an amount equal to the dividends payable on such dividend payment date, unless such share of Series B Preferred Stock has been called for redemption on a redemption date occurring during the period from the close of business on any record date for the payment of dividends to the close of business on the business day immediately following the corresponding dividend payment date. The dividend payment with respect to a share of Series B Preferred Stock called for redemption on a date during the period from the close of business on any record date for the payment of dividends to the close of business on the business day immediately following the corresponding dividend payment date will be payable on such dividend payment date to the record holder of such share on such record date, notwithstanding the conversion of such share after such record date and prior to such dividend payment date. No payment or adjustment will be made upon conversion of shares of Series B Preferred Stock for accumulated and unpaid dividends or for dividends with respect to the Common Stock issued upon such conversion. Change of Control Upon the occurrence of a Change of Control (as defined below), at the option of the holders of a majority of the Series B Preferred Stock the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part of each holder's Series B Preferred Stock at an offer price equal to $25.00 per share plus accumulated and unpaid dividends thereon to the date of repurchase. Such redemption may be made at the option of the Company either in (i) cash at 100% or (ii) Common Stock valued at 95% of the average closing price of the Common Stock during the 20 trading days prior to such redemption, if the Board of Directors of the Company determines that making such payment in shares of Common Stock will not adversely affect the voting rights, preferences, privileges or relative, participating, option or other specified rights of the holders of the Preferred Stock or the Common Stock. Within 30 days following a Change of Control, the Company will mail a notice to each holder of Series B Preferred Stock describing the transaction that constitutes the Change of Control and offering to repurchase the Series B Preferred Stock pursuant to the procedures required by the Certificate of Incorporation and described in such notice; provided that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding indebtedness to permit the repurchase of the Series B Preferred Stock required by this covenant. A "Change of Control" will be deemed to have occurred upon the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, (b) the adoption of a plan relating to the liquidation or dissolution of the Company, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are, used in Section 13(d)(3) of the Exchange Act), other than a group including any one of Nicholas Menonna Jr., Martin Sergi or Ross Pirasteh, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, unless the closing price per share of Common Stock for any five trading days within the period of ten consecutive trading days ending immediately after the announcement of such Change of Control equals or exceeds 105% of the conversion price of the Series B Preferred Stock or the Exchange Notes, as the case may be, in effect on each such trading day, or (d) the first day on which more than a majority of the Board of Directors are not Continuing Directors (as defined below); provided, however, that a transaction in which the 27 31 Company becomes a subsidiary of another entity shall not constitute a Change of Control if (i) the shareholders of the Company immediately prior to such transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, at least a majority of the voting power of the outstanding voting stock of the Company immediately prior to such transaction, no "person" or "group" (as such terms are defined above), other than such other entity (but including holders of equity interests of such other entity), "beneficially owns" (as such term is defined above), directly or indirectly through one or more intermediaries, more than 50% of the voting power of the outstanding voting stock of the Company. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of the Board of Directors on the date of original issuance of the Series B Preferred Stock or (b) was nominated for election to the Board of Directors with the approval of, or whose election to the Board of Directors was ratified by, at least two-thirds of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election. Except as described above with respect to a Change of Control, the Certificate of Incorporation does not contain provisions that permit the holders of the Series B Preferred Stock to require that the Company repurchase or redeem the Series B Preferred Stock in the event of a takeover, recapitalization or similar transaction. In addition, the Company could enter into certain transactions, including acquisitions, refinancing or other recapitalizations, that could affect the Company's capital structure or the value of the Series B Preferred Stock or the Common Stock, but that would not constitute a Change of Control. The occurrence of a Change of Control may result in default under certain indebtedness of the Company. In addition, certain indebtedness of the Company could restrict the Company's ability to repurchase the Series B Preferred Stock for cash upon a Change of Control. In the event a Change of Control occurs at a time when the Company is prohibited from repurchasing the Series B Preferred Stock for cash, the Company could seek the consent of its lenders to the repurchase of the Series B Preferred Stock or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such consent or repay such borrowings, the Company will remain prohibited from repurchasing the Series B Preferred Stock for cash. The Company's failure to make a Change of Control Offer or to repurchase the Series B Preferred Stock tendered in a Change of Control Offer would constitute a Voting Rights Triggering Event (as defined below). Finally, the Company's ability to repurchase Series B Preferred Stock following a Change of Control may be limited by the Company's then existing financial resources. The Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Certificate of Incorporation applicable to a Change of Control Offer made by the Company and purchases all of the Series B Preferred Stock validly tendered and not withdrawn under such Change of Control Offer. Exchange The Company at its option, upon 60 days' written notice to the holders of Series B Preferred Stock, may exchange all, but not less than all, of the then outstanding shares of Series B Preferred Stock into its 8 3/4% Exchange Notes on any dividend payment date, provided that on the date of such exchange: (a) there are no accumulated and unpaid dividends on the Series B Preferred Stock (including the dividends payable on such date) or other contractual impediment to such exchange; (b) there shall be legally available funds sufficient therefor; (c) a registration statement relating to the Exchange Notes shall have been declared effective under the 28 32 Securities Act of 1933, as amended (the "Securities Act"), prior to such exchange and shall continue to be in effect on the date of such exchange or the Company shall have obtained a written opinion of counsel that an exemption from the registration requirements of the Securities Act is available for such exchange and that upon receipt of such Exchange Notes pursuant to such exchange made in accordance with such exemption, the holders (assuming such holder is not an affiliate of the Company) thereof will not be subject to any restrictions imposed by the Securities Act upon the resale thereof, other than any such restriction to which the holder thereof already is subject on the Exchange Date (as defined below), and such exemption is relied upon by the Company for such exchange; (d) the indenture in respect of the Exchange Notes (the "Exchange Note Indenture") and the trustee thereunder shall have been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"); (e) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Note Indenture) would exist under the Exchange Note Indenture; and (f) the Company shall have delivered to the Trustee under the Exchange Note Indenture a written opinion of counsel, dated the date of exchange, regarding the satisfaction of the conditions set forth in clauses (a), (b), (c) and (d). The Company shall send a written notice of exchange by mail to each holder of record of shares of Series B Preferred Stock, which notice shall state, among other things, (i) that the Company is exercising its option to exchange the Series B Preferred Stock for Exchange Notes pursuant to the Certificate of Incorporation and (ii) the date of exchange (the "Exchange Date") which date shall not be less than 30 days nor more than 60 days following the date on which such notice is mailed. On the Exchange Date, the Company shall issue Exchange Notes in exchange for the Series B Preferred Stock as provided below. The holders of outstanding shares of Series B Preferred Stock will be entitled to receive $1,000 principal amount of Exchange Notes for each 40 shares of Series B Preferred Stock (the liquidation preference of which equals $1,000). The Exchange Notes will be issued in registered form, without coupons. Exchange Notes issued in exchange for Series B Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof. The Company will pay cash in lieu of issuing an Exchange Note in a principal amount less than $1,000. On and after the Exchange Date, dividends will cease to accrue on the outstanding shares of Series B Preferred Stock, and all rights of the holders of Series B Preferred (except the right to receive the Exchange Notes, an amount in cash equal to the accumulated and unpaid dividend and Liquidated Damages, if any, to the Exchange Date and, if the Company so elects, cash in lieu of any Exchange Note which in an amount that is not an integral multiple of $1,000) will terminate. The person entitled to receive the Exchange Notes issuable upon such exchange will be treated for all purposes as registered holder of such Exchange Notes. Liquidation Preference Upon any voluntary liquidation, dissolution or winding-up of the Company, holders of Series B Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution, $25.00 per share plus accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last dividend payment date to the date fixed for liquidation, dissolution or winding-up, the "Liquidation Preference"), before any distribution is made on any Junior Securities, including, without limitation, Common Stock of the Company. If, upon any voluntary or involuntary liquidation dissolution or winding-up of the Company, the amount payable with respect to the Series B Preferred Stock and all other Parity Securities is not paid in full, the holders of the Series B Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the Liquidation Preferences to which they are entitled, the holders of shares of Series B Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. However, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or 29 33 substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more entities should be deemed to be a liquidation, dissolution or winding-up of the Company. The Certificate of Incorporation for the Series B Preferred Stock does not contain any provision requiring funds to be set aside to protect the Liquidation Preference of the Series B Preferred Stock, although such Liquidation Preference will be substantially in excess of the par value of such shares of Series B Preferred Stock. In addition, the Company is not aware of any provision of New Jersey law or any controlling decision of the courts of the State of New Jersey (the state of incorporation of the Company) that requires a restriction upon the surplus of the Company solely because the Liquidation Preference of the preferred stock will exceed its par value. Consequently, there will be no restriction upon the surplus of the Company solely because the Liquidation Preference of the Series B Preferred Stock will exceed the par value thereof and there will be no remedies available to holders of the Series B Preferred Stock before or after the payment of any dividend, other than in connection with the liquidation of the Company, solely by reason of the fact that such dividend would reduce the surplus of the Company to an amount less than the difference between the liquidation preference of the Series B Preferred Stock and its par value. Voting Rights Holders of the Series B Preferred Stock are not entitled or permitted to vote on any matter required or permitted to be voted upon by the shareholders of the Company, except as otherwise required by New Jersey law or the Certificate of Incorporation. Pursuant to the Certificate of Incorporation, so long as any shares of the Series B Preferred Stock are outstanding, the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock voting separately as one class, is required before: (a) the Company can authorize or issue any new class of Parity Securities or Senior Securities, or increase the authorized number of shares of any such class or series, or reclassify any authorized stock of the Company into any such class or series, or authorize any obligation or security convertible into or evidencing the right to purchase any such Parity Securities or Senior Securities unless the pro forma ratios for the latest twelve months of (i) net income available for preferred dividends to preferred dividends is not less than 1: I and (ii) earning before interest, taxes, depreciation and amortization, less capital expenditures, securities amortization and redemption, cash taxes and changes in working capital to preferred dividends is not less than 1.2:1; (b) the Company can amend the Certificate of Incorporation so as to affect adversely the voting rights, preferences, privileges or relative participating, optional or other specified rights of the holders of Series B Preferred Stock or to authorize the issuance of any additional shares of Series B Preferred Stock; provided that any such amendment that adversely changes the dividend payable on, or the liquidation preference of, the Series B Preferred Stock shall require the affirmative vote or consent of all holders of Series B Preferred Stock; and (c) the Company can amend or modify the Exchange Note Indenture from the form as existing on the date of issue of the Series B Preferred Stock (except as expressly provided therein), until the exchange of Series B Preferred Stock for Exchange Notes. 30 34 Upon the failure by the Company to (a) declare and pay in full dividends accumulated and owing on any dividend payment date for more than four consecutive dividend payment dates; (b) satisfy any mandatory redemption obligation with respect to the Series B Preferred Stock or make a Change of Control Offer in the time period set forth therein (each of the events,described in clauses (a) and (b) being referred to herein as a "Voting Rights Triggering Event"), then the number of directors constituting the Board of Directors shall thereupon automatically be increased by one, in the case of clause (a) above and two, in the case of clause (b) above, and the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as one class (or as a class together with the holders of shares of Parity Securities, if such holders are entitled to elect additional directors pursuant to any provisions of the Certificate of Incorporation that are similar to those of the holders of the Series B Preferred Stock), shall be entitled to elect such members to the Board of Directors at a special meeting therefor called upon the occurrence of such Voting Rights Triggering Event and at every subsequent meeting at which the terms of office of the directors so elected expire. In no event shall the holders of the Series B Preferred Stock and the holders of Parity Securities voting together as a class be entitled to elect a total of more than two additional directors to the Board of Directors of the Company The right of the holders of the Series B Preferred Stock to elect directors shall continue until such time as all accumulated dividends that are in arrears on the Series B Preferred Stock are paid in full or such other Voting Rights Triggering Event has been completely cured, at which time (a) the special right of such holders so to vote for the election of directors and (b) the term of office of the directors elected by such holders shall terminate, and the directors elected by the holders of Common Stock shall constitute the entire Board of Directors and the authorized number of directors of the Company shall thereupon return to the number of authorized directors otherwise in effect, but subject always to the same provisions for the renewal and divestment of such special voting rights in the case of any future Voting Rights Triggering Event. At any time after voting power to elect directors shall have become vested and be continuing in the holders of the Series B Preferred Stock or if vacancies shall exist in the offices of directors elected by such holders, a proper officer of the Company may, and upon the written request of any holder of record of the Series B Preferred addressed to the Secretary of the Company at the Company's principal executive office shall, call special meeting of such holders for the purpose of electing the directors that such holders are entitled to elect. If such meeting shall not be called by the proper officer of the Company within 20 days after personal service of such written request upon the Secretary of the Company, or within 20 days after mailing the same within the United States by certified mail, addressed to the Secretary of the Company at its principal executive offices, then any holder of the Series B Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by the person so designated upon the notice required for special meetings of shareholders of the Company and shall be held at the place for holding the annual meetings of shareholders. Any holder so designated shall have, and the Company shall provide, access to the lists of holders to be called pursuant to the provisions hereof. At any meeting held for the purpose of electing directors at which the holders of the Series B Preferred Stock shall have the right to elect directors, the presence in person or by proxy of the holders of at least a majority of the outstanding Series B Preferred Stock shall be required to constitute a quorum of such Series B Preferred Stock. Any vacancy occurring in the office of a director elected by the holders of the Series B Preferred Stock (or such holders and holders of Parity Securities) may be filled by the Board of Directors with a person nominated by the remaining director, if any, elected by such holders (or such holders and holders of such Parity Securities) unless and until such vacancy shall be filled by such holders (or such holders and holders of such Parity Securities) by calling a special meeting of such holders as provided above. 31 35 In any case in which the holders of Series B Preferred Stock shall be entitled to vote pursuant to the Certificate of Incorporation or pursuant to New Jersey law, each such holder shall be entitled to one vote for each share of Series B Preferred Stock held. Merger, Consolidation and Sale of Assets Without the vote or consent of the holders of a majority of the then outstanding shares of Series B Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease convey or otherwise dispose of 80% or more of its assets to, any person unless (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (in any such case, the "resulting entity") is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (b) if the Company is not the resulting entity, the Series B Preferred Stock is converted into or exchanged for and becomes shares of such resulting entity, having in respect of such resulting entity the same (or more favorable) powers, preferences and relative participating, optional or other special rights thereof that the Series B Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event has occurred and is continuing. The resulting entity of such transaction shall thereafter be deemed to be the "Company" for all purposes of the Certificate of Incorporation. Exchange Notes The Exchange Notes, if issued, will be issued pursuant to the Exchange Note Indenture between the Company and a trustee to be chosen by the Company prior to the issuance of the Exchange Notes. The terms of the Exchange Notes include those stated in the Exchange Note Indenture and those made part of the Exchange Note Indenture by reference to the Trust Indenture Act. The Exchange Notes are subject to all such terms, and prospective investors are referred to the Exchange Note Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Exchange Note Indenture does not purport to be complete. General The Exchange Note Indenture authorizes the issuance of an aggregate principal amount of Exchange Notes equal to the aggregate liquidation preference of the then outstanding shares of Series B Preferred Stock at the time such shares are exchanged for Exchange Notes as described under "--Series B Preferred Stock-Exchange". The Exchange Notes will mature on August 15, 2004. The Exchange Notes will bear interest at the rate of 8 3/4% per annum, payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, commencing on the first such date following the date on which the Exchange Notes are issued (the "Exchange Date"), to the holders of record at the close of business on the April 1 and October 1 next preceding such interest payment date. Interest will initially accrue from the Exchange Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Exchange Notes will be issued in fully registered form only in denominations of $1,000 and integral multiples thereof, other than as described under "--Series B Preferred Stock--Exchange". The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to all Senior Debt (as defined below). See "-- Subordination." Principal, premium and interest will be payable, and the Exchange Notes may be presented for redemption, repurchase, exchange or transfer, at the office of the paying agent and registrar and at any other office or agency maintained by the Company for such purpose. The Trustee will initially act as registrar and paying agent. The 32 36 Company may change the registrar or paying agent without prior notice to holders and the Company or any subsidiary of the Company may act in such capacity. Optional Redemption The Exchange Notes will be redeemable for cash on or after August 15, 2000, at the option of the Company, in whole or from time to time in part, at the redemption prices set forth herein, together with all accrued and unpaid interest thereon to the redemption date. The redemption prices (expressed as percentages of principal amount) are as follows for Exchange Note redeemed during the twelve-month period beginning on August 15, of the years indicated:
Year Percentage -------------------------- ---------------------- 2000 104.4% 2001 102.9% 2002 101.5% 2003 and thereafter 100%
Notwithstanding the foregoing, on or after August 15, 1999, the Company may, at its option, redeem the Exchange Notes at 105.9% of the principal amount plus accrued and unpaid interest thereon if the Common Stock bid price has averaged not less than 1.5 times the Conversion Price during 20 consecutive trading days. Selection and Notice If less than all of the Exchange Notes are to be redeemed at any time, selection of Exchange Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Exchange Notes are listed, or, if the Exchange Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or less shall be redeemed in part. Exchange Notes will be redeemed in multiples of $1,000. At least 30 but not more than 60 days before the redemption date, a public notice of the redemption shall be made and notice of redemption shall be mailed by first class mail to each holder of Exchange Notes to be redeemed at its registered address. If any Exchange Note is to be redeemed in part only, the notice of redemption that relates to such Exchange Note shall state the portion of the principal amount thereof to be redeemed. A new Exchange Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Exchange Note. Interest will cease to accrue on Exchange Notes or portions thereof called for redemption on the redemption date. Mandatory Redemption Except as set forth under "--Change of Control," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Exchange Notes. Subordination The payment of principal of and premium and interest on the Exchange Notes will be subordinated in right of payment to the prior payment in full of all Senior Debt, whether outstanding on the Exchange Date or thereafter incurred. 33 37 Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors of any marshaling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all monetary obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the holders of Exchange Notes will be entitled to receive any payment with respect to the Exchange Notes, and until all monetary obligations with respect to Senior Debt are paid in full, any distribution to which the holders of Exchange Notes would be entitled shall be made to the holders of such Senior Debt (except that holders of Exchange Notes may receive securities, including capital stock, that are subordinated at least to the same extent as the Exchange Notes to Senior Debt and any securities issued in exchange for Senior Debt). The Company also may not make any payment upon or in respect of the Exchange Notes (except in such capital stock or subordinated securities) if (a) a default on the payment of the principal of or premium or interest on any Senior Debt occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to any Designated Senior Debt (as defined below) that permits holders of such Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the representative of holders of such Designated Senior Debt. Payments on the Exchange Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated and remains unpaid. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No non-payment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Brokage Notice. "Senior Debt" means (a) all obligations of the Company under the Existing Indebtedness (as defined in the Exchange Note Indenture), as it may be amended, modified, restated, supplemented, deferred, extended, renewed, replaced, refunded or refinanced from time to time, and (b) any other Indebtedness of the Company, whether outstanding on the date of issuance of the Exchange Notes or thereafter incurred, unless the instrument under which such indebtedness is incurred expressly provides that it is subordinated in right of payment to any Senior Debt; provided, however, that Senior Debt will not include (i) any liability for federal, state, local or other taxes owed or owing by the Company, (ii) any Indebtedness of the company to any of its subsidiaries or (iii) any trade payables. "Indebtedness" means any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instrument or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing capital lease obligations or the balance deferred and unpaid of the purchase price of any property or representing any hedging obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and hedging obligations) would appear as a liability upon a balance sheet prepared in accordance with generally accepted accounting principles. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Existing Indebtedness and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $5.0 million or more and that has been designated by the Company as "Designated Senior Debt." 34 38 As a result of the subordination provisions described above, in the event of a liquidation or insolvency, holders of Exchange Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. In addition, neither the Certificate of Incorporation nor the Exchange Note Indenture will limit the amount of Senior Debt that the Company may incur in the future. Change of Control Upon the occurrence of a Change of Control, at the option of the holders of a majority in principal amount of the Exchange Notes, the Company will be required to make an offer (an "Exchange Note Change of Control Offer") to repurchase all or any part of each holder's Exchange Notes at an offer price equal to 100% of the aggregate principal amour thereof, plus accrued and unpaid interest thereon to the date of repurchase. Such repurchase may be made at the option of the Company either in (i) cash at 100% or (ii) Common Stock value at 95% of average closing price of the Common Stock during the 20 trading days prior to such redemption, if the Board of Directors of the Company determines that making such payment in shares of Common Stock will not adversely affect the voting rights, preferences, privileges or relative, participating, option or other specified rights of the holders of the Exchange Notes or the Common Stock. Within 30 days following a Change of Control, the Company will mail a notice to each holder of Exchange Note describing the transaction that constitutes the Change of Control and offering to repurchase the Exchange Notes pursuant to the procedures required by the Exchange Note Indenture and described in such notice; provided that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Exchange Notes required by this covenant. The Company will comply with the requirements of the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Notes as a result of a Change of Control. Except as described above with respect to a Change of Control, the Exchange Note Indenture does not contain provisions that permit the holders of the Exchange Notes to require that the Company repurchase or redeem the Exchange Notes in the event of a takeover, recapitalization or similar transaction. In addition, the Company could enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that could affect the Company's capital structure or the value of the Exchange Notes or the Common Stock but that would not constitute a Change of Control. The occurrence of a Change of Control may result in a default under certain of the Existing Indebtedness or other Senior Debt. In addition, certain of the Existing Indebtedness or other Senior Debt could restrict the Company's ability to repurchase Exchange Notes for cash upon a Change of Control. In the event a Change of Control occurs at a time when the Company is prohibited from repurchasing Exchange Notes for cash, the Company could seek the consent of its lenders to the repurchase of Exchange Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such consent or repay such borrowings, the Company will remain prohibited from repurchasing Exchange Notes for cash. The Company's failure to make an Exchange Note Change of Control Offer or to repurchase Exchange Notes tendered in an Exchange Note Change of Control Offer would constitute an event of default under the Exchange Note Indenture, which could, in turn, constitute a default under the Company's existing indebtedness or other Senior Debt. In such circumstances, the subordination provisions in the Exchange Note Indenture would likely restrict payments to the holders of Exchange Notes. See "--Subordination." Finally, the Company's ability to repurchase Exchange Notes following a Change of Control may be limited by the Company's then existing financial resources. The Company will not be required to make an Exchange Note Change of Control Offer following a Change of Control if a third party makes the Exchange Note Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Exchange Note Indenture applicable to an 35 39 Exchange Note Change of Control Offer made by the Company and purchases all Exchange Notes validly tendered and not withdrawn under such Exchange Note Change of Control Offer. Conversion Rights Each Exchange Note will be convertible at any time at the option of the holder thereof into Common Stock of the Company at a conversion rate equal to the principal amount of such Exchange Note divided by the conversion price then applicable, except that the right to convert Exchange Notes called for redemption will terminate at the close of business on the business day preceding the redemption date and will be lost if not exercised prior to that time, unless the Company defaults in making the payment due upon redemption, or if not exercised prior to the maturity of the Exchange Notes. The conversion price initially will be the conversion price with respect to the Series B Preferred Stock on the Exchange Date and will be subject to adjustment as set forth under "--Series B Preferred Stock--Conversion Rights". In the case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, the Exchange Notes then outstanding would become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such Exchange Notes might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount receivable per share by a plurality of non-electing shares). No fractional shares of Common Stock will be issued upon conversion; in lieu thereof, the Company will pay a cash adjustment based upon the closing price of the Common Stock on the business day prior to the conversion date. The holder of record of an Exchange Note at the close of business on a record date with respect to the payment of interest on the Exchange Notes will be entitled to receive such interest with respect to such Exchange Notes on the corresponding interest payment date notwithstanding the conversion of such Exchange Notes after such record date and prior to such interest payment date. Exchange Notes surrendered for conversion during the period from the close of business on any record date for the payment of interest to the opening of business on the corresponding interest payment date must be accompanied by a payment in cash in an amount equal to the interest payable on such interest payment date, unless such Exchange Notes have been called for redemption on a redemption date occurring during the period from the, close of business on any record date for the payment of interest to the close of business on the business day immediately following the corresponding interest payment date. The interest payment with respect to an Exchange Note called for redemption on a date during the period from the close of business on any record date for the payment of interest to the close of business on the business day immediately following the corresponding interest payment date will be payable on such interest payment date to the record holder of such Exchange Note on such record date, not withstanding the conversion of such Exchange Note after such record date and prior to such interest payment date. No payment or adjustment will be made upon conversion of Exchange Notes for accrued and unpaid interest or for dividends with respect to the Common Stock issued upon such conversion. 36 40 Other Provisions of the Company's Restated Certificate of Incorporation The Company's Restated Certificate of Incorporation contains certain provisions known as "supermajority" and "fair price" provisions which are anti-takeover measures and could affect the price shareholders could receive for shares of Common Stock. Supermajority Provision. The "supermajority" provision is intended to encourage a corporation seeking to enter into a merger or consolidation with the Company or a sale of all or substantially all of the assets of the Company to negotiate these transactions with the "Disinterested Directors" (as defined) to ensure that such transactions have the substantial support of such directors before submission to the shareholders. The supermajority provision requires for approval of a merger or consolidation between the Company and another corporation, or a sale of substantially all of the assets of the Company, the affirmative vote of at least 80% of the combined voting power of the then outstanding voting stock voting together as a single class (an "80% Shareholder Vote") in addition to any other shareholder vote required. The 80% Shareholder Vote would not apply if the proposed transaction is approved by the greater of (i) at least three-fourths of the Disinterested Directors or (ii) two Disinterested Directors. A Disinterested Director is any person who is a member of the Board of Directors, while such person is a member of the Board, who is not an Affiliate, Associate (as those terms are defined in Rule 12b-2 under the Exchange Act) or representative of the other party to the transaction with the Company and who was either a member of the Board at the time the supermajority provision was approved by the Board, or who was recommended for election to the Board, or elected to fill a vacancy on the Board, by a majority of Disinterested Directors. Fair Price Provision. The "fair price" provision is intended to (i) override New Jersey's corporation law which provides that a majority in interest of shareholders voting thereon is required for a merger by a corporation, unless such corporation's certificate of incorporation specifies a higher percentage and (ii) prevent a two-tier front-end loaded pricing method for corporate takeovers. In this type of takeover attempt, the bidder tenders for that percentage of shares which will give it sufficient votes to approve a merger providing for the elimination of minority shareholders, as the method of buying the remaining shares. The consideration given for a corporation's shares in this type of merger can be, and frequently is, in a different form than that given in the tender offer. For example, the bidder may pay cash to purchase a controlling position and thereafter approve a merger in which the remaining shareholders receive securities of the bidder (or one of its subsidiaries). Moreover, the value of the securities exchanged in the second step may be substantially less than the amount of cash or the value of the other consideration given in the first step. Accordingly, the shareholders are induced to tender initially. The fair price provision requires an 80% Shareholder Vote for certain transactions with an Interested Shareholder (as defined) unless specified price criteria and procedural requirements are met and a majority of the entire Board of Directors approves the Business Combination (as defined) or the approval of not less than three-fourths of the Continuing Directors (as defined) is given. If the latter occurred, then the proposed Business Combination would be subject to the normal approval requirements under New Jersey law. An "Interested Shareholder" is defined as any person, other than the Company or any subsidiary or any employee benefit plan of the Company or of any subsidiary or fiduciary of such a plan, or any person who was a director of the Company on the date the provision was adopted by the Board of Directors (such persons being Messrs. Nicholas Menonna, Jr., Martin J. Sergi and Marshall S. Sterman) who (i) is the beneficial owner of voting stock representing 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of voting stock, (ii) is an Affiliate (as defined) or Associate of the Company and within the prior two 37 41 years was the beneficial owner of voting stock representing 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of voting stock, or (iii) is the assignee of or has otherwise succeeded to the beneficial ownership of any voting stock beneficially owned by an Interested Shareholder within such two-year period, if such assignment or succession occurred pursuant to a transaction or any series of transactions not involving a public offering within the meaning of the Securities Act. The term "beneficial owner" includes any person directly or indirectly owning or having the right to vote or acquire shares. The terms "Affiliate" and "Associate" have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act, as in effect on December 31, 1993. A "Business Combination" includes the following transactions: (1) a merger or consolidation of the Company or any of its subsidiaries with an Interested Shareholder or any other corporation which is or after such transaction becomes an Affiliate or Associate of an Interested Shareholder; (2) the sale or other disposition to, with or by any Interested Shareholder or any Affiliate or Associate of an Interested Shareholder involving any assets or securities of the Company, any subsidiary or any Interested Shareholder or any Affiliate or Associate of an Interested Shareholder valued at $20,000,000 or more; (3) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of an Interested Shareholder or any Affiliate or Associate of an Interested Shareholder; (4) any reclassification of securities or recapitalization of the Company, merger or consolidation of the Company with any subsidiary or other transaction which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of the Company's stock, or securities convertible into stock of any class or series of the Company's stock or into equity securities of any subsidiary, that is beneficially owned by an Interested Shareholder or any Affiliate or Associate of an Interested Shareholder; or (5) any agreement, contract or other arrangement providing for any one or more of the actions referred to above. A "Continuing Director" is any member of the Board, while a member of the Board, who is not an Affiliate or Associate or a representative of the Interested Shareholder and either was a director at the time the fair price provision was adopted by the Board or was recommended for election to the Board, or elected to fill a vacancy on the Board, by a majority of the Continuing Directors. An 80% Shareholder Vote would not be required if the proposed Business Combination is approved by not less than three-fourths of the Continuing Directors or certain minimum price criteria and procedural requirements are satisfied and not less than a majority of the entire Board of Directors approves the transaction. LEGAL MATTERS The law firm of McDermott, Will & Emery, 50 Rockefeller Plaza, New York, New York 10020 acted as counsel for the Company in connection with the validity of the Shares and the Exchange Notes offered hereby. EXPERTS The consolidated financial statements and schedule of KTI, Inc. and the financial statements of Perobscot Energy Recovery Company, Limited Partnership appearing in KTI, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997, and the consolidated statements of Prins Recycling Corp. (debtor-in-possession) appearing in KTI, Inc.'s Current Report (Form 8-K, dated November 14, 1997, as amended by Form 8-K/A) have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by 38 42 reference. Such financial statements and schedule are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. INDEMNIFICATION The registrant's Restated Certificate of Incorporation provides that it shall indemnify its officers, directors, employees and agents to the full extent permitted by law. Statutory authority for such indemnification is contained in Title 14A, New Jersey Business Corporation Act, Revised Statutes of New Jersey, N.J.S.A. 14A:3-5. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to officers, directors and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the company has been advised that in the opinion of the Securities and Exchange Commission it is against public policy as expressed in the Security Act of 1933 and is, therefore, unenforceable. 39 43 No dealer, salesman or any other person has been authorized to give any information or to make any representation other than those contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company, by any Selling Shareholder or by any other person. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the securities offered hereby to any person or by anyone in any jurisdiction in which such offer or solicitation may not lawfully be made. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof, or that the information herein contained is correct as of any time subsequent to its date. --------------- TABLE OF CONTENTS Page ---- Available Information................... Incorporation of Certain Information by Reference.......................... Special Note Regarding Forward Looking Statements............................ Summary................................. The Offering............................ Risk Factors............................ Use of Proceeds......................... Business................................ Selling Shareholders.................... Plan of Distribution.................... Description of Securities............... Legal Matters........................... Experts................................. Indemnification......................... 856,000 Shares of Series B Convertible Exchangeable Preferred Stock 1,861,104 Shares of Common Stock $21,397,000 Subordinated Convertible Notes KTI, INC. ----------- PROSPECTUS ----------- May 12, 1998 67 44 PART II Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the expenses in connection with the offering described in this Registration Statement. The Company has agreed to pay all of the costs and expenses of this Offering. SEC Registration fee $ 6,313.00 *Blue Sky fees and expenses 0 *Legal fees and expenses 30,000.00 *Accounting fees and expenses 10,000.00 *Miscellaneous 2,000.00 -------- *TOTAL $48,313.00 ==========
*Estimated Item 15. Indemnification of Directors and Officers. The registrant's Restated Certificate of Incorporation provides that it shall indemnify its officers, directors, employees and agents to the full extent permitted by law. Statutory authority for such indemnification is contained in Title 14A, New Jersey Business Corporation Act, Revised Statutes of New Jersey, N.J.S.A. 14A:3-5, the material provisions of which may be summarized as follows: Non-derivative Proceedings (proceedings other than those brought by or in the right of the corporation). A corporation may indemnify an actual or prospective party to a proceeding or investigation if he became such because he is or was a director, officer, employee or agent of the corporation, or of a constituent corporation absorbed by such corporation in a consolidation or merger, or is or was serving at the request of the indemnifying or constituent corporation as a director, officer, trustee, employee or agent of another enterprise. To be eligible for such indemnity, the party must have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and also, in a criminal proceeding, he must have had no reasonable cause to believe that his conduct was unlawful. Such indemnity may be against judgments, fines, settlements, and penalties and reasonable expenses (including counsel fees) incurred in connection with such proceeding. Derivative Proceedings (proceedings by or in the right of the corporation). A corporation may indemnify such actual or prospective party to a proceeding or investigation against his reasonable expenses (including counsel fees) if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, but not against judgments, fines, settlements or penalties in connection with such proceedings or investigation. However, if such party has been adjudged to be liable to the corporation, he may be indemnified for expenses only if a court determines that, despite such adjudication of liability, in the circumstances of the case indemnity of such party is fair and reasonable. Determination Regarding Indemnification. Indemnification of a party (unless ordered by a court) is dependent upon a determination that such indemnification is proper because the party has met the above standards applicable to him, such determination to be made by (a) the Board of Directors or a committee thereof acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceedings or (b) under certain circumstances, by independent legal counsel in a written opinion or by the II-1 45 shareholders of the corporation. Upon the making of such determination in the appropriate manner, a corporation may advance expenses in connection with a proceeding upon receipt of an undertaking by the party to repay them if it is ultimately determined that he is not entitled to indemnification. Other Material Provisions. In all cases, if the party has been successful in a proceeding on the merits or otherwise, or in defense of any matter therein, he is entitled to indemnification for his reasonable expenses (including counsel fees). The indemnification provided by statute is not exclusive of other rights of indemnification and inures to the benefit of the party's legal representative. A corporation may purchase and maintain insurance against expenses incurred by, and liabilities asserted against, directors, officers, employees or agents whether or not the corporation would be empowered to provide such indemnity. Item 16. Exhibits. The following exhibits, which are furnished with this Registration Statement or incorporated herein by reference, are filed as part of this Registration Statement. EXHIBIT INDEX 2.1 Agreement of Reorganization and Merger among KTI, Inc., a New Jersey corporation, K-C Industries, Inc., an Oregon corporation and KES, Inc., a Delaware corporation, dated September 22, 1997 (1) 4.1 Specimen Form of Common Stock Certificate (2) 4.3 Certificate of Amendment to Registrant's Restated Certificate of Certificate of Incorporation, filed August 8, 1997 (3) *4.4 Certificate of Correction to Certificate of Amendment to Registrant's Restated Certificate of Certificate of Incorporation, filed October 31, 1997 **4.5 Indenture **4.6 Form of Exchange Note **5 Opinion of McDermott, Will & Emery re: legality 10.1 Loan Agreement dated as of June 1, 1985 between City of Biddeford, Maine and Maine Energy Recovery Company, as amended (4) 10.2 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $14,252,338.39 payable to CNA Realty Corp. (4) 10.3 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $9,495,327.45 payable to Energy National, Inc. (4) 10.4 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $4,737,517.54 payable to Project Capital 1985 (4) 10.5 Loan Agreement dated as of April 1, 1986 between Town of Orrington, Maine and Penobscot Energy Recovery Company, as amended (4) 10.6 Credit Agreement dated as of May 15, 1986 by and among Penobscot Energy Recovery Company, PERC Management Company and Energy National, Inc. and The Banking Institutions Signatory Hereto and Bankers Trust Company, as Agent, as amended (4) 10.7 Second Amended and Restated Agreement and Certificate of Limited Partnership of Penobscot Energy Recovery Company dated May 15, 1986, as amended (2) 10.8 Agreement between Penobscot Energy Recovery Company and Bangor Hydro-Electric Company dated June 21, 1984, as amended (2) 10.9 Form of Penobscot Energy Recovery Company Waste Disposal Agreement (City of Bangor) dated April 1, 1991 and Schedule of Substantially Identical Waste Disposal Agreements (2) 10.10 Operation and Maintenance Agreement Between Esoco Orrington, Inc. and Penobscot Energy Recovery Company dated June 30, 1989 (2) II-2 46 10.11 Residue Disposal Agreement between Penobscot Energy Recovery Company and Sawyer Environmental Recovery Facilities, Inc. dated September 19, 1985, as amended (2) 10.12 Amended and Restated Bypass Agreement between Sawyer Environmental Recovery Facilities, Inc. and Penobscot Energy Recovery Company dated April 4, 1994 (2) 10.13 Second Amended and Restated Agreement and Certificate of Limited Partnership of Maine Energy Recovery Company dated June 30, 1986, as amended (2) 10.14 Power Purchase Agreement Between Maine Energy Recovery Company and Central Maine Power Company dated January 12, 1984, as amended (2) 10.15 Operation and Maintenance Agreement Between Maine Energy Recovery Company and KTI Operations, Inc. dated December 1, 1990 (2) 10.16 Host Municipalities' Waste Handling Agreement among Biddeford-Saco Solid Waste Committee, City of Biddeford, City of Saco and Maine Energy Recovery Company dated June 7, 1991 (2) 10.17 Form of Maine Energy Recovery Company Waste Handling Agreement (Town of North Berwick) dated June 7, 1991 and Schedule of Substantially Identical Waste Disposal Agreements (2) 10.18 Material Disposal and Transportation Agreement among Consolidated Waste Service, Inc., Waste Management of New Hampshire and Maine Energy Recovery Company dated October 21, 1991 (2) 10.19 Front-End Process Residue Agreement between Arthur Schofield, Inc. and Maine Energy Recovery Company dated May 27, 1994 (2) 10.20 Second Amended and Restated Agreement and Certificate of Limited Partnership of FTI Limited Partnership dated December 11, 1986, as amended (2) 10.21 Land Lease dated November 25, 1985 between City of Lewiston and Fuel Technologies, Inc. as amended (2) 10.22 KTI, Inc. 1994 Long-Term Incentive Award Plan (2) 10.23 Employment Agreement between KTI, Inc. and Martin J. Sergi dated May 1, 1994 (2) 10.24 Registration Rights Agreement between Davstar Managed Investments Corp. and KTI Environmental Group, Inc. dated March 17, 1993 (2) 10.25 Registration Rights Agreement among KTI Environmental Group, Inc., Martin J. Sergi and Midlantic National Bank dated May 10, 1994 (2) 10.26 Registration Rights Agreement among KTI Environmental Group, Inc., Nicholas Menonna, Jr. and Midlantic National Bank dated May 10, 1994 (2) 10.27 KTI, Inc. Directors Stock Option Plan (5) 10.28 Form of Registration Rights between KTI, Inc. and Mona Kalimian, Mark D. Kalimian, and Linda Berley dated July 27, 1995 and Schedule of Substantially Identical Registration Rights Agreements (4) 10.29 Letter Agreement dated as of November 10, 1995 among Central Maine Power, Maine Energy Recovery Company and Citizens Lehman Power (6) 10.30 Global Agreement dated December 28, 1995 between Environmental Capital Holdings, Inc. and KTI, Inc. (6) 10.31 Agreement of Limited Partnership of American Ash Recycling of Tennessee, Ltd. dated December 28, 1995 (6) 10.32 Agreement of Limited Partnership of American Ash Recycling of New England, Ltd. dated December 28, 1995 (6) 10.33 First Amendment to Agreement of Limited Partnership of American Ash Recycling of Tennessee, Ltd., dated March 16, 1996 (7) 10.34 Agreement dated as of July 19, 1996 by and among KTI, Inc., DataFocus Incorporated and CIBER, Inc. (8) II-3 47 10.35 Agreement dated July 19, 1996 by and among KTI, Inc., Thomas Bosanko and Patrick B. Higbie (8) 10.36 Operating Agreement of Specialties Environmental Management Company, LLC dated as of October 18, 1996 (9) 10.37 Amendment to Employment Agreements between KTI, Inc. and Nicholas Menonna, Jr. and Martin J. Sergi (10) 10.38 Note Purchase Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC (11) 10.39 Registration Rights Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC (11) 10.40 Escrow Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC and Key Trust of Ohio, N.A. (11) 10.41 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc., Continental Casualty Company, CNA Realty Corp., CLE, Inc. and Timber Energy Investment, Inc. dated as of November 22, 1996 (12) 10.42 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc. and Diane Goodman and Seth Lehner dated as of November 25, 1996 (13) 10.43 Loan and Security Agreement between KTI, Inc., KTI Environmental Group, Inc., Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations, Inc. and PERC, Inc., Borrowers, and Key Bank of New York, Lender, dated October 29, 1996 (14) 10.44 Pledge Agreement between each Borrower and Key Bank of New York dated October 29, 1996 (14) 10.45 Key Trust Company PRISM(R) Prototype Retirement Plan and Trust adopted as of December 11, 1996 (14) 10.46 Option and Consulting Agreement by and among KTI, Inc. and L.T. Lawrence & Co., Inc. dated as of June 1, 1996 (14) 10.47 First Amendment to Option and Consulting Agreement by and among KTI, Inc. and L.T. Lawrence & Co., Inc. dated as of December 18, 1996 (14) 10.48 Warrant to purchase 200,000 shares of KTI, Inc. common stock at $7.50 per share issued to L.T. Lawrence & Co., Inc. dated as of December 18, 1996 (14) 10.49 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share issued to Thomas E. Schulze dated as of January 2, 1997 (14) 10.50 Warrant to purchase 3,000 shares of KTI, Inc. common stock at $8.50 per share issued to John E. Turner dated as of January 2, 1997 (14) 10.51 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share issued to Robert E. Wetzel dated as of January 2, 1997 (14) 10.52 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $6.00 per share issued to The Baldwin & Clarke Companies dated as of January 2, 1997 (14) 10.53 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $7.00 per share issued to The Baldwin & Clarke Companies dated as of January 2, 1997 (14) 10.54 Third Amendment to Second Amended and Restated Certificate and Agreement of Limited Partnership of FTI Limited Partnership dated as of January 23, 1997 (14) 10.55 Warrant to purchase 2,000 shares of KTI, Inc. common stock at $8.50 per share issued to Maine Woodchips Associates dated as of January 23, 1997 (14) 10.56 Registration Rights Agreement by and between KTI, Inc. and Maine Woodchips Associates dated as of January 23, 1997 (14) 10.57 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc., Continental Casualty Company, CNA Realty Corp., CLE, Inc. and Timber Energy Investment, Inc., dated as of November 22, 1996 (15) 10.58 Term sheet (Purchase of assets of Prins Recycling Corp. and subsidiaries) (16) II-4 48 10.59 Agreement, dated as of April 21, 1997 between KTI Recycling, Inc. and its subsidiaries and PNC Bank (16) 10.60 Operations and Maintenance Agreement, dated as of April 21, 1997, by and between Prins Recycling Corp. and its subsidiaries and KTI Operations, Inc. (16) 10.61 Order of the Bankruptcy Court for the District of New Jersey dated June 19, 1997 (16) 10.62 Asset Purchase Agreement, dated as of June 24, 1997, between Prins Recycling Corp. and its subsidiaries and KTI Recycling, Inc. and its subsidiaries (16) 10.63 Securities Purchase Agreement by and among I. Zaitlin & Sons, Inc., a Maine corporation, Data Destruction Services, Inc., a Maine corporation, Samuel M. Zaitlin, Steven G. Suher and George G. Deely and KTI Recycling, Inc., a Delaware corporation (17) 10.64 First amendment, dated as of August 14, 1997, to the Loan and Security Agreement between KTI, Inc., KTI Environmental Group, Inc., Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations, Inc. and PERC, Inc. (18) 10.65 Securities Purchase Agreement, dated as of August 12, 1997, by and among KTI, Inc., and Wenoha Corporation, John G. Mills, L. Don Norton, Glen Wade Stewart, Bruce D. Wentworth and Donald E. Wentworth (18) 10.66 Placement Agreement dated August 7, 1997 between KTI, Inc. and Credit Research & Trading LLC (19) 10.67 Warrant Agreement dated August 7, 1997 between KTI, Inc. and Credit Research & Trading LLC (19) 10.68 Registration Rights Agreement dated August 15, 1997 between KTI, Inc. and the purchases named therein (19) 10.69 Purchase and Option Agreement by and between PERC Management Company Limited Partnership and The Prudential Insurance Company of America dated September 30, 1997 (20) 10.70 Second Amendment to the Second Amended and Restated Agreement and Certificate of Limited Partnership of Penobscot Energy Recovery Company, Limited Partnership dated as of September 29, 1997 (20) 10.71 Assignment and Assumption Agreement between The Prudential Insurance Company of America and PERC Management Company Limited (20) Partnership dated as of September 29, 1997 re Penobscot Energy Recovery Company, Limited Partnership (20) 10.72 Amendment No. 1 to Reimbursement Agreement and Release of Assignment dated as of September 29, 1997 to the Reimbursement Agreement dated as of May 28, 1991 of Penobscot Energy Recovery Company, Limited Partnership in favor of Morgan Guaranty Trust Company of New York re Penobscot Energy Recovery Company, Limited Partnership (20) 10.73 Assignment and Assumption Agreement between The Prudential Insurance Company of America and PERC Management Company Limited Partnership dated as of September 29, 1997 re Orrington Waste Ltd., Limited Partnership (20) 10.74 Amendment no. 1 to Reimbursement Agreement and Release of Assignment dated as of September 29, 1997 to the Reimbursement Agreement dated as of May 28, 1991 of Penobscot Energy Recovery Company, Limited Partnership in favor of Morgan Guaranty Trust Company of New York re Orrington Waste Ltd. (20) 10.75 Securities Purchase Agreement dated as of January 1, 1998, by and among Vel-A-Tran Recycling, Inc., a Massachusetts corporation, Raymond Vellucci and KTI Recycling of New England, Inc., a Delaware corporation (21) 10.76 Securities Purchase Agreement dated as of January 27, 1998 among Total Waste Management Corporation, Donald A. Littlefield, William Kaylor and KTI Specialty Waste Services, Inc., a Maine corporation (22) **12 Statement of computation of earnings to fixed charges and preferred stock dividends **23.1 Consent of Ernst & Young LLP II-5 49 *23.2 Consent of McDermott, Will & Emery (contained in Exhibit 5) *24 Power of Attorney (on signature page) **25 Form T-1 Statement of Eligibility of First Union National Bank to act as Trustee under the Indenture - ---------------------------------- (1) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated September 16, 1997 (2) Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No. 33-85234) dated January 6, 1995. (3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated August 15, 1997. (4) Filed with the Registration Statement on Form S-1 dated December 6, 1995. (5) Filed as an Exhibit to Registrant's Proxy Statement dated June 5, 1995. (6) Filed with the Amendment No. 1 to the Registration Statement on Form S-1 dated February 2, 1996. (7) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated April 15, 1996. (8) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July 19, 1996. (9) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 18, 1996. (10) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 23, 1996. (11) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 24, 1996. (12) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 22, 1996. (13) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 25, 1996. (14) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (15) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 26, 1996. (16) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated June 19, 1997 (17) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July 29, 1997. (18) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 12, 1997. (19) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 15, 1997. (20) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated September 30, 1997. (21) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated January 15, 1998. (22) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated February 4, 1998. * Previously filed. ** Filed herewith. Item 17. Undertakings. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and II-6 50 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 51 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Guttenberg in the State of New Jersey, on May 7, 1998. KTI, INC. By: /s/ Martin J. Sergi --------------------------- Martin J. Sergi President By: /s/ Ross Pirasteh --------------------------- Ross Pirasteh Chairman of the Board of Directors Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Dated - --------- ----- ----- /s/ Ross Pirasteh Chairman of the Board of May 7, 1998 - ------------------------------ Directors, Chairman of the Ross Pirasteh Executive Committee and Director II-8 52 Signature Title Dated - --------- ----- ----- /s/ Martin J. Sergi Vice Chairman, President, May 7, 1998 - ------------------------------ Martin J. Sergi and Director (Principal Financial Officer and Principal Accounting Officer) /s/ Dibo Attar* Director May 7, 1998 - ------------------------------ Dibo Attar /s/ Paul Kleinaitis* Director May 7, 1998 - ------------------------------ Paul Kleinaitis /s/ Jack Polak* Director May 7, 1998 - ------------------------------ Jack Polak /s/ Jeffrey R. Power* Director May 7, 1998 - ------------------------------ Jeffrey R. Power /s/ Wilbur Ross* Director May 7, 1998 - ------------------------------ Wilbur Ross */s/ Martin J. Sergi - ------------------------------ Martin J. Sergi Attorney-in-Fact II-9 53 EXHIBIT INDEX 2.1 Agreement of Reorganization and Merger among KTI, Inc., a New Jersey corporation, K-C Industries, Inc., an Oregon corporation and KES, Inc., a Delaware corporation, dated September 22, 1997 (1) 4.1 Specimen Form of Common Stock Certificate (2) 4.3 Certificate of Amendment to Registrant's Restated Certificate of Certificate of Incorporation, filed August 8, 1997 (3) *4.4 Certificate of Correction to Certificate of Amendment to Registrant's Restated Certificate of Certificate of Incorporation, filed October 31, 1997 **4.5 Indenture **4.6 Form of Exchange Note **5 Opinion of McDermott, Will & Emery re: legality 10.1 Loan Agreement dated as of June 1, 1985 between City of Biddeford, Maine and Maine Energy Recovery Company, as amended (4) 10.2 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $14,252,338.39 payable to CNA Realty Corp. (4) 10.3 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $9,495,327.45 payable to Energy National, Inc. (4) 10.4 Subordinated Note of Maine Energy Recovery Company dated as of December 1, 1990 in the original principal amount of $4,737,517.54 payable to Project Capital 1985 (4) 10.5 Loan Agreement dated as of April 1, 1986 between Town of Orrington, Maine and Penobscot Energy Recovery Company, as amended (4) 10.6 Credit Agreement dated as of May 15, 1986 by and among Penobscot Energy Recovery Company, PERC Management Company and Energy National, Inc. and The Banking Institutions Signatory Hereto and Bankers Trust Company, as Agent, as amended (4) 10.7 Second Amended and Restated Agreement and Certificate of Limited Partnership of Penobscot Energy Recovery Company dated May 15, 1986, as amended (2) 10.8 Agreement between Penobscot Energy Recovery Company and Bangor Hydro-Electric Company dated June 21, 1984, as amended (2) 10.9 Form of Penobscot Energy Recovery Company Waste Disposal Agreement (City of Bangor) dated April 1, 1991 and Schedule of Substantially Identical Waste Disposal Agreements (2) 10.10 Operation and Maintenance Agreement Between Esoco Orrington, Inc. and Penobscot Energy Recovery Company dated June 30, 1989 (2) 54 10.11 Residue Disposal Agreement between Penobscot Energy Recovery Company and Sawyer Environmental Recovery Facilities, Inc. dated September 19, 1985, as amended (2) 10.12 Amended and Restated Bypass Agreement between Sawyer Environmental Recovery Facilities, Inc. and Penobscot Energy Recovery Company dated April 4, 1994 (2) 10.13 Second Amended and Restated Agreement and Certificate of Limited Partnership of Maine Energy Recovery Company dated June 30, 1986, as amended (2) 10.14 Power Purchase Agreement Between Maine Energy Recovery Company and Central Maine Power Company dated January 12, 1984, as amended (2) 10.15 Operation and Maintenance Agreement Between Maine Energy Recovery Company and KTI Operations, Inc. dated December 1, 1990 (2) 10.16 Host Municipalities' Waste Handling Agreement among Biddeford-Saco Solid Waste Committee, City of Biddeford, City of Saco and Maine Energy Recovery Company dated June 7, 1991 (2) 10.17 Form of Maine Energy Recovery Company Waste Handling Agreement (Town of North Berwick) dated June 7, 1991 and Schedule of Substantially Identical Waste Disposal Agreements (2) 10.18 Material Disposal and Transportation Agreement among Consolidated Waste Service, Inc., Waste Management of New Hampshire and Maine Energy Recovery Company dated October 21, 1991 (2) 10.19 Front-End Process Residue Agreement between Arthur Schofield, Inc. and Maine Energy Recovery Company dated May 27, 1994 (2) 10.20 Second Amended and Restated Agreement and Certificate of Limited Partnership of FTI Limited Partnership dated December 11, 1986, as amended (2) 10.21 Land Lease dated November 25, 1985 between City of Lewiston and Fuel Technologies, Inc. as amended (2) 10.22 KTI, Inc. 1994 Long-Term Incentive Award Plan (2) 10.23 Employment Agreement between KTI, Inc. and Martin J. Sergi dated May 1, 1994 (2) 10.24 Registration Rights Agreement between Davstar Managed Investments Corp. and KTI Environmental Group, Inc. dated March 17, 1993 (2) 10.25 Registration Rights Agreement among KTI Environmental Group, Inc., Martin J. Sergi and Midlantic National Bank dated May 10, 1994 (2) 10.26 Registration Rights Agreement among KTI Environmental Group, Inc., Nicholas Menonna, Jr. and Midlantic National Bank dated May 10, 1994 (2) 10.27 KTI, Inc. Directors Stock Option Plan (5) 10.28 Form of Registration Rights between KTI, Inc. and Mona Kalimian, Mark D. Kalimian, and Linda Berley dated July 27, 1995 and Schedule of Substantially Identical Registration Rights Agreements (4) 10.29 Letter Agreement dated as of November 10, 1995 among Central Maine Power, Maine Energy Recovery Company and Citizens Lehman Power (6) 10.30 Global Agreement dated December 28, 1995 between Environmental Capital Holdings, Inc. and KTI, Inc. (6) 10.31 Agreement of Limited Partnership of American Ash Recycling of Tennessee, Ltd. dated December 28, 1995 (6) 10.32 Agreement of Limited Partnership of American Ash Recycling of New England, Ltd. dated December 28, 1995 (6) 10.33 First Amendment to Agreement of Limited Partnership of American Ash Recycling of Tennessee, Ltd., dated March 16, 1996 (7) 10.34 Agreement dated as of July 19, 1996 by and among KTI, Inc., DataFocus Incorporated and CIBER, Inc. (8) 55 10.35 Agreement dated July 19, 1996 by and among KTI, Inc., Thomas Bosanko and Patrick B. Higbie (8) 10.36 Operating Agreement of Specialties Environmental Management Company, LLC dated as of October 18, 1996 (9) 10.37 Amendment to Employment Agreements between KTI, Inc. and Nicholas Menonna, Jr. and Martin J. Sergi (10) 10.38 Note Purchase Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC (11) 10.39 Registration Rights Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC (11) 10.40 Escrow Agreement dated as of October 23, 1996 between KTI, Inc. and WEXFORD KTI LLC and Key Trust of Ohio, N.A. (11) 10.41 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc., Continental Casualty Company, CNA Realty Corp., CLE, Inc. and Timber Energy Investment, Inc. dated as of November 22, 1996 (12) 10.42 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc. and Diane Goodman and Seth Lehner dated as of November 25, 1996 (13) 10.43 Loan and Security Agreement between KTI, Inc., KTI Environmental Group, Inc., Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations, Inc. and PERC, Inc., Borrowers, and Key Bank of New York, Lender, dated October 29, 1996 (14) 10.44 Pledge Agreement between each Borrower and Key Bank of New York dated October 29, 1996 (14) 10.45 Key Trust Company PRISM(R) Prototype Retirement Plan and Trust adopted as of December 11, 1996 (14) 10.46 Option and Consulting Agreement by and among KTI, Inc. and L.T. Lawrence & Co., Inc. dated as of June 1, 1996 (14) 10.47 First Amendment to Option and Consulting Agreement by and among KTI, Inc. and L.T. Lawrence & Co., Inc. dated as of December 18, 1996 (14) 10.48 Warrant to purchase 200,000 shares of KTI, Inc. common stock at $7.50 per share issued to L.T. Lawrence & Co., Inc. dated as of December 18, 1996 (14) 10.49 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share issued to Thomas E. Schulze dated as of January 2, 1997 (14) 10.50 Warrant to purchase 3,000 shares of KTI, Inc. common stock at $8.50 per share issued to John E. Turner dated as of January 2, 1997 (14) 10.51 Warrant to purchase 6,000 shares of KTI, Inc. common stock at $8.50 per share issued to Robert E. Wetzel dated as of January 2, 1997 (14) 10.52 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $6.00 per share issued to The Baldwin & Clarke Companies dated as of January 2, 1997 (14) 10.53 Warrant to purchase 15,000 shares of KTI, Inc. common stock at $7.00 per share issued to The Baldwin & Clarke Companies dated as of January 2, 1997 (14) 10.54 Third Amendment to Second Amended and Restated Certificate and Agreement of Limited Partnership of FTI Limited Partnership dated as of January 23, 1997 (14) 10.55 Warrant to purchase 2,000 shares of KTI, Inc. common stock at $8.50 per share issued to Maine Woodchips Associates dated as of January 23, 1997 (14) 10.56 Registration Rights Agreement by and between KTI, Inc. and Maine Woodchips Associates dated as of January 23, 1997 (14) 10.57 Securities Purchase Agreement by and among KTI Plastic Recycling, Inc., Continental Casualty Company, CNA Realty Corp., CLE, Inc. and Timber Energy Investment, Inc., dated as of November 22, 1996 (15) 10.58 Term sheet (Purchase of assets of Prins Recycling Corp. and subsidiaries) (16) 56 10.59 Agreement, dated as of April 21, 1997 between KTI Recycling, Inc. and its subsidiaries and PNC Bank (16) 10.60 Operations and Maintenance Agreement, dated as of April 21, 1997, by and between Prins Recycling Corp. and its subsidiaries and KTI Operations, Inc. (16) 10.61 Order of the Bankruptcy Court for the District of New Jersey dated June 19, 1997 (16) 10.62 Asset Purchase Agreement, dated as of June 24, 1997, between Prins Recycling Corp. and its subsidiaries and KTI Recycling, Inc. and its subsidiaries (16) 10.63 Securities Purchase Agreement by and among I. Zaitlin & Sons, Inc., a Maine corporation, Data Destruction Services, Inc., a Maine corporation, Samuel M. Zaitlin, Steven G. Suher and George G. Deely and KTI Recycling, Inc., a Delaware corporation (17) 10.64 First amendment, dated as of August 14, 1997, to the Loan and Security Agreement between KTI, Inc., KTI Environmental Group, Inc., Kuhr Technologies, Inc., KTI Limited Partners, Inc., KTI Operations, Inc. and PERC, Inc. (18) 10.65 Securities Purchase Agreement, dated as of August 12, 1997, by and among KTI, Inc., and Wenoha Corporation, John G. Mills, L. Don Norton, Glen Wade Stewart, Bruce D. Wentworth and Donald E. Wentworth (18) 10.66 Placement Agreement dated August 7, 1997 between KTI, Inc. and Credit Research & Trading LLC (19) 10.67 Warrant Agreement dated August 7, 1997 between KTI, Inc. and Credit Research & Trading LLC (19) 10.68 Registration Rights Agreement dated August 15, 1997 between KTI, Inc. and the purchases named therein (19) 10.69 Purchase and Option Agreement by and between PERC Management Company Limited Partnership and The Prudential Insurance Company of America dated September 30, 1997 (20) 10.70 Second Amendment to the Second Amended and Restated Agreement and Certificate of Limited Partnership of Penobscot Energy Recovery Company, Limited Partnership dated as of September 29, 1997 (20) 10.71 Assignment and Assumption Agreement between The Prudential Insurance Company of America and PERC Management Company Limited (20) Partnership dated as of September 29, 1997 re Penobscot Energy Recovery Company, Limited Partnership (20) 10.72 Amendment No. 1 to Reimbursement Agreement and Release of Assignment dated as of September 29, 1997 to the Reimbursement Agreement dated as of May 28, 1991 of Penobscot Energy Recovery Company, Limited Partnership in favor of Morgan Guaranty Trust Company of New York re Penobscot Energy Recovery Company, Limited Partnership (20) 10.73 Assignment and Assumption Agreement between The Prudential Insurance Company of America and PERC Management Company Limited Partnership dated as of September 29, 1997 re Orrington Waste Ltd., Limited Partnership (20) 10.74 Amendment no. 1 to Reimbursement Agreement and Release of Assignment dated as of September 29, 1997 to the Reimbursement Agreement dated as of May 28, 1991 of Penobscot Energy Recovery Company, Limited Partnership in favor of Morgan Guaranty Trust Company of New York re Orrington Waste Ltd. (20) 10.75 Securities Purchase Agreement dated as of January 1, 1998, by and among Vel-A-Tran Recycling, Inc., a Massachusetts corporation, Raymond Vellucci and KTI Recycling of New England, Inc., a Delaware corporation (21) 10.76 Securities Purchase Agreement dated as of January 27, 1998 among Total Waste Management Corporation, Donald A. Littlefield, William Kaylor and KTI Specialty Waste Services, Inc., a Maine corporation (22) **12 Statement of computation of earnings to fixed charges and preferred stock dividends **23.1 Consent of Ernst & Young LLP 57 *23.2 Consent of McDermott, Will & Emery (contained in Exhibit 5) *24 Power of Attorney (on signature page) **25 Form T-1 Statement of Eligibility of First Union National Bank to act as Trustee under the Indenture - ---------------------------------- (1) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated September 16, 1997 (2) Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No. 33-85234) dated January 6, 1995. (3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated August 15, 1997. (4) Filed with the Registration Statement on Form S-1 dated December 6, 1995. (5) Filed as an Exhibit to Registrant's Proxy Statement dated June 5, 1995. (6) Filed with the Amendment No. 1 to the Registration Statement on Form S-1 dated February 2, 1996. (7) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated April 15, 1996. (8) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July 19, 1996. (9) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 18, 1996. (10) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 23, 1996. (11) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated October 24, 1996. (12) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 22, 1996. (13) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 25, 1996. (14) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (15) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 26, 1996. (16) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated June 19, 1997 (17) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated July 29, 1997. (18) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 12, 1997. (19) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 15, 1997. (20) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated September 30, 1997. (21) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated January 15, 1998. (22) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated February 4, 1998. * Previously filed. ** Filed herewith.
EX-4.5 2 INDENTURE 1 Exhibit 4.5 ================================================================================ KTI, INC. Issuer 8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004 INDENTURE Dated as of May 12, 1998 FIRST UNION NATIONAL BANK Trustee ================================================================================ 2 CROSS-REFERENCE TABLE* Trust Indenture Indenture Section Act Section 310(a)(1).................................................. 7.10 (a)(2).................................................. 7.10 (a)(3).................................................. N.A. (a)(4).................................................. N.A. (a)(5).................................................. 7.10 (b)..................................................... 7.10 (c)..................................................... N.A. 311(a)..................................................... 7.11 (b)..................................................... 7.11 (c)..................................................... N.A. 312(a)..................................................... 2.5 (b)..................................................... 11.3 (c)..................................................... 11.3 313(a)..................................................... 7.6 (b)(1).................................................. 10.3 (b)(2).................................................. 7.7 (c)..................................................... 7.6;11.2 (d)..................................................... 7.6 314(a)..................................................... 4.3;11.2 (b)..................................................... 10.2 (c)(1).................................................. 11.4 (c)(2).................................................. 11.4 (c)(3).................................................. N.A. (d)..................................................... 10.3, 10.4, 10.5 (e)..................................................... 11.5 (f)..................................................... N.A. 315(a)..................................................... 7.1 (b)..................................................... 7.5,11.2 (c)..................................................... 7.1 (d)..................................................... 7.1 (e)..................................................... 6.11 316(a)(last sentence)...................................... 2.9 (a)(1)(A)............................................... 6.5 (a)(1)(B)............................................... 6.4 (a)(2).................................................. N.A. (b)..................................................... 6.7 (c)..................................................... 2.12 317(a)(1).................................................. 6.8 (a)(2).................................................. 6.9 (b)..................................................... 2.4 318(a)..................................................... 11.1 (b)..................................................... N.A. (c)..................................................... 11.1 N.A. means not applicable. 3 *This Cross-Reference Table is not part of the Indenture. ii 4 TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE..............................-1- SECTION 1.1. DEFINITIONS...............................................-1- SECTION 1.2. OTHER DEFINITIONS.........................................-6- SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.........-6- SECTION 1.4. RULES OF CONSTRUCTION.....................................-6- ARTICLE 2 THE NOTES...............................-7- SECTION 2.1. FORM AND DATING...........................................-7- SECTION 2.2. EXECUTION AND AUTHENTICATION..............................-8- SECTION 2.3. REGISTRAR AND PAYING AGENT................................-8- SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.......................-9- SECTION 2.5. HOLDER LISTS..............................................-9- SECTION 2.6. TRANSFER AND EXCHANGE.....................................-9- SECTION 2.7. REPLACEMENT NOTES........................................-11- SECTION 2.8. OUTSTANDING NOTES........................................-12- SECTION 2.9. TREASURY NOTES...........................................-12- SECTION 2.10. TEMPORARY NOTES.........................................-12- SECTION 2.11. CANCELLATION............................................-13- SECTION 2.12. DEFAULTED INTEREST......................................-13- ARTICLE 3 REDEMPTION AND PREPAYMENT......................-13- SECTION 3.1. NOTICES TO TRUSTEE.......................................-13- SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED........................-13- SECTION 3.3. NOTICE OF REDEMPTION.....................................-14- SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION...........................-14- SECTION 3.5. DEPOSIT OF REDEMPTION PRICE..............................-15- SECTION 3.6. NOTES REDEEMED IN PART...................................-15- SECTION 3.7. OPTIONAL REDEMPTION......................................-15- SECTION 3.8. NO MANDATORY REDEMPTION..................................-16- ARTICLE 4 COVENANTS..............................-16- SECTION 4.1. PAYMENT OF NOTES.........................................-16- SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY..........................-16- SECTION 4.3. REPORTS..................................................-17- SECTION 4.4. COMPLIANCE CERTIFICATE...................................-17- SECTION 4.5. TAXES....................................................-18- SECTION 4.6. STAY, EXTENSION AND USURY LAWS...........................-18- SECTION 4.7. CORPORATE EXISTENCE......................................-18- iii 5 SECTION 4.8. OFFER TO REPURCHASE UPON CHANGE OF CONTROL...............-18- ARTICLE 5 SUCCESSORS..............................-20- SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS.................-20- SECTION 5.2. SUCCESSOR CORPORATION SUBSTITUTED........................-20- ARTICLE 6 DEFAULTS AND REMEDIES........................-20- SECTION 6.1. EVENTS OF DEFAULT........................................-20- SECTION 6.2. ACCELERATION.............................................-21- SECTION 6.3. OTHER REMEDIES...........................................-22- SECTION 6.4. WAIVER OF PAST DEFAULTS..................................-22- SECTION 6.5. CONTROL BY MAJORITY......................................-22- SECTION 6.6. LIMITATION ON SUITS......................................-22- SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT............-23- SECTION 6.8. COLLECTION SUIT BY TRUSTEE...............................-23- SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.........................-23- SECTION 6.10. PRIORITIES..............................................-24- SECTION 6.11. UNDERTAKING FOR COSTS...................................-24- ARTICLE 7 TRUSTEE...............................-24- SECTION 7.1. DUTIES OF TRUSTEE........................................-24- SECTION 7.2. RIGHTS OF TRUSTEE........................................-25- SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.............................-26- SECTION 7.4. TRUSTEE'S DISCLAIMER.....................................-26- SECTION 7.5. NOTICE OF DEFAULTS.......................................-26- SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES...............-26- SECTION 7.7. COMPENSATION AND INDEMNITY...............................-27- SECTION 7.8. REPLACEMENT OF TRUSTEE...................................-28- SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.........................-29- SECTION 7.10. ELIGIBILITY; DISQUALIFICATION...........................-29- SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.......-29- ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE...............-29- SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE...........................................-29- SECTION 8.2. LEGAL DEFEASANCE AND DISCHARGE...........................-29- SECTION 8.3. COVENANT DEFEASANCE......................................-30- SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE...............-30- SECTION 8.5. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS........-31- SECTION 8.6. REPAYMENT TO COMPANY.....................................-32- SECTION 8.7. REINSTATEMENT............................................-32- ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER...................-32- iv 6 SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES......................-32- SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES.........................-33- SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT......................-34- SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS........................-34- SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.........................-34- SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC..........................-35- .......................................................................-35- ARTICLE 10 SUBORDINATION............................-35- SECTION 10.1. AGREEMENT TO SUBORDINATE................................-35- SECTION 10.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY....................-35- SECTION 10.3. DEFAULT ON SENIOR DEBT..................................-35- SECTION 10.4. ACCELERATION OF NOTES...................................-36- SECTION 10.5. WHEN DISTRIBUTION MUST BE PAID OVER.....................-36- SECTION 10.6. NOTICE BY COMPANY.......................................-37- SECTION 10.7. SUBROGATION.............................................-37- SECTION 10.8. RELATIVE RIGHTS.........................................-37- SECTION 10.9. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY............-37- SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE...............-38- SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.....................-38- SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION..................-38- SECTION 10.13. AMENDMENTS.............................................-38- ARTICLE 11 CONVERSION OF NOTES.........................-39- SECTION 11.1. RIGHT TO CONVERT........................................-39- SECTION 11.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS................................-39- SECTION 11.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES..............-40- SECTION 11.4. CONVERSION PRICE........................................-41- SECTION 11.5. ADJUSTMENT OF CONVERSION PRICE..........................-41- SECTION 11.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.................................................-44- SECTION 11.7. TAXES ON SHARES ISSUED..................................-45- SECTION 11.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING OF COMMON STOCK......................................-45- SECTION 11.9. COMMON STOCK ISSUABLE UPON CONVERSION...................-45- SECTION 11.10. RESPONSIBILITY OF TRUSTEE..............................-45- SECTION 11.11. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.............-46- ARTICLE 12 MISCELLANEOUS............................-46- SECTION 12.1. TRUST INDENTURE ACT CONTROLS............................-46- SECTION 12.2. NOTICES.................................................-46- SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.....................................-48- SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT......-48- v 7 SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION...........-48- SECTION 12.6. RULES BY TRUSTEE AND AGENTS.............................-49- SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS.....................................-49- SECTION 12.8. GOVERNING LAW...........................................-49- SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS...........-49- SECTION 12.10. SUCCESSORS.............................................-49- SECTION 12.11. SEVERABILITY...........................................-49- SECTION 12.12. COUNTERPART ORIGINALS..................................-49- SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.......................-49- EXHIBITS Exhibit A Form of Note................................................A 1 vi 8 This Indenture, dated as of May 12, 1998 is between KTI, Inc., a New Jersey corporation (the "Company"), and First Union National Bank, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8 3/4% Convertible Subordinated Notes due August 15, 2004 (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. DEFINITIONS. "Affiliate" of any specified Person means an "affiliate" of such Person, as such term is defined for purposes of Rule 144 under the Securities Act. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of beneficial interests in a Global Note, the rules and procedures of the Depository that apply to such transfer and exchange. "Bankruptcy Law" means Title 11, United States Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Stock" means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Change of Control" means the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one transaction or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, (b) the adoption of a plan relating to the liquidation or dissolution of the Company, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act), other than a group including any one of Nicholas Mennona Jr., Martin Sergi or Ross Pirasteh, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, unless the Closing Price per share of Common Stock for any five Trading Days within the 9 period of ten consecutive Trading Days ending immediately after the announcement of such Change of Control equals or exceeds 105% of the Conversion Price in effect on each such Trading Day, or (d) the first day on which more than a majority of the Board of Directors are not Continuing Directors; provided, however, that a transaction in which the Company becomes a subsidiary of another entity shall not constitute a Change of Control if (i) the shareholders of the Company immediately prior to such transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, at least a majority of the voting power of the outstanding voting stock of the Company immediately following the consummation of such transaction and (ii) immediately following the consummation of such transaction, no "person" or "group" (as such terms are defined above), other than such other entity (but including holders of equity interests of such other entity), "beneficially owns" (as such term is defined above), directly or indirectly through one or more intermediaries, more than 50% of the voting power of the outstanding voting stock of the Company. "Closing Price" means, for each Trading Day, the last reported sale price regular way on the principal exchange, including the NASDAQ National Market, on which the applicable security is listed or quoted or, if the applicable security is not so listed or quoted, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. In the event that the Closing Price cannot be determined as aforesaid, the Board of Directors of the Company shall determine the Closing Price on the basis of such quotations as it in good faith considers appropriate. "Common Stock" means the common stock, no par value, of the Company, and any other capital stock of the Company into which such common stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution for such common stock by reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of the Board of Directors on the date of original issuance of the Preferred Stock or (b) was nominated for election to the Board of Directors with the approval of, or whose election to the Board of Directors was ratified by, at least two- thirds of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election. "Conversion Price" means the conversion price of the Notes as set forth in Section 11.4 hereof. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facility" means that certain line of credit pursuant to a Loan and Security Agreement, dated as of October 29, 1996, as amended from time to time by and between the Company, its Subsidiaries and KeyBank, National Association, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, restated, modified, supplemented, extended, renewed, replaced, refinanced or restructured from time to time, whether by the same or any other agent or agents, lender or group of lenders, whether represented by one or more agreements and whether one or more Subsidiaries are added or removed as borrowers or guarantors thereunder or as parties thereto. -2- 10 "Default" means any event that with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Notes" means Notes that are in the form of Exhibit A attached hereto (but without including the text referred to in footnotes 1 and 2 thereto). "Depository" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.3 hereof as the Depository with respect to the Notes until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means the amount that a willing buyer would pay a willing seller in an arm's-length transaction. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Global Note" means a permanent global debenture that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2 to the form of the Note attached hereto as Exhibit A, and that is deposited with the Note Custodian and registered in the name of the Depository. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing capital lease obligations or the balance deferred and unpaid of the purchase price of any property or representing any hedging obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and hedging obligations) would appear as a liability upon a balance sheet prepared in accordance with GAAP. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds an interest through a Participant. "Institutional Accredited Investor" means an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. -3- 11 "Junior Securities" means all classes of Common Stock of the Company and each other class of capital stock or series of preferred stock established after July 1, 1997 by the Board of Directors the terms of which do not expressly provide that it ranks senior to or on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company. "Legal Holiday" means a Saturday, a Sunday or any day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no additional interest shall be payable on such day for the intervening period. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease intended as security, any option or other agreement to sell or give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a financing statement covering leased goods under lease not intended as security). "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Preferred Stock by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.5 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee. "Participant" means with respect to the Depository, a Person who has an account with the Depository. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). -4- 12 "Preferred Stock" means the 8 3/4% Series B Convertible Exchangeable Preferred Stock, which may be exchanged by the Company for the Notes. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 7,1997, by and between the Company and Credit Research & Trading LLC, as such agreement may be amended, modified or supplemented from time to time. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restated Certificate of Incorporation" means the amendment to the restated certificate of incorporation duly filed with the Secretary of State of the State of New Jersey on August 8, 1997 with respect to the Preferred Stock. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (a) all obligations of the Company under the Credit Facility, as it may be amended, modified, restated, supplemented, deferred, extended, renewed, replaced, refunded or refinanced from time to time, and (b) any other Indebtedness of the Company, whether outstanding on the date of issuance of the Notes or thereafter incurred, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to any Senior Debt; provided, however, that Senior Debt will not include (i) any liability for federal, state, local or other taxes owed or owing by the Company, (ii) any Indebtedness of the Company to any of its Subsidiaries or (iii) any trade payables. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, (a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (b) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trading Day" means any day on which the NASDAQ National Market or other applicable stock exchange or market on which the Common Stock is listed or quoted is open for business. -5- 13 "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. SECTION 1.2. OTHER DEFINITIONS. Defined in Term Section ---- ------- "Change of Control Offer" .................... 4.8 "Change of Control Payment"................... 4.8 "Change of Control Payment Date".............. 4.8 "Conversion Date"............................. 11.2 "Conversion Price"............................ 11.4 "Covenant Defeasance"......................... 8.3 "DTC"......................................... 2.3 "Event of Default"............................ 6.1 "Legal Defeasance"............................ 8.2 "Paying Agent"................................ 2.3 "Payment Default"............................. 6.1 "Payment Blockage Notice"..................... 10.3 "Registrar"................................... 2.3 "Representative".............................. 10.5 SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. Any terms incorporated in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.4. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) the words "include", "includes", and "including" shall be deemed to be followed by the phrase "without limitation"; and -6- 14 (7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES SECTION 2.1. FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (a) Global Notes. Notes issued in exchange for the Preferred Stock may be issued initially in the form of one or more Global Notes, which shall be deposited on behalf of the Holders of the Notes represented thereby with a custodian of the Depository, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and transfers of interests. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Except as set forth in Section 2.6 hereof, the Global Notes may be transferred, in whole and not in part, only to another nominee of the Depository or to a successor of the Depository or its nominee. (b) Book-Entry Provisions. The Company shall execute and the Trustee shall, in accordance with Section 2.2, authenticate and deliver the Global Notes, if any, that (i) shall be registered in the name of the Depository or the nominee of the Depository and (ii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instructions or held by the Trustee as custodian for the Depository. Participants shall have no rights either under this Indenture with respect to any Global Note held on their behalf by the Depository or by the Note Custodian as custodian for the Depository or under such Global Note, and the Depository may be treated by the Company, the Trustee and any -7- 15 Agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Participants, the operation of customary practices of such Depository governing the exercise of the rights of an owner of a beneficial interest in any Global Note. (c) Definitive Notes. Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the text referred to in footnotes 1 and 2 thereto). SECTION 2.2. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue up to $21,400,000 aggregate principal amount of the Notes. Such written order shall specify the exact aggregate principal amount of Notes to be authenticated. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.7 hereof. The Company shall also deliver to the Trustee an Officers' Certificate and an Opinion of Counsel that all of the conditions to the exchange of the Preferred Stock into the Notes have been satisfied. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.3. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency in the State of New York where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company shall enter -8- 16 into an appropriate agency agreement with any Agent not a party to this Indenture, and such agreement shall incorporate the TIA's provisions of this Indenture that relate to such Agent. The Company or any Significant Subsidiary may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or premium or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Significant Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.5. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.6. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture and the procedures of the Depository therefor. Beneficial interests in a Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Global Note. (b) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request to register the transfer of the Definitive Notes or to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested only if the Definitive Notes are presented or surrendered for registration of transfer or exchange, are endorsed and contain a signature guarantee or accompanied by a written instrument of transfer in form -9- 17 satisfactory to the Registrar duly executed by such Holder or by his attorney and contains a signature guarantee. (c) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. Any Person having a beneficial interest in a Global Note may upon request, subject to the Applicable Procedures, exchange such beneficial interest for a Definitive Note, upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depository, from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Note. (d) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture, a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (e) Authentication of Definitive Notes in Absence of Depository. If at any time: (i) the Depository for the Notes notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Notes and a successor Depository for the Global Notes is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2 hereof, authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes. (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in Global Notes have been exchanged for Definitive Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. (g) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, subject to this Section 2.6 the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.7, 4.8 and 9.5 hereof). -10- 18 (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required: (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date; or (D) to register the transfer of a Note other than in amounts of $1,000 or multiple integrals thereof. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Definitive Notes and Global Notes in accordance with the provisions of Section 2.2 hereof. SECTION 2.7. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. -11- 19 Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.8. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is lost, destroyed or stolen and is then replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the entire principal of and premium and interest on any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.9. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, a Subsidiary of the Company or an Affiliate, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows are so owned shall be so disregarded. Notwithstanding the foregoing, Notes that the Company, a Subsidiary of the Company or an Affiliate offers to purchase or acquires pursuant to an offer, exchange offer, tender offer or otherwise shall not be deemed to be owned by the Company, a Subsidiary of the Company or an Affiliate until legal title to such Notes passes to the Company, such Subsidiary or such Affiliate as the case may be. SECTION 2.10. TEMPORARY NOTES. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Until such exchange, Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. -12- 20 SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3 REDEMPTION AND PREPAYMENT SECTION 3.1. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, by the Trustee from the outstanding Notes not previously called for redemption within 10 business days after receipt of the Officers' Certificate pursuant to Section 3.1 hereof. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof -13- 21 to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.3. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, a public notice of the redemption shall be made and the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address with copies to the Trustee. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in a principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that in all cases, the text of such notice of redemption shall be prepared or approved by the Company and the Trustee shall have no responsibility whatsoever with regard to such notice being accurate or correct. SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. -14- 22 SECTION 3.5. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Paying Agent shall promptly return to the Company any money deposited with the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and accrued interest on all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. SECTION 3.6. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.7. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes pursuant to this Section 3.7 on or after August 15, 2000. The Company shall have the option to redeem the Notes, in whole or from time to time in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
Year PERCENTAGE ---- ---------- 2000 ....................................... 104.4% 2001 ....................................... 102.9% 2002 ....................................... 101.5% 2003 and thereafter......................... 100.0%
Notwithstanding the foregoing, on or after August 15, 1999, the Company may, at its option, redeem the Notes at 105.9% of the principal amount plus accrued and unpaid interest thereon if the Common Stock bid price has averaged not less than 1.5 times the Conversion Price during 20 consecutive Trading Days. (b) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Section 3.1 through 3.6 hereof. -15- 23 SECTION 3.8. NO MANDATORY REDEMPTION. Except as provided in Section 4.8, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. ARTICLE 4 COVENANTS SECTION 4.1. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of and premium and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 5:00 p.m. New York City time on the Business Day immediately prior to the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to the interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain an office or agency in the State of New York (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. -16- 24 SECTION 4.3. REPORTS. Whether or not the Company is required to do so by the rules and regulations of the SEC, the Company will file with the SEC (unless the SEC will not accept such a filing) and, within 15 days of filing, or attempting to file, the same with the SEC, furnish to the holders of the Notes and the Trustee (a) all quarterly and annual financial and other information with respect to the Company that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants, and (b) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. The Company shall at all times comply with TIA Section 314(a). SECTION 4.4. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Significant Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, as soon as possible upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. -17- 25 SECTION 4.5. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.6. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.7. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and the corporate, partnership or other existence of each of its Significant Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Significant Subsidiary, provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Significant Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Significant Subsidiaries, taken as a whole. SECTION 4.8. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Within 10 days of the occurrence of a Change of Control, the Company shall give notice to the Holders and the Trustee that a Change of Control has occurred (the "Change of Control Notice"). Subject to subparagraph (c) below, upon the occurrence of a Change of Control, at the option of the Holders of a majority in principal amount of Notes exercised by the giving of notice to the Company within 20 days of receipt of the Change of Control Notice, the Company shall make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at an offer price in cash equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of repurchase (the "Change of Control Payment"). The Company shall deliver to the Trustee copies of all notices received from the Holders in response to the Change of Control Notice. The Change of Control Payment shall be made at the option of the Company either in (a) cash or (b) fully registered shares of Common Stock valued at 95% of the average closing price of the Common Stock during the 20 Trading Days prior to such Change of Control Payment if the Board of Directors of the Company determines that the payment of the Change of Control Payment in fully registered shares of Common Stock will not adversely affect the voting rights, preferences, privileges or relative, participating, optional or other specified rights of the holders of the Notes. Within 10 days following the receipt by the Company from the Holders of a sufficient number of the notices -18- 26 described in the second sentence of this Section 4.8(a), the Company shall mail a notice to each Holder and the Trustee stating: (i) that the Change of Control Offer is being made pursuant to this Section 4.8 and that all Notes validly tendered and not withdrawn will be accepted for payment; (ii) the purchase price and the purchase date, which shall be no earlier than 30 days but no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, properly endorsed for transfer together with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed and such customary documents as the Company may reasonably request, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent Rule 14e-1 or such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control. In the event of any conflict between this Indenture and Rule 14e-1 or such laws and regulations, the requirements of Rule 14e-1, any successor provision thereto, and such laws and regulations thereunder shall control. (b) On or before the Business Day immediately prior to the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount, whether in cash or Common Stock, equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding the foregoing, prior to complying with the provisions of this Section 4.8, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Notes required by this Section 4.8. -19- 27 ARTICLE 5 SUCCESSORS SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (a) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (b) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, (c) immediately after such transaction no Default or Event of Default exists, and (d) the Company or such other Person shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or disposal complies with this Indenture and that all conditions precedent in this Indenture have been satisfied. SECTION 5.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. When a successor corporation assumes all of the obligations of the Company hereunder and under the Notes and agrees to be bound hereby and thereby, the predecessor Company shall be relieved from such obligations. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on the Notes and such default continues for a period of 30 days; -20- 28 (b) the Company defaults in the payment when due of principal of or premium on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company fails to comply with any of the provisions of Section 4.8 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding of such failure; (e) the Company pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors. (f) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company in an involuntary case; (ii) appoints a custodian of the Company for all or substantially all of the property of the Company, or (iii) orders the liquidation of the Company; and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.2. ACCELERATION. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately by a notice in writing to the Company (and to the Trustee if such written notice is given by the Holders). Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (e) or (f) of Section 6.1 hereof occurs, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, premium or interest that has become due solely because of the acceleration) have been cured or waived. -21- 29 SECTION 6.3. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, premium and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.4. WAIVER OF PAST DEFAULTS. Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium or interest on the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes with written notice to the Trustee may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration) in accordance with Section 6.2 hereof. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right of the Trustee or the Holders consequent thereon. SECTION 6.5. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.6. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; -22- 30 (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, premium and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.1(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. -23- 31 SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.7 hereof, including payment of all reasonable compensation, expense and liabilities incurred, and all advances made, by the Trustee and the Trustee's costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and interest respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE SECTION 7.1. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon -24- 32 certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof or with an Officers' Certificate or Opinion of Counsel received by it pursuant to Section 7.2(b). (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.2. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. -25- 33 (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.5. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. The Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) provided that the Trustee is the Paying Agent, a Default or Event of Default arising under Section 6.1(a) or (b), or (ii) any Default or Event of Default of which the Trustee shall have received written notice in accordance with the terms of this Indenture, and such notice shall not be deemed to include receipt of information obtained in any information, documents and reports furnished, filed or delivered to the Trustee under Section 4.3. SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting -26- 34 date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee, in writing when the Notes are listed on any stock exchange. SECTION 7.7. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee and its directors, officers, agents and employees against any and all losses, liabilities or expenses incurred by it or such director, officer, agent or employee arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.7) and defending itself or such director, officer, agent or employee against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its or their powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its or their negligence, bad faith or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it or such director, officer, agent or employee may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee and such officer, director, agent or employee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(e) or (f) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. -27- 35 SECTION 7.8. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; (d) the Trustee becomes incapable of acting; or (e) prior to the issuance of any Notes hereunder, the Board of Directors determines to remove the Trustee; provided, that the Company shall have paid all amounts owed to the Trustee pursuant to Section 7.7. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10 hereof, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. -28- 36 SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has (or is part of a bank holding company that has) a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, exercise its rights under either Section 8.2 or 8.3 hereof with respect to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.2. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have discharged its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below) and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium and interest on such Notes when such -29- 37 payments are due, (b) the Company's obligations with respect to such Notes under Sections 2.3, 2.4, 2.7, 2.10 and 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. SECTION 8.3. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Article 4 (other than those in Sections 4.1, 4.2, 4.6 and 4.7) and Section 5.1 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with the covenant, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in the covenant, whether directly or indirectly, by reason of any reference elsewhere herein to the covenant or by reason of any reference in the covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(c) through 6.1(f) hereof shall not constitute an Event of Default. SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and premium and interest on the outstanding Notes on the stated maturity thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; -30- 38 (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness, all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company is a party or by which the Company is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be based on such solvency certificates or solvency opinions as counsel deems necessary or appropriate) to the effect that the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.5. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall not be required to execute a separate trust agreement to implement the trust described in this paragraph. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. -31- 39 Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.6. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.7. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.2 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency, provided that such action shall not adversely affect the interests of the Holders in any material respect; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; -32- 40 (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (f) at any time prior to the issuance of any Notes hereunder, to make any changes determined appropriate by the Board of Directors. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.2, the Company and the Trustee may amend or supplement this Indenture and the Notes may be amended or supplemented with the consent of the Holders of a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or -33- 41 supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter any of the provisions with respect to the redemption of the Notes (except as provided in Section 4.8 hereof); (c) reduce the rate of or change the time for payment of interest on any Note; (d) make any Note payable in money other than that stated in the Notes; (e) make any changes to Sections 6.4 or 6.7; or (f) make any change in the foregoing amendment and waiver provisions. SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. -34- 42 SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10 SUBORDINATION SECTION 10.1. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Note is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (a) holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders shall be entitled to receive any payment with respect to the Notes; and (b) until all Obligations with respect to Senior Debt are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders may receive securities, including capital stock, that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt). SECTION 10.3. DEFAULT ON SENIOR DEBT. (a) The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than securities, including capital stock, that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: -35- 43 (i) a default in the payment of any principal or other Obligations with respect to any Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Senior Debt; or (ii) a default, other than a payment default, on Senior Debt occurs and is continuing that then permits holders of the Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or a Person who may give it pursuant to Section 10.12 hereof. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 360 days shall have elapsed since the date of receipt by the Trustee of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice (it being understood that any subsequent action, or any breach of any covenant during the period commencing after the date of receipt by the Trustee of such Payment Blockage Notice, that, in either case, would give rise to such a default pursuant to any provision under which a default previously existed or was continuing shall constitute a new default for this purpose). (b) The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (i) in the case of a default referred to in Section 10.3(a)(i) hereof, the date upon which the default is cured or waived, or (ii) in the case of a default referred to in Section 10.3(a)(ii) hereof, the earlier of (1) the date on which such default is cured or waived or (2) 179 days after the applicable Payment Blockage Notice is received by the Company if the maturity of such Senior Debt has not been accelerated (or, if such Senior Debt has been accelerated, such Senior Debt has not been paid in full) and if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 10.4. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.5. WHEN DISTRIBUTION MUST BE PAID OVER. (a) In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.3 hereof, such payment shall be held by the Trustee or such Holder in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their representative (the "Representative") under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. (b) With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the -36- 44 holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.6. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent in writing of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. The Trustee or any Paying Agent shall not be deemed to have knowledge of any facts or circumstances causing any payment of any Obligations with respect to the Notes to violate this Article 10 unless it shall have received written notice thereof in accordance with the terms of this Indenture, and such notice shall not be deemed to include receipt of information obtained in any information, documents and reports furnished, filed or delivered to the Trustee under Section 4.3. SECTION 10.7. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.8. RELATIVE RIGHTS. (a) This Article 10 defines the relative rights of Holders and holders of Senior Debt. Nothing in this Indenture shall: (i) impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (ii) affect the relative rights of Holders and creditors of the Company other than their rights in relation to holders of Senior Debt; or (iii) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders. (b) If the Company fails because of this Article 10 to pay principal of, premium, if any, or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.9. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. -37- 45 SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, the Holders are hereby authorized to file an appropriate claim. SECTION 10.13. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified at any time after the issuance of any Notes hereunder without the written consent of the holders of all Senior Debt (in accordance with the provisions thereof). -38- 46 ARTICLE 11 CONVERSION OF NOTES SECTION 11.1. RIGHT TO CONVERT. Subject to and upon compliance with the provisions of this Indenture, the Holder of any Note shall have the right, at the option of such Holder, at any time (except that, with respect to any Note or portion of a Note that shall be called for redemption or delivered for repurchase, such right shall terminate immediately prior to close of business on the date fixed for redemption of such Note or portion of such Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the aggregate principal amount of the Notes or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided in Section 11.2 hereof. Immediately following such conversion, the rights of the Holders of converted Notes shall cease and the Persons entitled to receive the Common Stock upon the conversion of Notes shall be treated for all purposes as having become the owners of such Common Stock. SECTION 11.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise the conversion privilege with respect to any Note in definitive form, a Holder must (a) surrender such Note to be converted, duly endorsed and in a form satisfactory to the Company, at an office or agency maintained by the Company pursuant to Section 4.2 hereof, accompanied by the funds, if any, required by the last paragraph of this Section 11.2, (b) notify the Company at such office that he elects to convert such Note or a portion thereof, specifying the principal amount he wishes to convert, (c) state in writing the name or names (with address) in which he wishes the certificate or certificates for shares of Common Stock to be issued and (d) pay any transfer taxes, if required pursuant to Section 11.7 hereof. The date on which the Holder satisfies all those requirements is the "Conversion Date." Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the name of the Holder of such Note as it appears on the Note register, be accompanied by instruments of transfer in form satisfactory to the Company duly executed by the Holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a Global Note, the beneficial Holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program and follow the other procedures set forth in such program. As promptly as practicable after the Conversion Date, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Holder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such Holder at the office or agency maintained by the Company for such purpose pursuant to Section 4.2 hereof, a certificate or certificates for the number of full shares issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article 11 and a payment in cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 11.3 hereof. In case -39- 47 any Note shall be surrendered for partial conversion, and subject to Section 2.3 hereof, the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any Note (or portion thereof) on the Conversion Date, and the Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on such date the Holder of record of the shares represented thereby; provided that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall have been surrendered. The Holder of record of a Note at the close of business on a record date with respect to the payment of interest on the Notes will be entitled to receive such interest with respect to such Notes on the corresponding interest payment date, notwithstanding the conversion of such Notes after such record date and prior to such interest payment date. Notes surrendered for conversion during the period from the close of business on any record date for the payment of interest to the opening of business of the corresponding interest payment date must be accompanied by a payment in cash in an amount equal to the interest payable on such interest payment date, unless such Notes have been called for redemption on a redemption date occurring during the period from the close of business on any record date for the payment of interest to the close of business on the business day immediately following the corresponding interest payment date. The interest payment with respect to any Note called for redemption on a date during the period from the close of business on any record date for the payment of interest to the close of business on the business day immediately following the corresponding interest payment date will be payable on such interest payment date to the record Holder of such Note on such record date, notwithstanding the conversion of such Note after such record date and prior to such interest payment date. Except as provided in this Section 11.2, no payment or adjustment will be made upon conversion of Notes for accrued and unpaid interest or for dividends with respect to the Common Stock issued upon such conversion of Notes as provided in this Article 11. Upon the conversion of any interest in a Global Note, the Trustee, or the Note Custodian at the direction of the Trustee, shall make a notation on such Global Note as to the reduction in the principal amount represented thereby. SECTION 11.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. The Company shall not issue a fractional share of Common Stock upon conversion of the Notes. Instead the Company shall pay a cash adjustment for the current market value of the fractional share. The current market value of a fraction of a share shall be determined as follows: Multiply the current market price of a full share by the fraction. Round the result to the nearest cent. The current market price of a share of Common Stock is the Closing Price of the Common Stock on the last Trading Day prior to the Conversion Date. -40- 48 SECTION 11.4. CONVERSION PRICE. The "Conversion Price" shall be that amount as determined pursuant to the Company's Restated Certificate of Incorporation with respect to the 8 3/4% Series B Convertible Exchangeable Preferred Stock, filed with the Secretary of State of the State of New Jersey on August 8, 1997, as amended through the date of the exchange of the Preferred Stock for the Notes, on the date of exchange of the Preferred Stock for the Notes, subject to adjustment as provided in this Article 11. Notice of the initial Conversion Price shall be set forth in the Officers' Certificate delivered to the Trustee pursuant to Section 2.2 hereof and the Company shall notify the Trustee of any adjustments in the Conversion Price as soon as practicable after determination. SECTION 11.5. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator of which shall be the sum of such number of shares and the total number shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination of the holders entitled to such dividends and distributions. For the purposes of this Section 11.5(a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (b) In case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for, purchase or acquire shares of Common Stock at a price per share less than the current market price per share of the Common Stock on the date fixed for the determination of shareholders entitled to receive such rights, options or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription, purchase or acquisition would purchase at such current market price and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription, purchase or acquisition, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination of the holders entitled to such right, options or warrants. However, upon the expiration of any right, option or warrant to purchase Common Stock, the issuance of which resulted in an adjustment in the Conversion Price pursuant to this Section 11.5(b), if any such right, option or warrant shall expire and shall not have been exercised, the Conversion Price shall be recomputed immediately upon such expiration and effective immediately upon such expiration shall be increased to the price it would have been (but reflecting any other adjustments to the Conversion Price made pursuant to the provisions of Section 11.5 hereof -41- 49 after the issuance of such rights, options or warrants) had the adjustment of the Conversion Price made upon the issuance of such rights, options or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights, options or warrants. No further adjustment shall be made upon exercise of any right, option or warrant if any adjustment shall have been made upon the issuance of such security. For the purposes of this Section 11.5(b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. (c) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be increased, to equal the product of the Conversion Price in effect on such date and a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision or combination, as the case may be, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such subdivision or combination, as the case may be. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock (i) evidences of its indebtedness or (ii) shares of any class of capital stock, cash or other assets (including securities, but excluding (1) any rights, options or warrants referred to in Section 11.5(b) hereof, (2) any dividend or distribution referred to in Section 11.5(a) hereof, and (3) cash dividends paid from the Company's retained earnings unless the sum of (A) all such cash dividends and distributions made within the preceding 12 months in respect of which no adjustment has been made and (B) any cash and the fair market value of other consideration paid in respect of any repurchases of Common Stock by the Company or any of its subsidiaries within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the Company's market capitalization (being the product of the then current market price per share of the Common Stock times the aggregate number of shares of Common Stock then outstanding) on the record date for such distribution), then in each case, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of holders of Common Stock entitled to receive such distribution shall be adjusted by multiplying such Conversion Price by a fraction of which the numerator shall be the current market price per share of the Common Stock on such date of determination (or, if earlier, on the date on which the Common Stock goes "ex-dividend" in respect of such distribution) less the then fair market value as determined by the Board of Directors (whose determination shall be conclusive and shall be described in a statement filed with any conversion agent) of the portion of the capital stock, cash or other assets or evidences of indebtedness so distributed (and for which an adjustment to the Conversion Price has not previously been made pursuant to the terms of this Section 11.5) applicable to one share of Common Stock, and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately after the opening of business on the day following such date of determination of the holders entitled to such distribution. The following transactions shall be excluded from the foregoing clauses (A) and (B): (x) repurchases of Common Stock issued under the -42- 50 Company's stock incentive programs and (y) dividends or distributions payable-in-kind in additional shares of or warrants, rights, calls or options exercisable for or convertible into additional shares of Junior Securities. (e) The reclassification or change of Common Stock into securities including securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 11.6 shall apply) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of holders of Common Stock entitled to receive such distribution" within the meaning of Section 11.5(d) hereof), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of Section 11.5(c) hereof). (f) The Company from time to time may reduce the Conversion Price if it considers such reductions to be advisable in order that any event treated for federal income tax purposes as a dividend of stock rights will not be taxable to the holders of Common Stock by any amount, but in no event may the Conversion Price be less than the par value of a share of Common Stock. Whenever the Conversion Price is reduced, the Company shall mail to Holders of record of Notes a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of Sections 11.5(a), (b), (c), (d) and (e) hereof. (g) No adjustment in the Conversion Price need be made until all cumulative adjustments amount to at least 1% in the Conversion Price, as last adjusted; provided that any adjustments that by reason of this Section 11.5(g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 11 shall be made by the Company and shall be made to the nearest cent. (h) For the purpose of any computation under Section 11.5, the current market price per share of Common Stock on any day shall be deemed to be the average of the Closing Prices of the Common Stock for the 20 consecutive Trading Days selected by the Board of Directors commencing no more than 30 Trading Days before and ending no later than the day before the day in question; provided that, in the case of Section 11.5(d) hereof, if the period between the date of the public announcement of the dividend or distribution and the date for the determination of holders of Common Stock entitled to receive such dividend or distribution (or, if earlier, the date on which the Common Stock goes "ex-dividend" in respect of such dividend or distribution) shall be less than 20 Trading Days, the period shall be such lesser number of Trading Days but, in any event, not less than five Trading Days. (i) No adjustment in the Conversion Price shall reduce the Conversion Price below the then par value of the Common Stock. No adjustment in the Conversion Price need be made under Section 11.5(a), (b) or (d) hereof if the Company issues or distributes to each Holder of Notes the shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in -43- 51 those paragraphs which each Holder would have been entitled to receive had Notes been converted into Common Stock prior to the happening of such event or the record date with respect thereto. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the fact requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment became effective and shall mail such notice of such adjustment of the Conversion Price to each Holder of Notes at his last address appearing on the Note register provided for in Section 2.5 hereof, within 20 days after execution thereof. Failure to deliver such notice shall not effect the legality or validity of any such adjustment. (k) In any case in which this Section 11.5 shall require that an adjustment as a result of any event become effective from and after a record date, the Company may elect to defer until after the occurrence of such event (i) the issuance to the Holder of and Notes converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable on the basis of the Conversion Price in effect immediately prior to adjustment and (ii) a cash payment for any remaining fractional shares of Common Stock as provided in Section 11.3 hereof; provided, however, that if such event shall not have occurred and authorization of such event shall be rescinded by the Company, the Conversion Price shall be recomputed immediately upon such recision to the price that would have been in effect had such event not been authorized, provided that such recision is permitted by and effective under applicable laws. SECTION 11.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. In the case of any consolidation of the Company or the merger of the Company with or into any other entity or the sale or transfer of all or substantially all the assets of the Company pursuant to which the Company's Common Stock is converted into other securities, cash or assets, the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture providing that the Notes shall be convertible into the kind and amount of securities, cash or other assets receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which such Notes might have been converted immediately prior to such consolidation, merger, transfer or sale (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount receivable per share by a plurality of non-electing shares). Such supplemental indenture shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 11. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder of Notes within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section 11.6 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. -44- 52 SECTION 11.7. TAXES ON SHARES ISSUED. If a Holder converts Notes, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax that is due because the shares are issued in a name other than the Holder's name. SECTION 11.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING OF COMMON STOCK. The Company has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of the Notes in full. All shares of Common Stock that may be issued upon conversion of Notes shall be fully paid and nonassessable. The Company shall endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Notes and shall endeavor to list such shares on each national securities exchange on which the Common Stock is listed. SECTION 11.9. COMMON STOCK ISSUABLE UPON CONVERSION. For purposes of this Article 11, "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 11.5(b) hereof, shares issuable on conversion of Notes shall include only shares of the class designated as Common Stock of the Company on the date of issuance of the Preferred Stock pursuant to the Offering or shares of any class or classes resulting from any reclassification thereof and which have no preferences in respect of dividends or amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that, if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. SECTION 11.10. RESPONSIBILITY OF TRUSTEE. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any Holder of Notes to make a determination whether any facts exist that may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to the provisions of Section 7.1 hereof, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article 11. Without limiting -45- 53 the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine whether a supplemental indenture under Section 11.6 hereof is required to be entered into or the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 11.6 relating either to the amount of shares receivable by Holders upon the conversion of their Notes after any event referred to in Section 11.6 hereof or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.1 hereof, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. SECTION 11.11. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case (a) the Company makes any distribution or dividend that would require an adjustment in the Conversion Price pursuant to Section 11.5 hereof, (b) the Company takes any action that would require a supplemental indenture pursuant to Section 11.6 hereof or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company shall cause to be filed with the Trustee and to be mailed to each Holder of Notes as promptly as possible but in any event at least 15 days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record date is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (ii) the date on which such reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective or occur and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings referenced in clauses (a) through (c) of this Section 11.11. ARTICLE 12 MISCELLANEOUS SECTION 12.1. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, expressly excluded from this Indenture, as permitted by the TIA. SECTION 12.2. NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), or overnight air courier guaranteeing next day delivery, addressed as follows: -46- 54 If to the Company: KTI, Inc. 7000 Boulevard East Guttenberg, NJ 07093 Telecopier No.: (201) 854-1771 Attention: General Counsel With a copy to: McDermott, Will & Emery 50 Rockefeller Plaza New York, NY 10020 Telecopier No.: (212) 547-5444 Attention: Brian Hoffmann, Esq. If to the Trustee: First Union National Bank 200 S. Biscayne Boulevard 14th Floor (FL 6065) Miami, FL 33131 Telecopier No.: (305) 789-4678 Attention: Ms. Lisa Derryberry With a copy to: Holland & Knight LLP 701 Brickell Avenue Miami, FL 33131 Telecopier: (305) 789-7799 Attention: Robert J. Friedman, Esq. The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. -47- 55 If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails or otherwise gives a notice or communication to Holders, it shall similarly mail or give a copy to the Trustee and each Agent at the same time. SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. -48- 56 SECTION 12.6. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No past, present or future director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.8. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES. SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Significant Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. -49- 57 SIGNATURES Dated as of May 12, 1998 KTI, INC. By: ------------------------------------ Name: Title: Dated as of May 12, 1998 FIRST UNION NATIONAL BANK, as Trustee By: ------------------------------------ Name: Title: -50-
EX-4.6 3 EXCHANGE NOTE 1 EXHIBIT 4.6 (Face of Note) 8 3/4% Convertible Subordinated Notes due 2004 No. $_______________ CUSIP NO. 482689 AA 4 KTI, INC. promises to pay to _____________ or registered assigns, the principal sum of ___________ Dollars on August 15, 2004. Interest Payment Dates: February 1, May 1, August 1 and November 1 Record Dates: January 15, April 15, July 15 and October 15 Dated: _______, ____ KTI, INC. By: ---------------------------- Name: Title: (SEAL) This is one of the [Global] Notes referred to in the within-mentioned Indenture: Authentication Date: [__________________] FIRST UNION NATIONAL BANK as Trustee By: ----------------------------- A-1 2 (Back of Note) 8 3/4% Convertible Subordinated Notes due 2004 [Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered owner hereof, Cede & Co., has an interest herein.]1 1. INTEREST. KTI, Inc., a New Jersey corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8 3/4% per annum from ________________, 199_ until maturity. The Company will pay interest quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the January 15, April 15, July 15 or October 15 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest and premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, First Union National Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. - ---------- 1. This paragraph should be included only if the Debenture is issued in global form. A-2 3 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May __, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general subordinated unsecured obligations of the Company limited to $21,400,000 aggregate principal amount. 5. OPTIONAL REDEMPTION. The Company shall have the option to redeem the Notes on or after August 15, 2000. The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
Year PERCENTAGE ---- ---------- 2000 .................................... 104.4% 2001 .................................... 102.9% 2002 .................................... 101.5% 2003 and thereafter...................... 100.0%
Notwithstanding the foregoing, on or after August 15, 1999, the Company may, at its option, redeem the Notes at 105.9% of the principal amount plus accrued and unpaid interest thereon if the Common Stock bid price has averaged not less than 1.5 times the Conversion Price during 20 consecutive Trading Days. 6. NO MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control, at the option of the Holders of a majority in principal amount of Notes, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction that constitutes the Change of Control and setting forth the procedures governing the Change of Control Offer as required by the Indenture. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be A-3 4 registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company to comply with Section 4.8 of the Indenture; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; and (v) certain events of bankruptcy or insolvency with respect to the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. DEFEASANCE. The Notes are subject to defeasance upon the terms and conditions specified in the Indenture. A-4 5 14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 15. CONVERSION RIGHTS. Subject to and upon compliance with the provisions of the Indenture, the Holder of any Note shall have the right, at the option of such Holder, at any time (except that, with respect to any Note or portion of a Note that shall be called for redemption or delivered for repurchase, such right shall terminate immediately prior to close of business on the date fixed for redemption of such Note or portion of such Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount that is $1,000 or any integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the aggregate principal amount of the Notes or a portion thereof surrendered for conversion by the Conversion Price in effect at such time rounded to the nearest cent, by surrender of the Note so to be converted in whole or in part. The Conversion Price shall be that amount as determined pursuant to the Company's Restated Certificate of Incorporation with respect to the 8 3/4% Series B Convertible Exchangeable Preferred Stock (the "Preferred Stock"), filed with the Secretary of State of the State of New Jersey on August 8, 1997, as amended through the date of exchange of the Preferred Stock for the Note, on the date of exchange of the Preferred Stock for the Notes, subject to adjustment as provided in the Indenture. Immediately following such conversion, the rights of the Holders of converted Notes shall cease and the persons entitled to receive the Common Stock upon the conversion of Notes shall be treated for all purposes as having become the owners of such Common Stock. 16. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or shareholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-5 6 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: KTI, Inc. 7000 Boulevard East Guttenberg, NJ 07093 Attention: General Counsel A-6 7 Unless this certificate is presented by an authorized representative of The Depository Trust Company to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by the authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. ASSIGNMENT FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto ________________________________________________________________________________ Insert Social Security or Other Identifying Number of Assignee ________________________________________________________________________________ (Name and Address of Assignee) ________________________________________________________________________________ the within Note and does hereby irrevocably constitute and appoint _____________ _______________________ as attorneys to register the transfer of the said Note on the books kept for registration thereof with full power of substitution in the premises. Dated: _______________________________________ ____________________________________ Signature guaranteed: NOTICE: Signature must be guaranteed by an institution which is a participant in the Securities _______________________________________ Transfer Agent Medallion Program (STAMP) or similar program. NOTICE: The signature to this assignmentmust correspond with the name of the registered Holder as it appears upon the face of the within Note in every particular, without alteration or enlargement or any change whatever and the Social Security or other identifying number of such assignee must be supplied. A-7 8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.8 of the Indenture, check the box below: [ ] Section 4.8 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.8 of the Indenture, state the amount you elect to have purchased: $___________ (in a minimum denomination amount of $1,000 or integral multiple thereof). Date: ___________________ Your Signature: ____________________________________ NOTICE: The signature to this assignment must correspond with the name of the registered Holder as it appears upon the face of the within Note in every particular, without alteration or enlargement or any change whatever and the Social Security or other identifying number of such assignee must be supplied. Tax Identification No.:____________________ Signature Guaranteed: ______________________________________ NOTICE: Signature must be guaranteed by an institution which is a participant in the Securities Transfer Agent Medallion Program (STAMP) or similar program. A-8 9 SCHEDULE OF EXCHANGES OF NOTES(1) THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL NOTE FOR OTHER NOTES HAVE BEEN MADE:
Date of Exchange Amount of Amount of Principal Amount Signature of decrease in increase in of this Global authorized officer Principal Amount Principal Amount Note following of Trustee or of this Global of this Global such decrease (or Note Custodian Note Note increase) - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
A-9
EX-5 4 OPINION OF MCDERMOTT, WILL & EMERY RE: LEGALITY 1 Exhibit 5 McDermott, Will & Emery 50 Rockefeller Plaza New York, New York 10020 May 12, 1998 KTI, Inc. 7000 Boulevard East Guttenberg, New Jersey 07093 Re: Resale of up to an aggregate of (i) 856,000 shares of Series B Convertible Exchangeable Preferred Stock, no par value (the "Series B Preferred Stock"), of KTI, Inc., a New Jersey corporation (the "Company"), (ii) 1,861,104 shares of common stock, no par value (the "Common Stock"), of the Company issuable upon conversion of the Series B Preferred Stock (the "Conversion Shares"), and (iii) $21,397,000 aggregate principal amount of 8 3/4% Convertible Subordinated Notes of the Company (the "Exchange Notes"). Ladies and Gentlemen: We have acted as your special counsel in connection with the preparation and filing of a Registration Statement on Form S-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), of the above-captioned securities, which, in the case of the Conversion Shares, may be issued upon the conversion of Series B Preferred Stock, and, in the case of the Exchange Notes, may be issued in exchange for the Series B Preferred Stock, and, in each case, then offered for sale from time to time by selling shareholders. In arriving at the opinions expressed below we have examined the Registration Statement, the Series B Preferred Stock, the form of indenture relating to the Exchange Notes (the "Indenture"), and such other documents as we have deemed necessary to enable us to express the opinions hereinafter set forth. We have also reviewed such questions of law as we considered necessary or appropriate for the purposes of such opinions. In addition, we have examined and relied, to the extent we deemed proper, on certificates of officers of the Company as to factual matters, on the originals or copies certified or otherwise identified to our satisfaction of all such corporate records of the Company and such other instruments and certificates of public officials and other persons as we have deemed appropriate. In our 2 KTI, Inc. May 12, 1998 Page 2 examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to as copies, and the genuineness of all signatures on documents reviewed by us and the legal capacity of natural persons. Members of our firm are admitted to the bar of the State of New York. We express no opinion as to the laws of any jurisdiction other than the laws of the State of New York and, to the extent specifically referred to herein, the New Jersey Business Corporation Act (the "NJBCA"), and the Federal laws of the United States of America. While we are not licensed to practice law in the State of New Jersey, we have reviewed applicable provisions of the NJBCA as we have deemed appropriate in connection with the opinions expressed herein. Except as described, we have neither examined nor do we express any opinion with respect to New Jersey Law. Based upon and subject to the foregoing, we are of the opinion that: 1. The shares of the Series B Preferred Stock are, and the Conversion Shares, when issued in accordance with the terms of the Series B Preferred Stock, will be, legally issued, fully paid and non-assessable. 2. The Exchange Notes when issued in exchange for, and in accordance with the terms of the Series B Preferred Stock and the Indenture, will be legal, valid and binding obligations of the Company. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ McDermott, Will & Emery EX-12 5 COMPUTATION OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 KTI, Inc. Calculation of Ratio Earnings to Combined Fixed Charges and Preferred Stock Dividends (All amounts in thousands except for ratio of earnings to combined fixed charges and preferred stock dividends)
Year ended December 31, ---------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- EARNINGS Consolidated pre-tax income from continuing operations 5,506 16,628 (1,328) (1,428) 683 Less: Share of pre-tax loss of less-than-50%-owned affiliates (21) Fixed charges 6,547 5,109 10,117 10,090 1,193 Less: Interest capitalized during the period (20) (110) Dividends on Series B Preferred Stock (708) ------ ------ ------ ------ ------ EARNINGS AS ADJUSTED 11,325 21,627 8,789 8,662 1,855 ====== ====== ====== ====== ====== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest cost(1) 5,106 4,574 9,379 9,715 1,057 Net amortization of the debt discount and issuance expense 331 476 618 246 60 Interest portion of rental expense(2) 408 59 120 129 76 Dividends on Series B Preferred Stock 708 ------ ------ ------ ------ ------ TOTAL COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 6,553 5,109 10,117 10,090 1,193 ====== ====== ====== ====== ====== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 1.73 4.23 (3) (3) 1.55
(1) Includes interest expense and interest capitalized in accordance with FASB Statement No. 34. (2) Represents an appropriate portion of rental expense. (3) Fixed charges and preferred stock dividends for the years ended December 31, 1995 and 1994 exceeding earnings, as adjusted by $1,328 and $1,428, respectively.
EX-23.1 6 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form S-2 No. 333-46057) and related Prospectus of KTI, Inc. for the registration of 856,000 shares of its Series B Convertible Exchangeable Preferred Stock, 1,861,105 shares of its common stock and an aggregate principal amount of $21,398,000 of its 8.75% Convertible Subordinated Notes due August 15, 2004, and to the incorporation by reference therein of our reports dated March 6, 1998 (except for Note 18 as to which the date is March 23, 1998) and February 7, 1997 with respect to the consolidated financial statements and schedule of KTI, Inc. and the financial statements of Penobscot Energy Recovery Company, Limited Partnership (a Maine limited partnership), respectively, included in the Annual Report (Form 10-K) of KTI, Inc. for the year ended December 31, 1997, and of our report dated January 16, 1998 with respect to the consolidated financial statements of Prins Recycling Corp. (debtor-in-possession) included in the Current Report (Form 8-K, dated November 14, 1997, as amended by Form 8-K/A) of KTI, Inc., as filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Ernst & Young LLP Hackensack, New Jersey May 11, 1998 EX-25 7 FORM -1 STATEMENT OF ELIGILITY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) X FIRST UNION NATIONAL BANK (Name of Trustee) 22-1147033 (I.R.S. Employer Identification No.) 301 South College Street, 1 First Union Center, Charlotte, North Carolina (Address of Principal Executive Offices) 28288 (Zip Code) KTI, INC. (Exact name of registrant as specified in its charter) New Jersey (State of Incorporation) 22-2665282 (I.R.S Employer Identification No.) 7000 Boulevard East Guttenberg, New Jersey 07093 (201) 854-7777 (Address of Principal Executive Offices) 8 3/4% Convertible Subordinated Notes (Title of Indenture Securities) 2 1. General information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject: Comptroller of the Currency United States Department of the Treasury Washington, D.C. 20219 Federal Reserve Bank Richmond, Virginia 23219 Federal Deposit Insurance Corporation Washington, D.C. 20429 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3. Voting securities of the trustee. Furnish the following information as to each class of voting securities of the trustee: Not applicable - see answer to item 13. 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: Not applicable - see answer to item 13. 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter 2 3 for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable - see answer to item 13. 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner, and executive officer of the obligor: Not applicable - see answer to item 13. 7. Voting securities of the trustee owned by underwriters or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, and executive officer of each such underwriter: Not applicable - see answer to item 13. 8. Securities of the obligor owned or held by the trustee. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: Not applicable - see answer to item 13. 9. Securities of underwriters owned or held by the trustee. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee: Not applicable - see answer to item 13. 10. Ownership or holdings by the trustee of voting securities of certain affiliates or security holders of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting stock of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person: 3 4 Not applicable - see answer to item 13. 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee: Not applicable - see answer to item 13. 12. Indebtedness of the obligor to the trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information: Not applicable - see answer to item 13. 13. Defaults by the obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None. (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None. 14. Affiliations with the underwriters. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable - see answer to item 13. 15. Foreign trustee. Identify the order or rule pursuant to which the trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. 4 5 Not applicable - trustee is a national banking association organized under the laws of the United States. 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. Copy of Articles of Association of the trustee as now in effect.* X 2. Copy of the Certificate of the Comptroller of the Currency dated March 4, 1998, evidencing the authority of the trustee to transact business. X 3. Copy of the authorization of the trustee to exercise fiduciary powers 4. Copy of existing by-laws of the trustee.* 5. Copy of each indenture referred to in Item 4, if the obligor is in default, not applicable. X 6. Consent of the trustee required by Section 321(b) of the Act. X 7. Copy of report of condition of the trustee at the close of business on March 31, 1998, published pursuant to the requirements of its supervising authority. 8. Copy of any order pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act, not applicable. 9. Consent to service of process required of foreign trustees pursuant to Rule 10a-4 under the Act, not applicable. - -------------------- *Previously filed with the Securities and Exchange Commission on March 16, 1998 as an exhibit to Form T-1 in connection with Registration Statement No. 333-47985 and incorporated herein by reference. 5 6 NOTE The trustee disclaims responsibIlity for the accuracy or completeness of information contained in this Statement of Eligibility and Qualification not known to the trustee and not obtainable by it through reasonable investigation and as to which information it has obtained from the obligor and has had to rely or will obtain from the principal underwriters and will have to rely. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, First Union National Bank, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Miami and State of Florida, on the 1st day of May, 1998. FIRST UNION NATIONAL BANK By:/s/ Lisa Derryberry -------------------------- Lisa Derryberry Vice President 6 7 [COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS LETTERHEAD] CERTIFICATE I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that: 1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering of all National Banking Associations. 2. "First Union National Bank," Charlotte, North Carolina, (Charter No. 22693) is a National Banking Association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the Treasury Department in the City of Washington and District of Columbia, this 4th [Seal day of March, 1998. of the Comptroller of the Currency] /s/ Eugene A. Ludwig ---------------------------------- Comptroller of the Currency 8 [COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS LETTERHEAD] Certificate of Fiduciary Powers I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that: 1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering of all National Banking Associations. 2. "First Union National Bank," Charlotte, North Carolina, (Charter No. 22693), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of the Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a, and that the authority so granted remains in full force and effect on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the Treasury Department in the City of Washington and District of Columbia, [Seal this 4th day of March, 1998. of the Comptroller of the /s/ Eugene A. Ludwig Currency] ------------------------------------- Comptroller of the Currency 9 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, and in connection with the proposed issue of KTI, Inc. 8 3/4% Convertible Subordinated Notes, we hereby consent that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FIRST UNION NATIONAL BANK By:/s/ Lisa Derryberry ----------------------- Lisa Derryberry Vice President Miami, Florida May 1, 1998 10 Legal Title of Bank: First Union National Bank Address: Two First Union Center City, State Zip: Charlotte, NC 28288-0201 FDIC Certificate No.: 04885 Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for March 31, 1998 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet __________
---------- C400 (- ------------ -------- Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------- -------------------- ASSETS ////////////////// 1. Cash and balances due from depository institutions (from Schedule RC-A): ////////////////// a. Noninterest-bearing balances and currency and coin(1) ................................... 0081 7,346,667 1.a. b. Interest-bearing balances(2) ............................................................ 0071 12,682 1.b. 2. Securities: ////////////////// a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. 1754 1,937,159 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) ............................ 1773 31,508,601 2.b. 3. Federal funds sold and securities purchased under agreements to resell ..................... 1350 4,501,133 3. 4. Loans and lease financing receivables: -------------------------- ////////////////// a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 98,032,231 ////////////////// 4.a. b. LESS: Allowance for loan and lease losses ................... RCFD 3123 1,213,122 ////////////////// 4.b. c. LESS: Allocated transfer risk reserve ....................... RCFD 3128 0 ////////////////// 4.c. d. Loans and leases, net of unearned income, -------------------------- ////////////////// allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... 2125 96,830,110 4.d. 5. Trading assets (from Schedule RC-D) ........................................................ 3545 3,818,431 5. 6. Premises and fixed assets (including capitalized leases) ................................... 2145 2,660,908 6. 7. Other real estate owned (from Schedule RC-M) ............................................... 2150 112,869 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... 2130 269,234 8. 9. Customers' liability to this bank on acceptances outstanding ............................... 2155 575,447 9. 10. Intangible assets (from Schedule RC-M) ..................................................... 2143 2,896,253 10. 11. Other assets (from Schedule RC-F) .......................................................... 2160 7,274,331 11. 12. Total assets (sum of items 1 through 11) ................................................... 2170 159,743,634 12. ----------------------
____________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 11 Legal Title of Bank: First Union National Bank Address: Two First Union Center City, State Zip: Charlotte, NC 28288-0201 FDIC Certificate No.: 04885 Schedule RC--Continued
--------------------------- Dollar Amounts in Thousands ////// Bil Mil Thou - ----------------------------------------------------------------------------------------------- -------------------------- LIABILITIES ////////////////// 13. Deposits: ////////////////// RCON a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... 2200 101,638,235 13.a. ---------------------------- (1) Noninterest-bearing(1) ................................ RECON 6631 19,061,893 ////////////////// 13.a.(1) (2) Interest-bearing ...................................... RECON 6636 82,376,326 ////////////////// 13.a.(2) ---------------------------- b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, ////////////////// RCFN part II) .............................................................................. 2200 5,487,257 13.b. ---------------------------- (1) Noninterest-bearing ................................... RCFN 6631 29,619 ////////////////// 13.b.(1) (2) Interest-bearing ...................................... RCFN 6636 5,457,638 ////////////////// 13.b.(2) ---------------------------- RCFD 14. Federal funds purchased and securities sold under agreements to repurchase ............... 2800 24,525,121 14. RCON 15. a. Demand notes issued to the U.S. Treasury .............................................. 2840 426,758 15.a. RCFD b. Trading liabilities (from Schedule RC-D) .............................................. 3548 4,547,787 15.b. 16. Other borrowed money (includes mortgage indebtedness and obligations under ////////////////// capitalized leases): ////////////////// RCFD a. With remaining maturity of one year or less ........................................... 2332 3,391,194 16.a. RCFD b. With remaining maturity of more than one year through three years ..................... A647 635,109 16.b. RCFD c. With a remaining maturity of more than three years .................................... A5410 416,618 16.c. 17. Not applicable ////////////////// RCFD 18. Bank's liability on acceptances executed and outstanding ................................. 2920 675,222 18. RCFD 19. Subordinated notes and debentures (2) .................................................... 3200 2,797,773 19. RCFD 20. Other liabilities (from Schedule RC-G) ................................................... 2930 3,662,892 20. RCFD 21. Total liabilities (sum of items 13 through 20) ........................................... 2948 147,903,952 21. 22. Not applicable ////////////////// EQUITY CAPITAL ////////////////// RCFD 23. Perpetual preferred stock and related surplus ............................................ 3838 160,540 23. RCFD 24. Common stock ............................................................................. 3230 82,795 24. RCFD 25. Surplus (exclude all surplus related to preferred stock).................................. 3839 8,532,323 25. RCFD 26. a. Undivided profits and capital reserves ................................................ 3632 2,823,904 26.a. RCFD b. Net unrealized holding gains (losses) on available-for-sale securities ................ 8434 240,120 26.b. RCFD 27. Cumulative foreign currency translation adjustments ...................................... 3284 0 27. RCFD 28. Total equity capital (sum of items 23 through 27) ........................................ 3210 11,839,682 28. RCFD 29. Total liabilities and equity capital (sum of items 21 and 28) ............................ 3300 159,743,634 29. ---------------------------
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that Number best describes the most comprehensive level of auditing work performed ----------------- for the bank by independent external auditors as of any date during 1997 ...................... RCFD 6724 2 M.1. -----------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in accordance 8 = No external audit work with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
- ------------ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus.
-----END PRIVACY-ENHANCED MESSAGE-----