c2LITE DEPALMA GREENBERG & RIVAS , LLC C F 1 \ /A llyn Z. Lite (AL-6774)

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Joseph J . DePalma (JD-7697)Two Gateway tenter, 12th FloorNewark, New Jersey 07102(973) 623-300 :~2

\.VIL _UA A i .WALSHPlaintiffs' Liaison Counsel CLERK

(Additional Counsel Listed on Signature Page )

UNITED STATES DISTRICT COURT FiLEDDISTRICT OF NEW JERSEY

'APR I s 2001

A18:3p x . . . .4 6,0 iR R7 .MSALVATORE RU SO, MELANIE MILLINER, : WJLLIAtt„±.W. l.J H'FRANCISCO MUNERO, TIMOTHY RYAN and CLE M KSTEVEN STORCH, : Civil Action No. 99-1780 (DMC)

Plaintiffs,vs .

KTI, INC ., ROSS PTRASTEH, andMARTIN J . SERGI,

SECOND CONSOLIDATEDAMENDED CLASS ACTIONCOMPLAINT

Defendants .

1 . Plaintiffs, for their second consolidated amended complaint (the "Complaint"),

based upon the investigation conducted by and through their undersigned attorneys, which

included inter alia, a review and analysis of pub lic documents filed with the Securities and

Exchange Commission ("SEC"), press releases issued by KTI, Inc- ("KTI" or "the Company"),

news reports, internal ITI documents, statements made by present and/or former employees of

IOTA, consultation with accounting experts, and based upon personal knowledge as to those

paragraphs relating to plaintiffs and their purchases of KTI common stock , allege the following :

NATURE OF 7' ACTION

2. This action is a securities class action brought on behalf of all persons or entitie s

that purchased KTI common stock from May 4, 1998 to August 14 , 1998, inclusive (the "Class"

and "Class Period," respectively) . Excluded from the Class are defendants, all partners, officers

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and/or directors of any of the defendants or their subsidiaries, members of defendants' immediat e

families, any entity in which any defendant has a controlling interest, and the legal representatives,

heirs, successors or assigns of any such excluded person .

JURISDICTION AND VENUE

3 . This Court has ju risdiction over this action pursuant to Section 27 of the Securitie s

Exchange Act of 1934, 15 U . S.C. § 7Saa (the "Exchange Act") and 28 U.S.C. § 1331 and 1337 .

The claims asserted in the Complaint arise under and pursuant to Sections 10(b) and 20(a) of the

Exchange Act (15 U. -C. § 78j(b), 78t), and Rule lOb-5 promulgated thereunder by th e

Securities and Exchange Commission (the "SEC") (17 C.F-R. § 240 .10b-5) .

4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28

U.S .C. § 1391(b) . 1(TI has its principal executive offices in this judicial district at 700 0

Boulevard East, Guttenberg, New Jersey 07093, and a substantial part of the events or omission s

giving rise to the claims complained of herein occurred in this judicial district .

5 . In connection with the wrongs alleged herein, defendants directly and indirectl y

used the means and instrumentalities of interstate commerce, including the United States mails ,

interstate wire and telephone facilities, and the facilities of the national securities exchanges-

PARTIES

6. By Order dated January 27, 2000, the Court appointed the following individuals t o

act as Lead Plaintiffs in this action: Salvatore Russo, Melanie Milliner, Francisco Munero,

Timothy Ryan and Steven Storch . These plaintiffs all purchased shares of KTI common stock

during the Class Period at artificially inflated prices, as set forth in their certifications previously

filed with the Court, and have been damaged as a result of defendants' conduct as described

herein.

7. At all times relevant to this Complaint , Defendant I(TI was a corporatio n

organized under the laws of the State of New Jersey . KTI was a holding company, and

substantially all of its operating assets were owned by corporate and partnership subsidiaries . On

December 14, 1999, KTI was acquired by Casella Waste Systems, Inc. ("Casella") pursuant to an

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Agreement and Plan of Merger, dated as of January 12, 2000 . Pursuant to the Merger

Agreement, Rutland Acquisition Sub, Inc ., a New Jersey corporation and a wholly-owned

subsidiary of Casella, was merged with and into KTI, with KTI surviving the merger as a

wholly-owned subsidiary of Casella . At all times relevant to this Complaint, the Company was in

the integrated waste handling business, providing wood, paper, corrugated cardboard, 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 .

At all times relevant to this Complaint, defendant Ross Pirasteh ("Pirasteh") wa s

the Chairman of the Company's Board of Directors and employed by the Company as its Principal

Executive Officer. Pirasteh was a signatory to the Company's quarterly reports for the quarter s

ended March 31, 1998 and June 30, 1998, filed on Form 10-Q with the SEC _

At all times relevant to this Complaint, defendant Martin J . Sergi ("Sergi") was a

member of the Company's Board of Directors and employed as the President and Chief Financia l

Officer of the Company . Sergi was a signatory to the Company's quarterly reports for the

quarters ended March 31, 1998 and June 30, 1998, filed on Form 10-Q with the SEC .

10. Defendants Pirasteh and Sergi are sometimes hereinafter collectively referred to as

the "Individual Defendants . "

11 . By virtue of the Individual Defendants' positions with the Company, they ha d

access to the adverse undisclosed information about its business, operations, and financial

condition and performance from internal corporate documents, contact with other corporate

officers and employees, attendance at management and Board of Directors meetings and

committees thereof, and reports and other information provided to them in connection therewith .

12. It is appropriate to treat the Individual Defendants as a group for pleadin g

purposes and to presume that the false, misleading and incomplete information conveyed in th e

Company's public filings, press releases and other publications as alleged herein are the collectiv e

actions of the narrowly defined group of defendants identified above . Each of the above officer s

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•and/or directors of the Company, by virtue of his high-level position with the Company, was

directly involved in the day-to-day operations of the Company at the highest levels and was privy

to confidential proprietary information concerning the Company and its business, operations, and

financial condition and performance, as alleged herein . The Individual Defendants were involved

in drafting, producing, reviewing, and/or disseminating the false and misleading statements and

information alleged herein, were aware or recklessly disregarded that the false and misleading

statements were being issued regarding the Company and approved or ratified these statements, in

violation of the federal securities laws .

13 . As officers and/or directors and controlling persons of a publicly-held company

whose common stock was registered with the SEC pursuant to the Exchange Act, traded on the

NASDAQ National Market, and was governed by the provisions of the federal securities laws, the

Individu al Defendants each had a duty to disseminate promptly accurate and truthful information

with respect to the Company' s business, operations and financial condition and performance, and

to correct any previously - issued statements that had become materially misleading or untrue, so

that the market price of the Company' s publicly-traded securities would be based upon truthful

and accurate information . The Individual Defendants ' misrepresentations and omissions du ring

the Class Period violated these specific requirements and obligations .

14. The Individual Defendants participated in the drafting, preparation, and/o r

approval of the various public and shareholder and investor reports and other communications

complained of herein, and were aware of, or recklessly disregarded, the misstatements contained

therein and omissions therefrorn, and were aware of their materially false and misleading nature .

Due to their Board membership and/or executive and managerial positions with the Company,

each of the Individual Defendants had access to adverse undisclosed information about the

Company's business, operations and financial condition and performance as particularized herein

and knew, or recklessly disregarded, that these adverse facts rendered the positive representations

made by or about the Company materially false and misleading .

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15. Due to their positions of control and authority as officers and/or directors of the

Company, the Individual Defendants were able to control and did control the Company and the

content of the various SEC filings, press releases and other public statements pertaining to the

Company during the Class Period . The Individual Defendants were provided with copies of the

documents alleged herein to be misleading prior to, or shortly after, their issuance and/or had the

ability and/or opportunity to prevent their issuance or cause them to be corrected . Accordingly,

each of the Individual Defendants is responsible for the accuracy of the public reports and releases

herein described and is therefore primarily liable for the representations contained therein .

16. Each of the Individual Defendants is liable as a participant in the fraudulent schem e

and course of business that operated as a fraud or deceit on purchasers of the Company's

common stock, by disseminating materially false and misleading statements and/or concealing

material adverse facts. The scheme deceived the investing public regarding the Company's

business, operations and financial condition and performance and caused plaintiffs and other

members of the Class to purchase the Company's common stock at artificially inflated prices .

FRAUD ON THE MARKET AND THE PRESUMPTION OF RELIANT

17. At all relevant times, the market for KTI stock was an efficient one for th e

following reasons, among others :

a. KTI common stock met the requirements for listing, and was listed an d

actively traded on the NASDAQ, an efficient and automated market ;

b_ As a regulated issuer , KTI filed periodic public reports with the SEC and

the NASDAQ ;

c. K TI regularly communicated with public investors via established market

communication mechanisms, including regular disseminations of press releases on the majo r

newswire services and other wide-ranging public disclosures, such as communications with th e

financial press and other similar reporting services ; and

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d. KTI was followed by secu rities analysts employed by major brokerag e

firms who wrote reports that were distributed to the sales force and certain customers of their

respective brokerage firms and were ' publicly available and entered the public marketplace.

18. The market for KTI common stock digested current information regarding the

Company from the publicly available sources desc ribed above and re flected such information in

KTI' s stock p rice . Under these circumstances , all purchasers of K TI common stock during the

Class Period suffered similar injury through their purchases of shares at artificially inflated prices

and a presumption of reliance applies .

CLASS ACTION ALLEGATION S

19. Plaintiffs bring this action as a class action pursuant to Rule 23(a) and Rule

23(b)(3) of the Federal Rules of Civil Procedure , on behalf of the Class .

20. The members of the Class are so numerous that joinder of all members i s

impractical . While the exact number of the Class Members is unknown at this time and can only

be ascertained through approp riate discovery, Plaintiffs reasonably believe that there are

hundreds , if not thousands , of members of the Class located throughout the United States . As of

August 14, 1998, approximately 9,761 ,773 shares of the Company's common stock were issued

and outstanding . During the Class Period, the shares of the Company ' s common stock were

actively traded on the Nationa l Association of Securities Dealers Automated Quotation

(NASDAQ) National Market System under the designation "KTIE" .

21 . Plaintiffs' claims are typical of the claims of the other members of the Clas s

because the damages suffered by plaintiffs and all Class Members arise from and were caused b y

the same misrepresentations and omissions made by or attributable to defendants as allege d

herein. Plaintiffs do not have interests antagonistic to, or in conflict with, the Class .

22_ Common questions of law and fact exist as to all members of the Class and

predominate over any questions affecting solely individual members of the Class . Among the

questions of law and fact common to the Class are-

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a. whether the federal securities laws were violated by defendants' acts a s

alleged herein;

b, whether defendants misrepresented and/or failed to disclose material fact s

in the Company's press releases and quarterly reports, as more particularly described below;

c. whether defendants, to the extent required by the federal securities laws,

acted with the requisite state of mind in omitting and/or misrepresenting material facts ;

d, whether the market price of the Company's common stock was artificiall y

inflated during the Class Pe riod due to the mate rial misrepresentations and/or nondisclosures

complained of herein ; and

e. whether the members of the Class have sustained damages, and, if so, th e

proper measure of such damages .

23 . Plaintiffs will fairly and adequately protect the interests of the other members o f

the Class, have retained counsel competent and experienced in class and securities litigation t o

further ensure such protection and intend to prosecute this action vigorously .

24. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy . The Class is so numerous and geographically dispersed that it

would be impracticable for each member of the Class to bring a separate action or to be joined in

an individual action. The individual damages of any member of the Class may be relatively small

when measured against the potential costs of bringing this action, and thus make the expense and

burden of this litigation unjustifiable for individual actions. In this class action, the Court can

determine the rights of all members of the Class with judicial economy .

25 . Plaintiffs know of no difficulty that will be encountered in the management of thi s

litigation which would preclude its maintenance as a class action . The names and addresses of the

record owners of the shares of the Company's common stock purchased during the Class Period

are available from the Company's transfer agent . Notice can be provided to such record owners

and all Class Members by a combination of published notice and first-class mail, using technique s

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and a form of notice similar to those customarily used in class actions arising under the federal

securities laws .

SUB TANTWE ALLEGATIONS

Backeround

26 . On September 19, 1997, K TI acquired all of the outstanding common stock o f

K-C Industries, Inc . ("K-E"), an international marketing and trading company specializing in the

marketing of secondary fiber, pulp and paper worldwide .. K-C was headquartered in Portland,

Oregon with offices in Lakewood, New Jersey ; Hartford, Connecticut ; Los Angeles, California;

Rio de Janeiro, Brazil ; Seoul, South Korea and Barcelona, Spain. According to statements in the

Company's annual report for the Fiscal Year Ended December 31 ; 1997, filed with the SEC on

Form 10-I{/A on or about April 13, 1998, "K-C rounded out the Company's full service materials

handling and processing strategy by integrating K-C's marketing team with the Company's

existing operational and financial expertise." The aggregate purchase price for K -C, including all

direct costs, was approximately $6,739,000, including $1,850,000 in cash and 425,014 shares of

the Company's common stock .

Defendants' Materially False, and Misleading Representations

27. On May 4, 1998, in a Company press release (the "May 4 Press Release"), KTI

reported earnings for the quarter ended March 31, 1998 of $2,829,000 ($,28 per share) as

compared to earnings of $1,3 59 , 9,000 ($,19 per share) for the quarter ended March 31, 1997. In

the May 4 Press Release, defendant Sergi stated that :

We completed another highly productive quarter with severalacquisitions and excellent contributions to our financial results. Thedramatic growth in revenue was primarily the result of theRecycling Division's accretive acquisitions of Zaitlin, K-CInternational and the Prins assets during the third and fourthquarters of 1997 . . . . We will continue to benefit from the impactof our acquisitions as well as internal growth .

28 . On May 15, 1998, the Company filed with the SEC its quarterly report on Form

10-Q for the period ended March 31, 1998, (the "First Quarter 10-Q") . In the First Quarter I0-Q,

defendants (a) reiterated that the Company's net income was $2,829,000 ($ .28 per share) for the

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1998 first quarter as compared to earnings of $1,359,000 ($_19 per share) in the same quarter of

1997 and (b) reported that the Company's accounts receivable was $24,885,000,• net of an

allowance for doubtful accounts of $348,000 .

29. Defendants' financial results and representations in the May 4 Press Release an d

the First Quarter O-Q were materially false and misleading because (i) the $348,000 reported as

the allowance for doubtful accounts was materially understated by at least $250,000 and (ii) the

Company's reported net income of $2,829,000 was materially overstated by at least $250,000

because the financial results included approximately $432,630 .41 in revenue and accounts

receivable due from Galveston Paper, L.C. (also doing business as Galveston Paper Corp_), 5415

Springfield Avenue, Suite #3-B, Laredo, Texas 78041 ("Galveston"), dne of K-C's customers,

which was substantially or entirely uncollectible at the time of the issuance of the May 4 Press

Release and the First Quarter 10-Q . The $432,630.41 in revenue and accounts receivable was

due and owing to K-C from Galveston for the sale of rolls of stock lot paper and scrap paper from

K-C to Galveston, between August 12, 1997 and January 28, 1998, pursuant to purchase orders

placed by Galveston . On May 11, 1998, Galveston filed a voluntary petition for relief under

Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of

Texas, Laredo Division, Case No. 98-50272 ; KTI and K-C ultimately recovered none of the

$432,630 .41 owed by Galveston in the bankruptcy .

30 . There is strong circumstantial evidence that the Defendants' misrepresentations in

the May 4 Press Release and the First Quarter 10-Q were known to be false when made or were

made recklessly (i .e ., Defendants were aware of the danger of misleading potential buyers of

KTTE shares of common stock through their representations) for at least the following reasons :

(a) By April 30, 1998, the $432,630 .41 had been due and outstanding for over

60 days, as Galveston had not made any payments since February 12, 1998_ In April 1998, after

Galveston agreed to a "payout schedule" in March 1998 for the $432,630.41 due and owing,

Galveston provided two checks (each post-dated April 25, 1998) payable to K-C totaling $39,000

(consisting of Galveston check no . 1729 in the amount of $14,000.00 and Galveston check no ,

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1730 in the amount of $25,000) . On April 30, 1998, these post-dated checks were returned to

X-C (from U.S. Bank) ag "unpaid by .reason of insufficient funds" in Galveston's account .

(b) Prior to the end of the first quarter of 1998 (1) Mr . Philip Epstein (one of

the senior officers of K-C, and one of the owners of K-C prior to its sale to KTI), Ken Choi (one

of senior officers of K-C, and one of the owners of K-C prior to its sale to KTI) and other K-C

employees had informed Defendant Sergi that K -C would likely earn $600,000 for the firs t

quarter of 1998 and (2) after receiving this projection from K-C, Defendant Sergi provided

various Wall Street analysts with the Defendants' expected earnings for the first quarter (which

expectation included the $600,000 from K-C) . In April 1998, however, after Defendant Sergi

provided this information to various Wall Street analysts (but prior to the issuance of the May 4

Press Release and the First Quarter 10-Q), Mr . Epstein had a meeting with Defendant Sergi in

which Mr_ Epstein told Defendant Sergi that the debt due from Galveston should be treated in

KTI's financial statements for the first quarter of 1998 as a "bad debt" (due to the fact that the

Galveston checks had "bounced" and that Mr . Epstein believed that the monies due from

Galveston would not ultimately be collectible), and as result, KTI should establish a bad debt

reserve of $250,000 in KTI's financial statements for the first quarter of l 998 . Defendant Sergi

responded that (x) the Defendants would not establish yx bad debt reserve attributable to the

Galveston debt because if Defendants did so, KTI would not be able to meet the projections that

Defendants had previously provided to various Wall Street analysts concerning KTI for the first

quarter of 1998, and the stock price of KTI would drop significantly upon disclosure of this

information and (y) KT1 was going to receive approximately $2,500,000 in extraordinary income

during the second quarter of 1998 ("which would be all bottom line income") from business

generated by Penobscot Energy Recovery Company (a majority owned subsidiary), which would

thereby enable KTI to establish the bad debt reserve attributable to the Galveston debt in the

second quarter of 1998 without negatively impacting the stock price of KTI .

(c) The facts set forth above were contained in (1) a memorandum contained

in an internal KTI "e-mail" authored by Mr . Philip Epstein on May 19, 1998 and sent to, among

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others} Ken Choi and DeeAnn Lindsley (K-C's Chief Financial Officer) (the "E-ma i l") and (2)

deposition testimony provided by Mr . Epstein on March 25, 1999 . In the E-mail, Mr. Epstein

stated :

Marty [Sergi] and Ross [Pirasteh] both played over and over themessage that the stock price will fall, crash or whatever. I mustbring up the conversation I had with Marty when we took $250kinto income at the end of the 1st quarter to guarantee "The KTI#'s" would meet Wall Street projections . He told me that wewould have plenty of flexibility in the 2nd quarter due to-theone-time payment of $2-2 .5mm from PERC, which would be allbottom line income .

Similarly, Mr . Epstein testified on March 25, 1999 as follows :

[K-C] had earned as a group somewhere in the neighborhood of$600,000 in the first quarter. We wanted to reserve a quarter of amillion dollars because we knew we had a bad debt exposure withGalveston . . . . So when Marty [Sergi] and I discussed the resultsMarty and-I discussed the results for the first quarter, he said whatare you going to reflect . . . . I then suggested that we defer orreserve 250,000 he said to me, no, that he- that KT1 needed that inorder to meet the target or, you know, the projection . . . [W]erealized that we had a potential problem in April [ 1998] prior to theclosing of the books . . . .

31 . The First Quarter 10-Q was further materially false and misleading in that th e

uncollectible Galveston debt was required by Generally Accepted Accounting Principles

("GAAP") to be accrued by a charge to earnings . Financial Accounting Standards Board

("FASE") Statement of Financial Accounting Concepts No . 5, paragraph 8, instructs that an

estimated loss from a loss contingency shall be accrued by a charge to earnings if "[i]nformation

available prior to the issuance of the financial statements indicates that it is probable that an asset

had been impaired or a liability had been incurred at the date of the financial statements ."

Accordingly, as defendants knew at the time of filing the First Quarter 10-Q that Galveston's

checks made out to the Company had bounced , that Galveston had been unable to meet its agreed

payout schedule with the Company , and that Galveston had fi led for bankruptcy protection, they

were fully aware that the outstanding debt from Galveston was impaired and that a charge to

earnings was required . Defendants failed, however, to cause the Company to make such

disclosures and to account for and to report earnings in conformity with GAAP .

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_32. Due to the defendants' fraudulent non-GAAP accounting, the First Quarter O-Q

the financial statements contained therein) which defendants caused the Company to file with

the SEC were materially false and misleading .

33 . Defendants knew and ignored, or recklessly disregarded the facts which indicated

that the First Quarter 10-Q and the May 4 Press Release were materially false and misleading fo r

the reasons set forth above .

34. SEC Regulation S-X requires that financial statements filed with the SEC confor m

with GAAP_ Financial statements fi led with the SEC which are not prepared in conformity with

GAAP are presumed to be misleading or inaccurate . [17 C.F.R. §210.401 (a)(1)]. The

Company's First Quarter 10-Q, which represented that the Company's financial position and

results of operations were in conformity with GAAP , was false and misleading for the reasons

alleged herein and because it constituted an extreme depa rture from GAAP.

35, As a result of its accounting improprieties, the Company's reported financial result s

during the Class Period violated not only the GAAP set forth above but also the principle that an

expense or loss is required to be recognized if it becomes evident that previously recognized

future economic benefits of an asset have been reduced or eliminated, or that a liability has been

incurred or increased, without associated economic benefits (FASB Statement of Financial

Accounting Concept No. 5) .

36. In addition, defendants' accounting fraud, which resulted in a material

overstatement of income and net worth during the Class Period, was carried out through an

intentional over-ride of internal controls by the Company's management which permitted, among

other things, recordation of income which the Company and the Individual Defendants knew was

uncollectible in violation ofFASB Statement Of Financial Accounting Concepts No . 5,

Accounting Research Bulletin No . 43 and Accounting Principles Board Opinion No . 10:

37, The First Quarter 10-Q also stated that :

The accompanying unaudited consolidated financial statementshave been prepared in accordance with generally acceptedaccounting p rinciples for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X .

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Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles forcomplete financial statements . In the opinion of Management, alladjustments (consisting only of normal recurring accruals)considered necessary for a fair presentation have been included. . .For further information, refer to the consolidated financialstatements and footnotes thereto included in the Company's annualreport on Form 10-K .

38. The financial statements which were contained within the First Quarter! 0-Q were

not prepared in accordance with generally accepted accounting principles and did not reflect " a

fair presentation" of results of the interim period due to the . violations cited above and because th e

financial statements also violated (AU 411 .04) the following principles :

a. The accounting method applied should be appropriate under th e

circumstances ;

b, The•financial statements, including the related notes, should be informativ e

of matters that affect their use, understanding, and interpretation, an d

The financial statements should reflect the underlying events and

transactions in a manner that presents the financial position and the results of operations within a

range of acceptable limits that were reasonable and practicable to attain accuracy in financial

statements .

39 . On July 27, 1 998, the Defendants issued a press release announcing th e

Company' s financial results for the second quarter ended June 30, 1998 (the "July 27 Release") .

The July 27 Release stated, arnong other things, that :

KTI, Inc. (Nasdaq : KTIE) announced today a 375°1a increase insecond quarter pretax income to $3,683,000 or $_30 diluted pretaxearnings per share before extraordinary item versus pretax incomeof $776,000 or $ .04 diluted earnings per share in the second quartera year ago. Total revenue increased 101 % to $41 .2 million from$20.5 million a year earlier.

Martin J _ Sergi, president of KTI , Inc., said , "This was a verystrong and positive quarter for KTI. Our revenue doubled, but ourbottom line grew by 375% .

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• •Sergi added, "All the elements of our business strategy appear to becoming together. . . . [W]e expect to continue to benefit fromacquisition opportunities as well as internal growth ."

On July 27, 1998, the day of the issuance of the July 27 Release, the price of the Company's stoc k

closed at $25 .50 per share, the Class Period high .

40, in the Company's quarterly report for the period ended June 30, 1998, filed o n

August 14, 1998 with the SEC on Form 10-Q (the "Second Quarter 10-Q"), Defendants (a)

reiterated the Company's financial results, as set forth in the July 27 Release and (b) reported an

increase in the allowance for doubtful accounts to $670,000, which included the reserve for loss

attributable to the Galveston debt .

41- Defendants' issuance of the July 27 Release was a further step in Defendants '

original scheme , in which Defendants would conceal the loss from the Galveston debt in the larger

income which had been projected for the second quarter of 1998 . However , when the market

realized that the results of KTI' s second quarter were not as positive as KTI had represented in

the July 27 Release, and that the second quarter financial results included a significant increase in

the allowance for doubtful accounts (and corresponding offset against income which was included

in "general and administrative expense"), which was not disclosed in the July 27 Release, the price

of IITI stock fell - from $25 .50 on July 27, 1998, to below $20 by August 13, 1998, and to as

low as $15 before the end of August 1998 .

RELIANCE AND CAUSATION

42. The mate rial misrepresentations (misstatements and omissions) particularized i n

this Complaint directly and proximately caused the damages sustained by Plaintiffs and other

members of the Class . As described herein, Defendants made or caused to be made a series of

materially false or misleading statements about the Company 's financial condition during the Class

Period , and caused the Company to file financial statements which were in violation of GAAP_

Defendants ' material misrepresentations and violations of GAAP created in the market an

unrealistically positive assessment of the Company's financial condition and results , thus causing

the Company' s common stock to be overvalued and artificially inflated at all relevant times .

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• •Defendants' material misrepresentations during the Class Period resulted in plaintiffs and other

members of the Class purchasing the Company's common stock at artificially inflated prices, thus

causing the damages complained of herein . As the true facts concerning the financial condition of

KTI was disclosed, including the increased allowance for doubtful accounts, the price of KTI

stock dropped-

43, Throughout the Class Period, the price of the Company' s common stock was

artificially inflated as a result of defendants ' material misrepresentations described above. Plaintiff

and members of the Class suffered damages and loss as a proximate result of the inflation of the

price ofKTI stock at the time of their purchase du ring the Class Pe riod and the drop in the price

of KTI stock after July 27, 1998 .

44. Plaintiffs and other Class members relied upon defendants ' misrepresentations

and/or upon the integrity of the market system in setting the price of the Company's commo n

stock based upon the disclosures made by defendants .

ADDITIONAL SCIENTER ALLEGATION S

45- Not only do the facts set forth above demonstrate that the Defendants knowingl y

made material misrepresentations about KTI, and that the Company" s financial statements were i n

violation of GAAP, but also that Defendants had the following motives to intentionall y

misrepresent the financial condition ofKTI du ring the Class Period :

(a) Defendants had a motive to commit the fraud described herein because i t

was necessary to enable the Company to obtain several significant increases in its line of credit

with KeyBank which were used, in part, to allow the Company to continue its ambitious

acquisition program. On March 23, 1998, the Company had received a commitment from

KeyBank to increase its credit line from $1 .1 million to $22 million, which was to be used to fund

acquisitions, capital expenditures and working capital . On May 28, 1998, KeyBank again

increased its credit line from $22 million to $30 million, and, on July 13, 1998, KeyBank and KTI

closed on a $150 million credit line, for use in funding acquisitions, capital expenditures and for

working capital .

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(b) Defendants were also motivated to commit the fraud because the Compan y

used its stock as currency in connection with various acquisitions during the Class Period . By

artificially inflating the Company's stock price, the Company was able to issue fewer of the

Company's shares as consideration for these acquisitions, including the acquisition of (i) FCI .

Inc., (ii) Multitrade Group, Inc. and (iii) First State Recycling, Inc ,

CLAIMS FOR RIELIEEF

COTJNT I

46 . Plaintiffs incorporate by reference all preceding paragraphs as if set forth fully herein ,

47 . During the Class Period, in connection with the purchase or sale of KTI stock, eac h

ofthe defendants directly and indirectly by use ofineans and instrumentalities of interstate commerce

and/or the mails, knowingly or recklessly used and employed devices or schemes or artifices to

defraud, made untrue statements of material fact or omitted to state facts necessary to make the

statements made, in the light of the circumstances under which they were made, not misleading, or

engaged in acts, practices or a course of business which operated as a fraud or deceit upon plaintiffs

and other Class members, all as previously further set forth herein, in violation of Section 10 (b) of

the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule lOb-5 promulgated thereunder

by the SEC (] 7 C.F.R. § 240.10b-5) .

4$. As a direct and proximate result of defendants' aforesaidwrongful conduct during the .

Class Period , plaintiffs and other Class members have been damaged in connection with their

purchases of KTI stock .

CO1 NT Ti

(Against the Individual Defendants for Violations of Section 20of the Securities Exchange Act of 1934)

49. Plaintiffs incorporate by reference all preceding paragraphs as if set forth fully herein .

50. In addition to the liability of the Individual Defendants as set forth above, by reason

of their positions as senior management and/or directors, the Individual Defendants had the power

to control, and did control, KTI, and these Individual Defendants are therefore liable jointly and

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severally for the violations by KTI of Section 10(b) of the Securities Exchange Act of 1934, 1 5

U.S .C . § 78j, pursuant to Section 20(a) of the Exchange Act _

51 . As a direct and proximate result of the Individual Defendants' aforesaid wrongfu l

conduct during the Class Period, plaintiffs and other Class members have been damaged in connectio n

with their purchases of KTI stock .

PRAYER FOR RELIEF

WHEREFORE, plaintiffs and the Class pray for judgment as follows-

A- A judgment declaring this action to be a proper class action maintainable pursuant to

Rule 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class define d

herein and declaring Plaintiffs to be proper Class representatives ;

B. A judgment declaring defendants' conduct to be in violation of law as set forth herein ;

C. A judgment awarding plaintiffs and the other members of the Class compensation fo r

the damages which they have sustained as a result of the defendants ' unlaw 4l conduct stated above ;

D. A judgment awarding plaintiffs` reasonable attorneys' fees, accountants' fees an d

experts' fees, interest and cost of suit ; and

E. Such other and further relief as the Court may deem just and proper-

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9 4PJURY TRIAL DEMANDE D

Plaintiff's hereby demand a trial by jury .

Dated : April 11, 2001Respectfully submitted,

LITE DEPA MA GREENBERG& AS, LL

All Z. Lite 01-6-/T74 )Jos ph Jr . DePalma (JD-7697)Two Gateway Center, 12th FloorNewark, New Jersey 07102(973) 623-3000

Plaintiffs' Liaison Counsel

SCHATZ & NOBEL, P.C.Andrew M. SchatzJefrey S . NobelPatrick Kingman330 Main StreetHartford, CT 06106-1851(860) 493-6292

WOLF HA.LDENSTEIN ADLERFREEMAN & HERZ LLP

Peter C . Harrar270 Madison AvenueNew York, New York 10016(212) 545-4600

Plaintiffs' Co-Lead Counsel

OF COUNSEL

Eliot B . GerstenGersten & Clifford214 Main StreetHartford, Connecticut 06103(860) 527-7044

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