EXHIBIT 4.1
TERM SHEET
(PURCHASE OF ASSETS OF PRINS RECYCLING CORP. AND SUBSIDIARIES)
1. Buyer. KTI Recycling, Inc. (the "Buyer") is a Delaware corporation
that will acquire, own and operate certain assets to be purchased from Prins
Recycling Corp. and from such subsidiaries of Prins Recycling Corp.
(collectively, the "Seller") as may own any of such assets. KTI, Inc., a NASDAQ
National Market listed corporation ("KTI"), owns the Buyer. The term "Buyer"
shall include subsidiaries of KTI Recycling, Inc. that will own and operate the
purchased assets. The Buyer has organized three (3) new subsidiaries that will
own the assets and assume certain liabilities of each of the Facilities (as
hereinafter defined).
2. Assets to Be Purchased. All waste processing and recycling facilities
and related assets, tangible and intangible (including, without limitation,
intellectual property rights and accounts receivable, employee notes, security
deposits and other rights to payment (exclusive of claims of the bankruptcy
estates of the Seller based on preference claims or voidable transfer claims
under the provisions of the United States Bankruptcy Code), owned and operated
by Seller in Boston, Massachusetts (the "Boston Facility"), Franklin Park,
Illinois (the "Chicago Facility") and Newark, New Jersey (the "Newark Facility")
and any and all office furniture, office decorations, office equipment and
supplies, wherever located or stored (collectively, the "Facilities") excluding
such assets as may be specified herein or as otherwise specified in definitive
documentation governing the purchase contemplated hereby executed by the Seller
and the Buyer. The purchase proposed hereby shall be consummated in connection
with and pursuant to a confirmed plan of reorganization (the "Plan") of the
Seller and the purchase price shall be allocated to creditors thereunder. The
allocation of the consideration described herein shall not be construed to be,
and is not, an offer to assume the obligations to which such allocations are to
be made, unless expressly assumed by the Buyer in definitive documentation
governing the purchase contemplated hereby executed by the Seller and the Buyer.
The purchase price shall be paid no sooner than the closing of the purchase.
3. Consideration to Creditors under Plan of Reorganization. The net
purchase price to be paid by the Buyer for the purchase of the Facilities will
equal: (i) $9,500,000 in cash and promissory notes payable to PNC Bank, National
Association ("PNC"); (ii) $3,600,000 cash payable to the Seller, and (iii)
assumption of certain post-petition trade payables of the Seller in an amount
not to exceed $500,000. For purposes of this Term Sheet, the term "Total
Purchase Price" shall mean $13,600,000. The various allocations and manner of
payment are more particularly described below.
(a) Claim of PNC. The secured claim of PNC shall be satisfied as
follows:
(i) Cash in the amount of $2,000,000 shall be paid by the Buyer
to PNC on the closing date of acquisition of the Facilities. The foregoing
assumes an increase in the amount owed to PNC by the Seller from the approximate
amount of $8,500,000 that was outstanding on March 13, 1997 to $9,500,000. The
cash payment specified herein shall be reduced on the closing date of the
acquisition by an amount equal to the difference between (x) $1,000,000 and (y)
the lesser of $1,000,000 and the actual amount owed to PNC at closing of the
purchase in excess of $8,500,000 (the "PNC Reduction Amount"). For the
avoidance of doubt, the actual amount owed to PNC includes interest accrued at a
rate of interest equal to prime plus 3.5 percent and all other amounts PNC is
entitled to charge under the relevant credit documents. The increase from
$8,500,000 to $9,500,000 is conditioned, among other things, on such additional
amounts being advanced to the Seller and used to pay administrative obligations
of the Seller (including cure amounts under assumed executory contracts).
(ii) A promissory note in the principal amount equal to the
greater of $2,000,000 and a principal amount equal to 75% of Eligible Accounts
Receivable (as such term is defined under the existing PNC loan documents)
having an age of 90 days or less as of the closing date shall be executed and
delivered by the Buyer to PNC. This note shall bear interest at a per annum
rate that is equal to the prime rate of PNC plus 1/4%, which interest shall be
payable monthly and at maturity. Principal shall be payable in full on the date
that is six (6) months after the closing. The note shall be secured in part by
a first priority security interest in all accounts receivable purchased by the
Buyer, other than the accounts receivable of the Chicago Facility.
(iii) A promissory note in the principal amount of
$2,700,000, dated the closing date, shall be executed and delivered by the Buyer
to PNC. This note shall bear interest at a per annum rate that is at the then
prevailing commercial mortgage rate of PNC, which interest shall be payable
monthly and at maturity. Principal shall be payable in full on the date that is
one hundred twenty (120) days after the closing. The note shall be secured in
part by a first priority security interest in the Chicago Facility (including
its accounts receivable) and an irrevocable letter of credit satisfactory to PNC
in the face amount of $1 million, and KTI shall guarantee an additional $1
million of the principal amount thereof.
(iv) A promissory note for the balance of the Total Purchase
Price, not to exceed the principal amount of $2,800,000, dated the date of
closing, shall be executed and delivered by the Buyer to PNC. This note shall
bear interest at a rate that is equal to the prime rate of PNC plus one percent
per annum, which interest shall be payable monthly and on maturity. Principal
shall be payable in full on the date that is thirty (30) months after the date
of closing and prior to such date shall be payable in the following percentages
of the original principal amount of this note during the months set forth below.
Principal Months After
Percentage Effective Date
4% each month Thirteen to Twenty-fourth inclusive
5% Twenty-fifth to Twenty-ninth inclusive
27% Maturity
This note shall be secured in part by a first priority security interest in all
assets of the Newark Facility and the Boston Facility, exclusive of accounts
receivable, and shall have a maximum guarantee of $700,000 from KTI, Inc. The
amount of such guarantee shall decline in an amount equal to 25% of any
principal payments made on this note.
(v) It is the intention of the Buyer that, in connection with
purchase by the Buyer of the Facilities, PNC shall receive payment of its loans
in full, including accrued and unpaid interest, but no more than such sum.
(vi) The promissory notes referred to in Subsections 3(a)(ii),
3(a)(iii) and 3(a)(iv) shall each be cross-collateralized by collateral referred
to in the other subsections and secured by a first priority pledge of the stock
of the Buyer's subsidiaries that own the Facilities. Upon the payment in full
of the promissory note referred to in Subsection 3(ii), the collateral referred
to in such Subsection shall be released. Upon the payment in full of the
promissory note referred to in Subsection 3(iii), the collateral referred to in
such Subsection shall be released. If the promissory note referred to in
Subsection 3(a)(iv) is paid in full, the collateral referred to in such
Subsection shall be released.
(vii) As provided by the terms of a separate letter agreement
with PNC, if the Buyer does not purchase the Facilities for any reason, the
Buyer shall (and hereby irrevocably and unconditionally agrees to) immediately
purchase the Chicago Facility in an amount sufficient to result in net proceeds
payable to PNC equal to $2 million. This obligation of the Buyer shall be
secured by an irrevocable letter of credit satisfactory to PNC in the face
amount of $1 million. If the Buyer shall be required to purchase the Chicago
Facility as contemplated hereby, PNC may immediately draw upon the letter of
credit and shall deposit the proceeds thereof in an interest bearing escrow
account at PNC. Upon conveyance of the Chicago Facility to the Buyer, the
purchase price shall be paid to PNC by payment to PNC of the proceeds of such
escrow account and the balance shall be payable by the Buyer to PNC on the date
that is six (6) months after the date of such conveyance. The obligation of the
Buyer to pay the balance of the purchase price for the Chicago Facility shall be
evidenced by a promissory note, dated the closing date, executed and delivered
by the Buyer to PNC. The note shall bear interest at a per annum rate that is
at the then prevailing commercial mortgage rate of PNC, which interest shall be
payable monthly and at maturity. The note shall be secured by a first priority
security interest in the assets of the Chicago Facility and guaranteed by KTI.
(b) Allowed Administrative and "Cure" Claims. The sum of $3,600,000
in cash, plus the PNC Reduction Amount (if any), shall be provided by the Buyer
to the Seller to pay (i) allowed administrative and priority claims against the
Seller, other than post petition trade payables, (ii) amounts necessary to cure
defaults under contracts to be assumed by the Seller and assigned to the Buyer
and (iii) post-petition trade payables to the extent such trade payables exceed
$500,000.
(c) Claims of Unsecured Creditors. Upon confirmation of the Seller's
Plan of Reorganization, the class of unsecured creditors shall receive a cash
payment in an amount equal to the sum of $3,860,000 ($ 260,000 of which amount
shall be paid by PNC) plus the PNC Reduction Amount (if any) minus the amount
necessary to satisfy the obligations described in clauses(i) through (iii) of
Section 3(b).
(d) Post-Petition Trade Payables. The Buyer will assume allowed
trade payables with respect to the Facilities incurred by the Seller in the
ordinary course of its business operations during the pendency of its
reorganization proceeding in an amount up to $500,000.
(e) Reduction of Purchase Price. In the event that any of the assets
that are the subject of this Term Sheet are sold by the Seller to a third party
and Buyer agrees to proceed with the proposed purchase, the total purchase price
offered by the Buyer shall be reduced by the amount of the net proceeds of the
third party sale.
(f) Ally Capital Corp. Settlement. Notwithstanding anything in the
Term Sheet to the contrary, Buyer shall not acquire and shall not adjust the
Total Purchase Price in respect of any assets of the Debtors to be transferred,
returned, sold or otherwise conveyed to a third party consistent with the
settlement reached by the Debtors, Ally Capital Corp. and American Waste Control
of New York as set forth on the record of the hearing held before the Bankruptcy
Court on March 6, 1997 and embodied in a stipulation executed to date by the
Debtors and Ally Capital Corp. and previously provided to Buyer.
4. Working Capital. KTI will provide working capital to the Buyer in an
amount up to $1,000,000 in the form of a capital contribution.
5. Conditions Precedent.
(a) The order of the Bankruptcy Court confirming the Plan shall
provide for sale of the Facilities to the Buyer free and clear of all liens,
claims and encumbrances.
(b) No material adverse change shall occur prior to the closing of
the acquisition, unrelated to KTI, the Buyer or the Seller, that frustrates the
essential purpose of the Buyer in consummating the transactions contemplated
hereby, and no order of the Bankruptcy Court shall have been entered which
prohibits KTI from consummation of the transactions contemplated hereby.
(c) The Seller shall provide the Buyer with full access to all books
and records pertaining to the facilities to be purchased by the Buyer. The
Buyer shall have the period ending forty-five (45) days after entry of the order
described in Section 10 below to conduct due diligence with respect to
environmental matters and shall have no obligation to proceed with the proposed
acquisition if such environmental due diligence of KTI discloses that the actual
cost of remediation of any environmental conditions required under applicable
law (exclusive of "soft costs", such as consulting and engineering fees) not
indemnified against by any third party (and with respect to which
indemnification no counterclaims or offsets have been asserted) exceeds $50,000;
provided that if the Seller and/or PNC elect to pay the excess of such costs
over $50,000, KTI and the Buyer shall not be entitled to terminate the
transactions contemplated hereby by reason of the results of such environmental
due diligence.
Subject to the provisions of clause (c), KTI and the Buyer shall complete
such environmental due diligence by no later than forty-five (45) days after
entry of the court order described in Section 10 below and advise the Seller
with respect to whether the Buyer is satisfied with the results of such
environmental due diligence and review. In the event that the Buyer does not
advise the Seller of its conclusions with respect to the same by the date
stated, this condition shall be deemed waived.
6. Employees. Neither KTI nor the Buyer shall have any liability for any
pre-petition or post-petition obligations to employees of the Seller. The
Seller shall disclose to the Bankruptcy Court and to the Creditors' Committee
the fact and the terms of any offer of employment made by KTI or the Buyer to
any officer or director of the Seller.
7. Break-up Fee. In the event that any of the assets to be sold to the
Buyer are sold to another purchaser, excluding sale of the Chicago Facility, the
Buyer shall be entitled to a break-up fee payable from the proceeds from such
sale equal to the lesser of $250,000 or 150% of the Buyer's out-of-pocket costs
and expenses, including reasonable attorneys' fees (which fees upon any
objection thereto by any party in interest shall be submitted to the Bankruptcy
Court for approval), reasonably incurred in connection with this transaction;
provided that KTI and the Buyer have not defaulted in any of their respective
obligations. The Buyer's right to such break-up fee is subject to the Buyer and
the Seller having executed and delivered a definitive agreement with respect
thereto under which the Buyer would have been bound to close but for the sale to
such other purchaser, subject to bankruptcy court approval.
8. No Solicitation; Topping Amount. Prior to September 16, 1997, Seller
will not solicit any offer for the Facilities from any other party; provided,
that nothing herein shall preclude the Seller from responding to inquiries from,
providing due diligence information to, or providing notice of the transactions
contemplated hereby and of any related hearings to, any interested party as
required by the Seller's fiduciary obligations as a debtor-in-possession. In
the event that another purchaser offers to buy substantially the same assets as
the Buyer proposes to purchase, the value of the offer of any such purchaser
must exceed the Buyer's offer by the amount of $300,000 before such offer may be
accepted by the Seller. Sale of the Chicago Facility shall not be subject to
this provision.
9. Management Agreement. The Seller and an affiliate of the Buyer shall
enter into a management agreement, on terms acceptable to PNC, pursuant to which
such affiliate of the Buyer will manage the business and operations of the
Seller up to the closing on the sale of the Facilities.
10. Timing. Seller promptly will seek an order of the Bankruptcy Court
approving the break-up fee, no solicitation agreement topping amount and
management agreement, but in no event later than Tuesday, April 22, 1997 for
such matters other than the management agreement and no later than Wednesday,
April 23, 1997 with respect to the management agreement. The Buyer will
commence due diligence upon entry of such order. The parties will proceed on a
basis consistent with execution of a definitive agreement by no later than June
13, 1997 and consummation of the transaction by no later than September 16,
1997. The Buyer does not intend to proceed subsequent to June 13, 1997 in the
absence of a definitive agreement executed by the Seller.
THE FOREGOING TERM SHEET CONTAINS THE PRINCIPAL BUSINESS TERMS OF THE
PROPOSED ACQUISITION OF ASSETS BY THE BUYER FROM THE SELLER AND TERMS ACCEPTABLE
TO PNC AND DOES NOT PURPORT TO SUMMARIZE ALL TERMS, CONDITIONS (INCLUDING
CONDITIONS PRECEDENT), COVENANTS, REPRESENTATIONS AND WARRANTIES AND OTHER
PROVISIONS THAT WILL BE CONTAINED IN DEFINITIVE LEGAL DOCUMENTATION.
IN WITNESS WHEREOF, the undersigned have caused this Term Sheet to be
executed by their duly authorized representatives as of the date and year first
above written.
Prins Recycling Corp.
(f/k/a Ankap, Inc.)
Prins Recycling Corp.
Prins Recycling (Mass) Corp.
Prins of Pennsylvania, Inc.
Prins of Newark, Inc.
d/b/a Recycling Systems, Inc.
Prins Recycling (Maryland) Corp.
Paper Chase Exchange, Inc.
Basic Waste Systems, Inc.
Prins of Newark II, Inc.,
d/b/a P. Pepe & Sons, Inc.
Vic Barick Paper Co., Inc.
By: /s/ Clifford H. Straub, Jr.
KTI, Inc.
KTI Recycling, Inc.
and their respective affiliates
By: /s/ Robert E. Wetzel
PNC Bank, National Association
By: /s/ Daniel W. Zoeller
Shanley & Fisher
Attorneys for Official
Committee of Unsecured Creditors
By: /s/ Robert K. Malone