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April 17, 1998
Mr. Paul A. Garrett
Chief Executive Officer
FCR, Inc.
809 West Hill Street
Charlotte, North Carolina 28208
Dear Paul:
I am pleased to confirm our agreement in principle with you in regard
to the proposed acquisition of FCR, Inc. (FCR) by KTI, Inc. (KTI) on the terms
and conditions set forth below, to be further refined in a subsequent definitive
purchase agreement.
KTI would acquire all of the outstanding FCR stock including any
convertible issues, options, or warrants in exchange for the purchase price. The
total purchase price is $60,000,000 (sixty million dollars) and an earnout of up
to an additional $30,000,000. The upfront $60,000,000 portion of the purchase
price will be paid as follows: $30 million in cash to be paid at the closing,
and $30 million to be paid in KTI stock. The number of KTI shares issued at
closing shall be 1,714,285. The stock will be unregistered but will have demand
and piggyback registration rights.
The earnout portion of the purchase price of up to $30 million will be
based on the annualized earnings before interest, taxes, depreciation and
amortization ("EBITDA") earned by FCR's operations during the third and fourth
quarter of 1998 (the "Earnout Period"). The third and fourth quarter of 1998
will include all new businesses currently under letter of intent and any other
new municipal contracts awarded to FCR during 1998. Any acquisitions made by
KTI/FCR after the closing of this transaction will be excluded from the earnout
calculations. You have represented to KTI that the 3rd and 4th quarters are
representative of FCR's general business activity and contain no unusual
seasonal trends (when compared to the 1st and 2nd quarters) which would distort
the annualization of the 3rd and 4th quarters.
KTI will make a payment (limited to the $30 million cap) in the form of
KTI common stock in an amount equal to 6.5 times the EBITDA earned by FCR's
operations for the Earnout Period, less the initial $60 million portion of the
purchase price and the outstanding debt of FCR at the calculation date, December
31,1998. The value of KTI shares to be used in determining the number of shares
of stock to be paid, shall be the average closing price of KTI shares for the 10
trading days prior to the end of the calendar year. In no case shall the value
used for purposes of this computation be less than $23.00 per share. Should KTI
stock be trading at a value of less than $18 per share an additional cash
payment will be made to FCR shareholders. The cash payment will be
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determined by taking the difference between the KTI per share market price and
$18 per share, and then multiplying said difference by the number of KTI shares
issued in connection with the earnout payment.
Counsel for FCR and KTI, Inc. will promptly prepare the definitive
written purchase agreement, other basic documents fulfilling the terms of this
agreement in principle, and such other filings, exhibits, schedules,
representations, warranties, terms and conditions as are customary in connection
with purchases of this type. You and other key members of FCR will be required
to enter into employment agreements and related covenants not to compete
covering FCR's current business activities and market areas. Upon the
acquisition of FCR, Paul Garrett will become the Vice Chairman and member of the
Board of Directors of KTI and be a member of KTI's executive committee
consisting of Paul Garrett, Ross Pirasteh, and Marty Sergi. Prior to closing the
definitive agreement, these three individuals will determine the management
structure of KTI and the related compensation levels, stock options, and
incentive compensation program for FCR management, reflective of their
responsibilities within the KTI management organization.
Both KTI and FCR will allow each others' officers, employees and
authorized representatives to have immediate and full access to all offices,
properties, books and records, and will fully cooperate with each other in order
to prepare the necessary documents promptly so that the transaction may be
closed on or before May 31, 1998. Both companies will cause all information
obtained in connection with this purchase to be treated in confidence.
On and after the date set forth on page one of this agreement in
principle, FCR and KTI will not, without the prior written consent of the other
party: (i) sell, assign, transfer, encumber, waste, alienate or otherwise
dispose of any assets which are intended to be purchased pursuant to this
agreement; (ii) increase the compensation of any key employees; (iii) engage in
any activities or transactions concerning said assets which are outside the
ordinary course of business as conducted on said date; or (iv) fail to maintain
its assets or the quality of service to its customers to the same extent to
which they have maintained to date.
It is further expressly understood by FCR that the consummation of the
transaction contemplated by this agreement in principle is subject to, among
other things, the execution of said mutually acceptable definitive written
purchase agreement, approval by the board of directors of both companies,
approval by such number of the shareholders and directors of FCR and KTI as may
be necessary under the applicable statutes and bylaws of FCR and KTI, receipt of
results satisfactory to both parties, in its reasonable discretion, from a
financial, operational and environmental review of both KTI and FCR,
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and receipt by both of all governmental approvals necessary to proceed with this
transaction. This letter of intent is also contingent upon the shareholders of
FCR agreeing to FCR management proposals regarding management loans, stock
options, bonuses and ultimate allocation of the earnout proceeds.
Neither KTI nor FCR is or will be obligated to any person for any
finder's fee in connection with the proposed purchase and, whether or not the
purchase is consummated, KTI and FCR each shall pay its own expenses (including
outside legal and accounting fees) incident to the negotiation, preparation of
the definitive written purchase agreement and any other documents prepared in
connection therewith and consummation of the purchase.
In consideration of the considerable expense to be incurred by KTI in
connection with the transaction contemplated by this agreement in principle,
neither FCR nor you will engage in any negotiation with another person or entity
regarding the sale of FCR for a period of ninety days from the date of execution
set forth below.
If you agree in principle with the terms as stated herein, please sign
in the space below on one of the duplicate originals provided and return it to
KTI by April 21, 1998.
KTI, Inc.
By: /s/ Ross Pirasteh
____________________
Name: Ross Pirasteh
Title: Chairman of the Board
Agreed to in principle this
17th day of April, 1998
FCR, Inc.
______________________________
("Seller")
By: /s/ Paul A. Garrett
_________________________________
Name: Paul A. Garrett
_________________________________
Title: CEO
_________________________________
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