EXHIBIT 4.2
AGREEMENT
AGREEMENT, dated as of April 21, 1997 between KTI Recycling, Inc., a
Delaware corporation and its subsidiaries("KTIR"), KTI, Inc., a New Jersey
corporation ("KTI") and PNC Bank ("PNC").
WHEREAS, KTIR has executed a Term Sheet with Prins Recycling Corp. and
certain subsidiaries ("Prins) pursuant to which KTIR has indicated its intent,
subject to the conditions stated in the Term Sheet, to purchase all waste
processing and recycling facilities owned and operated by Prins in Boston,
Massachusetts, Newark, New Jersey and Franklin Park, Illinois, (the "Assets")
pursuant to a Plan of Reorganization in the Chapter 11 proceeding commenced by
Prins;
WHEREAS, PNC's approval of the sale of the Assets is required by virtue of
the fact that PNC holds a first priority lien on the Assets;
WHEREAS, Prins has received an offer from a third party to purchase the
Assets located in Franklin Park (the "Chicago Facility") for a purchase price
that would result in PNC receiving net proceeds of $2 million;
WHEREAS, PNC has agreed to forbear from insisting upon and agreeing to the
sale of the Chicago Facility to the third party to permit KTIR to consummate its
purchase of the Assets only on the terms and conditions set forth herein;
WHEREAS, PNC has agreed to increase its credit facility to Prins by an
additional $1 million to permit Prins to continue to operate pending a closing
on the sale of the Assets only on the terms and conditions herein;
WHEREAS, KTI has agreed to guaranty the payment of a portion of the
consideration KTIR is agreeing to pay pursuant hereto, and to guaranty a portion
of any losses sustained by PNC in connection with PNC's loans to Prins;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
ADEQUACY OF WHICH ARE HEREBY ACKNOWLEDGED, it is AGREED as follows:
1. Within two (2) business days of the execution of this Agreement, KTIR
and/or KTI shall cause to be issued an irrevocable Letter of Credit naming PNC
as the beneficiary in the amount of $1 million. The term of the Letter of
Credit shall be six (6) months. The Letter of Credit will provide, inter alia,
that PNC may draw the full amount if:
(a) Either KTIR or Prins terminates the Agreement providing for the
sale of the Assets to KTIR for any reason, or
(b) KTIR has not purchased the assets on or before July 31, 1997, or
(c) the term of the Letter of Credit has not been renewed for an
additional six (6) month period by the 30th day prior to the expiry date.
2. KTIR agrees that if, for any reason, the sale of the Assets to it is
not approved by the Bankruptcy Court by July 31, 1997, if it has not already
done so, it shall submit a bid to purchase the Chicago Facility by the delivery
of the $2 million Promissory Note referenced in paragraph 4 to PNC and
specifying that PNC shall not be responsible for any transactional or other
costs associated with the sale (a "Conforming Bid"). KTIR shall not, however,
be required to submit a Conforming Bid (or may withdraw its Conforming Bid if
previously submitted), if its due diligence with respect to environmental
matters at the Chicago Facility 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, however, that if Prins
pays or PNC pays or promises to pay the excess of such costs over $50,000, KTIR
shall still be required to submit (or not withdraw) a Conforming Bid. In the
event that the initial application by Prins to approve the separate sale of the
Chicago Facility does not result in a sale of the Chicago Facility, KTIR shall
similarly submit a Conforming Bid on any and all subsequent applications to the
Bankruptcy Court to sell the Chicago Facility.
3. In the event that PNC draws on the Letter of Credit, it shall retain
the proceeds thereof in an interest-bearing segregated account until either (a)
the Chicago Facility is sold to KTIR or to a higher bidder or (b) KTIR breaches
its obligation to purchase the Chicago Facility. In the event that KTIR
purchases the Chicago Facility, the proceeds of the Letter of Credit plus all
accrued interest shall be applied as a credit against the purchase price. In
the event that the Chicago property is sold to a higher bidder, the proceeds of
the Letter of Credit and all accrued interest shall be returned to KTIR. In the
event that KTIR breaches its obligations to purchase the Chicago Facility, PNC
shall be entitled to retain the proceeds of the Letter of Credit and all accrued
interest as liquidated damages.
4. As soon as practicable after the date of this Agreement, but in no
event more that seven (7) days from said date, KTIR shall give PNC an undated
Promissory Note in the sum of $2 million. In the event that KTIR purchases the
Chicago Facility, other than as part of a purchase of all of the Assets, the
Promissory Note shall be dated as of the date of the closing on such sale. On
the date of closing, PNC shall apply the proceeds of the $1 million Letter of
Credit plus all interest accrued thereon in reduction of the Promissory Note.
The remaining unpaid balance of the Promissory Note shall accrue interest from
the date of closing at the rate of prime plus one-quarter percent per annum and
the total amount of principal and interest shall be payable to PNC 180 days from
the date of closing. The Promissory Note shall be secured by the guaranty of
KTI in the sum of $1 million and a first priority security interest in all of
the assets of the Chicago Facility including a mortgage lien on all real
property. In addition, PNC shall hold a deed in lieu of foreclosure in escrow
which may be recorded if KTIR and/or KTI fail to pay in the full amount of
principal and interest due under the Promissory Note within seven (7) days of
PNC's demand for payment under the terms of the Promissory Note and/or the
guaranty of KTI.
5. In connection with KTIR's offer to purchase the Assets, a subsidiary
of KTI will be entering into a management agreement to manage a business and
operations of Prins through the date of closing on the sale of the Assets, which
is anticipated to be July 31, 1997. In consideration for the agreement to
provide such management services, PNC shall pay to KTI a management fee of
$500,000, payable in full at such time as PNC is paid the full amount of its
outstanding principal and interest due from Prins, either from the sale of the
Assets to KTIR in cash and notes pursuant to the provisions of the Term Sheet
dated April 18, 1997, or from the sale of the Assets to a higher bidder.
However, in the event that PNC is not paid the full amount of the outstanding
principal and interest due from Prins, it shall not be obligated to pay any
management fee.
6. KTI shall, within five (5) business days from the date hereof, issue
to PNC 30,000 warrants to purchase common shares of KTI at $8.50 per share
exercisable at any time within five years from the date of issuance. PNC shall
be granted registration rights with respect to the common stock issuable upon
exercise of such warrants upon substantially the same terms and conditions as
KTI's standard form of registration rights agreement.
7. As soon as practicable after the date of this Agreement, but in no
event more than seven (7) days from such date, KTI shall provide PNC with a
written guaranty of 40% of any new advances to Prins made after April 18, 1997,
subject to a maximum guaranty of $400,000. KTI will share pari passu in any
losses sustained by PNC up to said maximum guaranty. By way of example, if PNC
advances to Prins $1 million after April 18, 1997 and collects 70% of the total
principal and interest due from Prins (i.e., a 30% loss), KTI will pay PNC the
sum of $120,000 (30% of 40% of the assumed advance of $1 million). The
percentage of the loans guaranteed by KTI hereunder shall not be reduced by the
amount of any repayments and collections received by PNC in the ordinary course
of business.
8. KTI and KTIR hereby represent and warrant to PNC as follows:
(a) They are duly incorporated and existing and in good standing
under the laws of New Jersey and Delaware respectively;
(b) They have the corporate power and corporate authority to execute
and deliver this Agreement and to perform their obligations hereunder and
all corporate actions necessary for the making and performance of this
Agreement have been duly taken; and
(c) This Agreement has been duly executed and delivered by them and
constitutes their binding and valid obligation enforceable against them in
accordance with its terms.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized representatives as of the date and year first
above written.
KTI RECYCLING, INC.
By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Senior Vice President
KTI, INC.
By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
Vice President
