EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of August 28, 1998 (the
"Agreement"), is made by and between KTI, INC., a New Jersey corporation (the
"Company"), and PAUL A. GARRETT, a resident of Charlotte, North Carolina (the
"Employee").
WHEREAS, the Company is a diversified processor of solid waste
including the recycling of paper metals, glass and plastics and owns business
enterprises which utilize these recycled materials in the production of various
products; and
WHEREAS, the Company and the Employee are mutually desirous that the
Company employ the Employee, and the Employee accept employment, as Vice
Chairman of the Board of Directors of the Company (the "Board"), a member of the
Executive Committee of the Company (the "Executive Committee") and Chief
Executive Officer of FCR, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("FCR"), upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the Company
and the Employee hereby agree as follows:
1. Duties.
1.1 During the Agreement Term (as defined below), the Employee shall
be the Vice Chairman of the Board, a member of the Executive Committee and the
Chief Executive Officer of FCR (or such other and comparable titles and
positions as shall be given the Employee by the Board and shall faithfully
perform for the Company the duties of said office. The Company shall use its
best efforts to cause the Employee to be nominated and elected to the Board and
the board of directors of any successors to the Company for the duration of the
Agreement Term (as defined below). The Employee shall have such corporate power
and authority as are necessary to perform the duties of such office and any
other office(s) that are so assigned to him. The Employee shall report directly
to the Board. The Employee shall devote substantially all of his business time
and effort to the performance of his duties hereunder, shall use his best
efforts to advance the best interests of the Company and shall not engage in
outside business activities which materially interfere with the performance of
his duties hereunder; provided, however, that nothing in this Agreement shall
preclude the Employee from devoting reasonable periods required for
participating in his family business ventures or in other professional,
educational, philanthrapolic, public interest, charitable, social or community
activities.
1.2 The duties to be performed by the Employee hereunder shall be
performed primarily in Charlotte, North Carolina, subject to reasonable travel
requirements on behalf of the Company. The Company shall not relocate the
Employee outside of Charlotte, North Carolina, without his prior written
consent.
2. Term. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for an initial term commencing as of the date
hereof and ending on the third anniversary of such date, unless sooner
terminated in accordance with the provisions of Section 4 (said initial three-
year term, unless sooner terminated in accordance with the provisions of Section
4, being hereinafter referred to as the "Initial Term"). The term of this
Agreement shall be automatically extended for an additional year at the
expiration of the Initial Term or any succeeding term, unless written notice of
non-extension is provided by either party to the other party 180 days prior to
the expiration of the Initial Term or the succeeding term, as the case may be
(said Initial Term and any succeeding terms, being hereinafter referred to as
the "Agreement Term").
3. Compensation.
3.1 Base Salary. During the Agreement Term and subject to the next
sentence of this Section 3.1, the Employee shall be compensated at the annual
rate of $250,000 ("Base Salary"), payable on a monthly basis in accordance with
the Company's standard payroll procedures. On each anniversary of the date
hereof, the Base Salary will be increased by an amount which will not be less
than the product (if positive) of (i) the Base Salary in effect immediately
prior to such anniversary and (ii) the percentage (if positive) by which the
Consumer Price Index (All Items less shelter) for Urban Wage Earners and
Clerical Workers, for the South Region/Population Size B, published by the
United States Government for the month preceding such anniversary exceeds such
index for the comparable month in the preceding year.
3.2 Incentive Compensation. In addition to the Base Salary, the
Employee shall be entitled to receive a bonus ("Bonus") consisting of (i) cash,
(ii) stock options of the Company or (iii) a combination of both cash and stock
options in an amount to be determined prior to the conclusion of each fiscal
year of the Company during the Agreement Term in the sole discretion of the
Compensation Committee of the Board (the "Compensation Committee"). Any Bonus
to which the Employee is entitled under this Section 3.2 shall be paid to the
Employee in a manner consistent with the Company's past practice with respect to
payment of bonuses and such Bonus shall be on terms and conditions at least as
favorable as provided to other members of the Executive Committee.
3.3 Expenses. Upon submission of appropriate invoices or vouchers,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the Agreement Term in the performance of
his duties hereunder.
3.4 Participation in Benefit Plans. The Employee shall be entitled
to participate in any health benefit or other employee benefit plans available
to the Company's senior executives as in effect from time to time, including,
without limitation, any qualified or non-qualified pension, profit sharing and
savings plans, any death and disability benefit plans, any medical, dental,
health and welfare plans and any stock purchase programs, on terms and
conditions at least as favorable as provided to other senior executives, to the
extent that he may be eligible to do so under the applicable provisions of any
such plan. Following the termination of the Employee hereunder or the
expiration of any Severance Benefits (as defined in Section 4.4.1) and for the
lifetime of the Employee, the Employee and his eligible dependents shall be
entitled to continue participating (at the Employee's sole expense) in the
Company's group medical, dental, disability and life insurance coverages, with
the Employee's cost to be determined on a basis consistent with the method of
determining employee payments under the health care continuation requirements of
the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA").
3.5 Vacation. The Employee shall be entitled to five weeks of annual
vacation and shall be subject to the Company's standard vacation policy
applicable to someone of his position and seniority. Unused vacation shall not
be carried over into any subsequent year during the Agreement Term. The Company
shall have no obligation to pay the Employee for any unused vacation.
3.6 Fringe Benefits and Perquisites. The Employee shall be entitled
to all fringe benefits and perquisites that are generally made available to
senior executives of the Company from time to time and that are approved by the
Compensation Committee.
4. Termination. The Employee's employment hereunder may be
terminated only upon the expiration of the Agreement Term of this Agreement
pursuant to Section 2 above or under the following circumstances:
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4.1 Death. The Employee's employment hereunder shall terminate
automatically upon his death, in which event the Company shall pay to the
Employee's written designee or, if he has no written designee, to his spouse or,
if he leaves no spouse and has no written designee, to his estate, (i) Severance
and the Acceleration Payment (as such terms are defined in Section 4.4.1 below)
immediately upon death, (ii) Severance Benefits to the Employee's eligible
dependents for a one-year period from the date of death and (iii) all reasonable
expenses actually incurred or paid by the Employee in the performance of his
duties hereunder prior to the date of death.
4.2 Disability. The Company may terminate the Employee's employment
hereunder if (i) as a result of the Employee's incapacity due to physical or
mental illness, the Employee shall have been absent from his duties hereunder on
a full-time basis for an aggregate of 180 consecutive or non-consecutive
business days in any 12 consecutive-month period and (ii) within 10 days after
written notice of termination hereunder is given by the Company, the Employee
shall not have returned to the performance of his duties hereunder on a full-
time basis. The determination of incapacity or disability under the preceding
sentence shall be made in good faith by the Company based upon information
supplied by a physician selected by the Company or its insurers and reasonably
acceptable to the Employee or his legal representative. During any period that
the Employee fails to perform his duties hereunder as a result of incapacity due
to physical or mental illness (the "Disability Period"), the Employee shall
continue to receive his full Base Salary hereunder until his employment is
terminated pursuant to this Section 4.2, provided that amounts payable to the
Employee shall be reduced by the sum of the amounts, if any, paid to the
Employee during the Disability Period under any disability benefit plans of the
Company. If the Employee is terminated pursuant to this Section 4.2 the Company
shall pay to the Employee (or his legal representative) (i) Severance and the
Acceleration Payment (as such terms are defined in Section 4.4.1 below), (ii)
Severance Benefits to the Employee for a one-year period from the date of
termination due to disability and (iii) all reasonable expenses actually
incurred or paid by the Employee in the performance of his duties hereunder
prior to the date of termination due to disability.
4.3 Termination by the Company.
4.3.1 The Company (i) shall have "cause" to terminate the
Employee's employment hereunder upon the Employee (A) being convicted of a
felony, a crime of moral turpitude or any crime involving the Company (other
than pursuant to actions taken at the direction or with the approval of the
Board), (B) being found by reasonable determination of the Company, made in good
faith, to have engaged in (1) willful misconduct which has a material adverse
effect on the Company, (2) willful or gross neglect which has a material adverse
effect on the Company, (3) fraud, (4) misappropriation or (5) embezzlement in
the performance of his duties hereunder or (C) having breached in any material
respect the terms and provisions of this Agreement and failed to cure such
breach within 15 days following written notice from the Company specifying such
breach and (ii) may terminate the Employee's employment on written notice given
to the Employee at any time following the occurrence of any of the events
described in clauses (i)(A) and (i)(B) above and on written notice given to the
Employee at any time not less than 60 days following the occurrence of any of
the events described in clause (i)(C) above. However, in no event shall the
Employee's employment be considered to have been terminated for "cause" unless
and until the Employee receives a copy of a resolution adopted by the Board
finding that, in the good faith opinion of the Board, the Employee is guilty of
acts or omissions constituting "cause," which resolution has been duly adopted
by an affirmative vote of a majority of the Board, excluding the Employee and
any individual alleged to have participated in the acts constituting "cause."
Any such vote shall be taken at a meeting of the Board called and held for such
purpose, after reasonable written notice is provided to the Employee setting
forth in reasonable detail the facts and circumstances claimed to provide a
basis of termination for "cause" and the Employee is given an opportunity,
together with counsel, to be heard before the Board. In the event the
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Employee's employment is terminated by the Company for "cause", the Employee
shall be entitled to continue to receive Base Salary accrued but unpaid and
expenses incurred but not repaid to the Employee, in each case only until the
effective date of such termination.
4.3.2 In the event the Employee's employment is terminated by the
Company other than for "cause", the Employee shall be entitled to (i) Severance
and the Acceleration Payment immediately upon termination and (ii) Severance
Benefits for each year during the Severance Benefits Term (as such capitalized
terms are defined in Section 4.4 below).
4.4 Termination by the Employee.
4.4.1 Definitions. For purposes of this Section 4.4, the
following terms shall have the respective meanings set forth below:
(a) "Affiliate" means, with respect to the Company, any entity
directly or indirectly controlled, controlling or under common control with
the Company.
(b) "Acceleration Payment" means an amount in cash equal to the value
of (i) any Base Salary accrued but unpaid prior to the date of termination,
(ii) Bonus accrued but unpaid prior to the date of termination and (iii)
any vacation accrued but unused prior to the date of termination.
(c) "Change of Control" means: (i) a person, corporation, entity or
group acquires, directly or indirectly, the beneficial ownership of 40% or
more of the issued and outstanding stock of the Company in a single
transaction or series of transactions, (ii) the Company is a party to a
merger, consolidation or similar transaction and following such transaction
40% or more of the issued and outstanding securities of said party is
beneficially owned by a person, corporation, entity or group other than the
Company or an Affiliate of the Company, (iii) the Company sells or
transfers 40% or more of its assets to any other person or persons other
than an Affiliate of the Company, (iv) the shareholders of the Company
approve a plan or proposal for the liquidation or dissolution of the
Company or (v) during any two-year period, individuals who comprise a
majority of the Board at the beginning of such two-year period do not
comprise a majority of the Board at the end of such two-year period (such
Board composition being referred to as a "Continuing Majority").
(d) "Good Reason" means: (i) the assignment to the Employee of any
duties inconsistent with his status as Vice Chairman, Executive Committee
member or Chief Executive Officer of FCR or which require travel
significantly more time consuming than that required at commencement of
this Agreement or a material adverse alteration in the nature or status of
his responsibilities from those provided herein or the transfer of a
significant portion of such responsibilities to one or more other persons;
(ii) the failure by the Company to pay or provide to the Employee, within
30 days of a written demand therefor, any amount of compensation or any
benefit which is due, owing and payable pursuant to the terms hereof or of
any applicable plan, program, arrangement or policy; (iii) the breach in
any material respect by the Company of any of its other obligations or
agreements set forth herein and the failure by the Company to cure such
breach within 30 days after written notice thereof from the Employee; (iv)
the occurrence of a Change of Control; or (v) a notice of non-extension of
the Agreement Term given by the Company to the Employee as set forth in
Section 2 hereof prior to the expiration of the Initial Term.
(e) "Severance" means three times the sum of (i) the highest Base
Salary that was paid to the Employee at any time prior to termination by
the Employee for Good Reason or prior to when the Employee's employment is
terminated by the Company other than for "cause" and (ii) the higher of (A)
the most recent Bonus paid to the Employee prior to termination by the
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Employee for Good Reason or prior to when the Employee's employment is
terminated by the Company other than for "cause" or (B) 50% of the
Employee's Base Salary immediately prior to such termination.
(f) "Severance Benefits" means the benefits contemplated by Section
3.4 of this Agreement.
(g) "Severance Benefits Term" means three years from the date
Employee elects to terminate his employment for Good Reason, or the
Employee's employment is terminated by the Company other than for "cause".
4.4.2 At the election of the Employee for Good Reason, the
Employee may terminate his employment immediately upon written notice to the
Company; provided, however, that Employee must make such election to terminate
his employment for Good Reason within 90 days of the occurrence of such event
that qualifies as Good Reason under Section 4.4.1(d) of this Agreement. If
during the Agreement Term the Employee's employment is terminated by the
Employee for Good Reason, the Employee shall be entitled to receive from the
Company (i) Severance and the Acceleration Payment immediately upon termination,
(ii) Severance Benefits for each year during the Severance Benefits Term and
(iii) a cash payment in an amount equal to the amount of any excise tax imposed
on Employee under Section 4999 of the Internal Revenue Code of 1986, as amended,
("Section 4999") increased by the additional federal and state income taxes on
such amount, such that, after payment of this additional cash payment, the
Employee's Severance, Acceleration Payment and Severance Benefits after federal
and state income taxes are equal to the amount that Employee would have received
but for the imposition of the excise tax under Section 4999.
4.4.3 Upon 90 days' prior written notice, the Employee may
terminate his employment with the Company other than for Good Reason. If the
Employee voluntarily terminates his employment with the Company other than for
Good Reason, no further payment shall be due the Employee pursuant to Section 3
above (other than payments for accrued and unpaid Base Salary and expenses
incurred but not repaid to the Employee, in each case prior to such
termination).
4.5 Effect of Termination on Certain Obligations. No termination of
the employment of the Employee, whether voluntary or involuntary, shall
terminate, affect or impair any of the obligations or rights of the parties set
forth in Sections 4, 5, 6, 7 and 8 of this Agreement, all of which obligations
and rights shall survive any termination of employment of the Employee
hereunder.
5. Covenant Not to Disclose Confidential Information. The Employee
acknowledges that during the course of his affiliation with the Company he has
or will have access to and knowledge of certain information and data which the
Company considers confidential and the release of such information or data to
unauthorized persons would be extremely detrimental to the Company. As a
consequence, the Employee hereby agrees and acknowledges that he owes a duty to
the Company not to disclose, and agrees that without
the prior written consent of the Company, at any time, either during or after
his employment with the Company, he will not communicate, publish or disclose,
to any person anywhere or use, any Confidential Information (as hereinafter
defined), except as may be necessary or appropriate to conduct his duties
hereunder, provided the Employee is acting in good faith and in the best
interest of the Company. The Employee will use his best efforts at all times to
hold in confidence and to safeguard any Confidential Information from falling
into the hands of any unauthorized person and, in particular, will not permit
any Confidential Information to be read, duplicated or copied. The Employee
will return to the Company all Confidential Information in the Employee's
possession or under the Employee's control when the duties of the Employee no
longer require the Employee's possession thereof, or whenever the Company shall
so request, and in any event will promptly return all such Confidential
Information if the Employee's relationship with the Company is terminated for
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any or no reason and will not retain any copies thereof. For purposes hereof
the term "Confidential Information" shall mean any information or data used by
or belonging or relating to the Company that is not known generally to the
industry in which the Company is or may be engaged, including without
limitation, any and all trade secrets, proprietary data and information relating
to the Company's business and products, price list, customer lists, processes,
procedures or standards, know-how, manuals, business strategies, records,
drawings, specifications, designs, financial information, whether or not reduced
to writing, or information or data which the Company advises the Employee should
be treated as confidential information.
6. Covenant Not to Compete. The Employee acknowledges that he, at the
expense of the Company, has been and will be specially trained in the business
of the Company, has established and will continue to establish favorable
relations with the customers, clients and accounts of the Company and will have
access to trade secrets of the Company. Therefore, in consideration of such
training and relations and to further protect trade secrets, directly or
indirectly, of the Company, the Employee agrees that during the term of his
employment by the Company and for a period of two (2) years from and after the
voluntary or involuntary termination of such employment for any or no reason, he
will not, directly or indirectly, without the express written consent of the
Company:
(a) own or have any interest in or act as an officer, director,
partner, principal, employee, agent, representative, consultant or
independent contractor of, or in any way assist in, any business
located in or doing business in the United States of America which is
engaged, directly or indirectly, in (i) the solid waste processing
business, (ii) the utilization of recyclable materials business or
(iii) any other business the Company is engaged in or proposes to
engage in on the date this Agreement is terminated (the businesses
described in clauses (a)(i), (ii) and (iii) are collectively referred
to as the "Competitive Businesses"); provided, however, that
notwithstanding the above, the Employee may own, directly or
indirectly, solely as an investment, securities of any such person
which are traded on any national securities exchange or NASDAQ if the
Employee (A) is not a controlling person of, or a member of a group
which controls, such person and (B) does not, directly or indirectly,
own 5% or more of any class of securities of such person;
(b) solicit clients, customers (who are or were customers of the
Company within the twelve (12) months prior to termination) or
accounts of the Company for, on behalf of or otherwise related to any
such Competitive Businesses or any products related thereto; or
(c) solicit, employ or in any manner influence or encourage any
person who is or shall be in the employ or service of the Company to
leave such employ or service for any other employment opportunity.
Notwithstanding the foregoing, the terms of this covenant not to compete shall
be enforceable against Employee only to the extent that during Employee's
employment the Company continues to pay Employee compensation equal to the
salary level set forth in Section 3 of this Agreement and after termination of
Employee's employment the Company continues to pay Employee any and all
termination payments and benefits as required under Section 4 of this Agreement.
Furthermore, if any court determines that the covenant not to compete, or any
part thereof, is unenforceable because of the duration of such provision or the
geographic area or scope covered thereby, such court shall have the power to
reduce the duration, area or scope of such provisions and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
7. Specific Performance. Recognizing that irreparable damage will
result to the Company in the event of the breach or threatened breach of any of
the foregoing covenants and assurances by the Employee contained in Sections 5
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or 6 hereof, and that the Company's remedies at law for any such breach or
threatened breach will be inadequate, the Company and its successors and
assigns, in addition to such other remedies which may be available to them,
shall be entitled to an injunction, including a mandatory injunction, to be
issued by any court of competent jurisdiction ordering compliance with this
Agreement or enjoining and restraining the Employee, and each and every person,
firm or company acting in concert or participation with him, from the
continuation of such breach and, in addition thereto, he shall pay to the
Company all ascertainable damages, including costs and reasonable attorneys'
fees sustained by the Company by reason of the breach or threatened breach of
said covenants and assurances.
8. Potential Unenforceability of Any Provision. The Employee
acknowledges and agrees that he has had an opportunity to seek advice of counsel
in connection with this Agreement. If a final judicial determination is made
that any provision of this Agreement is an unenforceable restriction against the
Employee, the provisions hereof shall be rendered void only to the extent that
such judicial determination finds such provisions unenforceable, and such
unenforceable provisions shall automatically be reconstituted and become a part
of this Agreement, effective as of the date first written above, to the maximum
extent in favor of the Company that is lawfully enforceable. A judicial
determination that any provision of this Agreement is unenforceable shall in no
instance render the entire Agreement unenforceable, but rather the Agreement
will continue in full force and effect absent any unenforceable provision to the
maximum extent permitted by law.
9. Indemnification. To the fullest extent permitted or required by
the laws of the State of New Jersey, the Company shall indemnify and hold
harmless (including the advance payment of expenses) the Employee, in accordance
with the terms of such laws, if the Employee is made a party, or threatened to
be made a party, to any threatened, pending, or contemplated suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that the Employee is or was an officer or director of the Company or any
subsidiary or affiliate of the Company, against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any such action, suit or
proceeding. The Company's obligations under this paragraph will survive the
termination of this Agreement for any reason whatsoever.
10. Notice. Any notice or other communication hereunder shall be in
writing and shall be mailed or delivered to the respective parties hereto as
follows:
(a) If to the Company:
KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Robert Wetzel, Esq.
(b) If to the Employee:
Paul A. Garrett
c/o FCR, Inc.
809 West Hill Street
Charlotte, North Carolina 28208
The addresses of either party hereto above may be changed by written notice to
the other party.
11. Amendment; Waiver. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms of covenants hereof may
be waived, only by a written instrument executed by the party against whom such
modification or waiver is sought to be enforced. The failure of either party at
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any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
12. Benefit and Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company, but
shall be personal to and not assignable by the Employee. The obligations of the
Company hereunder are personal to the Employee or where applicable to his spouse
or estate, and shall be continued only so long as the Employee shall be
personally discharging his duties hereunder. The Company may assign its
rights, together with its obligations, to any corporation which is a direct or
indirect wholly-owned subsidiary of the Company; provided, however, that the
Company shall not be released from its obligations hereunder without the prior
written consent of the Employee, which consent shall not be unreasonably
withheld.
13. Governing Law. This Agreement shall be governed by the laws of
the State of New Jersey regardless of the laws that might be applicable under
principles of conflicts of law.
14. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original but all such counterparts together shall constitute one and
the same instrument. Each counterpart may consist of two copies hereof each
signed by one of the parties hereto.
15. Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.
16. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and preliminary agreements. No
subsequent modification may be made to this Agreement except by signed writing
of the parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
Witness:________________________ /s/ Paul A. Garrett (SEAL)
Paul A. Garrett
KTI, INC.
By: /s/ Robert E. Wetzel
Name: Robert E. Wetzel
Title: Senior Vice President
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