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EXHIBIT 10.41
OPTION AND CONSULTING AGREEMENT
AGREEMENT, dated as of June 1, 1996, by and between KTI, Inc., a New
Jersey corporation ("KTI") and L.T. Lawrence & Co., Inc., having its principal
offices at Three New York Plaza, New York, New York 10004 ("Consultant").
WHEREAS, KTI has retained Consultant to provide certain advisory and
other services (collectively, "Consultation Services"), as more particularly set
forth in Section 12 hereof; and
WHEREAS, KTI desires to grant Consultant the right to acquire shares of
its common stock, n o part value ("Common Stock"), upon the terms hereinafter
provided.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. Letter of Intent. The Letter of Intent, dated March 27, 1996,
between KTI and Consultant (the "Letter of Intent"), is hereby terminated and
canceled and of no further force or effect and neither KTI nor the Consultant
shall have any rights or obligations thereunder from and after the date hereof.
2. Engagement. KTI agrees to engage Consultant and Consultant agrees to
provide Consultation Services as more particularly set forth herein subject to
applicable rules, regulations and policies of the National Association of
Securities Dealers, Inc. ("NASD") and the Securities and Exchange Commission
(the "Commission").
3. Consultation Services. (a) In consideration of the Option granted
hereunder and the other compensation contemplated by Section 4(a) hereof, the
Consultant shall perform the Consultation Services for a term commencing on the
date hereof and ending on June 1, 1999 (the "Term"). The Consultation Services
shall consist of providing consulting advice in respect of financial and
corporate finance matters, public and private securities markets consultation
and advice regarding corporate and other acquisitions, including but not limited
to, purchases or sales of assets and/or securities, mergers, acquisitions or
joint ventures (any of the foregoing, a "Transaction") and the preparation of
analysts' reports on KTI and its subsidiaries. Notwithstanding anything to the
contrary contained herein, the issuance of the Option and the vesting and
exercise thereof and the other compensation payable pursuant to Section 4(a)
hereof is not contingent on KTI's satisfaction with the Consulting Services. KTI
specifically acknowledges and agrees, however, that the Consultation Services to
be rendered by the Consultant shall be conducted on a "best-efforts" basis and
Consultant has not, cannot and does not guarantee that Consultant's efforts will
have any impact on KTI's business or that any subsequent financial improvement
will result from Consultant's efforts.
(b) All Consultation Services to be performed hereunder shall
be subject to Consultant's reasonable availability for such performance, in view
of the nature of the requested service and the amount of notice provided by KTI.
Consultant shall devote such time and effort to the performance of the
Consultation Services as it shall determine is reasonably necessary for
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such performance. KTI shall furnish to Consultant all information relevant to
the performance by Consultant of the Consultation Services under this agreement,
so as to permit Consultant to know all the facts material to the Consultation
Services to be rendered, and all material or other information reasonably
requested by Consultant.
(c) Anything to the contrary herein notwithstanding, it is
agreed that Consultant's services will not include any services that constituted
the rendering of legal opinions or performance of work that is in the ordinary
purview of a certified public accountant or any work that is in the ordinary
purview of a registered broker/dealer or in connection with or related to the
offer or sale of securities of KTI in a capital raising transaction.
4. Compensation and Expenses. (a) In consideration for the Consultation
Services rendered by Consultant hereunder, KTI shall pay to Consultant on the
first day of each month the sum of Six Thousand ($6,000) Dollars per month
during the Term (as hereinafter defined). KTI shall receive a credit of
Twenty-Five Thousand Dollars ($25,000) towards any amounts due hereunder, in
consideration of KTI's previous payment to Consultant of Twenty-Five Thousand
Dollars ($25,000) under the Letter of Intent. Accordingly, the first payment due
under this Section 4 shall be made on October 1, 1996 in the amount of $5,000.
(b) KTI shall reimburse Consultant for any and all reasonable
expenses incurred by Consultant in the performance of its duties hereunder upon
submission of reasonably satisfactory documentation to KTI of such cost or
expense.
5. Grant of Option; Reservation of Shares. In further consideration of
the Consulting Services, KTI hereby grants to the Consultant the continuing
right and option (the "Option") to purchase from KTI, at any time or form time
to time during the Exercise Period (as defined below), up to an aggregate of TWO
HUNDRED THOUSAND (200,000) shares of Common Stock (the "Option Shares") upon the
terms and conditions herein set forth, as adjusted pursuant to Appendix A
hereto. KTI shall at all times during the Exercise Period keep reserved and
available for issuance upon exercise of the Option and total number of Option
Shares then subject to the Options.
6. Exercise Price. The Option shall be exercisable with respect to the
TWO HUNDRED THOUSAND (200,000) Option Shares issuable upon exercise of the
Option for an exercise price equal to $7.50 per Option Share as adjusted
pursuant to Appendix A hereto. The Option Shares, when issued upon payment of
the applicable exercise price (the "Exercise Price"), shall be validly issued
fully paid and non-assessable and free from all liens, charges, taxes or other
encumbrances.
7. Term of Option. The Option shall be exercisable in whole or in part
during the period (the "Exercise Period") commencing on the date hereof and
ending on June 1, 2001. Upon expiration of the Option, the Option shall be of no
further force and effect.
8. Mechanics of Exercise. To exercise the Option, Consultant shall, at
any time or form time to time during the Exercise Period, deliver to KTI: (I) a
written notice of exercise (each an "Exercise Note") stating the number of
Option Shares with respect to which the Option is then being exercised, which
number shall not be less than 10,000 Option Shares, provided, however, that an
Option Notice which effects an exercise with respect to the then remaining
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Option Shares if less than 10,000 may state a number that is less than 10,000
Option Shares; and (ii) the Exercise Price payable in respect of the Option
Shares which are the subject of such Exercise Notice. The Option shall be deemed
to be exercised with respect to the Option Shares stated in an Exercise Notice,
and such Option Shares shall be deemed to be issued (whether or not a
certificate representing such Shares has been delivered to Consultant), at the
time such Option Notice and Exercise Price is received by KTI.
9. Non-Transferability. The Option and the rights attendant thereto may
be assigned, pledged, hypothecated or otherwise transferred by Consultant in its
sole discretion at any time, in whole or in part.
10. Dilution Protection. The Exercise Price, and the number of Option
Shares (or other securities or property) issuable upon exercise of the Option
shall be subject to adjustment from time to time upon the occurrence of certain
events, as provided in Appendix A attached to this Agreement.
11. Registration; Registration Rights. KTI hereby covenants and agrees
that Consultant shall have the right to cause KTI to register under the
Securities Act of 1993, as amended (the "Securities Act") the offer and sale of
the Option Shares issuable upon the exercise of the Option in accordance with
the procedures set forth in Appendix B attached hereto.
12. Right of First Refusal. In addition to Consultant's other rights
hereunder, Consultant shall have a right of first refusal to underwrite or place
any public or private sale for cash of debt or equity securities (excluding (I)
sales to employees and borrowings from banks or other financial institutions for
ordinary working capital purposes, (ii) any project finance transaction and
(iii) financing for the DataFocus transaction) of KTI or any subsidiary or
successor of KTI during the two-year period following the date hereof, except
for securities that may be issued by KTI in connection with (a) the closing of
the Company's $2,003,314 private placement (the "Private Placement") of
short-term notes due not earlier than July 31, 1996 and 333,882 five-year
warrants exercisable at $6.00 per share, (b) the transactions referenced under
the heading "Recent Developments") in the Company's Registration Statement on
Form S-1 declared effective by the Securities and Exchange Commission on
February 14, 1996 (Registration No. 33-80087) and (c) the additional
transactions and events referred to on Appendix C hereto. If Consultant elects
to exercise the right of first refusal, KTI shall have the right to require
Consultant to act as the non-lead co-manager of any such underwriting or
placement (with al allotment in such offering or placement in an amount
reasonably acceptable to Consultant but not less than 30% of the total amount of
securities offered) but KTI's right to effect such requirement shall apply only
if the lead manager thereof is one of the "21 major bracket" underwriting firms.
It is understood that any such proposed financing shall be offered to Consultant
in writing and Consultant shall have 30 days in which to determine whether or
not to accept such offer. If Consultant refuses on two occasions, and provided
that such financings are consummated (I) upon substantially the same terms and
conditions as those offered to Consultant, and (ii) within 12 months after the
end of the aforesaid 30-day period, then this right of first refusal shall
terminate.
13. Finder Services. KTI hereby agrees that KTI shall for a period of
three (3) years from the date hereof pay to Consultant a fee as follows based on
the consideration paid or received by KTI or any subsidiary or successor of KTI
or stockholder thereof in any Transaction,
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except as provided in the last sentence of this Section 13, such fee to be paid
in cash at the closing of the Transaction to which it relates:
5% of the fist $1 million of consideration;
4% of the second $1 million of consideration;
3% of the third $1 million of consideration; and
2% of the consideration in excess of $4 million.
The amount of consideration paid in a Transaction shall include, for the
purposes of calculating such fee, all forms of consideration paid by KTI or any
subsidiary or Penobscot Energy Recovery Company ("PERC"), or received by KTI,
its stockholders, or any subsidiary of KTI or PERC including, but not limited
to, cash, stock or evidence or indebtedness, or any combination thereof. In
addition, if KTI shall within two years immediately following the third
anniversary of the date hereof, consummate a Transaction with any party
introduced by Consultant to KTI prior to the third anniversary of the date
hereof, KTI shall pay to Consultant a fee with respect to such Transaction
calculated in accordance with this Section 13. Notwithstanding the foregoing,
Consultant shall not be entitled to receive a fee pursuant to this Section 13
for any Transaction unless (I) Consultant introduces KTI to the other party to
the Transaction in question, or (ii) KTI requests in writing Consultant to serve
as its financial consultant in such Transaction, in consideration for the fee
set forth above.
14. Non-Exclusive Services. KTI understands that Consultant is
currently providing certain advisory and financial consulting services to other
individuals and entities and agrees that Consultant is not prevented or barred
from rendering services of the same nature or a similar nature to any other
individuals or entities and acknowledges that such Services may from time to
time conflict with the timing of and the rendering of Consultant's services. In
addition, Consultant understands and agrees that KTI shall not be prevented or
barred from retaining other persons or entities to provide services of the same
or similar nature as those provided by Consultant.
15. Consultant Not an Agent or Employee. Consultant's obligations under
this Agreement consist solely of the services described herein. In no event
shall Consultant be considered to be acting as an employee or agent of KTI or
otherwise representing or binding KTI. For the purposes of this Agreement,
Consultant is an independent contractor. All final decisions with respect opt
acts of KTI or its affiliates, whether or not made pursuant to or in reliance on
information or advice furnished by Consultant hereunder, shall be those of KTI
or such affiliates and Consultant shall, under no circumstances, be liable for
any expenses incurred or losses suffered by KTI as a consequent of such actions.
Consultant agrees that all of his work product relating to the Services to be
rendered pursuant to this agreement, shall become the exclusive property of KTI.
The parties acknowledge that the Consultation Services provided by the
Consultant hereunder are not in connection with any offering or sale of
securities of KTI in a capital raising transaction.
16. Liability of Consultant. In furnishing KTI with management advice
and other services as herein provided, Consultant shall not be liable to KTI or
its creditors for errors of judgment or for anything except malfeasance or gross
negligence e in the performance of his duties or reckless disregard of his
obligations and duties under the terms of this Agreement.
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It is further understood and agreed that Consultant may rely upon
information furnished to it reasonably believed to be accurate and reliable and
that, except as set forth herein in the first paragraph of this Section 16,
Consultant shall not be accountable for any loss suffered by KTI by reason of
KTI's action or non-action on the basis of any advice, recommendation or
approval of Consultant.
The parties further acknowledge that Consultant undertakes no
responsibility for the accuracy of any statements to be made by management
contained in press releases or other communications, including, but not limited
to, filings with the commission and the NASD.
17. Indemnification. (a) KTI agrees to indemnify and hold harmless the
Consultant form and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation reasonable attorneys' fees and costs
incurred in the investigation, defense and settlement of the matter) suffered or
incurred by Consultant which arises out of this Agreement or otherwise out of
the performance by the Consultant of its obligations hereunder (collectively,
"Damages"), unless, any of such Damages are found by a final determination of a
court of competent jurisdiction to have arisen out of bad faith, gross
negligence or malfeasance of the Consultant in performing his services hereunder
(pending any such final determination, the indemnification and reimbursement
provision of this Agreement shall apply and KTI shall be obligated to reimburse
the consultant for his expenses provided, however, that the Consultant shall
reimburse KTI for any such expenses if it is ultimately determined that the
Consultant was not entitled to indemnification hereunder). If for any reason the
foregoing indemnification is unavailable to the Consultant, or insufficient to
hold him harmless, then KTI shall contribute to the amount paid or payable by
the Consultant as a result of such Damages in such proportion as is appropriate
to reflect not only the relative benefits received by KTI on the one hand and
the Consultant on the other hand, but also the relative fault of KTI and the
Consultant, as well as any other relevant equitable considerations. The
reimbursement, indemnity and contribution obligations of KTI under this
paragraph shall be in addition to any liability which KTI may otherwise have and
shall be binding and inure to the benefit of any respective successors, assigns,
heirs and personal representatives of KTI and the Consultant.
(b) If any action is brought against Consultant or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against KTI pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify KTI in writing of the institution of such
action (but the failure so to notify shall not relieve KTI from any liability
other than pursuant to this Section 17(b)) and KTI shall promptly assume the
defense of such action including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) provided that the indemnified
party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by KTI in connection with the defense of such action
or KTI shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to KTI, in any
of which events such fees and expenses shall be borne by KTI and KTI shall not
have the right to direct the defense of such
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action on behalf of the indemnified party or parties. Anything in this Section
17 to the contrary notwithstanding, KTI shall not be liable for any settlement
of any such claim or action effected without its written consent, which shall
not be unreasonably withheld. KTI shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be south hereunder (whether or not any
indemnified party is a party thereto) unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. KTI agrees promptly to
notify Consultant of the commencement of any litigation or proceedings against
KTI or any of its officers or directors in connection with the sale of any
Option Shares or any preliminary prospectus, prospectus, registration statement,
or amendment or supplement thereto, or any application relating to any sale of
any Option Shares.
18. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and delivered by hand delivery,
registered first-class mail, telex, or telecopier, addressed as follows:
If to KTI: KTI, Inc.
7000 Boulevard East
Guttenberg, New Jersey 07093
Attention: Nicholas Menonna, Jr..,
Chairman of the Board and Chief
Executive Officer
Telephone No. (201) 854-7777
Telecopier No. (201) 854-1771
with a copy to: Brian Hoffman, Esq.
McDermott, Will & Emery
1211 Avenue of the Americas
New York, New York 10036
If to Consultant: L.T. Lawrence & Co., Inc.
Three New York Plaza
New York, New York 10004
Attention: Lawrence Principato
and Todd Roberti
Telephone No. (212) 361-6037
Telecopier No. (212) 361-6280
with a copy to: Eric M. Lerner, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Telephone No. (212) 940-7157
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Telecopier No. (212) 94-8776
All such notices and communications shall be deemed to have been
received: upon delivery if delivered by hand; two business days after being
deposited in the mail, postage prepaid, if mailed; when answered back if
telexed; and when receipt is acknowledged if telecopied.
19. Severability. In the event that any provision of this Agreement
shall be deemed unenforceable or invalid under any applicable law or be so held
by applicable court decision, such unenforceability or invalidity will not
render this Agreement unenforceable or invalid as a whole, and, in such event,
such provision will be changed and interpreted so as to accomplish the
objectives of such provision within the limited of applicable law or applicable
court decision.
20. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to New
York's principles of conflicts of law.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which when taken together shall
constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
KTI, INC.
By: _______________________________
Nicholas Menonna, r.
Chairman of the Board and
Chief Executive Officer
L.T. LAWRENCE & CO., INC.
By: _______________________________
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APPENDIX A
DILUTION PROTECTION
a. Adjustments Generally. The Exercise Price, and the number of Option
Shares (or other securities or property) issuable upon exercise of the Option
shall be subject to adjustment from time to time upon the occurrence of certain
events, as provided in this Appendix A.
b. Common Stock Reorganization. If KTI shall subdivided its outstanding
shares of Common Stock into a small number of shares (any such event being
called a "Common Stock Reorganization"), then (a) the Exercise Price shall be
adjusted, effective immediately after the record date at which the holders of
shares of Common Stock are determined for purposes of such Common Stock
Reorganization, to a price determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of
which hall be the number of shares of Common Stock outstanding on such record
date before giving effect to such Common Stock Reorganization and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such Common Stock Reorganization, and (b) the number of
Option Shares subject to purchase upon exercise of the Option shall be adjusted,
effective at such time, to a number determined by multiplying the number of
Option Shares immediately before such Common Stock Reorganization by a fraction,
the numerator of which shall be the number of shares outstanding after giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such Common
Stock Reorganization.
c. Special Dividends. If KTI shall issue or distribute to all or
substantially all holders of shares of Common Stock evidences in indebtedness,
any other securities of KTI or any cash, property or other assets, and if such
issuance or distribution does not constitute a regular cash dividend out of
surplus or net profits legally available therefor (determined in accordance with
generally accepted accounting principles, consistently applied) or a Common
Stock Reorganization (any such nonexcluded event being herein called a "Special
Dividend"), (a) the number of Option Shares issuable upon exercise of the Option
shall be increased but not decreased), effective immediately after the record
date at which the holders of shares of Common Stock are determined for purposes
of such Special Dividend, to the number determined by multiplying the number of
Option Shares issuable upon exercise immediately before such Special Dividend by
a fraction, the numerator of which shall be the Fair Market Value per share of
outstanding Common Stock on such record date and the denominator of which shall
be the Fair Market Value per share of outstanding Common Stock of KTI on such
record date less the then Fair Market Value of the evidences of indebtedness,
securities, cash, or property or other assets issued or distributed in such
Special Dividend with respect to one share of Common Stock, and (b) the Exercise
Price shall be decreased (but not increased) to a price determined by
multiplying the Exerciser Price then in effect by a fraction, the numerator of
which shall be the number of Option Shares issuable upon exercise of the Option
immediately before such Special Dividend and the denominator of which shall be
the number of Option Shares issuable upon exercise of the Option immediately
after such Special Dividend.
d. Capital Reorganization, If there shall be any consolidation or
merger to which KTI is a party, other than a consolidation or a merger in which
KTI is a continuing corporation
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and which does not result in any reclassification of, or change (other than a
Common stock Reorganization or a change in par value), in, outstanding shares of
Common Stock, or any sale or conveyance of the property of KTI as an entirety or
substantially as an entirety (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, Consultant shall have the right to purchase, upon exercise of
the Option, the kind and amount of shares of stock and other securities and
property (including cash, but if all cash, then the Option must be exercised
within 30 days after such effective date, as the end of which period the Option
shall terminate) which Consultant would have owned or have been entitled to
receive after such Capital Reorganization if the Option had been exercised
immediately prior to such Capital Reorganization, assuming Consultant (i) is not
a person with which KTI consolidated or into which KTI merged or which merged
into KTI or to which such sale or conveyance was made, as the case may be
("constituent person"), or an affiliate of a constituent person and (ii) failed
to exercise its rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization
(provided that if the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization is not the same for each share of
Common Stock held immediately prior to such consolidated, merger, sale or
conveyance by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercise
("non-electing share"), then for the purposes of this Appendix A the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
As a condition to effecting any Capital Reorganization, KTI or the successor or
surviving corporation thereto, as the case may be, shall execute and deliver to
Consultant an agreement as to Consultant's rights in accordance with this
Section (d), providing for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Appendix A. The provisions
of this Section (d) shall similarly apply to successive Capital Reorganizations.
e. Adjustment Rules. (1) Any adjustments pursuant to this Appendix A
shall be made successively whenever an event referred to herein shall occur.
(2) If KTI shall set a record date to determine the holders of shares
of Common Stock for purposes of a Common Stock Reorganization, Special Dividend
or Capital Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to this
Appendix A in respect of such action.
(3) No adjustment in the number of Option Shares issuable upon exercise
of the option or in the Exercise Price shall be made hereunder unless such
adjustment increase or decreases such amount or price by one percent or more,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall serve to adjust such amount or price by one
percent or more.
(4) "Fair Market Value" means the fair market value of the business or
property in question, as determined in good faith by the Board of Directors of
KTI; provided, however, that the Fair Market Value of any security for which a
Closing Price (as defined below) is available shall be the Market Price (as
defined below) of such security. The Fair Market Value of KTI shall be the Fair
Market Value of KTI (including subsidiaries) as a going concern. Notwithstanding
the foregoing, if, at any date of determination of the Fair market Value of KTI,
the securities of any
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cash shall then be publicly traded, the Fair Market Value of KTI on such date
shall be the Market Value of KTI, the securities of any class shall then be
publicly traded, the Fair Market Value of KTI on such date shall be the Market
Price on such date multiplied by the number of securities then outstanding.
"Closing Price" with respect to any security on any day means (a) if such
security is listed or admitted for trading on a national securities exchange,
the reported last sales price regular way or, if no such reported sale occurs on
such day, the average of the closing bid and asked prices regular way on such
day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (b) if such security is not listed or admitted to trading on any
national securities exchange, the last quoted sales price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
on such day as reported by The National Association of Securities Dealers, Inc.
Automated Quotation System or any comparable system then in use or, if not so
reported, as reported by any New York Stock Exchange member firm reasonably
selected by KTI for such purpose. "Market Price" with respect to any security on
any day means the average of the daily Closing Prices of a share or unit of such
security for the 10 consecutive business days ending on the most recent business
day for which a Closing Price is available; provided, however, that in the event
that the Market Price is determined during a period following the announcement
by KTI of (A) a dividend or distribution, or (B) any subdivision, combination or
reclassification of its securities and prior to the expiration of 20 business
days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the Market Price shall be appropriately adjusted to reflect the
current market price per share equivalent of its securities.
Upon each determination of Fair Market Value hereunder, KTI shall
promptly give written notice thereof to Consultant, setting forth in reasonable
detail the calculation of such Fair Market Value and the method and basis of
determination thereof, as the case may be. If, at any date of determination of
the Fair Market Value of KTI, the securities of any class shall not then be
publicly traded, and if Consultant shall disagree with such determination and
shall, by written notice to KTI given within 15 days after KTI's notice of such
determination, elect to dispute such determination, such dispute shall be
resolved in accordance with this Section (e)4. In the event that a determination
of Fair Market Value is disputed, such dispute shall be submitted, at KTI's
choice and expense, to a nationally recognized independent investment banking
firm that has not provided investment banking services to KTI within two years
of the selection date; and the determination by such firm of Fair Market Value
shall be binding on KTI and Consultant (the "Appraisal Procedure").
(5) All references in this Appendix A to the "Exercise Price" shall,
for purpose of making any required adjustments hereto pursuant to this Appendix
A, mean each Exercise Price set forth in Section 2 of the Agreement to which
this Appendix A is attached (as each such Exercise Price may be adjusted from
time t time pursuant to the provisions of this Appendix A) applicable to Option
Shares which are, at the time of any such adjustment, subject to issuance upon
exercise of the Option.
f. Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require any adjustment
pursuant to this Appendix A, KTI shall take any action which may be necessary in
order that KTI may thereafter validly and legally
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issue as fully paid and nonassessable all Option Shares which Consultant is
entitled to receive upon exercise of the Option.
g. Notice of Adjustment. Not less than 10 nor more than 60 days prior
to the record date or effective date, as the case may be, of any action which
requires or might require an adjustment or readjustment pursuant to this
Appendix A, KTI shall give notice to Consultant or such event, describing such
event in reasonable detail and specifying the record date or effective date, as
the case may be, and, if determinable, the required adjustment and the
computation thereof. If the required adjustment is not determinable at the time
of such notice, KTI shall give notice to Consultant of such adjustment and
computation promptly after such adjustment becomes determinable.
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APPENDIX B
REGISTRATION PROCEDURES
1. Registration.
a. Demand Registration. Consultant may at any time, on any two
separate occasions, from the date hereof until June 1, 2003, request that KTI,
at KTI's sole cost and expense (other than the fees and disbursements of counsel
for Consultant and the underwriting discounts, if any, payable in respect of the
Option Shares sold by Consultant) with respect to the first such request and at
Consultant's sole cost and expense with respect to the second such request,
register the sale of all or part of the Option Shares. Upon receipt of any such
request, KTI shall, as promptly as practicable,. prepare and file with the
Commission a registration statements sufficient to permit the public offering
and sale of the Option Shares through the facilities of all appropriate
securities exchanges and the other-the-counter market, and will use its good
faith best efforts through its officers, directors, auditors, and counsel to
cause such registration statement to become effective as promptly as
practicable.
b. Piggyback Registration. In addition to KTI's obligations
under Section 1.a. of this Appendix B and not in limitation thereof, KTI shall
give Consultant at least 30 days' prior written notice of each filing by KTI of
a registration statement (other than a registration statement on Form S-4 or
Form S-8 or on any successor form thereto) with the Commission. If requested by
Consultant in writing at any time and from time to time, from the date hereof
until June 1, 2003, within 20 days after receipt of any such notice, KTI shall,
at KTI's sole expense (other than the fees and disbursements of counsel for
Consultant, and the underwriting discounts, if any, payable in respect of the
Option Shares sold by Consultant), register all or, at Consultant's option, any
portion of the Option Shares, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Option Shares through the facilities of the Nasdaq National Market or any
other securities exchange, if any, on which the Common Stock is being sold or on
the over-the-counter market, and will use its reasonable best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable. For purposes of this
Appendix B, "Options Shares" shall not include Option Shares which have been
previously sold pursuant to a registration statement or Rule 144 promulgated
under the Securities Act. If the managing underwriter of any such offering shall
determine and advise KTI that, in its opinion, the distribution of all or a
portion of the Option Shares requested to be included in the registration
concurrently with the securities being registered by KTI would materially
adversely affect the distribution of such securities by KTI then KTI will
include in such registration first, the securities that KTI purposes to sell and
second, the Option Shares requested to be included in such registration, to the
extent permitted by the managing underwriter. In the event KTI is advised by the
staff of the Commission, NASDAQ, self-regulatory or state securities agency that
the inclusion of the Option Shares will prevent, preclude or materially delay
the effectiveness of a registration statement filed, KTI, in good faith, may
amend such registration statement to exclude the Option Shares.
c. In the event of a registration pursuant to the provisions
of this Appendix B, KTI shall use its reasonable best efforts to cause the
option Shares so registered to be registered or qualified for sale under these
securities or blue sky laws of such jurisdictions as Consultant may
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reasonably request; provided, however, that KTI shall not be required to qualify
to do business in any state by reason of this paragraph d. in which it is not
otherwise required to quality to do business.
d. KTI shall keep effective any registration or qualification
contemplated by this Appendix B and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication until the earlier of (i) one
year from the effective date thereof and (ii) the date on which all Option
Shares issuable upon the exercise of the Option covered by such registration
statement shall have been sold.
e. In the event of a registration pursuant to the provisions
of this Appendix B, KTI shall furnish to Consultant such reasonable number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Securities Act and the rules and regulations thereunder, and such other
documents, as Consultant may reasonably request to facilitate the disposition of
the Option Shares included in such registration.
f. KTI shall notify Consultant promptly when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed.
g. KTI shall advise Consultant, promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement, or the
initiation or threatening of any proceeding from that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
h. KTI shall promptly notify Consultant at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, would include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the reasonable requirement of
Consultant prepare and furnish to it such number of copies of a supplement to or
an amendment to such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Option Shares or securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
i. If requested by the underwriter for any underwritten
offering of Option Shares, KTI and Consultant will enter into an underwriting
agreement with such underwriter for such offering, which shall be reasonably
satisfactory in substance and form to KTI, KTI's counsel, Consultant,
Consultant's counsel and the underwriter, and such agreement shall contain such
representations and warranties by KTI and Consultant and such other terms and
provisions as are customarily contained in an underwriting agreement with
respect to secondary distributions solely
14
by selling stockholders, including, without limitation, indemnities
substantially to the effect and to the extent provided in Section 2 of this
Appendix B.
j. If requested by the underwriter for any underwritten
offering of Option Shares, Consultant shall execute "lock-up" agreements with
respect thereto, on substantially the same terms and conditions as lock-up
agreements executed by the other selling shareholder in such underwritten
offering; provided, however, that in no event shall Consultant be obligated to
execute a lock-up agreement for a term of greater that 120 days,.
k. KTI agrees that until all the Option Shares have been sold
under a registration statement or pursuant to Rule 144 promulgated under the
Securities Act, it shall, upon becoming subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), use its
reasonable best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit KTI to
maintain its eligibility to use a Form S-3 registration statement and to permit
Consultant to sell the Option Shares under Rule 144.
l. KTI shall furnish to Consultant and to each underwriter, if
any, a signed counterpart, addressed to Consultant or each underwriter, of (i)
an opinion of counsel to KTI; dated the effective dated of such registration
statements (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement), and
(ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued report on KTI's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of securities
provided, however, that the terms of this subparagraph k shall not apply if the
Option Shares are registered in a "piggyback" registration pursuant to Section
1(b) of this Appendix B in which the party seeking registration does not receive
an opinion of counsel or a "cold comfort letter."
m. Consultant understands that KTI makes no representations of
any kind concerning its intent or ability to offer or sell any of the Option
Shares in the public offering or otherwise and that its sole right to have the
Options Shares registered under the Securities Act is contained in this
Agreement.
2. Indemnification.
a. Subject to the conditions set forth below, KTI agrees to
indemnify and hold harmless Consultant, its officer, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 2, but not be limited to, attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any
15
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation) as and when incurred, arising out of, based upon, or in connection
with(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus, or final
prospectus (as from time to time amended and supplemented) or any amendment or
supplement thereto, relating to the sale of any of the Option Shares or (B) in
any application or other document or communication (in this Section 2
collectively called a "application") executed by KTI or based upon written
information furnished by or on behalf of KTI filed in any jurisdiction in order
to register or qualify any of the Option Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities exchange; or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading, unless
(x) such statement or omission was made in reliance upon and in conformity with
written information furnished to KTI with respect to Consultant by or on behalf
of Consultant expressly for inclusion in any registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be, or (y) such loss, liability, charge, claim,
damage or expense arises out of Consultant's failure to comply with the terms
and provisions of this Agreement, or (ii) any breech of any representation,
warranty, covenant, or agreement of KTI contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability KTI may
otherwise have, including liabilities arising under this Agreement.
If any action is brought against Consultant or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against KTI pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify KTI in writing of the institution of such
action (but the failure so to notify shall not relive KTI from any liability
other than pursuant to this Section 2(a)) and KTI shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) provided that the indemnified
party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by KTI in connection with the defense of such action
or KTI shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to KTI, in any
of which events such fees and expenses shall be borne by KTI and KTI shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties. Anything in this Section n2 to the contrary notwithstanding,
KTI shall not be liable for any settlement of any such claim or action effected
without its written consent, which shall not be unreasonably withheld. KTI shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto)
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. KTI agrees promptly to notify Consultant of the commencement of any
litigation or proceedings against KTI or any of its officers or directors in
connection with the sale of any Option Shares or any preliminary
16
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Option Shares.
b. Consultant agrees to indemnify and hold harmless KTI, each director
of KTI, each officer of KTI who shall have signed any registration statement
covering Option Shares held by Consultant, each other person, if any, who
controls KTI within the meaning of Section n15 of the Securities Act or Section
20(a) of the Exchange Act, and its or their respective counsel, to the same
extent as the foregoing indemnity from KTI to Consultant in Section 2(a) but
only with respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented) or any amended or supplement thereto, or in any
application, in reliance upon and in conformity with written information
furnished to KTI with respect to Consultant by or on behalf of Consultant,
expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amended or supplement thereto, or in any
application, as the case may be. If any action shall be brought against KTI or
any other person so indemnified based on any such registration statement,
preliminary prospectus, or final prospectus or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may be sought
against Consultant pursuant to this Section 2(b) Consultant shall have the
rights and duties given to KTI, and KTI and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section n2(a).
c. To provide for just and equitable contribution, if (i() an
indemnified party makes a claim for indemnification pursuant to Section 2(a) or
2 (b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act or otherwise, then
KTI (including for this purpose any contribution made by or on behalf of any
director of KTI, any officer of KTI who signed any such registration statement,
any controlling person of KTI, and its or their respective counsel) as one
entity, and Consultant (including for this purpose any contribution by or on
behalf of an indemnified party) as a second entity, shall contribute to the
losses, liabilities, claims, damages, and expense whatsoever to which any of
them may be subject, on the basis of relevant equitable considerations such as
the relative fault of KTI and Consultant in connection with the facts which
results in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission,
or alleged omission shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by KTI or by Consultant, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. KTI and Consultant
agree that it would be unjust and inequitable if the respective obligations of
KTI and Consultant for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if Consultant and the other indemnified parties were treated as one entity
for such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 2(c). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section n2(c)
each person, if any, who controls Consultant within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent and
17
counsel of Consultant or control person shall have the same rights to
contribution as Consultant or control person and each person, if any, who
controls KTI within the meaning of Section 15 of the Securities Act or Section
n20(a) of the Exchange Act, each officer of KTI who shall have signed any such
registration statement, each director of KTI, and its or their respective
counsel shall have the same rights to contribution as KTI, subject to each case
to the provisions of this Section 2(c). Anything in this Section 2(c) to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 2(c) is intended to supersedes any right to contribution under the
Securities Act, the Exchange Act or otherwise.
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APPENDIX C
1. Closing of the sale of Maine Energy Recovery Company's available power
generation capacity and the related restructuring of the Central Maine
Purchase Agreement, dated January 12, 1984.
2. Closing of the purchase of the first tranche of CNA Financial
Corporation's interest in Maine Energy Recovery Company.
3. Closing of the purchase of the second tranche of CNA Financial
Corporation's interest in Maine Energy Recovery Company.
4. Acquisition of any interest in the stock, securities or assets of
Environmental Waste Technology, Inc.
5. Acquisition of any partnership interest in PERC from Prudential Power
Funding.
6. Acquisition of any interest in the stock, securities or assets of Paper
Chase Exchange, Inc. and the acquisitions of any warrants to purchase
stock, options to purchase stock, stock or assets of Prins Recycling
Corp.
7. Acquisition of any interest in the stock, securities or assets of
Polymeric, Inc. or of TriMax, Inc.
8. Acquisition of any interest in the stock, securities or assets of Power
Sources, Inc.
9. Acquisition of any interest in the stock, securities or assets of
Timber Energy Investment, Inc. or of any of its subsidiaries.
10. Offering of approximately $500,000 in short term notes and warrants to
purchase shares of KTI, Inc. common stock at a price of $6.00 per
share.
11. Sale of DataFocus.