EXHIBIT 10.1
SERIES A PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
KTI, INC.
THIS AGREEMENT is made as of the 4th day of June, 1997, between KTI, INC.,
Nasdaq Symbol "KTIE" (the "Company"), a New Jersey corporation, with its
principal office at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, and the
purchasers listed on Schedule A attached to this Agreement (the "Purchasers").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchasers agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement:
"Common Stock" means the Common Stock of the Company, no par value.
"Convertible Preferred Stock" means the shares of Series A Preferred Stock
of the Company, no par value, convertible into Common Stock as hereinafter
provided and which has the rights, preferences and privileges set forth in the
Certificate of Amendment attached hereto as Exhibit A (the "Certificate of
Amendment").
"Purchase Price" means the aggregate purchase price of the Shares
purchased.
"Shares" means the shares of Convertible Preferred Stock purchased pursuant
to this Agreement.
Section 2. Sale of Shares and Warrants.
2.1 Agreement to Sell and Purchase the Shares and Warrants. On the terms
and subject to the conditions set forth in this Agreement, the Company hereby
agrees to sell, and each Purchaser hereby agrees to buy, the number of Shares
set forth opposite his or its name on Schedule A hereto, at the price of $8.00
per share. In addition, the Company will issue to each of the Purchasers, for
no additional consideration, that number of (i) immediately exercisable six-year
warrants to purchase shares of Common Stock at an exercise price of $9.00 per
share (the "$9.00 Warrants"), and (ii) immediately exercisable six-year warrants
to purchase shares of Common Stock at an exercise price of $10.00 per share (the
"$10.00 Warrants"; collectively with the $9.00 Warrants, the "Warrants"), set
forth opposite such Purchaser's name on Schedule A hereto, as contemplated by
the Warrant Agreements in the forms attached to this Agreement as Exhibits B and
C, respectively (the "Warrant Agreements").
2.2 Closing. The closing of the transactions contemplated by this
Agreement shall be held at the offices of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, upon the execution of this Agreement by both the Company and
each Purchaser. At or prior to the closing, the following shall occur:
(a) Each Purchaser shall remit by wire transfer or tendering of existing
indebtedness the Purchase Price as payment in full for the Shares and Warrants
directly to the Company, provided that such Purchaser has been notified by
counsel to Purchasers that the Company has delivered certificates representing
the Shares and Warrants as provided in subsection (b) below; and
(b) The Company shall deliver or cause to be delivered to counsel to
Purchasers (i) certificates representing the Shares and the Warrants purchased
by each of the Purchasers, registered in the name of each Purchaser (or any
nominee designated by a Purchaser), free and clear of all liens, claims, charges
and encumbrances, and (ii) such other certificates and documents as Purchasers'
counsel may reasonably request. Purchasers shall receive such certificates from
Purchasers' counsel after the Company has received the Purchase Price directly
from the Purchasers.
(c) Wire instructions for the Company are as follows:
Key Bank of Maine
Portland, Maine
ABA No. ▇▇▇▇▇▇▇▇▇
Account No. 020066381
KTI Environmental Group, Inc.
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Section 3. General Representations and Warranties of the Company. The
Company hereby represents and warrants to, and covenants with, each Purchaser
that the following are true and correct as of the date of this Agreement:
3.1 Organization; Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of New Jersey and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Capitalization. The authorized capital stock of the Company consists
of: 20,000,000 shares of Common Stock, of which 6,907,262 shares are currently
issued and outstanding, and 10,000,000 shares of preferred stock, of which
487,500 shares have been designated as Convertible Preferred Stock. All issued
and outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable. The Company has reserved and will
at all times maintain from its authorized but unissued shares of Common Stock, a
sufficient number of shares of Common Stock to permit the conversion in full of
the outstanding Shares and upon the exercise in full of the Warrants.
3.3 Authorization. The Company has all requisite corporate right, power
and authority to execute and deliver this Agreement and the Warrant Agreements
and to consummate the transactions contemplated hereby and thereby. All
corporate action on the part of the Company, its directors and stockholders
necessary for the authorization, execution, delivery and performance of this
Agreement and the Warrant Agreements by the Company, the authorization, sale,
issuance and delivery of the Shares and the Warrants and the performance of the
Company's obligations hereunder has been taken. This Agreement and the Warrant
Agreements have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in Section 7.4 of this Agreement. Upon their issuance and delivery pursuant to
this Agreement, the Shares, Warrants and shares of Common Stock issuable upon
conversion of the Shares (the "Conversion Shares") and exercise of the Warrants
(the "Warrant Shares") (the Shares, Warrants, Conversion Shares and Warrant
Shares herein will collectively be referred to as the "Securities") will be
validly issued, fully paid and nonassessable and will be free of any liens,
claims or encumbrances; provided, however, that the Shares and Warrants are
subject to restrictions on transfer under state and/or federal securities laws.
Except as set forth on Schedule 3.3, the issuance and sale of the Shares,
Warrants, the Conversion Shares and the Warrant Shares will not give rise to any
preemptive right or right of first refusal or right of participation on behalf
of any person. Upon registration of the Conversion Shares and the Warrant
Shares pursuant to Section 7 of this Agreement, there shall be no restriction on
the transferability thereof other than applicable prospectus delivery
requirements.
3.4 No Conflict. The execution and delivery of this Agreement and the
Warrant Agreements do not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or to a
loss of a material benefit, under, (i) any provision of the Certificate of
Incorporation, and any amendments thereto, Bylaws, stockholders agreements and
any amendments thereto of the Company or (ii) any material mortgage, indenture,
lease or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets, which in the case of clause (ii) above
would have a material adverse effect on the condition (financial or otherwise),
business, results of operations, prospects or financial condition of the
Company.
3.5 Accuracy of Reports and Information. The Company is in compliance, to
the extent applicable, with all reporting obligations under Sections 12(b), 12
(g) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has registered its Common Stock pursuant to
Section 12 of the Exchange Act and the Common Stock is quoted and trades on
NASDAQ National Market System ("NMS").
The Company has filed all material required to be filed pursuant to all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the offer or
sale of the Shares (or for such shorter period that the Company has been
required to file such material).
3.6 SEC Filings/Full Disclosure. None of the Company's filings with the
Securities and Exchange Commission since January 1, 1996 contain any 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 in light of the
circumstances under which they were made, not misleading. The Company has, since
January 1, 1996, timely filed all requisite forms, reports and exhibits thereto
with the Securities and Exchange Commission ("SEC"). The Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996 10-K"), its
Quarterly Report for the period ended March 31, 1997, and all Current Reports on
Form 8-K filed by the Company from January 1, 1997, to date are referred to as
the "SEC Reports."
There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in writing
to Purchaser which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings, business
affairs, properties or assets of the Company, or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
3.7 Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate) required to be disclosed on a financial statement pursuant to
generally accepted accounting principals, except as set forth in the financial
statements included in the SEC Reports (collectively the "Financial Statements")
or as incurred in the ordinary course of business after the date of the
Financial Statements. Since the date of the Company's last SEC Report, there
has been no event or condition of any type that has materially and adversely
affected or, to the best knowledge of the Company after inquiry, is likely to
affect materially and adversely, the Company's business, condition, affairs,
operations, properties or assets.
3.8 Governmental Consent, etc. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated by this Agreement or the
Warrant Agreements, except the filing with the SEC of a registration statement
on Form S-3 for the purpose of registering the Conversion Shares and Warrant
Shares underlying the Shares and the Warrants and applicable state securities
law filings.
3.9 Intellectual Property Rights. The Company has sufficient trademarks,
trade names, patent rights, copyrights and licenses to conduct its business as
contemplated therein. To the Company's knowledge, neither the Company nor its
products is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence which could have a material adverse effect on the condition (financial
or otherwise), business, results of operations or prospects of the Company; and
there is no claim being made against the Company regarding any trademark, trade
name, patent, copyright, license, trade secret or other intellectual property
right which could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10, the
agreements to which the Company is a party described in the SEC Reports are
valid agreements, in full force and effect, the Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
3.11 Litigation. There is no action, proceeding or investigation pending,
or to the Company's knowledge threatened, against the Company which might have,
either individually or in the aggregate, any material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company. Except as set forth on Schedule 3.11, the Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation initiated by the Company currently
pending or which the Company currently intends to initiate.
3.12 Title to Assets. Except as set forth in Schedule 3.12, the Company
has good and marketable title to all properties and material assets described
therein as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
3.13 Subsidiaries. Set forth on Schedule 3.13 is a list of all of the
active corporations, partnerships, limited liabilities companies, associations
and other business entities in which the Company presently owns or controls,
directly or indirectly, an interest.
3.14 Required Governmental Permits. The Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits (collectively, "Permits") from state, federal and
other regulatory authorities, all of which are valid and in full force and
effect except for such Permits the failure of which to possess would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
3.15 Listing. The Company's Common Stock is currently eligible for
trading on the NMS and the Company has no knowledge of any facts or
circumstances which might cause such listing to be lost. The Company will at
all times after the date of this Agreement maintain the listing of its Common
Stock on NMS, New York Stock Exchange, American Stock Exchange or other
organized, comparable United States market or quotation system reasonably
acceptable to Purchasers.
3.16 Other Outstanding Securities. Except for (i) the Shares sold to
Purchasers pursuant to this Agreement, (ii) the Common Stock referenced in
Section 3.2 above, and except as otherwise fully disclosed in the SEC Reports or
as set forth in Schedule 3.16, there are no other outstanding debt or equity
securities presently convertible into shares of Common Stock. Except for as set
forth in Schedule 3.16, the Company has no additional outstanding restricted
shares of Common Stock, or shares of Common Stock sold under Regulation S or
Regulation D under the Securities Act of 1933, as amended (the "Securities Act")
or outstanding under any other exemption from registration, which are available
for sale as unrestricted ("free trading") stock.
3.17 No Poison Pill. The Company represents that it does not have, and has
no current intention to adopt, a stockholder rights plan ("poison pill").
3.18 Insurance. All the insurable properties of the Company are insured
for the benefit of the Company in amounts deemed adequate by the Company in its
good faith judgement against all risks usually insured against by persons
operating similar properties in the localities in which such properties are
located under policies in effect and issued by insurers of recognized
responsibility.
3.19 Fees and Commissions. The Company has not retained any finder, broker
or other intermediary who may be entitled to compensation in connection with the
transactions contemplated by this Agreement.
3.20 Illegal Payments. To its best knowledge, the Company has never made
any illegal payment of any kind, directly or indirectly, including without
limitation payments, gifts or gratuities to national, state or local government
officials, employees or agents.
3.21 Taxes. The Company has filed or caused to be filed all federal and
state income tax returns and all other federal and state tax returns which are
required to be filed, and has paid or caused to be paid all taxes shown on said
returns or on any assessment therefor received by the Company to the extent that
such taxes have become due, or has set aside on its books reserves (segregated
to the extent required by generally accepted accounting principals) deemed by
the Company adequate with respect thereto. There are no pending or, to the
Company's knowledge, threatened claims, notices or audits involving the Company
and any taxing authority, and there are no waivers of applicable statutes of
limitations with respect to taxes for any year currently in effect. Proper and
accurate amounts have been withheld and remitted by the Company in respect of
all persons from whom the Company is required by law to withhold, for all
periods, in compliance with all applicable laws, rules and regulations.
Section 4. Representations, Warranties and Covenants of Purchaser. Each
Purchaser, severally and not jointly, represents and warrants to, and covenants
with, the Company that the following are true and correct as of the date of this
Agreement with respect to such Purchaser:
4.1 Authority. Each Purchaser has all right, power, authority and
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the Warrant Agreements
have been duly executed and delivered by Purchaser and will constitute the
legal, valid and binding obligations of Purchaser, enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in Section 7.4 of this Agreement.
4.2 Investment Experience. Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company, including the SEC Reports, to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser
has such business and financial experience as is required to give him or it the
capacity to protect his or its own interests in connection with the purchase of
the Shares and the acquisition of the Warrants.
4.3 Investment Intent. Without limiting his or its ability to resell the
Securities pursuant to an effective registration statement, Purchaser represents
that it is purchasing the Shares for investment purposes. Purchaser understands
that his or its acquisition of the Shares and the Warrants has not been
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of his
or its Securities except in compliance with the Securities Act and any
applicable state securities laws, and the rules and regulations promulgated
thereunder.
4.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the Shares and the Warrants may not be resold
or otherwise transferred except in a transaction registered under the Securities
Act and any applicable state securities laws or unless an exemption from such
registration is available. Purchaser understands that the certificate(s)
evidencing the Shares and the Warrants will be imprinted with a legend as
provided in Section 4.7 below, that prohibits the transfer thereof unless (i)
they are registered or such registration is not required, and (ii) if the
transfer is pursuant to an exemption from registration, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
4.5 No Legal, Tax or Investment Advice. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Shares and the acquisition and
issuance of the Warrants constitutes legal, tax or investment advice. Purchaser
has consulted such legal, tax and investment advisors as he or it, in his or its
sole discretion, has deemed necessary or appropriate in connection with the
purchase of the Shares and acquisition of the Warrants.
4.6 Purchaser Review. Purchaser hereby represents and warrants that
Purchaser has carefully examined the SEC Reports and the Financial Statements
contained therein. Purchaser acknowledges that the Company has made available
to Purchaser all documents and information that Purchaser has requested relating
to the Company and has provided answers to all of his or its questions
concerning the Company, the Shares and the Warrants. Nothing stated in the
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Company contained in this Agreement.
4.7 Legend. The certificate or certificates representing the Securities
shall be subject to a legend restricting transfer under the Securities Act, such
legend to be substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH IS CONFIRMED IN
A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates shall also include any legends required by any applicable state
securities laws.
The legend(s) endorsed on a stock certificate pursuant to this Section 4.7
or on any certificate representing any of the Securities shall be removed and
the Company shall issue a replacement certificate without such legend to the
holder of such certificate if the Securities represented by such certificate are
registered under the Securities Act or if such holder provides to the Company an
opinion of counsel to the effect that a public sale, transfer or assignment of
such Securities may be made without registration.
Section 5. Conditions to Purchaser's Obligation to Purchase. The Company
understands that Purchaser's obligation to purchase the Shares is conditioned
upon:
(a) Delivery of the Shares and Warrants to counsel to Purchaser;
(b) A certified copy of an amendment to the Company's certificate of
incorporation, certified by the Secretary of New Jersey;
(c) Receipt of an opinion letter from counsel to the Company, or the
Company's general counsel, as the case may be, in form reasonably satisfactory
to Purchaser's counsel, to the effect that:
(i) The Company is duly incorporated, validly existing and in good
standing in the jurisdiction of its incorporation;
(ii) Except as set forth on Schedule 3.11, there is no action,
proceeding or investigation pending, or to such counsel's knowledge,
threatened against the Company which might result, either individually
or in the aggregate, in any material adverse change in the business,
prospects, conditions, affairs or operations of the Company;
(iii) The Company is not a party to or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality;
(iv) There is no action, suit, proceeding or investigation initiated
by the Company currently pending or which the Company currently
intends to initiate;
(v) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable;
(vi) The Certificate of Amendment has been duly filed with the State
of New Jersey and this Agreement, the Warrant Agreements, the issuance
of the Shares and Warrants, and the issuance of the Conversion Shares
and Warrant Shares, have been duly approved by all required corporate
action and that all such Securities, upon delivery in accordance with
this Agreement and the Warrant Agreements, shall be validly issued and
outstanding, fully paid and nonassessable.
(vii) The execution, delivery and performance of this Agreement and
the Warrant Agreements by the Company, and the consummation of the
transactions contemplated thereby, will not, with or without the
giving of notice or the passage of time or both:
(A) Violate the provisions of any law, rule or regulation
applicable to the Company;
(B) Violate the provisions of the charter or bylaws of the
Company;
(C) To the best of counsel's knowledge, violate any judgment,
decree, order or award of any court, governmental body or
arbitrator; or
(D) To the best of counsel's knowledge, conflict with, or result
in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or
cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Company pursuant to, any note, bond,
indenture, mortgage, lease, deed of trust or other instrument,
obligation, or agreement to which the Company is a party or by
which the Company, or any of its properties is or may be bound;
(viii) This Agreement and the Warrant Agreements constitute the valid
and legally binding obligations of the Company and are enforceable against
the Company in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief
or other equitable remedies, and, with respect to this Agreement, to
limitations of public policy as they may apply to the indemnification
provisions set forth in Section 7.4 thereof.
(e) Purchaser's reasonable satisfaction that no material adverse change in
the Company's business or prospects has occurred since the date of the Company's
last SEC Report; and
Section 6. Conditions to Company's Obligation to Sell. Each Purchaser
understands that the Company's obligation to sell the Shares and Warrants is
conditioned upon delivery to the Company by Purchaser of good funds as payment
in full for the purchase of the Shares.
Section 7. Registration of the Shares; Compliance with the Securities Act.
7.1 Definitions. For the purpose of this Section 7:
(a) the term "Registration Statement" shall mean any registration
statement required to be filed by Section 7.2 below, and shall include any
preliminary prospectus, final prospectus, exhibit or amendment included in or
relating to such registration statement; and
(b) the term "untrue statement" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
7.2 Registration Procedures and Expenses. The Company shall:
(a) within thirty (30) days after the date of this Agreement and in
sufficient time to have such registration effective one hundred twenty (120)
days from the date of this Agreement, file, subject to receipt of necessary
information from each of the Purchasers, with the SEC a registration statement
under the Securities Act on a form which is appropriate, as determined by the
Company, to register the Conversion Shares and the Warrant Shares for sale by
the Purchasers who shall provide, within ten (10) business days after the
receipt of a written request therefor, such information as the Company may
reasonably request for use in connection with the Registration Statement;
(b) use its best efforts, subject to receipt of necessary information from
Purchaser, to cause such Registration Statement to become effective as promptly
after filing as practicable;
(c) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective until termination of
such obligation as provided in Section 7.8 below; provided, however, that upon
the Company giving written notice to each Purchaser of the occurrence of any of
the following events, (1) the issuance by the SEC of a stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any prospectus or the initiation of any proceedings for
that purpose, (2) the happening of any event that makes any statement of a
material fact made in the Registration Statement, any amendment or supplement
thereto, or any document incorporated by reference therein untrue, or that
requires the making of any changes in such Registration Statement or documents
so that the Registration Statement will not contain any untrue statement or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or (3) any reasonable determination by
the Company that a post-effective amendment to the Registration Statement would
be appropriate, then the Purchasers shall forthwith discontinue the disposition
of Conversion Shares or Warrant Shares, as the case may be, covered by the
Registration Statement until the Purchaser has received copies of the
supplemented or amended Registration Statement or prospectus, as applicable, or
until such Purchaser is advised in writing by the Company that the use of the
applicable Registration Statement or prospectus may be resumed. In the event of
any suspension in accordance with the preceding sentence, the time period
regarding the effectiveness of the Registration Statement set forth in Section
7.8 shall be extended by one day for each day a Purchaser could not dispose of
the Conversion Shares of Warrant Shares, as the case may be, as a result of such
suspension. The Company will use its best efforts to cause any such suspension
to be lifted within 15 business days;
(d) furnish to Purchaser with respect to the Conversion Shares and Warrant
Shares registered on the Registration Statement (and to each underwriter, if
any, of such Conversion Shares and Warrant Shares) such number of copies of
prospectuses in conformity with the requirements of the Securities Act and such
other documents as Purchaser may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Conversion Shares and
Warrant Shares by Purchaser;
(e) file such documents as may be required of the Company for normal
securities law clearance for the resale of the Conversion Shares and Warrant
Shares in such states of the United States as may be reasonably requested by
Purchaser; provided, however, that the Company shall not be required in
connection with this paragraph (e) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction; and
(f) bear all expenses in connection with the procedures in paragraphs (a)
through (e) of this Section 7.2 and the registration of the Conversion Shares
and Warrant Shares on such Registration Statement and the satisfaction of the
blue sky laws of such states, including the reasonable fees and expenses of
legal counsel to Purchaser in connection with the procedures in paragraph (a)
through (e) of this Section 7.2, other than underwriting discounts and selling
commissions which shall be borne by Purchaser.
7.3 Underwriter. The Company understands that each Purchaser disclaims
being an "underwriter" (as such term is defined under the Securities Act and the
rules and regulations promulgated thereunder (an "Underwriter")), but such
Purchaser being deemed an Underwriter shall not relieve the Company of any of
its obligations under this Section 7.
7.4 Indemnification.
(a) General Indemnification. Each of the Company and each Purchaser
(severally and not jointly) agrees to indemnify the other and to hold the other
harmless from and against any and all losses, damages, liabilities, reasonable
costs and expenses (including reasonable attorneys' fees) which the other may
sustain or incur in connection with the breach by the indemnifying party of any
representation, warranty or covenant made by it in this Agreement.
(b) Indemnification for Registration Statement.
(i) By Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Purchaser and such Purchaser's nominee or
transferee (collectively, the "Holders"), the directors, if any, of such
Holders, the officers, if any, of such Holders who sign the Registration
Statement, each person, if any, who controls such Holder, any underwriter (as
defined in the Securities Act) for the Holders and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, expenses or liabilities
(joint or several) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein, in light of
the circumstance in which they are made, not misleading or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will
reimburse the Holders and each such underwriter or controlling person, promptly
as such expenses are incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability action or proceeding; provided, however, that (i) the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or expenses arises out of or is based upon any
Violation in any final prospectus, if such Violation is corrected in an
amendment or supplement to such final prospectus and the Holder thereafter fails
to deliver such prospectus as so amended or supplemented prior to or
concurrently with the sale of the Securities to the person asserting such loss,
claim, damage, liability or expense after the Company furnished such Holder with
a copy of such amended or supplemented prospectus; and (ii) the Company shall
not be liable of any person uses a prospectus or amendment or supplement thereto
following the giving of notice by the Company as provided in Section 7.2(c); and
provided further, however, that the indemnity agreement contained in this
Section 7.4(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld, nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holders or any such underwriter or controlling person, as the case may be.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holders or any such underwriter or
controlling person and shall survive the transfer of the Securities by Holders.
(ii) By Holders. To the extent permitted by law, each Holder,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such Holder or underwriter,
against any losses, claims, damages or liabilities (joint or several) to which
any of them may become subject, under the Securities Act, the Exchange Act or
other federal state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such Registration Statement, and
such Holder will reimburse any legal or other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 7.4(b) shall not apply to amounts paid in
settlement of such loss, claim, damage, liability or action if such settlement
is effected without the consent of such Holder, which consent shall not be
unreasonably withheld; and provided further, that the Holder shall be liable
under this paragraph for only that amount of losses, claims, damages and
liabilities as does not exceed the net proceeds to such Holder as a result of
the sale of the Securities pursuant to such Registration Statement
(c) Procedure for Indemnification. Promptly after receipt by an
indemnified party under this Section 7.4 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 7.4, deliver to the indemnifying party a written notice of commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel for the indemnifying party, representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section 7.4 only to the extent
prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party other than under this Section 7.4.
The indemnification required by this Section 7.4 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, promptly as such expense, loss, damage or liability is incurred.
(d) Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it otherwise would be
liable under this Section 7.4 to the extent permitted by law, provided that (i)
no contribution shall be made under the circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in this
Section 7.4, (ii) no seller of the Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of the Securities who was not
guilty of such fraudulent misrepresentation and (iii) contribution by any seller
of the Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Securities.
7.5 Information Available. So long as any registration statement is
effective covering the resale of the Conversion Shares or Warrant Shares, the
Company will furnish to Purchaser:
(a) as soon as possible after available, one copy of (i) its Annual Report
to Stockholders (which Annual Report shall contain financial statements audited
in accordance with generally accepted accounting principles in the United States
of America by a national firm of certified public accountants); (ii) if not
included in substance in the Annual Report to Stockholders, its annual report on
Form 10-K within 105 days after the end of each fiscal year of the Company,
(iii) each of its Quarterly Reports to Stockholders, and its quarterly report on
Form 10-Q within sixty (60) days after the end of each fiscal quarter, (iv) each
of its Current Reports on Form 8-K within five (5) business days of filing with
the SEC, and (v) a full copy of the Registration Statement covering the
Conversion Shares and Warrant Shares (the foregoing, in each case, excluding
exhibits); and
(b) upon the reasonable request of Purchaser, such other information that
is generally available to the public.
7.6 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Conversion Shares and the Warrant Shares to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date on which the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act;
(c) to furnish to each Purchaser forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144, and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as Purchaser may reasonably request in
availing itself of any rule or regulation of the SEC allowing Purchaser to sell
any such Conversion Shares or Warrant Shares without registration.
7.7 Transfer of Conversion Shares or Warrant Shares Stock After
Registration. Purchaser hereby covenants with the Company not to make any sale
of the Conversion Shares or Warrant Shares except either (i) in accordance with
the Registration Statement, in which case Purchaser covenants to comply with the
requirement of delivering a current prospectus, (ii) in accordance with Rule
144, in which case Purchaser covenants to comply with Rule 144, or (iii) as
otherwise permitted by applicable law.
7.8 Termination of Obligations. The obligations of the Company pursuant
to Sections 7.2 and 7.6 hereof shall cease and terminate upon the earlier of (i)
such time as all of the Conversion Shares or Warrant Shares have been sold by
Purchaser pursuant to an effective Registration Statement and (ii) the sixth
(6th) anniversary of the date of this Agreement.
Section 8. Company Covenants.
8.1 Board of Directors. The Company will exercise all authority and use
its best efforts, consistent with applicable law, to cause one individual
designated by Purchasers holding more than 50% of the Securities and reasonably
satisfactory to the Company to be elected to the Board of Directors of the
Company for so long as Purchasers collectively hold at least 50% of the Shares.
The Company agrees that such individual will also serve as a member of the
Company's Compensation and Audit Committees. If any individual so designated
shall cease to serve as a director for any reason other than pursuant to the
preceding sentence, the vacancy created thereby shall be filled by the Board
with another individual designated by Purchasers holding more than 50% of the
Securities reasonably satisfactory to the Company. In addition, the Company
agrees that Purchasers shall be provided with at least five (5) days' prior
written notice of each meeting of the Board, or such lesser notice as is
provided to the members of the Company's Board of Directors, and Purchasers
holding more than 50% of the Securities shall have the right to designate one
(1) additional person to attend such meeting as an observer ("Observer"). The
Observer may participate in any such Board meeting in person or via telephone
conference at the request of the Observer. The Company shall promptly reimburse
the reasonable expenses of the director nominated by Purchasers and the Observer
incurred in connection with attendance at each Board meeting, including without
limitation coach-class airfare and commensurate hotel accommodations. The
Company hereby covenants to hold Board meetings no less frequently than four
times per year.
8.2 Management Compensation. The Company shall, immediately following the
execution of this Agreement, conform its existing agreements with executive
officers of the Company regarding base compensation and bonuses payable to such
officers in accordance with the terms as set forth in Schedule 8.2.
8.3 Financial Documentation; Inspection Rights. From the date hereof and
until all Shares have been converted or redeemed, the Company will provide to
all holders of Shares the information otherwise required in Section 7.5(a) and
(b) hereof, together with monthly unaudited financial statements that include,
without limitation, a balance sheet, income statement and statement of cash
flows no later than 15 days after month-end, as well as an annual budget for
each fiscal year no later than 30 days after the commencement of such fiscal
year. The Company will also permit any Purchaser holding more than 50% of the
Shares to review all books and records of the Company relating to operations and
finance, as available, provided such information is kept confidential, and to
visit the Company's facilities upon reasonable prior notice.
8.4 Lockup; Right of First Refusal. The Company will not, without the
prior approval in writing from Purchasers, issue or sell (i) any debt security
convertible into equity securities of the Company, or (ii) any equity securities
of the Company, with a conversion price of less than $8.00 per share or a sale
price of less than $8.00 per share, as the case may be, for a period of one
hundred eighty (180) days following the date of this Agreement. If the Company
wishes to complete any sale of convertible debt or equity securities for a
period of eighteen (18) months beginning on the day following the one hundred
and eighty (180) day period referenced above, Purchasers shall have the right of
first refusal to participate in such offering or offerings up to the aggregate
amount of $3,500,000, and shall have ten (10) business days to reply in writing
after receipt of written notice of any such proposed financing from the Company.
If one or more of the Purchasers do not desire to participate in any such
offering, or do not notify the Company of its desire to participate in such
offering prior to the expiration of the ten (10) business day period set forth
above, the Company shall be free to sell the securities so offered on terms no
less favorable than those offered to Purchasers.
8.5 Certain Restriction and Limitations. Without the approval, by vote or
written consent, of holders of more than fifty percent (50%) of the Shares
outstanding at any time, the Company will not:
(a) Enter into any agreement, indenture or other instrument which contains
any provisions restricting the issuance by the Company of the Warrant
Shares or the Conversion Shares;
(b) Declare any cash dividends on Common Stock until May 31, 1999;
(c) Voluntarily dissolve or liquidate; or
(d) Enter into any agreement restricting the ability of any Purchaser to
transfer the Securities.
Section 9. Legal Fees and Expenses. The Company hereby agrees to pay the
reasonable fees of Purchaser's counsel (up to $10,000) and additional reasonable
out-of-pocket expenses of Purchaser (up to $20,000 in aggregate including legal
fees) in connection with this Agreement and the transactions contemplated
hereby. Such amounts shall be paid on the date of this Agreement by wire
transfer to such accounts as Purchaser or its counsel may direct.
Section 10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, or shall be sent by overnight
courier or by facsimile, and shall be deemed given when received:
(a) if to the Company, to
KTI Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
copy to:
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
or to such other person at such other place as the Company shall designate to
Purchaser in writing;
(b) if to any Purchaser, to the address set forth under such
Purchaser's name on Schedule A attached to this Agreement,
with a copy to:
▇▇▇▇▇▇▇▇▇ & Zivian
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a Purchaser, at such address or
addresses as shall have been furnished to the Company at the time of the
transfer or transfers, or at such other address or addresses as may have been
furnished by such transferee or transferees to the Company in writing.
Section 11. Miscellaneous.
11.1 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement or any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
11.2 Amendments. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and by Purchaser.
Any provisions of the Series A Preferred Stock can only be modified or amended
in accordance with the provisions of Section 9 of the Certificate of Amendment.
11.3 Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
11.4 Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
11.5 GOVERNING LAW/JURISDICTION. THIS AGREEMENT WILL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
EXCEPT FOR MATTERS ARISING UNDER THE SECURITIES ACT, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES CONSENTS TO THE
JURISDICTION OF THE COURTS OF OR LOCATED IN THE STATE OF ILLINOIS, CITY OF
CHICAGO, IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND HEREBY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY
OBJECTION BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH PROCEEDING
IN ANY FEDERAL OR STATE COURT LOCATED IN SUCH CITY. EACH PARTY HEREBY AGREES
THAT IF ANOTHER PARTY TO THIS AGREEMENT OBTAINS A JUDGMENT AGAINST IT IN SUCH A
PROCEEDING, THE PARTY WHICH OBTAINED SUCH JUDGMENT MAY ENFORCE SAME BY SUMMARY
JUDGMENT IN THE COURTS OF ANY COUNTRY HAVING JURISDICTION OVER THE PARTY AGAINST
WHOM SUCH JUDGMENT WAS OBTAINED, AND EACH PARTY HEREBY WAIVES ANY DEFENSES
AVAILABLE TO IT UNDER LOCAL LAW AND AGREES TO THE ENFORCEMENT OF SUCH A
JUDGMENT. IN ADDITION, THE PARTIES AGREE THAT THE PARTY AGAINST WHOM SUCH
JUDGMENT WAS OBTAINED WILL PAY THE LEGAL FEES OF THE PARTY OBTAINING SUCH
JUDGMENT. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
11.6 Recovery of Attorney's Fees. Should any party bring an action to
enforce the terms of this Agreement then, if Purchaser prevails in such action
it should be entitled to recovery of its attorney's fees from the Company, and
if the Company prevails in such action it shall be entitled to recovery of its
attorney's fees from Purchaser.
11.7 Fees. The Company acknowledges that Purchaser shall have no respos1
nsibility for the payment of any of the Company's fees in connection with this
offering.
11.8 Counterparts/Facsimile. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
11.9 Publicity. Purchaser shall not issue any press releases or otherwise
make any public statement with respect to the transactions contemplated by this
Agreement without the prior written consent of the Company, except as may be
required by applicable law or regulation.
11.10 Survival. The representations and warranties in this Agreement
shall survive the closing of the transactions contemplated by this Agreement.
*****END OF TEXT*****
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized representatives the day and year first above
written.
KTI, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Officer
PURCHASER:
By
Its: