Document:

exv10w5

 

Exhibit 10.5

NONCOMPETITION AND CONFIDENTIALITY AGREEMENT

     THIS NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (this “Agreement”) is entered into
as of October 31, 2005, to be effective as of the Transaction Closing Date, by and between Dr.
Kenneth Q. Carlile (hereinafter referred to as “Dr. Carlile”), and Sabine Production
Partners, LP (the “Company”).

     WHEREAS, Cano Petroleum, Inc., a Delaware corporation (“Cano”), Carlile Management,
LLC, a Texas limited liability company (“Carlile Management”), and Haddock Enterprises,
LLC, a Texas limited liability company (“Haddock”), being all of the members of Sabine
Operating, as defined below (each a “Member” and collectively the “Members”)
entered into that certain SPP Transaction Summary dated August 4, 2005 (the “Summary”); and

     WHEREAS, the Members are the sole members of Sabine Production Operating, LLC, a Texas limited
liability company (“Sabine Operating”), which serves as the Manager of Sabine Production
Management, LLC, a Texas limited liability company (“Sabine Management”), which serves as
the general partner of the Company; and

     WHEREAS, Dr. Carlile will, subject to the terms and provisions of this Agreement and the below
described Regulations, serve as a member of the Governing Board of Managers and as an executive
officer of Sabine Operating; and

     WHEREAS, Dr. Carlile has informed the Company that he presently holds the position of officer,
director, member or partner in a number of entities as set forth in Paragraph 7 of this Agreement
(the “Other Entities”) and as such Dr. Carlile must also act in the best interest of the
Other Entities; and the Company hereby expressly agrees, understands and acknowledges that, subject
to the terms and provisions of this Agreement, actions taken for the Other Entities listed under
the Competition Disclosures in Paragraph 7 will not be deemed to constitute competition with the
Company in violation of the terms of this Agreement and shall not be deemed to constitute
usurpation of an opportunity of the Company; and

     WHEREAS, those certain Amended and Restated Regulations of Sabine Operating (the
“Regulations”) that the Members are entering into contemporaneously herewith incorporate
certain principles set forth in the Summary, including without limitation, the protocol, to be
followed by the Governing Board of Managers and its Conflicts Committee in evaluating any Related
Party Transaction; and

     WHEREAS, pursuant to Paragraph X of the Summary, the Members and the Company have
contemporaneously entered into the Omnibus Agreement dated the date hereof but to be effective as
of the Transaction Closing Date among the Members and the Company (the “Omnibus
Agreement”), the Regulations, the Compensation Reimbursement Agreement dated the date hereof
between Cano and the Company, and this Agreement (collectively, the “Transaction
Agreements”) effectuating the principles set forth in the Summary;

 

 

     NOW, THEREFORE, in consideration of and in reliance upon the foregoing premises, the mutual
covenants hereinafter set forth, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:

     1. Definitions. Except as may be otherwise herein expressly provided, the following terms and
phrases shall have the meanings set forth below:

     “Affiliate” of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common control with such
specified Person. For the purposes of this definition, “control” when used with respect to any
Person means the power to direct the management and policies of such Person, directly or
indirectly, whether through the beneficial ownership of a majority of voting securities, by
contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative
to the foregoing. For purposes of this Agreement, the Company shall be deemed to be an
Affiliate of a Member with respect to a confidentiality obligation of a Member to a third party
relating to an Oil & Gas Opportunity.

     “Company Business Strategy” means the business strategy for the Company described
in the Company’s Registration Statement No. 333-1273203 on Form S-4 filed with the Securities
and Exchange Commission (the “Registration Statement”).

     “Identified Property” has the meaning set forth in the Omnibus Agreement.

     “Oil & Gas Opportunity” has the meaning set forth in the Omnibus Agreement.

     “Person” has the meaning set forth in the Omnibus Agreement.

     A party’s “Representatives” shall include a party’s Affiliates and the directors,
managers, members, officers, employees, agents, partners or advisors of such party (including,
without limitation, attorneys, accountants, consultants, bankers and financial advisors) of all
of them.

     “Restrictive Period” means the period beginning on the Transaction Closing Date
and ending on the second anniversary of the Transaction Closing Date.

     “Transaction Closing Date” means the date on which the Company completes the
acquisition of assets of Sabine Royalty Trust as described in the Registration Statement.

     2. Non-Disclosure Agreement. Dr. Carlile will not directly or indirectly disclose any
Confidential Information of the Company, of Cano or its Affiliates (“Cano Entities”), of
Haddock or its Affiliates (the “Haddock Entities”), or of Carlile Management (the Cano
Entities, the Haddock Entities and Carlile Management are called the “Member Entities”);
provided, however, that Dr. Carlile may disclose Confidential Information to Carlile Management.
“Confidential Information” is information with respect to any Identified Property and any
Oil &

 

 

Gas Opportunity that is (a) disclosed in written form and identified by marking thereon as
“Confidential” or (b) is disclosed in another form and is identified as confidential at the time of
disclosure; provided, however, Confidential Information shall NOT include and shall exclude
information which (i) was in the possession of or known by Dr. Carlile without an obligation to
maintain confidentiality thereof prior to its receipt, (ii) is obtained by Dr. Carlile from a third
party who is not subject to a confidentiality obligation; (iii) is independently developed by Dr.
Carlile and/or one or more of the “Other Entities” as defined in Paragraph 9 hereof; (iv) is or
becomes available to the public or is generally known in the industry in which the Company operates
other than as a result of disclosure by any person (including but not limited to Dr. Carlile) in
violation of any obligation owing to the Company or the Members; or (v) Dr. Carlile is required to
disclose under any applicable laws, rules, regulations or directives of any government agency,
tribunal or authority having proper jurisdiction or under subpoena or other process of law.

     3. Non-Use Agreement. Except as specifically provided herein with respect to disclosure, Dr.
Carlile shall not use any Confidential Information for any purpose other than performing his
obligations to the Company. Except as specifically provided herein with respect to disclosure,
Dr. Carlile shall not make copies (written, electronic or in any other media) of any Confidential
Information except to the extent reasonably necessary for performance of his obligations to the
Company. If Dr. Carlile becomes aware during the Restrictive Period that any Confidential
Information appears to be information also being, or relating to a matter being, reviewed or
utilized by, or currently available to or the subject of an interest by, any of the Other Entities,
he shall promptly, but in any event within ten business days, after so becoming aware (i) notify
the Company and Sabine Operating that he will discontinue any review of such Confidential
Information; (ii) return any and all such Confidential Information to the Company or Sabine
Operating without making or retaining any copy or copies thereof; (iii) recuse himself from any
involvement in any decision (including any vote or votes pertaining thereto, whether in his
capacity as a member of the governing board of managers of Sabine Operating or otherwise) that may
be made by Sabine Operating or the Company in connection with such Confidential Information and the
Identified Property or Oil & Gas Opportunity which is the subject of such Confidential Information,
and (iv) waive and relinquish his right to receive any additional Confidential Information relating
to such matter; and he shall continue to maintain the confidentiality of any such Confidential
Information to which Dr. Carlile has been granted access.

     4. Duty to Return Confidential Information. The Confidential Information will remain the
property of the party that developed it and all reports, analyses, worksheets, compilations,
studies, memorandums, and other documents, whether contained in writing, on compact disc, on tape,
on computer disks or otherwise preserved in any medium, whether prepared by Sabine Operating, the
Company or any of the Member Entities, which contain or reflect Confidential Information
(“Other Materials”) will also be the sole property of the party that developed such Other
Materials. Upon the demand of the Company or the Member Entities, Dr. Carlile shall immediately
return or turn over all Confidential Information and Other

 

 

Materials, without making or retaining
any copies thereof in any medium, to the party which owns, generated
or developed the same. 

     5. Competition Disclosure During Restrictive Period. If Dr. Carlile becomes aware during the
Restrictive Period that any Other Entity is likely to compete directly or indirectly with the
Company with respect to any Identified Property or Oil & Gas Opportunity, he shall promptly, but in
any event within ten business days, after so becoming aware (i) notify the Company and Sabine
Operating that he will discontinue any review of such Confidential Information; (ii) return any and
all such Confidential Information to the Company or Sabine Operating without making or retaining
any copy or copies thereof; (iii) recuse himself from any involvement in any decision (including
any vote or votes pertaining thereto, whether in his capacity as a member of the governing board of
managers of Sabine Operating or otherwise) that may be made by Sabine Operating or the Company in
connection with such Confidential Information and the Identified Property or Oil & Gas Opportunity
which is the subject of such Confidential Information, and (iv) waive and relinquish his right to
receive any additional Confidential Information relating to such matter; and he shall continue to
maintain the confidentiality of any such Confidential Information to which Dr. Carlile has been
granted access. It is acknowledged, agreed and understood by and between Dr. Carlile and the
Company that (x) even if the Company has provided Dr. Carlile Confidential Information regarding an
Identified Property or Oil & Gas Opportunity, the Other Entities are not prohibited or foreclosed
from competing for such Identified Property or Oil & Gas Opportunity provided that such Other
Entities did not receive any Confidential Information from Dr. Carlile regarding such Identified
Property or Oil & Gas Opportunity and provided such Other Entities became aware of or developed
knowledge of such Identified Property or Oil & Gas Opportunity independently or from a third party
source which did not have a contractual obligation with the Company to keep such data confidential;
and (y) except as provided herein, the Omnibus Agreement does not apply to Dr. Carlile.

     6. Reasonableness. Dr. Carlile acknowledges and agrees that the restrictions imposed in this
Agreement are reasonable as to time, activity and geographical scope; are not oppressive; were
accepted by Dr. Carlile with full knowledge and understanding of their implications; and are
necessary to protect the business interests of the Company. The Company and Dr. Carlile recognize
that the laws and public policies of various jurisdictions may differ as to the validity and
enforceability of covenants and undertakings of noncompetition and intend that the provisions shall
be enforced to the fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought and that unenforceability (or modification to conform
to laws and public policies) of any provision of this Agreement shall not render unenforceable or
impair the remainder of the provisions of this Agreement. Accordingly, if any provision shall be
determined to be invalid or unenforceable, in whole or in part, under the laws or public policies
of any jurisdiction in which enforcement is sought, then, as to such jurisdiction, the provisions
shall be deemed amended to delete or modify as necessary the offending provision and to alter the
balance thereof in order to render it valid and enforceable in such jurisdiction.

 

 

     7. Competition Disclosures. The Company acknowledges that, as of the execution date of this
Agreement, Dr. Carlile has the affiliations (“Other Capacities”) with the other entities
(“Other Entities”) engaged in oil and gas activities as set forth in Schedule A
attached hereto and incorporated herein by reference. On or prior to the Transaction Closing Date,
Dr. Carlile shall furnish to the Company an updated listing, in the same form as the attached
Schedule A, of Dr. Carlile’s Other Capacities with Other Entities as of the Transaction
Closing Date and that listing shall replace and be substituted for the Schedule A
attached to this Agreement as of the Effective Date. From and after that time, all references in
this Agreement to Schedule A shall mean and refer to that substituted Schedule A.

     The Company acknowledges that Dr. Carlile may enter into or maintain Other Capacities with
other businesses not listed in Schedule A hereto, but Dr. Carlile agrees to provide the
Company written notice of any other entities that may potentially compete with the Company whether
now in existence or formed in the future (each an “Additional Other Entity”) and to furnish
the Company with adequate disclosure (similar to the disclosure above) regarding each Additional
Other Entity. Each Additional Other Entity shall be regarded as an Other Entity for all purposes
hereunder.

     The Company acknowledges that, as of the execution date of this Agreement, the Counties
and/or Parishes in which the Other Entities operate leasehold interests, non-operated leasehold
interests, undeveloped leasehold interests, prospects, overriding royalty interests, royalty
interests and surface rights are set forth in Schedule B attached hereto and incorporated
herein by reference. On or prior to the Transaction Closing Date, Dr. Carlile shall furnish to the
Company a listing, in the same form as the attached Schedule B, of the Counties and/or
Parishes in which the Other Entities, as of the Transaction Closing Date, operate leasehold
interests, non-operated leasehold interests, undeveloped leasehold interests, prospects, overriding
royalty interests, royalty interests and surface rights and that listing shall replace and be
substituted for the Schedule B attached to this Agreement as of the Effective Date. From
and after that time, all references in this Agreement to Schedule B shall mean and refer to
that substituted Schedule B.

     The Company expressly and explicitly understands, acknowledges and agrees that the performance
by Dr. Carlile of Dr. Carlile’s duties in his Other Capacities for the Other Entities, as set forth
above, shall be deemed NOT to be a breach or a violation of this Agreement provided that Dr.
Carlile otherwise complies with the terms and provisions of this Agreement.

     Further, Dr. Carlile and the Company expressly and explicitly understand, acknowledge and
agree that, this Agreement does not in any way or manner limit the States, Counties and/or Parishes
in which the Company, Dr. Carlile or one or more of the above described Other Entities may attempt
to acquire and/or actually acquires interests or conducts oil and gas activities, even if it is in
the same Counties and/or Parishes in which the Company, Dr. Carlile or the Other Entities owns oil
and gas interests or in which the Company, Dr. Carlile or the Other Entities plans to attempt to
acquire oil and gas interests in the future.

 

 

     The Company also understands and acknowledges that as of the execution date of this Agreement,
the only entity of the Other Entities in which Dr. Carlile owns controlling interest is KCZC Oil &
Gas, Ltd. and KCZC Operating, LLC. On or prior to the Transaction Closing Date, Dr. Carlile shall
identify to the Company in writing each of the Other Entities in which Dr. Carlile owns a
controlling interest as of that date.

     8. Change in Business Strategy by an Other Entity. The Company understands that the Other
Entities currently have different primary business
strategies than the Company Business Strategy and presently intend to continue executing their
business strategies. If during the Restrictive Period one or more of the Other Entities alter its
primary business strategy to a primary business strategy that matches the Company Business
Strategy, Dr. Carlile shall give the Company written notice thereof promptly, but in any event
within ten business days, upon first becoming aware of such alteration. Upon the receipt of such
notice, the Company, acting through its remaining Members, may, by the unanimous decision of Cano
and Haddock, request that Dr. Carlile resign from the governing board of managers and all other
offices of Sabine Operating, whereupon Dr. Carlile and Carlile Management shall elect within ten
business days of a request, either (x) to resign all such positions and relinquish all voting
rights and powers they may have as a Member of Sabine Operating and as a member of the governing
board of managers of Sabine Operating; or (y) to agree in writing to bind himself and that Other
Entity to the provisions of Sections 5 and 10 of the Omnibus Agreement as fully as Cano or its
Affiliates and Haddock or its Affiliates are thereby bound (that is, to waive the exception set
forth in Section 2 of the Omnibus Agreement). It is hereby understood that the pursuit of a
producing oil and gas property (or group of properties) acquisition by one or more of the Other
Entities from time to time and not in connection with an alteration of a primary business strategy
shall not constitute an alteration in primary business strategy to match the Company Business
Strategy.

     9. Time of Essence. Time is of the essence in the performance of this Agreement.

     10. Remedies for Breach. Dr. Carlile and the Company admit that a breach of any provision of
this Agreement would cause irreparable damage to the other party and that monetary damages for any
such breach would be an inadequate remedy to the non-breaching party. Therefore, Dr. Carlile and
the Company consent that the non-breaching party shall be entitled to seek, before any court having
jurisdiction, and without the posting of bond or other security and without the necessity of
proving monetary loss or the inadequacy of monetary damages, a temporary restraining order and a
temporary or permanent injunction or injunctions to prevent breaches of any provision of this
Agreement by any party and to enforce specifically the performance of the provisions of this
Agreement by a party hereto. The remedies under this paragraph are not exclusive and will be in
addition to any other remedy which a party hereto may have by law, at equity or otherwise.

     11. Non-Assignability. No party hereto may assign its rights or obligations hereunder without
the prior written consent of all of the other parties hereto.

     12. Applicable Law. THIS AGREEMENT IS MADE, DELIVERED AND PERFORMABLE IN TARRANT COUNTY,
TEXAS, AND SHALL BE CONSTRUED

 

 

UNDER, GOVERNED BY AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES WHICH WOULD REFER TO THE LAW OF
ANOTHER JURISDICTION. ANY ACTION OR PROCEEDING AGAINST ANY PARTY HERETO UNDER OR IN CONNECTION
WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN TARRANT COUNTY, TEXAS. EACH OF
THE PARTIES HERETO IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS AND (B)
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN
INCONVENIENT OR IMPROPER FORUM.

     13. Notices. Notices shall be sent to the parties at the following addresses:

     If to the Company or Sabine Operating:

Sabine Production Operating, LLC

Attn: Governing Board of Managers

512 Main Street, Suite 1200

Fort Worth, TX 76102

Facsimile: (817) 885-8391

     If to Dr. Carlile:

Dr. Kenneth Q. Carlile

2615 East End Blvd. South

Marshall, TX 75672

Facsimile: (903) 935-0521

Notices may be sent be certified mail, return receipt requested, Federal Express or comparable
overnight delivery service, or facsimile. Notice will be deemed received on the fourth business day
following deposit in U.S. mail and on the first business day following deposit with Federal Express
or other delivery service, or transmission by facsimile. Any party to this Agreement may change its
address for notice by giving written notice to the other party at the address and in accordance
with the procedures provided above.

     14. Miscellaneous. This document contains the entire agreement between Dr. Carlile and the
Company on the subject matter hereof, supersedes all prior agreements, understandings and
discussions between Dr. Carlile and the Company on the subject matter hereof (including but not
limited to the Summary), and may not be modified or waived in any manner except in a writing signed
by all parties. No failure or delay by any party in exercising any right will operate as a waiver
thereof. The obligations contained herein may not be delegated to any other person. The parties’
agreements shall survive termination of this Agreement, cessation of their service, and redelivery
of all Confidential Information. To the extent permitted by applicable law, this Agreement shall
be binding on the parties hereto and their respective heirs, assigns, and legal representatives.
If any provision of this Agreement is held invalid or unenforceable, the remaining provisions of
this Agreement shall not be affected thereby. The parties agree that, at

 

 

the request of the other
party,
they will without further consideration execute and deliver all other instruments, agreements and
documents, and do all other actions, as the requesting party may reasonably request in order more
effectively to carry out the purposes and intentions of this Agreement.

     15. Term. This Agreement shall expire and be of no further force or effect on the second
anniversary of the Transaction Closing Date.

     16. Termination in Event Transaction Is Delayed. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement shall terminate, without continuing obligation or
liability on the part of any party hereto, if the Transaction Closing Date has not occurred on or
before December 31, 2006.

     17. Counterparts. This Agreement shall become binding upon the parties hereto upon execution
and delivery of this document by all parties, which execution and delivery may occur by facsimile
and in multiple counterparts, each of which being deemed an original and all of which, when taken
together being deemed a single document.

     18. Re Omnibus Agreement. In the event of a conflict between the terms and conditions of this
Agreement and the terms and conditions of the Omnibus Agreement of even date herewith among Cano
Petroleum, Inc., Carlile Management, LLC, Haddock Enterprises, LLC and the Company, the terms and
conditions of this Agreement shall govern and prevail.

Accepted and agreed by and among the Company and Dr. Carlile as of the date first set forth
hereinabove, but effective as of the Transaction Closing Date.

/s/ DR.
KENNETH Q. CARLILE
DR. KENNETH Q. CARLILE

SABINE PRODUCTION PARTNERS, LP

By: Sabine Production Management, LLC, its general partner

By: Sabine Production Operating, LLC, its Manager

By: /s/
GERALD W. HADDOCK

          Gerald W. Haddock, Chairman

 

 

SCHEDULE A

OTHER CAPACITIES AND OTHER ENTITIES

as of October 31, 2005

     (a) Dr. Carlile is a Limited Partner in Camterra Resources Partners, Ltd., a Texas Limited
Partnership. Camterra Resources Partners, Ltd. currently owns interest in numerous oil and gas
wells, numerous undeveloped Oil, Gas and Mineral Leases, various unleased mineral interests,
royalty interests, overriding royalty interests and surface rights.

     (b) Dr. Carlile is a Co-Chairman of the Board of Directors, a Shareholder and the Chief
Executive Officer of Camterra Resources, Inc., a Texas Corporation, which is the Managing General
Partner of Camterra Resources Partners, Ltd.

     (c) Dr. Carlile is a Limited Liability Partner and a Managing Partner of Martex Drilling
Company, LLP, a Texas Registered Limited Liability Partnership. Martex Drilling Company, LLP
drills wells for third parties on a contract basis, and it owns non-operating working interests in
a large number of wells. Martex Drilling Company, LLP owns significant leasehold working
interests, royalty interests, overriding royalty interests, mineral interests and surface rights.
Martex Drilling Company, LLP is continuously participating in the drilling of oil and gas wells
with its leasehold working interests. Martex Drilling Company, LLP is continuously acquiring
interests in Oil, Gas and Mineral Leases. Most leasehold, royalty, overriding royalty and surface
rights owned by Martex Drilling Company, LLP are located in Northwest Louisiana and Northeast
Texas.

     (d) Dr. Carlile is a Limited Liability Partner and a Managing Partner in Martex Well Services,
LLP, a Texas Registered Limited Liability Partnership. Martex Well Services, LLP owns workover
rigs, swab rigs and oilfield construction equipment and works for many companies. Martex Well
Services, LLP owns working interest and overriding royalty interests in various oil and gas wells
located within Northeast Texas and Northwest Louisiana.

     (e) Dr. Carlile is a Limited Partner of Fowler Transportation, Ltd., a Texas Limited
Partnership. Fowler Transportation, Ltd. moves drilling rigs and other oilfield equipment for
third parties on a contract basis.

     (f) Dr. Carlile is a Member of Fowler Management, LLC, a Texas Limited Liability Company.
Fowler Management, LLC is the General Partner of Fowler Transportation, Ltd.

     (g) Dr. Carlile is a Limited Partner in KCZC Oil & Gas, Ltd., a Texas Limited Partnership.
KCZC Oil & Gas, Ltd. owns working interests, royalty interests and overriding royalty interests in
numerous producing oil and gas wells. KCZC Oil & Gas, Ltd. also owns working interests, royalty
interests and
overriding royalty interests in numerous undeveloped Oil, Gas and Mineral Leases. KCZC Oil & Gas,
Ltd. also owns various surface interests in various Counties and/or Parishes. KCZC Oil & Gas, Ltd.
is continuously investing and participating in

 

 

the drilling of wells exploring for oil and/or gas
production and in the acquisition of Oil, Gas and Mineral Leases. The Counties and Parishes in
which KCZC Oil & Gas, Ltd. and the Other Entities currently own working interests, overriding
royalty interests, royalty interests, mineral rights and surface rights are listed on the attached
Exhibit B.

     (h) Dr. Carlile is a Member and the Managing Member of KCZC Operating, LLC, a Texas Limited
Liability Company which serves as the General Partner of KCZC Oil & Gas, Ltd.

     (i) Dr. Carlile is a Limited Liability Partner and a Managing Partner in Unitex Properties,
LLP, a Texas Registered Limited Liability Partnership. Unitex Properties, LLP owns non-operating
working interest, royalty interest and overriding royalty interests in numerous oil and gas
properties located primarily in Northeast Texas and Northwest Louisiana.

     (j) Dr. Carlile is a Member in Leonard Road Farms, LLC, a Louisiana Limited Liability Company.
Leonard Road Farms, LLC owns mineral interest, royalty interest and the surface of various lands
located in the Elm Grove Field in Caddo Parish, Louisiana. Dr. Carlile is the Chief Executive
Officer of Camterra Resources, Inc., which is the Manager of Leonard Road Farms, LLC.

     (k) Dr. Carlile is a Member of Robson Farms, LLC, a Louisiana Limited Liability Company.
Robson Farms, LLC owns mineral interest, royalty interest and the surface of various lands located
in the Elm Grove Field in Caddo Parish, Louisiana.

     (l) Dr. Carlile owns various oil and gas working interests, overriding royalty interests,
royalty interests and mineral interests in his own name, Kenneth Q. Carlile.

 

 

SCHEDULE B

COUNTIES AND PARISHES IN WHICH OTHER ENTITIES HAVE INTERESTS

As of October 31, 2005

 

 

EXHIBIT
“B”

To

NONCOMPETITION AGREEMENT AND CONFIDENTIALITY AGREEMENT

	 	 	 	 	 	 	 	 	 	 	 	 	 
	State of Arkansas	 	State of Kansas	 	State of Louisiana	 	State of Mississippi	 	State of New Mexico	 	State of North Dakota	 	State of Oklahoma
	Columbia County

	 	Cove County
	 	Bienville Parish
	 	Covington County
	 	Lea County
	 	Divide County
	 	McClain County
	Union County

	 	 	 	Bossier Parish
	 	Jefferson Davis County
	 	Eddy County	 	 	 	 
	 

	 	 	 	Caddo Parish
	 	Wayne County	 	 	 	 	 	 
	 

	 	 	 	Claiborne Parish	 	 	 	 	 	 	 	 
	 

	 	 	 	DeSoto Parish	 	 	 	 	 	 	 	 
	 

	 	 	 	Jackson Parish	 	 	 	 	 	 	 	 
	 

	 	 	 	Lincoln Parish	 	 	 	 	 	 	 	 
	 

	 	 	 	Ouachita Parish	 	 	 	 	 	 	 	 
	 

	 	 	 	Red River	 	 	 	 	 	 	 	 
	 

	 	 	 	Webster Parish	 	 	 	 	 	 	 	 

	 	 	 	 	 
	State of Texas	 	State of Wyoming
	Andrews County

	 	Morris County
	 	Albany County
	Calhoun County

	 	Nacogdoches County
	 	Big Horn County
	Cass County

	 	Navarro County
	 	Carbon County
	DeWitt County

	 	Ochiltree County
	 	Fremont County
	Freestone County

	 	Panola County
	 	Hot Springs County
	Glasscock County

	 	Reeves County	 	 
	Gregg County

	 	Rusk County	 	 
	Harrison County

	 	Shelby County	 	 
	Henderson County

	 	Smith County	 	 
	Karnes County

	 	Titus County	 	 
	Leon County

	 	Upshur County	 	 
	Madison County

	 	Ward County	 	 
	Marion County

	 	Winkler County	 	 
	Midland County

	 	Wood County<PAGE>

                                                                     EXHIBIT 4.3

THE SALE AND ISSUANCE OF THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, OR TRANSFERRED UNLESS (i) A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS
IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION
OR (ii) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY
TO THE COMPANY, THAT AN EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH OFFER,
SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY
STATE OR OTHER JURISDICTION.

WARRANT NO. KTI-1A                                                100,000 SHARES
                                            (subject to adjustment and increase)

DATE: March 31, 2003

                        WARRANT TO PURCHASE COMMON STOCK

                                       OF

                       STERLING CONSTRUCTION COMPANY, INC.

                   (formerly known as Oakhurst Company, Inc.)

                             Void after July 3, 2011

This certifies that for value received, KTI, INC., a New Jersey corporation, or
registered assigns (the "Holder") is entitled, subject to the terms set forth
below, to purchase from STERLING CONSTRUCTION COMPANY, INC. (formerly known as
Oakhurst Company, Inc.) a Delaware corporation (the "Company") One Hundred
Thousand (100,000) shares of the Common Stock, $0.01 par value per share, (the
"Common Stock") of the Company (the "Warrant Shares") upon surrender hereof, at
the principal office of the Company referred to below, with the subscription
form attached hereto duly executed, and simultaneous payment therefor in lawful
money of the United States or otherwise as hereinafter provided, at the Exercise
Price set forth in Section 2 below. The number, character and Exercise Price of
such shares of Common Stock are subject to adjustment as provided below. The
term "Warrant" as used herein shall include this Warrant and any warrants
delivered in substitution or exchange therefor as provided herein.

This Warrant is issued in exchange for the surrender by the Holder of
Warrant No. KTI-1 which was issued effective July 3, 2001 (the "Warrant Issue
Date") in connection with that certain Windup Agreement dated as of April 19,
2001 between the Company, Oakhurst Technology, Inc and KTI, Inc. By agreement of
the Company and the Holder, this Warrant amends and replaces in its entirety
Warrant KTI-1 in order to reduce the number of shares that may be purchased to
the number set forth above and is to be effective from and after March 31, 2003
(the "Amendment Issue Date").

1.    TERM OF WARRANT. Subject to the terms and conditions set forth herein and
      except as provided below, this Warrant shall be exercisable, in whole or
      in part, during the term commencing on the date that is fifty-four (54)
      months after the Warrant Issue Date and ending at 5:00 p.m., Eastern Time
      on the tenth (10th) anniversary of the Warrant Issue Date, and shall be
      void thereafter. Notwithstanding the foregoing, this Warrant shall become
      exercisable commencing immediately prior to the occurrence of any event
      described in Section 11(a) below that results in a person or group of
      persons acquiring more than fifty percent (50%) of the issued and
      outstanding capital stock of the Company

                                                                    Page 1 of 16
<PAGE>

      on a fully-diluted basis. For purposes of this Warrant, a "person" shall
      be deemed to include natural persons, firms, corporations, partnerships,
      associations, joint ventures, joint stock companies, trusts,
      unincorporated organizations and any other private or public entities,
      whether or not any of the foregoing are acting on their behalf or in a
      representative capacity.

2.    EXERCISE PRICE. The Exercise Price at which this Warrant may be exercised
      shall be equal to One Dollar and Fifty Cents ($1.50) per share. The
      Exercise Price shall be subject to adjustment as provided below.

3.    EXERCISE OF WARRANT.

      (a)   The purchase rights represented by this Warrant are exercisable by
            the Holder in whole or in part at any time, or from time to time,
            during the term hereof as set forth in Section 1, above, by the
            surrender of this Warrant and the Notice of Exercise attached as
            Annex I hereto duly completed and executed on behalf of the Holder,
            at the principal office of the Company (or such other office or
            agency of the Company as it may designate by notice in writing to
            the Holder at the address of the Holder appearing on the books of
            the Company), upon payment by cashier's check payable to the Company
            or by wire transfer of the purchase price of the shares to be
            purchased.

      (b)   This Warrant shall be deemed to have been exercised at 5:00 p.m.
            Eastern Time on the date of its surrender for exercise as provided
            above, and the person entitled to receive the shares of Common Stock
            issuable upon such exercise shall be treated for all purposes as the
            holder of record of such shares at such date and time. As promptly
            as practicable on or after such date and in any event within ten
            (10) days thereafter, the Company at its expense shall issue and
            deliver to the person or persons entitled to receive the same a
            certificate or certificates for the number of shares issuable upon
            such exercise. In the event that this Warrant is exercised in part,
            the Company at its expense shall execute and deliver a new Warrant
            of like tenor exercisable for the number of shares for which this
            Warrant may then be exercised.

      (c)   Notwithstanding the provisions of Section 3(a), above, the Holder
            may at its option elect to pay some or all of the purchase price
            payable upon an exercise of this Warrant by canceling a portion of
            this Warrant exercisable for such number of Warrant Shares as is
            determined by dividing (i) the total purchase price payable in
            respect of the number of Warrant Shares being purchased upon such
            exercise by (ii) the excess of the Fair Market Value per share of
            Common Stock (as defined below) as of the exercise date over the
            Exercise Price per share.

      (d)   For purposes of this Warrant, the "Fair Market Value" per share of
            Common Stock shall be determined as follows: (i) If the Common Stock
            is listed on a national securities exchange, the Nasdaq National
            Market or another nationally recognized trading system as of the
            exercise date, the Fair Market Value per share of Common Stock shall
            be deemed to be the average of the high and low reported sale prices
            per share of Common Stock thereon on the trading day immediately
            preceding the exercise date (provided that if no such price is
            reported on such day, the Fair Market Value per share of Common
            Stock shall be determined pursuant to the following clause (ii));
            and (ii) if the Common Stock is not listed on a national securities
            exchange, the Nasdaq National Market or another nationally
            recognized trading system as of the Exercise Date, the Fair Market
            Value per share of Common Stock shall be deemed to be the amount
            most recently determined by the Board of Directors

                                                                    Page 2 of 16
<PAGE>

            of the Company to represent the fair market value per share of the
            Common Stock. Upon request of the Holder, the Board of Directors (or
            a representative thereof) shall promptly notify the Holder of the
            Fair Market Value per share of Common Stock. Notwithstanding the
            foregoing, if the Board of Directors has not made such a
            determination within the three-month period prior to the exercise
            date, then the Board of Directors shall make a determination of the
            Fair Market Value per share of the Common Stock within fifteen (15)
            days of a request by the Holder that it do so; and the exercise of
            this Warrant pursuant to this subsection shall be delayed until such
            determination is made.

4.    NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
      fractional shares shall be issued upon the exercise of this Warrant. In
      lieu of any fractional share to which the Holder would otherwise be
      entitled, the Company shall make a cash payment equal to the Fair Market
      Value per share of Common Stock multiplied by such fraction.

5.    REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to
      the Company of the loss, theft, destruction or mutilation of this Warrant
      and, in the case of loss, theft or destruction, on delivery of an
      indemnity agreement reasonably satisfactory in form and substance to the
      Company or, in the case of mutilation, on surrender and cancellation of
      this Warrant, the Company at its expense shall execute and deliver, in
      lieu of this Warrant, a new warrant of like tenor and amount.

6.    RIGHTS OF STOCKHOLDERS. Subject to Sections 9 and 11 of this Warrant, the
      Holder, as such, shall not be entitled to vote or receive dividends or be
      deemed the holder of Common Stock or any other securities of the Company
      that may at any time be issuable on the exercise hereof for any purpose,
      nor shall anything contained herein be construed to confer upon the
      Holder, as such, any of the rights of a stockholder of the Company or any
      right to vote for the election of directors or upon any matter submitted
      to stockholders at any meeting thereof, or to give or withhold consent to
      any corporate action (whether upon any recapitalization, issuance of
      stock, reclassification of stock, change of par value, or change of stock
      to no par value, consolidation, merger, conveyance, or otherwise) or to
      receive notice of meetings, or to receive dividends or subscription rights
      or otherwise until this Warrant shall have been exercised as provided
      herein.

7.    TRANSFER OF WARRANT.

      (a)   Warrant Register. The Company shall maintain a register (the
            "Warrant Register") containing the names and addresses of the Holder
            or Holders. Any Holder of this Warrant or any portion thereof may
            change his address as shown on the Warrant Register by written
            notice to the Company requesting such change. Any notice or written
            communication required or permitted to be given to the Holder may be
            delivered or given by mail to such Holder as shown on the Warrant
            Register and at the address shown on the Warrant Register. Until
            this Warrant is transferred on the Warrant Register, the Company may
            treat the Holder as shown on the Warrant Register as the absolute
            owner of this Warrant for all purposes, notwithstanding any notice
            to the contrary.

      (b)   Warrant Agent. The Company may, by written notice to the Holder,
            appoint an agent for the purpose of maintaining the Warrant
            Register, issuing the Common Stock or other securities then issuable
            upon the exercise of this Warrant, exchanging this Warrant,
            replacing this Warrant, or any or all of the foregoing. Thereafter,
            any such

                                                                    Page 3 of 16
<PAGE>

            registration, issuance, exchange, or replacement, as the case may
            be, shall be made at the office of such agent.

      (c)   Transferability and Non-negotiability of Warrant.

            (i)   This Warrant may not be transferred or assigned in whole or in
                  part without compliance with all applicable federal and state
                  securities laws by the transferor and the transferee
                  (including the delivery of investment representation letters
                  and legal opinions reasonably satisfactory to the Company, if
                  such are reasonably requested by the Company.)

            (ii)  Notwithstanding the foregoing, no registration or opinion of
                  counsel shall be required for (A) a transfer by the Holder to
                  an affiliate, provided that the transferee agrees in writing
                  to be subject to the terms of this Section 7; or (B) a
                  transfer made in accordance with Rule 144 under the Act.

            (iii) Subject to the foregoing restrictions, this Warrant may be
                  transferred by endorsement (by the Holder executing the
                  Assignment Form attached as Annex II hereto) and delivery in
                  the same manner as a negotiable instrument transferable by
                  endorsement and delivery.

      (d)   Exchange of Warrant Upon a Transfer. On surrender of this Warrant
            for exchange, properly endorsed on the Assignment Form and subject
            to the provisions of this Warrant with respect to compliance with
            the Act and with the limitations on assignments and transfers
            contained in this Section 7, the Company at its expense shall issue
            to or on the order of the Holder a new warrant or warrants of like
            tenor, in the name of the Holder or as the Holder (on payment by the
            Holder of any applicable transfer taxes) may direct, for the number
            of shares issuable upon exercise hereof.

      (e)   Compliance with Securities Laws. The Holder of this Warrant, by
            acceptance hereof, acknowledges (i) that this Warrant and the shares
            of Common Stock to be issued upon exercise hereof are being acquired
            solely for the Holder's own account and not as a nominee for any
            other party, and for investment, and (ii) that the Holder shall not
            offer, sell or otherwise dispose of this Warrant or any shares of
            Common Stock to be issued upon exercise hereof except under
            circumstances that will not result in a violation of the Act or any
            state securities laws. Upon exercise of this Warrant, the Holder
            shall, if requested by the Company, confirm in writing, in a form
            reasonably satisfactory to the Company, that the shares of Common
            Stock so purchased are being acquired solely for the Holder's own
            account and not as a nominee for any other party, for investment,
            and not with a view toward distribution or resale.

8.    RESERVATION OF STOCK. The Company covenants that during the term that this
      Warrant is exercisable, the Company shall reserve from its authorized and
      unissued Common Stock a sufficient number of shares to provide for the
      issuance of Common Stock upon the exercise of this Warrant and, from time
      to time, shall take all steps necessary to amend its Certificate of
      Incorporation to provide sufficient reserves of shares of Common Stock
      issuable upon exercise of this Warrant. The Company further covenants that
      all shares that may be issued upon the exercise of rights represented by
      this Warrant, and payment of the Exercise Price, all as set forth herein,
      will be free from all taxes, liens and charges in respect of the issue
      thereof (other than taxes in respect of any transfer occurring
      contemporaneously or otherwise specified herein). The Company agrees that
      its issuance of this Warrant shall constitute full authority to its
      officers who are charged with the duty

                                                                    Page 4 of 16
<PAGE>

      of executing stock certificates to execute and issue the necessary
      certificates for shares of Common Stock upon the exercise of this Warrant.

9.    NOTICES.

      (a)   Whenever the Exercise Price or number of shares purchasable
            hereunder shall be adjusted pursuant to Section 11 hereof, the
            Company shall issue a certificate signed by its Chief Financial or
            Chief Executive Officer setting forth, in reasonable detail, the
            event requiring the adjustment, the amount of the adjustment, the
            method by which such adjustment was calculated, and the Exercise
            Price and number of shares purchasable hereunder after giving effect
            to such adjustment, and shall cause a copy of such certificate to be
            mailed by first-class mail, postage prepaid, to the Holder of this
            Warrant.

      (b)   In the event

            (i)   that the Company shall take a record of the holders of its
                  Common Stock (or other stock or securities at the time
                  receivable upon the exercise of this Warrant) for the purpose
                  of entitling them to receive any dividend or other
                  distribution, or any right to subscribe for or purchase any
                  shares of stock of any class or any other securities, or to
                  receive any other right; or

            (ii)  of any capital reorganization of the Company, any
                  reclassification of the capital stock of the Company, any
                  consolidation or merger of the Company with or into another
                  corporation, or any conveyance of all or substantially all of
                  the assets of the Company to another corporation; or

            (iii) of any voluntary dissolution, liquidation or winding-up of the
                  Company, then, and in each such case, the Company shall mail
                  or cause to be mailed to the Holder or Holders a notice
                  specifying, as the case may be, (1) the date on which a record
                  is to be taken for the purpose of such dividend, distribution
                  or right, and stating the amount and character of such
                  dividend, distribution or right; or (2) the date on which such
                  reorganization, reclassification, consolidation, merger,
                  conveyance, dissolution, liquidation or winding-up is to take
                  place, and the time, if any is to be fixed, as of which the
                  holders of record of Common Stock (or such stock or securities
                  at the time receivable upon the exercise of this Warrant)
                  shall be entitled to exchange their shares of Common Stock (or
                  such other stock or securities) for securities or other
                  property deliverable upon such reorganization,
                  reclassification, consolidation, merger, conveyance,
                  dissolution, liquidation or winding-up. Such notice shall be
                  mailed at least 15 days prior to the date therein specified.

      (c)   All such notices, advice and communications shall be deemed to have
            been received (i) in the case of personal delivery, on the date of
            such delivery and (ii) in the case of mailing, on the third business
            day following the date of such mailing.

10.   AMENDMENTS & WAIVERS.

      (a)   Any term of this Warrant may be amended with the written consent of
            the Company and the Holder.

      (b)   No waivers of, or exceptions to, any term, condition or provision of
            this Warrant, in any one or more instances, shall be deemed to be,
            or construed as, a further or continuing waiver of or exception to
            any such term, condition or provision.

                                                                    Page 5 of 16
<PAGE>

11.   ADJUSTMENTS. The Exercise Price and the number of shares purchasable
      hereunder are subject to adjustment from time to time as follows:

      (a)   Merger, Sale of Assets, etc.

            (i)   If at any time while this Warrant or any portion hereof is
                  outstanding and unexpired, there shall be (A) a reorganization
                  (other than a combination, reclassification, exchange or
                  subdivision of shares otherwise provided for herein); (B) a
                  merger or consolidation of the Company with or into another
                  corporation in which the Company is not the surviving entity
                  or a merger (including a reverse triangular merger) in which
                  the Company is the surviving entity but the shares of the
                  Company's capital stock outstanding immediately prior to the
                  merger are converted by virtue of the merger into other
                  property, whether in the form of securities, cash, or
                  otherwise; or (C) a sale or transfer of the Company's
                  properties and assets as, or substantially as, an entirety to
                  any other person, then, as a part of such reorganization,
                  merger, consolidation, sale or transfer, lawful provision
                  shall be made so that the holder of this Warrant shall
                  thereafter be entitled to receive upon exercise of this
                  Warrant, during the period specified herein and upon payment
                  of the Exercise Price then in effect, the number of shares of
                  stock or other securities or property of the successor
                  corporation resulting from such reorganization, merger,
                  consolidation, sale or transfer that a holder of the shares
                  deliverable upon exercise of this Warrant would have been
                  entitled to receive in such reorganization, consolidation,
                  merger, sale or transfer if this Warrant had been exercised
                  immediately before such reorganization, consolidation, merger,
                  sale or transfer, all subject to further adjustment as
                  provided in this Section 11.

            (ii)  Notwithstanding the foregoing sentence, if (A) there shall
                  occur any reorganization, consolidation, merger, sale or
                  transfer involving the Company in which the Common Stock is
                  converted into or exchanged for anything other than solely
                  equity securities; (B) the common stock of the acquiring or
                  surviving company is publicly traded; and (C) the acquiring or
                  surviving company agrees to the following, then, as part of
                  any such reorganization, recapitalization, consolidation or
                  merger, (1) the Holder shall have the right thereafter to
                  receive upon the exercise of this Warrant such number of
                  shares of common stock of the acquiring or surviving company
                  as is determined by multiplying (x) the number of shares of
                  Common Stock then subject to this Warrant by (y) a fraction,
                  the numerator of which is the Fair Market Value per share of
                  Common Stock as of the effective date of such transaction, and
                  the denominator of which is the fair market value per share of
                  common stock of the acquiring or surviving company as of the
                  effective date of such transaction, as determined in good
                  faith by the Board of Directors of the Company (using the
                  principles set forth in Section 3(d) to the extent
                  applicable); and (2) the exercise price per share of common
                  stock of the acquiring or surviving company shall be the
                  Exercise Price divided by the fraction referred to in clause
                  (y) above.

            (iii) The foregoing provisions of this Section 11(a) shall similarly
                  apply to successive reorganizations, consolidations, mergers,
                  sales and transfers and to the stock or securities of any
                  other corporation that are at the time receivable upon the
                  exercise of this Warrant. If the per share consideration
                  payable to the holder hereof for shares in connection with any
                  such transaction is in a form other than cash or marketable
                  securities, then the value of such consideration shall be

                                                                    Page 6 of 16
<PAGE>

                  determined in good faith by the Company's Board of Directors.
                  In all events, appropriate adjustment (as determined in good
                  faith by the Company's Board of Directors) shall be made in
                  the application of the provisions of this Warrant with respect
                  to the rights and interest of the Holder after the
                  transaction, to the end that the provisions of this Warrant
                  shall be applicable after that event, as near as reasonably
                  may be, in relation to any shares or other property
                  deliverable after that event upon exercise of this Warrant.

      (b)   Reclassification, etc. If the Company, at any time while this
            Warrant or any portion hereof remains outstanding and unexpired, by
            reclassification of securities or otherwise, shall change any of the
            securities as to which purchase rights under this Warrant exist into
            the same or a different number of securities of any other class or
            classes, this Warrant shall thereafter represent the right to
            acquire such number and kind of securities as would have been
            issuable as the result of such change with respect to the securities
            that were subject to the purchase rights under this Warrant
            immediately prior to such reclassification or other change and the
            Exercise Price therefor shall be appropriately adjusted, all subject
            to further adjustment as provided in this Section 11.

      (c)   Split, Subdivision or Combination of Shares. If the Company at any
            time while this Warrant or any portion hereof remains outstanding
            and unexpired, shall split, subdivide or combine the securities as
            to which purchase rights under this Warrant exist, into a different
            number of securities of the same class, the Exercise Price for such
            securities shall be proportionately decreased, and the number of
            shares of such securities for which this Warrant may be exercised
            shall be proportionately increased, in the case of a split or
            subdivision, or the Exercise Price for such securities shall be
            proportionately increased and the number of shares of such
            securities for which this Warrant may be exercised shall be
            proportionately decreased, in the case of a combination.

      (d)   Adjustments for Dividends in Stock or Other Securities or Property.
            If at any time while this Warrant or any portion hereof remains
            outstanding and unexpired the holders of the securities as to which
            purchase rights under this Warrant exist at the time shall have
            received, or, on or after the record date fixed for the
            determination of eligible stockholders, shall have become entitled
            to receive, without payment therefor, other or additional stock or
            other securities or property (other than cash) of the Company by way
            of dividend, then and in each case, this Warrant shall represent the
            right to acquire, in addition to the number of shares of the
            security receivable upon exercise of this Warrant, and without
            payment of any additional consideration therefor, the amount of such
            other or additional stock or other securities or property (other
            than cash) of the Company that such holder would hold on the date of
            such exercise had it been the holder of record of the security
            receivable upon exercise of this Warrant on the date hereof and had
            thereafter, during the period from the date hereof to and including
            the date of such exercise, retained such shares and/or all other
            additional stock available by it as aforesaid during such period,
            giving effect to all adjustments called for during such period by
            the provisions of this Section 11. Notwithstanding the foregoing,
            the Company agrees that it shall not make or authorize any cash
            dividend or other distribution of property (other than securities)
            on its capital stock to any holders thereof unless the Warrant is or
            is made to become

                                                                    Page 7 of 16
<PAGE>

            exercisable at such date and shall remain exercisable from such date
            until the 10th anniversary of the Warrant Issue Date.

      (e)   Adjustment For Diluting Issuances.

            (i)   For purposes of this Section 11(e), the following definitions
                  shall apply:

                  (A)   "Convertible Securities" shall mean any evidences of
                        indebtedness, shares or other securities directly or
                        indirectly convertible into or exchangeable for Common
                        Stock other than Excluded Securities (as defined below;)

                  (B)   "Options" shall mean rights, options or warrants to
                        subscribe for, purchase or otherwise acquire Common
                        Stock or Convertible Securities, other than Excluded
                        Securities;

                  (C)   "Additional Shares of Common Stock" shall mean all
                        shares of Common Stock issued (or deemed to be issued)
                        by the Company after the Amendment Issue Date, other
                        than:

                        (1)   shares of Common Stock issued or issuable upon
                              conversion or exchange of any Convertible
                              Securities outstanding on the Amendment Issue
                              Date;

                        (2)   Excluded Securities; or

                        (3)   shares of Common Stock issued or issuable by
                              reason of a dividend, stock split, split-up or
                              other distribution on shares of Common Stock that
                              are covered elsewhere in this Section 11.

                  (D)   "Excluded Securities" shall mean Common Stock issued to
                        officers, employees, or directors of, or consultants to,
                        the Company (including officers, employees, or directors
                        of, or consultants to its affiliates), pursuant to any
                        agreement, plan, or arrangement that has been approved
                        by the Board of Directors of the Company, or options to
                        purchase or rights to subscribe for such Common Stock or
                        securities by their terms convertible into or
                        exchangeable for such Common Stock, or options to
                        purchase or rights to subscribe for such convertible or
                        exchangeable securities, in each case as approved by the
                        Board of Directors; provided, however, that to the
                        extent the number of shares of Common Stock issued or
                        issuable pursuant to all such agreements, plans,
                        arrangements, options and rights exceed an aggregate of
                        ten percent (10%) of the Common Stock outstanding from
                        time to time on a fully diluted basis, such shares shall
                        not be considered Excluded Securities.

            (ii)  In the event the Company shall at any time after the Amendment
                  Issue Date issue Additional Shares of Common Stock, without
                  consideration or for a consideration per share less than the
                  Exercise Price in effect immediately prior to such issue, then
                  and in such event, the Exercise Price shall be reduced,
                  concurrently with such issue, to the price (calculated to the
                  nearest cent) determined by multiplying such Exercise Price by
                  a fraction, (A) the numerator of which shall be (1) the number
                  of shares of Common Stock outstanding immediately prior to
                  such issue plus (2) the number of shares of Common Stock which
                  the aggregate consideration received or to be received by the
                  Company for the total number of Additional Shares of Common
                  Stock so issued would purchase at such Exercise Price; and (B)
                  the denominator of which shall be the number of shares of
                  Common Stock outstanding immediately prior to such issue plus
                  the number of such Additional Shares of Common Stock so
                  issued; provided that, (x) for the

                                                                    Page 8 of 16
<PAGE>

                  purpose of this subsection 11(e), all shares of Common Stock
                  issuable upon conversion or exchange of Convertible Securities
                  outstanding immediately prior to such issue shall be deemed to
                  be outstanding, and (ii) the number of shares of Common Stock
                  deemed issuable upon conversion or exchange of such
                  outstanding Convertible Securities shall not give effect to
                  any adjustments to the conversion or exchange price or
                  conversion or exchange rate of such Convertible Securities
                  resulting from the issuance of Additional Shares of Common
                  Stock that is the subject of this calculation. In addition,
                  the number of Warrant Shares purchasable upon the exercise of
                  this Warrant shall be changed to the number determined by
                  dividing (i) an amount equal to the number of shares issuable
                  upon the exercise of this Warrant immediately prior to such
                  adjustment, multiplied by the Exercise Price in effect
                  immediately prior to such adjustment, by (ii) the Exercise
                  Price in effect immediately after such adjustment.

            (iii) If the Company at any time or from time to time after the
                  Amendment Issue Date shall issue any Options or Convertible
                  Securities or shall fix a record date for the determination of
                  holders of any class of securities entitled to receive any
                  such Options or Convertible Securities, then the maximum
                  number of shares of Common Stock (as set forth in the
                  instrument relating thereto without regard to any provision
                  contained therein for a subsequent adjustment of such number)
                  issuable upon the exercise of such Options or, in the case of
                  Convertible Securities and Options therefor, the conversion or
                  exchange of such Convertible Securities, shall be deemed to be
                  Additional Shares of Common Stock issued as of the time of
                  such issue or, in case such a record date shall have been
                  fixed, as of the close of business on such record date,
                  provided that Additional Shares of Common Stock shall not be
                  deemed to have been issued unless the consideration per share
                  of such Additional Shares of Common Stock would be less than
                  the Exercise Price in effect on the date of and immediately
                  prior to such issue, or such record date, as the case may be,
                  and provided further that in any such case in which Additional
                  Shares of Common Stock are deemed to be issued: (i) no further
                  adjustment in the Exercise Price shall be made upon the
                  subsequent issue of Convertible Securities or shares of Common
                  Stock upon the exercise of such Options or conversion or
                  exchange of such Convertible Securities; (ii) if such Options
                  or Convertible Securities by their terms provide, with the
                  passage of time or otherwise, for any increase or decrease in
                  the consideration payable to the Company, then upon the
                  exercise, conversion or exchange thereof, the Exercise Price
                  computed upon the original issue thereof (or upon the
                  occurrence of a record date with respect thereto), and any
                  subsequent adjustments based thereon, shall, upon any such
                  increase or decrease becoming effective, be recomputed to
                  reflect such increase or decrease insofar as it affects such
                  Options or the rights of conversion or exchange under such
                  Convertible Securities; (iii) upon the expiration or
                  termination of any such unexercised Option, the Exercise Price
                  shall not be readjusted; (iv) in the event of any change in
                  the number of shares of Common Stock issuable upon the
                  exercise, conversion or exchange of any such Option or
                  Convertible Security, including, but not limited to, a change
                  resulting from the anti-dilution provisions thereof, the
                  Exercise Price then in effect shall forthwith be readjusted to
                  such Exercise Price as would have obtained had the adjustment
                  which was made upon the issuance of such Option or Convertible
                  Security not exercised, converted or exchanged prior to such
                  change been made

                                                                    Page 9 of 16
<PAGE>

                  upon the basis of such change; and (v) no readjustment
                  pursuant to clause (ii) or (iv) above shall have the effect of
                  increasing the Exercise Price to an amount which exceeds the
                  lower of (A) the Exercise Price on the original adjustment
                  date, or (B) the Exercise Price that would have resulted from
                  any issuances of Additional Shares of Common Stock between the
                  original adjustment date and such readjustment date. In the
                  event the Company, after the Amendment Issue Date, amends the
                  terms of any such Options or Convertible Securities (whether
                  such Options or Convertible Securities were outstanding on the
                  Amendment Issue Date or were issued after the Amendment Issue
                  Date), then such Options or Convertible Securities, as so
                  amended, shall be deemed to have been issued after the
                  Amendment Issue Date and the provisions of this subsection
                  11(e)(iii) shall apply.

            (iv)  The consideration per share received by the Company for
                  Additional Shares of Common Stock deemed to have been issued
                  pursuant to subsection 11(e)(iii), relating to Options and
                  Convertible Securities, shall be determined by dividing:
                  (i)the total amount, if any, received or receivable by the
                  Company as consideration for the issue of such Options or
                  Convertible Securities, plus the minimum aggregate amount of
                  additional consideration (as set forth in the instruments
                  relating thereto, without regard to any provision contained
                  therein for a subsequent adjustment of such consideration)
                  payable to the Company upon the exercise of such Options or
                  the conversion or exchange of such Convertible Securities, or
                  in the case of Options for Convertible Securities, the
                  exercise of such Options for Convertible Securities and the
                  conversion or exchange of such Convertible Securities, by (ii)
                  the maximum number of shares of Common Stock (as set forth in
                  the instruments relating thereto, without regard to any
                  provision contained therein for a subsequent adjustment of
                  such number) issuable upon the exercise of such Options or the
                  conversion or exchange of such Convertible Securities.

      (f)   Certificate as to Adjustments. Upon the occurrence of each
            adjustment or readjustment pursuant to this Section 11, the Company
            at its expense shall promptly compute such adjustment or
            readjustment in accordance with the terms hereof and furnish to each
            Holder of this Warrant a certificate setting forth such adjustment
            or readjustment and showing in detail the facts upon which such
            adjustment or readjustment is based. The Company shall, upon the
            written request, at any time, of any such Holder, furnish or cause
            to be furnished to such Holder a like certificate setting forth (i)
            such adjustments and readjustments; (ii) the Exercise Price at the
            time in effect; and (iii) the number of shares and the amount, if
            any, of other property that at the time would be received upon the
            exercise of the Warrant.

      (g)   No Impairment. The Company shall not, by amendment of its
            Certificate of Incorporation or through any reorganization, transfer
            of assets, consolidation, merger, dissolution, issue or sale of
            securities or any other voluntary action, avoid or seek to avoid the
            observance or performance of any of the terms to be observed or
            performed hereunder by the Company, but shall at all times in good
            faith assist in the carrying out of all the provisions of this
            Section 11 and in the taking of all such action as may be necessary
            or appropriate in order to protect the rights of the Holder of this
            Warrant against impairment.

                                                                   Page 10 of 16
<PAGE>

12.   REGISTRATION RIGHTS. Whenever the Company proposes to file a registration
      statement under the Act with respect to the Common Stock (a "Registration
      Statement") at any time and from time to time, prior to such filing it
      will give written notice to the Holder of its intention to do so. Upon the
      written request of the Holder given within twenty (20) days after the
      Company provides such notice (which request shall state the Holder's
      intended method of disposition of such shares), the Company shall use
      commercially reasonable efforts to cause all Warrant Shares which the
      Company has been requested by the Holder to register to be registered
      under the Act to the extent necessary to permit their sale or other
      disposition in accordance with the intended methods of distribution
      specified in the request of the Holder. If the registration for which the
      Company gives such notice is a registered public offering involving an
      underwriting, the Company shall so advise the Holder and the right of the
      Holder to include its Warrant Shares in such registration shall be
      conditioned upon the Holder's participation in such underwriting on the
      terms thereof, which terms, however, shall be no more onerous to the
      Holder than the terms applicable to all stockholders registering shares
      under the Registration Statement, and if the managing underwriter
      determines that marketing factors require a limitation of the number of
      shares to be underwritten, the number of Warrant Shares to be included in
      the Registration Statement shall be accordingly reduced; provided however,
      that the number of shares that the Holder shall be entitled to include
      shall not be less than its pro rata share of the shares to be registered
      by it and by the holders of the Sterling Warrants (as defined below), or
      the shares issuable hereunder and thereunder, based on the number of
      shares issuable under this Warrant in relation to the shares issuable
      hereunder and under the Sterling Warrant.

      (a)   Registration Procedures. In connection with the filing by the
            Company of a Registration Statement, the Company shall furnish to
            the Holder a copy of the prospectus, including a preliminary
            prospectus, in conformity with the requirements of the Act. The
            Company shall use commercially reasonable efforts to register or
            qualify the Warrant Shares covered by the Registration Statement
            under the securities laws of each state of the United States;
            provided, however, that the Company shall not be required in
            connection with this Section 12(a) to qualify as a foreign
            corporation or execute a general consent to service of process in
            any jurisdiction. If the Company has delivered preliminary or final
            prospectuses to the Holder and after having done so the prospectus
            is amended or supplemented to comply with the requirements of the
            Act, the Company shall promptly notify the Holder and, if requested
            by the Company, the Holder shall immediately cease making offers or
            sales of shares under the Registration Statement and return all
            prospectuses to the Company. The Company shall promptly provide the
            Holder with revised or supplemented prospectuses and, following
            receipt of the revised or supplemented prospectuses, the Holder
            shall be free to resume making offers and sales under the
            Registration Statement. The Company shall pay the expenses incurred
            by it in complying with its obligations under this Section 12,
            including all registration and filing fees, exchange listing fees,
            fees and expenses of counsel for the Company, and fees and expenses
            of accountants for the Company, but excluding (i) any brokerage
            fees, selling commissions or underwriting discounts incurred by the
            Holder in connection with sales under the Registration Statement and
            (ii) the fees and expenses of any counsel retained by Holder.

      (b)   Requirements of Holder. The Company shall not be required to include
            any Warrant Shares in the Registration Statement unless:

                                                                   Page 11 of 16
<PAGE>

            (i)   the Holder furnishes to the Company in writing such
                  information regarding the Holder and the proposed sale of
                  Warrant Shares by the Holder as the Company may reasonably
                  request in writing in connection with the Registration
                  Statement or as shall be required in connection therewith by
                  the U.S. Securities and Exchange Commission or any state
                  securities law authorities;

            (ii)  the Holder shall have provided to the Company its written
                  agreement:

                  (A)   to indemnify the Company and each of its directors and
                        officers against, and hold the Company and each of its
                        directors and officers harmless from, any losses,
                        claims, damages, expenses or liabilities (including
                        reasonable attorneys fees) to which the Company or such
                        directors and officers may become subject by reason of
                        any statement or omission in the Registration Statement
                        made in reliance upon, or in conformity with, a written
                        statement by the Holder furnished pursuant to Section
                        12(b)(i); and

                  (B)   to report to the Company sales made pursuant to the
                        Registration Statement.

      (c)   Indemnification. The Company agrees to indemnify and hold harmless
            the Holder against any losses, claims, damages, expenses or
            liabilities to which Holder may become subject by reason of any
            untrue statement of a material fact contained in the Registration
            Statement or any omission to state therein a fact required to be
            stated therein or necessary to make the statements therein not
            misleading, except insofar as such losses, claims, damages, expenses
            or liabilities arise out of or are based upon information furnished
            to the Company by the Holder for use in the Registration Statement.

13.   GENERAL.

      (a)   Governing Law. This Warrant shall be governed by and construed
            according to the laws of the State of Delaware.

      (b)   Delays or Omissions. No delay or omission to exercise any right,
            power, or remedy accruing to either party upon any breach or default
            under this Warrant, shall be deemed a waiver of any other breach or
            default theretofore or thereafter occurring. Any waiver, permit,
            consent, or approval of any kind or character on the part of either
            party of any breach or default under this Warrant, or any waiver on
            the part of either party of any provisions or conditions of this
            Warrant, must be in writing and signed by the party to be bound
            thereby. All remedies, either under this Warrant or by law or
            otherwise afforded to either of the parties, shall be cumulative and
            not alternative.

      (c)   Captions. Captions of sections have been added only for convenience
            and shall not be deemed to be a part of this Warrant.

      (d)   Receipt. Upon the receipt of this Warrant, KTI, Inc. shall execute
            and deliver to the Company the form of Receipt attached hereto as
            Annex III.

      (e)   Sterling Construction Company. The Company agrees that the warrants
            or other rights to purchase Common Stock issuable in connection with
            the Company's transactions with Sterling Houston Holdings, Inc.
            (formerly known as Sterling Construction Company) (the "Sterling
            Warrants") shall at all times be substantially the same from an
            economic viewpoint as this Warrant (other than the number of shares
            issuable thereunder and the differences in their issue dates.)

                                                                   Page 12 of 16
<PAGE>

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an
officer thereunto duly authorized.

STERLING CONSTRUCTION COMPANY, INC.

By:   /s/ Joseph P. Harper, Sr.
      -------------------------------
      Joseph P. Harper, Sr., President

                                                                   Page 13 of 16
<PAGE>

                                     ANNEX I

                               NOTICE OF EXERCISE

TO: Sterling Construction Company, Inc.

(1)   The undersigned hereby irrevocably elects to purchase _____ shares of
      Common Stock of Sterling Construction Company, Inc. pursuant to the terms
      of the attached Warrant, and tenders herewith payment of the purchase
      price for such shares in full consisting of $______ in lawful money of the
      United States; or the cancellation of such portion of the attached Warrant
      as is exercisable for a total of __________ Warrant Shares (using a Fair
      Market Value per share of Common Stock of $________ for purposes of this
      calculation).

(2)   In exercising this Warrant, the undersigned hereby confirms and
      acknowledges that the shares of Common Stock are being acquired solely for
      the account of the undersigned and not as a nominee for any other party,
      and for investment, and that the undersigned shall not offer, sell or
      otherwise dispose of any such shares of Common Stock except under
      circumstances that will not result in a violation of the Securities Act of
      1933, as amended, or any state securities laws.

(3)   Please issue a certificate or certificates representing said shares of
      Common Stock, and pay any cash for any fractional share to:

      NAME                      ADDRESS                         NUMBER OF SHARES

(4)   Please issue a new Warrant for the unexercised portion of the attached
      Warrant in the name of the undersigned and/or, if the undersigned has
      completed an Assignment Form in the form of Annex II to this Warrant, in
      such other names and amounts as is specified in such Assignment Form.

Dated: _____________________           Holder: _________________________________

                                       By: _____________________________________
                                           Name:
                                           Title:

                                                                   Page 14 of 16
<PAGE>

                                    ANNEX II

                                 ASSIGNMENT FORM

For value received, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:

and does hereby irrevocably constitute and appoint Attorney
__________________________ to make such transfer on the books of Sterling
Construction Company, Inc. maintained for such purpose, with full power of
substitution in the premises.

NAME                            ADDRESS                         NUMBER OF SHARES

The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee shall
not offer, sell or otherwise dispose of this Warrant or any shares of stock to
be issued upon exercise hereof except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended, or any state
securities laws.

Further, the Assignee has acknowledged that upon exercise of this Warrant, the
Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.

Dated: _____________________           Holder: _________________________________

                                       By: _____________________________________
                                           Name:
                                           Title:

                                                                   Page 15 of 16
<PAGE>

                                    ANNEX III

                                 WARRANT RECEIPT

The undersigned KTI, Inc. hereby acknowledges and represents to Sterling
Construction Company, Inc. (the "Company") (i) that it has received that certain
Warrant To Purchase Common Stock No. KTI-1A dated March 31, 2003 covering the
shares of the common stock, $0.01 par value per share, of the Company provided
for in the first paragraph of such warrant (the "Warrant;") and (ii) that on the
date hereof the Warrant has a nominal value, is speculative in nature, and that
there is substantial risk that the Warrant will not be exercised.

KTI, INC.

By: _________________________                        Dated: ____________________
   John W. Casella
   President

                                                                   Page 16 of 16

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]