SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For The Quarter Ended March 31, 1996
Commission File Number 0-14881
WASTE RECOVERY, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-1833498
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
309 S. PEARL EXPRESSWAY, DALLAS, TX 75201
(Address of Principal Executive Offices) (Zip Code)
(214) 741-3865
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as the latest practicable date. Common stock, no par
value 10,851,310, April 30, 1996.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1996 December 31, 1995
------ -------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 313,693 $ 726,562
Accounts receivable, less allowance for doubtful accounts
of $31,726 and $27,083, respectively 1,540,526 1,887,426
Note and other receivables 88,386 5,758
Inventories (note 3) 739,046 645,651
Other current assets 213,356 149,912
-------------- --------------
Total current assets 2,895,007 3,415,309
-------------- --------------
Property, plant and equipment 12,146,720 11,700,255
Less accumulated depreciation 7,073,359 6,840,820
-------------- --------------
Net property, plant and equipment 5,073,361 4,859,435
-------------- --------------
Restricted cash and cash equivalents (note 2) 507,635 998,035
Investment in Waste Recovery - Illinois 16,403 258,539
Bond and debt issuance costs, less accumulated amortization of
$169,045 and $153,287, respectively 159,288 175,046
Deferred income taxes 447,543 447,543
Goodwill, less accumulated amortization of $54,866 and 493,973 507,695
$41,164,
respectively
Other assets (note 2) 590,062 70,797
-------------- --------------
$10,183,272 $10,732,399
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity March 31, 1996 December 31, 1995
------------------------------------ -------------- -----------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable $ 36,442 $ 28,945
Convertible subordinated debentures (note 4) 495,000 40,000
Current installments of long-term debt (note 5) 711,984 427,552
Current installments of capital lease obligations 94,274 93,423
Accounts payable 2,018,645 1,996,857
Accrued wages and payroll taxes 202,334 174,753
Other accrued liabilities 393,994 372,800
Deferred revenue 43,476 43,476
--------------- ---------------
Total current liabilities 3,996,149 3,177,806
--------------- ---------------
Convertible subordinated debentures, noncurrent (note 4) - 495,000
Long-term debt, excluding current installments (note 5) 3,239,728 3,591,376
Obligations under capital leases, excluding current
installments 177,570 178,797
Deferred revenue, noncurrent 235,470 246,338
Note payable 148,578 144,076
--------------- ---------------
Total liabilities 7,797,495 7,833,393
--------------- ---------------
Stockholders' Equity (notes 4 and 7):
Cumulative preferred stock, $1.00 par value, 250,000 shares
authorized, 203,580 issued and outstanding in 1996 and
1995 (liquidating preference $14.08 per share,
aggregating $2,867,158) 203,580 203,580
Preferred stock, $1.00 par value, authorized and unissued
9,750,000 shares in 1996 and 1995
Common stock, no par value, authorized 30,000,000 shares,
10,955,070 and 10,830,170 shares issued and outstanding
in 1996 and 1995, respectively 407,800 407,800
Additional paid-in capital 13,391,591 13,320,410
Accumulated deficit (11,543,314) (10,958,904)
2,459,657 2,972,886
Treasury stock, at cost, 103,760 common shares (73,880) (73,880)
Total stockholders' equity 2,385,777 2,899,006
$10,183,272 $10,732,399
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Tire-derived fuel sales $ 340,193 $ 257,514
Wire sales (note 6) 30,329 -
Disposal fees, hauling and other revenue 2,808,448 2,927,198
--------- ---------
Total revenues 3,178,970 3,184,712
Operating expenses 2,319,237 2,306,079
--------- ---------
859,733 878,633
General and administrative expenses 709,880 524,986
Depreciation and amortization 425,489 211,083
--------- ---------
(275,636) 142,564
Other income (expense):
Interest income 12,110 7,698
Interest expense (128,417) (112,565)
Other income 44,612 15,672
Gains on sales of property and equipment 5,057 -
Equity in loss from partnership operations (242,136) (27,215)
--------- ---------
(308,774) (116,410)
Net income (loss) (584,410) 26,154
Undeclared cumulative preferred stock dividends 35,529 35,138
--------- --------
Net loss available to common shareholders $(619,939) $ (8,984)
========= =============
Net income (loss) per share $ (.06) $ 0.00
============= ===============
Weighted average number of common and dilutive
common equivalent shares outstanding 10,955,070 7,414,946
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (584,410) $ 26,154
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 249,413 299,933
Gain on sale of property, plant and equipment (5,057) -
Amortization of goodwill 13,722 -
Interest imputed on discounted note payable 4,502 -
Equity in loss from partnership operations 242,136 27,215
Stock issued to Directors and on debenture conversion 13,995 12,000
Changes in assets and liabilities:
Accounts receivable 346,900 220,396
Note and other receivables (5,145) -
Receivable from affiliate (77,483) -
Inventories (93,395) (246,995)
Other current assets (63,616) (30,023)
Other assets (19,265) (7,725)
Accounts payable 21,788 (338,866)
Accrued liabilities 48,775 (51,793)
Deferred revenue (10,868) -
------- -------
-
Net cash provided (used) by operating activities 81,992 (89,704)
------- -------
Cash flows from investing activities:
Proceeds received on note and other receivables - 332,137
Proceeds received on sale of property, plant and equipment 6,000 -
Purchases of property, plant and equipment (407,048) (256,535)
Purchase of Domino Salvage, Tire Division, Inc.,
net of cash received of $16,165 - (116,339)
Cash placed in restricted accounts (9,600) (3,200)
Net cash used by investing activities (410,648) (43,937)
Cash flows from financing activities:
Proceeds from issuance of notes payable 32,953 21,347
Payment of notes payable (25,456) (76,834)
Proceeds from issuance of convertible subordinated debentures 85,000 -
Payment upon maturity of convertible subordinated debentures (85,000) -
Proceeds from issuance of long-term debt - 44,114
Repayment of long-term debt (67,216) (43,318)
Repayment of capital lease obligations (41,680) (34,731)
Proceeds from issuance of common stock 17,186 -
-------- --------
Net cash used by financing activities (84,213) (89,422)
Net decrease in cash and cash equivalents (412,869) (223,063)
Cash and cash equivalents at beginning of period 726,562 261,118
-------- --------
Cash and cash equivalents at end of period $ 313,693 $ 38,055
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE RECOVERY, INC.
Notes to Consolidated Financial Statements
March 31, 1996
Note 1: Adjustments
The financial information presented as of any date other than December
31 has been prepared from the books and records without audit. Financial
information as of December 31 has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated, have
been included. The results of operations for the three months ended March 31,
1996, are not necessarily indicative of operating results for the entire year.
For further information regarding the Company's accounting policies, refer to
the consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Note 2: Note Receivable
On January 30, 1996, the Company advanced Waste Recovery - Illinois
$500,000 for the Illinois partnership's February 1, 1996 debt payment (the
Company owns a 45% interest in this partnership). The loan was approved by the
Executive Committee of the Illinois partnership. This $500,000 was included in
restricted cash at December 31, 1995, and is in other noncurrent assets as a
note receivable at March 31, 1996, as the funds will be restricted as to use
after repayment by Waste Recovery-Illinois. Terms of the note are in the process
of being finalized.
Note 3: Inventories
The components of inventories are as follows:
March 31, 1996 December 31, 1995
-------------- -----------------
Finished Inventory $ 240,351 $ 274,454
Work-In-Process 130,117 134,162
Parts Inventory 368,578 415,171
--------- ---------
$ 739,046 $ 823,787
========= =========
Note 4: Convertible Subordinated Debentures
As of the original maturity date, March 15, 1996, $40,000 of the
convertible subordinated debentures plus interest of $1,995 were converted at
the rate of $.875 per share into 47,994 shares of common stock. $85,000 plus
interest of $4,238 of the debentures were repurchased by the Company and
subsequently sold to an unaffiliated individual under the exchange terms of the
debenture agreement. The remaining $410,000 in debentures were exchanged for new
debentures which carry an interest rate of 18% and mature on January 31, 1997.
Other terms and conversion privileges are the same as in the original
debentures.
Note 5: Long-term debt
As of March 31, 1996, the Company was out of technical compliance with
its current ratio calculation which is required by the 10.5% industrial
development revenue bond debt covenants. The debt agreement allows for a grace
period of sixty days within which this noncompliance may be cured before default
can occur. Management of the Company believes that due to the direction of
current operations, the Company will be in compliance within this sixty day
period. If the covenant is not satisfied within the sixty day period, then
$1,560,000 of long-term debt on the Atlanta bonds must be reclassified to
current debt; no other debt would be affected.
Note 6: Wire Sales
Beginning in February 1996, the installation of the wire system was
completed at the Baytown plant. This system allows the Company to recycle the
bead wire from the tires into a marketable material. For the three months ended
March 31, 1996, the Company had $30,329 in wire sales.
<PAGE>
Note 7: Preferred Stock Dividends
Cumulative preferred stock dividends in arrears were $831,358 at March
31, 1996. Net income or loss is adjusted by the effect of undeclared dividends
on preferred stock of $35,529 and $35,138 for the three months ended March 31,
1996 and 1995, respectively. The effect was to increase net loss per common
share by $.003 for the three months ended March 31, 1996, and to decrease net
income per common share by $.004 for the three months ended March 31, 1995.
Primary and fully diluted earnings per share are the same in 1996 and 1995.
Note 8: Purchase of Domino Salvage, Tire Division, Inc.
The following unaudited pro forma summary presents the consolidated
results of the Company's operations as if the acquisition of Domino Salvage,
Tire Division, Inc. as of March 21, 1995, had occurred at the beginning of the
period presented. The information does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented and is not intended to be a projection of future
results or trends.
For the three months
ended March 31, 1995
Revenues $ 3,471,900
============
Net income (loss) $ (32,833)
============
Earnings per share $ .00
============
Note 9: The registrant has no material pending legal proceedings.
Other notes have been omitted pursuant to Rule 10-01 (a)(5) of Regulation S-X.
<PAGE>
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Waste Recovery, Inc., ("the Company") owns and operates plants in Houston,
Texas; Atlanta, Georgia; Portland, Oregon; and Conshohocken (Philadelphia),
Pennsylvania, the latter plant being owned by a subsidiary ("Domino") which was
purchased on March 21, 1995. The two new tire processing plants in central and
southern Illinois ("the Illinois facilities") began operations in September
1995. These plants are owned by Waste Recovery - Illinois, a general partnership
("WR-Illinois") in which the Company owns a 45% interest and is the managing
partner. The Company operates the Illinois facilities in close coordination with
its national system.
Regional services are coordinated from the operating bases mentioned above.
Operations encompass full-service scrap tire disposal and the recycling of tires
into a supplemental fuel form. The Company generates revenues from scrap tire
disposal fees, from the hauling of scrap tires, from the sale of tire-derived
fuel ("TDF"), and most recently, from the sale of bead wire removed from the
tires. At the plants, scrap tires are converted and refined into TDF, a high BTU
supplemental fuel that is sold primarily to major domestic cement and paper
manufacturers and, recently, also sold to electric power companies. The TDF
output of the Illinois facilities is initially being dedicated to use in
electrical power generating boilers of Illinois Power Company.
To date, the effects of inflation on the Company's operations have been
negligible.
General Comments
Results for the first quarter of 1996 continued to reflect the Company's
struggle with growth. Forty percent of the $584,410 loss was generated from the
45% equity position the Company has in WR-Illinois. This partnership continues
to operate at a significant loss as its revenue generation is severely limited
by a tire flow that is too minimal to cover the fixed costs of the two plants.
In April 1996, these plants were successful in winning two tire pile clean-ups
in the State of Kentucky which will provide the Dupo plant approximately 540,000
PTE's in the second and third quarters of 1996. Also, a competitor has agreed to
dispose of over 600,000 tires at the Dupo plant beginning in the second quarter
of 1996. This additional tire flow of over 1,000,000 PTE's should improve the
financial position of the Illinois partnership. Current legislative changes in
the State of Illinois have positively affected the Marseilles location as a
large competitor is no longer able to receive scrap tires in substantial
amounts.
Another 25% of the first quarter loss was contributed by Domino which, although
improving monthly, started off 1996 with a heavy loss in January due to weather
conditions and low tire flow. This subsidiary is now experiencing increased tire
flow and revenue generation on a monthly basis and should continue this positive
trend throughout 1996.
The Portland facility continues to maintain a strong position in the market in
the Northwest and averaged approximately 440,000 passenger tire equivalents or
PTE's per month during the first three months of 1996. This facility recently
won a bid from the State of Washington for a $2 million tire pile clean-up which
began April 15, 1996. This project involves the clean-up of approximately four
million PTE's and 22 million pounds of shredded tires, and should continue for
approximately two years. The Company completed a similar large tire abatement
project for the State of West Virginia in mid-February 1996 which involved the
clean-up of approximately four million PTE's.
The Houston (Baytown, Texas) facility showed significant signs of improvement
during the first quarter. The wire recycling system was installed during the
first six weeks of the quarter, and although this caused the plant to be shut
down for almost half of the first quarter, the last half of February and March
began to demonstrate the capabilities of this facility as it processed over
5,000 tons of PTE's and generated over $500,000 in revenues. Also, Baytown has
been able to sell/recycle the wire removed from the tires as the wire recycling
system is successfully transforming this facility into a substantially
waste-free plant. This not only generates revenue, but allows the Company to
avoid dump fees for wire that had been too contaminated to be recyclable.
<PAGE>
The Atlanta facility, which had a net loss of $200,000 during the first quarter,
is struggling to increase its monthly tire flow and to control its production
costs. With the addition of the Vice President of Operations April 1, 1996, this
plant is undergoing several changes to address its current shortcomings, as
implementing cost and overhead reductions.
Results of Operations
Three Months Ended March 31, 1996 Compared
with Three Months Ended March 31, 1995
The table below summarizes the physical activity of the Company as well
as the basic revenue categories for the first quarter of the last three
fiscal years.
<TABLE>
<CAPTION>
First Three Months Of:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
TDF Tons Sold 22,107 14,781 19,727
======= ====== ======
Passenger Tire Equivalents Received (Tons) 32,135 23,554 24,319
======= ====== ======
TDF Sales $ 340,193 $ 257,514 $ 343,330
========== ========== ==========
Disposal & Hauling Fees $2,808,448 $2,927,198 $2,015,382
========== ========== ==========
</TABLE>
Revenues from TDF tonnage sold increased by approximately 32% during the first
quarter of 1996 when compared to the same period of 1995. This increase is
primarily due to the sale of TDF from the Atlanta plant which increased by over
3,600 tons. The Houston facility also sold over 4,000 tons of TDF whereas for
the same period last year, it contributed 1,500 tons to the Illinois partnership
as a capital contribution. Domino, which was purchased March 21, 1995, sold over
2,000 tons of TDF in the first quarter of 1996. Overall, the Company is
experiencing increased sales of TDF to a diversified customer base, although at
a slightly lower average price per ton, indicating a broader acceptance by
industrial users of the Company's fuel product.
Revenues received from disposal fees, hauling and other revenues dropped off
because of two events, 1) the West Virginia tire pile abatement project for the
State of West Virginia was completed mid-February 1996, and 2) the Houston plant
was shut down for almost one half of the first quarter as the wire system was
being installed. As the Houston plant is now 100% operational, significant
revenues are being generated during March and April 1996 and are expected to
continue. This, plus the addition of the Domino plant, should allow the Company
to continue to grow its revenue base. Additionally, as mentioned above, the
Portland plant has started a $2 million tire pile clean-up that will continue
through the remainder of 1996 and all of 1997.
PTE's received have increased at all of the facilities through an increased
customer base. The State of Texas continues to provide the greatest immediate
opportunity for growth as the State discontinued its allocation program in late
1995, and current legislation requires that all material must be consumed by an
end-user for a processor to participate in the State's program. The Company's
Houston facility continues to add to its customer base as other processors in
the State are decreasing their business activities due to a lack of end-users
for their product, where the Company has a demand for additional material.
Operating expenses for the first quarter of 1996 remained at 72% of revenues.
Labor and contract hauling continue to be major components of this expense.
Several measures have been taken to help reduce labor costs by rearranging
shifts and controlling overtime at each of the facilities.
General and administrative expenses increased $184,894 and are 22% of revenues,
as compared to 16% of revenues for the same quarter in 1995. Increases are
primarily due to the addition of Domino which added approximately $100,000 to
the Company's general and administrative expenses during this first quarter. The
Company has increased its corporate accounting staff, and several of the plants
have added administrative personnel. Salaries and health insurance costs also
continue to increase.
<PAGE>
Depreciation and amortization have doubled in the last year as the Houston
rebuild from the fire, the Atlanta rework of major equipment and the addition of
Domino all resulted in significant capital additions. The Company has added over
$1,900,000 in plant, property and equipment since the beginning of 1995, which
is now being depreciated. Interest expense for 1996 increased 14% from the
amount experienced in the first quarter of 1995 and is primarily due to the
addition of the debt incurred with the purchase of Domino.
As discussed previously, the equity interest in the Illinois partnership
continues to generate large losses as these two plants are still struggling with
low tire flow.
Financial Condition as of March 31, 1996
The Company's working capital balance at March 31, 1996, was a deficit amount of
$1,101,142. This deficit reflects the classification, to current, of its
convertible subordinated debentures in accordance with the restructured terms,
and the classification of over $350,000 of the Domino debt in current
liabilities. In February 1996, the Company also restructured its long-term debt
of $1.1 million with a different financial institution, which, while decreasing
the annual interest rate by 1 1/2 percent, increased the current portion of the
amount due. Accounts payable and accrued liabilities are also slightly higher as
due to the timing of transactions. As mentioned in note five in the accompanying
financial statements, the Company was out of technical compliance with its
current ratio calculation which is required by the Atlanta bonds debt covenants,
but management of the Company believes that due to the direction of current
operations, the Company will be in compliance within the sixty day grace period.
Management continues to remain sensitive to the risk that the Company will not
have the financial strength to take advantage of the opportunities that are
developing. It is anticipated that with operating results beginning to improve,
the Company will be able to adequately fund its working capital requirements and
capital expenditures for at least the next twelve months. However, the Company
is aware that each facility must remain closely monitored and costs must be
controlled. More importantly, additional revenues must be generated to cover the
fixed costs and allow the Company a chance to improve its profit margin with its
existing capabilities.
Significant capital expenditures for the remainder of 1996 will be limited to
completing the installation of the wire systems at the Atlanta and Portland
plants which are scheduled for May and July, respectively.
<PAGE>
PART II
Other Information
Form 10-Q
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Form of Convertible Debenture Agreement as of March 15, 1996
(b) Reports on Form 8-K
None
Item 27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASTE RECOVERY, INC.
DATE: May 13, 1996 /s/ THOMAS L. EARNSHAW
----------------------
By:Thomas L. Earnshaw
President and Chief Executive Officer
(Principal Executive)
DATE: May 13, 1996 /s/ SHARON K. PRICE
-------------------
By: SHARON K. PRICE
Vice President of Finance
<PAGE>
WASTE RECOVERY, INC.
18% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JANUARY 31, 1997
DEBENTURE NO. 1
Dollar Amount $________ March 15, I996
Waste Recovery, Inc., a corporation duly organized and existing under
the laws of the State of Texas (herein referred to as the "Company"), for value
received, hereby promises to pay to ________________________, or registered
assigns, the principal sum of __________________________________ ($__________),
in any coin or currency of the United States of America which at the time of
payment is legal tender for the payment of public and private debts, and to pay
interest thereon as hereinafter provided from the date hereof at the rate of
18o/o per annum, in like coin or currency, said payments to be made as follows:
principal and accrued interest shall be due and payable on January 31,1997. The
payments will be paid to the person in whose name this Debenture is registered
on the books and records of the Company. Both principal of and interest on this
Debenture are payable at the office of the Company as provided in Section 12
below.
1. Restrictions on Transfer; Registration
Additional provisions of this Debenture are contained on the following
pages hereof. However, this Debenture is specifically subject to the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED TO THE
REGISTERED OWNER IN RELIANCE UPON REPRESENTATIONS THAT THESE SECURITIES
HAVE BEEN TAKEN FOR INVESTMENT. THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED UNLESS AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY SHALL HAVE BEEN RECEIVED BY THE COMPANY TO THE EFFECT
THAT SUCH SALE, TRANSFER OR ASSIGNMENT WILL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.
<PAGE>
2. Issue
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 18% Convertible Subordinated Debentures due January 31,1997
(herein called the "Debentures"), limited to a minimum principal amount of
$200,000.00 and a maximum principal amount of $495,000.00.
3. Redemption
This Debenture will be redeemable by the Company, in whole or in part,
upon the earlier of (a) August 31, 1996 or (b) five business days following the
record date of a rights offering, or other public offering, of the Company's
common stock, no par value ("Common Stock") that is registered with the
Securities and Exchange Commission. The redemption price will be the principal
amount of this Debenture plus interest accrued to the date fixed for redemption.
This Debenture will become due and payable and will cease to bear interest on
the date fixed for the redemption.
4. Notice of Redemption
Before redeeming, the Company will give notice to any registered holder
of this Debenture of its intention to redeem and of the redemption date at least
thirty (30), and not more than sixty (60), days prior to such redemption date.
Notice shall be sent by certified mail to the last address of the registered
holder as it appears on the registration books of the Company.
5. Conversion
This Debenture will be convertible at the option of the registered
holder, in a minimum amount of $10,000.00, at any time prior to its maturity. If
this Debenture is called for redemption, it will be convertible, and must be
received by the Company, at any time prior to the close of business on the fifth
day preceding the date fixed for redemption. This Debenture will be convertible
into fully paid and nonassessable shares of shares of Common Stock of the
Company at the rate of one share for each $0.875 principal amount to be
converted. At the option of the holder, accrued and unpaid interest may be
converted at the time a holder converts all of his principal at a rate of $0.875
per share. After conversion, the holder will not be entitled to any interest on
this Debenture, or the amount thereof converted, not due and payable at or prior
to the date of conversion. Fractional shares will not be issued and no payments
will be made in lieu of fractional shares. Executive officers and directors of
the Company who subscribe cannot convert principal or interest until September
15, 1996.
<PAGE>
6. Notice of Conversion
In order to exercise the conversion privilege, the holder of this
Debenture will surrender it to the Company with the form of notice duly executed
in substantially the form attached hereto as Exhibit A. If the stock into which
the Debenture is convertible is to be issued in a name or names other than that
of the registered owner of this Debenture, the Debenture must be accompanied by
proper assignment in substantially the form attached hereto as Exhibit B. The
Company will promptly issue to the holder or assignee the shares of stock into
which this Debenture is to be convertible. Such notice must be delivered in
person or sent by certified mail.
7. Subordination
The indebtedness evidenced by the Debentures, including the principal
thereof and interest thereon, is expressly subordinated and subject in right of
payment to the prior payment in full of all senior indebtedness of the Company,
and each holder of this Debenture, by accepting the same, agrees to and shall be
bound by such provisions. Senior indebtedness is defined as the principal of,
and premium and interest on, indebtedness of the Company for money borrowed from
persons, firms or corporations that regularly engage in the business of lending
money. In the event of any insolvency, bankruptcy, receivership, liquidation, or
any other marshalling of the assets and liabilities of the Company, the holders
of senior indebtedness will be entitled to receive payment in full of all
principal and interest on all senior indebtedness before the holder of this
Debenture is entitled to receive any payment on account of principal or
interest.
8. Modification
Modifications or alterations of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided, however, that
without the consent of the holder hereof, no such modification or alteration
shall be made which will affect the terms of payment of the principal of or
interest on this Debenture, or reduce the percentage of principal amount of the
Debentures the holders of which are required to consent to such modification or
alteration.
9. Default
a. Payment. In case of a default in the punctual payment under this
Debenture shall occur, and continue for a period of ten (10) business days after
receipt of notice sent to the Company by certified mail, then the principal and
all accrued interest on all the Debentures then outstanding shall become due and
payable. Such declaration of default and acceleration of principal and interest
may be rescinded or annulled by the holders of a majority in principal amount of
the Debentures outstanding.
<PAGE>
b. Bankruptcy or Insolvency. In the event of either (1) a decree or
order by a court shall have been entered adjudging the Company a bankrupt or
insolvent, or appointing a receiver or trustee for the affairs or assets of the
Company and such decree or order shall have remained in force undischarged or
unstayed for a period of ninety (90) days, or (2) the Company shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of any such petition or to the appointment of a receiver or trustee, or
shall make an assignment for the benefit of creditors, then, so long as such
event of default shall not have been remedied, unless the principal of this
Debenture shall have already become due and payable, the holder by notice in
writing to the Company may declare the principal of this Debenture then
outstanding and the interest accrued thereon, if not already due and payable, to
be due and payable immediately. Upon receipt of any such declaration, the same
shall be immediately due and payable.
10. Transfer
This Debenture is transferable by the registered owner hereof, in
person or by duly authorized attorney, at the office of the Company, on books of
the Company to be kept for that purpose, upon surrender and cancellation of this
Debenture and on presentation of a duly executed written instrument of transfer
substantially in the form of Exhibit B, and thereupon a new Debenture or
Debentures, of the same aggregate principal amount, will be issued to the
transferee or transferees, in exchange herefor; and this Debenture, with or
without other Debentures, may in like manner be exchanged for one or more new
Debentures of other authorized denominations but of the same aggregate principal
amount. Any such transfer or exchange shall be without charge, except that the
Company may require the payment of a sum sufficient to reimburse it for any
stamp tax or other governmental charge or expense in connection therewith.
Notwithstanding, new Debentures will not be reissued in denominations less than
$5,000.00
11. Registered Owner for Payment
Any paying agent, registrar, the Company, or any agent of the Company,
may deem and treat the person in whose name this Debenture is registered as the
absolute owner hereof for the purpose of receiving payment of principal and
interest due herein, and for all other purposes, and neither the Company nor any
paying agent, nor any registrar, nor any agent of the Company shall be affected
by, nor shall any liability accrue to, such parties as a result of such
treatment.
12. Address of Company
Unless changed by written notice to the holder of this Debenture, for
the purposes of payment of principal and interest, redemption of this Debenture,
or delivery of notices to the Company, the address of the Company for the
purposes of this Debenture is 309 South Pearl Expressway, Dallas, Texas 75201.
<PAGE>
13. Registration Rights.
a. Registration Proposed by the Company. As used in this Section 13,
the term "Registrable Stock" shall mean and include all shares of Common Stock
received or receivable upon a conversion of the Debentures. If at any time, and
from time to time, the Company proposes to register any of its Common Stock
under the Securities Act of 1933, as amended (the "Securities Act") in
connection with a public offering (other than a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145 under the
Securities Act is applicable), it will each such time give written notice to all
holders of the Debentures of its intention to do so and, upon written request of
any such holder delivered to the Company within 30 days after receipt of such
notice (which request shall state the number of shares of Common Stock to be
registered and the intended method of disposition), the Company will use its
best efforts, at its own expense to the extent provided below, to register under
the Securities Act all shares of Registrable Stock requested to be so registered
by such holder, all to the extent requisite to permit the disposition thereof
(in accordance with the intended method thereof, as aforesaid); provided,
however, that if the sole or managing underwriter of such offering determines
that the aggregate number of shares of Registrable Stock which have been
requested by the holder thereof to be included in the registration should be
limited to a lesser number due to market conditions and/or the necessity of
including in such underwriting or registration shares to be sold for the account
of the Company, then the holder may sell only his pro rata portion of such
lesser number of shares available for registration (such portion available to be
the total amount of shares which can be registered less those to be sold by the
Company), such right to sell to be proportioned among all shareholders of the
Company asserting and having registration rights. All persons who acquired
registration rights prior in time to the holders of Registrable Stock shall have
priority to register all of their shares with such rights ahead of any
Registrable Stock. In the event that not all Registrable Shares can be sold in
such registration, the Company will promptly file a registration statement to
register the remainder of such Registrable Shares for sale in the open market
and to use its best efforts to cause such registration statement to be declared
effective so that the related registration statement and prospectus will remain
effective for nine months following any lock-up period required by an
underwriter.
Should the Company terminate the registration first referred to above
in this Section prior to its effectiveness, the Company shall have no obligation
to the holders with respect to registering any Registrable Stock in connection
with either registration. The rights under this Section 13(a) shall terminate
when the holders are eligible to sell Registrable Stock under Rule 144 of the
Securities Act.
<PAGE>
b. Registration Requested by the Holders. Upon written request, made at
any time by any holder, to register under the Securities Act shares of
Registrable Stock held by or issuable to him, the Company will (i) promptly give
written notice of such proposed registration to all of the holders of
Registerable Stock and (ii) as expeditiously as possible and in any event within
120 days, file a registration statement under the Securities Act, and thereafter
use all reasonable efforts, at the expense of such holders to the extent
provided below, to obtain acceleration of the effective date thereof under the
Securities Act of:
(i) the Registrable Stock which the Company has been requested to
register pursuant to the written request referred to above,
for disposition by the respective holders in accordance with
the intended method of disposition described in such request;
and
(ii) all other shares of Registrable Stock held by or issuable to
holders who shall have made written request for the
registration thereof (stating the intended method of
disposition) to the Company, such written request to be
delivered to the Company within thirty (30) days after the
giving of the above written notice by the Company
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof, as aforesaid) by the holders of the securities so
registered, and the Company agrees that in connection with effecting any such
registration it will execute any undertakings to file post-effective amendments
as may be required and, in addition to its obligations hereunder, it will effect
appropriate compliance with exemptive regulations issued under the Securities
Act and any other governmental requirements or regulations to the extent
requisite to permit such disposition. The Company shall be obligated to register
Common Stock pursuant to this Section 13(b) on only one occasion.
c. Certain other Rights. If by February 1, 1995, the Company has not
initiated a registration of its Common Stock under the Securities Act (other
than a registration effected solely to implement an employee benefit plan or a
transaction under Rule 145 of the Securities Act), then the Company will give
notice to holders of the Debentures of its intention to file a registration
statement for Registrable Stock under the Securities Act, and that holders who
have converted to Common Stock effective within thirty (30) days after the
giving of such notice are eligible to participate in such registration. The
Company will promptly file such a registration statement to register eligible
Registrable Shares for sale in the open market and use its best efforts to cause
such registration statement to be declared effective so that the registration
statement and prospectus will remain effective for a nine-month period.
<PAGE>
d. Costs and Expenses. All costs and expenses in connection with the
registration of securities under Sections 13(a) and 13(c) hereof, including
federal and state registration and filing fees incurred in connection therewith,
printing expenses (including such number of any preliminary and final
prospectuses, to include post-effective amendments and supplements to the
registration statement, as may reasonably be requested), the fees and
disbursements of its counsel and of independent accountants and other experts of
the Company, shall be borne by the Company (except that regarding Section l3(c),
all such costs in excess of $100,000 shall be borne pro rata by holders of
Registrable Shares) and all such expenses in connection with a registration
pursuant to Section 13(b) hereof shall be borne by the holders pro rata who
demand any such registration; provided, however, that the Company shall not be
obligated to pay underwriter's discounts and commissions and fees in connection
with a registration of the Registrable Stock pursuant to Sections 13(a) and
13(c) hereof. The Company will keep effective any such registration for such
period as may reasonably be necessary to effect the disposition in accordance
with the intended methods described in the requests for registration, but if the
Company is requested or required to maintain such registration effective for
more than nine months, all out-of-pocket expenses of the Company incurred in
maintaining such effectiveness after such nine-month period shall be borne by
the holders who have requested the maintaining of such effectiveness in order to
continue with the distribution, in such proportions as they may agree upon. The
Company's obligation to effect the registration or to maintain the effectiveness
of such registration will be conditioned in each case on the receipt by it of
satisfactory undertakings by such holders to bear such expenses, if any, as by
the terms hereof are to be borne by them, and the receipt from each of them as
to such information regarding the securities held by them and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company. The
holder of Registrable Shares will agree to abide by notice provisions reasonably
requested by the Company to avoid sales in the open market during any period of
registration.
IN WITNESS WHEREOF, Waste Recovery, Inc. has caused this instrument to
be signed by its duly authorized officer, and its corporate seal to be imprinted
hereon and attested by the signature of its Secretary or one of its Assistant
Secretaries.
Dated as of March 15, 1996 WASTE RECOVERY, INC.
By: /s/THOMAS L. EARNSHAW
THOMAS L. EARNSHAW
President and Chief
Executive Officer
[SEAL]
Attest:
/s/JOHN E. COCKRUM
Secretary
<PAGE>
EXHIBIT A
FORM FOR EXERCISING ELECTION TO CONVERT
The undersigned holder of the attached 18% Convertible Subordinated Debenture
due January 31, 1997 surrenders $ _______________ aggregate principal amount of
the Debenture for conversion on the terms and conditions set forth in the
Debenture. Accrued but unpaid interest shall _____ shall not _____ (check one)
be converted. It is requested that the shares issuable upon conversion be issued
to the following person or persons:
Name Address
________________________________ _________________________________
________________________________ _________________________________
________________________________
SSN or Tax I.D. #
Date:___________________________ _________________________________
Signature of Registeres Owner
_________________________________
Printed Name of Registered Owner
[Instructions: If the shares are to be issued to any person other than
the Registered Owner, complete the information above for such
assignee, and complete an assignment as pr Exhibit B. Otherwise,
complete the above information as it pertains to the Registered
Owner.]
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
For value received, I sell, assign, and transfer to ___________________________
whose address is __________________ , ______________________________ , the
attached Debenture standing in my name on the books of the Company, and
irrevocably appoint the Secretary of the Company as my attorney to transfer such
Debenture on the books of the Company, with full power of substitution.
The Tax I.D. # of such assignee is _______________________________.
Date:_______________________ ___________________________________
Signature of Registered Owner
(Assignor)
___________________________________
Printed Name of Registered Owner
(Assignor)
(Principal Financial and Accounting Officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 313,693
<SECURITIES> 0
<RECEIVABLES> 1,660,638
<ALLOWANCES> (31,726)
<INVENTORY> 739,046
<CURRENT-ASSETS> 213,356
<PP&E> 12,146,720
<DEPRECIATION> 7,073,359
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0
203,580
<COMMON> 407,800
<OTHER-SE> 1,774,397
<TOTAL-LIABILITY-AND-EQUITY> 10,183,272
<SALES> 3,178,970
<TOTAL-REVENUES> 3,240,749
<CGS> 2,319,237
<TOTAL-COSTS> 3,454,606
<OTHER-EXPENSES> (242,136)
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