<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Fee Required)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
FOR THE TRANSITION PERIOD FROM TO
-------- -------
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)
Securities Registered Pursuant to Section 12 (b) of the Act:
NONE
Securities Registered Pursuant to Section 12 (g) of the Act:
COMMON STOCK (NO PAR VALUE PER SHARE)
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Number of shares of Registrant's Common Stock, no par value per share,
outstanding as of March 31, 1997: 17,442,621
The approximate aggregate market value of voting stock held by non-affiliates of
the Registrant (based on average of the closing bid and asked price of March 24,
1997) was $21,827,915. For purposes of this computation, all officers,
directors and 10% beneficial owners are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors or
10% beneficial owners are in fact affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's Proxy Statement for 1997 Annual Meeting of
Shareholders, to be filed within 120 days of December 31, 1996, are incorporated
by reference in Part III, Items 10, 11, 12 and 13.
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
Certain statements in this Form 10-K under "Item 1. Business", "Item 3. Legal
Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of Waste
Recovery, Inc. (the "Company" or "Registrant") to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; competition; success of operating
initiatives; development and operating costs; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or failure to comply with, government regulations; and other factors
referenced in this Form 10-K.
ITEM 1. BUSINESS
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" for additional factors relating to
such statements.
GENERAL
- -------
Waste Recovery, Inc. is a specialized service and process company operating in
the environmental services industry. The Company is involved in all aspects of
scrap tire disposal and in conversion of scrap tires, through a proprietary
process, into a uniform, high quality, wire-free, tire-derived fuel (TDF).
The Company believes it is the largest firm in the United States specializing in
disposal and recycling of scrap tires into a high quality fuel supplement.
Presently, the Company has TDF producing facilities operating in Portland,
Oregon; Houston, Texas; Atlanta, Georgia; Philadelphia, Pennsylvania;
Marseilles, Illinois; Dupo, Illinois; and Concord, North Carolina.
The Company was organized in 1982 to acquire the assets of two operations in
Portland, Oregon, one of which had been producing TDF since 1976. The Houston
facility began producing TDF in 1986, and the Atlanta operation in 1988. In
March 1995 the Company acquired Domino Salvage, Tire Division, Inc. ("Domino")
and after the addition of specific, proprietary processing equipment, Domino
began producing a quality TDF in late 1995. The two Illinois facilities became
operational in late 1995 and were originally owned and operated by Waste
Recovery-Illinois (WR-Illinois), a general partnership of which the Company was
a partner. In December of 1996, WR-Illinois became a wholly-owned subsidiary
upon the Company's acquisition of its partner's interest in the general
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partnership (see Part II, Item 5, Purchase of Interest in WR-Illinois). The
Concord facility was purchased by the Company in December of 1996 and conducts
business as U.S. Tire Recycling Partners, L.P. The Concord facility operates a
scrap tire monofill and primarily markets processed material for civil
engineering purposes.
The Company has made investments in facilities and developed expertise in the
areas of tire collection and disposal. The system is flexible in order to
serve as a disposal service for scrap tire sources ranging from current scrap
tire generators, such as tire dealers, all the way to large, sometimes
long-abandoned, scrap tire piles. Scrap tire pick-up service must be regular
and on a time schedule sufficiently predictable in order to minimize the
storage requirements of the scrap tire generators and to provide continuity
of supply to TDF users.
The Company uses its tire shredding equipment and handling systems for the
production of a high grade TDF. In addition to improving systems and
equipment, the Company has worked to make TDF more acceptable as a fuel
supplement. Generally, the permitting process required before a utility or
other industrial fuel user may start burning TDF depends on many factors, such
as location, fuel volumes and mix, the traditional fuels being supplemented,
types of burners, boilers and fuel handling systems. The Company uses its
experience in the TDF supplement business to help customers obtain permits and
to equip their facilities to most efficiently use TDF as a fuel supplement.
Waste Recovery pursues an integrated approach to scrap tire disposal and
conversion of scrap tires into TDF and works to increase the total number of TDF
users in order to increase demand for the Company's TDF. The Company has not
historically had a significant amount of backlog orders for TDF.
The Company's TDF competes against a different mix of traditional fuels and
electric power sources in various regions of the country. In the Pacific
Northwest, industry is served by hydroelectric systems that provide electric
power at a low enough rate that fossil fuel burning co-generation power systems
are not justified at industrial plants. Thus, the pulp and paper mills typical
of this region require fuel essentially for the production of heat and steam for
use in their manufacturing process. Much of this fuel is provided from their
own "Hog Fuel," or wood waste from the logging, debarking and sawing operations.
TDF is a well-suited supplement to this internally generated fuel, especially
during the winter and spring months when waste wood fuel is wet.
In the Southwest, TDF competes primarily with natural gas as a supplemental fuel
in steam generation facilities. Despite natural gas being relatively
inexpensive in recent years, the Company's business in this region has continued
to grow. Due to the Baytown plant's location near marine transportation
alternatives and the Company's participation in the Texas Waste Tire Recycling
Program which provides reasonable disposal fees, the Company has been able to
develop TDF markets outside the State of Texas.
In December 1996, the Company concluded the acquisition of U.S. Tire Recycling
Partners, L.P. (U.S. Tire), a large collector and processor of scrap tires in
the Southeast, located in Concord, North Carolina (see Part II, Item 5, Purchase
of U.S. Tire Recycling Partners, L.P.). U.S. Tire operates a scrap tire
monofill and also processes material for sale into recycled rubber markets.
During 1997, the Company plans to upgrade this facility's technology and
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marketing techniques which should allow it to obtain a larger share of the
tire-derived product market in the Southeast. The pulp and paper industries
in the Southeast typically require a much greater proportion of on-site
generated power because they generate much more of their own electric power.
Since the bulk of this power is traditionally coal-based, TDF is well-suited
as a competitive energy source in the region, primarily due to the fact that
TDF's handling and burning characteristics are the closest to coal. The
Company's Concord facility will give the Company the opportunity to further
expand in this market as the facility's processing capabilities are increased
and improved.
The two Illinois facilities are the first of the Company's plants that are
economically justified due solely to having traditional, coal burning electric
utilities as the primary recipients of the TDF plants' output. Other industrial
boilers that utilize coal as a primary source of energy have also begun to
review and consider use of TDF as a supplemental fuel.
The Company completed its acquisition of the general partnership interest in
WR-Illinois held by Riverside Caloric Company (RCC), a wholly-owned
subsidiary of NIPSCO Industries, Inc., in December of 1996 (see Part II, Item
5, Purchase of Interest in WR-Illinois). WR-Illinois was a general
partnership created to construct and operate two TDF producing facilities in
Illinois. The partnership was created after the Company obtained a contract
to supply a large Illinois electric utility with 60,000 tons of TDF per year.
WR-Illinois' operations were consolidated beginning December 1, 1996 (see
notes 1, 2 and 9 of the financial statements of the Company).
OPERATIONS
- ----------
The Company's seven scrap tire processing plants charged tip fees for the
collection of more than 28 million scrap tires in 1996. Approximately 60% of
the casings were obtained through the Company's own collection network, which
collects from retail stores or supplies collection trailers to major scrap tire
generators, and through arrangements with tire manufacturers for factory
rejects. Many of these casings were delivered by independent operators. The
Company is not dependent on any single supplier for scrap tires. No one
independent collector or generator accounted for more than 5% of the casings
processed by the Company during 1996.
Scrap tires collected by the Company for a fee are processed into various forms
of tire-derived material, the bulk of which is sold as TDF. In general, the TDF
production process consists of conveying whole tires to a primary shredder which
cuts them into thin strips. These strips are processed into a chip form and
then passed through a magnetic separator to remove most of the bead wire and
steel belting. The resulting product is a chip of rubber compound nominally
less than two inches in any dimension and 98% free of bead wire. Most of the
processing equipment by which scrap tires are converted into TDF has been
designed or extensively modified by the Company's own technical personnel. The
Company continually endeavors to improve its process economics and product
quality. During 1996, the Company installed wire recycling systems at its
Baytown, Texas, Atlanta, Georgia, and Portland, Oregon facilities. These
systems, designed and constructed by the Company, allow the facilities to
operate waste-free, i.e., there is no waste residue from the manufacturing
process, thus improving profit margins. These systems were also included in
both of the Company's Illinois facilities when they were constructed in 1995.
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Since 1982, the Company has been refining and improving its production process
and has improved tire shredding techniques, equipment durability, and the
process for removal of most of the steel wire in scrap tires. The Company has
developed proprietary metering devices for use by TDF customers to control the
flow of TDF as a fuel supplement to maximize TDF utilization within each
customer's particular requirements and the framework of existing environmental
constraints.
Approximate Annual Shredding Capacities (Based on 16 hrs./day, 252 days/yr.):
<TABLE>
<CAPTION>
Approximate Utilization
Percentage in 1996
------------------
<S> <C> <C>
Portland TDF Plant 6.0 Million PTE's 97%
Houston TDF Plant 7.0 Million PTE's 34%
Atlanta TDF Plant 7.0 Million PTE's 54%
Philadelphia TDF Plant 4.0 Million PTE's 50%
Dupo TDF Plant 7.5 Million PTE's 36%
Marseilles TDF Plant 7.5 Million PTE's 37%
Concord Plant 6.0 Million PTE's 94%
PTE's are Passenger Tire Equivalents
</TABLE>
The Company's production capacity has increased to 45 million PTE's as of
December 31, 1996, from 25 million as of December 31, 1995 and 20 million as of
December 31, 1994. This increase was obtained through the establishment of the
two new facilities in Illinois and the acquisition of the Philadelphia and
Concord facilities. Although TDF sales represent a small portion of the
Company's revenues, they provide the primary outlet for the Company's processed
material that supports the Company's growth. TDF sales accounted for 10%, 7%,
and 9% of total company revenues for 1996, 1995 and 1994, respectively, and wire
sales were 2% for 1996 and 0% for both 1995 and 1994, whereas tipping fees,
hauling and other services accounted for 88%, 93% and 91% of total Company
revenues for 1996, 1995 and 1994, respectively.
SEASONALITY
- -----------
Historically, the Company's TDF sales volume has been seasonal in the Pacific
Northwest, with volumes diminishing between June and November of each year when
the major customers in that region, pulp and paper mills, need less fuel
supplementation than in the winter and spring months when their waste wood fuel
is wet. However, as the Company has expanded with facilities throughout the
country, the impact of seasonal fluctuations in the Pacific Northwest region has
diminished considerably compared to previous years.
The Company believes WR-Illinois' contract with Illinois Power Company for the
sale of 60,000 tons per year of TDF which has a term through July 1, 1999, as
well as growing the Company's client base in the South and Southeast, will help
to dampen seasonal fluctuations over the foreseeable future. The Company has
also began supplying TDF to additional utility and industrial customers in the
Midwest, further mitigating seasonal fluctuations of TDF sales.
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SCRAP-TIRE MARKET
- -----------------
The Rubber Manufacturing Association (RMA) estimates that approximately 350
million passenger tire equivalents (PTE's) (equivalent to approximately 255
million tire units) were scrapped in 1996.
As the result of establishing wire recycling systems, the average yield for the
Company in the TDF process increased in 1996 to one ton of product from
approximately 107 PTE's as opposed to 130 in 1995 without the wire systems.
Thus, if all tires scrapped in a year were converted to TDF, the potential
output would be approximately 3.3 million tons - more than 30 times the
Company's 1996 tonnage sales of TDF. Even after allowing for the 15% of tires
scrapped annually that are used in other applications, the scrap tire supply, in
general, should not have a limiting effect on the Company's ability to continue
its growth for the foreseeable future. This calculation does not take into
account the additional "raw material" represented by abandoned tire piles which
further increases the potential TDF output.
Demand for TDF appears to be growing, especially in the utility industry
based on the Company's experience with this type of customer over the last
three years. Certain of the benefits of TDF, such as high BTUs, low cost,
and reduced sulfur emissions, have contributed to increased TDF utilization
by electric power generating facilities. Management believes there are
continuing opportunities to increase demand for this fuel. One example of
this is the agreement with the Illinois Power Company. Under the terms of
the Company's contract, the Illinois Power Company will burn up to 7.5
million reprocessed tires, or 60,000 tons of TDF, per year at its Baldwin
Power Station (Baldwin). This figure, which constitutes about 60% of the
tires annually discarded in Illinois, equates to only 2% of the energy needs
at the Baldwin plant. WR-Illinois has recently entered into an agreement
with Wisconsin Power and Light, further establishing itself in this growing
market segment. The agreement with Wisconsin Power & Light calls for the
delivery of up to 24,000 tons of TDF over a thirteen month period beginning
January 1997.
GOVERNMENT REGULATION
- ---------------------
The Company works within a network of government regulations and programs at
both the scrap tire supply side and the TDF supply side of the business. Due to
the recognized fire and mosquito-borne health hazards associated with stockpiles
of scrap tires and the desire to curtail additional growth of stockpiles, more
restrictive regulation with respect to the disposal of current generation of
scrap tires has been implemented at all levels of jurisdiction with increasing
intensity in recent years.
In the past couple of years, legislation has had a significant effect on the
Company's Houston operation. The State of Texas collects $2 for each new
passenger tire and $3.50 for each new truck tire sold. The proceeds fund the
clean-up of abandoned tire piles, as well as the disposal of current scrap tire
generation, and are the source of the $.85 per weighed tire unit (18.7 lbs.)
paid to licensed and registered scrap tire processors. The Company was one of
the first processors registered in 1992, and has been the only processor in the
state to recycle all of the scrap tires it has received under the program. The
Company was under the State of Texas' allocation program until September 1995,
at which time the allocation system was eliminated and now allows qualified
processors to process tires on an unlimited basis. However, the Company's
ability to increase tire flow into its facility was restrained since this
legislation allowed competitors to stockpile scrap tire material and continue to
receive compensation from the State.
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The result was the creation of large piles of shredded tires across the
State. In efforts to curtail the growth of these shred piles, this
legislation was amended as of January 1, 1996 to require end-use markets
such as TDF markets, for example, for scrap tires collected. Although the
effective date of the requirement for end-use markets was January 1, 1996,
the State allowed a "grace period" for scrap tire processors to continue
operating without end-use markets. This grace period ended December 31, 1996.
The burning of TDF is subject to regulation by federal, state and local
governmental agencies. Generally, the Company and its customers must comply
with established mandatory disposal regulations and safety guidelines. TDF
customers must comply with certain emissions and ash content standards, and with
the requirements of the U.S. Environmental Protection Agency and certain
portions of the Clean Air Act. It is anticipated that initial permit
applications to burn TDF in new states will be thoroughly scrutinized by
regulatory bodies for emissions standards and ash content compliance. The
Company has developed historical information from its current customer base, as
well as from the numerous trial burns it has been associated with, which
provides a potential advantage in working with customers in their contacts with
regulatory agencies.
COMPETITION
The scrap tire disposal and recycling industry is highly fragmented.
Participants include the divisions of a few large companies and many small
operators who, for the most part, either stockpile tires or shred and landfill
them. One of the largest collectors and processors of scrap tires into fuel on
the East Coast is Emanuel Tire Company in Baltimore, Maryland. Archer Daniels
Midland Company of Decatur, Illinois, one of the largest scrap tire processors
in Illinois, processes tires it receives into supplemental fuel for its own use.
In the Southwest, the implementation of legislation in Texas in 1992 fostered
the establishment of approximately 20 new tire processors. Many of these
processors are still active, but recently several laws have been implemented
that provide that (i) as of September 1, 1995, limitations are removed on the
number of PTE's that the Company can process and receive payment for on a
monthly basis and, (ii) as of January 1, 1996, only tire processors with an
end-use market may qualify for reimbursement from the State of Texas.
These laws place pressure on the Company's competitors to produce and
market a better quality tire chip than is required by current State of
Texas specifications. The Company is the only processor in Texas to have
marketed all material it has processed and believes that with the increased
liability of the State of Texas from growing shred piles produced by other
processors, the Company is well positioned and should ultimately benefit
from increased market share of scrap tire disposal services.
Browning Ferris Industries, Inc. ("BFI") entered the scrap tire processing
business through the acquisition of Maust Tire Recyclers of Savage, Minnesota in
1991. BFI, headquartered in Houston, Texas, is one of the largest waste
disposers in the United States and operates tire processing facilities in the
states of Minnesota and Georgia.
The Company's primary competition for the acquisition of scrap tire casings
comes from the companies mentioned above, numerous individual collectors, and
Lakin General. Lakin is a large collector of scrap tires on a national level.
Lakin's primary business is the "culling" out of usable casings from the scrap
flow and selling them into secondary markets as used tires. The Company, at
some locations, is a recipient of scrap from Lakin.
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The Company recognizes that its operations and expansions are and will be
subject to competition from other companies, some of whom have substantially
greater financial, marketing, research and development, and personnel resources
than the Company. However, the Company believes that it can effectively compete
on the basis of its expertise in the logistics of tire disposal and TDF
production technology. The Company's newly-constructed TDF plants will
incorporate process equipment design modifications that improve operating
efficiency as compared with the original Portland operation. The Company
believes that its processing costs and reliability are better than those
achievable by competitors using commercially available tire processing
equipment.
PATENTS AND PROPRIETARY PROTECTION
The Company owns the United States patents set forth in the following table:
Patent No. Title/Description Issue Date
---------- ----------------- -----------
4,374,573 Apparatus for Shredding Rubber Tires and Other Waste 02/22/83
Materials
4,519,550 Material Guide and Clearer for Commuting Apparatus 05/28/85
4,560,112 Scrap Shredding Apparatus Having Clearing Rings and 12/24/85
Method for Sharpening Same
4,561,467 Triple Gate Valve 12/31/85
4,714,201 Tire Processing Apparatus and Method 12/22/87
4,750,437 Method for Disposal of Waste Materials by 06/14/88
Incineration
4,804,031 Apparatus for Removing Tires From Wheels 02/14/89
4,806,056 Modular Fuel Metering Apparatus and Method 02/21/89
The Company owns the Canadian patents (and pending applications) set forth in
the following table:
Patent No. Title/Description Issue Date
---------- ----------------- ----------
1,220,461 Scrap Shredding Apparatus Having Clearing Rings 04/14/87
and Method for Sharpening Same
1,279,051 Tire Processing Apparatus and Method Pending
The Company's service mark "Making Waste a Resource" was federally registered
with the U.S. Patent and Trademark Office on July 5, 1983. The patents set
forth in the foregoing tables afford some protection in the areas in which the
Company intends to concentrate. Management believes, however, that its know-how
and regular improvements to equipment and procedures are equally important in
the waste-to-energy business.
In 1988, pursuant to its industrial development bond financing for construction
of the Atlanta plant, the Company licensed its technology, including such
patents, to the indenture trustee. In 1993, the Company licensed such
technology to the Illinois Partnership in connection with the construction of
the two facilities in Illinois.
EMPLOYEES
As of December 31, 1996, the Company had 314 full-time employees, of whom 279
were in operations and the balance in administration, sales, planning and
engineering. None of the employees are covered by collective bargaining
agreements, and the Company believes its relations with its employees are
generally good.
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EXECUTIVE OFFICERS OF THE COMPANY
All executives hereunder are elected annually in accordance with the by-laws and
serve until their successors are elected and qualified. There are no family
relationships among any of the Company's executive officers. For a more
detailed description of the Company's executive officers, please see the
information under the caption "Executive Officers of the Company" in the
Company's Proxy Statement to be filed under Regulation 14A within 120 days
after December 31, 1996.
Name Age Position Held With Registrant
---- --- -----------------------------
MARTIN B. BERNSTEIN 63 Chairman of the Board of Directors
THOMAS L. EARNSHAW 42 President and Chief Executive Officer
ROBERT L. THELEN 58 Senior Vice President - Engineering
MARK W. HOPE 43 Senior Vice President
C. RON McNUTT 52 Senior Vice President
DAVID G. GREENSTEIN 37 Senior Vice President
The positions and offices of the executive officers of the Registrant are as
follows:
MARTIN B. BERNSTEIN was elected Chairman of the Board of Directors of the
Company at the February 13, 1997 Board of Directors meeting. Mr. Bernstein
joined the Board of the Company in December of 1996 in connection with the
Company's acquisition of U.S. Tire.
THOMAS L. EARNSHAW was elected President and Chief Executive Officer, as well as
a Director, of the Company at the March 1, 1990 Board of Directors meeting. Mr.
Earnshaw joined the Company at its inception in 1982. He was elected Vice
President-Operations in 1985 and Executive Vice President-Operations in 1987.
ROBERT L. THELEN has been with the Company since 1982, and is one of the
Company's original founders. He is responsible for the design and improvement
of plant equipment, plant construction, and technical assistance to customers.
He was elected Vice President-Engineering in 1989, a Director in 1990, and
Executive Vice President-Engineering in May, 1991.
MARK W. HOPE joined the Company at its inception in 1982. He was Vice President
of the Company's Northwest Region prior to accepting his current position.
C. RON MCNUTT joined the Company on April 2, 1996 as Senior Vice President of
Operations. He had been an operations officer in the waste paper industry prior
to joining the Company.
DAVID G. GREENSTEIN joined the Company in December of 1996 in connection with
the Company's acquisition of U.S. Tire. He also serves as President of the
Company's U.S. Tire subsidiary.
[End of Page]
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ITEM 2. PROPERTIES
The Company currently occupies the following properties:
<TABLE>
<CAPTION>
Sq. Footage of Owned or Lease Current Monthly
Location and Description Building Expiration Rental
------------------------ -------- ---------- ------
<S> <C> <C> <C>
PORTLAND, OREGON:
25,000 sq. ft. paved property with metal 1,000 12/31/99 $872
manufacturing building
45,000 sq. ft. property with metal fabrication 4,800 12/31/99 $3,200
and maintenance building
20,000 sq. ft. graveled lot - 5/31/99 $800
Office and shop on 1.2 acres 8,000 7/31/99 $2,200
HOUSTON (HARRIS COUNTY), TEXAS:
Production facility on 9 acres partially paved 13,800 Owned -
with metal building
ATLANTA, GEORGIA:
Production facility on 3 acres partially paved 4,800 12/31/97 $2,785 with metal building
PHILADELPHIA, PENNSYLVANIA
4 acres of land holding processing facility 1,500 2/28/05 $3,200
DALLAS, TEXAS:
Office space 4,500 2/28/00 $2,765
DUPO, ILLINOIS:
Production facility on 10 acres partially 12,000 11/30/14 $1,000
paved with metal building
MARSEILLES, ILLINOIS:
Production facility on 6.8 acres partially 9,600 Owned -
paved with two metal buildings
CONCORD, NORTH CAROLINA:
Production facility on 87 acres with office 5,600 Owned -
and shop
</TABLE>
In Portland, Oregon the Company occupies a 1,500 square foot building and 400
square feet of office space on the second floor of the 4,800 square foot metal
fabrication building which serves as its administrative offices. The
administrative offices of the Houston, Atlanta, Philadelphia, Dupo, Marseilles
and Concord facilities are in office trailers of approximately 600 square feet.
The Company's executive offices occupy approximately 4,500 square feet in
Dallas, Texas. The Company believes that its facilities are adequate for its
immediate needs, and that it has the capacity to accommodate significant
additional volume at its tire shredding plants.
ITEM 3. LEGAL PROCEEDINGS
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" for additional factors relating to
such statements.
The Company is involved in routine litigation arising in the ordinary course of
business. In the opinion of management, such matters would not have a material
adverse effect on the financial condition or the results of operations of the
Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company shareholders during the fourth
quarter of 1996.
[End of Page]
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PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's no par value Common Stock is presently being traded on the
over-the-counter market.
Trading commenced on July 17, 1986 and the Registrant's common shares were
quoted on the NASDAQ system until February 20, 1990 at which time the Common
Stock was delisted as a result of the Company's failure to meet applicable
capital and surplus requirements. The following table sets forth the range of
bid and ask prices for the Registrant's Common Stock during the periods
indicated:
High Low
---- ---
Quarter Ended Bid Ask Bid Ask
------------- --- --- --- ---
03/31/95 1 1 1/2 1/2 1
06/30/95 1 5/8 2 1/8 1/2 15/16
09/30/95 1 11/16 2 1/8 7/8 1 5/16
12/31/95 1 3/8 1 7/8 3/4 1 1/16
03/31/96 1 3/8 1 9/16 1 1 5/32
06/30/96 1 13/16 2 1 1 1/4
09/30/96 1 1/2 1 9/16 1 1/16 1 1/4
12/31/96 2 5/16 2 3/8 1 1/2 1 5/8
(a) The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commissions and may not represent
actual transactions. Prior to termination by NASDAQ (February 20, 1990),
such quotations were received from NASDAQ. Quotations after such time
are obtained from the National Quotation Bureau.
(b) The approximate number of record holders (not including participants in
securities position listings) of the Registrant's common shares as of
March 31, 1997 was 454.
(c) To date, the Registrant has not paid any dividends on its Common Stock.
Future dividends, if any, will be paid in compliance with the Company's
loan agreements. The Company has outstanding 203,580 shares of its 7%
cumulative preferred stock. Prior to payment of a dividend on its Common
Stock, all dividends accumulated on such preferred stock must be paid.
The Company does not anticipate paying dividends on its Common Stock in
the foreseeable future.
RIGHTS OFFERING
The Company distributed nontransferable subscription rights (the "Rights") to
subscribe for an aggregate of 3,238,857 shares of its Common Stock for an
offering price of $0.75 per share (the "Subscription Price") to the holders of
record of the Common Stock at the close of business on April 14, 1995 (the
"Record Date"), and to certain holders of the Company's convertible debentures,
provided that on or before June 7, 1995 (the "Conversion Date") such debenture
holders converted the debentures to Common Stock (collectively, the "Eligible
12
<PAGE>
Shareholders"). The Eligible Shareholders received in this offering two
Rights for each five shares of Common Stock held on the Record Date or the
Conversion Date. Each Right entitled the holder to subscribe for and
purchase one share of Common Stock upon payment of the Subscription Price.
Each Right also entitled the holder to subscribe for additional shares of
Common Stock available in this offering that were not subscribed and paid for
by other Eligible Stockholders under the basic subscription privilege.
At the conclusion of the Rights offering on June 26, 1995, the full amount of
the subscription had been exercised; 3,238,857 shares of Common Stock were
issued and $2.2 million in capital was raised for specific equipment
improvements and working capital. In conjunction with the offering, $265,000
plus accrued interest of $17,951 of the convertible, subordinated debentures
were converted at the rate of $0.875 per share into 323,373 shares of Common
Stock.
PURCHASE OF U.S. TIRE RECYCLING PARTNERS, L.P.
The Company issued 3,242,997 shares of unregistered Common Stock, $1,850,000
of convertible subordinated notes, and promissory notes in the aggregate
amount of $605,035 as consideration for the purchase of U.S. Tire Recycling
Partners, L.P. in December 1996. The Company also issued 243,224
unregistered shares of Common Stock to a third party as compensation for
services rendered as financial advisor to the Company in connection with the
acquisition of U.S. Tire. The convertible subordinated notes are convertible
at $2.50 per share and have an interest rate of 5% per annum in 1996 and
1997, 6% in 1998 and 7% in 1999 and 2000. Interest is paid quarterly with
principal payments beginning on March 31, 1999 in the amount of $500,000, and
$450,000 on September 30, 1999, March 31, 2000 and September 30, 2000.
Principal amounts are subject to reduction if certain cash flow tests are not
met by the Company's U.S. Tire subsidiary. The Company has undertaken to
register the shares of Common Stock received by the sellers of U.S. Tire in
mid-1997 (see 1997 Registration Statement under this Item 5).
PURCHASE OF INTEREST IN WR-ILLINOIS
The Company issued 1,100,000 shares of unregistered Common Stock to acquire
Riverside Caloric Company's (RCC) 55% interest in WR-Illinois in December of
1996. The Company formed the Partnership in 1993 with RCC (a wholly-owned
subsidiary of NIPSCO Industries, Inc.) to build two production facilities in
Illinois. The Company owned 45% of the partnership prior to acquiring RCC's
interest. The Company has undertaken to register the shares of Common Stock
received by NIPSCO Industries, Inc. in this transaction in mid-1997 (see 1997
Registration Statement under this Item 5).
ISSUANCE OF COMMON STOCK AND WARRANTS
On December 24, 1996 and December 26, 1996, the Company sold 1,050,000 shares
of unregistered Common Stock for $1.45 per share in a private placement. In
connection with issuing this stock, warrants to purchase a like amount were
also sold for $0.05 per share. This sale was made to qualifying individuals,
of which one was Mr.
13
<PAGE>
Michael Dodge, a director of the Company. Mr. Dodge purchased 300,000 shares
of unregistered Common Stock for $1.45 per share and $0.05 per warrant. The
Company has undertaken to register the shares of Common Stock received by the
investors in this private placement in mid-1997 (see 1997 Registration
Statement under this Item 5).
1997 REGISTRATION STATEMENT
In the agreement to acquire U.S. Tire, the Company agreed to file a
registration statement with the Securities and Exchange Commission to
register shares issued to the sellers of U.S. Tire after its 1996 Form 10-K
is filed. The shares of Common Stock issued to NIPSCO and those sold in the
December private placement were given the right to be included in this
filing. The Company anticipates that this filing will be completed on or
about May of 1997.
[End of Page]
14
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data has been derived from the consolidated
financial statements and should be read in conjunction with and are qualified
by reference to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 and the Consolidated Financial
Statements and related Notes included in Item 8.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA
TDF sales $1,242,464 $1,114,975 $ 1,104,691 $ 1,080,172 $ 1,589,405
Wire sales - - - - 397,701
Disposal and other revenues 6,820,392 7,625,518 11,320,714 13,059,751 14,687,426
---------- ---------- ----------- ----------- -----------
Total revenues 8,062,856 8,740,493 12,425,405 14,139,923 16,674,532
Operating expenses and
depreciation 5,790,747 6,902,545 9,753,225 12,098,884 13,103,362
General and administrative
expenses 1,559,784 1,660,449 2,099,579 2,568,094 3,171,418
---------- ---------- ----------- ----------- -----------
Income from operations 712,325 177,499 572,601 (527,055) 399,752
Interest expense, net 353,396 352,835 378,761 457,202 375,093
Other (income) expense (248,880) (67,340) 10,567 (380,066) (935,795)
Minority interest in income 360,766 87,617 - - -
Loss in equity of Partnership - - 20,260 322,630 668,504
---------- ---------- ----------- ----------- -----------
Income (loss) before income
taxes and extraordinary items 247,043 (195,613) 163,013 (926,821) 291,950
Income tax benefit (expense) (100,000) - 447,543 - (8,850)
---------- ---------- ----------- ----------- -----------
Income (loss) before
extraordinary item 147,043 (195,613) 610,556 (926,821) 283,100
Extraordinary item utilization of
income tax carry forwards*** 100,000 - - - -
---------- ---------- ----------- ----------- -----------
Net income (loss) $ 247,043 $ (195,613) $ 610,556 $ (926,821) $ 283,100
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Net income (loss) per share:
Income (loss) before
extraordinary item $ .00 $ (.08) $ .06 $ (.12) $ .01
Extraordinary item .02 - - - -
---------- ---------- ----------- ----------- -----------
Net income (loss) $ .02** $ (.08)** $ .06** $ (.12)** $ .01
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------**
Weighted average number of
common and dilutive common
equivalent shares outstanding 4,354,995 4,040,199 7,762,817 9,132,359 11,856,758
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
OTHER DATA
Earnings before interest, taxes,
depreciation & amortization
(EBITDA+) $1,297,310 $ 899,619 $1,236,758 $ 486,089 $ 1,861,493
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
EBITDA as a percentage of
revenues 16% 10% 10% 3% 11%
--- --- --- -- ---
--- --- --- -- ---
Tons of TDF sold during
the period ended (unaudited) 59,494 62,156 62,564 72,961 102,929
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
BALANCE SHEET DATA
Total assets $5,394,772 $5,876,105 $ 8,745,077 $10,732,399 $28,391,800
Total long-term debt $2,294,758* $2,065,509* $ 4,002,585 $ 4,409,249 $12,053,395
Total shareholders' equity
(deficit) $ (225,049) $ (362,932) $ 1,258,819 $ 2,899,006 $ 8,329,123
</TABLE>
15
<PAGE>
+The Company believes that EBITDA is a useful common yardstick for
measuring the capacity of companies to generate cash without reference to
how they are capitalized, how they account for significant non-cash charges
for depreciation and amortization associated with assets used in the
business, the bulk of which are long-lived assets, or what their tax
attributes may be. Additionally, since EBITDA is a basic source of funds
not only for growth but to service indebtedness, lenders in both the
private and public debt markets use EBITDA as a significant determinant of
borrowing capacity.
*Includes long-term debt then classified as short-term debt as a result
of the Company's noncompliance during such period with certain financial
covenants in its debt agreement.
**Undeclared dividends on cumulative preferred stock of $142,895,
$142,502, $142,502, $142,506, and $142,896 at December 31, 1992, 1993, 1994,
1995, and 1996 respectively, have been added to net loss or subtracted from
net income for purposes of computing net income (loss) per common share.
***The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes", January 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" for additional
factors relating to such statements.
GENERAL COMMENTS
The Company owns and operates plants in Portland, Oregon, Houston, Texas,
Atlanta, Georgia, Philadelphia, Pennsylvania, Dupo, Illinois, Marseilles,
Illinois and Concord, North Carolina. During 1993 and until January 1994,
the Portland facility was owned by Waste Recovery Partners, Ltd., a limited
partnership, of which the Company had a 65% ownership position and served as
the managing partner. Effective January 1, 1994, KCT converted its limited
partnership interests in the partnership into 2.6 million unregistered shares
of the Company's Common Stock which equated to approximately 35% of the fully
diluted outstanding Common Stock at the time of conversion. Late in 1994,
construction began on the Dupo and Marseilles tire processing plants which
began operations in late 1995. These plants were originally owned by the
Illinois Partnership, of which the Company owned a 45% interest and was the
managing partner until December of 1996 when the Company acquired its
partner's interest in the partnership. See "Item 5 - Market for Registrant's
Stock and Related Security Holder Matters -- Purchase of Interest in
WR-Illinois."
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, hauling of scrap tires, sales of used tires in the
used tire market, the sale of wire extracted from processed tires and from
the sale of TDF. 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 as well as electrical generating stations.
The Concord facility operates a scrap tire monofill and primarily markets
processed material for civil engineering purposes.
16
<PAGE>
During the past three years, the effects of inflation on the Company's
operations have been negligible.
In the last three years, the Company has experienced significant growth.
1995 was a particularly important year with the acquisition of Domino and the
Company's entry into the Illinois and surrounding Midwest scrap tire markets
with the construction of the two Illinois plants. The Company has grown from
a scrap tire processing capacity of 20 million PTE's in 1994 to over 45
million PTE's in 1996. The Company grew considerably more with the
acquisitions of the unowned 55% interest in WR-Illinois and U.S. Tire, both
in December 1996. See "Item 5 - Market for Registrant's Stock and Related
Security Holder Matters --Purchase of Interest in WR-Illinois" and "--
Purchase of U.S. Tire Recycling Partners, L.P." Operating results and cash
flow in 1996 were an improvement over 1995 as the Company took action to
manage this growth and increase efficiency and profitability. It is the
Company's goal to grow through the acquisition of small tire disposal
businesses and consolidate the capability and resources of those businesses
with the intent of providing a single-source tire disposal service to
customers on a national basis. Management is aware that to achieve this
goal, the Company must have sufficient working capital, the ability to obtain
new capital, a high-quality management team, and an availability of scrap
tire disposal businesses to purchase.
The growth that began in 1995 proved to be a challenge for the Company as it
went from three established plants to a total of six plants by December 31,
1995. Domino, which was acquired in March 1995, had to be restructured and
rebuilt to enable it to produce a quality TDF product. Upon completing these
capital improvements, an unexpected soft demand for TDF in the Northeast
resulted in poor TDF sales at Domino in 1995, a trend that continued into
1996. The Company has, however, continued to supply TDF to a utility in New
Jersey, and the TDF market in the Northeast appears to be improving. If the
TDF market improves as expected, the Domino plant should achieve the levels
of productivity and sales originally anticipated by management.
During the fourth quarter of 1995, the Company began operations at the two
new Illinois facilities constructed outside of Chicago and St. Louis. The
facilities were originally scheduled to open before the summer of 1995;
however, due to a late start in 1994 as a result of bad weather and flooding
in the Midwest region in early 1995, the plants were not completed and
operational until September 1995. The late entry into the scrap tire market
and the following winter months severely hampered marketing efforts and tire
flow. The performance of the Illinois plants suffered during this startup
phase as they established themselves in the region's scrap tire market. By
mid-1996 tire flow had increased significantly, and with changes in Illinois
scrap tire legislation, tire flow increased even more by July 1996.
Performance at the Illinois plants consistently improved during the rest of
the year and by year-end, the facilities had increased their operations to a
50% capacity utilization level. The Company believes that the TDF market in
the Midwest is strong, as evidenced by a new TDF supply contract with
Wisconsin Power and Light, which will be supplied by the Marseilles plant.
Continued growth in tire flow at the Illinois plants should provide these
facilities with the ability to take advantage of the growing TDF market
throughout 1997 and following years. The Illinois operations took a positive
turn towards profitability in 1996 and this trend is expected to continue
through 1997 as tire flow and productivity levels steadily increase, allowing
the Company to take further advantage of the growing TDF markets in the
Midwest region.
17
<PAGE>
Another significant event of 1996 was the acquisition of U.S. Tire. This
scrap tire processor located in Concord, North Carolina operates a scrap tire
collection network throughout the state and surrounding Eastern corridor as
well as a scrap tire monofill. While the U.S. Tire facility landfills the
majority of scrap tires collected, other revenues are generated through tire
grading activities where collected tires are sold in used tire markets, and
the sale of processed scrap tires as a tire-derived product for civil
engineering purposes. With a tire flow of over 5 million PTE's annually and
historically strong operating results, the U.S. Tire facility should
significantly contribute to the positive trend towards consistent
profitability the Company has taken in 1996.
The Company's Portland facility continues to maintain a strong position in
the scrap tire market in the Northwest. The fourth quarter marks a period of
transition for this plant as management began restructuring the facility's
collection network to increase efficiency and lower costs. The facility also
began a tire pile remediation project in the State of Washington in April
1996 that is expected to be completed in November 1997. This project
involves the clean-up of approximately four million PTE's and 22 million
pounds of shredded tires. Installation of a wire recycling system, as
previously noted, was completed at the Portland plant in December 1996.
While the scrap steel market is softer than expected for the wire product
generated in Portland, the elimination of disposal costs previously
associated with the wire residue along with new revenues generated from wire
sales should improve the operating results of this plant.
The Baytown facility showed strong improvement in TDF sales and disposal fees
primarily as a result of the elimination of the State of Texas' scrap tire
allocation program. Within Texas, the Company is now allowed to collect as
many scrap tires as can be processed and sold. As the Baytown facility
completed its third full quarter of wire production as of December 31, 1996,
wire sales were strong as the response from the scrap steel industry for the
Company's wire product has been very favorable in this region. The Company
maintains its position of being the only processor in the State of Texas to
completely recycle all scrap tires received under the Texas program. It
appears that this facility is well positioned for the future as Texas
legislation beginning in 1997 requires all scrap tire collectors to have
end-use markets for the scrap tire material they generate.
In 1996, the Atlanta facility had increased TDF sales with the addition of a
new customer and increased consumption by the facility's existing customer
base. With the continued acceptance of TDF as a supplemental fuel by
solid-fuel burning industries in the region, TDF sales are expected to remain
consistent and should continue to strengthen in the future. Like Portland
and Baytown, a wire recycling system was installed in June of 1996. Revenue
received from scrap wire product in this region notably exceeds associated
production costs. The Atlanta plant, however, experienced a setback in
November 1996 when a portion of the plant was disabled by a mechanical fire.
The section of the plant not damaged by the fire has allowed the facility to
continue to receive an uninterrupted flow of scrap tires from its existing
customer base while the plant is rebuilt. The tires received are shredded
and then landfilled, with most of the landfilling activity occurring at the
Company's new U.S. Tire facility. The landfilling alternative provided by
the U.S. Tire facility has allowed the Company to hold costs down while the
Atlanta plant is rebuilt. As the facility was adequately insured and much of
the damaged equipment already fully depreciated, a gain on involuntary
conversion of assets was recognized in the fourth quarter. Since the Company
18
<PAGE>
has been able to maintain an uninterrupted tire flow, the Atlanta facility is
expected to resume complete operations in mid-April 1997 when rebuilding
efforts are scheduled to be completed.
While 1995 was indicative of the Company's struggle with the tremendous
growth that occurred since 1994, 1996 reflects the Company's move toward its
goal of achieving positive operating results and improved cash flow.
Management is highly aware of the need to carefully manage the recent growth
of the Company and maintain a course towards the consistent profitability
necessary to sustain continued growth and ensure the Company's ability to
service its debt.
A recap of the Company's operating results before income taxes follows:
1996 1995 1994
---- ---- ----
Operating income (loss) $ 399,752 $(527,055) $ 572,601
Interest expense (net) (375,093) (457,202) (378,761)
Gains on sales of equipment and other income 311,576 380,066 175,675
Gain (loss) on involuntary conversion of
assets 624,219 - (186,242)
Equity in loss from Partnership operations (668,504) (322,630) (20,260)
--------- --------- ---------
Income (loss) before income taxes $ 291,950 $(926,821) $ 163,013
--------- --------- ---------
--------- --------- ---------
[End of Page]
19
<PAGE>
1996 VS. 1995 VS. 1994
The table below summarizes the activity of the Company as well as the basic
revenue categories for the last three years:
1996 1995 1994
---- ---- ----
TDF Tons Sold 102,929 72,961 62,564
Passenger Tire Equivalents Received (Tons) 162,926 132,793 108,165
TDF Sales $ 1,589,405 $ 1,080,172 $ 1,104,691
Wire Sales $ 397,701 - -
Disposal and Hauling Fees $14,687,426 $13,059,751 $11,320,714
TDF Inventory - Year End (Tons) 15,402 8,194 14,477
The Company's total revenues of $16,674,532 for 1996 were 18% higher than the
$14,139,923 received in 1995, and 34% higher than the $12,425,405 received in
1994. This increase is the result of a 47% and 44% increase in TDF sales,
and a 13% and 30% increase in disposal fees, hauling, and other revenue over
1995 and 1994, respectively, as well as sales of wire product for the first
time in 1996 generated from the newly installed wire systems. Tons of TDF
sold were improved in 1996 for an increase of 41% over 1995 and 65% over
1994. The average TDF price of $15.44 per ton was an improvement in 1996
over $14.80 for 1995 as the Company continued to develop new markets for its
TDF. Compared to 1994 at $17.64, however, the 1996 price per ton was still
down. Management believes the upward trend in TDF prices should continue
based on a steady increase in the demand for TDF. Tire flow also increased,
showing an improvement of 23% from 1994 to 1995 and 23% from 1995 to 1996.
The increases contributed to improved disposal and hauling fees in 1995 and
1996. TDF inventory increased as a result of higher production levels and
the increase in PTE's received but is also reflective of a full year of
operation at six facilities as opposed to three in 1994. In addition to a
healthier tire flow at the Company's plants, the acquisitions of Domino in
1995 and WR-Illinois and U.S. Tire in December 1996 contributed to the
increase in disposal, hauling and other revenues.
The table below compares cost elements as a percentage of revenues (Revs.) over
the last three years:
% of % of % of
1996 Revs. 1995 Revs. 1994 Revs.
---- ----- ---- ----- ---- -----
Total Variable
Operating Expenses $11,908,912 71% $11,143,176 79% $9,058,241 73%
Depreciation 1,194,450 7% 955,708 7% 694,984 6%
----------- -- ----------- -- ---------- --
Total Operating Expenses $13,103,362 78% $12,098,884 86% $9,753,225 79%
----------- -- ----------- -- ---------- --
----------- -- ----------- -- ---------- --
Operating expenses decreased significantly in 1996 as a percentage of revenues
compared to 1995. The decrease is primarily the result of the wire reclamation
systems. Higher tire flow and increased production efficiency, as well as the
elimination of wire disposal costs at the Baytown, Atlanta, and Portland plants,
also contributed to the improvement over 1995 and 1994. Prior to installation
of the wire systems, the Company incurred costs to dispose of the wire waste
residue. As a result of the wire systems installed in 1996, not only was this
cost eliminated, but a
20
<PAGE>
new source of revenue was generated through the sale of the wire product to
the scrap steel industry. This trend is expected to show continued
improvement as 1997 will represent a full year of operations for the wire
systems.
Depreciation expense increased in 1996 compared to 1995 primarily as a result
of the new wire systems installed in the Atlanta, Baytown, and Portland
plants throughout 1996. The acquisition of WR-Illinois and U.S. Tire in
December 1996 also contributed to this increase. Depreciation expense as a
percentage of revenues remained unchanged compared to 1995.
Depreciation charges increased significantly from 1994 to 1995 in dollar
terms due to a 24% addition of property plant and equipment, 55% of which
relates to the acquisition of Domino. The percentage relationship of
operating expense to revenues also was affected by the acquisition of Domino
and the lack of revenues it generated during the period the facility was
being rebuilt. Costs to operate the Atlanta plant were relatively higher in
1995 due to mechanical problems that affected its production efficiency.
General and administrative expense increased $603,324 in 1996 compared to
1995, and increased $468,515 in 1995 compared to 1994. The increases are due
to the acquisitions of Domino in 1995, and WR-Illinois and U.S. Tire in
December 1996, as well as increased staffing at the plant and corporate
levels, higher salaries and health insurance costs, and other administrative
costs from the overall increase in corporate activities as a result of the
growth of the Company. Interest expense decreased in 1996 compared to 1995
primarily due to the conversion of the subordinated convertible debentures on
July 1, 1996 (see note 12 of the financial statements of the Company), and
the capitalization of interest in connection with the construction and
installation of the wire systems in the Atlanta, Baytown, and Portland plants
in 1996. Interest expense increased in 1995 due to additional debt from the
acquisition of Domino and the interest accrued on the remaining convertible
debentures. Interest expense comprised 3% of total revenues compared with
4% in 1995 and 3% in 1994.
% of % of % of
1996 Revs. 1995 Revs. 1994 Revs.
---- ----- ---- ----- ---- -----
General and
Administrative $3,171,418 19% $2,568,094 18% $2,099,579 17%
Interest Expense 447,176 3% 517,986 4% 400,314 3%
Interest Income (72,083) - (60,784) - (21,553) -
---------- -- ---------- -- ---------- --
$3,546,511 22% $3,025,296 22% $2,478,340 20%
---------- -- ---------- -- ---------- --
---------- -- ---------- -- ---------- --
LIQUIDITY AND CAPITAL RESOURCES
Improved operations and corresponding net income for 1996, as well as the
conversion of the subordinated debentures, the private placement sale of
Common Stock in December 1996, and the acquisitions of WR-Illinois and U.S.
Tire have all contributed to the Company's stronger equity position as of the
end of 1996.
Management remains sensitive to the risks that the Company will not have the
financial strength to take advantage of opportunities that are developing.
It is anticipated that with operating results continuing their 1996
improvement, the Company will be able to adequately fund its working capital
requirements for at least the next twelve months. Capital expenditures for
1997 are expected to be lower than the past two years as all of the plants'
machinery and
21
<PAGE>
equipment are in good working order, and the wire reclamation systems were
fully installed in 1996. These two factors should continue to reduce
operating costs. The Company will continue to explore ways to improve its
financial position to capitalize in the growth that has developed over the
past year.
Capital expenditures totaled approximately $1.7 million in 1996. The
increase in capital expenditures is primarily due to the wire systems
installed in Atlanta, Baytown, and Portland, and the construction of a tire
shredder for use in a major tire pile clean-up project. The Company also
purchased two pieces of heavy equipment for the Baytown and Domino plants.
The Company's strategy for operations and growth continues to be based on
continuous improvement in both process and logistical equipment, control of
production costs, and increased marketing of TDF and reclaimed wire.
The Company's working capital balance at December 31, 1996 was a deficit of
$27,018. This deficit is primarily the result of current installments due on
the Illinois bonds and related accrued interest which were included in the
consolidated financial statements as a result of the WR-Illinois acquisition
on December 1, 1996. Current liabilities also includes deferred grant
revenue (see note 15 of the financial statements of the Company) from
WR-Illinois at December 31, 1996.
The Domino debt was modified to extend the first annual payment of $200,000,
which was due March 21, 1996, to twelve equal monthly principal installments
of $16,666 beginning September 21, 1996. The second installment of $225,000
has been extended to May 1997.
Effective June 30, 1996, the convertible subordinated debentures in the
amount of $495,000 plus accrued interest of $46,564 were converted into
618,930 shares of Common Stock.
In February 1996, the Company switched financial institutions and was able to
secure a preferred interest rate of prime less .5% on its term note in the
amount of $1.1 million, which remains guaranteed by the Goodyear Tire and
Rubber Company.
These modified debt agreements should allow the Company to better manage its
cash flow to match the revenue stream.
Management believes that 1996 results reflect the positive effects of an
increased tire flow and stronger TDF market. The acquisitions of WR-Illinois
and U.S. Tire are expected to contribute to the continuation of this positive
trend. Debt service charges continue to increase annually as the Company
experiences high growth. However, management still believes that the
Company's operating strategies are on the right track, and they continue to
have confidence in the future potential for the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1 hereof.
22
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
-None-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial statements are listed in the "Index to Consolidated
Financial Statements for Waste Recovery, Inc." on page F-1 of
this Form 10-K.
(a) 2. Exhibits are listed on page E-1 through E-4 of this Form 10-K.
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Amended and Restated Articles of Incorporation filed
July 5, 1988, with the Secretary of State of Texas,
incorporated herein by reference to Exhibit 3.4 to the
Company's Form 10-K filed March 24, 1989.
3.2 Articles of Amendment to the Articles of Incorporation
filed June 8, 1990, with the Secretary of State of
Texas, incorporated herein by reference to Exhibit 3.5
to the Company's Form 10-K filed March 27, 1991.
3.3 By-Laws, amended and restated as of March 10, 1992,
incorporated herein by reference to Exhibit 3.6 to the
Company's Form 10-K filed March 26, 1992.
4.1 Form of Common Stock Certificate of Registrant,
incorporated herein by reference to the Company's
Form S-1, as amended, filed July 15, 1986.
4.2 Indenture of Trust dated April 1, 1988, between
Development Authority of Fulton County and Citizens
and Southern Trust Company (Georgia), National
Association, as Trustee, incorporated herein by
reference to Exhibit 4.2 to the Company's report on
Form 8-K filed June 1, 1988.
4.6 Form of 10% Convertible Subordinated Debenture due
March 15, 1996, incorporated herein by reference to
Exhibit 4.6 to the Company's report on Form 8-K filed
October 5, 1994.
10.6 Agreement dated May 9, 1986, between Registrant and
The Goodyear Tire and Rubber Company, incorporated
herein by reference to Exhibit 10.32 to the Company's
Amendment No. 1 to Form S-1 filed July 1, 1986.
10.7 Lease Agreement dated January 15, 1988, between
Southern Metal Finishing Company, Inc. and the
Registrant, incorporated herein by reference to
Exhibit 10.37 to the Company's Form 10-K filed
March 25, 1988.
10.8 Indemnity Agreement dated January 29, 1988, by the
Registrant and Southern Metal Finishing Company, Inc.,
incorporated herein by reference to Exhibit 10.38 to
the Company's Form 10-K filed March 25, 1988.
24
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
10.10 Estoppel Deed, dated December 28, 1989, between the
Registrant as Grantor, and Tex A. Perkins, et al., as
Grantee, incorporated herein by reference to
Exhibit 10.64 to the Company's Form 10-K filed
March 26, 1990.
10.11 Lease of Real Property, dated January 1, 1990, between
the Registrant, as Lessee, and Tex A. Perkins, et al.,
as Lessor, incorporated herein by reference to
Exhibit 10.65 to the Company's Form 10-K filed
March 26, 1990.
10.12 Warranty Deed, dated February 7, 1990, between Tex A.
Perkins, et al., as Grantor, and Wayne Easley, as
Grantee, incorporated herein by reference to
Exhibit 10.66 to the Company's Form 10-K filed
March 26, 1990.
10.13 Assignment of Lease, dated February 7, 1990, from
Tex A. Perkins, et al., as Assignor, and Wayne Easley,
as Assignee, incorporated herein by reference to
Exhibit 10.68 to the Company's Form 10-K filed
March 26, 1990.
10.14 The Registrant's 1989 Stock Plan for Employees,
effective March 6, 1989, and approved by the
Registrant's shareholders at the 1989 Annual Meeting,
incorporated herein by reference to Exhibit 10.73 to
the Company's Form 10-K filed March 26, 1990.
10.15 Amendment No. 1 to the Registrant's 1989 Stock Plan
for Employees, incorporated herein by reference to
Exhibit 10.15 to the Company's Form 10-K filed
March 28, 1996.
10.16 Nonqualified Stock Option Agreement dated April 4,
1990, granted by the Registrant to Allan Shivers, Jr.
for 200,000 shares, incorporated herein by reference
to Exhibit 10.77 to the Company's Form 10-K filed
March 27, 1991.
10.17 Form of Nonqualified Stock Option Agreement for grants
to employees made January 7, 1991, incorporated herein
by reference to Exhibit 10.89 to the Company's
Form 10-K filed March 26, 1992.
10.18 Form of Incentive Stock Option Agreement for grants to
employees made October 1, 1991, incorporated herein by
reference to Exhibit 10.90 to the Company's Form 10-K
filed March 26, 1992.
10.19 1992 Stock Plan for Non-Employee Directors,
incorporated herein by reference to Exhibit 4.8 of the
Company's Form S-8 filed May 8, 1992.
10.20 Form of Nonqualified Stock Option Agreement for grants
to non-employee directors made January 4, 1991,
incorporated herein by reference to Exhibit 10.88 to
the Company's Form 10-K filed March 26, 1992.
25
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
10.21 Indemnity and Security Agreement, dated June 1, 1990,
between Registrant and The Goodyear Tire and Rubber
Company, incorporated herein by reference to
Exhibit 10.82 to the Company's Form 10-K filed
March 27, 1991.
10.22 Amendment to Lease of Real Property dated April 25,
1991, between the Registrant, as Lessee, and George
Glanz, as Lessor, incorporated herein by reference to
Exhibit 10.86 to the Company's Form 10-K filed
March 26, 1992.
10.23 Agreement (for supply of TDF) between the Registrant
and Illinois Power Company dated October 12, 1993,
(paragraph 4 of Exhibit 10.007 is subject to a request
for confidential treatment), incorporated herein by
reference to Exhibit 10.007 to the Company's report on
Amendment No. 1 to Form 8-K/A filed December 14, 1993.
10.24 Leasehold Commercial Deed of Trust, Security
Agreement, Fixture Filing, Financing Statement, and
Assignment of Leases and Rents dated September 20,
1994, executed by the Registrant as Grantor, for the
benefit of NationsBank of Georgia N.A. as Trustee,
incorporated herein by reference to Exhibit 10.021 to
the Company's Form 10-K filed March 30, 1995.
10.25 Stock Purchase Agreement for the purchase by the
Registrant of the outstanding stock of Domino Salvage,
Tire Division, Inc., dated March 21, 1995,
incorporated herein by reference to Exhibit 10.024 to
the Company's Form 10-K filed March 30, 1995.
10.26 Loan Agreements dated April 1, 1988, between
Development Authority of Fulton County and the
Registrant, incorporated herein by reference to
Exhibit 28.2 to the Company's report on Form 8-K filed
June 1, 1988.
10.27 Promissory Note dated April 1, 1988, from the
Registrant to Development Authority of Fulton County,
incorporated herein by reference to Exhibit 28.3 to
the Company's report on Form 8-K filed June 1, 1988.
10.28 Leasehold Deed to Secure Debt and Security Agreement
dated April 1, 1988, between the Registrant and the
Trustee, incorporated herein by reference to
Exhibit 28.5 to the Company's report on Form 8-K filed
June 1, 1988.
10.29 First Amendment to Lease Agreement dated April 1,
1988, between Southern Metal Finishing Company, Inc.
and the Registrant, incorporated herein by reference
to Exhibit 28.6 to the Company's report on Form 8-K
filed June 1, 1988.
10.30 Assignment of Contracts dated April 1, 1988, between
the Registrant and Development Authority of Fulton
County, incorporated herein by reference to
Exhibit 28.7 to the Company's report on Form 8-K filed
June 1, 1988.
26
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
10.31 Promissory Note dated February 29, 1996, executed by
the Registrant as maker payable to Texas Commerce Bank
National Association in principal amount of
$1,119,309.01.(1)
10.32 Note Purchase Agreement dated February 29, 1996,
between The Goodyear Tire and Rubber Company and Texas
Commerce Bank National Association.(1)
10.33 Form of Convertible Subordinated Debenture Conversion
Agreements effective July 1, 1996.(1)
10.34 Form of Warrant to Purchase Common Stock of Waste
Recovery, Inc. as of July 1, 1996, as Exhibit "A" to
the Convertible Subordinated Debenture Conversion
Agreements included herein in Exhibit 10.47.(1)
10.35 Dodge Common Stock and Warrant Purchase Agreement
dated December 24, 1996 between Waste Recovery, Inc.
and Michael C. Dodge.(1)
10.36 Common Stock and Warrant Purchase Agreement dated
December 26, 1996 by and among Waste Recovery, Inc.
and Bette Nagelberg, Ronald I. Heller, Rachel Heller,
Ronald I. Heller as custodian for Evan Heller,
Delaware Charter Guaranty & Trust Co. FBO, and
R. Anthony Cioffari.(1)
10.37 Agreement and Plan of Reorganization dated as of the
30th day of September 1996 by and among Waste
Recovery, Inc., New U.S. Tire Recycling Corp.,
U.S. Tire Recycling Partners, L.P., Bodner/Greenstein
Capital Holdings, Inc., Tirus, Inc., Tirus Associates,
L.L.C., Environmental Venture Fund, L.P., Argentum
Capital, L.P., and Certain Shareholders, incorporated
herein by reference to Exhibit 1.1 of the Company's
current report on From 8-K filed December 20, 1996.
10.38 Partnership Purchase Agreement dated as of
December 16, 1996, between Riverside Caloric Company,
Waste Recovery, Inc., and Waste Recovery-Illinois,
L.L.C., incorporated herein by reference to
Exhibit 1.2 of the company's current report on
Form 8-K filed December 20, 1996.
10.39 Deed of Trust and Security Agreement between New
U.S. Tire Recycling Corp. (a wholly-owned subsidiary
of the Registrant) as Grantor, and the former partners
and shareholders of U.S. Tire Recycling Partners, L.P.
as Beneficiary.(1)
10.40 Letter Agreement between Waste Recovery, Inc. and
Cameron & Associates relating to the retention of
Cameron & Associates as financial advisor in
connection with the acquisition of U.S. Tire.(1)
11.1 Statement regarding computation of per share earnings -
See page F-5 of this Form 10-K which is incorporated
herein by reference.
21.1 Subsidiaries of the Registrant.(1)
27
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
23 Consent of Independent Accountants.(1)
27.1 Financial Data Schedule.(1)
99.1 The Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders, incorporated herein by
reference pursuant to Rule 12b-32 of the Securities
Exchange Act of 1934. Definitive copies of such Proxy
Statement to be filed under Regulation 14A within
120 days after December 31, 1996.
(1)Filed herewith
(b) (i) On December 9, 1996, the Company filed a current report on
Form 8-K pursuant to Item 2 thereof, reporting the acquisitions
of U.S. Tire Recycling Partners, L.P. and Waste
Recovery-Illinois, general partnership.
[End of Page]
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below on April 15, 1997, by
the following duly authorized person on behalf of the Company.
WASTE RECOVERY, INC.
(Registrant)
Date: April 15, 1997 By: /s/ THOMAS L. EARNSHAW
-------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas L. Earnshaw and Donald R.
Phillips, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Form 10-K under
the Securities Exchange Act of 1934, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements to the Securities Exchange Act of 1934, this
report has been signed below on April 15, 1997, by the following persons on
behalf of the Registrant in the capacities indicated.
/s/ THOMAS L. EARNSHAW /s/ ROGER W. COPE
-------------------------------------- -----------------------------
By: Thomas L. Earnshaw By: Roger W. Cope, Director
President and Chief Executive
Officer (Principal Executive Officer), /s/ MICHAEL C. DODGE
Treasurer (Principal Financial and -----------------------------
Accounting Officer), and Director By: Michael C. Dodge, Director
/s/ JOHN C. KERR
-----------------------------
/s/ MARTIN B. BERNSTEIN By: John C. Kerr, Director
--------------------------------------
By: Martin B. Bernstein, Director /s/ STEVEN E. MACINTYRE
-----------------------------
By: Steven E. MacIntyre, Director
/s/ ANDREW M. BODNER /s/ ROBERT L. THELEN
-------------------------------------- -----------------------------
By: Andrew M. Bodner, Director By: Robert L. Thelen, Director
/s/ W. DAVID WALLS
-----------------------------
/s/ CRANDALL S. CONNORS By: W. David Walls, Director
--------------------------------------
By: Crandall S. Connors, Director
29
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR WASTE RECOVERY, INC.
- -------------------------------------------------------------------
Reports of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
Schedule II. Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not required, not
applicable, or the required information is presented in the accompanying
financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and
Stockholders of Waste Recovery, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Waste
Recovery, Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of U.S. Tire Recycling Partners, L.P., a wholly-owned subsidiary,
which statements reflect total assets of $4,466,037 at December 31, 1996, and
total revenues of $470,540 for the one month period ended December 31, 1996.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for U.S. Tire Recycling Partners, L.P., is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To The Partners of U.S. Tire Recycling Partners, L.P.
Concord, North Carolina
We have audited the accompanying balance sheet of U.S. Tire Recycling Partners,
L.P. (a limited partnership) as at December 31, 1996, and the related statements
of income, partners' capital and cash flows for the month then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Tire Recycling Partners,
L.P. as at December 31,1996, and the results of its operations and its cash
flows for the month then ended.
COHEN & ROSEN, P.C.
New York, New York
January 24, 1997
F-2
<PAGE>
WASTE RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,892,427 $ 726,562
Accounts receivable, less allowance for doubtful accounts
of $51,017 and $27,083, respectively (notes 13 and 24) 2,736,388 1,887,426
Other receivables (notes 3 and 21) 1,061,958 5,758
Inventories (notes 4 and 13) 1,239,483 645,651
Other current assets (note 5) 355,958 149,912
------------ ------------
Total current assets 7,286,214 3,415,309
------------ ------------
Property, plant and equipment (notes 6, 7, 10, 13 and 18) 24,226,392 11,700,255
Less accumulated depreciation (7,923,939) (6,840,820)
------------ ------------
Net property, plant and equipment 16,302,453 4,859,435
------------ ------------
Restricted cash and cash equivalents (notes 8, 10 and 13) 1,914,795 998,035
Investment in Waste Recovery - Illinois (notes 2 and 9) - 258,539
Bond and debt issuance costs, less accumulated amortization
of $181,275 and $153,287, respectively 147,059 175,046
Deferred income taxes (note 20) 447,543 447,543
Goodwill, less accumulated amortization of $102,787 and
$41,164, respectively 1,895,678 507,695
Other assets 398,058 70,797
------------ ------------
$28,391,800 $10,732,399
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WASTE RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Current Liabilities:
Current installments of bonds payable (note 10) $883,024 $-
Notes payable (note 11) 632,003 28,945
Convertible subordinated debentures (note 12) - 40,000
Current installments of long-term debt (note 13) 998,719 427,552
Current installments of capital lease obligations (note 7) 111,982 93,423
Accounts payable (note 19) 3,269,300 1,996,857
Bond interest payable 219,781 -
Accrued wages and payroll taxes 247,576 174,753
Other accrued liabilities 637,836 372,800
Deferred grant revenue (notes 9 and 15) 313,011 43,476
----------- ----------
Total current liabilities 7,313,232 3,177,806
----------- ----------
Bonds payable, noncurrent (note 10) 7,567,795 -
Convertible subordinated debentures, noncurrent (note 12) - 495,000
Long-term debt, excluding current installments (note 13) 4,069,498 3,591,376
Obligations under capital leases, excluding current
installments (note 7) 104,017 178,797
Deferred grant revenue, noncurrent (notes 9 and 15) 696,050 246,338
Notes payable (note 11) 312,085 144,076
----------- ----------
Total liabilities 20,062,677 7,833,393
----------- ----------
Stockholders' Equity (notes 12, 14, 16, 17, 18 and 19):
Cumulative preferred stock, $1.00 par value, 250,000
shares authorized, 203,580 issued and outstanding in 1996 and
1995 (liquidating preference $14.61 per share, aggregating
$2,974,525, and $13.91 per share, aggregating $2,831,629,
in 1996 and 1995, respectively) 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,
17,322,121 and 10,830,170 shares issued and outstanding
in 1996 and 1995, respectively 407,800 407,800
Additional paid-in capital 18,467,427 13,320,410
Accumulated deficit (10,675,804) (10,958,904)
----------- ----------
8,403,003 2,972,886
Treasury stock, at cost, 103,760 common shares (73,880) (73,880)
----------- ----------
Total stockholders' equity 8,329,123 2,899,006
----------- ----------
Commitments and contingencies (notes 7, 9, 14, 23 and 26)
$28,391,800 $10,732,399
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues (note 24):
Tire-derived fuel sales $1,589,405 $1,080,172 $1,104,691
Wire sales 397,701 - -
Disposal fees, hauling and other revenue (note 19) 14,687,426 13,059,751 11,320,714
------------- ------------- ------------
Total revenues 16,674,532 14,139,923 12,425,405
Operating expenses 11,908,912 11,143,176 9,058,241
------------- ------------- ------------
4,765,620 2,996,747 3,367,164
General and administrative expenses 3,171,418 2,568,094 2,099,579
Depreciation and amortization 1,194,450 955,708 694,984
------------- ------------- ------------
399,752 (527,055) 572,601
Other income (expense):
Interest income 72,083 60,784 21,553
Interest expense (447,176) (517,986) (400,314)
Other income (note 9) 302,306 355,360 9,697
Gains on sales of property and equipment 9,270 24,706 165,978
Gain (loss) on involuntary conversion of assets
(note 21) 624,219 - (186,242)
Equity in loss from partnership operations (note 9) (668,504) (322,630) (20,260)
------------- ------------- ------------
(107,802) (399,766) (409,588)
Income (loss) before income taxes 291,950 (926,821) 163,013
Income tax benefit (expense) (note 20) (8,850) - 447,543
Net income (loss) 283,100 (926,821) 610,556
Undeclared cumulative preferred stock dividends 142,896 142,506 142,502
------------- ------------- ------------
Net income (loss) available to common
shareholders $140,204 $(1,069,327) $468,054
------------- ------------- ------------
------------- ------------- ------------
Net income (loss) per share $.01 $(.12) $.06
------------- ------------- ------------
------------- ------------- ------------
Weighted average number of common and dilutive
common equivalent shares outstanding 11,856,758 9,132,359 7,762,817
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock Additional
--------------- ------------ Paid-In
Shares Par Value Shares Par Value Capital
------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 203,580 $203,580 4,143,959 $407,800 $9,749,707
Conversion of Waste Recovery
Partners, Ltd. interests - - 2,660,323 - 807,900
Stock issued to Directors - - 4,361 - 6,000
Options exercised under incentive
stock option plan - - 3,500 - 2,885
Options exercised by financial
advisors - - 325,000 - 186,910
Reduction in note receivable
charged - - - - -
Net income
- - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1994 203,580 $203,580 7,137,143 $407,800 $10,753,402
Stock issued to Directors - - 27,366 - 15,900
Options exercised under stock
option plan - - 44,800 - 11,648
Conversion of subordinated
debentures - - 382,004 - 334,252
Rights offering to common
shareholders - - 3,238,857 - 2,205,208
Net loss - - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 203,580 $203,580 10,830,170 $407,800 $13,320,410
Stock issued to Directors - - 10,806 - 12,000
Options exercised under incentive
stock option plan - - 178,000 - 71,477
Stock issued in connection with
U.S. Tire acquisition - - 3,486,221 - 2,086,000
Stock issued in connection with
WR-Illinois acquisition - - 1,100,000 - 869,000
Conversion of subordinated
debentures - - 666,924 - 583,559
Warrants issued to subordinated
debenture holders upon - - - - 10,000
conversion
Sale of common stock and warrants - - 1,050,000 - 1,514,981
Net income - - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 203,580 $203,580 17,322,121 $407,800 $18,467,427
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<CAPTION>
Note Total
Accumulated Treasury Receivable for Stockholders'
Deficit Stock Stock Sold Equity/(Deficit)
------- ----- ---------- ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $(10,642,639) $(73,880) $(7,500) $(362,932)
Conversion of Waste Recovery
Partners, Ltd. interests - - - 807,900
Stock issued to Directors - - - 6,000
Options exercised under incentive
stock option plan - - - 2,885
Options exercised by financial
advisors - - - 186,910
Reduction in note receivable
charged to compensation expense - - 7,500 7,500
Net income 610,556 - - 610,556
------------ -------- -------- ----------
$(10,032,083) $(73,880) $- $1,258,819
Balances at December 31, 1994
- - - 15,900
Stock issued to Directors
Options exercised under stock - - - 11,648
option plan
Conversion of subordinated - - - 334,252
debentures
Rights offering to common - - - 2,205,208
shareholders (926,821) - - (926,821)
------------ -------- -------- ----------
$(10,958,904) $(73,880) $- $2,899,006
Balances at December 31, 1995 - - - 12,000
Stock issued to Directors - - - 71,477
Options exercised under incentive
stock option plan - - - 2,086,000
Stock issued in connection with
U.S. Tire acquisition - - - 869,000
Stock issued in connection with
WR-Illinois acquisition - - - 583,559
Conversion of subordinated
debentures - - - 10,000
Warrants issued to subordinated
debenture holders upon
conversion - - - 1,514,981
Sale of common stock and warrants
Net income 283,100 - - 283,100
------------ -------- -------- ----------
Balances at December 31, 1996 (10,675,804) $(73,880) $- $8,329,123
------------ -------- -------- ----------
------------ -------- -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 283,100 $ (926,821) $ 610,556
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Charge-off of other receivables - 28,582 -
Depreciation and amortization 1,132,827 1,515,759 1,149,878
Gains on sales of property and equipment (9,270) (24,706) (165,978)
Amortization of goodwill 61,623 41,164 -
Deferred income taxes - - (447,543)
Interest imputed on discounted note payable 18,009 13,508 -
Equity in loss from partnership operations 668,504 322,630 20,260
Stock issued to Directors 12,000 12,000 -
Warrants issued to debenture holders 10,000 - -
Changes in assets and liabilities:
Accounts receivable 95,492 143,420 (1,002,815)
Note and other receivables (1,049,211) - (401,816)
Inventories (255,773) (663,057) (721,117)
Other current assets (183,616) 107,163 (11,591)
Other assets (11,333) 75,157 (31,736)
Accounts payable 846,740 (387,772) 1,019,420
Payable to/receivable from affiliate (1,058,266) (25,846) 81,083
Accrued liabilities 86,371 (45,920) 301,566
Bond interest payable 43,956 - -
Deferred revenue (147,644) 289,814 -
Other (19,604) 12,546 -
----------- ----------- -----------
Net cash provided by operating activities 523,905 487,621 400,167
----------- ----------- -----------
Cash flows from investing activities:
Proceeds received on note and other receivables - 490,320 100,000
Proceeds from sales of property, plant and
equipment 7,813 78,000 205,737
Purchases of property, plant and equipment (1,625,475) (1,681,169) (804,790)
Net cash received in connection with the purchase
of WR-Illinois 64,744 - -
Net cash received in connection with the purchase
of U.S. Tire 315,744 - -
Cash placed in restricted accounts (52,084) (530,200) (238,400)
Cash payments out of restricted accounts 516,931 38,686 90,000
Purchase of Domino Salvage, Tire Division, Inc.,
net of cash received of $16,165 - (170,019) -
Investment in Waste Recovery - Illinois -
----------- ----------- -----------
Net cash used by investing activities (772,327) (1,774,382) (976,174)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 298,405 64,764 242,673
Payment of notes payable (150,382) (206,734) (223,091)
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 - 88,230 95,637
Repayment of long-term debt (222,669) (297,013) (198,591)
Repayment of capital lease obligations (97,525) (117,798) (175,262)
Issuance of convertible subordinated debentures - - 800,000
Proceeds from issuance of common stock and
warrants 1,586,458 2,220,756 155,795
----------- ----------- -----------
Net cash provided by financing activities 1,414,287 1,752,205 697,161
----------- ----------- -----------
Net increase in cash and cash equivalents 1,165,865 465,444 121,154
Cash and cash equivalents at beginning of year 726,562 261,118 139,964
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,892,427 $ 726,562 $ 261,118
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND OPERATIONS. Waste Recovery, Inc. (the Company or
WRI) is a tire recovery company that specializes in processing
scrap tires into a refined fuel supplement more commonly
referred to as tire-derived fuel (TDF). The Company generates
income from the sale of TDF and wire, and from tipping fees
charged for the disposal of tires.
The Company is incorporated in the State of Texas and has its
headquarters in Dallas, Texas. The operating plants are in
Portland, Oregon, Houston, Texas, Atlanta, Georgia,
Philadelphia, Pennsylvania, Dupo, Illinois, Marseilles,
Illinois and Concord, North Carolina.
The Company entered into an agreement as of November 29, 1993,
to form a joint venture in a partnership, Waste Recovery -
Illinois, an Illinois general partnership (Illinois
partnership), in which it owned a 45% interest. Riverside
Caloric Company (RCC), an Indiana corporation, owned 55% of
the Illinois partnership. In December 1996, the Company
acquired RCC's 55% ownership interest in WR-Illinois (see note 2).
In December 1996, the Company acquired U.S. Tire Recycling
Partners, L.P., a scrap tire collector which recycles tires
and operates a scrap tire monofill (see note 2).
On March 21, 1995, the Company acquired 100% of the
outstanding stock of Domino Salvage, Tire Division, Inc.
(Domino), a scrap tire recycling company located in
Conshohocken, Pennsylvania, a suburb of Philadelphia (see note 2).
(b) PRINCIPLES OF CONSOLIDATION. For 1996, the consolidated financial
statements include the financial statements of Waste
Recovery-Illinois, L.L.C. (WR-Illinois), a wholly-owned
subsidiary of the Company and its affiliates which was
purchased in December 1996 (see note 2), and the financial
statements of U.S. Tire Recycling Partners, L.P. (U.S. Tire),
a wholly-owned subsidiary of the Company and its affiliates
which was purchased in December 1996 (see note 2). The 1996
consolidated financial statements include the operations of
WR-Illinois and U.S. Tire for the period December 1, 1996
through December 31, 1996.
For 1996 and 1995, the consolidated financial statements
include the financial statements of Domino Salvage, Tire
Division, Inc., a wholly-owned subsidiary of the Company,
which was purchased on March 21, 1995 (see note 2). The 1995
consolidated financial statements include the operations of
Domino for the period March 21, 1995 through December 31,
1995.
F-8
<PAGE>
Effective January 1, 1994, the limited partners of Waste
Recovery Partners, Ltd. converted their limited partnership
interests into 2.6 million unregistered shares of WRI Common
Stock. Due to this conversion, the operations of Waste
Recovery Partners, Ltd. became wholly-owned by the Company.
The 1994 consolidated financial statements reflect the
operations of the combined entities.
All significant intercompany balances and transactions have
been eliminated in consolidation. The Company's investment in
and equity in earnings of WR-Illinois were accounted for by
the equity method until the December 1, 1996 acquisition date
(see notes 2 and 9).
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) CASH AND CASH EQUIVALENTS. The Company considers all unrestricted
cash and highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(d) INVENTORIES. Parts inventory represents primarily the cost of the
grinder knives and machinery parts used in the TDF
manufacturing process. These inventories are stated at cost
(first-in, first-out) and are depreciated over the useful
lives of these parts, generally six to eighteen months. TDF
inventory is stated at the lower of cost or market. Cost is
determined using a weighted average cost method.
(e) PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
stated at cost. Property, plant and equipment acquired in
connection with the purchase of WR-Illinois and U.S. Tire were
recorded at fair value. Property and equipment under capital
leases are stated at the lower of the present value of minimum
lease payments or fair value of the asset at the inception of
the lease.
Depreciation of property, plant and equipment is calculated
using the straight-line method over the estimated useful lives
of the assets (generally three to ten years). Property, plant
and equipment held under capital leases and leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or estimated useful life of the
asset.
(f) BOND ISSUANCE COSTS. Bond issuance costs are recorded at cost and
amortized over the life of the associated debt using the
effective interest method.
F-9
<PAGE>
(g) GOODWILL. The Company assesses the recoverability of goodwill by
determining whether the amortization of the asset balance over
its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on the
estimated fair value of the operation. Goodwill associated
with the purchase of Domino of $548,859 (see note 2) is being
amortized on a straight-line basis over ten years. Goodwill
associated with the purchases of WR-Illinois of $947,712 and
U.S. Tire of $501,894 is being amortized over 20 and 15 years,
respectively.
(h) OTHER ASSETS. Patents, which are included in other assets, are
recorded at cost and amortized over a fifteen-year period
using the straight-line method. Site license and permits in
connection with the U.S. Tire landfill operation were recorded
at their fair value as of the acquisition date of U.S. Tire,
and are being amortized using the straight-line method over
their estimated useful lives ranging from five to fifteen
years.
(i) DEFERRED GRANT REVENUE. WR-Illinois has an agreement whereby it
has received $1,000,000 in grants from the State of Illinois
with the successful completion of certain pieces of equipment
at the Illinois plants. As of December 31, 1995, WR-Illinois
had received $800,000 from these grants; the remaining
$200,000 was received in January 1996. The grant award is
being amortized, beginning when the plants were placed in
operation, through the term of the grants, which expire July
31, 1999.
In 1995, WR-Illinois also received $365,903 through a grant
awarded to Illinois Power Company for the construction and
installation of a metering unit at Illinois Power. At
December 31, 1995, 20% of the total amount of the grant was
retained pending satisfaction of certain operational
requirements. WR-Illinois received payment for the retainage
of approximately $91,000 in 1996. Ownership of the metering
unit reverts to Illinois Power at the end of the contract.
(j) INCOME TAXES. Deferred taxes are recognized for the tax
consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on
deferred taxes for a change in tax rates is recognized in
income in the period that includes the enactment date. In
addition, future tax benefits are recognized to the extent
that realization of such benefits is more likely than not. A
valuation allowance is provided for a portion or all of the
deferred tax assets when there is sufficient uncertainty
regarding the Company's ability to recognize the benefits of
the assets in future years.
F-10
<PAGE>
(k) NET INCOME (LOSS) PER COMMON SHARE. Net income per common share is
computed based on the weighted average number of common and
equivalent shares outstanding during each period. Common
stock equivalents include shares issuable upon exercise of the
Company's stock options. For the years ended December 31,
1996, 1995 and 1994, the weighted average number of shares
considered to be outstanding were 11,856,758 and 9,132,359 and
7,762,817, respectively. Fully diluted earnings per share is
not presented because the effect of considering any
potentially dilutive securities is immaterial.
Net income or loss is adjusted by the effect of undeclared
dividends on preferred stock of $142,896, $142,506 and
$142,502 for the years ended December 31, 1996, 1995 and 1994,
respectively. The effect was to: (1) reduce the net income
per common share by $0.01 in 1996, (2) increase the net loss
per common share by $0.02 in 1995, and (3) reduce the net
income per common share by $0.02 in 1994.
(l) STATEMENTS OF CASH FLOWS. The Company paid $425,964, $469,903 and
$377,558 for interest in 1996, 1995 and 1994, respectively.
No income taxes were paid during 1996, 1995 or 1994. See note
22 for further discussion of noncash transactions.
(m) RECENT ACCOUNTING PRONOUNCEMENTS. In 1995, the Financial
Accounting Standards Board (FASB) issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
the Long-Lived Assets to be Disposed of" and Statement No.
123, "Accounting for Stock-Based Compensation." Both
statements are required for adoption in 1996.
Statement No. 121 requires the review of long-lived assets for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss will be recognized if the sum
of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the
asset. The amount of the impairment loss will be measured as
the difference between the carrying amount of the asset and
its estimated fair value. Based on its most recent analysis,
the Company believes no impairment existed at December 31,
1996.
Statement No. 123 establishes accounting and reporting standards
for various stock-based compensation plans. Statement No. 123
encourages the adoption of a fair value based method of
accounting for employee stock options, but permits continued
application of the accounting method prescribed by Accounting
Principles Board Opinion No. 25 (Opinion 25), "Accounting for
Stock Issued to Employees." Entities that continue to apply
the provisions of Opinion 25 must make pro forma disclosures
of net income and earnings per share as if the fair value
based method
F-11
<PAGE>
of accounting had been applied. In 1996, the Company adopted
this statement on a disclosure basis only.
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share." This statement is required for adoption in 1997. The
Company does not anticipate its adoption to be material to the
consolidated financial statements.
(n) RECLASSIFICATIONS. Certain prior year amounts have been
reclassified to conform with the current year presentation.
NOTE 2. ACQUISITIONS
In December 1996, WRI acquired from Riverside Caloric Company (RCC) its
55% interest in the Waste Recovery-Illinois general partnership, in
which the Company owned the remaining 45% interest (see note 9).
Also in December 1996, WRI through its subsidiaries acquired all of the
partnership interests in U.S. Tire Recycling Partners, L.P. (U.S.
Tire), which collects and processes scrap tires, and operates a scrap
tire monofill in Concord, North Carolina.
On March 21, 1995, WRI acquired 100% of the outstanding stock of Domino
Salvage, Tire Division, Inc., (Domino), a scrap tire recycling
company located in Conshohocken, Pennsylvania, a suburb of
Philadelphia. WRI invested approximately $500,000 during 1995 into
Domino to bring Domino's scrap tire recycling capacity up to 5
million passenger tire equivalents (PTE's) per year. Reconstruction
of the plant was completed in late 1995, and the plant became fully
operational in early 1996.
The acquisitions were accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values at the date of
acquisition. The results of operations of WR-Illinois, U.S. Tire,
and Domino have been included in the Company's consolidated
statements of operations from the date of acquisition through
December 31, 1996.
[End of Page]
F-12
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the assets acquired and liabilities assumed follows:
WR-Illinois U.S. Tire Domino
----------- ----------- ---------
Current assets $ 829,328 $ 907,438 $ 134,996
PP&E 7,981,325 1,967,838 650,765
Other assets 1,462,517 195,960 -
Debt and notes payable (8,115,000) (1,271,958) (368,149)
Deferred revenue (1,025,225) - -
Accounts payable and accrued
liabilities (558,964) (349,118) (96,452)
----------- ----------- ---------
$ 573,981 $ 1,450,160 $ 321,160
----------- ----------- ---------
----------- ----------- ---------
The following unaudited pro forma summary presents the consolidated
results of the Company's operations as if the acquisitions had
occurred at the beginning of the periods 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.
<TABLE>
<CAPTION>
For the year ended For the year ended For the year ended
December 31, 1996 December 31, 1995 December 31, 1994
Unaudited Unaudited Unaudited
--------- --------- ---------
<S> <C> <C> <C>
Revenues $24,583,814 $20,042,222 $13,244,316
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) $ (749,435) $ (961,502) $ 838,678
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss)
per share $ (0.06) $ (0.11) $ 0.11
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company purchased RCC's interest in WR-Illinois in exchange for
1.1 million unregistered shares of Common Stock of the Company (see
note 17).
The Company purchased U.S. Tire in exchange for 3,242,997
unregistered shares of Common Stock (see note 17), contingent
Convertible Subordinated Notes in the amount of $1,850,000 (see note
14), and notes payable (see note 11) in the amount of $605,035. The
debt is secured by the assets of U.S. Tire. Additionally, the Company
issued 243,224 unregistered shares of Common Stock to a third party
as compensation for services rendered as financial advisor to the
Company in connection with the acquisition of U.S. Tire (see notes 17
and 19).
The Company purchased Domino for approximately $867,000, including
legal costs, with an initial cash payment to the former shareholders
of $100,000. The Company is withholding an additional $50,000,
payment of which is contingent upon resolution of certain events.
The remaining payments will be made as follows:
1997 379,222
1998 275,000
--------
$654,222
--------
--------
F-13
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective March 21, 1996, this note was modified to commence monthly
installment payments on September 21, 1996, in the amount of
$16,666 per month for twelve consecutive months. Effective March
20, 1997, this note was modified to change the due date of the
second installment of $225,000 to May 21, 1997. The third
installment of $275,000 is to remain due on March 21, 1998. This
note bears interest at the rate of 1% over prime and the note is
secured by the assets and the stock of Domino (included in note
13). The new terms of the modified agreement are reflected in the
above remaining payments schedule. The acquisition also includes a
five-year employment agreement with the former President and owner
of Domino.
NOTE 3. OTHER RECEIVABLES
Included in other receivables at December 31, 1996 is a receivable for
$985,000 from an insurance company for property damage and business
interruption insurance related to the Atlanta fire (see note 21).
The Company received $650,000 of this amount in January and
February 1997. Final payment is expected to be received in the
second quarter of 1997.
NOTE 4. INVENTORIES
Inventory components at December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Manufactured fuel inventory $ 281,938 $228,303
Manufactured wire inventory 27,761 -
Work in process 293,070 12,324
Parts inventory 636,714 405,024
---------- --------
$1,239,483 $645,651
---------- --------
---------- --------
NOTE 5. OTHER CURRENT ASSETS
Other current assets at December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Prepaid insurance $259,443 $ 94,395
Other 96,515 55,517
-------- --------
$355,958 $149,912
-------- --------
-------- --------
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 are
summarized as follows:
1996 1995
---- ----
Land $ 2,389,580 $ 574,280
Buildings 2,912,415 50,145
Tire processing equipment 14,346,593 7,049,520
Hauling equipment 1,435,781 1,047,327
Metering units 817,785 340,338
Shop tools and yard equipment 209,177 341,981
Furniture and fixtures 313,294 207,661
Leasehold improvements 1,530,602 1,467,722
Construction in progress 271,165 621,281
----------- -----------
$24,226,392 $11,700,255
----------- -----------
----------- -----------
F-14
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Approximately $68,000 of capitalized interest is included in tire
processing equipment in connection with the construction of the
wire systems in 1996.
NOTE 7. LEASES
The Company leases certain property and equipment under capital leases
and certain other property and equipment is leased under
noncancelable operating leases which expire over the next five
years. Property and equipment include the following amounts for
capital leases at December 31, 1996 and 1995:
1996 1995
---- ----
Hauling equipment $210,829 $282,462
Tire processing equipment 107,574 107,574
Furniture and fixtures 57,533 66,204
-------- --------
375,936 456,240
Less accumulated depreciation (145,474) (130,040)
-------- --------
$230,462 $326,200
-------- --------
-------- --------
A summary of the minimum rental commitments under noncancelable
operating leases and the present value of future minimum capital
lease payments as of December 31, 1996 is as follows:
Capital Operating
Leases Leases
------- ---------
Year ending December 31:
1997 $127,973 $ 459,669
1998 89,568 365,866
1999 23,472 183,825
2000 5,831 137,776
2001 - 48,331
Thereafter - 17,426
-------- ----------
246,844 $1,212,893
Less: amount representing interest 30,845 ----------
-------- ----------
Present value of minimum lease payments $215,999
--------
--------
Total rent expense for operating leases for the years ended
December 31, 1996, 1995 and 1994 was $1,136,209, $813,397 and
$696,750, respectively.
NOTE 8. RESTRICTED CASH
Under terms of various debt agreements (see notes 10 and 13), the
Company is required to maintain cash balances which have certain
withdrawal restrictions. Amounts on deposit at December 31, 1996
and 1995 consisted of certificates of deposit or money market
accounts as follows:
F-15
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Release
1996 1995 Date
---- ---- ----
<S> <C> <C> <C>
Atlanta plant financing debt reserve $ 390,000 $390,000 2007
Illinois plant financing debt reserve (see note 10) 1,362,174 - 2004
Secured operating permits 93,853 93,853 -
Repair and maintenance fund 49,275 14,182 2007
Illinois financial assurance trust 19,493 - -
Security for Illinois debt (see note 10) - 500,000 -
---------- --------
$1,914,795 $998,035
---------- --------
---------- --------
</TABLE>
Under terms of the bond agreements (see note 10), WR-Illinois is
required to maintain cash balances for the debt service reserve
funds which have certain withdrawal restrictions. Interest earned
on this restricted cash may only be used for payment of current
debt service on the bonds.
Pursuant to provisions in the loan agreement, funds were disbursed
from the repair and maintenance fund in 1996 and 1995.
In connection with the guaranty by the Company of the bonds sold by
Waste Recovery - Illinois in September 1994, certain holders of
long-term debt of the Company required that an additional $195,000
of collateral be placed in the plant financing debt reserve. The
Company utilized some of the funds obtained from the private
placement of its convertible subordinated debentures for this
purpose (see note 12). The Company was also required to provide to
these debt holders an additional lien of $600,000 on its Portland
facility.
NOTE 9. INVESTMENT IN WASTE RECOVERY - ILLINOIS
Effective December 1, 1996, the Company acquired from Riverside Caloric
Company (RCC) its 55% interest in the Waste Recovery-Illinois
general partnership, in which the Company owned the remaining 45%
interest (see note 2). Until the December 1, 1996 acquisition date,
the Company's investment in WR-Illinois was accounted for under the
equity method of accounting.
Waste Recovery - Illinois was formed to jointly build and operate two
tire-derived fuel processing facilities in Dupo and Marseilles,
Illinois. The facilities cost approximately $5 million each and
began operation in late 1995. Waste Recovery - Illinois has a five
year contract to supply Illinois Power Company with 60,000 tons of
TDF annually which represents 50% of the facilities' estimated
production capacity.
F-16
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Waste Recovery - Illinois completed the sale of $8.875 million in solid
waste disposal revenue bonds as of September 27, 1994. The
proceeds of the bonds were used to finance the construction of the
two facilities. The Company is guarantor on the bonds and, as
managing partner of the Illinois partnership until the December 1,
1996 acquisition date, was subject to receive administrative fees
of $4,000 per month plus a management fee based on net income, as
defined. During 1996 and 1995, the Company collected management
fees of $36,000 and $12,000, respectively.
Under the equity method of accounting, the Company recognized $668,504,
$322,630 and $20,260 as losses from partnership operations for the
years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1995, the Company's investment in the Illinois
partnership includes $258,680 in inventories which were transferred
to the Partnership at cost.
RCC contributed $2 million and the Company contributed a license of its
technology and assigned the Illinois partnership all of its right,
title and interest in the five-year contract with Illinois Power
Company. In 1995, the Company received $750,000 upon reaching
certain performance objectives for the construction of equipment
used by the Illinois partnership upon the startup of the
facilities. Until the December 1, 1996 acquisition date, 55% of
this fee, representing the percentage of the Illinois partnership
not owned by the Company, was recognized in other income for the
eleven months ending November 30, 1996 and the year ended December
31, 1995. The remaining 45% had been recorded as deferred revenue
to be recognized such that it would offset the Company's interest
in the excess depreciation expense recorded by WR-Illinois related
to this portion of the cost of the plants. The remaining
unrecognized portion of deferred revenue at December 1, 1996 was
included in the purchase price for WR-Illinois and allocated to the
assets and liabilities acquired on December 1, 1996.
NOTE 10. BONDS PAYABLE
To provide funding for the construction of the Dupo and Marseilles
plants, WR-Illinois entered into two loan agreements: 1) $4,845,000
with the Southwestern Illinois Development Authority (SWIDA) and
2) $4,030,000 with the Upper Illinois River Valley Development
Authority (UIRVDA) (together, the Bonds), respectively. The Bonds
were issued through the Solid Waste Disposal Revenue Bonds, Series
1994 (Waste Recovery - Illinois Project) dated September 1, 1994,
under an Indenture of Trust. The proceeds to the Partnership were
to fund a debt service reserve fund, to pay the costs of issuing
the Bonds, to pay interest during construction, and to finance the
cost of the construction of buildings and related improvements and
the acquisition and installation of machinery, equipment and
related property, all constituting industrial, commercial and solid
waste disposal facilities located at Dupo and Marseilles, Illinois.
F-17
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
The notes bear interest at 6.5% per annum with interest payable
February 1 and August 1 each year, beginning February 1, 1995.
Principal payments are due annually on February 1 beginning in 1996
through 2004.
The notes are collateralized by the property, plant and equipment of
WR-Illinois, $1,362,174 in restricted cash (see note 8), and are
guaranteed by Waste Recovery, Inc. Future minimum payments as of
February 1 each year are as follows:
YEAR SWIDA UIRVDA TOTAL
---- ----- ------ -----
1997 $ 440,000 $ 365,000 $ 805,000
1998 470,000 390,000 860,000
1999 500,000 415,000 915,000
2000 530,000 440,000 970,000
2001 565,000 470,000 1,035,000
Thereafter 1,925,000 1,605,000 3,530,000
---------- ---------- ----------
Total $4,430,000 $3,685,000 $8,115,000
Bond Premium 183,233 152,586 335,819
---------- ---------- ----------
Total Bonds Payable $4,613,233 $3,837,586 $8,450,819
---------- ---------- ----------
---------- ---------- ----------
Bond premium represents the purchase adjustment recorded to reflect
the bonds at market on December 1, 1996 when the Company acquired
WR-Illinois (see note 2). Amortization of $7,153 was recorded for the
year ended December 31, 1996.
NOTE 11. NOTES PAYABLE
In connection with the purchase of U.S. Tire (see note 2), the Company
issued promissory notes payable to the sellers in the aggregate amount
of $605,035. The note is non-interest bearing and payable in two
installments with the first installment of $455,035 due February 1,
1997, and the final installment of $150,000 due March 31, 1998. The
final installment is subject to adjustment based on certain performance
criteria of the U.S. Tire subsidiary.
The Company finances insurance premiums under note agreements providing
for fixed monthly principal and interest payments due over terms not to
exceed nine months. Balances outstanding under such note agreements
aggregated $176,968 and $28,945 at December 31, 1996 and 1995,
respectively.
With the acquisition of Domino (see note 2), the Company assumed debt
to an affiliate of Domino in the original amount of $180,095. The
terms of this note provide for interest and principal to be deferred
until January 1, 1998, at which time monthly principal and interest
payments are to be made at prime over a two-year term. Consequently,
this note has been recorded as of March 21, 1995 (acquisition date) at
its present value of $130,569, discounted at a rate of ten percent.
The present value at December 31, 1995 was $144,076.
F-18
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 12. CONVERTIBLE SUBORDINATED DEBENTURES
Effective September 30, 1994, the Company privately placed with
accredited investors and certain shareholders $800,000 of 10%
convertible subordinated debentures due March 15, 1996. The debentures
were convertible at the option of the registered holders in minimum
amounts of $10,000 at any time prior to maturity at the rate of one
share of Common Stock for each $.875 in debenture principal and accrued
interest amount. The indebtedness evidenced by the debentures is
subordinate to all senior indebtedness of the Company and is unsecured.
As of December 31, 1994, none of these debentures had been converted.
In conjunction with the Rights Offering (see note 19) in June 1995,
$265,000 of the subordinated convertible debentures, plus accrued
interest of $17,951, were converted at the rate of $.875 per share
into 323,373 shares of Common Stock. At the first interest payment
date, September 15, 1995, the remaining debenture holders elected to
convert interest due on the debentures in the amount of $51,301 to
58,631 shares of Common Stock.
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. The remaining $495,000 in debentures were exchanged for similar
debentures which carried an interest rate of 18% and a maturity date of
January 31, 1997. Other terms and conversion privileges were the same
as in the original debentures. On July 1, 1996, the outstanding
$495,000 in debentures plus accrued interest of $46,564 were converted
at the rate of $.875 per share into 618,930 shares of Common Stock.
Upon conversion, the debenture holders also received warrants to
purchase an additional 304,425 shares of Common Stock with an exercise
price equal to market at the date of conversion. The warrants expire
July 1, 1998.
[End of Page]
F-19
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 13. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
10.5% note payable to corporation; due on various dates through
December 2007; interest payable semi-annually* $1,560,000 $1,635,000
Prime plus .5% note payable to bank; due December 2004,
guaranteed by The Goodyear Tire & Rubber Company;
principal and interest payable monthly** 1,019,309 1,128,329
Mortgage payable to corporation, interest at prime rate; due July
2003; principal and interest payable monthly 940,476 -
Notes payable to banks with interest rates ranging from 8% to
10.5%; expiring through November 2000; principal and
interest payable monthly 321,755 -
7.6% note payable to Small Business Administration; due May
2001; principal and interest payable monthly 210,065 248,554
Prime plus 1% note payable to former Domino shareholders;
payments due beginning September 1996 (see note 2); due
March 1998 654,222 700,000
Prime plus 1% note payable to bank; due July 1998; principal of
$5,917 plus interest due monthly 112,417 183,418
7.9% note payable to financial institution; due April 28, 2001;
principal and interest payable monthly 85,166 -
7.9% note payable to financial institution; due April 28, 2001;
principal and interest payable monthly 82,541 -
13.25% notes payable to financial institution; due September
1997; principal and interest payable monthly 31,137 66,103
7.9% note payable to financial institution; due November 1997;
principal and interest payable monthly 22,726 45,749
9% note payable to bank; due May 10, 2000; principal and
interest payable monthly 18,456 -
Notes payable to finance companies with interest rates from
8.95% to 12%, expiring through June 1997; principal and
interest payable monthly 4,994 -
10.5% note payable to financial institution; due August 1997;
principal and interest payable monthly 4,953 11,775
---------- ----------
5,068,217 4,018,928
Less:
Current installments of long-term debt 998,719 427,552
---------- ----------
Long-term debt $4,069,498 $3,591,376
---------- ----------
---------- ----------
</TABLE>
*The Loan Agreement contains various restrictions, including a
prohibition against the payment of dividends when such payment would
cause an event of default, as defined, and financial ratio maintenance
requirements, which includes minimum working capital and net worth
requirements. As of December 31, 1996 the Company was in compliance
with all required covenants.
**As of February 29, 1996, this note was transferred to another bank;
principal of $10,000 plus interest is payable monthly; the term and
guarantor remain unchanged. The interest rate with the original bank
was prime plus 1%.
F-20
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Debt is secured by substantially all of the Company's accounts
receivable, inventories and property, plant and equipment and $390,000
of the restricted cash accounts (see note 8).
The aggregate maturities of long-term debt at December 31, 1996 are as
follows:
Year ending December 31:
1997 $ 998,719
1998 837,455
1999 620,806
2000 485,134
2001 425,601
Thereafter 1,700,502
----------
$5,068,217
----------
----------
NOTE 14. CONVERTIBLE SUBORDINATED NOTES
In connection with the purchase of U.S. Tire (see note 2), the Company
issued convertible subordinated notes in the aggregate amount of
$1,850,000 payable to the former partners and shareholders of U.S.
Tire. The notes bear interest at an annual rate of 5% for the first
twelve months, 6% for the second twelve months and 7% until maturity.
Principal payments are due in the amounts of $500,000 on March 31,
1999, $450,000 on September 30, 1999, $450,000 on March 31, 2000 and
$450,000 on September 30, 2000.
The holders of the notes have the right at their option, at any time
after September 30, 1997, to convert all but not less than all of the
principal amount of the notes then outstanding into Common Stock of the
Company at the price of $2.50 per share, provided that such election to
convert shall be agreed upon unanimously by the holders of the notes
then outstanding.
The convertible subordinated note agreements provide for adjustments as
reductions to the principal amount of the notes based on certain
minimum future cash flow of U.S. Tire, as defined. In accordance with
APB Opinion No. 16, the convertible subordinated notes are treated as
"contingent consideration", and accordingly, have not been recorded as
a liability as of December 31, 1996, and will remain unrecorded until
such time as the contingency is resolved or the contingency period
expires. Interest payments on the convertible subordinated notes
during the contingency period are recorded as a deferred charge. If
the contingency is resolved in favor of the note holders, the
contingent consideration and deferred interest will be recorded as an
additional cost of the assets acquired (goodwill) and amortized
prospectively over its remaining life.
F-21
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 15. DEFERRED GRANT REVENUE
WR-Illinois (Grantee) entered into two grant agreements with the
Illinois Department of Commerce and Community Affairs (Department)
(formerly, the Illinois Department of Energy and Natural Resources) as
of June 1, 1994. The Department administers the Used Tire Recovery
Program which offers financial incentives for projects which reuse,
recycle or recover energy from Illinois used or scrap tires.
WR-Illinois requested funding assistance to build its TDF processing
plants in Dupo and Marseilles, Illinois. The Department agreed to
provide grants towards WR-Illinois' "projects", as defined. The Grantee
agreed that at least 30% of the scrap tires it processes will come from
Illinois sources, and that a minimum of one million Illinois PTE's
(passenger tire equivalents), as defined, will be collected and
processed annually at each plant. The Department awarded the Grantee
$1,000,000 towards specified equipment ($500,000 at each plant). As of
December 31, 1996, the full amount of the grants has been received.
The grant agreements require WR-Illinois to maintain the equipment for
the purpose as originally set forth in the agreement, to provide the
Department with semi-annual reports, and to meet certain other listed
criteria.
WR-Illinois received additional funding through a grant of
approximately $450,000 awarded by the Department to Illinois Power
Company for the construction of a TDF metering unit at its Baldwin
Power Plant. This award is being amortized over the remainder of the
contract with Illinois Power Company, which expires July 1999.
As of December 31, 1996, $1,009,061 of the total grant money received
is recorded as deferred grant revenue in the accompanying balance sheet
and is being amortized to income through July 31, 1999, at
approximately $32,000 per month.
NOTE 16. STOCK OPTIONS AND WARRANTS
1989 INCENTIVE STOCK OPTION PLAN
In 1989, the Company adopted the 1989 Incentive Stock Option Plan for
employees (the Incentive Plan). The purpose of the Incentive Plan is
to provide certain key employees of the Company with a proprietary
interest in the Company through the granting of options, restricted
stock or other stock rights. The Company has reserved 1,550,000 shares
of Common Stock for issuance upon exercise of such options and rights
issued pursuant to this Plan.
The terms and amounts of options are determined by the Board of
Directors. The Incentive Plan provides that option prices will be no
less than 50% (or 100% depending on the type of option) of the
F-22
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
fair market value per share at the grant date. The aggregate fair
market value of Common Stock underlying an incentive stock option
determined at the date of the grant shall not exceed $100,000 in the
year in which the options are first exercisable. All options issued to
date have terms of ten years and vest either immediately or over a five
year period.
Shares of Common Stock issued under the Incentive Plan as restricted
stock are determined by the Board of Directors. Restrictions, including
forfeiture provisions and consideration for issuance of such shares, are
determined by the Board of Directors. The consideration to be received
by the Company for issuance of such restricted stock shall be no more
than 50% of the fair market value at the date of the grant.
The Incentive Plan also provides that the Board of Directors may grant
stock appreciation rights (SARs) entitling the grantee, upon exercise of
such rights, to receive cash from the Company equal to the increase of
the fair market value of the Common Stock of the Company times the
number of units of SARs exercised subsequent to the date of grant. As
of December 31, 1996, no restricted stock or SARs had been granted.
The terms of the grants, including the grantees, are administered by a
Stock Option Committee which was formed by the Board of Directors.
The stock options discussed herein were granted at the market price at
the date of grant, thus no compensation expense has been recorded.
NONQUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS
During 1988 and 1991, the Company granted nonqualified stock options to
non-employee directors (the Nonqualified Issuances) for continued
service to the Company. Such options were exercisable through December
1993 and January 1996, respectively.
In 1990, the Company entered into an agreement with the Chairman of the
Company's Board of Directors granting him options to purchase 200,000
shares of Common Stock at $.41 per share for a seven-year period ending
April 3, 1997. Such options may only be exercised once the Company has
achieved twelve months of profitability or in the event of a change in
control. These options became exercisable in 1992 as the Company
achieved twelve months of profitability. As of December 31, 1996,
100,000 of the aforementioned options had been exercised.
1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
At the 1992 Annual Meeting, the shareholders approved the 1992 Stock
Plan for Non-Employee Directors (the Directors Plan). Pursuant to such
plan, non-employee directors of the Company receive
F-23
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
annually (1) after the annual meeting, a stock option to purchase 2,500
shares of Common Stock so long as the Company's net income for the
fiscal year just ended improved over the prior year, and (2) in
January, a Common Stock grant valued at $2,000 for service as a
director if attendance criteria are met. Such plan terminates
January 31, 2000 and 250,000 shares were reserved by the Company for
grants thereunder. Under this plan, 10,806, 12,366 and 4,361 shares
were issued for the years ended December 31, 1996, 1995 and 1994,
respectively. The option terms are ten years and vest immediately.
WARRANT ISSUANCES
In 1995, 100,000 warrants were issued to an investment company. These
warrants are exercisable in 1996 at $0.86 per share. The warrants
expire July 1, 1998.
See note 17 for warrant issuances in 1996.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants in 1996 and
1995, respectively; no dividend yield, expected volatility of 73.2%
and 74.3%, risk free interest rates of 6.7% and 6.1% and expected lives
of 8.4 years each.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information:
<TABLE>
<CAPTION>
1996 1995
---- ----
As Reported Pro forma As Reported Pro forma
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) applicable to common share $140,204 $(32,893) $(1,069,327) $(1,123,281)
Income (loss) per common share $0.01 $0.00 $(0.12) $(0.12)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts as SFAS No.
123 does not apply to awards prior to 1995 and additional
awards are anticipated in future years.
[End of Page]
F-24
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock option transactions under the Incentive
Plan and Directors Plan, as well as Nonqualified Issuances, is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Excercise Excercise Excercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 761,100 $0.83 565,900 $0.69 572,400 $0.69
Granted............................. 214,900 1.30 275,000 1.01 - -
Exercised.......................... (178,000) 0.40 (59,800) 0.26 (3,500) 0.90
Forfeited........................... (58,100) 1.12 (20,000) 0.73 (3,000) 1.19
-------- -------- --------
Outstanding at end of year............... 739,900 $1.05 761,100 $0.83 565,900 $0.69
Exercisable at end of year............... 559,900 $1.07 516,100 $0.76 565,900 $0.69
Weighted-average fair value of
options granted during the year....... $0.96 $1.12
</TABLE>
The following table summarizes information about the fixed
price stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Shares Weighted-Average Shares
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.41 100,000 0.3 years $0.41 100,000 $0.41
$0.75 87,500 6.1 years $0.75 87,500 $0.75
$0.98-$1.11 245,000 8.5 years 0.99 65,000 1.01
$1.19 25,000 9.3 years 1.19 25,000 1.19
$1.31-$1.41 192,400 9.4 years 1.32 192,400 1.32
$1.57 90,000 6.4 years 1.57 90,000 1.57
----------- -----------
$0.41-$1.57 739,900 7.13 years $1.05 559,900 $1.07
----------- -----------
----------- -----------
</TABLE>
At December 31, 1996, 833,800 shares were available for grant
as options or incentive grants under the Incentive Plan and
225,000 shares were available for grant as options under the
Directors Plan.
NOTE 17. STOCKHOLDERS' EQUITY
On December 26, 1996, the Company sold 750,000 shares of unregistered
Common Stock and 750,000 warrants to purchase Common Stock at a price
of $1.45 per share and $0.05 per warrant. The exercise price of the
warrants is $2.06, which equals the quoted market price for the
Company's Common Stock on December 26, 1996. The warrants expire
December 26, 2000.
F-25
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 24, 1996, the Company sold 300,000 shares of unregistered
Common Stock and 300,000 warrants to purchase Common Stock at a price
of $1.45 per share and $0.05 per warrant (see note 20). The exercise
price of the warrants is $2.06, which equals the quoted market price
for the Company's Common Stock on December 24, 1996. The warrants
expire December 24, 2000.
In December 1996, the Company issued 1.1 million shares of unregistered
Common Stock in connection with the acquisition of WR-Illinois (see
note 2).
In December 1996, the Company issued 3,486,221 shares of unregistered
Common Stock in connection with the acquisition of U.S. Tire (see notes
2 and 19). Included in the 3,486,221 shares issued are 243,224 shares
issued to a third party as compensation for services rendered as
financial advisor to the Company in connection with the acquisition of
U.S. Tire.
As a condition of the acquisition of U.S. Tire, the Company has
committed to file a registration statement with the Securities and
Exchange Commission to register shares issued to the sellers of U.S.
Tire. The shares of Common Stock issued to NIPSCO and those sold in
the December private placement were given the right to be included in
this filing. The Company anticipates this filing will be completed in
May 1997.
In 1990, the Company issued 203,580 shares of 7% cumulative preferred
stock redeemable at the Company's option for $10 per share. No
dividends were declared or paid on such preferred stock in 1996, 1995
or 1994. Accordingly, undeclared dividends on cumulative preferred
stock aggregated $938,725 at December 31, 1996 which represents $4.61
per share of such stock outstanding. Dividends on cumulative preferred
stock have been added to net loss or deducted from net income for
purposes of computing per common share amounts.
NOTE 18. RIGHTS OFFERING
The Company completed a rights offering on June 26, 1995,
which distributed nontransferable subscription rights to
eligible stockholders, as defined, to subscribe to the
Company's Common Stock at an offering price of $.75. This
"Rights Offering" raised approximately $2.2 million in
capital, which is being utilized for specific equipment
improvements at each of the Company's facilities, including
Domino. The Company issued 3,238,857 shares of Common Stock
with this rights offering.
NOTE 19. RELATED PARTY TRANSACTIONS
In 1996, the Company incurred a consulting fee of $20,000 to a
director in connection with the private placement sale of
unregistered Common Stock of the Company (see note 17).
F-26
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the acquisition of U.S. Tire (see note 2),
the Company paid a third party, which is a shareholder of the
Company and the Company's public relations firm, 243,224
shares of Common Stock of the Company for its assistance as a
financial advisor in arranging and facilitating the
acquisition of U.S. Tire. A director of the Company, as an
employee of the Company's financial advisor, received $175,000
in connection with his assistance to the Company's financial
advisor in closing the U.S. Tire transaction.
In 1996, the Company loaned $40,000 to an officer of the
Company. The loan is non-interest bearing and is expected to
be repaid within twelve months.
In 1996, the Company sold to a director 300,000 shares of
unregistered Common Stock and warrants to purchase an
additional 300,000 shares of Common Stock at a purchase price
of $1.45 per share and $0.05 per warrant, respectively. The
exercise price of the warrants equals the quoted market price
of the Company's Common Stock on the date the warrants were
purchased.
The Company received fees of $535,000 in 1995 and $556,000 in
1994 for accepting and hauling scrap tires from a significant
stockholder. In 1996, the customer was no longer a
significant stockholder.
In 1994, in lieu of directors' fees, 4,361 shares of the
Company's Common Stock were issued to the outside directors.
In 1995, the outside directors received $36,000 ($6,000 each)
as compensation for services, $6,000 ($1,000 each) for
attendance at Board of Directors meetings, and a total of
12,366 shares of Common Stock as described in note 16. In
1996, for attendance at Board of Directors meetings, a total
of 10,806 shares of Common Stock were issued to the outside
directors.
The Company incurred $60,000 in consulting fees to certain
directors for assistance with the sale of the Waste Recovery -
Illinois bonds, which was recorded in 1994 and paid in 1995.
Included in accounts payable at December 31, 1995 is $55,237 due to
Waste Recovery - Illinois. During 1995, the Company disposed of
approximately 7,514 tons of tires at the Partnership's Dupo,
Illinois plant and incurred disposal fees to the partnership in
the amount of $336,382.
NOTE 20. INCOME TAXES
For the year ended December 31, 1994, the Company adjusted its
gross deferred tax asset, including a reduction in the
valuation allowance of $508,761, which reflected the expected
utilization of the net operating loss carry forwards that were
previously expected to expire unutilized. The net operating
loss carry forwards were expected to be utilized based on
projected positive results from operations. The net
F-27
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
change in the deferred tax asset of $447,543 represented a tax
benefit for the year ended December 31, 1994.
The provision (benefit) for income taxes consists of the
following components for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State 8,850 - -
-------- -------- --------
Total current 8,850 - -
-------- -------- --------
Deferred:
Deferred taxes (119,278) 284,862 61,218
Deferred tax asset valuation
allowance 119,278 (284,862) (508,761)
-------- -------- --------
Total deferred - - (447,543)
-------- -------- --------
$ 8,850 $ - $(447,543)
-------- -------- --------
-------- -------- --------
</TABLE>
Total income tax expense (benefit) differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income before
income taxes for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax,
at statutory rates $ 96,254 $(315,119) $ 55,424
Penalties 220 20,216 13,418
Amortization of goodwill 20,115 13,996
Change in valuation allowance (119,278) 284,862 (508,761)
State income tax 8,850 - -
Other 2,689 (3,955) (7,624)
---------- ---------- ---------
$ 8,850 $ - $(447,543)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The deferred tax assets (liabilities) are comprised of the
following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards 2,622,220 $2,451,107
Depreciation 312,269 361,297
Deferred grant revenues 91,587 106,188
Accruals for financial reporting
purposes currently not deductible
for tax 32,104 48,527
Capitalization of general and
administrative costs for tax 62,098 16,505
Carrying differences for investment
in Illinois 269,386 114,814
Other 13,080 9,924
---------- ----------
Gross deferred tax asset 3,402,744 3,108,362
Valuation allowance (2,686,877) (2,660,819)
---------- ----------
715,867 447,543
---------- ----------
Deferred tax liabilities:
Book/tax basis in fixed assets and
deferred gain (268,324) -
---------- ----------
Gross deferred tax liabilities (268,324) -
---------- ----------
Net deferred tax asset $ 447,543 $ 447,543
---------- ----------
---------- ----------
</TABLE>
F-28
<PAGE>
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1996, the Company has approximately $7.156
million in net operating loss carry forwards which expire between
the years 2002 and 2011. The deferred tax asset recorded at
December 31, 1995 and 1996, is based on the expected utilization
of net operating loss carry forwards based on projected
positive results. Due to changes in ownership which occurred in
1996, there will be an annual limitation of approximately $1
million on the amount of net operating losses available to offset
future taxable income.
As a result of the December 1996 acquisitions discussed in Note 2, a
deferred tax asset of $145,336 was set up in the opening balance
sheet. A valuation allowance for the full amount of the deferred
tax asset was also set up in the opening balance sheet.
NOTE 21. INVOLUNTARY CONVERSION OF ASSETS
On November 26, 1996, the Atlanta plant sustained damage due to a
mechanical fire. As a result, TDF and wire production ceased for
the remainder of the year. The shredding machinery and equipment
was not damaged, thus allowing the plant to continue accepting
scrap tires for disposal which were then shredded and disposed of.
As of December 31, 1996, the plant was in the process of being
rebuilt. Completion of the rebuild is expected by mid-April 1997,
at which time the plant will be fully operational. This
involuntary conversion of assets has been recognized in the
year ending December 31, 1996, as follows:
<TABLE>
<CAPTION>
<S> <C>
Estimated insurance proceeds to be received on property $ 901,815
Net book value of property destroyed (151,844)
---------
Gain on involuntary conversion of property 749,971
Estimated insurance proceeds from business
interruption insurance 83,333
Costs incurred in clean-up (209,085)
---------
Net gain on involuntary conversion $ 624,219
---------
---------
</TABLE>
The estimated insurance proceeds are included in other receivables
(see note 3) at December 31, 1996, of which $650,000 was received
in January and February 1997.
[End of Page]
F-29
<PAGE>
On August 7, 1994, the Baytown (outside Houston, Texas) plant
sustained substantial damage due to a fire. Consequently, the
plant's operations were shut down from that time until the last week
of December 1994. During this period, the plant incurred a major
renovation and clean-up. This involuntary conversion of assets has
been recognized in the year ending December 31, 1994, as follows:
Net insurance proceeds received on property $ 372,137
Net book value of property destroyed (8,750)
----------
Gain on involuntary conversion of property 363,387
Estimated insurance proceeds from business
interruption insurance 120,000
Cost incurred in clean-up and remediation (669,629)
----------
Net loss on involuntary conversion of
assets $ (186,242)
----------
----------
The renovation of the Baytown plant was completed in late December
1994. The cost of the renovation is included in plant, property and
equipment in the amount of $263,035 at December 31, 1994.
The Company applied for business interruption insurance to cover the
loss of operating revenues during the time the plant was shut down.
The claim was not processed until the fall of 1995; of the $120,000
recorded as receivable in the accompanying 1994 financial statements,
only $91,418 was received and the difference of $28,582 was recorded
as an expense during 1995.
NOTE 22. NONCASH TRANSACTIONS
During 1996, the Company had the following noncash transactions
which have been excluded from the statements of cash flows:
<TABLE>
<CAPTION>
Increase
(Decrease)
-----------
<S> <C>
Additions of equipment under capital lease $ (41,304)
New capital lease obligations 41,304
Convertible, subordinated debentures converted
to common stock 535,000
Interest on debentures converted to common stock 48,559
Decrease in debentures payable (535,000)
Decrease in interest payable on debentures (48,559)
-----------
$ --
-----------
-----------
</TABLE>
In addition to the above noncash transactions during 1996, see note
2 regarding the assets and liabilities acquired and the additional
debt incurred with the acquisition of WR-Illinois, U.S. Tire and
Domino.
F-30
<PAGE>
NOTE 23. SIGNIFICANT CONTRACTS
WR-Illinois entered into a contract with Illinois Power Company on
October 12, 1993, to supply it with 60,000 tons of TDF per year for a
period of five years. If WR-Illinois is unable to fulfill this
requirement, the Company will sell TDF produced at its other
facilities to Illinois Power. Sales to Illinois Power of TDF
produced at the Dupo facility began in September 1995.
NOTE 24. BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located throughout the United States.
Five customers accounted for significant Company sales for the years
ended December 31:
1996 1995 1994
---------- ---------- ----------
Customer one $2,940,000 $2,221,000 $1,506,000
Customer two 1,840,000 1,604,000 1,566,000
Customer three 364,000 2,999,000 3,041,000
Customer four 566,000 535,000 556,000
Customer five 257,000 832,000 750,000
---------- ---------- ----------
Total $5,967,000 $8,191,000 $7,419,000
---------- ---------- ----------
---------- ---------- ----------
In addition to these customers, which are all significant entities,
the Company does business with a variety of companies with diverse
credit risk. The Company does not generally require collateral or
other security from its customers and has historically encountered
very little loss on its receivables.
NOTE 25. PROFIT SHARING PLAN
Effective January 1, 1995, the Company adopted the Waste Recovery,
Inc. 401(k) Plan (the Plan), a defined contribution plan. Employees
who have completed six months of service and have attained the age
of twenty-one are eligible to become participants in the Plan.
Participants may contribute up to 15% of their compensation, as
defined, annually. Company contributions to the Plan are determined
at the discretion of the Board of Directors. No contributions were
made during the years ended December 31, 1996 and 1995.
NOTE 26. LITIGATION AND CONTINGENCIES
The Company is a party to certain lawsuits which are generally
incidental to its business. Management does not believe the
ultimate resolution of such matters will have a significant effect
on the Company's financial position and, therefore, no liabilities
have been recorded in the accompanying consolidated financial
statements.
Like other waste management companies, the Company's operations are
subject to extensive and changing federal and state environmental
regulations governing emissions into the atmosphere,
F-31
<PAGE>
wastewater discharges, solid and hazardous waste management
activities and site restoration and abandonment activities. As of
December 31, 1996, no such costs had been accrued and management
does not believe the effects of the aforementioned activities will
have a material effect on the Company's financial statements.
NOTE 27. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's current assets, restricted cash and
accounts payable approximates the recorded amounts because of the
liquidity and short maturity of these instruments.
It is not practicable to estimate the fair value of the Company's
long-term debt and notes payable as they are unique as debt
instruments for which there is no public market.
[End of Page]
F-32
<PAGE>
SCHEDULE II
WASTE RECOVERY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year(1)
----------- ---- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 1994:
Allowance for doubtful accounts $30,318 $36,063 $ - $41,381 $25,000
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 1995:
Allowance for doubtful accounts $25,000 $38,917 $ - $36,834 $27,083
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 1996:
Allowance for doubtful accounts $27,083 $63,554 $ - $39,620 $51,017
------- ------- ---- ------- -------
------- ------- ---- ------- -------
</TABLE>
(1) Amount represents the allowance for doubtful accounts, a contra account
to trade accounts receivable.
S-1
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Exhibit
- ------- -------
3.1 Amended and Restated Articles of Incorporation filed July 5, 1988,
with the Secretary of State of Texas, incorporated herein by reference
to Exhibit 3.4 to the Company's Form 10-K filed March 24, 1989.
3.2 Articles of Amendment to the Articles of Incorporation filed June 8,
1990, with the Secretary of State of Texas, incorporated herein by
reference to Exhibit 3.5 to the Company's Form 10-K filed March 27,
1991.
3.3 By-Laws, amended and restated as of March 10, 1992, incorporated
herein by reference to Exhibit 3.6 to the Company's Form 10-K filed
March 26, 1992.
4.1 Form of Common Stock Certificate of Registrant, incorporated herein
by reference to the Company's Form S-1, as amended, filed July 15,
1986.
4.2 Indenture of Trust dated April 1, 1988, between Development Authority
of Fulton County and Citizens and Southern Trust Company (Georgia),
National Association, as Trustee, incorporated herein by reference
to Exhibit 4.2 to the Company's report on Form 8-K filed June 1,
1988.
4.6 Form of 10% Convertible Subordinated Debenture due March 15, 1996,
incorporated herein by reference to Exhibit 4.6 to the Company's
report on Form 8-K filed October 5, 1994.
10.6 Agreement dated May 9, 1986, between Registrant and The Goodyear Tire
and Rubber Company, incorporated herein by reference to Exhibit 10.32
to the Company's Amendment No. 1 to Form S-1 filed July 1, 1986.
10.7 Lease Agreement dated January 15, 1988, between Southern Metal
Finishing Company, Inc. and the Registrant, incorporated herein by
reference to Exhibit 10.37 to the Company's Form 10-K filed March 25,
1988.
10.8 Indemnity Agreement dated January 29, 1988, by the Registrant and
Southern Metal Finishing Company, Inc., incorporated herein by
reference to Exhibit 10.38 to the Company's Form 10-K filed March 25,
1988.
10.10 Estoppel Deed, dated December 28, 1989, between the Registrant as
Grantor, and Tex A. Perkins, et al., as Grantee, incorporated herein
by reference to Exhibit 10.64 to the Company's Form 10-K filed
March 26, 1990.
10.11 Lease of Real Property, dated January 1, 1990, between the Registrant,
as Lessee, and Tex A. Perkins, et al., as Lessor, incorporated herein
by reference to Exhibit 10.65 to the Company's Form 10-K filed
March 26, 1990.
10.12 Warranty Deed, dated February 7, 1990, between Tex A. Perkins, et al.,
as Grantor, and Wayne Easley, as Grantee, incorporated herein by
reference to Exhibit 10.66 to the Company's Form 10-K filed March 26,
1990.
10.13 Assignment of Lease, dated February 7, 1990, from Tex A.
Perkins, et al., as Assignor, and Wayne Easley, as Assignee,
incorporated herein by reference to Exhibit 10.68 to the
Company's Form 10-K filed March 26, 1990.
E-1
<PAGE>
Exhibit
Number Exhibit
- ------- -------
10.14 The Registrant's 1989 Stock Plan for Employees, effective March 6,
1989, and approved by the Registrant's shareholders at the 1989 Annual
Meeting, incorporated herein by reference to Exhibit 10.73 to the
Company's Form 10-K filed March 26, 1990.
10.15 Amendment No. 1 to the Registrant's 1989 Stock Plan for Employees,
incorporated herein by reference to Exhibit 10.15 to the Company's
Form 10-K filed March 28, 1996.
10.16 Nonqualified Stock Option Agreement dated April 4, 1990, granted by
the Registrant to Allan Shivers, Jr. for 200,000 shares, incorporated
herein by reference to Exhibit 10.77 to the Company's Form 10-K
filed March 27, 1991.
10.17 Form of Nonqualified Stock Option Agreement for grants to employees
made January 7, 1991, incorporated herein by reference to Exhibit
10.89 to the Company's Form 10-K filed March 26, 1992.
10.18 Form of Incentive Stock Option Agreement for grants to employees
made October 1, 1991, incorporated herein by reference to Exhibit
10.90 to the Company's Form 10-K filed March 26, 1992.
10.19 1992 Stock Plan for Non-Employee Directors, incorporated herein by
reference to Exhibit 4.8 of the Company's Form S-8 filed May 8, 1992.
10.20 Form of Nonqualified Stock Option Agreement for grants to
non-employee directors made January 4, 1991, incorporated herein by
reference to Exhibit 10.88 to the Company's Form 10-K filed March 26,
1992.
10.21 Indemnity and Security Agreement, dated June 1, 1990, between
Registrant and The Goodyear Tire and Rubber Company, incorporated
herein by reference to Exhibit 10.82 to the Company's Form 10-K
filed March 27, 1991.
10.22 Amendment to Lease of Real Property dated April 25, 1991, between
the Registrant, as Lessee, and George Glanz, as Lessor, incorporated
herein by reference to Exhibit 10.86 to the Company's Form 10-K
filed March 26, 1992.
10.23 Agreement (for supply of TDF) between the Registrant and Illinois
Power Company dated October 12, 1993, (paragraph 4 of Exhibit 10.007
is subject to a request for confidential treatment), incorporated
herein by reference to Exhibit 10.007 to the Company's report on
Amendment No. 1 to Form 8-K/A filed December 14, 1993.
10.24 Leasehold Commercial Deed of Trust, Security Agreement, Fixture
Filing, Financing Statement, and Assignment of Leases and Rents
dated September 20, 1994, executed by the Registrant as Grantor, for
the benefit of NationsBank of Georgia N.A. as Trustee, incorporated
herein by reference to Exhibit 10.021 to the Company's
Form 10-K filed March 30, 1995.
10.25 Stock Purchase Agreement for the purchase by the Registrant of the
outstanding stock of Domino Salvage, Tire Division, Inc., dated
March 21, 1995, incorporated herein by reference to Exhibit 10.024
to the Company's Form 10-K filed March 30, 1995.
10.26 Loan Agreements dated April 1, 1988, between Development Authority of
Fulton County and the Registrant, incorporated herein by reference
to Exhibit 28.2 to the Company's report on Form 8-K filed June 1,
1988.
E-2
<PAGE>
Exhibit
Number Exhibit
- ------- -------
10.27 Promissory Note dated April 1, 1988, from the Registrant to
Development Authority of Fulton County, incorporated herein by
reference to Exhibit 28.3 to the Company's report on Form 8-K filed
June 1, 1988.
10.28 Leasehold Deed to Secure Debt and Security Agreement dated April 1,
1988, between the Registrant and the Trustee, incorporated herein by
reference to Exhibit 28.5 to the Company's report on Form 8-K filed
June 1, 1988.
10.29 First Amendment to Lease Agreement dated April 1, 1988, between
Southern Metal Finishing Company, Inc. and the Registrant,
incorporated herein by reference to Exhibit 28.6 to the Company's
report on Form 8-K filed June 1, 1988.
10.30 Assignment of Contracts dated April 1, 1988, between the Registrant
and Development Authority of Fulton County, incorporated herein by
reference to Exhibit 28.7 to the Company's report on Form 8-K filed
June 1, 1988.
10.31 Promissory Note dated February 29, 1996, executed by the Registrant
as maker payable to Texas Commerce Bank National Association in
principal amount of $1,119,309.01.(1)
10.32 Note Purchase Agreement dated February 29, 1996, between The Goodyear
Tire and Rubber Company and Texas Commerce Bank National
Association.(1)
10.33 Form of Convertible Subordinated Debenture Conversion Agreements
effective July 1, 1996.(1)
10.34 Form of Warrant to Purchase Common Stock of Waste Recovery, Inc. as
of July 1, 1996, as Exhibit "A" to the Convertible Subordinated
Debenture Conversion Agreements included herein in Exhibit 10.47.(1)
10.35 Dodge Common Stock and Warrant Purchase Agreement dated December 24,
1996 between Waste Recovery, Inc. and Michael C. Dodge.(1)
10.36 Common Stock and Warrant Purchase Agreement dated December 26, 1996
by and among Waste Recovery, Inc. and Bette Nagelberg, Ronald I.
Heller, Rachel Heller, Ronald I. Heller as custodian for Evan Heller,
Delaware Charter Guaranty & Trust Co. FBO, and R. Anthony Cioffari.(1)
10.37 Agreement and Plan of Reorganization dated as of the 30th day of
September 1996 by and among Waste Recovery, Inc., New U.S. Tire
Recycling Corp., U.S. Tire Recycling Partners, L.P., Bodner/Greenstein
Capital Holdings, Inc., Tirus, Inc., Tirus Associates, L.L.C.,
Environmental Venture Fund, L.P., Argentum Capital, L.P., and
Certain Shareholders, incorporated herein by reference to Exhibit 1.1
of the Company's current report on From 8-K filed December 20, 1996.
10.38 Partnership Purchase Agreement dated as of December 16, 1996,
between Riverside Caloric Company, Waste Recovery, Inc., and
Waste Recovery-Illinois, L.L.C., incorporated herein by reference
to Exhibit 1.2 of the company's current report on Form 8-K filed
December 20, 1996.
10.39 Deed of Trust and Security Agreement between New U.S. Tire Recycling
Corp. (a wholly-owned subsidiary of the Registrant) as Grantor, and
the former partners and shareholders of U.S. Tire Recycling
Partners, L.P. as Beneficiary.(1)
10.40 Letter Agreement between Waste Recovery, Inc. and Cameron & Associates
relating to the retention of Cameron & Associates as financial advisor
in connection with the acquisition of U.S. Tire.(1)
E-3
<PAGE>
Exhibit
Number Exhibit
- ------- -------
11.1 Statement regarding computation of per share earnings - See page F-5
of this Form 10-K which is incorporated herein by reference.
21.1 Subsidiaries of the Registrant.(1)
23 Consent of Independent Accountants.(1)
27.1 Financial Data Schedule.(1)
99.1 The Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders, incorporated herein by reference pursuant to
Rule 12b-32 of the Securities Exchange Act of 1934. Definitive
copies of such Proxy Statement to be filed under Regulan 14A
within 120 days after December 31, 1996.
- -----------------
(1) Filed herewith.
E-4
<PAGE>
EXHIBIT 10.31
TERM PROMISSORY NOTE WITH AGREEMENT
(this "Note")
U.S. $1,119,309.01 February 29, 1996 ("Date")
ON OR BEFORE February 5, 2000 ("Stated Maturity") FOR VALUE RECEIVED, WASTE
RECOVERY, INC. ("Borrower"), a Texas corporation, promises to pay to the order
of TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Bank") at its banking house at
2200 Ross Avenue, P.O. Box 660197, Dallas County, Dallas, TX 75266-0197, or at
such other location as Bank may designate, in immediately available funds and in
lawful money of the United States of America, the sum of ONE MILLION ONE HUNDRED
NINETEEN THOUSAND THREE HUNDRED NINE AND ONE/100THS UNITED STATES DOLLARS (U.S.
$1,119,309.01) or the aggregate unpaid amount of all advances hereunder
("Loan"), whichever is the lesser amount, together with interest on the said
principal or so much thereof as may from time to time be advanced and
outstanding hereunder computed from the date of each advance until the maturity
of this Note (howsoever brought about) at a variable rate per annum equal to the
Stated Rate (as defined hereinafter) as it exists from time to time; provided
however, in no event shall interest hereon ever be charged, paid, collected or
received at a rate in excess of the maximum nonusurious rate of interest from
time to time permitted by applicable federal or Texas law, whichever shall
permit the higher lawful interest rate (the "Highest Lawful Rate"). To the
extent Texas law shall be controlling to determine the Highest Lawful Rate, Bank
and any subsequent owner or holder hereof has elected the "indicated" ceiling as
defined and described in the Texas Credit Code V.T.C.S. Article 5069-1.04 or as
same may be hereafter amended, and, to the extent other law shall be controlling
the Highest Lawful Rate shall be the maximum nonusurious rate of interest
allowed by such applicable law. It is expressly agreed that Bank and any
subsequent owner or holder hereof may from time to time, as to current and
future balances elect and implement any other ceiling under such Article and/or
revise the index, formula or provision of law used to compute the rate on this
Note by notice to the Borrower, if and to the extent permitted by, and in the
manner provided in such Code. If the Stated Rate at any time would exceed the
Highest Lawful Rate but for the limitation contained herein, the actual rate of
interest to accrue on the unpaid principal amount of this Note shall be limited
to the Highest Lawful Rate, but any subsequent reductions in the Stated Rate due
to reductions in the Prime Rate shall not reduce the interest rate payable upon
the unpaid amount hereof below the Highest Lawful Rate until such time as the
total amount of interest accrued on the unpaid principal amount of this Note
equals the amount of interest which would have accrued if the Stated Rate had at
all times been in effect.
The "Stated Rate" shall be the rate per annum determined by reference to the
chart immediately following:
S&P Rating of Goodyear Stated Rate
---------------------- -----------
AAA, AA+, or AA Prime Rate minus 1.00%
AA-, A+, or A Prime Rate minus 0.50%
A-, BBB+, BBB, or BBB- Prime Rate
BB+ or lower Prime Rate plus 1.00%
"Prime Rate" shall mean that rate as determined from time to time by Bank as
being its prime rate, and thereafter entered in the minutes of the Bank's Loan
and Discount Committee. Without notice to the Borrower or any other person, the
Prime Rate shall change automatically from time to time as and in the amount by
which said prime rate shall fluctuate, with each such change to be effective as
of the date of each change in such prime rate. THE PRIME RATE IS A REFERENCE
RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED
TO ANY
1
<PAGE>
CUSTOMER. BANK MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF INTEREST
AT, ABOVE OR BELOW THE PRIME RATE.
The "S&P Rating of Goodyear" shall refer to the rating of the long term debt of
Goodyear Tire & Rubber Company ("Goodyear") as published from time to time by
Standard & Poor's, Inc. ("S&P"). Adjustments to the Stated Rate on the basis of
changes in the S&P Rating of Goodyear shall become effective, without notice to
Borrower, on the date that such change has been officially published by S&P as
reasonably determined by Bank. Borrower understands and agrees that Bank's loan
payment advices (which are subject in all respects to the agreements defining
Borrower's obligations in this Note) may, from time to time, include delayed
advice of changes in interest payable hereunder reflecting the lag time inherent
in obtaining knowledge of Goodyear rating changes and reflecting such changes in
Bank's records concerning this Note.
Time is of the essence. Principal payments each in the amount of $10,000.00
shall be due and payable monthly, together with accrued and unpaid interest,
beginning March 29, 1996 and continuing on the 29th day of each month
thereafter, and at the Stated Maturity when all outstanding principal and
accrued and unpaid interest and all other amounts owing hereunder shall be
finally due and payable. Interest will be calculated on the basis of a 360 day
year for the actual number of days elapsed unless such calculation would result
in a usurious interest rate, in which case such interest shall be calculated on
the basis of a 365 or 366 day year, as the case may be.
All past due principal and, to the extent permitted by applicable law, interest
on this Note shall bear interest at the Highest Lawful Rate, or if applicable
law shall not provide for a maximum nonusurious rate of interest, at a rate per
annum equal to the Prime Rate plus five percent (5%) per annum. In addition to
all principal and accrued interest on this Note, the Borrower agrees to pay: (a)
all reasonable costs and expenses incurred by Bank and all owners and holders of
this Note in collecting this Note through probate, reorganization, bankruptcy or
any other proceedings; and (b) reasonable attorneys' fees if and when this Note
is placed in the hands of an attorney for collection after default.
It is the intention of the Borrower and the Bank to conform strictly to the
usury laws in force in the state of Texas and in the United States of America,
as applicable. It is therefore agreed that: (i) in the event that the maturity
hereof is accelerated by reason of an election by the Bank or if the same is
prepaid prior to the maturity, all unearned interest shall be canceled
automatically or, if theretofore paid, shall either be refunded to the Borrower
or credited on the unpaid principal amount of this Note, whichever remedy is
chosen by the Bank; (ii) the aggregate of all interest and other charges
constituting interest under applicable law and contracted for, chargeable or
receivable under this Note or otherwise in connection with this loan transaction
shall never produce a rate in excess of the maximum nonusurious rate of interest
that the Bank may charge the Borrower under applicable law; and (iii) if any
excess interest is contracted for, charged or received, it shall be deemed a
mistake and any excessive interest received shall be either refunded to the
Borrower or credited on the unpaid principal amount hereof, and this Note and
any document which evidences a charging of or contracting for excessive interest
shall be automatically deemed reformed so as to permit only the collection of
the maximum nonusurious rate and amount of interest; provided, however, that all
sums paid or agreed to be paid for the use, forbearance or detention of the loan
evidenced hereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of this Note.
The unpaid principal balance of this Note at any time shall be the total amounts
loaned or advanced by the owner or holder hereof, less the amount of all
payments or prepayments of principal made hereon by or for the Borrower. Absent
manifest error the records of Bank or any subsequent owner or holder hereof
shall be conclusive as to amounts owed, both principal and interest, hereunder.
All payments and prepayments hereon may, at Bank's or any subsequent owner's or
holder's sole option, be applied to accrued interest, to
2
<PAGE>
principal, or to both.
The term "Loan Documents" shall refer to each and all of this Note and all such
other agreements, documents, instruments, applications, statements, and other
writings required by Bank and executed and delivered to Bank by Borrower in
connection with or in any way related to the Loan or this Note.
The purpose of the Loan is to refinance Borrower's indebtedness with another
financial institution.
A. CONDITIONS PRECEDENT:
THE OBLIGATION OF THE BANK TO MAKE THE LOAN IS SUBJECT TO SATISFACTION OF
THE FOLLOWING CONDITIONS PRECEDENT:
(1) the Bank shall have received from Borrower complete and properly
executed documents as Bank shall have requested;
(2) no Event of Default shall have occurred and be continuing;
(3) the making of the Loan shall not be prohibited by, or subject the Bank
to any penalty or onerous condition under, any legal requirement to
which the Bank is subject; and
(4) The Bank shall have received a note repurchase agreement ("Note
Repurchase Agreement") executed in connection herewith by Goodyear,
substantially in the form of Exhibit A hereto.
B. REPRESENTATIONS AND WARRANTIES:
TO INDUCE BANK TO MAKE THE LOAN BORROWER MAKES THE FOLLOWING
REPRESENTATIONS AND WARRANTIES:
(1) all financial statements delivered to the Bank are complete and
correct and fairly present, in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), the financial
condition and the results of operations of Borrower as at the dates
and for the periods indicated;
(2) no material adverse change has occurred in the assets, liabilities,
financial condition, business or affairs of Borrower since the dates
of such financial statements;
(3) Borrower is not subject to any instrument or agreement materially and
adversely affecting its financial condition, business or affairs;
(4) the Loan evidenced by this Note is for business, commercial,
investment or other similar purpose and not primarily for personal,
family, household or agricultural use, as such terms are used in
Chapter One of the Texas Credit Code;
(5) no amounts loaned or advanced hereunder shall be used for the purchase
or carrying of any "margin stock" as that term is defined in
Regulation "U" of the Board of Governors of the Federal Reserve
System;
(6) each representation and warranty as set forth in each of the Security
Agreements is true and correct;
(7) the Loan Documents are legal, valid and binding obligations of the
parties enforceable in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights generally, the execution, delivery and
performance of the Loan Documents have all been duly authorized by all
necessary action; are within the power and authority of the Borrower;
do not and will not contravene or violate any legal requirement
affecting Borrower, or the bylaws, articles of incorporation,
certificate of incorporation, or articles of association of the
Borrower or any other agreement or instrument establishing Borrower;
and do not and will not result in the breach of, or constitute a
default under, any agreement or instrument by which the Borrower or
any of its respective property may be bound or affected;
3
<PAGE>
(8) Borrower has not generated, handled, used, stored or disposed of any
hazardous or toxic waste or substance, on or off its premises (whether
or not owned by it), other than in accordance with applicable legal
requirements. Borrower does not have any material contingent
liability with respect to non-compliance with environmental or
hazardous waste laws and has not received any notice that it or any of
its property or operations is not in compliance with, or that any
governmental authority is investigating its compliance with, any
environmental or hazardous waste laws; and
(9) Borrower has complied with and agrees to comply with all terms,
conditions and agreements of Borrower contained in this Note.
C. AFFIRMATIVE COVENANTS:
UNTIL THE LATER OF THE STATED MATURITY AND THE DATE ON WHICH ALL AMOUNTS
OWING UNDER THIS NOTE ARE PAID IN FULL, BORROWER AGREES TO:
(1) provide the following financial reports (balance sheet, income
statement and cash flow statement), prepared in accordance with GAAP,
on a consolidated basis, at the times and for the periods indicated,
and such other information relating to the financial condition and
affairs of the Borrower as from time to time may be requested by Bank
in its discretion:
(a) Audited fiscal year end financial statements within 120 days of
each fiscal year end of Borrower; and
(b) Quarterly and year to date financial statements within 45 days of
each fiscal quarter end.
(2) notify the Bank immediately upon acquiring knowledge of:
(a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might
adversely affect Borrower;
(b) the occurrence of any material adverse change in the assets,
liabilities, financial condition, business or affairs of
Borrower;
(c) the occurrence of any Event of Default;
(d) any reportable event or any prohibited transaction in connection
with any employee benefit plan;
(3) permit the Bank and its affiliates to inspect and photograph its
property, to examine its files, books and records and make and take
away copies thereof, and to discuss its affairs with its officers and
accountants, all at such times and intervals and to such extent as the
Bank may reasonably desire;
(4) notify the Bank at least 60 days prior to the date that it changes its
name or the location of its chief executive office or principal place
of business or the place where it keeps its books and records.
D. NEGATIVE COVENANTS:
UNTIL THE LATER OF THE STATED MATURITY AND THE DATE ON WHICH ALL AMOUNTS
OWING UNDER THIS NOTE ARE PAID IN FULL, BORROWER AGREES THAT BORROWER WILL
NOT:
(1) create, incur, suffer or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to any
indebtedness, contingent or otherwise, EXCEPT: (a) indebtedness to the
Bank, or secured by liens permitted by this Note, or otherwise
approved in writing by the Bank, and all renewals and extensions (but
not increases) thereof; and (b) current accounts payable and unsecured
current liabilities, not the result of borrowing, to vendors,
suppliers and persons providing services, for expenditures for goods
and services normally required by it in the ordinary course of
business and on ordinary trade terms;
(2) create or suffer to exist any lien upon any of its property now owned
or hereafter acquired,
4
<PAGE>
or acquire any property upon any conditional sale or other title
retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign,
pledge or otherwise transfer any of its accounts or other property,
EXCEPT: (a) liens, not for borrowed money, arising in the ordinary
course of business; (b) liens for taxes not delinquent or being
contested in good faith, by appropriate proceedings; (c) liens in
effect on the date hereof and disclosed to the Bank in writing,
PROVIDED that neither the indebtedness secured thereby nor the
property covered thereby shall increase; and (d) liens in favor of
the Bank;
(3) in any single transaction or series of transactions, directly or
indirectly: (a) liquidate or dissolve; (b) be a party to any merger or
consolidation; or (c) sell, convey or lease all or any substantial
part of its assets, EXCEPT for sale of inventory in the ordinary
course of business;
(4) at any time: (a) redeem, retire or otherwise acquire, directly or
indirectly, any shares of its capital stock or other equity interest;
(b) declare or pay any dividend; or (c) make any other distribution of
any property or cash to owners of an equity interest in their capacity
as such;
(5) change the nature of its business or enter into any business which is
substantially different from the business in which it is presently
engaged, or permit any material change in its management;
(6) enter into any transaction or agreement with any officer, director of
or holder of any outstanding capital stock of Borrower (or any member
of the family of any such person, or any person controlling,
controlled by or under common control with Borrower) unless the same
is upon terms substantially similar to those obtainable from wholly
unrelated sources; and
(7) form, create or acquire any subsidiary.
E. EVENTS OF DEFAULT AND REMEDIES:
IF ANY OF THE FOLLOWING EVENTS ("EVENTS OF DEFAULT") SHALL OCCUR, THEN THE
BANK MAY DO ANY OR ALL OF THE FOLLOWING:
(1) declare this Note to be, and thereupon this Note shall forthwith
become, immediately due and payable, together with all accrued and
unpaid interest thereon and all other obligations and indebtedness of
the Borrower under the Loan Documents, without notice of acceleration
or of intention to accelerate, presentment and demand or protest, all
of which are hereby expressly waived;
(2) set off, in any order, against the indebtedness of the Borrower under
the Loan Documents any debt owing by the Bank to any Borrower,
including, but not limited to, any deposit account, which right is
hereby granted by Borrower to the Bank; and
(3) exercise any and all other rights pursuant to the Loan Documents, at
law, in equity or otherwise:
EVENTS OF DEFAULT:
(a) Borrower shall fail to pay any principal of or interest on this
Note or any other obligation under any Loan Document as and when
due; or
(b) Borrower shall fail to pay at maturity, or within any applicable
period of grace, any principal of or interest on any other
borrowed money obligation or shall fail to observe or perform any
term, covenant or agreement contained in any agreement or
obligation by which it is bound (including without limitation
this Note); or
(c) any representation or warranty made in connection with any of the
Loan Documents shall prove to have been incorrect, false or
misleading; or
(d) default shall occur in the punctual and complete performance of
any covenant of
5
<PAGE>
Borrower contained in any Loan Document; or
(e) the occurrence of an event of default under any Loan Document; or
(f) final judgment for the payment of money shall be rendered against
Borrower or any subsidiary of Borrower and the same shall remain
undischarged for a period of 30 days during which execution shall
not be effectively stayed; or
(g) the sale, encumbrance or abandonment (except as otherwise
expressly permitted by this Note) of any of the collateral or the
making of any levy, seizure or attachment thereof or thereon; or
the loss, theft, substantial damage, or destruction of any
material portion of such property; or
(h) any order shall be entered in any proceeding against Borrower or
any subsidiary of Borrower decreeing the dissolution, liquidation
or split-up thereof, and such order shall remain in effect for 30
days; or
(i) Borrower or any subsidiary of Borrower shall make a general
assignment for the benefit of creditors or shall petition or
apply to any tribunal for the appointment of a trustee,
custodian, receiver or liquidator of all or any substantial part
of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect; or any such petition or application shall be filed or any
such proceeding shall be commenced against Borrower or any
subsidiary of Borrower and Borrower or such subsidiary by any act
or omission shall indicate approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a
trustee, custodian, receiver or liquidator of all or any
substantial part of the assets of Borrower or any subsidiary of
Borrower or granting relief to Borrower or any subsidiary of
Borrower or approving the petition in any such proceeding, and
such order shall remain in effect for more than 30 days; or
Borrower or any subsidiary of Borrower shall fail generally to
pay its debts as they become due or suffer any writ of attachment
or execution or any similar process to be issued or levied
against it or any substantial part of its property which is not
released, stayed, bonded or vacated within 30 days after its
issue or levy; or
(j) Borrower or any subsidiary of Borrower shall have concealed,
removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors
or any of them, or made or suffered a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or shall have made any transfer of its
property to or for the benefit of a creditor at a time when other
creditors similarly situated have not been paid; or
(k) a material adverse change shall occur in the assets, liabilities,
financial condition, business or affairs of Borrower or any
subsidiary of Borrower; or
(l) Goodyear shall fail to perform its obligations under the Note
Purchase Agreement; or
(m) Borrower shall dissolve.
F. OTHER AGREEMENTS:
No remedy, right or power of the Bank is intended to be exclusive of any other
remedy, right or power now or hereafter existing by contract, at law, in equity,
or otherwise, and all such remedies, rights and powers shall be cumulative.
Nothing herein shall imply any obligation of Borrower to maintain any deposit
with the Bank.
No waiver of any default shall be deemed to be a waiver of any other default.
No failure to exercise or delay in exercising any right or power under any Loan
Document shall operate as a waiver thereof, nor shall
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any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or
power. No amendment, modification or waiver of any Loan Document shall be
effective unless the same is in writing and signed by the person against whom
such amendment, modification or waiver is sought to be enforced. No notice
to or demand on any person shall entitle any person to any other or further
notice or demand in similar or other circumstances.
Borrower and each and all co-makers, endorsers, guarantors and sureties
severally waive, grace, notice, demand, presentment for payment, notice of
intent to accelerate, notice of acceleration, protest, notice of protest, and
the filing of suit hereon for the purpose of fixing liability and consent that
the time of payment or its liability on or with respect to this Note shall not
be affected by any release or change in any security interest in such security
at any time existing or by any failure to perfect or maintain perfection of any
security interest in such security.
BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD THE BANK HARMLESS FROM AND AGAINST
ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM,
DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES, ATTORNEYS' FEES AND
AMOUNTS PAID IN SETTLEMENT) TO WHICH THE BANK MAY BECOME SUBJECT ARISING OUT OF
OR BASED UPON THE LOAN DOCUMENTS OR ANY LOAN, INCLUDING THAT RESULTING FROM THE
BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF THE BANK.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
NOTE SHALL BE PERFORMABLE FOR ALL PURPOSES IN THE COUNTY OF THE BANK'S PRINCIPAL
OFFICE IN TEXAS, AND THE BORROWER AND THE BANK AGREE THAT THE COUNTY IN WHICH
BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR
PROCEEDING BROUGHT BY THE BORROWER OR THE BANK, WHETHER IN CONTRACT, TORT, OR
OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT IN SUCH COUNTY. THE BORROWER HEREBY 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
FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED
BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE
RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE
BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS
OR VENUES.
THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS AND COMMERCE CODE AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed this 27 day of February, 1996 but effective as of the Date.
BORROWER: WASTE RECOVERY, INC.
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By: /s/ THOMAS L. EARNSHAW
------------------------------------------------
Name: Thomas L. Earnshaw
--------------------------------------------
Title: President and CEO
---------------------------------------------
Address: 309 S. Pearl Expressway, Dallas, TX 75201
-------------------------------------------
Acknowledged for purposes of notice pursuant to the above cited statute by:
BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ ROB HOLMES
------------------------------------------------
Name: Rob Holmes
--------------------------------------------
Title: Vice President
---------------------------------------------
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EXHIBIT 10.32
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement ("Purchase Agreement"), made this 29th day
of February, 1996, by and between THE GOODYEAR TIRE & RUBBER COMPANY, an Ohio
corporation (the "Company"); and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association having its principal offices at 2200 Ross
Avenue, PO Box 660197, Dallas, Texas 75266-0197 (the "Bank");
WITNESSETH
WHEREAS, the Bank has agreed to make a loan to WASTE RECOVERY, INC. (the
"Borrower") in the principal amount of ONE MILLION ONE HUNDRED NINETEEN
THOUSAND THREE HUNDRED NINE DOLLARS AND ONE CENT ($1,119,309.01) (the
"Loan"); and
WHEREAS, the Loan shall be evidenced by a Term Promissory Note with
Agreement, dated February 29, 1996 (the "Note"), a copy of which is attached
hereto as Exhibit A; and
WHEREAS, the Bank has agreed to make the loan only upon the condition
that the Company execute and deliver this Purchase Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
l. Agreement to Purchase Note.
(a) In order to induce the Bank to make the Loan to the Borrower,
the Company, on and subject to the terms and conditions hereinafter set
forth, agrees to purchase the Note from the Bank without recourse at the
Bank's sole option exercised by written notice to the Company given at any
time prior to April 29, 2000.
(b) Any purchase of the Note by the Company pursuant to this
Purchase Agreement shall occur no later than 30 days from the date written
notice is given to the Company by the Bank and shall be for a cash purchase
price equal to the sum of (1) 100% of the then outstanding principal balance
of the Note, up to a maximum amount of $ 1,119,309.O1, and (2) all accrued
but unpaid interest thereon to the date of purchase, up to a maximum amount
of $60,000. On the date of purchase, the Bank shall duly endorse the Note to
the order of the Company and shall deliver the Note to the Company. The
Company's obligation to purchase the Note as aforesaid is subject to the Bank
warranting and representing to the Company on the date of purchase that (i)
the principal amount of the Note was advanced to the Borrower on the date
thereof, (ii) the Bank owns all right and title to the Note free and clear of
any lien arising through the Bank, and (iii) the purchase price requested by
the Bank as aforesaid does not exceed the amount of principal and interest
due and payable on the Note at the date of purchase.
(c) The Company's obligations under this Purchase Agreement shall
be enforceable in all respects and continue regardless of the bank's efforts
to collect the Note (or lack thereof from the
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Borrower and notwithstanding that (i) the, Note may then be in default or
(ii) the Borrower may be or become insolvent or may make an assignment for
the benefit of creditors or may file or may have filed against it a petition
in bankruptcy or other insolvency or reorganization proceedings. The purchase
of the Note is not a purchase of a security, but a form of suretyship.
Borrower and Bank may from time to time modify, alter, secure, rearrange,
extend for any period or renew (but not increase) the Note without notice to
Company, and in such event Company will remain fully bound hereunder;
provided, however, that no modification shall impair the enforceability of
the Note by Goodyear if the Note is purchased by Goodyear hereunder. This
Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment on the Note is rescinded or must otherwise be
returned by Bank upon the insolvency, bankruptcy or reorganization of
Borrower or otherwise, all as though such payment has not been made.
2. Representations and Warranties.
(a) The Company represents and warrants to the Bank that (i) the
Company is duly, validly existing and in good standing under the laws of the
State of Ohio, (ii) the Company is duly authorized and empowered to execute,
deliver and perform this Purchase Agreement and has taken all requisite
corporate action to authorize the execution, delivery and performance by it
of this Purchase Agreement, (iii) the execution, delivery and performance of
this Purchase Agreement by the Company does not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
its Articles of Incorporation or Code of Regulations or any indenture,
mortgage, loan agreement or similar instrument to which the Company is a
party or by which it, or any of its properties, is bound, and (iv) this
Purchase Agreement constitutes a legal, valid and binding agreement
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(b) The Bank represents and warrants to the Company that the Loan
has been made to the Borrower in accordance with the terms and conditions of
the Note.
3. General Provisions.
(a) All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when received in person at the
address of the party to receive such notice specified below, or when sent by
courier service or registered mail, postage prepaid, addressed to the
respective parties at the following address:
To the Company: The Goodyear Tire & Rubber Company
1144 East Market Street
Akron, Ohio 44316-0001
Attention: Office of the Treasurer
To the Bank: Texas Commerce Bank National Association
2200 Ross Avenue
Dallas, Texas 75266-0197
Attention: Rob Holmes, Vice President
(b) This Purchase Agreement shall be binding upon, shall inure to
the benefit of, and
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shall be enforceable by the parties hereto and their respective successors
and permitted assigns. The obligation of the Company to purchase the Note
shall be enforceable only by the Bank, an affiliate of the Bank or any
successor to the Bank by merger of operation of law.
(c) This Purchase Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof. No amendment,
change, modification, alteration or termination of this Purchase Agreement
shall be made except upon the written consent of the Bank and the Company.
(d) This Purchase Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
(e) This Purchase Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be an original,
but all such counterparts shall constitute one and the same instruments.
(f) In the event that any one or more of the provisions contained
in this Purchase Agreement shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
IN WITNESS WHEREOF, the Company and the Bank have caused this Purchase
Agreement to be executed by their respective officers, thereunto duly
authorized, this day and year first above written.
THE GOODYEAR TIRE & RUBBER COMPANY
By: /s/ RICHARD W. HAUMAN
--------------------------------
Richard W. Hauman,
Vice President and Treasurer
Attest:
----------------------------
Assistant Secretary
[CORPORATE SEAL]
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ ROB HOLMES
--------------------------------
Rob Holmes
Vice President
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EXHIBIT 10.33
-------------
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (this "Agreement") is entered into this day
of November, 1996, to be effective as of the 1st day of July, 1996, by and among
WASTE RECOVERY, INC., a Texas corporation (the "Issuer"), and the parties set
forth on SCHEDULE I hereto (each a "Holder" and collectively, the "Holders").
WHEREAS, the Issuer has issued and outstanding $_________ aggregate
principal amount of its 18% Convertible Subordinated Debentures due January 31,
1997 (the "Debentures"), certain of which are held by the Holders; and
WHEREAS, the terms of the Debentures provide that the Holders may, at their
option, convert the Debentures held thereby into shares of Common Stock of the
Issuer at a rate of $.875 per share; and
WHEREAS, the Holders wish to convert such Debentures pursuant to their
terms and obtain the right to acquire additional shares of Common Stock of the
Issuer, and the Issuer believes it to be in the best interest of the Issuer and
its shareholders and therefore desires Holders to convert such Debentures into
shares of Common Stock of the Issuer prior to the maturity thereof and to grant
such Holders the right to acquire additional shares of Common Stock of the
Issuer:
NOW, THEREFORE, for and in consideration of the premises and the agreements
and undertakings set forth herein and other good and valuable consideration, and
upon the terms and subject to the conditions hereinafter set forth, the parties
hereto do hereby agree as follows:
1. CONVERSION OF DEBENTURES. Each Holder shall convert such Holder's
Debentures into shares of Common Stock of the Issuer as set forth on SCHEDULE I
hereto, in accordance with the terms for conversion set forth in such
Debentures.
2. WARRANT. Upon such conversion and simultaneous with the delivery by
the Issuer to the Holder of shares of Common Stock upon such Holder's conversion
of its Debentures, the Issuer shall deliver to such Holder a Warrant to Purchase
Common Stock of Waste Recovery, Inc. in the form attached hereto as EXHIBIT "A"
(the "Warrant") to acquire the number of Warrant Securities (as defined in the
Warrant) set forth opposite such Holder's name on SCHEDULE I.
3. SEVERAL UNDERTAKINGS. The undertakings of each Holder under this
Agreement shall be several and not joint.
4. FURTHER ASSURANCES. The Issuer and each Holder shall take all such
further actions as the parties may reasonably determine to be necessary to
effectuate the consummation of the transactions contemplated by this Agreement.
5. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall for all purposes be deemed to be an original and all of which
constitute the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed in counterparts on the date set forth above and to be effective as of
July 1, 1996.
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ISSUER:
WASTE RECOVERY, INC.
By:
------------------------------------
Printed Name: Thomas L. Earnshaw
--------------------------
Title: President & CEO
--------------------------
HOLDER (Individual):
----------------------------------------
Printed Name:
HOLDER (Business Organization)
----------------------------------------
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT 10.34
WARRANT TO PURCHASE
COMMON STOCK OF
WASTE RECOVERY, INC.
------
Dated: As of July 1, 1996
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE; THEREFORE, THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF, IF ANY, MAY NOT BE SOLD OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED FOR SUCH SALE OR TRANSFER.
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<PAGE>
Void after 5:00 P.M., Dallas, Texas time, on the second (2nd) anniversary of the
date set forth on the cover page of this Warrant.
Warrant to Purchase
Shares of
Common Stock, Subject to
Adjustment as herein provided
WARRANT TO PURCHASE COMMON STOCK
WASTE RECOVERY, INC.
Dated as of the 1st day of July, 1996.
WHEREAS,_______________________________________ desires to acquire for
investment purposes this Warrant to Purchase Common Stock providing for the
acquisition of ___________ shares of Common Stock, subject to adjustment as
provided herein;
WHEREAS,________________________________ has agreed to convert the 18%
Convertible Subordinated Debentures due January 31, 1997 (the "Debentures")
pursuant to the terms of that certain Conversion Agreement dated of even date
herewith, and pursuant thereto the Company does hereby tender this Warrant to
Purchase Common Stock to _______________________;
NOW, THEREFORE, for and in consideration of the recitals and of the mutual
covenants, representations, warranties and agreements contained herein, this is
to certify that:
1. __________________________ or his permitted and registered assigns
(hereafter, "Holder"), is entitled to purchase from time to time, subject to
the provisions and conditions herein, from WASTE RECOVERY, INC., a Texas
corporation (the "Company"), not later than the termination of the Exercise
Period of this Warrant to Purchase Common Stock (this "Warrant") as set forth
in PARAGRAPH 4 below, an aggregate of ____________________________(_______)
shares of common stock, $.01 par value per share, of the Company (the "Common
Stock") at the Exercise Price per share set forth in PARAGRAPH 2(c) herein,
and upon such purchase to receive a certificate or certificates representing
such shares of Common Stock. The number of shares of Common Stock to be
received upon the exercise of this Warrant may be adjusted from time to time
as hereinafter set forth.
2. DEFINED TERMS. As used in this Warrant, the following capitalized
terms shall have the meanings respectively assigned to them below, which
meanings shall be applicable equally to the singular and plural forms of the
terms so defined.
(a) "BUSINESS DAY" shall mean any day except a Saturday, Sunday or
other day on which commercial banks in the State of Texas are authorized or
required by law to close.
(b) "EXERCISE PERIOD" means the period commencing on the date set
forth on the cover page of this Warrant and terminating at 5:00 p.m.,
Dallas, Texas time, on the second (2nd) anniversary of the date set forth
on the cover page of this Warrant or, in the event that the second
anniversary of the date set forth on the cover page of this Warrant is not
a Business Day, the Business Day next following.
2
<PAGE>
(c) "EXERCISE PRICE" shall mean $1.25 per share
(d) "FAIR MARKET VALUE PER SHARE" as of any date shall mean, for
shares of Common Stock, the closing price of such Common Stock on such date
(or if there are no sales on such date, on the next preceding Business Day
on which there were sales), as reported on the New York Stock Exchange
Composite Tape, or if such Common Stock is not listed or admitted to
trading on the New York Stock Exchange, as reported on the principal
consolidated transaction reporting system for the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or if such Common Stock is not listed or admitted to trading on
any national securities exchange, the closing price of such Common Stock as
reported on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), or if such
Common Stock is not listed or admitted to trading on the NASDAQ National
Market System, the last quoted sales price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the NASDAQ System or such other system then in use,
or if such Common Stock is not reported on any such system and is not
listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such Common Stock selected by the Board of
Directors of the Company.
(e) "HOLDER" shall mean the Person(s) then registered as the owner of
the Warrant or Warrant Securities, as the case may be, on the books and
records of the Company.
(f) "PERSON" shall mean any natural person, corporation, limited
partnership, limited liability company, general partnership, joint venture,
association, company, or other organization, whether or not a legal entity,
and any government agency or political subdivision thereof.
(g) "WARRANT SECURITIES" shall mean the shares of Common Stock (or
other securities) of the Company purchasable or purchased from time to time
under this Warrant or acquired upon any transfer of any such shares,
together with all additional securities received in payment of dividends or
distributions on or splits of those securities or received as a result of
the adjustments provided for in PARAGRAPH 6 hereof.
3. EXERCISE OF WARRANT. Subject to and in accordance with the provisions
and conditions hereof, this Warrant may be exercised from time to time in whole
or in part during the term of this Warrant as set forth in PARAGRAPH 5 hereof.
4. TERM OF WARRANT. The term of this Warrant shall commence on the date
hereof and shall expire on the exercise in full of this Warrant by Holder or at
5:00 p.m. Dallas, Texas time on the termination of the Exercise Period.
5. MANNER OF EXERCISE. Holder may exercise this Warrant in whole or in
part in accordance with the terms hereof by mailing or personally delivering to
the Company (i) this Warrant, (ii) a Notice of Exercise in the form of EXHIBIT I
hereto duly executed by Holder and (iii) payment of the Exercise Price per
share, such payment to be in the form of cash, a certified or official bank
check made payable to the Company, a wire transfer of funds to an account
designated by the Company, or in shares of the Common Stock valued at the Fair
Market Value per Share on the date of exercise, irrevocable instructions to the
Company to exercise this Warrant and apply the difference between the Fair
Market Value per share on the date of exercise and the Exercise Price with
respect to certain of such shares of Common Stock as payment for Warrant
Securities, or any combination of the foregoing, together with all federal and
state excise taxes applicable upon such exercise. Upon receipt by the Company
of this Warrant, the Notice of Exercise and such payment, this Warrant shall be
deemed to have been exercised with respect to the number of shares of
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<PAGE>
Common Stock subject to such exercise and specified in the Notice of
Exercise, and Holder shall thereupon become the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding the fact
that the stock transfer books of the Company may then be closed or that
certificates representing such shares of Common Stock shall not then be
actually delivered to Holder. As soon as practicable after any exercise, in
whole or in part, of the Warrant, and in any event within ten (10) Business
Days thereafter, the Company will deliver to Holder a stock certificate or
certificates representing the shares of Common Stock so purchased, with such
certificate or certificates to be in such name(s) and such denominations as
Holder may specify in the Notice of Exercise. If this Warrant is exercised
for less than all of the shares of Common Stock subject hereto, the Company
shall, upon such exercise and surrender of this Warrant for cancellation,
promptly execute and deliver to Holder a new Warrant of like tenor evidencing
the right of Holder to purchase the balance of shares of Common Stock
purchasable hereunder. Any and all expenses of the Company incurred by the
Company upon exercise of this Warrant and the issuance of Common Stock
pursuant to this Warrant shall be borne by the Company.
6. ADJUSTMENT PROVISIONS. (a) If the Company shall, during the term
hereof, (i) declare a dividend and make a distribution on the Common Stock
payable in shares of Common Stock, (ii) subdivide or combine its outstanding
shares of Common Stock, (iii) change the number of shares of Common Stock
issuable upon exercise of this Warrant by reclassification, exchange or
substitution, or (iv) reorganize the capital structure of the Company by merger,
reorganization, consolidation or sale of assets, then this Warrant shall, after
the happening of any such event, evidence the right to purchase the number of
shares of Common Stock or other securities that would have been received as a
result of that change with respect to the shares of Common Stock as if such
shares had been purchased under this Warrant immediately before occurrence of
such event. Such adjustment shall be made successively whenever any event
listed above shall occur. Any adjustment under this subparagraph (a) shall
become effective at the close of business on the date any such event occurs.
(b) NOTICE OF ADJUSTMENT. The Company shall give notice of each
adjustment or readjustment of the number of shares of Common Stock or other
securities issuable upon exercise of this Warrant to Holder or of the Exercise
Price per share at the address set forth in PARAGRAPH 20 hereof.
7. OTHER ACTIONS. The Company will not avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, whether by
amendment of its Articles of Incorporation or bylaws or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action or otherwise, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of Holder; PROVIDED, HOWEVER, that nothing herein shall restrict the
Company's ability, among other things, to grant employee stock options and
warrants and to issue stock upon the exercise thereof or to enter into any other
bona fide business transaction (including issuance of stock at or below
prevailing market prices). Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise; (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of all warrants,
including this Warrant, from time to time outstanding; and (c) will not transfer
all or substantially all of its properties and assets to any other Person
(corporate or otherwise), or consolidate with or merge into any other Person or
permit any such person to consolidate with or merge into the Company, unless
such other Person shall expressly assume in writing and will be bound by all of
the terms of this Warrant.
8. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued in connection with the
exercise of this Warrant, but the Company shall pay, in lieu of
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<PAGE>
any fractional share, a cash payment on the basis of the Fair Value Per Share
of the Common Stock to be acquired pursuant to such exercise for such
fractional share.
9. REGISTRATION RIGHTS.
(a) If at any time during the term of the Exercise Period of this
Warrant the Company shall propose to file a registration statement pursuant
to the Securities Act of 1933, as amended (the "Act"), for the purpose of
registering shares of the Company's Common Stock to be sold for cash, not
less than thirty (30) days prior to the proposed filing date of such
registration statement the Company shall give notice in writing to Holder
of its intent to file the proposed registration statement and the number of
shares of Common Stock it intends to register. Holder shall have the right
to request in writing within twenty (20) days of the receipt thereby of
such notice that the Company include in such registration any of the
Warrant Securities that Holder may have acquired pursuant to exercise of
this Warrant. If the total amount of securities, including Warrant
Securities, requested to be included in an offering by the holders of any
class of outstanding securities of the Company exceeds the amount of
securities that any managing underwriter or the Company reasonably and in
writing determines to be compatible with the success of the offering, then
the Company shall be required to include in the offering only that number
of such securities, including Warrant Securities, which the managing
underwriter or the Company reasonably determines will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of
securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to by
such selling shareholders). Holder agrees that in the event that Holder's
Warrant Securities are to be included in the registration statement, Holder
will cooperate with the Company in the preparation and filing of any such
registration statement. All expenses, disbursements and fees, except fees
of any counsel hired by Holder, incurred in connection with the
registration by the Company of any shares of Warrant Securities for any
such Person under this PARAGRAPH 9(a) shall be borne by the Company.
(b) In the event of the preparation and filing of a registration
statement as provided in this PARAGRAPH 9, the Company's obligations to use
its best efforts to effect the registration of shares for Holder shall
include such qualification under applicable blue sky or other state
securities laws as may be requested by Holder.
(c) In connection with any registration under the Act pursuant to
this Agreement: (i) the Company will furnish Holder with a copy of the
registration statement and all amendments thereto and will supply Holder
with copies of any prospectus included therein (and, if necessary, with
copies of a prospectus meeting the requirements of Section 10(a)(3) of the
Act; PROVIDED, HOWEVER, that no such prospectus need be supplied more than
nine (9) months after the effective date of such registration statement) in
such quantities as may be necessary for the purposes of such proposed sale
or distribution; and (ii) each Holder will be required to enter into an
underwriting agreement, in usual and customary form, with the underwriters
of such offering.
(d) Nothing in this PARAGRAPH 9 shall be deemed to (i) require the
Company to proceed with any registration of its securities after giving the
notice herein provided; or (ii) provide Holder with any right to
participate in the selection of the managing underwriter(s) for such
offering.
10. RESTRICTIONS ON TRANSFER. Holder represents and warrants that this
Warrant is being purchased for Holder's investment account without a view
towards the resale or distribution thereof in violation of applicable securities
laws. It is understood that in case of subsequent sale of such Warrant
5
<PAGE>
under certain circumstances, such sale might be deemed to constitute a public
distribution within the meaning of, and require registration under, the
provisions of the Act.
(a) Holder agrees that prior to making any disposition of this
Warrant, Holder will give written notice to the Company describing briefly
the manner of any such proposed disposition and will not make any such
disposition until the Company has notified Holder in writing that the
Company has consented to the disposition, AND (i) Holder has furnished the
Company with an opinion of counsel satisfactory to the Company addressed to
Holder and the Company to the effect that the proposed transfer, sale or
assignment is exempt from registration under the Act and state securities
laws, or (ii) a registration statement covering the Warrant Securities
issuable under this Warrant has been filed by the Company and declared
effective by the Commission.
(b) Holder acknowledges and agrees that unless the Warrant Securities
are registered under the Act, such Warrant Securities shall be "restricted
securities" for purposes of Rule 144 under the Act. Holder shall, prior to
any transfer or disposition or attempted transfer or disposition of such
Warrant Securities give written notice to the Company of Holder's intention
to effect such transfer or disposition and shall deliver to the Company an
opinion of legal counsel (reasonably suitable to the Company) that the
proposed transfer or disposition of the Warrant Securities may be effected
without registration thereof under the Act and without taking any similar
action under any other applicable securities laws, in which case Holder
shall be entitled to transfer or dispose of the Warrant Securities in
accordance with the terms of the notice delivered by such Holder to the
Company. Until such Warrant Securities are registered under the Act
pursuant to Paragraph 9 hereof, each certificate evidencing the Warrant
Securities so transferred or disposed of (and each certificate evidencing
any untransferred Warrant Securities) shall bear the following restrictive
legend unless in the opinion of Company counsel such legend is not
required:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or
any state securities laws. These shares may not be offered
for sale, sold or otherwise transferred except pursuant to
an effective registration statement under the Act or
pursuant to an exemption from such registration."
(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary.
(d) In connection with any registration of shares of stock, pursuant
to this PARAGRAPH 10, Holder shall furnish the Company with such
information concerning it and the proposed sale or distribution as shall,
in the opinion of counsel for the Company, be required for use in the
preparation of a registration statement.
11. INDEMNIFICATION.
(a) If Holder shall acquire Warrant Securities (in such event, being
hereinafter referred to as the "Distributing Holder"), the Company will
indemnify and hold harmless the Distributing Holder and each Person, if
any, who controls the Distributing Holder within the meaning of the Act
against any losses, claims, damages, liabilities or actions, joint or
several (including all costs of defense and investigation and all
attorneys' fees), to which the Distributing Holder or such controlling
Person may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, liabilities or actions (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any registration
6
<PAGE>
statement referred to in PARAGRAPH 9 hereof and under which such shares of
stock were registered under the Act, and in any preliminary prospectus or
final prospectus contained therein, or in any amendment or supplement
thereto, or (ii) arise out of or are based upon the omission or alleged
omission to state in any such document a material fact required to be
stated therein or necessary to make the statements in any such document not
misleading; and will reimburse the Distributing Holder and each such
controlling Person for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or omission made in said
registration statement, preliminary prospectus, final prospectus or
amendment or supplement to any of the foregoing in reliance upon and in
conformity with written information furnished by the Distributing Holder
and/or controlling Person for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed said
registration statement and each Person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages,
liabilities or actions (including all costs of defense and investigation
and all attorneys' fees), to which the Company or any such director,
officer or controlling Person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or actions
(i) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained, on the effective date thereof, in any
registration statement referred to in PARAGRAPH 9 hereof and under which
such shares of stock were registered under the Act, and in any preliminary
prospectus or final prospectus contained therein, or in any amendment or
supplement thereto, or (ii) arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
will reimburse the Company or any such director, officer or controlling
Person for any legal or other expenses reasonably incurred thereby in
connection with investigating or defending any such loss, claim, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in said registration statement, preliminary
prospectus, final prospectus or amendment or supplement to any of the
foregoing in reliance upon and in conformity with written information
furnished by the Distributing Holder and/or controlling Person for use in
the preparation thereof.
(c) Promptly after receipt by an indemnified party under this
PARAGRAPH 11 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this PARAGRAPH 11, notify the indemnifying party
of the commencement thereof, but the failure so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this PARAGRAPH 11.
(d) In case any such action is brought against any indemnified party
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to the
indemnified party that it will assume the defense thereof, with counsel
satisfactory to the indemnified party, the indemnifying party will not be
liable to such indemnified party under this PARAGRAPH 11 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be
at the expense of the indemnifying party if the indemnifying party has
assumed the defense of the action with counsel reasonably
7
<PAGE>
satisfactory to the indemnified party; PROVIDED, HOWEVER, that the fees
and expenses of the indemnified party's counsel shall be at the expense
of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the
named parties to such action (including any impleaded parties) include
both the indemnified party and the indemnifying party and such
indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to such indemnified party that are
not available to the indemnifying party (in which case the indemnifying
party shall not have the right to assume the defense of such action on
behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party). The
indemnifying party shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled
with its written consent, or if there be a final judgment for the plaintiff
in any such action or proceeding, the indemnifying party agrees to
indemnify and hold harmless the indemnified party from and against any loss
or liability by reason of such settlement or judgment.
12. RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such number of its shares of Common Stock or other
securities as shall from time to time be sufficient to effect the exercise of
this Warrant. If at any time the number of authorized but unissued shares of
Common Stock or other securities shall not be sufficient for such purposes, the
Company will take such corporate actions as may, in the opinion of its counsel,
be necessary to increase the Company's authorized but unissued shares of Common
Stock or other securities to such number of shares as shall be sufficient for
such purpose.
13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Holder that (a) it has all requisite corporate power and
authority, and has taken all necessary corporate action, to issue and deliver
this Warrant, to authorize and reserve for issuance and, upon payment from time
to time of the Exercise Price, to issue and deliver the Warrant Securities
issuable upon the exercise of this Warrant; (b) the Warrant Securities to be
delivered upon exercise of this Warrant, when payment is made therefor in
accordance with the terms of this Warrant, will be validly issued, fully paid
and nonassessable; (c) the holder of this Warrant shall receive good and
marketable title to the Warrant Securities, free and clear of all voting and
other trust arrangements, liens, encumbrances, equities and claims whatsoever
not created by Holder, and it shall have paid all taxes, if any, in respect to
the issuance thereof; and (d) the execution and delivery of this Warrant and the
consummation of the transactions herein contemplated will not result in a breach
or violation of, or constitute a default or an event permitting acceleration
under, any statute, its Articles of Incorporation or bylaws, or any mortgage,
lease, indenture or any other agreement, instrument, decree, order, judgment,
rule or regulation to which it is subject or a party.
14. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver at its
expense, in lieu thereof, a new warrant of like tenor to Holder.
15. SPECIFIC PERFORMANCE. The Company stipulates that the remedies at law
available to the holder of this Warrant in the event of any default or
threatened default by it in the performance of or compliance with any of the
terms of the Agreement are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
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16. APPLICABLE LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CHOICE OF LAWS OF SUCH STATE.
17. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior agreements and understandings relating to the subject matter
hereof. This Warrant and any of the terms hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
18. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure
to the benefit of the Company and Holder and their respective successors and
permitted assigns; provided, however, nothing herein shall be construed to
permit assignment of the Warrant except in accordance with the provisions
herein.
19. SEVERABILITY. Every provision of this Warrant is intended to be
severable. If any term or provision hereof (or portion thereof) is determined
to be illegal or unenforceable for any reason whatsoever, such illegality or
unenforceability shall not affect any other term or provision (or portion
thereof) of this Warrant.
20. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at the following address or at such other address as may
have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder of such Warrant who
has so furnished an address to the Company:
If to the Company:
Waste Recovery, Inc.
309 South Pearl Expressway
Dallas, Texas 75201
If to Holder:
----------------------------------
----------------------------------
----------------------------------
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IN WITNESS WHEREOF, this Warrant has been executed on behalf of WASTE
RECOVERY, INC. by its duly authorized officers as of the date first above
written.
WASTE RECOVERY, INC.
By:
--------------------------------------------------
Thomas L. Earnshaw, President
The terms and provisions of the Warrant are accepted and agreed to this ___
day of November, 1996.
-----------------------------------------------------
10
<PAGE>
EXHIBIT "I"
NOTICE OF EXERCISE
(To be executed by Holder to exercise the
Warrant in whole or in part)
Waste Recovery, Inc.
309 South Pearl Expressway
Dallas, Texas 75201
Re: Warrant to Purchase Common Stock dated November ___, 1996 by and
between Waste Recovery, Inc. and ____________________ (the "Warrant")
Dear Sir or Madam:
The undersigned holder irrevocably elects to exercise the Warrant to
purchase _________ shares of Common Stock of Waste Recovery, Inc. (the
"Company") subject to the Warrant, and hereby makes payment of the amount of
$__________ in the manner described below, representing the Exercise Price per
share of Common Stock multiplied by the number of shares of Common Stock to be
purchased pursuant to this exercise.
By:
---------------------------------------------
$__________ cash
$__________ certified or bank cashier's check
$__________ wire transfer
$__________ shares of Common Stock of the Company
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name:
------------------------------
Address:
---------------------------
---------------------------
and if the exercise shall not be for all of the shares of Common Stock evidenced
by the Warrant, that a new warrant for the balance of the shares and upon the
same terms and conditions be registered in the name of, and delivered to, the
undersigned at Holder's address as set forth below:
----------------------------
----------------------------
By:
--------------------------------------
Date:
------------------------------------
<PAGE>
EXHIBIT 10.35
WASTE RECOVERY, INC.
DODGE COMMON STOCK AND WARRANT PURCHASE AGREEMENT
December 24, 1996
<PAGE>
AGREEMENT
THIS DODGE COMMON STOCK AND WARRANT PURCHASE AGREEMENT ("Agreement") is
made as of the 24th day of December, 1996, by and among Waste Recovery, Inc., a
Texas corporation (the "Company"), and Michael C. Dodge ("Investor").
WHEREAS, the Company wishes to sell to Investor, and Investor wishes to
purchase from the Company, an aggregate of 300,000 shares of common stock, no
par value ("Common Stock"), of the Company and on behalf of Investor's nominees
as set forth on SCHEDULE A ("Warrantholders"), a total of 300,000 warrants, each
exercisable to purchase one share of Common Stock at a price of $2.0625 per
share during the four-year period commencing on the date hereof (the
"Warrants"), on the terms and in the manner set forth in this Agreement.
IT IS AGREED:
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS.
1.1. Subject to the terms and conditions of this Agreement, Investor
hereby purchases from the Company, and the Company hereby sells to Investor, an
aggregate of 300,000 shares ("Shares") of Common Stock and to the Warrantholders
as set forth on SCHEDULE A, an aggregate of 300,000 Warrants (the Shares and
Warrants, collectively "Investor Securities") at a purchase price of $1.45 per
Share and $.05 per Warrant or an aggregate of $450,000.
1.2. Concurrently with the execution of this Agreement, the
Company is delivering to Investor and to the Warrantholder certificates
representing the Investor Securities set forth opposite Investor's or each
Warrantholder's name on SCHEDULE A attached hereto and Investor is delivering
to the Company a certified or official bank check or a wire transfer in the
amount set forth on SCHEDULE A representing payment of the purchase price,
the receipt and adequacy of both of which are hereby acknowledged by the
parties.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that:
2.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business, and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties (a "Material Adverse Effect"). A true and
correct copy of the Company's Articles of Incorporation ("Certificate") and
By-laws are attached hereto as EXHIBIT A.
2.2. CORPORATE POWER; CONDUCT OF BUSINESS. The Company has all
requisite legal and corporate power to (i) execute and deliver this Agreement,
(ii) issue the Shares and the Warrants and the Common Stock issuable upon
conversion of the Warrants, and (iii) carry out and perform its obligations
under the terms of this Agreement. The Company has all necessary
authorizations, approvals, orders, licenses, certificates and permits of all
governmental and/or regulatory officials and bodies to own or lease its
properties and conduct its business, and the Company is and has been doing
business in compliance with all such authorizations, approval, orders, licenses,
certificates and permits and all federal, state and local laws, rules and
regulations, except where the failure to do so would not have a Material Adverse
Effect.
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2.3. AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.
2.4. CAPITALIZATION. Prior to the issuance of the Shares and the
Warrants pursuant to this Agreement and the shares of Common Stock of the
Company and the Warrants to be issued pursuant to that Common Stock and Warrant
Purchase Agreement of even date herewith, there are no more than 18,000,000
shares of Common Stock of the Company outstanding on a fully diluted basis,
after giving effect to the exercise and/or conversion of all outstanding
options, warrants and convertible securities.
2.5. VALID ISSUANCE OF SHARES AND WARRANTS.
(a) The issuance, sale and delivery of the Shares and
Warrants being purchased by Investor and the Warrantholders hereunder, and
the reservation for issuance of the Common Stock issuable upon exercise of
the Warrants, have been duly authorized by all required corporate action on
the part of the Company, and the Shares and Warrants are duly and validly
issued, the Shares are fully paid and non-assessable and, based in part upon
the representations and warranties of Investor and the Warrantholders in this
Agreement, the Shares and Warrants will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
exercise of the Warrants has been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Warrants and payment of the
exercise price set forth in the Warrants, shall be duly and validly issued,
fully paid, and non-assessable. The Shares (and the Common Stock issuable
upon exercise of the Warrants) will be free and clear from any liens or
encumbrances other than those created by, or imposed upon, the holders
thereof through no action of the Company; PROVIDED, HOWEVER, that Shares (and
the Common Stock issuable upon exercise of the Warrants) shall be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein.
(b) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid, and non-assessable, and were issued
in compliance with all applicable federal and state securities laws and have not
been issued in violation of any preemptive rights.
2.6. 10b-5 REPRESENTATION. SCHEDULE 2.6 lists all of the reports
filed by the Company pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or the rules and regulations thereunder ("Regulations")
since January 1, 1996. The Company has filed all reports required to be filed
by it pursuant to the Exchange Act and the Regulations. Each of such reports,
when filed, complied in all material respects with the requirements of the
applicable provisions of the Exchange Act and the Regulations and did not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Since the date of the most recent report on Form 10-Q filed by the Company under
the Exchange Act and the Regulations, there has been no material adverse change
in the business, financial condition or assets of the Company.
2.7. CONSENTS. No consent, approval, order, license, certificate or
permit from, or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state, local, foreign or provincial
governmental authority or any court or other tribunal is required on the part of
the Company in connection with the consummation of the transactions contemplated
by this Agreement. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or understanding to which the Company is
a party is required for the execution, delivery or performance of this Agreement
and the transactions contemplated hereby.
2.8. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of
3
<PAGE>
any provisions of its Certificate or By-laws. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict
with or constitute, with or without the passage of time and giving of notice,
either a default under any such provision, instrument, judgment, order, writ,
decree, or contract or constitute an event which results in the creation of
any lien, charge, or encumbrance upon any assets of the Company. The Company
does not have any knowledge of any termination or material breach or
anticipated termination or material breach by the other parties to any
material contract or commitment to which it is a party or to which any of its
assets is subject.
3. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants to the Company that:
3.1. AUTHORIZATION. This Agreement constitutes his valid and legally
binding obligations, enforceable in accordance with its terms. Investor
represents that he has full power and authority to enter into this Agreement.
3.2. PURCHASE FOR OWN ACCOUNT. The Shares and Warrants to be
received by Investor and the Warrantholder pursuant to the terms hereof and
the Common Stock issuable upon exercise of the Warrants (collectively, the
"Securities") will be acquired for investment for such Investor's or
Warrantholder's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and neither Investor nor
the Warrantholder has any present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Investor further represents warrants that he does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3. RESTRICTED SECURITIES. Investor understands that the Shares and
the Warrants that are being purchased hereunder are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the "Act"),
only in certain limited circumstances. In this regard, Investor represents that
he is familiar with Securities and Exchange Commission Rule 144 ("Rule 144"), as
presently in effect, and understands the resale limitations imposed thereby and
by the Act. Without in any way limiting the representations set forth above,
Investor agrees not to make any disposition of all or any portion of the Shares
or Warrants (or the Common Stock issuable upon exercise of the Warrants) unless
there is then in effect a registration statement under the Act covering such
proposed disposition and such disposition is made in accordance with such
registration statement; Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and, if reasonably requested
by the Company, Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Act. It is agreed that the
Company will request opinions of counsel for transactions made pursuant to Rule
144 only if such request is reasonable.
3.4. ACCREDITED INVESTOR STATUS. Investor represents and warrants
that he is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D, promulgated under the Act.
3.5. LEGENDS. It is understood that the certificates evidencing the
Shares and the Warrants (and the Common Stock issuable upon exercise of the
Warrants) shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
4
<PAGE>
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER
THE ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND
COMPLIANCE WITHIN ANY APPLICABLE STATE SECURITIES
LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
After the Registration Statement referenced in Section 4.4(a)
hereinbelow is declared effective by the Securities and Exchange Commission (the
"Commission"), or after any registration statement in which Investor Securities
or Additional Shares (as hereinafter defined) are included pursuant to the
registration rights set forth in Section 4.4(b) is declared effective by the
Commission, Investor may deliver to the Company the certificates representing
the Investor Securities and/or Additional Shares so registered, and the Company
will, within three (3) days after receipt by the Company of the foregoing, cause
its transfer agent to issue new certificates representing and in exchange for
the aforementioned certificates, which new certificates shall be legended as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES MAY BE SOLD PURSUANT TO THE
REGISTRATION STATEMENT PROVIDED THAT (i) THE REGISTRATION
STATEMENT IS CURRENT AND EFFECTIVE, (ii) THE HOLDER COMPLIES
WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND (iii) THE SALE IS IN
COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET FORTH IN THE
PROSPECTUS.
The legend shall be removed by the Company from any
certificate at such time as the holder of the shares represented by the
certificate delivers an opinion of counsel reasonably satisfactory to the
Company to the effect that such legend is not required in order to establish
compliance with any provisions of the Act, or at such time as the holder of
such shares satisfies the requirements of Rule 144(k) under the Act, provided
that Rule 144(k) as then in effect does not differ substantially from Rule
144(k) as in effect as of the date of this Agreement, and provided further
that the Company has received from the holder a written representation that
(i) such holder is not an affiliate of the Company and has not been an
affiliate during the preceding three (3) months, (ii) such holder has
beneficially owned the shares represented by the certificate for a period of
at least three (3) years, or such other period of time then set forth under
Rule 144(k), and (iii) such holder otherwise satisfies the requirements of
Rule 144(k) as then in effect with respect to such shares.
By acceptance of the Warrants, each Warrantholder does hereby
acknowledge and agree that she takes such Warrants pursuant to the terms and
subject to the conditions set forth in this Article 3.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
4.1. USE OF PROCEEDS. The Company will apply the proceeds received
from the sale of
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<PAGE>
the Common Stock for working capital and general corporate purposes. No
proceeds of the Shares and Warrants sold to Investor or the proceeds of any
exercise of the Warrants will be used to pay any debt for borrowed funds from
any director or officer, or any debts or obligations owed to any officer,
director or shareholder of the Company or any of their respective affiliates.
4.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall
deliver to Investor copies of all reports filed by the Company under the
Exchange Act and the Regulations at the time such reports are filed with the
Commission.
4.3. ANTI-DILUTION RIGHTS. Until the date which is three (3) months
after the date on which the Registration Statement is declared effective, in the
event that the Company issues (i) any shares of Common Stock at a price per
share less than $1.25, (ii) any options to purchase or rights to subscribe for
Common Stock exercisable at a price (including the purchase price of such option
or rights) per share of Common Stock exercisable at a price (including the
purchase price of such option or rights) per share of Common Stock of less than
$1.25, or (iii) securities convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, at a price per convertible or exchangeable security (including the
purchase price of the rights to subscribe for such convertible or exchangeable
security) of less than $1.25, the Company will issue to the holders of the
Shares ("Holders") that amount of additional shares of Common Stock ("Additional
Shares") as will cause the effective per share purchase price of the Common
Stock held by the Holders to be equal to the per share or per security purchase
or exercise price of the Common Stock or securities convertible into or
exercisable or exchangeable for common Stock so issued. Notwithstanding the
foregoing, the Company will not be required to issue Additional Shares to the
Holders as a result of the issuance of options (and the shares of Common Stock
underlying such options) to purchase shares of Common Stock to officers,
directors or employees of the Company if the exercise price of such options is
or was not less than the market price of the Common Stock on the date the
options are granted.
4.4. REGISTRATION RIGHTS.
(a) On or before May 15, 1997, the Company shall file a
registration statement under the Act (the "Registration Statement") with the
Commission registering for resale the Shares, the Additional Shares, if any,
that have been issued to the Holders, and the Warrants and the shares of Common
Stock issuable upon exercise of the Warrants (collectively, the "Registrable
Securities"). The Company will use its best efforts to have such registration
statement declared effective promptly thereafter.
(b) In addition to the registration rights granted in
subsection (a) above, (i) the Holders and each Warrantholder shall have the
right to include the Registrable Securities as part of any other registration
of securities filed by the Company (other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant
to Form S-8 or any equivalent form), and (ii) upon the request, on one
occasion, of the holders of more than fifty (50%) of any Additional Shares
which may have been issued pursuant to Section 4.3 hereof and which have not
been registered pursuant to Section 4.4(a) hereof ("Additional Registrable
Securities"), the Company shall file a registration statement under the Act
with the Commission registering for resale such Additional Registrable
Securities.
(c) The Company shall bear all fees and expenses attendant to
registering the Registrable Securities and any Additional Registrable
Securities, but the Holders shall pay any and all underwriting commissions in
connection with the sale of the Registrable Securities and any Additional
Registrable Securities. The Company agrees to use its best efforts to cause the
filing required herein to become effective promptly and to qualify or register
the Registrable Securities and any Additional Registrable Securities in such
States as are reasonably requested by the Holders and the Warrantholders;
PROVIDED, HOWEVER, that in no event shall the Company be required to register
the Registrable Securities or
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<PAGE>
Additional Registrable Securities in a State in which such registration would
cause (i) the Company to be obligated to register or license to do business
in such State, or (ii) the principal shareholders of the Company to be
obligated to escrow their shares of capital stock of the Company. The
Company shall cause any registration statement filed pursuant to the rights
granted under this Section 4.4 to remain effective until the earliest of (i)
the date by which all of the Registrable Securities and Additional
Registrable Securities, if any, have been sold pursuant to the registration
statement, or (ii) the date by which all of the Registrable Securities or
Additional Registrable Securities, if any, are eligible for resale without
restriction pursuant to Rule 144(k) promulgated under the Act.
(d) Notwithstanding Section 4.4(b)(i) hereof, if the offering
with respect to which a registration statement is filed is managed by an
independent underwriter, then (i) if in the reasonable judgment of the managing
underwriter, which shall be evidenced by a writing delivered to each Holder and
each Warrantholder, the sale of the Registrable Securities or the Additional
Registrable Securities in connection with the proposed offering would have a
material adverse effect on the offering, the Holders and the Warrantholder shall
not sell their Registrable Securities or Additional Registrable Securities under
such registration statement until ninety (90) days after the effective date of
such registration statement without the consent of the managing underwriter, and
(ii) if securities are to be registered for the benefit of any other selling
security holder ("Selling Holder"), each Holder and Warrantholder shall be
entitled to sell immediately under such registration statement a percentage of
the total number of Registrable Securities and Additional Registrable Securities
of a particular class of securities owned by him or her equal to the highest
percentage of that class to be sold under such registration statement (vis-a-vis
the total number of securities of that class owned) by any such Selling Holder,
with the Holder or such Warrantholder being entitled to sell the balance of its
Registrable Securities and/or Additional Registrable Securities, if any, under
such registration statement commencing ninety (90) days after the effective date
of the registration statement.
(e) The Company shall indemnify the holder(s) of the
Registrable Securities or Additional Registrable Securities to be sold
pursuant to any registration statement hereunder and each person, if any, who
controls such holders within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement other
than arising from information set forth therein furnished by or on behalf of
such holders or their successors or assigns in writing for specific inclusion
in such registration statement. The holder(s) of the Registrable Securities
or Additional Registrable Securities to be sold pursuant to such registration
statement, and their successors and assigns, shall severally, and not
jointly, indemnify the Company against all loss, claims, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investing, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act
or otherwise, arising from information furnished by or on behalf of such
holders, or their successors or assigns, in writing, for specific inclusion
in such registration statement.
(f) Nothing contained in this Agreement shall be construed as
requiring the Warrantholders to exercise their Warrants prior to or after the
initial filing of any registration statement or the effectiveness thereof.
(g) Each of the Holders and the Warrantholders participating in
any of the foregoing offerings shall furnish to the Company a complete, accurate
and executed questionnaire provided by the Company requesting information
customarily sought of selling securityholders.
5. INDEMNIFICATION. The Company shall indemnify and hold harmless
Investor and its
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<PAGE>
successors and assigns, from and against any losses, damages, expenses or
liabilities, including, without limitation, reasonable attorneys' fees, which
may be sustained suffered or incurred by Investor, his successors and
assigns, arising from or in connection with the breach of any of the
Company's covenants, representations, warranties, agreements, obligations or
undertakings hereunder. Investor shall indemnify and hold harmless the
Company from and against any losses, damages, expenses or liabilities,
including, without limitation, reasonable attorneys' fees, which may be
sustained, suffered or incurred by the Company arising from or in connection
with the breach of any of Investor's covenants, representations, warranties,
agreements, obligations or undertakings hereunder. These indemnities shall
survive the execution of this Agreement.
6. MISCELLANEOUS.
6.1. SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor or the Company.
6.2. SUCCESSORS AND ASSIGNS. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Texas, disregarding any principles
of conflicts of laws.
6.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6. FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finder's fee or commission in connection with this
transaction. The Company agrees to indemnify and hold harmless Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.7. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and Investor. Any amendment or waiver
effected in accordance with this Section 6.7 shall be binding upon each holder
of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company.
6.8. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WASTE RECOVERY, INC.
By: /s/ THOMAS L. EARNSHAW
-------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
Address: 309 S. Pearl Expressway
Dallas, Texas 75201
INVESTOR
By: /s/ MICHAEL C. DODGE
-------------------------------------
Michael C. Dodge
9
<PAGE>
SCHEDULE A
Number of
Amount of Shares of Number of
Investor Investment Common Stock Warrants
- -------- ---------- ------------ ----------
Michael C. Dodge $435,000 300,000 -
Warrantholder
- -------------
Susan R. Dodge $ 5,000 100,000
Elizabeth W. Dodge $ 5,000 100,000
Ann C. Dodge $ 5,000 100,000
SCHEDULE A - Page 1
<PAGE>
SCHEDULE 2.6
EXCHANGE ACT REPORTS
1. Form 10-K Annual Report filed with respect to the Company's fiscal year
ended December 31, 1995.
2. Form 10-Q Quarterly Reports filed with respect to the Company's fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996.
3. Form 8-K Current Report filed with respect to the Company's December 1996
acquisitions of U.S. Tire Recycling Partners, L.P. and the general
partnership interest of Riverside Caloric Company in Waste Recovery-
Illinois, an Illinois general partnership.
SCHEDULE 2.6 - Page 1
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 24, 2000.
For the Purchase of
100,000 Shares of
Common Stock
No. ____________
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
WASTE RECOVERY, INC.
(A Texas Corporation)
Waste Recovery, Inc., a Texas corporation (the "Company"), hereby
certifies that for value received, ___________________________________, or
her registered assigns (the "Registered Holder"), residing at
_______________________________, is entitled, subject to the terms set forth
below, to purchase from the Company, pursuant to this Warrant ("Warrant"), at
any time or from time to time until December 24, 2000 ("Expiration Date"),
one hundred thousand (100,000) shares of Common Stock, no par value, of the
Company ("Common Stock"), at a purchase price equal to $2.0625 per share of
Common Stock. The number of shares of Common Stock purchasable upon exercise
of this Warrant, and the purchase price per share, each as adjusted from time
to time pursuant to the provisions of this Warrant, are hereinafter referred
to as the "Warrant Shares" and the "Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by the surrender of this Warrant (with the Notice of
Exercise Form attached hereto as Exhibit I duly executed by such Registered
Holder) at the principal office of the Company, or at such other office or
agency as the Company may designate, accompanied by payment in full, in
lawful money of the United States, of an amount equal to the then applicable
Purchase Price multiplied by the number of Warrant Shares then being
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as
provided in subsection 1(c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
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<PAGE>
(c) As soon as practicable after the exercise of the purchase
right represented by this Warrant, the Company at its expense will use its
best efforts to cause to be issued in the name of the Registered Holder and
delivered to you:
(i) A certificate or certificates for the number of full
shares of Warrant Shares to which such Registered Holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, a Warrant Share representing
the remainder of the fractional share to the next whole Warrant Share, and
(ii) In case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant
minus the number of such shares purchased by the Registered Holder upon such
exercise as provided in subsection 1(a) above.
2. ADJUSTMENTS.
(a) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
outstanding shares of the Company's Common Stock at any time while this
Warrant remains outstanding and unexpired shall be subdivided or split into a
greater number of shares, or a dividend in Common Stock shall be paid in
respect of Common Stock, or a similar change in the Company's capitalization
occurs which affects the outstanding Common Stock, as a class, then the
Purchase Price in effect immediately prior to such subdivision or at the
record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or split or immediately after the record date of such
dividend (as the case may be), be proportionately decreased. If the
outstanding shares of Common Stock shall be combined or reverse-split into a
smaller number of shares, the Purchase Price in effect immediately prior to
such combination or reverse split shall, simultaneously with the
effectiveness of such combination or reverse split, be proportionately
increased. When any adjustment is required to be made in the Purchase Price,
the number of shares 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 Purchase Price in
effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In
the case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation
(other than a merger or reorganization with respect to which the Company is
the continuing corporation and which does not result in any reclassification
of the Common Stock), or a transfer of all or substantially all of the assets
of the Company, or the payment of a liquidating distribution then, as part of
any such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, the Company shall arrange for the other party to
the transaction to agree to, and lawful provision shall be made, so that the
Registered Holder of this Warrant shall have the right thereafter to receive
upon the exercise hereof (to the extent, if any, still exercisable), the kind
and amount of shares of stock or other securities or property which such
Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, as the case may be, such Registered Holder had held
the number of shares of Common Stock that were then purchasable upon the
exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made
in the application of the provisions set forth herein with respect to the
rights and interests thereafter of the Registered Holder of this Warrant such
that the provisions set forth in this Section 2 (including provisions with
respect to the Purchase Price) shall thereafter be applicable as nearly as is
reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this
Warrant.
2
<PAGE>
3. LIMITATION ON SALES. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any
successor legislation (the "Act"), and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or
any Warrant Shares issued upon its exercise in the absence of (a) an
effective registration statement under the Act as to this Warrant or such
Warrant Shares and registration or qualification of this Warrant or such
Warrant Shares under any applicable Blue Sky or state securities law then in
effect or (b) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required. Without limiting the
generality of the foregoing, unless the offering and sale of the Warrant
Shares to be issued upon the particular exercise of the Warrant shall have
been effectively registered under the Act, the Company shall be under no
obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of
such exercise that it is acquiring such shares for its on account, and will
not transfer the Warrant Shares unless pursuant to an effective and current
registration statement under the Act or an exemption from the registration
requirements of the Act and any other applicable restrictions, in which event
the Registered Holder shall be bound by the provisions of a legend or legends
to such effect which shall be endorsed upon the certificate(s) representing
the Warrant Shares issued pursuant to such exercise. The Warrant Shares
issued upon exercise thereof shall be imprinted with legends in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT")
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT THERETO UNDER THE ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS
THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
After the Registration Statement referenced in Section 4
hereinbelow is declared effective by the Securities and Exchange Commission
(the "Commission"), or after any registration statement in which Warrant
Shares are included pursuant to the registration rights set forth in Section
4.4(b) of the Dodge Common Stock and Warrant Purchase Agreement between the
Company and Investor as described therein ("Common Stock and Warrant Purchase
Agreement") is declared effective by the Commission, the Registered Holder
may deliver to the Company the certificates representing the Warrant Shares
so registered, and the Company will, within three days after receipt by the
Company of the foregoing, issue new certificates representing and in exchange
for the aforementioned certificates, which new certificates shall be legended
as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY BE SOLD PURSUANT TO THE REGISTRATION STATEMENT
PROVIDED THAT (i) THE REGISTRATION STATEMENT IS CURRENT AND
EFFECTIVE, (ii) THE HOLDER COMPLIES WITH THE PROSPECTUS DELIVERY
REQUIREMENTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
(iii) THE SALE IS IN COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET
FORTH IN THE PROSPECTUS."
4. REGISTRATION RIGHTS OF WARRANT HOLDER. The Company has agreed to
register the Warrants
3
<PAGE>
and Warrant Shares issuable hereunder on a Registration Statement under the
Act (the "Registration Statement") with the Commission in accordance with
Section 4 of the Common Stock and Warrant Purchase Agreement. These
registration rights shall inure to the benefit of any transferee of the
Warrants and the Warrant Shares.
5. NOTICES OF RECORD DATE. In case:
(a) The Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise
of this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution (other than a dividend or distribution payable
solely in capital stock of the Company or out of funds legally available
therefor), or to receive any right to subscribe for or purchase any shares of
any class or any other securities, or to receive any other right, or
(b) 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 (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) Of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail
or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) 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 (ii) the
effective date on which such reorganization, reclassification, consolidation,
merger, transfer, 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 other stock or securities at the time deliverable 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, transfer, dissolution, liquidation or winding-up.
Such notice shall be mailed at least ten (10) days prior to the record date
or effective date for the event specified in such notice, provided that the
failure to mail such notice shall not affect the legality or validity of any
such action.
6. RESERVATION AND MAINTENANCE OF LISTING OF STOCK. The Company will
at all times reserve and keep available, solely for issuance and delivery
upon the exercise of this Warrant, such shares of Warrant Shares and other
stock, securities and property as from time to time shall be issuable upon
the exercise of this Warrant and shall use its best efforts to list and
maintain the quotation of the Warrant Shares on the same system or exchange
as the Company's outstanding Common Stock.
7. REPLACEMENT OF WARRANTS. Upon 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) upon delivery of
an indemnity agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
8. TRANSFERS, ETC.
(a) The Company will maintain or cause to be maintained a register
containing the names and addresses of the Registered Holders of this Warrant.
Any Registered Holder may change its, his or her address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided,
4
<PAGE>
however, that if an when this Warrant is properly assigned in blank, the
Company may (but shall not be obligated to) treat the bearer hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
10. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
11. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Texas as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
13. MAILING OF NOTICES, ETC. All notices and other communications
under this Warrant (except payment) shall be in writing and shall be
sufficiently given if delivered to the addressees in person, by Federal
Express or similar receipt delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
Registered Holder: To her address on page 1 of this Warrant.
with a copy to: Michael C. Dodge
c/o 309 South Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
The Company: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
with a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Kent Jamison, Esq.
Fax: (214) 740-8800
or to such other address as any of them, by notice to the others may
designate from time to time. Time shall be counted to, or from, as the case
may be, the delivery in person or by mailing.
WASTE RECOVERY, INC.
By:
---------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
5
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
1. The undersigned hereby elects to purchase ______________ shares of
the Common Stock of Waste Recovery, Inc., pursuant to terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of the Common Stock in the name of the undersigned or in such other name as
is specified below.
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities
Act of 1933, as amended, or an exemption from registration thereunder.
--------------------------------
(Name)
--------------------------------
(Address)
--------------------------------
--------------------------------
--------------------------------
(Taxpayer Identification Number)
- -----------------------------------
[PRINT NAME OF REGISTERED HOLDER]
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
6
<PAGE>
EXHIBIT 10.36
WASTE RECOVERY, INC.
TRANSACTIONS UNDER THE COMMON STOCK
AND WARRANT PURCHASE AGREEMENT
DATED AS OF
DECEMBER 26,1996
DECEMBER 26,1996
DOCUMENT TAB NUMBER
- -------- ----------
Common Stock and Warrant Purchase Agreement made as of 1
December 26, 1996 by and among Waste Recovery, Inc. (the
"Company") and the Investors set forth on SCHEDULE A
thereto (the "Investors")
Warrant Number 1 for the Purchase of 366,666 Shares of 2
the Common Stock of the Company issued December 26, 1996
to Bette Nagelberg
Warrant Number 2 for the Purchase of 366,667 Shares of 3
the Common Stock of the Company issued December 26, 1996
to Ronald I. Heller
Warrant Number 3 for the Purchase of 16,667 Shares of the 4
Common Stock of the Company issued December 26, 1996 to
R. Anthony Cioffari
Warrant Number 4 for the Purchase of 25,000 Shares of the 5
Common Stock of the Company issued December 26, 1996 to
GKN Securities Corp.
Stock Certificate Number 4381 for 366,666 Shares of Common 6
Stock of the Company dated December 26, 1996 issued to
Bette Nagelberg
Stock Certificate Number 4382 for 50,000 Shares of Common 7
Stock of the Company dated December 26, 1996 issued to
Rachel Heller
Stock Certificate Number 4383 for 50,000 Shares of Common 8
Stock of the Company dated December 26, 1996 issued to
Ronald I. Heller as Custodian for Evan Heller
Stock Certificate Number 4384 for 266,667 Shares Of Common 9
Stock of the Company dated December 26, 1996 issued to
Delaware Charter Guaranty & Trust Co. fbo Ronald I. Heller IRA
Stock Certificate Number 4385 for 16,667 Shares of Common 10
Stock of the Company dated December 26, 1996 issued to
R. Anthony Cioffari
Legal Opinion of Locke Purnell Rain Harrell (A Professional 11
Corporation) dated December 26, 1996 to the Investors
<PAGE>
WASTE RECOVERY, INC.
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
December 26, 1996
<PAGE>
AGREEMENT
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT ("Agreement") is made as
of the 26th day of December, 1996, by and among Waste Recovery, Inc., a Texas
corporation ("Company"), and each of the investors listed on the signature
page and on Schedule A hereto ("Investors").
WHEREAS, the Company wishes to sell to the Investors, and the Investors
wish to purchase from the Company, an aggregate of 750,000 shares of common
stock, no par value ("Common Stock"), of the Company and 750,000 warrants,
each exercisable to purchase one share of Common Stock at a price of $2.0625
per share during the four year period commencing on the date hereof
("Warrants"), on the terms and in the manner set forth in this Agreement.
IT IS AGREED:
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS.
1.1. Subject to the terms and conditions of this Agreement, the
Investors hereby purchase from the Company, and the Company hereby sells to
the Investors, an aggregate of 750,000 shares ("Shares") of Common Stock and
750,000 Warrants (the Shares and Warrants, collectively, "Investor
Securities") at a purchase price of $1.45 per share and $.05 per Warrant or
an aggregate of $1,125,000.
1.2. Concurrently with the execution of this Agreement, the Company
is delivering to each Investor certificates representing the portion of the
Investor Securities set forth opposite such Investor's name on Schedule A
attached hereto and each Investor is delivering to the Company a certified or
official bank check or a wire transfer in the respective amount set forth on
Schedule A representing payment of the purchase price, the receipt and
adequacy of both of which are hereby acknowledged by the parties.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors that:
2.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business, and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties (a "Material Adverse
Effect"). A true and correct copy of the Company's Certificate of
Incorporation ("Certificate") and By-laws are attached hereto as Exhibit A.
2.2. CORPORATE POWER; CONDUCT OF BUSINESS. The Company has all
requisite legal and corporate power to (i) execute and deliver this
Agreement, (ii) issue the Shares and the Warrants and the Common Stock
issuable upon conversion of the Warrants, and (iii) carry out and perform its
obligations under the terms of this Agreement. The Company has all necessary
authorizations, approval, orders, licenses, certificates and permits of all
governmental and/or regulatory officials and bodies to own or lease its
properties and conduct its business and the Company is and has been doing
business in compliance with all such authorizations, approval, orders,
licenses, certificates and permits and all federal, state and local laws,
rules and regulations, except where the failure to do so would not have a
Material Adverse Effect.
<PAGE>
2.3. AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.
2.4. CAPITALIZATION. Prior to the issuance of the Shares and the
Warrants, there are no more than 18,000,000 shares of Common Stock of the
Company outstanding on a fully diluted basis, after giving effect to the
exercise and/or conversion of all outstanding options, warrants and
convertible securities.
2.5. VALID ISSUANCE OF SHARES AND WARRANTS.
(a) The issuance, sale and delivery of the Shares and Warrants
being purchased by the Investors hereunder, and the reservation for issuance
of the Common Stock issuable upon exercise of the Warrants, have been duly
authorized by all required corporate action on the part of the Company, and
the Shares and Warrants are duly and validly issued, the Shares are fully
paid and non-assessable and, based in part upon the representations and
warranties of the Investors in this Agreement, the Shares and Warrants will
be issued in compliance with all applicable federal and state securities
laws. The Common Stock issuable upon exercise of the Warrants has been duly
and validly reserved for issuance and, upon issuance in accordance with the
terms of the Warrants and payment of the exercise price set forth in the
Warrants, shall be duly and validly issued, fully paid, and non-assessable.
The Shares (and the Common Stock issuable upon exercise of the Warrants) will
be free and clear from any liens or encumbrances other than those created by,
or imposed upon, the holders thereof through no action of the Company;
provided, however, that Shares (and the Common Stock issuable upon exercise
of the Warrants) may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein.
(b) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid, and non-assessable, and were
issued in compliance with all applicable federal and state securities laws
and have not been issued in violation of any preemptive rights.
2.6. 10b-5 REPRESENTATION. Schedule 2.6 lists all of the reports
filed by the Company pursuant to the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or the rules and regulations thereunder
("Regulations") since January 1, 1996. The Company has filed all reports
required to be filed by it pursuant to the Exchange Act and the Regulations.
Each of such reports, when filed, complied in all material respects with the
requirements of the applicable provisions of the Exchange Act and the
Regulations and did not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. Since the date of the most recent report on
Form 10-Q filed by the Company under the Exchange Act and the Regulations,
there has been no material adverse change in the business, financial
condition, assets or, to the Company's knowledge, business prospects, of the
Company.
2.7. CONSENTS. No consent, approval, order, license, certificate or
permit from, or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, local, foreign
or provincial governmental authority or any court or other tribunal is
required on the part of the Company in connection with the consummation of
the transactions contemplated by this Agreement. No consent of any party to
any contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company is a party is required for the execution,
delivery or performance of this Agreement and the transactions contemplated
hereby.
<PAGE>
2.8. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Certificate or By-Laws. The
execution, delivery, and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation
or be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree, or contract or constitute an event which
results in the creation of any lien, charge, or encumbrance upon any assets
of the Company. The Company does not have any knowledge of any termination or
material breach or anticipated termination or material breach by the other
parties to any material contract or commitment to which it is a party or to
which any of its assets is subject.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investors
hereby represent and warrant to the Company that:
3.1. AUTHORIZATION. This Agreement constitutes their valid and
legally binding obligations, enforceable in accordance with its terms. Each
Investor represents that it has full power and authority to enter into this
Agreement.
3.2. PURCHASE FOR OWN ACCOUNT. The Shares and Warrants to be
received by each Investor pursuant to the terms hereof and the Common Stock
issuable upon exercise of the Warrants (collectively, the "Securities") will
be acquired for investment for such Investor's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part
thereof, and each Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Investor further represents and warrants that it does not
have any contract, undertaking, agreement, or arrangement with any person to
sell, transfer, or grant participations to such person or to any third
person, with respect to any of the Securities.
3.3. RESTRICTED SECURITIES. Each Investor understands that the
Shares and the Warrants it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended
("Act") only in certain limited circumstances. In this regard, each Investor
represents that it is familiar with Securities and Exchange Commission Rule
144 ("Rule 144"), as presently in effect, and understands the resale
limitations imposed thereby and by the Act. Without in any way limiting the
representations set forth above, each Investor agrees not to make any
disposition of all or any portion of the Shares or Warrants (or the Common
Stock issuable upon exercise of the Warrants) unless there is then in effect
a registration statement under the Act covering such proposed disposition and
such disposition is made in accordance with such registration statement; or
each Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and, if reasonably requested by the
Company, each Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will
not require registration of such shares under the Act. It is agreed that the
Company will request opinions of counsel for transactions made pursuant to
Rule 144 only if such request is reasonable.
3.4. ACCREDITED INVESTOR STATUS. Each Investor represents and
warrants that it is an "accredited investor" within the meaning of Rule
501(a) of Regulation D, promulgated under the Act.
3.5. LEGENDS. It is understood that the certificates evidencing the
Shares and the Warrants (and the Common Stock issuable upon exercise of the
Warrants) shall bear the following legend:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SAID ACT AND COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
After the Registration Statement, referenced in Section 4.4(a)
hereinbelow, is declared effective by the Securities and Exchange Commission
("Commission"), or after any registration statement in which Investor
Securities or Additional Shares (as hereinafter defined) are included
pursuant to the registration rights set forth in Section 4.4(b) is declared
effective by the Commission, the Investors may deliver to the Company the
certificates representing the Investor Securities and/or Additional Shares so
registered, and the Company will, within three days after receipt by the
Company of the foregoing, cause its transfer agent to issue new certificates
representing and in exchange for the aforementioned certificates, which new
certificates shall be legended as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY BE SOLD PURSUANT TO THE REGISTRATION
STATEMENT PROVIDED THAT (i) THE REGISTRATION STATEMENT IS
CURRENT AND EFFECTIVE, (ii) THE HOLDER COMPLIES WITH THE
PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND (iii) THE SALE IS IN COMPLIANCE WITH
THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS.
The legend shall be removed by the Company from any certificate at such
time as the holder of the shares represented by the certificate delivers an
opinion of counsel reasonably satisfactory to the Company to the effect that
such legend is not required in order to establish compliance with any
provisions of the Act, or at such time as the holder of such shares satisfies
the requirements of Rule 144(k) under the Act, provided that Rule 144(K) as
then in effect does not differ substantially from Rule 144(k) as in effect as
of the date of this Agreement, and provided further that the Company has
received from the holder a written representation that (i) such holder is not
an affiliate of the Company and has not been an affiliate during the
preceding three (3) months, (ii) such holder has beneficially owned the
shares represented by the certificate for a period of at least three (3)
years or such other period of time then set forth under Rule 144(k),and (iii)
such holder otherwise satisfies the requirements of Rule 144(k) as then in
effect with respect to such shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees as follows:
4.1. USE OF PROCEEDS. The Company will apply the proceeds received
from the sale of the Common Stock for working capital and general corporate
purposes. No proceeds of the Shares and Warrants sold to the Investors or the
proceeds of any exercise of the Warrants in excess of $25,000 will be used to
pay any debt for borrowed funds from any director or officer, or any debts or
obligations owed to any officer, director or stockholder of the Company or
any of their respective affiliates.
<PAGE>
4.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall
deliver to the Investors copies of all reports filed by the Company under the
Exchange Act and the Regulations at the time such reports are filed with the
Commission.
4.3. ANTI-DILUTION RIGHTS. Until the date which is three months
after the date on which the Registration Statement is declared effective in
the event that the Company issues (i) any shares of Common Stock at a price
per share less than $1.25,(ii) any options to purchase or rights to subscribe
for Common Stock exercisable at a price (including the purchase price of such
option or rights) per share of Common Stock of less than $1.25, or (iii)
securities convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, at a price per convertible or exchangeable security (including
the purchase price of the rights to subscribe for such convertible or
exchangeable security) of less than $1.25, the Company will issue to the
holders of the Shares ("Holders") that amount of additional shares of Common
Stock ("Additional Shares") as will cause the effective per share purchase
price of the Common Stock held by the Holders to be equal to the per share or
per security purchase or exercise price of the Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock so issued.
Notwithstanding the foregoing, the Company will not be required to issue
Additional Shares to the Holders as a result of the issuance of options (and
the shares of Common Stock underlying such options) to purchase shares of
Common Stock to officers, directors or employees of the Company if the
exercise price of such options is not less than the market price of the
Common Stock on the date the options are granted.
4.4. REGISTRATION RIGHTS.
(a) On or before May 15. 1997, the Company shall file a
registration statement under the Act ("Registration Statement") with the
Commission registering for resale the Shares, the Additional Shares, if any,
that have been issued to the Holders, and the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants (collectively, the
"Registrable Securities"). The Company will use its best efforts to have such
registration statement declared effective promptly thereafter.
(b) In addition to the registration rights granted in
subsection (a) above, (i) the Holders and the holders of the Warrants
("Warrantholders") shall have the right to include the Registrable Securities
as part of any other registration of securities filed by the Company (other
than in connection with a transaction contemplated by Rule 145(a) promulgated
under the Act or pursuant to Form S-8 or any equivalent form), and (ii) upon
the request, on one occasion, of the holders of more than 50% of any
Additional Shares which may have been issued pursuant to Section 4.3 hereof
and which have not been registered pursuant to Section 4.4(a) hereof
("Additional Registrable Securities"), the Company shall file a registration
statement under the Act with the Commission registering for resale such
Additional Registrable Securities.
(c) The Company shall bear all fees and expenses attendant to
registering the Registrable Securities and any Additional Registrable
Securities, including, without limitation, the fees (not to exceed $5,000)
and expenses of one special counsel for the selling securityholders, but the
Holders shall pay any and all underwriting commissions in connection with the
sale of the Registrable Securities and any Additional Registrable Securities.
The Company agrees to use its best efforts to cause the filing required
herein to become effective promptly and to qualify or register the
Registrable Securities and any Additional Registrable Securities in such
States as are reasonably requested by the Holders and the Warrantholders;
provided, however, that in no event shall the Company be required to register
the Registrable Securities or Additional Registrable Securities in a State in
which such registration would cause (i) the Company to be obligated to
register or license to do business in such
<PAGE>
State, or (ii) the principal stockholders of the Company to be obligated to
escrow their shares of capital stock of the Company. The Company shall cause
any registration statement filed pursuant to the rights granted under this
Section 4.4 to remain effective until the earliest of (i) the date by which
all of the Registrable Securities and Additional Registrable Securities, if
any, have been sold pursuant to the registration statement, or (ii) the date
by which all of the Registrable Securities or Additional Registrable
Securities, if any, are eligible for resale without restriction pursuant to
Rule 144(k) promulgated under the Act.
(d) Notwithstanding Section 4.4(b)(i) hereof, if the offering
with respect to which a registration statement is filed is managed by an
independent underwriter, then (i) if in the reasonable judgment of the
managing underwriter, which shall be evidenced by a writing delivered to each
Holder and each Warrantholder, the sale of the Registrable Securities or the
Additional Registrable Securities in connection with the proposed offering
would have a material adverse effect on the offering, the Holders and
Warrantholders shall not sell their Registrable Securities or Additional
Registrable Securities under such registration statement until 90 days after
the effective date of such registration statement without the consent of the
managing underwriter, and (ii) if securities are to be registered for the
benefit of any other selling security holder ("Selling Holder"), each Holder
and each Warrantholder shall be entitled to sell immediately under such
registration statement a percentage of the total number of Registrable
Securities and Additional Registrable Securities of a particular class of
securities owned by him equal to the highest percentage of that class to be
sold under such registration statement (vis-a-vis the total number of
securities of that class owned) by any such Selling Holder, with the Holder
or Warrantholder being entitled to sell the balance of his Registrable
Securities and/or Additional
(e) The Company shall indemnify the holder(s) of the
Registrable Securities or Additional Registrable Securities to be sold
pursuant to any registration statement hereunder and each person, if any, who
controls such holders within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement other
than arising from information set forth therein furnished by or on behalf of
such holders or their successors or assigns in writing for specific inclusion
in such registration statement. The holder(s) of the Registrable Securities
or Additional Registrable Securities to be sold pursuant to such registration
statement, and their successors and assigns, shall severally, and not
jointly, indemnify the Company against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which they may become subject under the Act, the
Exchange Act or otherwise, arising from information furnished by or on behalf
of such holders, or their successors or assigns, in writing, for specific
inclusion in such registration statement.
(f) Nothing contained in this Agreement shall be construed as
requiring the Warrantholders to exercise their Warrants prior to or after the
initial filing of any registration statement or the effectiveness thereof.
(g) Each of the Holders and Warrantholders participating in
any of the foregoing offerings shall furnish to the Company a complete,
accurate and executed questionnaire provided by the Company requesting
information customarily sought of selling securityholders.
5. OPINION OF COMPANY COUNSEL. The Investors concurrently with the
execution of this Agreement shall receive from Locke Purnell Rain Harrell,
special counsel for the Company, an opinion, dated as of the date hereof, in
the form attached hereto as Exhibit B.
<PAGE>
6. INDEMNIFICATION. The Company shall indemnify and hold harmless each
Investor and its successors and assigns. from and against any losses,
damages, expenses or liabilities, including, without limitation, reasonable
attorneys' fees, which may be sustained, suffered or incurred by that
Investor, its successors and assigns, arising from or in connection with the
breach of any the Company's covenants, representations, warranties,
agreements, obligations or undertakings hereunder. The Investors, jointly but
not severally, shall indemnity and hold harmless the Company from and against
any losses, damages, expenses or liabilities. including, without limitation,
reasonable attorneys' fees, which may be sustained, suffered or incurred by
the Company arising from or in connection with the breach of any the
Investors' covenants. representations. warranties, agreements, obligations or
undertakings hereunder. These indemnities shall survive the execution of this
Agreement.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations, and
covenants of the Company and the Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
shall in no way be affected by any investigation of the subject matter
thereof made by or on behalf of the Investors or the Company.
7.2. SUCCESSORS AND ASSIGNS. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
7.3. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York, disregarding any
principles of conflicts of laws.
7.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6. NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing, shall be sent by
facsimile to the party to be notified and shall be deemed effectively given
upon personal delivery to the party to be notified, or four days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified. Any notice to the
Company shall be sent to the Company at its facsimile number and address set
forth on the signature page hereof, and any notice sent to an Investor shall
be sent to the Investor at the facsimile number and address set forth under
its name on Schedule A hereto, or at such other facsimile number or address
as such party may designate by ten (10) days' advance written notice to the
other parties, with a copy for the Company to Kent Jamison, Esq., Locke
Purnell Rain Harrell, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201-6776,
fax no. (214) 740-8800, and with a copy for the Investors to David Alan
Miller, Esq., Graubard Mollen & Miller, 600 Third Avenue, New York, New York
10016-2097, fax no. (212) 818-8881.
7.7. FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders fee or commission in connection with this
transaction except that the Company is obligated to pay GKN Securities Corp.
("GKN") the fees set forth in Section 7.10 hereof. The Company agrees to
indemnify and hold harmless the Investors from any liability for any
commission or compensation in the nature of a finders fee (and the costs and
expenses of defending against such liability or asserted liability)
<PAGE>
for which the Company or any of its officers, employees, or representatives
is responsible.
7.8. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Investor Securities. Any amendment or waiver effected in accordance with this
Section 7.8 shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding (including securities into which
such securities are convertible), each future holder of all such securities.
and the Company.
7.9. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.10. EXPENSES. The Company agrees to (i) pay $20,000 to GKN in
consideration of introducing the Investors to the Company, (ii) pay $15,000
to Graubard Mollen & Miller ("GM&M"), special counsel to the Investors, for
its fees and expenses incurred in connection with this transaction, and (iii)
issue 25,000 Warrants having the same terms as the Warrants issued to the
Investors hereunder to GKN as additional consideration for introducing the
Investors to the Company. The Investors may deduct from the purchase price
payable hereunder the amounts to be paid to GKN and GM&M.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WASTE RECOVERY, INC.
By: /s/ THOMAS L. EARNSHAW
--------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
Address: 309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
INVESTORS:
/s/ BETTE NAGELBERG Delaware Charter Guaranty & Trust Co. FBO
- ---------------------------------- Ronald I. Heller - IRA
Bette Nagelberg
/s/ RONALD I. HELLER By: /s/ RONALD I. HELLER
- ----------------------------------- --------------------------------
Ronald I. Heller Name:
Title:
/s/ RACHEL HELLER /s/ R. ANTHONY CIOFFARI
- ---------------------------------- ------------------------------------
Rachel Heller R. Anthony Cioffari
/s/ RONALD I. HELLER
- -----------------------------------
Ronald I. Heller, as Custodian for Evan Heller
<PAGE>
SCHEDULE A
NUMBER OF
AMOUNT OF SHARES OF NUMBER OF
INVESTOR INVESTMENT COMMON STOCK WARRANTS
- -------- ---------- ------------ ---------
Bette Nagelberg $550,000 366,666 366,666
662 Juniper Place
Franklin Lakes, NJ 07417
Fax: (201) 459-9458
Ronald I. Heller $18,333 -- 366,667
74 Farview Road
Tenafly, NJ 07670
Fax: (201) 459-9458
Rachel Heller $72,500 50,000 --
74 Farview Road
Tenafly, NJ 07670
Fax: (201) 459-9458
Ronald I. Heller as $72,500 50,000 --
Custodian for Evan Heller
74 Farview Road
Tenafly, NJ 07670
Fax: (201) 459-9458
Delaware Charter Guaranty $386,667 266,667 --
& Trust Co. FBO
Ronald I. Heller - IRA
74 Farview Road
Tenafly, NJ 07670
Fax: (201) 459-9458
R. Anthony Cioffari $25,000 16,667 16,667
75 Evergreen Street
Midland Park, NJ 07432
Fax: (212) 509-5181
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 26, 2000.
For the Purchase of
366,666 shares of
Common Stock
No. 1
WARRANT FOR PURCHASE OF
SHARES OF COMMON STOCK
WASTE RECOVERY, INC.
(A Texas corporation)
Waste Recovery, Inc., a Texas corporation (the "Company"), hereby certifies
that for value received, Bette Nagelberg, or her registered assigns (the
"Registered Holder"), residing at 622 Juniper Place, Franklin Lakes, New Jersey
07417, is entitled, subject to the terms set forth below, to purchase from the
Company, pursuant to this Warrant ("Warrant"), at any time or from time to time
until December 26, 2000 ("Expiration Date"), 366,666 shares of Common Stock, no
par value, of the Company ("Common Stock"), at a purchase price equal to $2.0625
per share of Common Stock. The number of shares of Common Stock purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
l. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by such Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection 1
(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1 (c) below shall be deemed to have become the holder or holders
of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this
<PAGE>
Warrant, the Company at its expense will use its best efforts to cause to be
issued in the name of the Registered Holder and delivered to you:
(i) a certificate or certificates for the number of full shares
of Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, a Warrant Share representing the remainder of the
fractional share to the next whole Warrant Share, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon such exercise
as provided in section 1(a) above.
2. ADJUSTMENTS.
(a) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the outstanding
shares of the Company's Common Stock at any time while this Warrant remains
outstanding and unexpired shall be subdivided or split into a greater number of
shams, or a dividend in Common Stock shall be paid in respect of Common Stock,
or a similar change in the Company's capitalization occurs which affects the
outstanding Common Stock, as a class, then the Purchase Price in effect
immediately prior to such subdivision or at the record dale of such dividend
shall, simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend (as the case may be), be
proportionately decreased. If the outstanding shares of Common Stock shall be
combined or reverse-split into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination or reverse split shall,
simultaneously with the effectiveness of such combination or reverse split, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares 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 Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the
case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), or a transfer of all or substantially all of the assets of the
Company, or the payment of a liquidating distribution then, as part of any such
reorganization, reclassification, consolidation, merger, sale or liquidating
distribution, the Company shall arrange for the other party to the transaction
to agree to, and lawful provision shall be made, so that the Registered Holder
of this Warrant shall have the right thereafter to receive upon the exercise
hereof (to the extent, if any, still exercisable), the kind and amount of shares
of stock or other securities or property which such Registered Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
<PAGE>
3. LIMITATION ON SALES. Each holder of this arrant acknowledges that this
Warrant and the Warrant Shares have not been registered under the Securities Act
of 1933, as now in force or hereafter amended, or any successor legislation (the
"Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares and registration or qualification of this
Warrant or such Warrant Shares under any applicable, Blue Sky or state
securities law then in effect or (b) an opinion of counsel, satisfactory to the
Company, that such registration and qualification are not required. Without
limiting the generality of the foregoing, unless the offering and sale of the
Warrant Shares to be issued upon the particular exercise of the Warrant shall
have been effectively registered under the Act, the Company shall be under no
obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and substance
satisfactory to the Company, including a warranty at the time of such exercise
that it is acquiring such shares for its own account, and will not transfer the
Warrant Shares unless pursuant to an effective and current registration
statement under the Act or an exemption from the registration requirements of
the Act and any other applicable restrictions, in which event the Registered
Holder shall be bound by the provisions of a legend or legends to such effect
which shall be endorsed upon the certificate(s) representing the Warrant Shares
issued pursuant to such exercise. The Warrant Shares issued upon exercise
thereof shall be imprinted with legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT THERETO UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
After the Registration Statement, referenced in Section 4 hereinbelow, is
declared effective by the Securities and Exchange Commission ("Commission"), or
after any registration statement in which Warrant Shares are included pursuant
to the registration rights set forth in Section 4.4(b) of the Common Stock and
Warrant Purchase Agreement between the Company and the initial Registered Holder
("Common Stock and Warrant Purchase Agreement") is declared effective by the
Commission, the Registered Holder may deliver to the Company the certificates
representing the Warrant Shares so registered, and the Company will, within
three days after receipt by the Company of the foregoing, cause its transfer
agent to issue new certificates representing and in exchange for the
aforementioned certificates, which new certificates shall be legended as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY BE
SOLD PURSUANT TO THE REGISTRATION STATEMENT PROVIDED THAT (i) THE
REGISTRATION STATEMENT IS CURRENT AND EFFECTIVE, (ii) THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND (iii) SALE IS IN COMPLIANCE
WITH THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS."
4. REGISTRATION RIGHTS OF WARRANT HOLDER. The Company has agreed to
register the Warrants
<PAGE>
and Warrant Shares issuable hereunder on a Registration Statement under the Act
("Registration Statement") with the Securities and Exchange Commission in
accordance with Section 4 of the Common Stock and Warrant Purchase Agreement.
These registration rights shall inure to the benefit of any transferee of the
Warrants and the Warrant Shares.
5. NOTICES OF RECORD DATE. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution (other than a dividend or distribution payable
solely in capital stock of the Company or out of funds legally available
therefor), or to receive any right to subscribe for or purchase any shares of
any class or any other securities, or to receive any other right, or
(b) 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 (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the, Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
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 (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, 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 other stock or securities at the
time deliverable 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, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten ( 10) days prior to the
record date or effective date for the event specified in such notice, provided
that the failure to mail such notice shall not affect the legality or validity
of any such action.
6. RESERVATION AND MAINTENANCE OF LISTING OF STOCK. The Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such shares of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant and shall use its best efforts to list and maintain the
quotation of the Warrant Shares on the same system or exchange as the Company's
outstanding Common Stock.
7. REPLACEMENT OF WARRANTS. Upon 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) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
8. TRANSFERS, ETC.
(a) The Company will maintain or cause to be maintained a register
containing the names and addresses of the Registered Holders of this Warrant.
Any Registered Holder may change its,
<PAGE>
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
11. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
13. MAILING OF NOTICES, ETC. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if sent by facsimile and either delivered to the addressees in person, by
Federal Express or similar receipt delivery or by postage prepaid, certified
mail, return receipt requested, as follows:
Registered Holder: To his address on page 1 of this Warrant.
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York l0016-2097
Attn: David Alan Miller, Esq.
Fax: (212) 818-8881
The Company: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Kent Jamison, Esq.
Fax: (214) 740-8800
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
<PAGE>
WASTE RECOVERY, INC.
By: /s/THOMAS L. EARNSHAW
---------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
l. The undersigned hereby elects to purchase shares of the Common Stock
of Waste Recovery, Inc., pursuant to terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full, together with all
applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
the Common Stock in the name of the undersigned or in such other name as is
specified below:
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities Act
of 1933, as amended, or an exemption from registration thereunder.
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
----------------------------------------
----------------------------------------
(Taxpayer Identification Number)
- -----------------------------------
[PRINT NAME OF REGISTERED HOLDER]
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 26, 2000.
For the Purchase of
366,667 shares of
Common Stock
No. 2
-------
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
WASTE RECOVERY, INC.
(A Texas corporation)
Waste Recovery, Inc., a Texas corporation (the "Company"), hereby certifies
that for value received, Ronald I. Heller, or his registered assigns (the
"Registered Holder"), residing at 74 Farview Road, Tenafly, New Jersey 07670, is
entitled, subject to the terms set forth below, to purchase from the Company,
pursuant to this Warrant ("Warrant"), at any time or from time to time until
December 26, 2000 ("Expiration Date"), 366,667 shares of Common Stock, no par
value, of the Company ("Common Stock"), at a purchase price equal to $2.0625 per
share of Common Stock. The number of shares of Common Stock purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by such Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection 1
(a) above. At Such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1 (c) below shall be deemed to have become the holder or holders
of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this
<PAGE>
Warrant, the Company at its expense will use its best efforts to cause to be
issued in the name of the Registered Holder and delivered to you:
(i) a certificate or certificates for the number of full shares
of Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, a Warrant Share representing the remainder of the
fractional share to the next whole Warrant Share, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon such exercise
as provided in subsection 1 (a) above.
2. ADJUSTMENTS.
(a) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the outstanding
shares of the Company's Common Stock at any time while this Warrant remains
outstanding and unexpired shall be subdivided or split into a greater number of
shares, or a dividend in Common Stock shall be paid in respect of Common Stock,
or a similar change in the Company's capitalization occurs which affects the
outstanding Common Stock, as a class, then the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall, simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend (as the case may be), be
proportionately decreased. If the outstanding shares of Common Stock shall be
combined or reverse-split into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination or reverse split shall,
simultaneously with the effectiveness of such combination or reverse split, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares 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 Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the
case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), or a transfer of all or substantially all of the assets of the
Company, or the payment of a liquidating distribution then, as part of any such
reorganization, reclassification, consolidation, merger, sale or liquidating
distribution, the Company shall arrange for the other party to the transaction
to agree to, and lawful provision shall be made, so that the Registered Holder
of this Warrant shall have the right thereafter to receive upon the exercise
hereof (to the extent, if any, still exercisable), the kind and amount of shares
of stock or other securities or properly which such Registered Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
<PAGE>
3. LIMITATION ON SALES. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation (the "Act"), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued
upon its exercise in the absence of (a) an effective registration statement
under the Act as to this Warrant or such Warrant Shares and registration or
qualification of this Warrant or such Warrant Shares under any applicable Blue
Sky or state securities law then in effect or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required. Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Shares to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, and will not
transfer the Warrant Shares unless pursuant to an effective and current
registration statement under the Act or an exemption from the registration
requirements of the Act and any other applicable restrictions, in which event
the Registered Holder shall be bound by the provisions of a legend or legends to
such effect which shall be endorsed upon the certificate(s) representing the
Warrant Shares issued pursuant to such exercise. The Warrant Shares issued upon
exercise thereof shall be imprinted with legends in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT THERETO UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
After the Registration Statement, referenced in Section 4 hereinbelow, is
declared, effective by the Securities and Exchange Commission ("Commission"), or
after any registration statement in which Warrant Shares are included pursuant
to the registration rights set forth in Section 4.4(b) of the Common Stock and
Warrant Purchase Agreement between the Company, and the initial Registered
Holder ("Common Stock and Warrant Purchase Agreement") is declared effective by
the Commission, the Registered Holder may deliver to the Company the
certificates representing the Warrant Shares so registered, and the Company
will, within three days after receipt by the Company of the foregoing, cause its
transfer agent to issue new certificates representing and in exchange for the
aforementioned certificates, which new certificates shall be legended as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY BE
SOLD PURSUANT TO THE REGISTRATION STATEMENT PROVIDED THAT (i)
REGISTRATION STATEMENT IS CURRENT AND EFFECTIVE, (ii) THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND (iii) THE SALE IS IN
COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS."
4. REGISTRATION RIGHTS OF WARRANT HOLDER. The Company has agreed to
register the Warrants
<PAGE>
and Warrant Shares issuable hereunder on a Registration Statement under the
Act ("Registration Statement") with the Securities and Exchange Commission in
accordance with Section 4 of the Common Stock and Warrant Purchase Agreement
These registration rights shall inure to the benefit of any transferee of the
Warrants and the Warrant Shares.
5. NOTICES OF RECORD DATE. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution (other than a dividend or distribution payable
solely in capital stock of the Company or out of funds legally available
therefor), or to receive any right to subscribe for or purchase any shares of
any class or any other securities, or to receive any other right, or
(b) 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 (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
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 (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, 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 other stock or securities at the
time deliverable 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, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice, provided
that the failure to mail such notice shall not affect the legality or validity
of any such action.
6. RESERVATION AND MAINTENANCE OF LISTING OF STOCK. The Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such shares of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant and shall use its best efforts to list and maintain the
quotation of the Warrant Shares on the same system or exchange as the Company's
outstanding Common Stock.
7. PLACEMENT OF WARRANTS. Upon 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) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
8. TRANSFERS ETC.
(a) The Company will maintain or cause to be maintained a register
containing the names and addresses of the Registered Holders of this Warrant.
Any Registered Holder may change its,
<PAGE>
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
11. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
13. MAILING OF NOTICES. ETC. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if sent by facsimile and either delivered to the addressees in person, by
Federal Express or similar receipt delivery or by postage prepaid, certified
mail, return receipt requested, as follows:
Registered Holder: To her address on page 1 of this Warrant.
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attn: David Alan Miller, Esq.
Fax: (212) 818-8881
The Company: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Kent Jamison, Esq.
Fax: (214) 740-8800
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
<PAGE>
WASTE RECOVERY, INC.
By: /S/ THOMAS L. EARNSHAW
---------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
1. The undersigned hereby elects to purchase shares of the Common
Stock of Waste Recovery, Inc., pursuant to terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full,
together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of the Common Stock in the name of the undersigned or in such other name as
is specified below:
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities
Act of 1933, as amended, or an exemption from registration thereunder.
__________________________________
(Name)
__________________________________
(Address)
__________________________________
__________________________________
__________________________________
(Taxpayer Identification Number)
__________________________________
[PRINT NAME OF REGISTERED HOLDER]
By:_______________________________
Title:____________________________
Date:_____________________________
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 26, 2000.
For the Purchase of
16,667 shares of
Common Stock
No. 3
-----
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
WASTE RECOVERY, INC.
(A Texas corporation)
Waste Recovery, Inc., a Texas corporation (the "Company"), hereby
certifies that for value received, R Anthony Cioffari, or his registered
assigns (the "Registered Holder"), residing at 75 Evergreen Street, Midland
Park, New Jersey 07432, is entitled, subject to the terms set forth below, to
purchase from the Company, pursuant to this Warrant ("Warrant"), at any time
or from time to time until December 26, 2000 ("Expiration Date"), 16,667
shares of Common Stock, no par value, of the Company ("Common Stock"), at a
purchase price equal to $2.0625 per share of Common Stock. The number of
shares of Common Stock purchasable upon exercise of this Warrant, and the
purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant
Shares" and the "Purchase Price," respectively.
l. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by the surrender of this Warrant (with the Notice of
Exercise Form attached hereto as Exhibit I duly executed by such Registered
Holder) at the principal office of the Company, or at such other office or
agency as the, Company may designate, accompanied by payment in full, in
lawful money of the United States, of an amount equal to the then applicable
Purchase Price multiplied by the number of Warrant Shares then being
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1 (a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as
provided in subsection 1 (c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase
right represented by this
<PAGE>
Warrant, the Company at its expense will use its best efforts to cause to be
issued in the name of the Registered Holder and delivered to you:
(i) a certificate or certificates for the number of full
shares of Warrant Shares to which such Registered Holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, a Warrant Share representing
the remainder of the fractional share to the next whole Warrant Share, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant
minus the number of such shares purchased by the Registered Holder upon such
exercise as provided in subsection 1(a) above.
2. ADJUSTMENTS.
(a) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
outstanding shares of the Company's Common Stock at any time while this
Warrant remains outstanding and unexpired shall be subdivided or split into a
greater number of shares, or a dividend in Common Stock shall be paid in
respect of Common Stock, or a similar change in the Company's capitalization
occurs which affects the outstanding Common Stock, as a class, then the
Purchase Price in effect immediately prior to such subdivision or at the
record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or split or immediately after the record date of such
dividend (as the case may be), be proportionately decreased. If the
outstanding shares of Common Stock shall be combined or reverse-split into a
smaller number of shares, the Purchase Price in effect immediately prior to
such combination or reverse split shall, simultaneously with the
effectiveness of such combination or reverse split, be proportionately
increased. When any adjustment is required to be made in the Purchase Price,
the number of shares 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 Purchase Price in
effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In
the case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation
(other than a merger or reorganization with respect to which the Company is
the continuing corporation and which does not result in any reclassification
of the Common Stock), or a transfer of all or substantially all of the assets
of the Company, or the payment of a liquidating distribution then, as part of
any such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, the Company shall arrange for the other party to
the transaction to agree to, and lawful provision shall be made, so that the
Registered Holder of this Warrant shall have the right thereafter to receive
upon the exercise hereof (to the extent, if any, still exercisable), the kind
and amount of shares of stock or other securities or property which such
Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, as the case may be, such Registered Holder had held
the number of shares of Common Stock which were then purchasable upon the
exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made
in the application of the provisions set forth herein with respect to the
rights and interests thereafter of the Registered Holder of this Warrant such
that the provisions set forth in this Section 2 (including provisions with
respect to the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this
Warrant.
<PAGE>
3. LIMITATION ON SALES. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any
successor legislation (the "Act"), and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or
any Warrant Shares issued upon its exercise in the absence of (a) an
effective registration statement under the Act as to this Warrant or such
Warrant Shares and registration or qualification of this Warrant or such
Warrant Shares under any applicable Blue Sky or state securities law then in
effect or (b) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required. Without limiting the
generality of the foregoing, unless the offering and sale of the Warrant
Shares to be issued upon the particular exercise of the Warrant shall have
been effectively registered under the Act, the Company shall be under no
obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of
such exercise that it is acquiring such shares for its own account, and will
not transfer the Warrant Shares unless pursuant to an effective and current
registration statement under the Act or an exemption from the registration
requirements of the Act and any other applicable restrictions, in which event
the Registered Holder shall be bound by the provisions of a legend or legends
to such effect which shall be endorsed upon the certificate(s) representing
the Warrant Shares issued pursuant to such exercise. The Warrant Shares
issued upon exercise thereof shall be imprinted with legends in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT THERETO UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
After the Registration Statement, referenced in Section 4 hereinbelow,
is declared effective by the Securities and Exchange Commission
("Commission"), or after any registration statement in which Warrant Shares
are included pursuant to the registration rights set forth in Section 4.4(b)
of the Common Stock and Warrant Purchase Agreement between the Company and
the initial Registered Holder ("Common Stock and Warrant Purchase Agreement")
is declared effective by the Commission, the Registered Holder may deliver to
the Company the certificates representing the Warrant Shares so registered,
and the Company will, within three days after receipt by the Company of the
foregoing, cause its transfer agent to issue new certificates representing
and in exchange for the aforementioned certificates, which new certificates
shall be legended as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY BE
SOLD PURSUANT TO THE REGISTRATION STATEMENT PROVIDED THAT (i) THE
REGISTRATION STATEMENT IS CURRENT AND EFFECTIVE, (ii) THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND (iii) THE SALE IS IN
COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS."
4. REGISTRATION RIGHTS OF WARRANT HOLDER. The Company has agreed to
register the Warrants
<PAGE>
and Warrant Shares issuable hereunder on a Registration Statement under the
Act ("Registration Statement") with the Securities and Exchange Commission in
accordance with Section 4 of the Common Stock and Warrant Purchase Agreement.
These registration rights shall inure to the benefit of any transferee of the
Warrants and the Warrant Shares.
5. NOTICES OF RECORD DATE. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise
of this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution (other than a dividend or distribution payable
solely in capital stock of the Company or out of funds legally available
therefor), or to receive any right to subscribe for or purchase any shares of
any class or any other securities, or to receive any other right, or
(b) 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 (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the registered Holder of this Warrant a notice specifying, as the case may
be, (i) 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 (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
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
other stock or securities at the time deliverable 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 properly deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event
specified in such notice, provided that the failure to mail such notice shall
not affect the legality or validity of any such action.
6. RESERVATION AND MAINTENANCE OF LISTING OF STOCK. The Company will
at all times reserve and keep available, solely for issuance and delivery
upon the exercise of this Warrant, such shares of Warrant Shares and other
stock, securities and property, as from time to time shall be issuable upon
the exercise of this Warrant and shall use its best efforts to list and
maintain the quotation of the Warrant Shares on the same system or exchange
as the Company's outstanding Common Stock.
7. REPLACEMENT OF WARRANTS. Upon 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) upon delivery of
an indemnity agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
8. TRANSFERS, ETC.
(a) The Company will maintain or cause to be maintained a register
containing the names and addresses of the Registered Holders of this Warrant.
Any Registered Holder may change its,
<PAGE>
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
1l. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
13. MAILING OF NOTICES, ETC. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if sent by facsimile and either delivered to the addressees in person,
by Federal Express or similar receipt delivery or by postage prepaid,
certified mail, return receipt requested, as follows:
Registered Holder: To his address on page 1 of this Warrant.
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attn: David Alan Miller, Esq.
Fax: (212) 818-8881
The Company: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Kent Jamison, Esq.
Fax: (214) 740-8800
or to such other address as any of them, by notice to the others may
designate from time to time. Time shall be counted to, or from, as the case
may be, the delivery in person or by mailing,
<PAGE>
WASTE RECOVERY, INC.
By: /s/ THOMAS L. EARNSHAW
----------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
l. The undersigned hereby elects to purchase shares of the Common Stock
of Waste Recovery, Inc., pursuant to terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full, together with all
applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
the Common Stock in the name of the undersigned or in such other name as is
specified below:
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities Act
of 1933, as amended, or an exemption from registration thereunder.
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
----------------------------------------
----------------------------------------
(Taxpayer Identification Number)
- -----------------------------------
[PRINT NAME OF REGISTERED HOLDER]
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 26, 2000.
For the Purchase of
25,000 shares of
Common Stock
No. 4
------
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
WASTE RECOVERY, INC.
(A Texas corporation)
Waste Recovery, Inc., a Texas corporation (the "Company"), hereby certifies
that for value received, GKN Securities Corp. or its registered assigns (the
"Registered Holder"), residing at 61 Broadway, New York, New York 10006, is
entitled, subject to the terms set forth below, to purchase from the Company,
pursuant to this Warrant ("Warrant"), at any time or from time to time until
December 26, 2000 ("Expiration Date"), 25,000 shares of Common Stock, no par
value, of the Company ("Common Stock"), at a purchase price equal to $2.0625 per
share of Common Stock. The number of shares of Common Stock purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by such Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, m lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection 1
(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1 (c) below shall be deemed to have become the holder or holders
of record of the Warrant Shares represented by such certificates.
<PAGE>
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of the Registered Holder and delivered
to you:
(i) a certificate or certificates for the number of full shares
of Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, a Warrant Share representing the remainder of the
fractional share to the next whole Warrant Share, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon such exercise
as provided in subsection 1 (a) above.
2. ADJUSTMENTS.
(a) SPLIT SUBDIVISION OR COMBINATION OF SHARES. If the outstanding
shares of the Company's Common Stock at any time while this Warrant remains
outstanding and unexpired shall be subdivided or split into a greater number of
shares, or a dividend in Common Stock shall be paid in respect of Common Stock,
or a similar change in the Company's capitalization occurs which affects the
outstanding Common Stock, as a class, then the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall, simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend (as the case may be), be
proportionately decreased. If the outstanding shares of Common Stock shall be
combined or reverse-split into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination or reverse split shall,
simultaneously with the effectiveness of such combination or reverse split, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares 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 Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the
case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), or a transfer of all or substantially all of the assets of the
Company, or the payment of a liquidating distribution then, as part of any such
reorganization, reclassification, consolidation, merger, sale or liquidating
distribution, the Company shall arrange for the other party to the transaction
to agree to, and lawful provision shall be made, so that the Registered Holder
of this Warrant shall have the right thereafter to receive upon the exercise
hereof (to the extent, if any, still exercisable), the kind and amount of shares
of stock or other securities or property which such Registered Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon
<PAGE>
the exercise of this Warrant.
3. LIMITATION ON SALES. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation (the "Act"), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued
upon its exercise in the absence of (a) an elective registration statement under
the Act as to this Warrant or such Warrant Shares and registration or
qualification of this Warrant or such Warrant Shares under any applicable Blue
Sky or state securities law then in effect or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required. Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Shares to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, and will not
transfer the Warrant Shares unless pursuant to an effective and current
registration statement under the Act or an exemption from the registration
requirements of the Act and any other applicable restrictions, in which event
the Registered Holder shall be bound by the provisions of a legend or legends to
such effect which shall be endorsed upon the certificate(s) representing the
Warrant Shares issued pursuant to such exercise. The Warrant Shares issued upon
exercise thereof shall be imprinted with legends in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT THERETO UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
After the Registration Statement, referenced in Section 4 hereinbelow, is
declared effective by the Securities and Exchange Commission ("Commission"), or
after any registration statement in which Warrant Shares are included pursuant
to the registration rights set forth in Section 4.4(b) of the Common Stock and
Warrant Purchase Agreement between the Company and the initial Registered Holder
("Common Stock and Warrant Purchase Agreement") is declared effective by the
Commission, the Registered Holder may deliver to the Company the certificates
representing the Warrant Shares so registered, and the Company will, within
three days after receipt by the Company of the foregoing, cause its transfer
agent to issue new certificates representing and in exchange for the
aforementioned certificates, which new certificates shall be legended as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY BE
SOLD PURSUANT TO THE REGISTRATION STATEMENT PROVIDED THAT (i) THE
REGISTRATION STATEMENT IS CURRENT AND EFFECTIVE, (ii) THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND (iii) THE SALE IS IN
COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS."
<PAGE>
4. REGISTRATION RIGHTS OF WARRANT HOLDER. The Company has agreed to
register the Warrants and Warrant Shares issuable hereunder on a Registration
Statement under the Act ("Registration Statement") with the Securities and
Exchange Commission in accordance with Section 4 of the Common Stock and Warrant
Purchase Agreement. These registration rights shall inure to the benefit of any
transferee of the Warrants and the Warrant Shares.
5. NOTICES OF RECORD DATE. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution (other than a dividend or distribution payable
solely in capital stock of the Company or out of funds legally available
therefor), or to receive any right to subscribe for or purchase any shares of
any class or any other securities, or to receive any other right, or
(b) 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 (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
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 (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, 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 other stock or securities at the
time deliverable 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, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice, provided
that the failure to mail such notice shall not affect the legality or validity
of any such action.
6. RESERVATION AND MAINTENANCE OF LISTING OF STOCK. The Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such shares of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant and shall use its best efforts to list and maintain the
quotation of the Warrant Shares on the same system or exchange as the Company's
outstanding Common Stock.
7. REPLACEMENT OF WARRANTS. Upon 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) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
8. TRANSFERS. ETC.
(a) The Company will maintain or cause to be maintained a register
containing the
<PAGE>
names and addresses of the Registered Holders of this Warrant. Any Registered
Holder may change its, his or her address as shown on the warrant register by
written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
11. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
13. MAILING OF NOTICES, ETC. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if sent by facsimile and either delivered to the addressees in person, by
Federal Express or similar receipt delivery or by postage prepaid, certified
mail, return receipt requested, as follows:
Registered Holder: To its address on page 1 of this Warrant.
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attn: David Alan Miller, Esq.
Fax: (212) 818-8881
The Company: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Fax: (214) 745-8945
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Kent Jamison, Esq.
Fax: (214) 740-8800
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
<PAGE>
WASTE RECOVERY, INC.
By: /s/ THOMAS L. EARNSHAW
---------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
1. The undersigned hereby elects to purchase shares of the Common
Stock of Waste Recovery, Inc., pursuant to terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full,
together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of the Common Stock in the name of the undersigned or in such other name as
is specified below:
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities
Act of 1933, as amended, or an exemption from registration thereunder.
------------------------------------
(Name)
------------------------------------
(Address)
------------------------------------
------------------------------------
------------------------------------
(Taxpayer Identification Number)
- ------------------------------------
[PRINT NAME OF REGISTERED HOLDER]
By:
------------------------------------
Title:
------------------------------------
Date:
------------------------------------
<PAGE>
December 26, 19%
To the Investors set forth on Schedule A
hereto (the "Investors")
Ladies and Gentlemen:
We have acted as counsel to Waste Recovery, Inc., a Texas corporation (the
"Company"), in connection with the issuance and sale by the Company of 750,000
shares of its Common Stock, no par value per share (the "Common Stock"), and
750,000 warrants each exercisable to purchase one share of Common Stock (the
"Warrants").
This opinion is delivered to you pursuant to Section 5 of the Common Stock
and Warrant Purchase Agreement dated as of December 26, 1996 (the "Stock
Purchase Agreement") between the Company and the Investors. Terms used herein
which are defined in the Stock Purchase Agreement shall have the respective
meanings set forth in the Stock Purchase Agreement, unless otherwise defined
herein.
In connection with this option, we have examined the following:
A. Stock Purchase Agreement; and
B. Form of Warrant for the Purchase of Common Stock of the Company (the
"Warrant Agreement").
We have also examined such corporate records, instruments and other
documents as we have deemed necessary to enable us to render the opinions
expressed herein. As to matters of fact material to this opinion, we have relied
upon (i) the representations and warranties of the parties contained in or made
in connection with the Stock Purchase Agreement and (ii) certificates or other
documents furnished by or on behalf of the Company and its officers. In
addition, as to certain matters we have relied upon certificates or other
communications or documents from various state authorities and public officials.
We have assumed, without independent verification, the accuracy of such
representations, warranties, certificates, communications and other documents
and of the factual matters contained therein.
In connection with our examination, we have assumed the genuineness of all
signatures (except signatures of officers of the Company), the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted to
us as certified, conformed, reproduction or facsimile copies.
We also have assumed, for purposes of the opinions expressed herein, that
(i) all parties to the Stock Purchase Agreement (other than the Company) are
validly existing and have the power and authority to enter into such documents
and perform their respective obligations thereunder, (ii) the Stock Purchase
Agreement has been duly authorized, executed and delivered by all parties
thereto other than the Company, and (iii) the Stock Purchase Agreement
constitutes the valid, binding and enforceable
<PAGE>
obligations of all parties thereto other than the Company.
We are members of the State Bar of Texas. We do not express any opinion
herein with respect to the law of any jurisdiction other than the State of
Texas and applicable Federal law. You should be aware that we are not
admitted to the practice of law in the State of New York. With your
permission, we have assumed for purposes of rendering this opinion, without
research or confirmation, that the relevant laws of the State of New York are
identical to those of the State of Texas.
Based on the foregoing and subject to the assumptions, qualifications,
limitations and conditions set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas. Based solely on
certificates from the Company and oral information from its corporate agent
acting on behalf of the Company in such jurisdictions, the Company is duly
qualified and licensed to do business as a foreign corporation in the states
set forth on Schedule B to this opinion, and to our knowledge, such
jurisdictions constitute all of the jurisdictions in which the Company owns
or leases any real property or the character of its operations require such
qualification or licensing, except where the failure to so qualify or be
licensed would not have a material adverse effect on the business, operations
or financial condition of the Company.
2. The Company has all requisite corporate power and authority under
the laws of the state of its incorporation to own and operate its properties
and to carry on its business as now conducted, and, to our knowledge, the
Company has all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from any and all applicable governmental or
regulatory officials and bodies to own or lease its properties and conduct
its business and is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local laws, rules and regulations. The Company has the
corporate power and authority to execute, deliver and perform its obligations
under the Stock Purchase Agreement and to carry out the transactions
contemplated thereby, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained.
3. The execution, delivery and performance of the Stock Purchase
Agreement and each of the Warrant Agreements have been duly authorized by all
necessary corporate action on the part of the Company. The Stock Purchase
Agreement and the Warrant Agreements have been duly executed and delivered by
the Company and constitute the legally valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms.
4. The Securities have been duly authorized and, when issued and paid
for, will be validly issued, fully paid and non-assessable and free from all
liens and charges (other than liens and charges that may be created by or
attributable to the holder thereof); the holders thereof are not and will not
be subject to personal liability by reason of being such holders. The
Securities are not and will not be subject to the preemptive rights of any
holders of any security of the Company or, to our knowledge, similar
contractual rights granted by the Company. When issued, the Warrants will
constitute valid and binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of securities
of the Company called for thereby.
5. The execution, delivery and performance of the Stock Purchase
Agreement and the issuance and sale by the Company to the Investors of the
Common Stock and the Warrants in accordance with the Stock Purchase Agreement
and the consummation of the transactions contemplated under the Stock
Purchase Agreement will not (i) conflict with, result in a breach of,
constitute a default or require any consent under, the Articles of
Incorporation or Bylaws of the Company or any statute, rule or
<PAGE>
regulation binding on the Company, or, to our knowledge, any agreement,
mortgage, deed of trust, note, indenture, contract or commitment or order,
writ, judgment or decree to which the Company is a party or by which any of
its properties or assets are bound, or (ii) to our knowledge, result in the
creation of any lien upon any of the material properties or assets of the
Company under any agreement, mortgage, deed of trust, note, indenture,
contract or commitment.
6. No action by or filing with any domestic governmental authority,
federal, state or local, is required in connection with (i) the execution,
delivery and performance by the Company of the Stock Purchase Agreement and or
(ii) the exercise by the Investors of any rights under the Stock Purchase
Agreement or the Warrant Agreements, except (x) with respect to the registration
under the Securities Act of 1933, as amended, and state securities or "blue sky"
laws pursuant to registration rights granted pursuant to the Stock Purchase
Agreement and (y) any filings required by the nature and extent of the ownership
of the Securities by the Investors.
This opinion is limited by, subject to, and based on the following
assumptions, qualifications, limitations and conditions:
(a) The enforceability of the obligations of the Company under the
Stock Purchase Agreement and the Warrant Agreements is subject to (i) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting creditors' rights generally,
(ii) the effect of general principles of equity (regardless of whether
considered in proceedings in equity or at law) and (iii) certain limitations
regarding rights to indemnification and contribution thereunder.
(b) In connection with opinions expressed herein as being limited
"to our knowledge" or "known to us" or containing similar qualifications,
such opinions are based on the actual knowledge of our attorneys working on
these or other matters for the Company, and we have made no independent
investigations as to the accuracy or completeness of any representations,
warranties, documents or other information, written or oral, made or
furnished by or on behalf of any officer or representative of the Company.
This opinion is limited to the matters expressly stated herein and no
opinion is implied or may be implied beyond the matters expressly stated.
This opinion is delivered on the express condition and assumption that the
Investors and their counsel do not have any knowledge of any reason why any
opinion expressed herein is not accurate in any material respect.
This letter is furnished to you solely for your benefit in connection
with the consummation of the transactions contemplated by the Stock Purchase
Agreement and may not be relied upon, delivered or described or quoted from
in any manner or for any other purpose by any other person or entity without,
in each instance, the prior written consent of this firm.
The opinions we express herein are as of the date hereof, and we do not
assume or undertake any responsibility or obligation to supplement such
opinions to reflect any facts or circumstances that may hereafter come to our
attention or to reflect any changes in the law which may occur after the date
hereof.
Sincerely,
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
<PAGE>
By: /s/ KENT JAMISON
Kent Jamison
<PAGE>
SCHEDULE A
----------
Bette Nagelberg
662 Juniper Place
Franklin Lakes, NJ 07417
Ronald I. Heller
74 Farview Road
Tenafly, NJ 07670
Rachel Heller
74 Farview Road
Tenafly, NJ 07670
Ronald I. Heller
as Custodian for Evan Heller
74 Farview Road
Tenafly, NJ 07670
Delaware Charter Guaranty
& Trust Co. FBO
Ronald I. Heller -- IRA
74 Farview Road
Tenafly, NJ 07670
R. Anthony Cioffari
75 Evergreen Street
Midland Park, NJ 07432
<PAGE>
SCHEDULE B
Texas (State of Incorporation)
Alabama (Qualification)
Florida (Qualification)
Georgia (Qualification)
Idaho (Qualification)
Illinois (Qualification)
Louisiana (Qualification)
North Carolina (Qualification) (New U.S. Tire Recycling Corp., a Texas
corporation)
Oregon (Qualification)
Pennsylvania (State of Incorporation) (Domino Salvage, Tire Division, Inc.)
South Carolina (Qualification)
Texas (Qualification)
Washington (Qualification)
West Virginia (Qualification)
<PAGE>
EXHIBIT 10.39
STATE OF NORTH CAROLINA
COUNTY OF CABARRUS
DEED OF TRUST AND SECURITY AGREEMENT
(COLLATERAL IS OR INCLUDES FIXTURES)
THIS DEED OF TRUST (herein "Deed of Trust") is made as of this ___ day
of October, 1996, by and between New U.S. Tire Recycling Corp., a Texas
corporation, whose mailing address is 309 South Pearl Expressway, Dallas, Texas
75201 (herein "Grantor"), ___________________________ (herein "Trustee"), and
U.S. Tire Recycling Partners, L.P., a Delaware limited liability company, whose
mailing address is _____________________________ (herein "Beneficiary"). The
designations Grantor, Trustee and Beneficiary as used herein shall include said
parties, their heirs, successors and assigns, and shall include singular,
plural, masculine, feminine or neuter as required by context.
WITNESSETH:
WHEREAS, the Grantor is indebted to the Beneficiary in the principal
sum of One Million Eight Hundred Thousand and No/100 Dollars ($1,850,000.00), as
evidenced by a Convertible Subordinated Note (the "Note") of even date herewith,
the terms of which are incorporated herein by reference. The final due date for
payment of said Note, if not sooner paid or extended as provided therein, is
October 31, 2000.
NOW, THEREFORE, as security for said indebtedness, advancements and
other sums expended by Beneficiary pursuant to this Deed of trust and costs of
collection (including attorneys' fees) and other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Grantor has
bargained, sold, given, granted and conveyed and does by these presents bargain,
sell, give, grant and convey to said Trustee, its successors and assigns, the
parcel(s) of land situated in the County of Cabarrus, State of North Carolina,
as more particularly described on SCHEDULE A attached hereto and by this
reference incorporated herein (the "Premises"), together with (a) all equipment
and improvements of every nature and description, real and personal, now or
hereafter built, constructed, put, placed and/or affixed to the Premises (the
"Improvements") and (b) all rents, profits, revenues, royalties, accounts,
intangible rights and other benefits arising from, related to or otherwise
connected to or flowing from the Premises and the Improvements (the "Rents and
Profits"). The Premises, the Improvements and the Rents and Profits are
collectively referred to herein as the "Mortgaged Property."
TO HAVE AND TO HOLD said Mortgaged Property with all privileges and
appurtenances thereunto belonging, to said Trustee, its successors and assigns
forever, upon the trusts, terms and conditions, and for the uses hereinafter set
forth.
If the Grantor shall pay the Note secured hereby in accordance with
its terms, together with interest thereon, and any renewals or extensions
thereof in whole or in part, or substitutions or replacements thereof, all other
sums secured hereby and shall comply with all of the covenants, terms and
conditions of this Deed of Trust and other agreements between Grantor and
Beneficiary relating to or
1
<PAGE>
entered into in connection with the debt evidenced by the Note, then this
conveyance shall be null and void and may be canceled of record at the
request and the expense of the Grantor. If, however, there shall be any
default: (a) in the payment of any sums due under the Note, this Deed of
Trust or any other instrument securing the Note and such default is not cured
within ten (10) days from the due date; or (b) if there shall be a default in
any of the other covenants, terms or conditions of the Note secured hereby,
or any failure or neglect to comply with the covenants, terms or conditions
contained in this Deed of Trust, or any other instrument securing the Note or
other agreement entered into between Grantor and Beneficiary in connection
with the debt evidenced by the Note, and such default is not cured within
fifteen (15) days after written notice, then and in any of such events,
without further notice and at the option of Beneficiary, all sums secured by
this Deed of Trust shall become immediately due and payable and it shall be
lawful for and the duty of the Trustee, upon request of the Beneficiary, to
sell the Mortgaged Property herein conveyed at one or more public auctions
for cash, after having first given such notice of hearing as to commencement
of foreclosure proceedings and obtained such findings or leave of court as
may then be required by law and giving such notice and advertising the time
and place of such sale or sales in such manner as may then be provided by
law, and upon such and any resales and upon compliance with the law then
relating to foreclosure proceedings under power of sale to convey title to
the purchaser(s) in as full and ample manner as the Trustee is empowered.
The Trustee shall be authorized to retain attorneys to represent it in such
proceedings.
The proceeds of the sale, after the Trustee retains his commission,
together with reasonable attorneys' fees incurred by the Trustee in such
proceeding, shall be applied to the costs of sale, including, but not limited
to, costs of collection, taxes, assessments, costs of recording, service fees
and incidental expenditures, the amount due on the Note hereby secured and
advancements and other sums expended by the Beneficiary according to the
provisions hereof and otherwise as required by the then existing law relating to
foreclosures. The Trustee's commission shall be five percent (5%) of the gross
proceeds of the sale or the minimum sum of $1,000.00, whichever is greater, for
a completed foreclosure. In the event foreclosure is commenced, but not
completed, the Grantor shall pay all expenses incurred by Trustee, including
reasonable attorneys' fees, and a partial commission computed on five percent
(5%) of the outstanding indebtedness or the above stated minimum sum, whichever
is greater, in accordance with the following schedule, to-wit: one-fourth (1/4)
thereof before the Trustee issues a notice of hearing on the right to foreclose;
one-half (1/2) thereof after issuance of said notice; three-fourths (3/4)
thereof after such hearing; and the greater of the full commission or minimum
sum after the initial sale.
And the said Grantor does hereby covenant and agree with the Trustee
as follows:
1. INSURANCE. Grantor shall keep all Improvements, now or hereafter
in existence, constantly insured for the benefit of the Beneficiary against loss
by fire, windstorm and such other casualties and contingencies, in such manner
and in such companies and for such amounts, not less than that amount necessary
to pay the sum secured by this Deed of Trust, and as may be satisfactory to the
Beneficiary. Grantor shall purchase such insurance, pay all premiums therefor,
and shall deliver to Beneficiary such policies or conformed copies thereof,
along with evidence of premium payment, as long as the Note secured hereby
remains unpaid. If Grantor fails to purchase such insurance, pay premiums
therefor or deliver said policies along with evidence of payment of premiums
thereon, then Beneficiary, at its option, may purchase such insurance. Such
amounts paid by Beneficiary shall be added to the principal of the Note secured
by this Deed of Trust, and shall be due and payable upon demand of Beneficiary.
At the option of Beneficiary, all proceeds from any insurance shall be applied
to the debt secured hereby, and if payable in installments, applied to the
inverse order of maturity of such installments, or to the repair or
reconstruction of any Improvements located upon the Premises.
2. TAXES, ASSESSMENTS, CHARGES. Grantor shall pay all taxes,
assessments
2
<PAGE>
and charges as may be lawfully levied against the Mortgaged Property within
thirty (30) days after the same shall become due. In the event that Grantor
fails to so pay all taxes, assessments and charges as herein required, then
Beneficiary, at its option, may pay the same and the amounts so paid shall be
added to the principal of the Note secured by this Deed of Trust, and shall
be due and payable upon demand of Beneficiary.
3. ASSIGNMENTS OF RENTS AND PROFITS, MANAGEMENT OF PROPERTY, AND
APPOINTMENT OF RECEIVER. As further security for the payment of the Note and
the other obligations secured by this Deed of Trust, Grantor assigns to
Beneficiary all Rents and Profits from the Mortgaged Property, and authorizes
Beneficiary, upon the occurrence of default hereunder, either by entering upon
and taking possession of the Mortgaged Property or otherwise, to rent same, at
any reasonable rate of rent determined by Beneficiary and/or to otherwise manage
and operate the Mortgaged Property in such manner as it deems necessary and
appropriate, and after deducting from any Rents and Profits realized from the
management and operation of the Mortgaged Property the costs and expenses
thereof (including payment of all expenses related to the Mortgaged Property as
may be required or permitted under this Deed of Trust or which may be necessary
to protect the security of this Deed of Trust, as Beneficiary in its discretion
deems appropriate), to apply the remainder to the indebtedness evidenced by the
Note secured hereby.
Also, Beneficiary shall have the absolute and unconditional right
to apply for and to obtain the appointment of a receiver or similar official for
all or a portion of the Mortgaged Property, to, among other things, manage and
operate the Mortgaged Property, or any part thereof, and to apply the Rents and
Profits as provided above. In the event of such applications, Grantor consents
to the appointment of such receiver or similar official and agrees that such
receiver or similar official may be appointed without notice to Grantor, without
regard to the adequacy of any security for the debt and without regard to the
solvency of Grantor or any other person, firm or corporation who or which may be
liable for the payment of the Note or any other obligations of Grantor
hereunder. All expenses related to the appointment of a receiver hereunder
shall be the responsibility of Grantor, and shall bear interest at the
applicable rate under the Note and shall be deemed part of the debt secured by
this Deed of Trust.
4. PARTIAL RELEASE. Grantor shall not be entitled to the partial
release of any of the above described property unless a specific provision
providing therefor is included in this Deed of Trust. In the event a partial
release provision is included in this Deed of Trust, Grantor must strictly
comply with the terms thereof. Notwithstanding anything herein contained,
Grantor shall not be entitled to any release of property unless Grantor is not
in default and is in full compliance with all of the terms and provisions of the
Note, this Deed of Trust and any other instrument that may be securing said Note
or entered into in connection with said Note.
5. WASTE. The Grantor covenants that it will keep the Mortgaged
Property herein conveyed in good order, repair and condition, reasonable wear
and tear excepted, and will comply with all governmental requirements respecting
the Mortgaged Property or their use, and that it will not commit or permit any
waste. Beneficiary shall have the option, in its discretion, to expend moneys
from time to time to prevent waste, to otherwise maintain the Mortgaged Property
in good order, repair and condition and to generally protect the security of
this Deed of Trust, and the moneys so expended and the costs associated
therewith shall be added to the principal of the Note secured by this Deed of
Trust, and shall be due and payable upon demand of Beneficiary.
6. CONDEMNATION. In the event that any or all of the Mortgaged
Property shall be condemned and taken under the power of eminent domain, Grantor
shall give immediate written notice to Beneficiary. Beneficiary shall have the
right to receive and collect all damages awarded by reason of such taking, and
shall have the right to receive and collect all damages awarded by reason of
3
<PAGE>
such taking, and shall have the discretion to apply the amount so received, or
any part thereof, to the indebtedness due hereunder and if payable in
installments, applied in the inverse order of maturity of such installments, or
to any alteration, repair or restoration of the Mortgaged Property by Grantor.
7. WARRANTIES. Unless otherwise stated on SCHEDULE B, Grantor
covenants with Trustee and Beneficiary that it is seized of the Mortgaged
Property in fee simple, has the right to convey the same in fee simple, that
title is marketable and free and clear of all encumbrances, and that it will
warrant and defend the title against the lawful claims of all persons
whomsoever, except for the exceptions hereinafter stated. Title to the property
hereinabove described is subject to the exceptions set forth on SCHEDULE B.
8. SUBSTITUTION OF TRUSTEE. Grantor and Trustee covenant and agree
to and with Beneficiary that in case the said Trustee, or any successor trustee,
shall die, become incapable of acting, renounce its trust, or for any reason the
holder of the Note desires to replace said Trustee, then the holder may appoint,
in writing, a trustee to take the place of the Trustee; and upon the probate and
registration of the same, the trustee thus appointed shall succeed to all
rights, powers and duties of the Trustee.
9. SALE OF MORTGAGED PROPERTY. Grantor agrees that if the Mortgaged
Property or any part thereof or interest therein is sold, assigned, transferred,
conveyed, leased, mortgaged or otherwise alienated by Grantor, whether
voluntarily or involuntarily or by operation of law, without the prior written
consent of Beneficiary, Beneficiary, at its own option, may declare the Note
secured hereby and all other obligations hereunder to be forthwith due and
payable. Any change in the legal or equitable title of the Mortgaged Property
or in the beneficial ownership of the Mortgaged Property shall be deemed to be
the transfer of an interest in the Mortgaged Property.
10. ADVANCEMENTS. If Grantor shall fail to perform any of the
covenants or obligations contained herein or in any other instrument given as
additional security for the Note secured hereby or other agreements entered into
between Beneficiary and Grantor in connection with the Note, or if the Grantor
shall fail to perform any of its obligations or covenants secured by a deed of
trust lien or other lien senior to the lien of this Deed of Trust (including,
without limitation, payment of the indebtedness secured thereby), the
Beneficiary may, but without obligation, make advances to perform such covenants
or obligations, and all such sums so advanced shall be added to the principal of
the Note secured hereby and shall be due on demand of the Beneficiary. No
advancement or anything contained in this paragraph or elsewhere shall
constitute a waiver by Beneficiary or prevent such failure to perform from
constituting an event of default.
11. INDEMNITY. If any suit or proceeding is brought against the
Trustee or Beneficiary or if any suit or proceeding is brought which may affect
the value or title of the Mortgaged Property, Grantor shall defend, indemnify
and hold harmless and on demand reimburse Trustee or Beneficiary from any loss,
cost, damage or expense and any sums expended by Trustee or Beneficiary shall be
added to the principal of the Note secured hereby and shall be due and payable
on demand.
12. WAIVERS. Grantor waives all rights to require marshaling of
assets by the Trustee or Beneficiary. No delay or omission of the Trustee or
Beneficiary in the exercise of any right, power or remedy arising under the Note
or this Deed of Trust shall be deemed a waiver of any default or acquiescence
therein or shall impair or waive the exercise of such right, power or remedy by
Trustee or Beneficiary at any other time.
13. CIVIL ACTION. In the event that the Trustee is named as a party
to any civil action as Trustee in this Deed of Trust, the Trustee shall be
entitled to employ attorneys at law, including
4
<PAGE>
Poyner & Spruill, L.L.P., to represent it in said action and the reasonable
attorneys' fees of the Trustee in such action shall be paid by the
Beneficiary and added to principal of the Note secured by this Deed of Trust
and payable upon demand.
14. OTHER LIENS. Default under the terms of any instrument secured
by a lien on all or any part of the Mortgaged Property other than the lien
created by this Deed of Trust, whether or not such third party lien has been
consented to by Beneficiary, shall constitute default hereunder; provided,
however, this provision shall not be deemed consent by Beneficiary to the
placement of other liens on all or any part of the Mortgaged Property. Grantor
shall notify Beneficiary in writing of any notice it receives of a default under
any such instrument, such notice to be given within three (3) days of receipt of
notice of a default.
15. HAZARDOUS MATERIALS
(a) Grantor represents and warrants that, to the best of
Grantor's knowledge, after due inquiry and investigation, (i) there are no
Hazardous Materials (hereinafter defined) on the Premises, except those in
compliance with all applicable federal, state and local laws, ordinances, rules
and regulations, and (ii) no owner or occupant nor any prior owner or occupant
of the Premises has received any notice or advice from any governmental agency
or any source whatsoever with respect to Hazardous Materials on, from or
affecting the Premises. Grantor covenants that the Premises shall be kept free
of Hazardous Materials, and neither Grantor nor any occupant of the Premises
shall use, transport, store, dispose of or in any manner deal with Hazardous
Materials on the Premises, except to the extent that such use, transport,
storage or disposal shall be necessary and proper for the Grantor to use the
Premises and carry out the activities which Grantor has represented to
Beneficiary are to be carried out on the Premises in agreements executed
concurrently with this Deed of Trust, provided that such use, transport,
storage, disposal or handling of Hazardous Materials on the Premises shall be in
compliance with all applicable federal, state and local laws, ordinances, rules
and regulations. Grantor shall not, without prior notice to Beneficiary, engage
in any use or activity on the Premises which results in initial use or increased
uses, as the case may be, of Hazardous Materials on the Property which were not
disclosed to the Beneficiary or described in agreements executed concurrently
with this Deed of Trust. Grantor shall comply with, and ensure compliance by
all occupants of the Premises with all applicable federal, state and local laws,
ordinances, rules and regulations, and shall keep the Premises free and clear of
liens imposed pursuant to such laws, ordinances, rules or regulations. In the
event that Grantor receives any notice or advice from any governmental agency or
any source whatsoever with respect to Hazardous Materials on, from or affecting
the Premises, Grantor shall immediately notify Beneficiary. Grantor shall
promptly conduct and complete all investigations, studies, sampling and testing,
and all remedial actions necessary to clean up and remove all Hazardous
Materials from the Premises in accordance with all applicable federal, state and
local laws, ordinances, rules and regulations. Grantor further covenants that
it will promptly notify Beneficiary of any discharge or release of Hazardous
Materials on, from or affecting the Premises or of any change in the nature or
extent of any Hazardous Materials, substances or wastes maintained on, in or
under the Premises or used in connection therewith, and will transmit to
Beneficiary copies of any citations, orders, notices or other communication
received with respect to any other Hazardous Materials, substances, wastes or
other environmentally regulated substances affecting the Premises. The term
"Hazardous Materials" as used in this Deed of Trust shall include, without
limitation, gasoline, petroleum products, explosives, radioactive materials,
polychlorinated biphenyls or related or similar materials, asbestos or asbestos
containing materials or any other substance or material defined as a hazardous
or toxic substance or material by any federal, state or local law, ordinance,
rule or regulation. Grantor's violation of any covenant, representation or
warranty within this Section shall be a default hereunder, and Beneficiary may
pursue all rights and remedies to which it is entitled as set forth in this Deed
of Trust.
5
<PAGE>
(b) Grantor shall protect, defend, indemnify and save harmless
Beneficiary and the Trustee from and against all liabilities, obligations,
claims, damages, penalties, causes of action, response and clean up costs, and
other costs and expenses (including without limitation reasonable attorneys'
fees and expenses), imposed upon or incurred by or asserted against Trustee or
Beneficiary by reason of (i) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release or threatened release of any Hazardous
Materials (as defined above in this Section) on, from or affecting the Premises
or any other property; (ii) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to such Hazardous
Materials; (iii) any lawsuit brought or threatened, settlement reached or
government order relating to such Hazardous Materials; or (iv) any violation of
laws, orders, regulations, requirements or demands of government authorities
which are based upon or in any way related to such Hazardous Materials,
including, but not limited to, the following laws; the Comprehensive
Environmental Response, Compensation and Liability Act; the Resource
Conservation and Recovery Act; the Clean Water Act; the Toxic Substances Control
Act; Coastal Area Management Act, N.C.G.S. 113A-113 et.seq.; Solid Waste
Management Act, N.C.G.S. 130A-290 et.seq.; Inactive Hazardous Sites Act,
N.C.G.S. 138-310 et.seq.; Water and Air Resources Act, N.C.G.S. Chapter 143,
Article 21; Oil Pollution and Hazardous Substances Control Act, N.C.G.S. Chapter
143, Article 21A; Air Pollution Control Act, N.C.G.S. Chapter 143, Article 21B;
and the Sedimentation Pollution Control Act of 1973, N.C.G.S. Chapter 113A,
Article 4, including, without limitation, the costs and expenses of any remedial
action, attorneys' and consultants' fees, investigation and laboratory fees,
court costs and litigation expenses. Any amounts payable to Trustee or
Beneficiary by reason of the application of this paragraph shall be added to the
principal of the Note secured by this Deed of trust and shall become due and
payable upon demand. The obligations and liabilities of Grantor under this
indemnification paragraph of this Deed of Trust shall survive any termination,
satisfaction, assignment, entry of a judgment of foreclosure or delivery of a
deed in lieu of foreclosure of this Deed of Trust, and if amounts are paid by
Beneficiary or Trustee after the happening of any of the foregoing, the amounts
so paid shall continue to be obligations of Grantor payable with interest at the
highest rate payable under the Note as if the Note was still outstanding.
(c) Notwithstanding the description of Mortgaged Property
contained in this Deed of Trust, all Hazardous Materials (as defined in this
Section) are specifically excluded from Mortgaged Property subject to this Deed
of Trust.
16. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Deed of Trust
is intended to be a security agreement with respect to items referred to herein
which may be subject to a security interest pursuant to the Uniform Commercial
Code as in effect in North Carolina, and Grantor hereby grants Beneficiary a
security interest with respect to the following:
All furniture, fixtures, contracts and contract rights,
documents, instruments, chattel paper, plans and specifications,
surveys, permits or any other documents or agreements or
information relating to the Premises (as hereinafter defined),
general intangibles and personal property of every kind and
nature owned by Grantor or in which Grantor has ownership or
possessory rights or interests and now or hereafter located on or
connected with or used in connection with the Premises, all
renewals or replacements thereof, all proceeds from the sale,
conversion or other disposition thereof, and, in addition, all
leases (both as lessor and lessee) and rents, security deposits,
proceeds or other income from the Premises, and all other
tangible or intangible rights relating to the Premises including,
but not limited to, the interest of Grantor in and to any and all
personal property, contract rights, inventory and general
intangibles related thereto, and the interest of Grantor in and
to any common areas and facilities located at the Premises.
6
<PAGE>
Grantor agrees that Beneficiary may file this Deed of Trust as a financing
statement, or at Grantor's request agrees to execute such financing statements,
extensions or amendments as Beneficiary may require to perfect a security
interest with respect to the aforesaid. In the event of default, Beneficiary
shall have, in addition to its other remedies, all rights and remedies provided
for in the Uniform Commercial Code as enacted in North Carolina.
17. NOTICES. All notices required to be given hereunder shall be in
writing and shall be deemed served forty-eight hours after deposit in
registered, certified or first-class United States Mail postage prepaid
addresses to the parties at the addresses set forth in the beginning of this
Deed of Trust, or at such other address or addresses as the parties may from
time to time designate by notice to the other parties.
18. MODIFICATION IN WRITING. This Deed of Trust may not be changed,
terminated or modified orally or in any other manner than by an instrument in
writing signed by the party against whom enforcement is sought.
19. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Grantor has hereunto set its hand and seal the
day and year first above written.
ATTEST: NEW U.S. TIRE RECYCLING CORP.
By: /s/CRANDALL S. CONNORS By: /s/THOMAS L. EARNSHAW
------------------------------ ---------------------------
Secretary Name: Thomas L. Earnshaw
Title: Vice President
[Corporate Seal]
7
<PAGE>
EXHIBIT 10.40
CAMERON & ASSOCIATES
424 MADISON AVENUE
FIFTH FLOOR
NEW YORK, NY 10017
November 21,1996
CONFIDENTIAL
Waste Recovery, Inc.
309 S. Pearl Expressway
Dallas, Texas 75201
Attention: Thomas Earnshaw, President
Gentlemen:
This Letter Agreement (this "Agreement"') confirms the understanding among Waste
Recovery, Inc. (the "Company") and Cameron & Associates ("Cameron") relating to
the retention of Cameron as financial advisor to the Company in connection with
a merger or other similar transaction pursuant to which all or substantially all
of the assets and liabilities of U. S. Tire Recycling Partners, L.P. ("U. S.
Tire") will be acquired, directly or indirectly, by the Company (in whatever
form, the "Transaction").
1. Subject to the terms and provisions of this Agreement, the Company
hereby retains Cameron as financial advisor and Cameron hereby agrees to provide
the Company with financial advice in connection with the Transaction until the
earlier of the closing of the Transaction or the Termination Date (as
hereinafter defined).
2. The services performed and to be performed by Cameron as financial
advisor to the Company have included and will include the following:
(a) identification of U. S. Tire as a potential acquisition target;
(b) consultation with the Company regarding the structure of the
Transaction;
(c) consulting with the Company's counsel and other parties involved
with the Transaction;
(d) assistance with closing the Transaction;
(e) consultation with the Company regarding the integration of U. S.
Tire with and into the Company.
<PAGE>
3. As compensation for Cameron's services hereunder, the Company
hereby agrees to issue to Cameron or its designees upon the closing of the
Transaction 243,224 shares of fully paid and non-assessable common stock, no
par value, of WRI (the "WRI Common Stock"), which shares shall be issued in
the names and denominations shown on Schedule I hereto and shall have
registration rights identical to those granted to U.S. Tire or its principals
and partners in connection with the Transaction.
4. Each of the Company and Cameron shall have the right to terminate such
party's obligations under this Agreement upon written notice to the other party
hereto (the date of such termination being sometimes referred to herein as the
"Termination Date"); provided, however, that the termination of this Agreement
shall not affect the right of Cameron to receive compensation set forth in
paragraph 3, supra.
5. The Company agrees to indemnify and reimburse Cameron in accordance
with the Indemnification Provisions attached hereto as Exhibit A as well as
to provide contribution as therein provided and to perform all of the other
provisions thereof, such Indemnification Agreement and the provisions thereof
being incorporated herein in its entirety as if set forth in full.
6. The Company recognizes and confirms that Cameron, in acting pursuant
to this Agreement, will be using information from reports and other information
provided by others, including, without limitation, information provided by or on
behalf of the Company, and that Cameron does not assume responsibility for and
may rely, without independent verification, on the accuracy and completeness of
any such reports and information. The Company hereby warrants that any
information relating to the Company that is furnished to Cameron by or on behalf
of the Company will be fair and accurate and will not contain any untrue
statement of a material fact necessary in order to make the statements therein
not misleading in light of the circumstances under which such statements are
made.
7. This Agreement (a) shall be governed by and construed in accordance
with the internal laws, and not the law of conflicts, of the State of New York,
(b) incorporates the entire understanding of the parties with respect to the
subject matter hereof and supersedes all previous agreements should they exist
with respect thereto, (c) may not be amended or modified except in a writing
executed by the Company and Cameron and (d) shall be binding upon and inure to
the benefit of the Company and Cameron and their respective successors and
assigns. Each of the parties hereto expressly represents and warrants to the
other that such party has all requisite power and authority to enter into this
agreement and that this agreement constitutes the valid and legally binding
obligation of such party, enforceable in accordance with its terms.
8. The Company acknowledges that Cameron, in connection with its
engagement hereunder, is acting as independent contractor and that nothing in
this Agreement is intended to confer upon any other person any rights or
remedies hereunder or by reason hereof.
9. The Company acknowledges that Cameron has retained the services of
Crandall S. Connors, a shareholder and director of the Company, in connection
with providing to the Company the services described herein and that Connors
will receive compensation directly or indirectly from Cameron for his services
in connection with the engagement described herein.
10. The parties agree that all disputes, controversies or claims that may
arise between them (including their agents and employees) including, without
limitation, any dispute, controversy or claim arising out of or relating to this
Agreement or any other agreement, or the breach, termination or invalidity
thereof, whether entered into or arising prior, on or subsequent to the date
hereof, shall be submitted to, and determined by, binding arbitration and shall
be held in New York, New York. Any arbitration under this paragraph 9 shall be
conducted before a single arbitrator pursuant to the arbitration
2
<PAGE>
rules then in effect of the American Arbitration Association, except to the
extent such rules are inconsistent with this paragraph. The arbitrator shall
be experienced in the field of corporate finance. The arbitrator shall apply
the laws of the State of New York (without regard to conflict of law rules)
in determining the substance of the dispute, controversy or claim and shall
decide the same in accordance with applicable usages and terms of trade. The
prevailing party in any such arbitration shall be entitled to recover its
reasonable attorneys' fees, costs and expenses incurred in connection with
the arbitration. Any award pursuant to such arbitration shall be final and
binding upon the parties, and judgment on the award may be entered in any
federal or state court sitting or located in Dallas County, Texas, or in any
other court having jurisdiction. The provisions of this paragraph shall
survive the expiration of the term of this Agreement.
This agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement. Please confirm that the foregoing is in accordance with your
understanding of our agreement by signing and returning to us a copy of this
letter.
Very truly yours,
CAMERON & ASSOCIATES
Bv:
----------------------------------
C. Rodney O'Connor, Its
---------------
AGREED TO as of the date set forth
above:
WASTE RECOVERY, INC.
By:
--------------------------------
Thomas Earnshaw, Its President
3
<PAGE>
SCHEDULE I
The WRI Common Stock to be issued as compensation to Cameron in connection
with the Engagement Letter dated November 20, 1996, shall be issued in the
following names and denominations.
Registered Holder Number of Shares
----------------- ----------------
<PAGE>
EXHIBIT A
INDEMNIFICATION PROVISIONS
Recognizing that transactions of the type contemplated in this
engagement sometimes result in litigation and that Cameron's role is
advisory, the Company agrees to indemnify and hold harmless Cameron and its
affiliates, officers, directors, employees, agents and controlling persons,
and specifically, but without limitation, Crandall S. Connors (collectively,
the "Indemnified Parties"), from and against any losses, claims, damages and
liabilities, joint or several, related to or arising in any manner out of any
transaction, proposal or any other matter (collectively, the "Matters")
related in any way to the engagement of Cameron hereunder, and will promptly
reimburse the Indemnified Parties for all reasonable expenses (including
reasonable fees and expenses of legal counsel) as incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim related to or arising in any manner out of any Matter related in any
way to the engagement of Cameron hereunder, or any action or other proceeding
arising therefrom (collectively, "Proceedings"), whether or not such
Indemnified Party is a formal party to any such Proceeding. Notwithstanding
the foregoing, the Company shall not be liable in respect of any losses,
claims, damages, liabilities or expenses that a court of competent
jurisdiction shall have determined by final judgment resulted solely from the
gross negligence, bad faith or willful misconduct of an Indemnified Party.
The Company further agrees that it will not, without the prior written
consent of Cameron, settle, compromise or consent to the entry of any
judgment in any pending or threatened Proceeding in respect of which
indemnification may be sought hereunder (whether or not either of Cameron or
any Indemnified Party is an actual or potential party to such Proceeding),
unless such settlement, compromise or consent includes an unconditional
release of Cameron and each other Indemnified Party hereunder from all
liability arising out of such Proceeding. It is further agreed that neither
Cameron nor any other Indemnified Party will settle, compromise or consent to
the entry of any judgment in any pending or threatened proceeding in respect
of which indemnification may be sought hereunder without the prior written
consent of the Company, which consent shall not be unreasonable withheld.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims,
damages and liabilities in such proportion as is appropriate to reflect the
relative benefits to the Company and its stockholders on the one hand, and
Cameron on the other, in connection with the Matters to which such
indemnification or reimbursement relates or, if such allocation is not
permitted by applicable law, not only such relative benefits but also the
relative faults of such parties as well as any other equitable
considerations. It is hereby agreed that the relative benefits to the Company
and/or its stockholders and to Cameron with respect to Cameron's engagement
shall be deemed to be in the same proportion as (i) the total value paid or
received or to be paid or received by the Company and/or its stockholders
pursuant to the Matters (whether or not consummated) for which Cameron is
engaged to render financial advisory services bears to (ii) the fees paid to
Cameron in connection with such engagement. In no event shall the Indemnified
Parties contribute or otherwise be liable for an amount in excess of the
aggregate amount of fees actually received by Cameron pursuant to such
engagement (excluding amounts received by Cameron as reimbursement of
expenses).
The Company further agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with Cameron's engagement hereunder except for
losses, claims, damages, liabilities or expenses that a court of competent
jurisdiction shall have determined by final judgment result solely from the
gross negligence,
1
<PAGE>
bad faith or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in
addition to any liability which the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth
herein shall remain operative and in full force and effect regardless of (i)
any withdrawal, termination or consummation of or failure to initiate or
consummate any Matter referred to herein, (ii) any investigation made by or
on behalf of any party hereto or any person controlling (within the meaning
of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the
Securities Exchange Act of 1934, as amended) any party hereto, (iii) any
termination or the completion or expiration of this letter or Cameron's
engagement and (iv) whether or not Cameron shall, or shall not, be called
upon to render any formal or informal advice in the course of such engagement.
2
<PAGE>
EXHIBIT 21.1
WASTE RECOVERY, INC.
SUBSIDIARIES OF THE REGISTRANT
Domino Salvage, Tire Division, Inc. (incorporated in Pennsylvania)
Waste Recovery - Illinois, L.L.C. (an Illinois limited liability company), a
subsidiary of Domino Salvage, Tire Division, Inc. and the Registrant
New U.S. Tire Recycling Corp. (incorporated in Texas)
U.S. Tire Recycling Partners, L.P. (a Delaware limited partnership), a
subsidiary of New U.S. Tire Recycling Corp. and the Registrant
Tirus Associates, L.L.C. (a New York limited liability company), a subsidiary of
New U.S. Tire Recycling Corp. and the Registrant
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (Nos. 33-47817 and 33-47818) of Waste Recovery, Inc.
of our report dated March 31, 1997 appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
April 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,892,427
<SECURITIES> 0
<RECEIVABLES> 3,849,363
<ALLOWANCES> (51,017)
<INVENTORY> 1,239,483
<CURRENT-ASSETS> 7,286,214
<PP&E> 24,226,392
<DEPRECIATION> (7,923,939)
<TOTAL-ASSETS> 28,391,800
<CURRENT-LIABILITIES> 7,313,232
<BONDS> 7,567,795
0
203,580
<COMMON> 407,800
<OTHER-SE> 7,717,743
<TOTAL-LIABILITY-AND-EQUITY> 28,391,800
<SALES> 16,674,532
<TOTAL-REVENUES> 17,682,410
<CGS> 11,908,912
<TOTAL-COSTS> 16,274,780
<OTHER-EXPENSES> 668,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447,176
<INCOME-PRETAX> 291,950
<INCOME-TAX> 8,850
<INCOME-CONTINUING> 283,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,100
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
