WASTE RECOVERY, INC.
18% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JANUARY 31, 1997
DEBENTURE NO. 1
Dollar Amount $________ March 15, I996
Waste Recovery, Inc., a corporation duly organized and existing under
the laws of the State of Texas (herein referred to as the "Company"), for value
received, hereby promises to pay to ________________________, or registered
assigns, the principal sum of __________________________________ ($__________),
in any coin or currency of the United States of America which at the time of
payment is legal tender for the payment of public and private debts, and to pay
interest thereon as hereinafter provided from the date hereof at the rate of
18o/o per annum, in like coin or currency, said payments to be made as follows:
principal and accrued interest shall be due and payable on January 31,1997. The
payments will be paid to the person in whose name this Debenture is registered
on the books and records of the Company. Both principal of and interest on this
Debenture are payable at the office of the Company as provided in Section 12
below.
1. Restrictions on Transfer; Registration
Additional provisions of this Debenture are contained on the following
pages hereof. However, this Debenture is specifically subject to the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED TO THE
REGISTERED OWNER IN RELIANCE UPON REPRESENTATIONS THAT THESE SECURITIES
HAVE BEEN TAKEN FOR INVESTMENT. THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED UNLESS AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY SHALL HAVE BEEN RECEIVED BY THE COMPANY TO THE EFFECT
THAT SUCH SALE, TRANSFER OR ASSIGNMENT WILL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.
2. Issue
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 18% Convertible Subordinated Debentures due January 31,1997
(herein called the "Debentures"), limited to a minimum principal amount of
$200,000.00 and a maximum principal amount of $495,000.00.
3. Redemption
This Debenture will be redeemable by the Company, in whole or in part,
upon the earlier of (a) August 31, 1996 or (b) five business days following the
record date of a rights offering, or other public offering, of the Company's
common stock, no par value ("Common Stock") that is registered with the
Securities and Exchange Commission. The redemption price will be the principal
amount of this Debenture plus interest accrued to the date fixed for redemption.
This Debenture will become due and payable and will cease to bear interest on
the date fixed for the redemption.
4. Notice of Redemption
Before redeeming, the Company will give notice to any registered holder
of this Debenture of its intention to redeem and of the redemption date at least
thirty (30), and not more than sixty (60), days prior to such redemption date.
Notice shall be sent by certified mail to the last address of the registered
holder as it appears on the registration books of the Company.
5. Conversion
This Debenture will be convertible at the option of the registered
holder, in a minimum amount of $10,000.00, at any time prior to its maturity. If
this Debenture is called for redemption, it will be convertible, and must be
received by the Company, at any time prior to the close of business on the fifth
day preceding the date fixed for redemption. This Debenture will be convertible
into fully paid and nonassessable shares of shares of Common Stock of the
Company at the rate of one share for each $0.875 principal amount to be
converted. At the option of the holder, accrued and unpaid interest may be
converted at the time a holder converts all of his principal at a rate of $0.875
per share. After conversion, the holder will not be entitled to any interest on
this Debenture, or the amount thereof converted, not due and payable at or prior
to the date of conversion. Fractional shares will not be issued and no payments
will be made in lieu of fractional shares. Executive officers and directors of
the Company who subscribe cannot convert principal or interest until September
15, 1996.
6. Notice of Conversion
In order to exercise the conversion privilege, the holder of this
Debenture will surrender it to the Company with the form of notice duly executed
in substantially the form attached hereto as Exhibit A. If the stock into which
the Debenture is convertible is to be issued in a name or names other than that
of the registered owner of this Debenture, the Debenture must be accompanied by
proper assignment in substantially the form attached hereto as Exhibit B. The
Company will promptly issue to the holder or assignee the shares of stock into
which this Debenture is to be convertible. Such notice must be delivered in
person or sent by certified mail.
7. Subordination
The indebtedness evidenced by the Debentures, including the principal
thereof and interest thereon, is expressly subordinated and subject in right of
payment to the prior payment in full of all senior indebtedness of the Company,
and each holder of this Debenture, by accepting the same, agrees to and shall be
bound by such provisions. Senior indebtedness is defined as the principal of,
and premium and interest on, indebtedness of the Company for money borrowed from
persons, firms or corporations that regularly engage in the business of lending
money. In the event of any insolvency, bankruptcy, receivership, liquidation, or
any other marshalling of the assets and liabilities of the Company, the holders
of senior indebtedness will be entitled to receive payment in full of all
principal and interest on all senior indebtedness before the holder of this
Debenture is entitled to receive any payment on account of principal or
interest.
8. Modification
Modifications or alterations of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided, however, that
without the consent of the holder hereof, no such modification or alteration
shall be made which will affect the terms of payment of the principal of or
interest on this Debenture, or reduce the percentage of principal amount of the
Debentures the holders of which are required to consent to such modification or
alteration.
9. Default
a. Payment. In case of a default in the punctual payment under this
Debenture shall occur, and continue for a period of ten (10) business days after
receipt of notice sent to the Company by certified mail, then the principal and
all accrued interest on all the Debentures then outstanding shall become due and
payable. Such declaration of default and acceleration of principal and interest
may be rescinded or annulled by the holders of a majority in principal amount of
the Debentures outstanding.
b. Bankruptcy or Insolvency. In the event of either (1) a decree or
order by a court shall have been entered adjudging the Company a bankrupt or
insolvent, or appointing a receiver or trustee for the affairs or assets of the
Company and such decree or order shall have remained in force undischarged or
unstayed for a period of ninety (90) days, or (2) the Company shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of any such petition or to the appointment of a receiver or trustee, or
shall make an assignment for the benefit of creditors, then, so long as such
event of default shall not have been remedied, unless the principal of this
Debenture shall have already become due and payable, the holder by notice in
writing to the Company may declare the principal of this Debenture then
outstanding and the interest accrued thereon, if not already due and payable, to
be due and payable immediately. Upon receipt of any such declaration, the same
shall be immediately due and payable.
10. Transfer
This Debenture is transferable by the registered owner hereof, in
person or by duly authorized attorney, at the office of the Company, on books of
the Company to be kept for that purpose, upon surrender and cancellation of this
Debenture and on presentation of a duly executed written instrument of transfer
substantially in the form of Exhibit B, and thereupon a new Debenture or
Debentures, of the same aggregate principal amount, will be issued to the
transferee or transferees, in exchange herefor; and this Debenture, with or
without other Debentures, may in like manner be exchanged for one or more new
Debentures of other authorized denominations but of the same aggregate principal
amount. Any such transfer or exchange shall be without charge, except that the
Company may require the payment of a sum sufficient to reimburse it for any
stamp tax or other governmental charge or expense in connection therewith.
Notwithstanding, new Debentures will not be reissued in denominations less than
$5,000.00
11. Registered Owner for Payment
Any paying agent, registrar, the Company, or any agent of the Company,
may deem and treat the person in whose name this Debenture is registered as the
absolute owner hereof for the purpose of receiving payment of principal and
interest due herein, and for all other purposes, and neither the Company nor any
paying agent, nor any registrar, nor any agent of the Company shall be affected
by, nor shall any liability accrue to, such parties as a result of such
treatment.
12. Address of Company
Unless changed by written notice to the holder of this Debenture, for
the purposes of payment of principal and interest, redemption of this Debenture,
or delivery of notices to the Company, the address of the Company for the
purposes of this Debenture is 309 South Pearl Expressway, Dallas, Texas 75201.
13. Registration Rights.
a. Registration Proposed by the Company. As used in this Section 13,
the term "Registrable Stock" shall mean and include all shares of Common Stock
received or receivable upon a conversion of the Debentures. If at any time, and
from time to time, the Company proposes to register any of its Common Stock
under the Securities Act of 1933, as amended (the "Securities Act") in
connection with a public offering (other than a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145 under the
Securities Act is applicable), it will each such time give written notice to all
holders of the Debentures of its intention to do so and, upon written request of
any such holder delivered to the Company within 30 days after receipt of such
notice (which request shall state the number of shares of Common Stock to be
registered and the intended method of disposition), the Company will use its
best efforts, at its own expense to the extent provided below, to register under
the Securities Act all shares of Registrable Stock requested to be so registered
by such holder, all to the extent requisite to permit the disposition thereof
(in accordance with the intended method thereof, as aforesaid); provided,
however, that if the sole or managing underwriter of such offering determines
that the aggregate number of shares of Registrable Stock which have been
requested by the holder thereof to be included in the registration should be
limited to a lesser number due to market conditions and/or the necessity of
including in such underwriting or registration shares to be sold for the account
of the Company, then the holder may sell only his pro rata portion of such
lesser number of shares available for registration (such portion available to be
the total amount of shares which can be registered less those to be sold by the
Company), such right to sell to be proportioned among all shareholders of the
Company asserting and having registration rights. All persons who acquired
registration rights prior in time to the holders of Registrable Stock shall have
priority to register all of their shares with such rights ahead of any
Registrable Stock. In the event that not all Registrable Shares can be sold in
such registration, the Company will promptly file a registration statement to
register the remainder of such Registrable Shares for sale in the open market
and to use its best efforts to cause such registration statement to be declared
effective so that the related registration statement and prospectus will remain
effective for nine months following any lock-up period required by an
underwriter.
Should the Company terminate the registration first referred to above
in this Section prior to its effectiveness, the Company shall have no obligation
to the holders with respect to registering any Registrable Stock in connection
with either registration. The rights under this Section 13(a) shall terminate
when the holders are eligible to sell Registrable Stock under Rule 144 of the
Securities Act.
b. Registration Requested by the Holders. Upon written request, made at
any time by any holder, to register under the Securities Act shares of
Registrable Stock held by or issuable to him, the Company will (i) promptly give
written notice of such proposed registration to all of the holders of
Registerable Stock and (ii) as expeditiously as possible and in any event within
120 days, file a registration statement under the Securities Act, and thereafter
use all reasonable efforts, at the expense of such holders to the extent
provided below, to obtain acceleration of the effective date thereof under the
Securities Act of:
(i) the Registrable Stock which the Company has been requested to
register pursuant to the written request referred to above,
for disposition by the respective holders in accordance with
the intended method of disposition described in such request;
and
(ii) all other shares of Registrable Stock held by or issuable to
holders who shall have made written request for the
registration thereof (stating the intended method of
disposition) to the Company, such written request to be
delivered to the Company within thirty (30) days after the
giving of the above written notice by the Company
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof, as aforesaid) by the holders of the securities so
registered, and the Company agrees that in connection with effecting any such
registration it will execute any undertakings to file post-effective amendments
as may be required and, in addition to its obligations hereunder, it will effect
appropriate compliance with exemptive regulations issued under the Securities
Act and any other governmental requirements or regulations to the extent
requisite to permit such disposition. The Company shall be obligated to register
Common Stock pursuant to this Section 13(b) on only one occasion.
c. Certain other Rights. If by February 1, 1995, the Company has not
initiated a registration of its Common Stock under the Securities Act (other
than a registration effected solely to implement an employee benefit plan or a
transaction under Rule 145 of the Securities Act), then the Company will give
notice to holders of the Debentures of its intention to file a registration
statement for Registrable Stock under the Securities Act, and that holders who
have converted to Common Stock effective within thirty (30) days after the
giving of such notice are eligible to participate in such registration. The
Company will promptly file such a registration statement to register eligible
Registrable Shares for sale in the open market and use its best efforts to cause
such registration statement to be declared effective so that the registration
statement and prospectus will remain effective for a nine-month period.
d. Costs and Expenses. All costs and expenses in connection with the
registration of securities under Sections 13(a) and 13(c) hereof, including
federal and state registration and filing fees incurred in connection therewith,
printing expenses (including such number of any preliminary and final
prospectuses, to include post-effective amendments and supplements to the
registration statement, as may reasonably be requested), the fees and
disbursements of its counsel and of independent accountants and other experts of
the Company, shall be borne by the Company (except that regarding Section l3(c),
all such costs in excess of $100,000 shall be borne pro rata by holders of
Registrable Shares) and all such expenses in connection with a registration
pursuant to Section 13(b) hereof shall be borne by the holders pro rata who
demand any such registration; provided, however, that the Company shall not be
obligated to pay underwriter's discounts and commissions and fees in connection
with a registration of the Registrable Stock pursuant to Sections 13(a) and
13(c) hereof. The Company will keep effective any such registration for such
period as may reasonably be necessary to effect the disposition in accordance
with the intended methods described in the requests for registration, but if the
Company is requested or required to maintain such registration effective for
more than nine months, all out-of-pocket expenses of the Company incurred in
maintaining such effectiveness after such nine-month period shall be borne by
the holders who have requested the maintaining of such effectiveness in order to
continue with the distribution, in such proportions as they may agree upon. The
Company's obligation to effect the registration or to maintain the effectiveness
of such registration will be conditioned in each case on the receipt by it of
satisfactory undertakings by such holders to bear such expenses, if any, as by
the terms hereof are to be borne by them, and the receipt from each of them as
to such information regarding the securities held by them and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company. The
holder of Registrable Shares will agree to abide by notice provisions reasonably
requested by the Company to avoid sales in the open market during any period of
registration.
IN WITNESS WHEREOF, Waste Recovery, Inc. has caused this instrument to
be signed by its duly authorized officer, and its corporate seal to be imprinted
hereon and attested by the signature of its Secretary or one of its Assistant
Secretaries.
Dated as of March 15, 1996 WASTE RECOVERY, INC.
By: /s/THOMAS L. EARNSHAW
THOMAS L. EARNSHAW
President and Chief
Executive Officer
[SEAL]
Attest:
/s/JOHN E. COCKRUM
Secretary
EXHIBIT A
FORM FOR EXERCISING ELECTION TO CONVERT
The undersigned holder of the attached 18% Convertible Subordinated Debenture
due January 31, 1997 surrenders $ _______________ aggregate principal amount of
the Debenture for conversion on the terms and conditions set forth in the
Debenture. Accrued but unpaid interest shall _____ shall not _____ (check one)
be converted. It is requested that the shares issuable upon conversion be issued
to the following person or persons:
Name Address
________________________________ _________________________________
________________________________ _________________________________
________________________________
SSN or Tax I.D. #
Date:___________________________ _________________________________
Signature of Registeres Owner
_________________________________
Printed Name of Registered Owner
[Instructions: If the shares are to be issued to any person other than
the Registered Owner, complete the information above for such
assignee, and complete an assignment as pr Exhibit B. Otherwise,
complete the above information as it pertains to the Registered
Owner.]
EXHIBIT B
FORM OF ASSIGNMENT
For value received, I sell, assign, and transfer to ___________________________
whose address is __________________ , ______________________________ , the
attached Debenture standing in my name on the books of the Company, and
irrevocably appoint the Secretary of the Company as my attorney to transfer such
Debenture on the books of the Company, with full power of substitution.
The Tax I.D. # of such assignee is _______________________________.
Date:_______________________ ___________________________________
Signature of Registered Owner
(Assignor)
___________________________________
Printed Name of Registered Owner
(Assignor)
(Principal Financial and Accounting Officer)