SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Form 8-K/A
(Amendment No.1)
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 8, 1998
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Continental Investment Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Georgia
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(State or Other Jurisdiction of Incorporation)
0-3743 58-0705228
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(Commission File Number) (IRS Employer Identification Number)
10254 Miller Road, Dallas, TX 75238
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(Address of Principal Executive Offices) (Zip Code)
(214) 691-1100
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that involve risks and
uncertainties that could cause results of operations or financial condition of
Continental Investment Corporation to differ materially from those expressed or
implied by the forward-looking statements. These risks include uncertainties
attendant to bankruptcy proceedings, probable inaccuracy of prior published
financial information about the Registrant and its subsidiaries, the
uncertainties of litigation, a lack of certainty as to the amounts that can be
realized on sales of certain of the company's assets, and the long-term effects
of the bankruptcy reorganization on the operations of the Registrant and its
subsidiaries.
Item 3 of this Form 8-K is amended to read in its entirety as set below:
Item 3. Bankruptcy or Receivership.
On January 13, 1999, the Registrant was placed in an involuntary
reorganization proceeding under Chapter 11 of the U. S. Bankruptcy Code. The
case was brought in the U. S. Bankruptcy Court for the Northern District of
Georgia (Atlanta) (Case No. 99-60676). Upon request of the Registrant, on March
19, 1999, the case was transferred to the U. S. Bankruptcy Court for the
Northern District of Texas, Dallas Division. On December 6, 1999, the Registrant
consented to the entry of an Order for Relief pursuant to Chapter 11 of the U.
S. Bankruptcy Code without consenting to the claims of the petitioning
creditors.
On February 10, 2000, the U. S. Bankruptcy Court for the Northern
District of Texas, Dallas Division (Case No. 99-32947-RCM-11) entered an Order
Confirming Debtor's Plan of Reorganization (the "Confirmation Order"). Attached
to the Confirmation Order was a Disclosure Statement Pursuant to Section 1125 of
the Bankruptcy Code Dated December 6, 1999 (the "Disclosure Statement")
including Debtor's Plan of Reorganization Dated December 6, 1999 (the "Plan of
Reorganization"). Copies of the Confirmation Order, the Disclosure Statement and
the Plan of Reorganization are attached as exhibits to this report. See Item 7.
Summarization of Plan
In accordance with the Order of Confirmation entered by the Court, the
Confirmation Date for the Plan of Reorganization was February 10, 2000, and the
Effective Date of the Plan of Reorganization will be sixty (60) days after the
Order of Confirmation becomes final and any appeal from that order is dismissed.
The Plan of Reorganization addresses thirteen (13) classes of "allowed claims."1
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1 Generally, "allowed claims" are claims that first the claimant timely filed
with the Bankruptcy Court or the Registrant listed on its schedule of creditors
filed with the court as not being disputed, contingent or unliquidated as to
amount. Second, a claim that has been filed or listed on a schedule will only be
"allowed" if no objection is filed with the Bankruptcy Court or the court
disallows the objection. The complete definition of "allowed claims" is
contained in Section 13.2 of the Plan of Reorganization. See Item 7.
2
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A summary of the disposition of the thirteen (13) classes of allowed
claims set forth below:
Class 1 (Administrative Claims) will be paid in cash and in
full on the Effective Date of this Plan to the extent not
otherwise paid prior to confirmation of the Plan of
Reorganization. The Debtor is required to continue to make
quarterly payments to the U.S. Trustee and may be required to
file post-confirmation operating reports until its case is
closed.
Class 2 (Tax Claims) shall be satisfied. Tax creditors may
also be paid in full on the Effective Date or upon the sale of
property in which they claim a lien at the time of sale. The
taxing authorities shall retain their liens, if any, to secure
their tax claims until paid in full as called for by the Plan
of Reorganization.
Class 3 (Mortgage Claims) shall be satisfied by the continuing
monthly payments of principal and interest as originally
called for by the terms of the loan documents.
Class 4 (GAP Period Claims) As to the allowed amounts, these
claims shall be satisfied in full on the later of the
Effective Date or the date the claim is otherwise due or
becomes an allowed claim. "GAP Period Claims" were claims
incurred between January 13, 1999, the date of filing of the
involuntary petition against the Registrant, and December 6,
1999, the date the Registrant consented to relief under
Chapter 11 of the Bankruptcy Code.
Class 5 (Priority Board Claims) shall be satisfied in full on
the later of the Effective Date or the date the claim is
otherwise due or becomes an allowed claim. These claims shall
be satisfied by the Registrant's issuance of shares of common
stock to these directors. These are certain claims of the
Registrant's directors entitled to priority under Section
507(a) of the U.S. Bankruptcy Code.
Class 6 (Rahr Creditor Claims) shall be satisfied as follows:
The allowed claims of Stewart Rahr (including all claims for
reimbursement of litigation expenses and shareholder claims)
shall be satisfied through his receipt of an additional 10% of
the total pooled litigation proceeds (pooled for allocation
purposes only) under the Litigation Agreement (defined below)
between the Registrant and Stewart Rahr. By this exchange, the
Registrant's common stock held by Mr. Rahr would be released
and/or extinguished.
Class 7 (Trade Creditor Claims) shall be paid in full on the
later of the Effective Date or the date the claim is otherwise
due or becomes an allowed claim.
Class 8 (General Creditor Claims) shall be paid in full upon
the later of the Effective Date or the date each such claim
becomes an allowed claim.
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Class 9 (Guarantee Creditor Claims) shall be paid in full upon
the later of the first day of the month following six (6)
months after the Effective Date or the date such claim becomes
an allowed claim.
Class 10 (Indemnification Creditor Claims) shall be paid in
full upon the later of the first day of the month following
six (6) months after the Effective Date or the date such claim
becomes an allowed claim.
Class 11 (Sterritt Entity Claims) shall receive nothing under
this Plan.
Class 12 (Equity Interest Holder Claims) shall receive new
stock certificates from the Registrant for the same number of
shares of stock held in the Registrant as of the Confirmation
Date. The old Registrant stock certificates must be
surrendered by the shareholders to the Registrant. This group
does not include any of the Sterritt Entities.
Class 13 (Sterritt Entity Equity Interest Holder Claims) shall
receive nothing under the Plan of Reorganization and must
surrender their stock certificates to the Registrant for
cancellation.
The total cash amounts of allowed claims for each class of non-equity
claims as of the Confirmation Date are shown below:
Class 1 (Administrative Claims) $100,000 2
Class 2 (Tax Claim) $13,741
Class 3 (Mortgage Claims) $11,192
Class 4 (GAP Period Claims) $55,705
Class 5 (Priority Board Claims) $350,000 3
Class 6 (Rahr Creditor Claims) $383,984 4
Class 7 (Trade Creditor Claims) $85,403
Class 8 (General Creditor Claims) $518,654
Class 9 (Guarantee Creditor Claims) $161,953
Class 10 (Indemnity Creditor Claims) Unliquidated
Class 11 (Sterritt Entity Claims) $504,701 5
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TOTAL $2,185,333
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2 Estimated as of the Confirmation Date.
3 The Plan of Reorganization states that the Registrant's directors will receive
shares of the Registrant's common stock in lieu of a cash payment for these
claims. The number of shares to be issued has yet to be determined.
4 Mr. Rahr has agreed to relinquish these claims. See Item 5.
5 The Plan of Reorganization provides that these claimants will receive nothing.
4
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The amounts reflected above were shown on the Summary of Schedules
filed by the Registrant in its Chapter 11 case on December 6, 1999. Many of
these amounts are disputed and have subsequently changed. Also, the payments
shown are not presented consistent with generally accepted accounting
principles. Any allowed claims will be paid as indicated above.
Assets
In addition, the Registrant's Plan of Reorganization disclosed a number
of assets. The Registrant is in the process of determining if some or all of
these assets were improperly recorded on its books and records. See Item 5. The
Plan of Reorganization estimated a liquidation value of $2.0 million for all of
the Registrant's assets (other than claims in litigation). Estimated liquidation
value does not necessarily reflect the value that should be recorded on the
Registrant's books under generally accepted accounting principles or the value
that the Registrant will receive from the assets in the course of the
Registrant's operations or from a sale in an ordinary manner.
The Registrant's claims in litigation were indicated to have an unknown
value. Eighty-five percent (85%) of any amounts recovered on these claims has
been assigned to a former shareholder. See Item 5.
The assets and the estimated liquidation values shown in the Schedules
to the Plan of Reorganization, as of December 6, 1999, were:
Cash $5,800
Escrow Funds $840
Furniture and Office Equipment $500
Real Property
-Ben Hill Site Atlanta, Georgia6 $1,600,000
-Ellis County, Texas $25,000
Notes receivable from Swan Financial -0-
Investment in the stock of WasteMasters, Inc. $100,000
Note receivable from WasteMasters, Inc. -0-
Investments in and receivables from four subsidiaries:
-Continental Technologies, Inc. (a Delaware corporation) $200,000
-Continental Technologies Corporation of Georgia
(a Georgia corporation) -0-
-FIBER-SEAL Franchise Corporation (a Delaware corporation) -0-
-FIBER-SEAL Holdings, Inc. (a Texas corporation) $100,000
Adversary claims in litigation Unknown
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TOTAL $2,032,140
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The amounts shown here were liquidation values estimated as of December
6, 1999. Estimated liquidation values may differ from market value or book value
computed in accordance with generally accepted accounting principles, and these
differences may be material.
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6 See Item 5 for updated information regarding this property.
5
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Information regarding the estimated values of assets and estimated
amounts of liabilities of the Registrant is furnished in accordance with the
Instructions to Form 8-K. The Registrant makes no representation as to the
accuracy of those estimates, and no attempt has been made by the Registrant to
update any or all of these estimates. Investors should also see the information
in Item 5 on the probable inaccuracy of the Registrant's earlier financial
statements and other disclosures.
Equity Claims of Sterritt Entities
As noted above, the Plan of Reorganization provided for the
cancellation of shares of the Registrant's common stock held by the Sterritt
Entities. The Plan identifies the following persons as "Sterritt Entities":
R. Dale Sterritt, Jr. Richard D. Sterritt, Sr.
Edward W. Roush, Jr. Malcolm M. Kelso
Roush, Inc. d/b/a Kelso & Roush, Inc. Hopo Investments, L. C.
Freddie Joe Royer, Jr. Larry Wayne Sterritt
Sarah Sterritt Robyn Ann Straza-Sterritt
Richard Straza Susan Lale
Sterritt Properties, Inc. 20th Century Holdings, Inc.
Suresh Chainani Kanayo Wadhwani
Dresco Investments, Inc. Woodland Ventures, Inc.
Swan Financial Services, Inc. Nikko Trading of America Corporation
Atremo Holdings, Inc., S.A. Wallenberg Financial, Inc., S.A.
Greg Wiggins Scott Bush
Orison Financial, Inc. American Recycling & Management Corp.
Robert D'Agostino John Marshall Law School, Inc., the
Center of Shareholders Rights
Waste Ventures, Inc. 20th Century Partners, Inc
And any and all other persons acting in concert with any of the above and
foregoing persons.
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* * * * * * * * * * * * * * * * * * * *
The Registrant has identified 6,060,337 shares of common stock as held
by persons who are Sterritt Entities. In accordance with the Plan of
Reorganization, all 6,060,337 shares have been cancelled.
There are several lawsuits pending against a number of the Sterritt
Entities and certain professionals formerly retained by the Registrant. In some
of these lawsuits, the Registrant is a plaintiff. These lawsuits allege a number
of unlawful and fraudulent activities by the defendants named in those cases.
Stewart Rahr
As described below in Item 5, Stewart Rahr and the Registrant have
worked together in certain litigation. As a part of this litigation, they
executed the Litigation Agreement (defined below) and the Agreement Regarding
Treatment of Claims (also defined below). In the Agreement Regarding Treatment
of Claims, Mr. Rahr agreed to the terms of the Plan of Reorganization providing
that his claims as a creditor and a shareholder would be exchanged for an
additional 10% of the proceeds of the litigation described in the Litigation
Agreement. In other words, Mr. Rahr's 1,662,953 shares of the Registrant's
common stock were cancelled (along with other cash claims) in exchange for
increasing his share of any proceeds received from the two lawsuits described in
the Litigation Agreement to eighty-five percent (85%).
Stock Certificates and Trading
The Registrant has begun mailing letters to its shareholders notifying
them of the changes in the stock provided under the Plan of Reorganization
described herein and included as an exhibit in Item 7. Under the procedures the
Registrant has established, stock certificates currently held by "allowed
shareholders" will be cancelled and exchanged share-for-share for new stock
certificates representing the Registrant's Common Stock. If the old stock
certificate is returned to the Registrant by September 29, 2000, it shall bear
the expense of issuing a single new stock certificate representing all of the
shareholder's holdings of Common Stock.
In order to accomplish the foregoing, trading in the old stock
certificates will end on the close of trading on a date to be designated. After
that date, only the new stock certificates representing the Common Stock will
trade. Beginning on the next trading date, the Registrant's Common Stock will
trade under a new trading symbol, and the Common Stock will be represented by
the new stock certificates. At present, the new symbol has not been assigned by
the National Association of Securities Dealers, Inc.
Item 5 of this Form 8-K is amended to read in its entirety as set below:
Item 5. Other Events.
Probable Inaccuracy of Certain Previously-Published Financial
Statements and Other Disclosures. Facts have come to the attention of the
Registrant's management that call into question the accuracy of financial
statements and other disclosures published by the Registrant for the period
beginning January 1, 1996 through September 30, 1998. In particular, management
believes that these financial statements are likely to reflect assets and
transactions that were recorded using valuations that arose from undisclosed
related party transactions or transactions designed to defraud the Registrant
and its shareholders or that were otherwise valued or recorded in a manner
inconsistent with generally accepted accounting principles. Therefore, it is
probable that the Registrant's published financial condition, results of
operations and other information (both audited and unaudited) for this period
were materially inaccurate. On or about March 10, 1999, the Registrant issued a
press release on this topic. This press release is an exhibit to this report.
See Item 7.
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In light of the circumstances described in this report, the Registrant
has not published any financial information for periods beginning on or after
October 1, 1998.
Following the confirmation of the Registrant's Plan of Reorganization,
management and representatives of Belew Averitt LLP, the Registrant's
independent auditors, have begun reviewing the Registrant's books and records so
that accurate financial information about the Registrant can be published.
Many of the facts and allegations that cause management to question the
accuracy of the Registrant's statements for the January 1, 1996 to September 30,
1998 financial periods are also the subject of the litigation described below.
In addition, the Registrant's believes that prior statements relating
to the Atlanta Quarry Site may be inaccurate. This property was also been
referred to as the "Ben Hill Site." The site consists of over 200 acres that
include approximately 20 acres on which a granite quarry was operated until
1993.
Notwithstanding prior disclosures to the contrary, the Registrant
believes that there is doubt as to the suitability for solid waste disposal,
landfill, waste transfer or other similar operations at the Ben Hill site.
Site feasibility studies for the potential development of the Ben Hill
site for waste disposal operations are presented in two reports prepared for the
Registrant by independent engineering firms, a 1993 report and a 1999 report.
These two studies reveal numerous risk factors that must be considered for any
development of the Ben Hill site for purposes of waste disposal operations.
The engineer who prepared the report in 1993 also testified at the
trial in the Sterritt Litigation (defined below) that the Company's public
disclosures in the periods following the preparation of the 1993 report
materially misrepresented the conclusions stated in that report. These earlier
disclosures pointed to this report as concluding that the site was suitable for
specific landfill purposes. In fact, the 1993 report (which was a preliminary
report) did not include these conclusions.
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Also, statements in the Registrant's pleadings and filings with the
Bankruptcy Court (some of which are attached as exhibits to this report) that
are inconsistent with the preceding paragraph must be disregarded.
Litigation Involving Directors and Preliminary Injunction of Certain
Persons From Acting As Corporate Directors. On September 24, 1998, the Company's
Board of Directors voted to remove R. Dale Sterritt, Jr. as Chairman of the
Board of the Company. The directors of the Company at the that time were Mr.
Sterritt, Martin G. Blahitka, Robert D. Luna and J. B. Morris. This action was
taken after the board members received detailed information and allegations
concerning improper and potentially unlawful conduct by Mr. Sterritt and other
persons acting in concert with him.
Shortly thereafter, Mr. Sterritt attempted to convene and conduct a
special meeting of the Registrant's shareholders in Dallas, Texas on October 15,
1998. At that meeting, Messrs. Morris, Blahitka, Luna were purportedly removed
from the Registrant's Board of Directors and Scott Bush, Larry Sterritt and Greg
Wiggins were purportedly appointed as successors.
In November 1998, Jerry B. Morris, Martin G. Blahitka and Robert D.
Luna commenced a lawsuit Jerry B. Morris, et al. v. Scott Bush, et al. (Civ.
Action No. 3:98-CV-2452-G) in the U.S. District Court for the Northern District
of Texas Dallas Division. In the lawsuit, the plaintiffs sought to enjoin Mr.
Bush, Larry Sterritt and Mr. Wiggins from acting as directors of the Registrant
in light of numerous violations of the federal securities and other laws and the
proxy rules of the Securities and Exchange Commission in convening and holding
the October 15, 1998 special meeting.
On January 28, 1999, the Honorable A. Joe Fish, U.S. District Judge
entered an Order of Preliminary Injunction and a related Memorandum Opinion
(collectively, the "Preliminary Injunction") in this lawsuit. In the Memorandum
Opinion, the Court determined that the plaintiffs had "shown a substantial
likelihood of success on their claims" that the alleged special meeting and the
related notice violated federal law. Based on these findings, the Court entered
the Preliminary Injunction.
Among other things, the Preliminary Injunction restrained and enjoined
the defendants in that lawsuit, Scott Bush, R. Dale Sterritt, Jr., Larry
Sterritt and Greg Wiggins, their agents, officers, successors, servants,
employees, representatives, attorneys and all persons acting on their behalf or
in active concert or participation with them from:
a. "taking or purporting to take any action as directors
of [the Registrant] and from causing [the Registrant]
to take or to purport to take any action, including
but not limited to, the sale, lease, exchange or
other disposition of any of [the Registrant's] assets
or the mortgage, pledge or creation of a security
interest in any of [the Registrant's] assets;" and
b. holding any meeting of the Registrant's shareholders
at which they are asked or permitted to vote on the
election of directors or any other matter without the
prior filing with the Securities and Exchange
Commission and subsequent distribution to
shareholders of a proxy statement or information
statement and annual report disclosing all material
facts relating to certain enumerated matters.
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The Preliminary Injunction also enjoined any efforts to void the
election of certain of the plaintiffs, Jerry B. Morris, Martin G. Blahitka and
Robert D. Luna, as directors of the Registrant "unless and until a proper and
lawful shareholders' vote occurs...." Further, the Preliminary Injunction
suspended the shareholder voting rights of the defendants and those persons
listed above who might be acting with them unless and until "appropriate
disclosures" have been made in the Registrant's annual reports and in Schedule
13D filings of the relationships and agreements of these persons with respect to
the acquisition, voting and dispositions of the Registrant's stock and the plans
or proposals of those persons with respect to the liquidation, sale, or merger
of the Registrant or any other material changes in the Registrant's business or
corporate structure.
As a result of the Preliminary Injunction, the directors in office
prior to the attempted shareholders meeting on October 15, 1998 were
re-established as the current directors of the Registrant. These directors were
Martin G. Blahitka, Robert D. Luna, J. B. Morris, and R. Dale Sterritt, Jr.
As described above, the Preliminary Injunction barred R. Dale Sterritt,
Jr. from acting as a director of the Registrant. A trial in the case is
scheduled to begin later in this year.
As a result of the confirmation of Plan of Reorganization, R. Dale
Sterritt, Jr. is no longer a director of the Company. Its current directors are:
Martin G. Blahitka
Robert D. Luna
J. B. Morris
Mr. Morris is also the Company's President, and Mr. Luna serves as the
Vice President and Secretary.
Litigation Initiated by Stewart Rahr and the Registrant. On October 8,
1998, Stewart Rahr, who was then a holder of the Registrant's common stock,
filed a lawsuit in the U.S. District Court for the Eastern District of New York.
This lawsuit was subsequently removed to the Northern District of Texas, Dallas,
Division, where it is currently styled Stewart Rahr v. R. Dale Sterritt, et al.
(Civil Action No. 3:99-V-0628-G) (the "Sterritt Litigation"). The Third Amended
Complaint alleges securities fraud, common law fraud, conspiracy and related
claims against the defendants in connection with Mr. Rahr's purchase of the
Registrant's common stock and certain loans. The Registrant has intervened in
the Sterritt Litigation and is asserting fraud, breach of fiduciary duty,
conspiracy and related claims against the defendants in connection with the
siphoning of assets from the Registrant and the diversion of corporate
opportunities.
10
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A jury trial in this case began on June 12, 2000 and ended June 26,
2000 with a verdict favorable to the plaintiffs. The judgment that will be
entered by the Court will be discussed in a subsequent report after the facts
become known.
On October 8, 1999, Mr. Rahr also filed a lawsuit in the same Texas
federal district court styled, Stewart Rahr v. Grant Thornton, LLP, Holland &
Knight LLP, and Gary L. Rowan (Civil Action No. 3-99-CV-2305-G) alleging
securities fraud, common law fraud and related claims against the public
accounting firm that previously audited the Registrant's financial statements,
and a law firm that previously represented the Registrant, and an attorney who
previously represented the Registrant. The Company also filed a lawsuit against
these same professionals styled, Continental Investment Corporation v. Holland &
Knight, Grant Thornton and Gary Rowan (the "CIC Suit"). Mr. Rahr's federal
claims were dismissed on the ground that they were brought more than one year
after Mr. Rahr was on notice of his claims. Mr. Rahr has refiled certain of his
state claims in the Texas District Court of Dallas County styled, Stewart Rahr
v. Grant Thornton, LLP (No. 00-01954) (the "Rahr Suit"). Motions to dismiss or
to transfer are pending in the CIC Suit and in the Rahr Suit. Discovery has yet
to begin in either of these cases.
On December 3, 1999, the Registrant and Mr. Rahr, acting through
counsel, entered into a letter agreement (the "Litigation Agreement"), pursuant
to which the Registrant agreed to cooperate with Mr. Rahr in prosecuting the
claims and courses of action of the Registrant and Mr. Rahr in the Sterritt
Litigation, the CIC Suit and the Rahr Suit. Also, the Registrant agreed to
retain counsel selected by Mr. Rahr to act as counsel to the Registrant. Mr.
Rahr agreed to bear all legal fees, costs of court and related expenses with
respect to the litigation, provided that the parties would bear equally any
post-judgment collection expenses as more fully provided in the Litigation
Agreement. In consideration of these covenants, the Litigation Agreement
provides that any recovery in the litigation shall be paid 25% to the Registrant
and 75% to Mr. Rahr.
These percentages were changed to 85% to Mr. Rahr and 15% to the
Registrant under the terms of an Agreement Regarding Treatment of Claims (herein
so called), dated December 6, 1999, between Mr. Rahr and the Registrant. In this
agreement, Mr. Rahr agreed to relinquish all creditor and stockholder claims
held by him in exchange for this increase in his share of any proceeds from the
litigation.
Subject to the Registrant's right to prior approval of any settlement
agreement or out-of-court resolution, the Litigation Agreement provides that Mr.
Rahr shall have the right to make decisions regarding the conduct of the
Sterritt Litigation, the CIC Suit and the Rahr Suit.
Copies of the Litigation Agreement and the Agreement Regarding
Treatment of Claims are attached as exhibits to this report. See Item 7.
Note: References to Exhibits contained in this Amendment No. 1 are to
the Exhibits included as Item 7 to the Form 8-K as originally filed.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.
CONTINENTAL INVESTMENT CORPORATION
Date: August 3, 2000 BY: /s/ J. B. Morris
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J. B. Morris, President
