U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-12914
WASTEMASTERS, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1507818
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1230 Peachtree Street, Suite 2545, Atlanta, Georgia 30309
---------------------------------------------------------
(Address of Principal Executive Offices)
(404) 888-0158
-------------------------
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 34,967,126 shares of Common
Stock ($.01 par value) as of November 19, 1997.
Transitional small business disclosure format: Yes No x
<PAGE>
WASTEMASTERS, INC.
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending September 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Operations:
Three Months Ended September 30, 1997
and 1996; Nine Months Ended September
30, 1997 and 1996
Consolidated Balance Sheets:
September 30, 1997 and December 31, 1996
Consolidated Statements of Cash Flows:
Nine months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements:
September 30, 1997
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
ii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
WASTEMASTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
------------- ------------
Current assets:
Cash $ 0 $ 0
Accounts receivable, net of
allowance for doubtful accounts 49,949 108,733
----------- -----------
Total current assets 49,949 108,733
----------- -----------
Property, machinery and equipment,
at cost, net of accumulated
depreciation 14,032 62,531
----------- -----------
Total property and equipment 14,032 62,531
----------- -----------
Other assets:
Investment in Continental
Investment Corp. 7,840,000 0
Landfill, net 1,582,180 2,541,365
Deferred loan costs, net 440,203 1,262,127
Excess of costs over net
assets acquired 9,385,645 13,047,493
Deposits and other assets 1,327 1,387
----------- -----------
Total other assets 19,249,355 16,852,372
----------- -----------
Total assets $19,313,336 $17,023,636
=========== ===========
The accompanying notes are an integral part of these statements.
1
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------- ------------
Current liabilities:
Current maturities of
longterm debt $ 8,049,300 $ 9,190,149
Accounts payable and accrued
liabilities 4,126,501 3,629,144
Liabilities due to related
parties 695,044 575,994
----------- ------------
Total current liabilities 12,870,845 13,395,287
----------- ------------
Longterm debt 0 0
Deferred expenses:
Accrued environmental and
landfill costs 300,751 313,002
----------- ------------
Total liabilities 13,171,596 13,708,289
----------- ------------
Stockholders' equity:
Preferred stock, $0.01 par
value; 5,000,000 shares
authorized; and 0 shares
issued and outstanding at
December 31, 1996 and
5,000,000 shares issued
and outstanding at
September 30, 1997 2,500,000 0
Common stock, $0.01 par
value; 35,000,000 shares
authorized; 21,437,363
shares issued and out-
standing at December
31, 1996 and 34,794,712
shares issued and outstanding
at September 30, 1997 347,947 213,174
Additional paid in capital 32,800,367 27,658,640
Accumulated deficit (29,506,574) (24,556,667)
----------- ------------
Total stockholders' equity 6,141,740 3,315,347
----------- ------------
Total liabilities and
stockholders' equity $19,313,336 $ 17,023,636
=========== ============
The accompanying notes are an integral part of these statements.
2
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
REVENUES:
Sales $ 183,208 $ 1,228,961 $ 407,064 $ 4,029,564
Fees and other 0 0 0 7,587
Interest income 0 1,660 0 4,048
----------- ----------- ----------- -----------
183,208 1,230,621 407,064 4,041,199
----------- ----------- ----------- -----------
EXPENSES:
Cost of sales 270,799 1,810,842 471,196 4,567,628
Selling, general
and administra-
tive 272,604 1,954,502 1,879,426 5,077,069
Interest expense 84,827 302,086 234,375 728,452
Depreciation and
amortization 397,993 0 1,187,345 0
----------- ----------- ----------- -----------
1,026,223 4,067,430 3,772,342 10,373,149
Loss before income
taxes, and extra
ordinary item (843,015) (2,836,809) (3,365,278) (6,331,950)
Income tax expense 0 0 0 0
----------- ----------- ----------- -----------
Net loss before
extraordinary
item (843,015) (2,836,809) (3,365,278) (6,331,950)
Extraordinary item:
Gain(loss) from
disposal of assets,
net of income tax (1,209,379) (1,602,503) (1,209,379) (387,921)
----------- ----------- ----------- -----------
Net loss $(2,052,394) $(4,439,312) $(4,574,657) $(6,719,871)
=========== =========== =========== ===========
Loss per share:
Primary: Loss
before extra
ordinary item $ (0.03) $ (0.19) $ (0.12) $ (0.46)
Extraordinary
item (0.04) (0.10) (0.04) (0.03)
----------- ----------- ----------- -----------
Net loss $ (0.07) $ (0.29) $ (0.16) $ (0.49)
=========== =========== =========== ===========
Weighted
Average Number
of Common Shares
Outstanding 30,660,419 15,347,056 28,107,417 13,869,003
The accompanying notes are an integral part of these statements.
3
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------ --------------
Increase (decrease) in cash
Cash flows from operating
activities net loss $(4,574,657) $ (6,719,871)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 1,187,345 835,318
Stock issued in lieu of
cash payment for expenses 1,543,524 0
Changes in assets and liabilities:
Accounts receivable 58,783 (457,409)
Inventory and prepaid expenses 0 (30,982)
Bond issuance costs, net 821,924 3,959,775
Other assets 0 (322,614)
Accounts payable and accrued liabilities 516,757 (3,560,775)
Deferred income 0 (46,540)
Due to Related Parties 236,136 0
----------- ------------
Net cash provided by (used in)
operating activities (210,188) (6,343,098)
----------- ------------
Cash flows from investing activities
Purchase of property, plant and equipment 0 (3,548,172)
Disposal of Subsidiaries 750,188 0
Disposal of property, plant and
equipment, net 0 34,040,515
Business acquisitions 0 (7,432,611)
Investment in Continental (7,840,000) 0
----------- ------------
Net cash provided by (used in)
investing activities (7,089,812) 23,059,732
----------- ------------
Cash flows from financing activities
Repayment of loans 0 (34,531,774)
Proceeds from issuance of stock 7,776,300 14,367,899
Proceeds from loans 0 364,654
Proceeds from convertible debentures, net (476,300) 3,165,000
----------- ------------
Net cash provided by (used in)
financing activities 7,300,000 (16,634,221)
----------- ------------
Net increase (decrease) in cash
and short term investments 0 82,433
Cash and short term investments
at beginning of period 0 47,327
----------- ------------
Cash and short term investments
at end of period $ 0 $ 129,760
=========== ============
The accompanying notes are an integral part of these statements.
4
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------ -------------
Supplemental disclosure of cash flow
information
Cash paid during the period for interest $ 40,000 $ 278,830
Supplemental disclosure of noncash
transactions
Common stock issued in exchange
for services $ 1,543,524 $ 5,277,172
Conversion of debentures to common stock $ 476,300 $ 0
Preferred Stock issued in exchange
for Investment $ 4,710,000 $ 0
Common Stock issued in exchange for
Investment $ 1,170,000 $ 0
The accompanying notes are an integral part of these statements.
5
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE A SUMMARY OF ACCOUNTING POLICIES
General
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission ("SEC"). Certain information and disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of these
financial statments have been included. Operating results for the nine month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. These financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
Consolidated Statements
The consolidated financial statements include the accounts of WasteMasters,
Inc. and its wholly owned subsidiaries, F&E Resource Systems Technology for
Baltimore, Inc. (FERST for Baltimore, Inc.), FERST for St. Mary's, Inc., FERST
O&M, Inc., and Chemical Road Investments, Inc., WasteMasters of South Carolina,
Inc., Trantex, Inc., WasteMasters of Georgia, Inc. WasteMasters of New York,
Inc. and WasteMasters of Pennsylvania, Inc. as well as the accounts of Baltimore
FERST Limited Partnership (the "Partnership") in which FERST's subsidiary, FERST
for Baltimore, Inc., is a general partner (collectively "the Company").
Significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
6
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE A SUMMARY OF ACCOUNTING POLICIES (continued)
Concentration of Risk
The Company owns 400,000 shares of the common stock of Continental
Investment Corporation. The stock, which is subject to trading restrictions
under SEC Rule 144, valued at $7,840,000. The investment represents 44.4% of the
total assets of the Company. The value of the investment is subject to future
changes in market prices for the common stock.
NOTE B DISPOSITIONS
On May 17, 1996, the Partnership's Baltimore recycling and compost facility
was sold at foreclosure. Assets disposed of include the facility, improvements,
bond issuance costs and land. The net book value of the assets sold was
approximately $40,780,800. The Partnership filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code to retire any remaining non-recourse
secured and unsecured liabilities related to the facility in the approximate
amount of $42,000,000.
On April 12, 1996, FERST 0 & M, Inc. (a wholly-owned subsidiary of the
Company) filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code.
In November, 1996, the Company sold all of the outstanding common stock of
FERST for St. Mary's, Inc. to a former Company President.
Continental Investment Corporation ("Continental"), a publicly traded
corporation engaged in the waste disposal business, purchased 4,500,00 shares of
newlyissued Common Stock and 5,000,000 shares of newlyissued Series A Preferred
Stock, par value $.01 per share, of WasteMasters, Inc. ("Preferred Stock")
directly from WasteMasters, Inc. Such shares comprise 12.9% of the total number
of shares of WasteMasters Common Stock that are currently outstanding and 100%
of the total number of shares of WasteMasters Preferred Stock that are currently
outstanding. Each share of Preferred Stock has a preference over holders of
Common Stock upon any liquidation or dissolution of the Company equal to $1.25
per share, is entitled to one vote on any matter on which shareholders will
vote, and is convertible into 5.1 shares of WasteMasters Common Stock. If
Continental were to fully convert the Preferred Stock into Common Stock,
Continental would then own approximately forty nine percent (49%) of the total
number of shares of WasteMasters Common Stock that would then be outstanding.
7
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE B DISPOSITIONS (continued)
The consideration paid to WasteMasters, Inc. for the WasteMasters Common Stock
and Preferred Stock was the issuance by Continental to WasteMasters of 300,000
shares of Continental Investment Corporation Common Stock, par value $0.50 per
share ("Continental Common"), valued for the purposes of this transaction at
$19.60 per share.
Continental also purchased from WasteMasters, Inc. 100% of the issued and
outstanding shares of two corporations which had been whollyowned subsidiaries
of WasteMasters, Inc. These corporations, Trantex, Inc. (which owns a landfill
site in Kirksville, Missouri) and WasteMasters of Georgia, Inc. (which owns an
undeveloped landfill site in Walker County, Georgia) are now whollyowned
subsidiaries of Continental Technologies Corporation of Georgia, which is itself
a whollyowned subsidiary of Continental. The consideration paid to WasteMasters,
Inc. for the Trantex, Inc. stock and the WasteMasters of Georgia, Inc. stock was
the issuance by Continental to WasteMasters of 100,000 shares of Continental
Common and an option to purchase up to 100,000 additional shares of Continental
Common Stock for a period of five (5) years at an exercise price of $23.00 per
share (the "Continental Option").
In addition, a warrant for the purchase of shares of WasteMasters Common
Stock was issued by WasteMasters, Inc. to Continental giving Continental the
option, exercisable until August 29, 1999, to acquire up to 100 million shares
of WasteMasters Common Stock in exchange for up to 1 million shares of
Continental Common Stock.
The 400,000 shares of the Continental Common that are currently owned by
WasteMasters, Inc. comprise approximately 3.3% of the total number of shares of
Continental that are currently outstanding.
In the event that Continental exercises in full its Warrant and fully
converts its WasteMasters Preferred Stock into WasteMasters Common Stock,
Continental would own approximately 81% of the then issued and outstanding
shares of Common Stock of WasteMasters on a fully diluted basis. If WasteMasters
Inc. exercises the Continental Option and upon the exercise of the Warrant by
Continental, receives 1,000,000 shares of Continental in exchange, WasteMasters
would own approximately 3.3% of the then issued and outstanding shares of
Continental on a fully diluted basis.
8
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE C FINANCIAL INSTRUMENTS
The Company's long term investments consist of Common Stock of Continental
Investment Corporation. Although the stock is regularly traded and has a readily
determinable market value, the investment has been recorded at a discount of 20%
from the closing price on the date of the transaction in which the stock was
acquired, due to the trading restrictions placed on the stock.
NOTE D LONGTERM DEBT AND CONVERTIBLE DEBENTURES
Longterm debt at September 30, 1997 consists of the following:
Mortgage loan payment in monthly
installments of $10,000, including
interest installments at 2.4% per annum;
loan secured by a first deed of trust on
Allendale, South Carolina real property. 4,900,000
Convertible debentures payable in
quarterly interest installments at 8%
per annum on the unpaid balance; loan
is convertible into the Company's common
stock at any time beginning forty (40)
days and ending two (2) years from
April 12, 1996 at a conversion price,
as amended, of $0.255 per share 1,149,300
Convertible debentures payable in
quarterly interest installments at 8%
per annum on the unpaid balance due April
1998; loan is convertible into the company's
common stock at any time beginning forty (40)
days and ending two (2) years from June 27,
1996 at conversion price, as amended, of
$0.255 per share. 2,000,000
----------
Less: Current maturities 8,049,300
----------
Net longterm debt $ 0
==========
Refer to Part II, Item 3 "Defaults on Senior Securities" for discussion on
the current status of the debt.
9
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.
GENERAL
Management plans to develop Company-owned waste processing facilities and to
arrange alliances or management contracts with independent waste processors,
waste transporters, and waste generators to produce waste revenues for the
Company's landfills.
The core Company focus is developing it's existing landfill. Subject to
adequate financing, the Company plans to embark on expansions and Sub-title D
permitting of the landfill, while developing processing capability upstream to
supply the facility.
During the nine months of 1997, the Company operated and received revenues
principally from two facilities, the Rye Creek Landfill in Kirksville, Missouri
and the Appleton Sanitary Landfill in Allendale, South Carolina. On September 6,
1997, the Rye Creek Landfill and the undeveloped site in Walker Co., Georgia
were sold.
On May 17, 1996, the Company's Baltimore FERST Limited Partnership, a
recycling and composting facility, was sold at foreclosure. Assets sold include
the facility, improvements, bond issuance costs and the land of Baltimore FERST
limited Partnership. The net book value of the assets sold was approximately
$40,780,000. The Company retired non-recourse secured and unsecured liabilities
related to the facility in the amount of $42,000,000.
On April 12, 1996, FERST 0 & M, Inc.(a wholly-owned subsidiary of the
Company) and the entity responsible for managing the Baltimore recycling and
compost facility, filed a voluntary petition under Chapter 7 of the U.S.
Bankruptcy Code.
RESULTS OF OPERATIONS
The Company's revenues decreased by $1,045,753 to $183,208 for the third
quarter of 1997, from $1,228,961 during the same period in 1996. The decrease is
primarily the result of discontinuing the operation of the New York City C&D
transfer station.
10
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
RESULTS OF OPERATIONS (continued)
The Company's revenues decreased by 89.90% to $407,064 for the first nine
months of 1997, from $4,041,199 during the same period in 1996. The decrease in
revenues is a result of the effects of the disposal of the Company's Baltimore
Recycling and Compost facility in May, 1996 and the discontinuance of operations
of the New York City C & D transfer station in February, 1997 and the
corresponding loss of revenues from those facilities.
Expenses decreased by 66.52% or $1,501,164 for the third quarter of 1997
compared to the same period in 1996. Expenses as a percentage of revenues were
412.33% in the current third quarter compared to 280.4% for the prior year third
quarter. Cost of sales decreased by $1,540,043 for the third quarter of 1997.
Selling, general and administrative expenses decreased by $1,501,164 for the
third quarter of 1997. The decrease is due to reduced management and staff
compensation and professional fees. Interest expense decreased 71.92%, or
$217,259 to $84,827 for the third quarter of 1997 compared to the third quarter
of 1996. The decrease reflects the extinguishment of the debt related to the
Company's Baltimore facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet at September 30, 1997 reflects a working capital
deficit of $12,820,896 as compared to a deficit of $9,971,207 at December 31,
1996.
During the first nine months of 1997, the Company's working capital
deficiency increased $2,849,689. Accounts receivable decreased $58,784 as a
result of the contraction of the Company's business operations.
The Company's ratio of indebtedness to equity of 2.14 at September 30, 1997
changed substantially from 4.13 at December 31, 1996.
The Company is in default under the terms of the Land Purchase Contract for
the purchase of the Company's Allendale, South Carolina landfill for failing to
make the required principal payment of $100,000 due on or before May 26, 1997.
Due to the failure to make all quarterly accrued interest payments, the Company
is in default under the terms of the convertible debentures due in 1998.
11
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company will require financing in order to meet its working capital
needs and complete its planned improvements necessary to the Company's landfill
to make it fully operational. The Company has sought and continues to seek
financing in the form of equity and debt in order to make the necessary
improvements and provide working capital. The Company also anticipates that the
holder of the convertiable debentures in the principal amount of $3,161,800 will
convert the entire principal and the accrued but unpaid interest of $350,343 to
Common Stock of the Company upon future stockholder approval to increase
authorized capital stock of the Company. The Company maintains an investment in
the common stock of Continental Investment Corporation, which was valued as
$7,840,000 at September 30, 1997. However, the shares are aubject to various
trading restrictions pursuant to the rule of the SEC which limits the ability of
the Company to convert the shares to cash for twelve months from the date of
issuance. Also, there is no assurance that the present value can be maintained
until the shares may be sold for cash. However, there are no assurances the
Company will be successful in raising the funds required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Baltimore FERST Limited Partnership (the "Partnership")
On February 29, 1996, "the Partnership", which owned the Company's Baltimore
composting and recycling facility, filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code in the U.S. Bankruptcy Court in Baltimore,
Maryland. On April 25, 1996, the Bankruptcy Court granted the motion of the
holder of the senior lien on the facility to modify the bankruptcy stay to allow
it to proceed with a foreclosure sale of the facility. The Company first
reported on the proceeding in Item 3 Of its Annual Report on Form 10-KSB for the
year ended December 31, 1995. After the company exhausted all of its legal
remedies to stay the foreclosure sale, the Baltimore facility was sold at
foreclosure on May 17, 1996 to BrowningFerris Industries, Inc. The foreclosure
sale was ratified by the circuit court for Baltimore City, Maryland on June 27,
1996.
12
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 1. LEGAL PROCEEDINGS (continued)
PWT Waste Solutions, Inc.v. Baltimore FERST LP (the"Partnership") The
"Partnership" is involved in litigation with PWT, the facility's construction
contractor. The contractor claims to be due approximately $1.5 million from
retainage claimed by the Partnership when the contractor failed to comply with
various performance tests, timely completion, and numerous warranty claims. The
Partnership is claiming liquidated damages far in excess of the retainage.
Subsequently, the contractor expanded the lawsuit to include F&E, O&M and F&E
Resource Systems Technology for Baltimore, Inc. ("FERST for Baltimore"), the
general partner of the Partnership. The Partnership's affirmative claims against
PWT are subject to the bank's security interest. A settlement has been reached
for this litigation under which all claims have been dismissed.
Reis v. WasteMasters, Inc. On June 4, 1996, Michael Reis and Lawrence Katz filed
a complaint in the United States District Court for the District of New Jersey.
The Complaint seeks unspecified damages based on a purported contract between
the Plaintiffs and the Company for a financing placement and corporate
development fee. The Company believes the complaint is completely without merit
and intends to vigorously defend its position.
WasteMasters, Inc. v. Diversified Investor Services of North America, Inc. On
June 28, 1996, the Company instituted a Complaint for Declaratory Relief in the
United States District Court for the Southern District of New York against
Diversified Investors Services of North America, Inc. in response to a demand by
Diversified for issuance of warrants for 500,000 shares of the Company's stock.
Diversified claims it is entitled to the warrants by virtue of having obtaining
certain financing for the Company as required by a December 8, 1994 contract
between Diversified and the Company. The filing of a counterclaim by Diversified
for the warrants is anticipated. On September 24, 1997 a Civil Judgment was
entered in the Company's favor dismissing with Prejudice the Defendant's
counterclaims and declaring that the Defendant is not entitled to the issuance
of any additional warrants for the Plaintiff's stock.
13
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 1. LEGAL PROCEEDINGS (continued)
Peerless Group, Inc. In RE: George Cadle v. WastMasters, Inc. et al On May 8,
1997, the Company was advised by the seller of the land contract purchase
agreement for the landfill in Allendale County, South Carolina that the Company
was in default under the terms of the contract. In July, 1997, the seller sued
in the Court of Common Pleas Allendale County, South Carolina to terminate the
land contract. The Company has filed an answer and is vigorously defending it
position.
Continental Technologies Corporation of Georgia v. WasterMasters, Inc. and
WasteMasters of Georgia, Inc. Superior Court of Fulton County, Georgia. This
matter, involving a lawsuit filed on July 18, 1997 against the Company in the
State of Georgia, attempting to enforce a Sales Agreement with the Company was
dismissed without prejudice on September 12, 1997.
Harold Solomon and Mary Ann Solomon v. WasteMasters, Inc. In July, 1997, Harold
Solomon, former employee and consultant to the Company and Mary Solomon, filed a
complaint in the Circuit Court for Broward County Florida. The Complaint seeks
damages based on a breach of contract between the Plaintiff and the Company for
services rendered. The Company believes the complaint is completely without
merit and intends to vigorously defend its position.
Waste Management of Cambridge, Inc. d/b/a Hunting Ridge Landfill v.
WasteMasters, Inc. On July 14, 1997, Waste Management of Cambridge, Inc. filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania. The complaint seeks payment for access to its landfill for
disposal of various products. The amount of the unpaid invoices for services
total $69,800.
WasteMasters, Inc. v. Old Solomons Isl. Road7 On July 30, 1997, 157 Old
Solomon's Isl. Road Corp. filed a complaint in the District Court of Maryland
for Anne Arundel County of $20,000 plus costs. The complaint seeks damages
resulting from a breach of contract.
14
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 1. LEGAL PROCEEDINGS (continued)
Herzog v. WasteMasters, Inc. In June, 1997, Herzog Contracting Corp. filed a
complaint in Buchannon County, Missouri. The complaint seeks payment for
car-topper services in the amount of $31,000.
CSX Transportation, Inc. v. WasteMasters, Inc. Suit was filed September 25,
1997. Plaintiff's claim is based on a contract for the transportation of
nonhazardous construction debris. Plaintiff demands a judgment for $258,215.60.
Raritan Properties, Inc. v. WasteMasters, Inc. Superior court of New Jersey Law
division, Middlesex County. Complaint filed May 23, 1997. The Plaintiff's claim
is based upon a lease agreement for the Abarry Complex in Perth Amboy, New
Jersey in which the Defendant allegedly agreed to pay all real estate taxes for
the subject property quarterly for the first 6 months of the lease. Defendant
has allegedly not made such payments and the Plaintiff claims damages for taxes
and for lease defaults.
Steffen Robertson and Kirsten (U.S., Inc. ("SRK") Court of Common Pleas for
the 14th Judicial Circuit, South Carolina. Notice and Certificate of Mechanics
lien in the amount of $88,933.36 was filed against WasteMasters of South
Carolina, Inc. by SRK.
Steffen Robertson and Kirsten, Inc. ("SRK") v. WasteMasters of South Carolina,
Inc., George Cadle, E&J Landscaping, Inc. Court of Common Pleas, Allendale
County, South Carolina. This is an action to foreclose a mechanic's lien on
property in Allendale County due to lack of payment for engineering services.
Damages sought are $135,822.07 plus interest. Also as part of this litigation,
E&J landscaping also holds an Order of Judgment by Default against WasteMasters
of South Carolina for $458,206.80 plus post-judgment interest.
E&J Landscaping, Inc. v. WasteMasters, Inc., Rye Creek Corporation, Olive A.
Tharp, Bank Midwest, Red Earth Environmental, Inc., SRK, Inc. and Continental
Technologies Corp. Circuit Court of Adair County, Kirksville, Missouri. The
Plaintiff's claim is a petition to enforce and foreclose upon a mechanic's lien
and for damages. Plaintiff claims damages of $157,379.38 for landscaping
services provided. The petition was filed on September 19, 1997.
15
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 1. LEGAL PROCEEDINGS (continued)
Mudge Rose Guthrie Alexander & Ferdon v. Ronald W. Pickett, F&E Resource Systems
Technology, Inc. and WasteMasters, Inc. United States District Court for the
District of New York. The Plaintiff's claim is based upon legal services
rendered to F&E Resource Systems Technology and other subsidiaries. The
Plaintiff has demanded the outstanding amount of $885,466.80 plus interest at
the maximum rate provided, plus the cost of the lawsuit and other and further
relief. The complaint was filed on September 24, 1997. The Company claims this
is without merit and vigorously defends its position.
Michael Paul Bahor and Engineering Contract Personnel, Inc. v. Renee Colbert,
Richard Masters, Burce Blazer, Leon Blazer, George Cadle, Red Earth
Environmental , Inc., Appleton Landfill, WasteMasters and WasteMasters/FERST
Court of Common Pleas of Allegheny County, Pennsylvania. Plaintiff's claim is
based on a settlement agreement whereby the Defendants were to convey stock in
Wastemasters to Bahor in October and/or November 1995. Also, Defendants
allegedly entered into a settlement agreement with Renee Colbert and Red Earth
Environmental and failed to comply with that as well. Plaintiff demands judgment
against Defendants for $100,000.
There are numerous other claims and pending legal proceedings involving
creditors claims. Although the ultimate disposition of legal proceedings cannot
be predicted with certainty, it is the present opinion of the Company's
management that the outcome of any of these claims which is pending or
threatened, either individually or on a combined basis, will not have a material
adverse effect on the consolidated financial condition of the Company, but could
materially effect consolidated results of operations in a given period.
ITEM 2. CHANGES IN SECURITIES.
On September 6, 1997, the Company issued 5,000,000 shares of Series A Preferred
Stock, par value $0.01 per share. Each share of Preferred Stock has a preference
over holders of Common Stock upon any liquidation or disolution of this company
equial to $1.25 per share, is entitled to one vote on any matter on which
shareholders will vote, and is convertible into 5.1 shares of WasteMasters
16
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
ITEM 2. CHANGES IN SECURITIES (continued)
Common Stock. If Continental were to fully convert the Preferred Stock into
Common Stock, Continental would then own approximately forty nine percent (49%)
of the total number of shares of WasteMasters Common Stock that would then be
outstanding on September 6, 1997, the Company issured 5,000,000 shares of Series
A Preferred Stock, par value $0.01 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is in default under the terms of the Land Purchase Contract for
the purchase of the Company's Allendale, South Carolina landfill for failing to
make the required principal payment of $100,000 due on or before May 26, 1997.
Due to the failure to make all quarterly accrued interest payments, the Company
is in default under the terms of the convertible debentures due in 1998.
ITEM 5. OTHER INFORMATION.
On July 14, 1997, the Company removed Richard Masters as the Company's
President, Chief Executive officer, and Member of the Executive Committee. The
Company's acting Chief Financial Officer, Peter Stefanou was named interim
President and Chief Executive Officer. Mr. Stefanou resigned as interim
President and Chief Executive Officer in September, 1997. Mr. J.B. Morris, a
Director of the Company, was named Interim President.
On August 4, 1997, the Company was advised that Continental Investment
Corporation acquired from Infinity Investors, Ltd. and is the holder of all of
the Company's convertible debt, totally approximately $3,161,800. On September
29, 1997, the Company was informed that Continental no longer holds an interest
in the Debentures.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is attached, as required by Item 601 of
Regulations SB. Exhibit No. 10(10) Stock Issuance and Stock Purchase Agreement
dated September 6, 1997, by and between Continental Investment Corporation and
WasteMasters, Inc.
(b) Reports on Form 8-K during the quarter: A Current Report on Form 8-K,
dated September 9, 1997, was filed by the Company. To report a transaction under
Item 2, Acquisitions or Disposition of Assets.
17
<PAGE>
WASTEMASTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WASTEMASTERS, INC.
- ------------------------ ----------------------------------
Date Douglas C. Holsted
Duly Authorized
Principal Accounting and
Financial Officer
18
EXHIBIT 10.10
EXECUTION COPY
STOCK ISSUANCE AND STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of the ____ day of ________, 1997, by and
between Continental Investment Corporation ("Buyer"), on the one hand, and
Waste Masters, Inc., a Maryland corporation ("Seller"), on the other hand.
W I T N E S S E T H :
WHEREAS, Seller and Continental Technologies Corporation of Georgia, a
subsidiary of Buyer, entered into that certain Stock Purchase Agreement, dated
July 9, 1997 (the "Original Agreement"); and
WHEREAS, subsequent to the execution of the Original Agreement, Seller
entered into a certain Loan Agreement ("WMI Agreement") with WMI Investors, Inc.
("WMI"); and
WHEREAS, subsequent to the execution of the WMI Agreement, Buyer filed a
lawsuit seeking a temporary restraining order preventing Seller from
performing under the WMI Agreement; and
WHEREAS, Buyer and Seller have agreed upon the terms and conditions
pursuant to which Buyer shall obtain an equity interest in the Seller, and
shall obtain all of the issued and outstanding shares of capital stock of
certain subsidiaries of the Seller, in exchange for which Buyer shall dismiss
the Lawsuit and shall release the Seller and its officers and directors from
claims it may have arising out of any alleged breach of the Original
Agreement; and
WHEREAS, the Boards of Directors of both Buyer and Seller agree that it
is in each company's best interest that this Agreement be entered into;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by both Buyer and Seller, Buyer and Seller agree
as follows:
1. Definitions. As used in this Agreement, the following terms if not
otherwise defined herein have the following meanings:
"Debentures" shall mean those certain debentures by and between Seller and
Infinity Investors Ltd., which are convertible into common stock of the Seller,
with an outstanding principal amount of approximately $3.162 million in the
aggregate.
"Lawsuit" shall mean that certain suit filed by Buyer against Seller,
styled Continental Technologies Corporation of Georgia, Inc. v. WasteMasters,
Inc. and Wastemasters of Georgia, Inc., Civil Action File No. E-59932,
Superior Court, Fulton Co., Georgia.
"Securities" shall mean the Issued Common Stock (as hereinafter defined
in Section 2(a)) to be issued at Closing by Seller to Buyer, and the common
stock of Trantex and WMG to be transferred at Closing to Technologies, all
pursuant to this Agreement.
<PAGE>
"Subsidiaries" shall mean any and all corporations or other business
entities of which the Seller and/or one or more of other Seller Subsidiaries
own a majority of the outstanding voting stock entitled to vote for the
election of directors or an equivalent equity interest, including, without
limitation, Trantex, Rye Creek, WMG and WMSC.
"Technologies" shall mean Continental Technologies Corporation of Georgia,
a Georgia corporation.
"Trantex" shall mean Trantex, Inc., a Nevada corporation.
"WMG" shall mean Wastemasters of Georgia, Inc., a Maryland corporation.
"WMI" shall mean WMI Investors, Inc., a Delaware corporation.
"WMSC" shall mean Wastemasters of South Carolina, Inc., a South Carolina
corporation.
2. Issuance and Sale of Securities. Seller hereby agrees to issue and
sell to Buyer or to Technologies at the Closing, and Buyer (or Technologies,
as the case may be) hereby agrees to purchase from Seller at the Closing, the
following:
(a) 4.5 Million Shares of the common stock, par value $.01 per
share, of the Seller (the "Issued Common Stock") shall be issued to Buyer;
(b) 5 Million Shares of the Series A Preferred Stock, par value
$.01 per share, of the Seller, with the terms, conditions and preferences as
specified in Exhibit A attached hereto, (the "Preferred Stock"), shall be
issued to Buyer;
(c) 100% of the issued and outstanding shares of the capital stock
(the "Trantex Stock") of Trantex (and of Rye Creek Corporation ("Rye Creek")
if all of the capital stock of Rye Creek is not validly issued to, and owned
by, Trantex) shall be transferred to Technologies; and
(d) 100% of the issued and outstanding shares of the capital stock
of WMG (the "WMG Stock") shall be transferred to Technologies.
3. Purchase Price. In payment for the issuance and sale of the
foregoing, Buyer shall pay to the Seller at Closing the following:
(a) The purchase price for the issuance to Buyer of the Issued
Common Stock and the Preferred Stock shall be the issuance by Buyer to Seller
of 300,000 shares of its common stock ("Buyer's Stock"), par value $0.50 per
share, valued for the purposes of this transaction at $23.50 per share.
(b) For the sale to Technologies of the Trantex Stock (and/or Rye
Creek Stock) and the WMG Stock, Buyer has previously issued pursuant to the
Original Agreement to Seller, and Seller may retain, the following:
i) 100,000 shares of Buyer's Stock, and
ii) an option to purchase up to 100,000 shares of Buyer's Stock
for a period of up to five (5) years at an exercise price of $23.00 per share
(the "Seller's Option").
<PAGE>
4. Closing.
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 a.m. (local time) on Friday, August
29, 1997, in the offices of Holland & Knight, Suite 2000, One Atlantic Center,
1201 West Peachtree Street, N.E., Atlanta, Georgia 30309-3400, or at such
other time and place not later than August 29, 1997, as may be mutually agreed
upon by the Buyer and Seller.
(b) At the Closing, Seller shall deliver to Buyer, or cause the
appropriate party to deliver to Buyer, the following:
i) Certificates evidencing the issuance to Buyer of the Issued
Common Stock and the Preferred Stock;
ii) All stock certificates evidencing Seller's ownership of the
Trantex Stock (and/or Rye Creek), together with stock powers relating thereto,
duly executed and endorsed for transfer to Buyer;
iii) All certificates evidencing Seller's ownership of the WMG
Stock, together with stock powers relating thereto, duly executed and endorsed
for transfer to Buyer;
iv) A warrant substantially in the form attached hereto as
Exhibit B, pursuant to which Buyer shall have an option (the "Buyer's
Warrant") exercisable in whole or in part at any time, and from time to time,
for up to two (2) years after the Closing, pursuant to which Buyer may acquire
up to one hundred million (100,000,000) shares of Seller's common stock in
exchange for up to one million (1,000,000) shares of Buyer's common stock.
v) Irrevocable voting proxies, together with a right of first
refusal, substantially in the form attached as Exhibit C hereto, in favor of
the Buyer, executed by the following stockholders of the Seller with respect
to at least the indicated number of shares:
Name Number of Shares
---------------------- -----------------
Julius W. Basham, II 3,908,333 shares
A. Leon Blaser 1,445,743 shares
Bruce Blaser 1,239,077 shares
Richard D. Masters and
Carol Masters 1,930,224 shares
Paul Williamson 834,792 shares
-----------------
Total: 9,358,169 shares;
vi) A secretary's certificate, executed by the duly elected
secretary of the Seller, certifying to the following:
A. Seller's Articles of Incorporation and Bylaws;
B. Resolutions substantially in the form attached hereto
as Exhibit "D," which have been duly adopted by the
Board of Directors of the Seller; and
C. The incumbency of the officers of Seller.
<PAGE>
vii) Written resignations of those officers and directors of
Seller and its Subsidiaries designated by Buyer in writing the day of Closing
to be effective immediately.
viii) Agreements by the directors and officers of the Seller and
its Subsidiaries who do not resign at Closing, pursuant to which each such
officer or director agrees that he or she shall assist in the orderly
transition of the governance of the Seller or each Subsidiary as the case may
be, and shall, upon request by Buyer, resign as an officer or director of such
Seller or Subsidiary.
ix) An Agreement satisfactory to Buyer modifying the Debentures
as described in Section 7(b) hereof.
x) An opinion of counsel of Seller satisfactory to Buyer
opining that the Issued Common Stock and the Series A Preferred Stock are
validly issued, fully paid and non-assessable, that this Agreement and the
agreements referred to herein to which Seller is signatory have been duly
authorized by all necessary action by the Seller's Board of Directors, that a
shareholders meeting to approve this Agreement and the transactions
contemplated herein has been duly called, and that upon approval by the
requisite number of shareholders at a meeting properly called, this Agreement
and the transactions contemplated herein shall be valid and enforceable
against Seller and the Subsidiaries in accordance with its terms.
Buyer shall have the option at its election to waive any of the foregoing.
(c) Buyer shall on the Closing Date deliver, or cause the
appropriate party to deliver, to Seller the following:
i) A stock certificate evidencing 300,000 shares of Buyer's
Stock.
5. Unwind.
INTENTIONALLY OMITTED
6. Representations and Warranties of Seller. (For purposes of this
Section 6, notwithstanding that reference is sometimes made to "Seller" alone,
and sometimes to "Seller and/or its Subsidiaries" or the like, each
representation and warranty below shall be with respect to Seller and each of
its Subsidiaries. As an inducement to the execution of this Agreement and the
purchase of the Securities by Buyer, Seller represents and warrants to Buyer,
that:
(a) Each of the Seller and the Subsidiaries has been duly organized
and is validly existing as a corporation in its state of incorporation, and
has the corporate power and authority to own its properties and to conduct its
business as presently conducted. Each of the Seller and the Subsidiaries is
qualified to do business in any jurisdiction in which the failure to so
qualify would have an adverse material impact upon such corporation.
<PAGE>
(b) Except for a possible claim by WMI based upon the WMI
Agreement, Seller represents and warrants that the Securities issued to or
sold to Buyer are free and clear of any and all security interests, liens,
claims, pledges, charges, options, commitments, restrictions or other
encumbrances whatsoever (all such security interests, liens, claims, pledges,
charges, options, commitments, restrictions or other encumbrances being
referred to herein as "Liens"), and are validly issued, fully paid,
non-assessable and free of preemptive rights.
(c) As of the date of this Agreement, the authorized capital stock
of the Seller consists of 35,000,000 shares of common stock, $.01 par value
per share, and 5,000,000 shares of preferred stock, $.01 par value per share,
of which approximately 30.245 million shares of Seller's common stock and no
shares of preferred stock are issued and outstanding. All of the Seller's
common stock which is issued and outstanding are validly issued, fully paid
and nonassessable and free of preemptive rights. Except as set forth on
Schedule 4(c) attached hereto, there are no issued and outstanding options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments obligating the Seller or any Subsidiary to issue or sell any
shares of capital stock of the Seller or of any Subsidiary. Schedule 6(c) sets
forth a list of all holders of options to purchase shares of capital stock of
the Seller or any Subsidiary, the number of shares of capital stock of the
Company or of any Subsidiary such options are exercisable for, and the
exercise price per share for each option. No dividends have been declared with
respect to any shares of the Seller's capital stock which have not been paid.
(d) Seller directly owns 100% of the issued and outstanding capital
stock of each of the Subsidiaries, other than Rye Creek, and Seller's wholly
owned subsidiary, Trantex, owns 100% of the issued and outstanding capital
stock of Rye Creek. None of the Subsidiaries is party to or bound by any
contract, agreement or arrangement to issue, sell or otherwise dispose of or
to register for sale or other disposition or to redeem, purchase or otherwise
acquire any capital stock or any other security of such Subsidiary or any
other security exercisable or exchangeable for or convertible into any capital
stock or any other security of such Subsidiary. There is no outstanding right
(including unexercised preemptive rights), option, warrant, or other right to
subscribe for or purchase, or contract, agreement or arrangement with respect
to, any capital stock or any other security of either Subsidiary or any other
security exercisable or exchangeable for or convertible into any capital stock
or any other security of either Subsidiary.
(e) Other than with respect to any necessary shareholder action,
Seller has taken all necessary corporate action which may be required (i) to
authorize this Agreement and the transactions contemplated hereby; (ii) to
amend the Seller's Articles of Incorporation to increase the authorized
capital stock of Seller from 40,000,000 shares, to two hundred million
authorized shares, consisting of 190 million shares of common stock, par value
$.01, and 10,000,000 shares of preferred stock, par value $.01; and (iii) to
reserve common stock for the conversion by Buyer of the Preferred Stock and
the Debentures. This Agreement has been duly executed and delivered by Seller
and constitutes a legal, valid and binding obligation of Seller in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws
relating to or affecting the enforcement of creditors' rights or collection of
debtors' obligations in general or by general equitable principles.
<PAGE>
(f) Except as set forth on Schedule 6(f), the execution of this
Agreement, and the performance by Seller of the transactions contemplated
herein, will not (a) conflict with the provision of the Articles of
Incorporation or Bylaws of the Seller or of any of the Subsidiaries, or
(b) result in any violation of or default under, or permit the acceleration of
any obligation under any material mortgage, indenture, lease, agreement or
other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Seller or any of its Subsidiaries or their respect properties or any material
agreement or understanding between any administrative or regulatory authority,
on the one hand, and the Seller or any of the Subsidiaries on the other hand.
(g) Rye Creek has fee simple title to approximately 46.5 acres of
real property in Kirkville, Missouri, which is duly permitted for use as a
landfill. Such title is merchantable and is insurable at standard rates,
subject to only easements or covenants which will not have a material adverse
impact upon the value of such real property. Said real property is subject to
mortgages, deeds of trust, security deeds or other Liens in an amount not
exceeding $300,000. Except for a potential life estate interest of which Buyer
is aware, said real property is subject to no option, agreement for sale,
lease or other agreement pursuant to which any party has the right to obtain
title or possession to said real property. The total liabilities of Rye Creek,
as determined by generally accepted accounting principles, including long term
and short term liabilities, trade debt, together with all contingent claims
and liabilities which may be asserted against Rye Creek by virtue of its
ownership of any property or its operations up through the date hereof, do not
exceed $350,000.
(h) WMG has fee simple title to approximately 300 acres of real
property in Rome, Georgia, a portion of which is in the process of being
permitted for operation of a solid waste landfill. Such title is merchantable
and is insurable at standard rates, subject to only easements or covenants
which will not have a material adverse impact upon the value of such real
property. Said real property is subject to mortgages, deeds of trust, security
deeds or other Liens in an amount not exceeding $400,000. Said property is
subject to a royalty of $_____ per ton of waste deposited on said real
property. Said real property is subject to no option, agreement for sale,
lease or other agreement pursuant to which any party has the right to obtain
title or possession to said real property. The total liabilities of WMG, as
determined by generally accepted accounting principles, including long term
and short term liabilities and trade debt, together with all contingent claims
and liabilities which may be asserted against Rye Creek by virtue of its
ownership of any property, its operations or any agreement up through the date
hereof, does not exceed $450,000.
(i) Rye Creek has entered into an Option Agreement, pursuant to
which Rye Creek has the option to acquire approximately 850 acres of real
property in and around the landfill site in Kirkville, Missouri, owned by Rye
Creek (the "Rye Creek Option"). Rye Creek owns the Rye Creek Option free and
clear of any and all Liens, and said Rye Creek Option is fully assignable
without the consent of any third party. Rye Creek has, or within three (3)
days from the date of this Agreement will, deliver to Buyer a true, accurate
and complete copy of the Rye Creek Option, together with any and all
amendments. The Rye Creek Option is a valid agreement, fully enforceable
against the owners of the real property described therein in accordance with
its terms, and upon exercise thereof, will entitle Rye Creek to purchase such
real property for the consideration stated in the Rye Creek Option.
<PAGE>
(j) WMSC has the right to acquire fee simple title to approximately
275 acres of real property in Allendale, South Carolina, which is permitted
for use as a landfill. Such title is merchantable and is insurable at standard
rates, subject only to easements or covenants which will not have a material
adverse impact upon the value of such real property. Said real property is
subject to mortgages, deeds of trust, security deeds or other Liens in an
amount not exceeding $5,700,000. Said real property is subject to no option,
agreement for sale, lease, or other agreement pursuant to which any party has
the right to obtain title to said real property or possession of said real
property. The total liabilities of WMSC, as determined by generally accepted
accounting principles, including long term and short term liabilities and
trade debt, together with all contingent claims and liabilities which may be
asserted against Rye Creek by virtue of its ownership of any property, its
operations or any agreement up through the date hereof, does not exceed
$5,700,000.
(k) Financial Statements. The financial statements ("Financial
Statements") provided to Buyer or contained in filings with the U.S.
Securities and Exchange Commission (i) are in accordance with the books and
records of Seller and its Subsidiaries, which are complete and correct, (ii)
present fairly the financial position of Seller and its Subsidiaries, as of
the dates indicated and the results of operations and cash flows for the
periods then ended, and (iii) reflect reserves in conformity with GAAP, which
are adequate for all known liabilities and reasonably anticipated losses. The
unaudited Financial Statements provided to Buyer present fairly the financial
condition of Seller as of the respective dates indicated and the results of
operations of Seller or its Subsidiaries for the respective periods indicated,
except for normal audit adjustments.
(l) Absence of Changes. Except as disclosed on Schedule 3.6(l),
since the Financial Statements contained on the last Form 10-Q filed with the
U.S. Securities and Exchange Commission, (i) the Sellers' and Subsidiaries'
business has been carried on only in the ordinary course of business
consistent with past practice, (ii) there has been no material adverse change,
and there has been no event or circumstance which is reasonably anticipated to
result in a material adverse change with respect to Seller and its
Subsidiaries, the business or the assets, and (iii) Seller and its
Subsidiaries have not made any change in any method of accounting or
accounting practice.
(m) Tax Matters. Except as set forth on Schedule 6(m):
(i) Seller and its Subsidiaries have timely filed with the
appropriate governmental authorities all required tax returns in all
jurisdictions in which such tax returns were required to be filed. Such tax
returns are correct and complete in all material respects, Seller has paid all
taxes shown as due thereon, and Seller has no knowledge of any existing
assessment for additional taxes.
(ii) Seller has not received any notice of assessment or
proposed assessment in connection with any tax returns and there are no
pending tax examinations of, or tax claims asserted against, Seller, its
Subsidiaries or any of their assets. There are no Liens for any taxes (other
than any Lien for current real property or ad valorem taxes not yet due and
payable) on any of the assets or any other assets of Seller or its
Subsidiaries.
<PAGE>
(iii) Seller's tax returns have been audited by the IRS through,
___________, 199____ and Seller and its Subsidiaries have neither waived any
statute of limitations in respect of taxes nor agreed to a tax assessment or
deficiency. Seller has not filed any consent under Section 341(f) of the Code
relating to collapsible corporations. No tax is required to be withheld
pursuant to Section 1445 of the Code as a result of any of the transfers
contemplated by this Agreement.
(n) No zoning or similar land use restrictions are presently in
effect or proposed by any governmental authority that would impair the
operation of the business as presently conducted by Seller and its
Subsidiaries or which would impair the use, occupancy and enjoyment of any
of the real property. To the best of Seller's and its Subsidiaries' knowledge,
all of the real property is in compliance with all applicable zoning or
similar land use restrictions of all Governmental Authorities having
jurisdiction thereof and with all recorded restrictions, covenants and
conditions affecting any of the real property, and Seller has performed all
affirmative covenants relating to the real property and required to be
performed by Seller or its Subsidiaries. Seller or its Subsidiaries have not
received any notice from any governmental authority with regard to
encroachments on or off the real property, violations of building codes,
zoning, subdivision or other similar Laws or other material defects in the
good, valid and marketable title of said real property.
(o) The Seller has no leased real property.
(p) Personal Property. Other than office and computer equipment,
the Seller owns no tangible personal property. Other than approximately ____
rail cars leased to WMSC, the Seller leases no tangible personal property.
(q) Intellectual Property.
(i) Other than software licensed to Seller, Seller's only
intellectual property consists of its name, trademark and stock symbol on
NASDAQ. Seller's right to use the stock symbol is pursuant to an agreement
with NASDAQ which is a legal, valid and binding agreement.
(r) Computer Software. All computer software utilized by the
Seller is "off the shelf" software, readily available from software retailers.
(s) Accounts Receivable. The accounts receivable of Seller and its
Subsidiaries are (i) validly existing, (ii) enforceable by Seller in
accordance with the terms of the instruments or documents creating them, and
(iii) collectible at the full recorded amount thereof less an allowance for
collection losses disclosed in the audited Financial Statements, or in the
case of Accounts Receivable arising after the Audited Balance Sheet Date, an
allowance for collection losses accrued on the books of Seller in the ordinary
course of business consistent with past practices and in accordance with GAAP.
The allowance for collection losses on the Audited Balance Sheet was
established in the ordinary course of business consistent with past practices
and in accordance with GAAP. The accounts receivable represent monies due for,
and have arisen solely out of, bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary
course of business consistent with past practices. None of the accounts
receivable represent monies due for goods either sold on consignment or sold
on approval.
<PAGE>
(t) Insurance. Seller is currently and at all times during the
past 5 years has been insured pursuant to a comprehensive general liability
insurance policy in an amount usual and customary for companies in similar
business. All of the assets of an insurable nature are insured by Seller in
such amounts and against such losses, casualties or risks as is (i) usual and
customary in companies engaged in business similar to the business, (ii)
required by any applicable law, or (iii) required by any contract of Seller
relating to the business. All such insurance is evidenced by valid and binding
policies of insurance issued by reputable and financially sound carriers, and
all such policies are in full force and effect and enforceable in accordance
with their terms. Seller is not now in default regarding the provisions of
any such policy, including, without limitation failure to make timely payment
of all premiums due thereon. Seller has not been refused, or denied renewal
of, any insurance coverage in connection with the ownership or use of the
assets or the operation of the business.
(u) Bonds, Letters of Credit and Guarantees. Schedule 6(u) contains
a complete and accurate list of all bonds (whether denominated bid, litigation,
performance, fidelity, DD&D, or otherwise), letters of credit, and guarantees
issued by Seller or others for the benefit of Seller or relating to Seller or
the business and now in force or outstanding. Such Schedule 6(u) contains a
summary of the terms, amount, cost and reason for issuance of each such bond,
letter of credit and guarantee. The bonds, letters of credit and guarantees
listed in Schedule 6(u) satisfy all requirements for bonds, letters of credit
or guarantees set forth in (i) any law applicable to Seller or the business and
(ii) any contracts of Seller relating to the Business. All such bonds, letters
of credit and guarantees are in full force and effect and enforceable in
accordance with their terms. Seller is not in default regarding the provisions
of any bond, letter of credit or guarantee, including, without limitation, the
failure to make timely payment of all premiums and fees due thereon, and Seller
has not failed to give any notice or present any claim thereunder in due and
timely fashion.
(v) Compliance with Law.
(a) Except as set forth on Schedule 6(v), Seller and its
Subsidiaries are in compliance with all laws, licenses, permits and orders
applicable to, required of, or binding on Seller, the business, or the assets
and Seller has no knowledge of any basis for any claim of current or past non-
compliance with any such Law, License or Order. No notice from any
Governmental Authority with respect to any failure or alleged failure of
Seller, the Assets or the Business to comply with any Law, License or Order
has been received by Seller, nor is any such notices proposed or threatened.
(b) Except as described in Schedule 6(v), there are no capital
expenditures that Seller anticipates will be required to be made in connection
with the Assets or the Business as now conducted in order to comply with any
Law applicable to Seller, the Assets or the Business as now conducted.
(w) Environmental. Except as set forth in Schedule 6(w), there
are no environmental claims pending or threatened with respect to (i) the
ownership, use, condition or operation of the business, the assets or any
other asset of Seller or any asset formerly held for use or sale by Seller,
or (ii) any violation or alleged violation of any environmental law or any
order related to environmental matters. There are no existing violations of
<PAGE>
(i) any environmental law, or (ii) any order related to environmental matters,
with respect to the ownership, use, condition or operation of the business,
the assets or any other asset of Seller or any asset formerly held for use or
sale by Seller. There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
any environmental matter, that could form the basis of (i) any environmental
claim against Seller, or (ii) any litigation against any person whose
liability (or any portion thereof) for environmental matters or violation of
environmental Laws Seller has or may have retained or assumed, contractually
or by operation of law. Neither Seller nor anyone known to Seller has used any
assets or premises of Seller for the handling, treatment, storage, or disposal
of any hazardous substances in violation of any applicable law.
(x) Litigation and Claims. Except as disclosed on Schedule 6(x):
(i) There is no litigation pending, or to Seller's knowledge
threatened, against Seller (and Seller has no knowledge of any basis for any
such litigation) which, if determined adversely to Seller might individually
or in the aggregate have a material adverse effect upon Seller, the assets or
the business or which might give rise to any claim, recourse or right of
indemnification against Buyer;
(ii) There are no pending or threatened investigations or
inquiries regarding Seller, the assets or the business by any governmental
authority. Schedule 6(x) describes all inspection reports, questionnaires,
inquiries, demands, requests for information, and claims of violations or
noncompliance with any law received by Seller from any governmental authority
and all written statements or responses of Seller with respect thereto.
(y) Benefit Plans.
(i) Except with respect to a health insurance plan terminated on
______________________, the Seller does not now have, and has never had or
participated in, any employee benefit plan subject to ERISA. Said health
insurance plan was properly terminated and Seller knows of no claims unpaid
pursuant to such insurance.
(ii) The consummation of the transactions contemplated by this
Agreement, including without limitation the conversion of the Debentures or
the Preferred Stock or the exercise of the Buyer's Warrant will not (1)
entitle any current or former employee of Seller to severance pay,
unemployment compensation or any payment contingent upon a change in control
or ownership of Seller, or (2) accelerate the time of payment or vesting, or
increase the amount, of any compensation due to any such employee or former
employee.
(z) Contracts. Intentionally omitted.
(aa) Suppliers and Customers. Schedule 6(aa) sets forth the
current accounts payable of Seller. Seller has no knowledge that any of its
suppliers or any of its customers intends to terminate or otherwise modify
adversely to Seller its relationship with Seller or to decrease or limit its
services, supplies or materials to Seller or its usage or purchase of the
goods or services of Seller, as the case may be.
<PAGE>
(bb) Labor Matters. Seller has no employees other than Peter
Stefanou and Robert Crabb. The employment of both said Peter Stefanou and
Robert Crabb is terminable at will with no penalty or severance obligation.
Seller is current in payment of all wages and there is no amount owing any
employee for bonuses, vacation pay, sick leave or any severance obligations,
except such amounts as accrued in the ordinary course of business. Seller is
not a party to any union agreement or collective bargaining agreement and
there are no work rules or practices agreed to between Seller and with any
labor organization or employee association applicable to any employees of
Seller and no attempt to organize any of the employees of the business has
been made, proposed or threatened. No labor strike, dispute, slowdown,
stoppage or lockout is pending or threatened against or affecting Seller, the
assets or the business and during the past five (5) years there has not been
any such action. No unfair labor practice charge or complaint against Seller
is pending or threatened before the National Labor Relations Board or any
similar Governmental Authority. Since the enactment of the Worker Adjustment
and Retraining Notification Act (the "WARN Act"), Seller has not effectuated
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of Seller; or (ii) a "mass layoff" (as defined in the
WARN Act) affecting any site of employment or facility of Seller; nor has
Seller been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state
or local Law. Except as set forth in Schedule 6(bb), none of Seller's
employees has suffered an "employment loss" (as defined in the WARN Act) since
six (6) months prior to the date hereof.
(cc) Brokers and Finders. Except for a possible claim of a
commission by Michael Reis which the Seller intends to vigorously dispute, no
finder or any agent, broker or other person acting pursuant to authority of
Seller is entitled to any commission or finder's fee in connection with the
transactions contemplated by this Agreement.
(dd) Compliance with the Immigration Reform and Control Act.
Seller is in full compliance with and has not violated the terms and
provisions of applicable laws relating to immigration, including the
Immigration Reform and Control Act of 1986, and all related regulations
promulgated thereunder (collectively, the "Immigration Laws"). With respect to
each employee of Seller for whom compliance with the Immigration Laws by an
employer is required, Seller has obtained such employee's Form I-9 (Employment
Eligibility Verification Form) and all other records, documents or other
papers which are to be retained with the Form I-9 by the employer pursuant to
the Immigration Laws. Seller has never been the subject of any inspection or
investigation relating to its compliance with or violation of the Immigration
Laws, nor has it been warned, fined or otherwise penalized by reason of any
failure to comply with the Immigration Laws, nor is any such proceeding
pending or threatened.
(ee) Interested Transactions. Except as set forth in Schedule
6(ee), Seller is currently not a party to any contract or other transaction with
any affiliate of Seller, any related person of any affiliate of Seller (other
than as a shareholder or employee of Seller), or any person in which any of the
foregoing (individually or in the aggregate) beneficially or legally owns,
directly or indirectly, five percent (5%) or more of the equity or voting
interests. Each of such contracts and other transactions listed on Schedule
6(ee) was negotiated on an arm's length basis, contains pricing terms that
<PAGE>
reflected fair market value at the time entered into and otherwise contains
terms and conditions comparable to those customarily contained in similar
transactions between unrelated parties. Except as described in Schedule 6(ee),
none of the persons described in the first sentence of this Section 6(ee) owns,
or during the last three (3) years has owned, directly or indirectly,
beneficially or legally (individually or in the aggregate), five percent (5%) or
more of the equity or voting interests of any person that competes with Seller
or the business.
7. Affirmative Covenants of Seller: Seller covenants and agrees as
follows:
(a) Seller shall schedule and give notice of a meeting of its
stockholders to be held no later than October 30, 1997, and shall cause a
proxy statement to be prepared, processed and mailed to all stockholders of
record in connection with such meeting of stockholders, recommending that the
stockholders (i) elect to the Seller's Board of Directors those individuals
recommended or approved by Buyer; (ii) increase the authorized capital stock
of Seller from 40,000,000 shares, including 35,000,000 shares of common stock
and 5,000,000 shares of preferred stock to two hundred million shares,
including 190 million shares of common stock, par value $.01 per share and
10,000,000 shares of preferred stock; (iii) to ratify and approve this
Agreement and the transactions contemplated herein; and (iv) such other
actions as the Seller's Board of Directors and Buyers shall agree upon.
(b) On or before Closing, the Seller's Board of Directors will
authorize, and at Closing the Seller shall enter into an agreement with the
Buyer, amending Seller's Debentures, as follows:
i) The conversion rate will be amended to become a fixed
conversion rate, pursuant to which the holder of the Debenture shall have the
right to convert $0.255 of the unpaid principal balance, accrued and unpaid
interest, penalties and/or costs due to the holder of the Debenture, for one
share of common stock of the Seller;
ii) Any restriction on conversion of the Debentures by any
citizen or resident of the United States of America shall be removed; provided,
however, the number of such holders who may be citizens or residents of the
United States of America who may convert in any given time may be limited in
such a manner as to prevent any such conversion being deemed a distribution of
stock;
iii) Any restriction on any holder of the Debentures, or any
person who converts such Debentures, owning more than 4.9% of the issued and
outstanding shares of the common stock of Seller shall be deleted; and
iv) Any other requested amendments or modifications to the
Debentures which the Buyer reasonably deems necessary for the Buyer to be able
to convert any portion or all of the Debentures at any time after the Closing.
[Move to Section 3(b)]
(c) Immediately after the execution of this Agreement, Seller shall
instruct its counsel to take no further action to contest Buyer's efforts to
extend the existing temporary restraining order into a permanent injunction.
<PAGE>
(d) Before Closing and for a reasonable period of time after
the Closing, Seller and its Directors shall exercise their best efforts to
deliver to Buyer irrevocable voting proxies substantially in the form attached
hereto as Exhibit "E," from Stefanou & Co. (with respect to 500,000 shares of
Seller's common stock) which will be valid from the date of issuance until the
later of (A) sixty days after the next annual stockholders meetings of Seller,
or (B) December 31, 1997.
(e) The Seller shall cause all of its Subsidiaries' current
officers and directors, to cooperate with Buyer in effectuating the election
and/or appointment to the Board of Directors and as officers of Seller and its
Subsidiaries of those individuals nominated by Buyer; and to obtain the
cooperation and assistance of all the current officers and directors of Seller
and its Subsidiaries to assist Buyer with the transition of all aspects of
corporate governance.
(f) In a timely manner, the Seller shall prepare and mail to all of
its stockholders of record an Information Statement pursuant to Section 14(f)
of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder (the "Section
14(f) Notice") relating to the change in control of Seller's Board of
Directors as contemplated in subsection 4(6) above.
8. Investment Intent of Seller.
(a) Notwithstanding the fact that each of Buyer and Seller is a
publicly traded company, each party understands that the other party's stock
has not been and will not be registered under (i) the Federal Securities Act
of 1933, as amended (the "1933 Act"), on the ground that this transaction is
exempt from such registration under Section 4(2) thereof as an issue not
involving a public offering, and (ii) any other securities law, including
without limitation, any law or regulation of any state. Each party understands
that reliance by the other party and this Agreement is predicated in part on
the representations contained herein.
(b) Each party is acquiring the other party's stock for its own
account, with the intention of holding such stock for investment and not with
the intention of participating, directly or indirectly, in a distribution of
such stock.
(c) (i) Seller agrees that it will not make any Disposition of
Buyer's Stock except as provided in this Agreement. For the purpose of this
Agreement, the term "Disposition" shall mean any sale, gift or other transfer,
whether outright or as security, with or without consideration, voluntary or
involuntary, of all or any part of any right, title or interest in or to any
Buyer's Stock. Any purported Disposition in violation of any provision of this
Agreement shall be null and void and shall not operate to transfer any
interest or title to the purported transferee.
(ii) Seller agrees that beginning on the date it takes
possession of the Buyer's Stock (the "Possession Date"), and continuing for a
period of two (2) years thereafter with respect to the 100,000 shares of
Buyer's Stock it received pursuant to the Original Agreement, and two (2)
years with respect to the 300,000 shares of Buyer's Stock it receives pursuant
to Section 3(a) of this Agreement, it will not make any Disposition of Buyer
Stock except in compliance with the provisions of this Agreement, or with the
prior written consent of Buyer.
<PAGE>
(d) Each party understands that the other party is under no
obligation (i) to register the acquired stock under the 1933 Act, or any
other state securities act, or (ii) to comply with the requirements for any
exemption which might otherwise be available thereunder. Further, each party
acknowledges that the other party has made no agreement to register the
acquired stock under any such laws or to take action to provide for the future
availability of any exemption thereunder. Each party understands and agrees
that the other party may refuse to permit it to sell, transfer, or otherwise
dispose of such stock, unless such transfer or other disposition is made
either pursuant to an effective registration statement filed pursuant to said
laws, or pursuant to an applicable exemption therefrom and as to which
exemption the transferring party has furnished an opinion of counsel,
satisfactory to counsel for the issuer, to the effect that such exemption is
valid and subsisting.
(e) Each party understands and agrees that stop-transfer
instructions may be noted on the appropriate records of Issuer and that there
will be placed on the certificates for such stock, or any substitutions
therefor, a legend stating in substance:
The securities evidenced hereby have been acquired for
investment and have not been registered under the Securities
Act of 1933 in reliance on the exemption contained in
section 4(2) thereof or under any applicable state
securities laws. These securities cannot be sold,
transferred or otherwise disposed of except in a
transaction (a) registered under said acts or exempt from
registration thereunder, or (b) otherwise in compliance
with said acts. As set forth in Section 5 of that certain
Stock Issuance and Stock Purchase Agreement, dated
August ___, 1997, between Continental Investment Corporation
and WasteMasters, Inc., a copy of which may be examined at
the office of the issuer, the shares evidenced hereby are
subject to the rights of ___________________. [With
respect to certificates received by Seller. The sale,
transfer or other disposition of these securities is
restricted pursuant to the provisions of a Stock
Issuance and Stock Purchase Agreement dated August ____,
1997 by and between Continental Investment Corporation
and WasteMasters, Inc., a copy of which may be examined
at the office of the Issuer. Among other things, such
Agreement prohibits any disposition of the Securities
evidenced hereby for a period of two (2) years from the
date of this certificate.]
(f) Seller acknowledges receipt of any and all information relating
to Buyer, its property, including its real property, and which such Seller
considers necessary or appropriate for deciding whether to purchase the
Buyer's Stock and has carefully reviewed all such information with Buyer and
its representatives. Seller acknowledges that it has been afforded access to
all financial and other information relating to Buyer, the property it owns,
its intention and plans to develop its property, and has been afforded an
opportunity to discuss with representatives of Buyer and with counsel all such
information.
<PAGE>
(g) Each party agrees to hold the other party and their officers,
directors, and controlling persons (as defined in the 1933 Act) harmless from
all expenses, liabilities and damages (including attorney's fees) which (i)
may derive from the subsequent sale or disposition of any stock received
pursuant to this Agreement in a manner in violation of the 1933 Act, or any
applicable state securities law, or which may be suffered by any such person
by reason of any breach or falsity of any of his representations contained
herein.
9. Release. Seller does hereby terminate any and all agreements or
contracts it may have with any Subsidiaries and now and forever and finally
release, acquit, and discharge each Subsidiary, together with such
Subsidiaries respective affiliates, directors, officers, agents, servants,
attorneys and employees, and their respective successors and assigns, from
any and all claims, demands, actions, causes of actions, suits, proceedings,
damages, debts, sums of money, accounts, promises, losses, and any other
present or future claims and demands whatsoever kind or nature, whether at
law or in equity, that Seller, or any of its successors or assigns has ever
had or may know or in the future may ever have against such Subsidiary for any
reason whatsoever, including without limitation, by reason of, arising out of,
or in connection with its acquisition of the Securities or its ownership of
such Securities, or by virtue of any agreement or understanding it may have
had with either Subsidiary.
10. Representations and Warranties of Buyer. As an inducement to the
execution of this Agreement and the sale of the Securities by Sellers, Buyer
represents and warrants to, and agrees with Seller, that:
(a) Buyer has all requisite power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
herein. This Agreement has been duly executed against Buyer and delivered by
Buyer and constitutes a valid and binding obligation of Buyer, enforceable in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or
other laws relating to or affecting the enforcement of creditors' rights or
the collection of debtors' obligations in general or by general equitable
principles.
(b) Neither the execution or delivery of this Agreement nor the
consummation of the transaction contemplated hereby (i) will result in any
breach or default under any provision of any contract or agreement of any
kind to which Buyer is a party or to which Buyer's assets are subject, (ii)
is prohibited by or requires Buyer to obtain or make any consent,
authorization, approval, registration or filing under any statute, law,
ordinance, regulation, rule, judgement, decree, or order of any court or
governmental agency, board, bureau, body, department or authority, or of any
other person.
11. Buyer's Affirmative Covenants.
(a) Immediately after the Closing, Buyer shall dismiss with
prejudice the Lawsuit, and shall release the Seller, its Subsidiaries and
their directors, officers and employees from and against any and all claims
arising out of Seller's alleged breach of the Original Agreement.
<PAGE>
(b) After Buyer has conducted sufficient due diligence on Seller and
it Subsidiaries, and is satisfied in its sole discretion with the results of
such due diligence and with the resolution or settlement of any potential suit
against the Seller and/or Buyer by WMI, the condition of the properties and
assets of the Seller and its Subsidiaries, and the ratification of this
Agreement and all necessary shareholder and corporate action necessary to
implement all transaction contemplated herein, Buyer will then review the
capitalization and debt structure of Seller and will capitalize Seller with
additional capital, or provide a line of credit in an amount equal to
$500,000, all pursuant to terms and conditions satisfactory to Buyer,
including, without limitation, a first-in-priority Lien on substantially all
of the assets of Seller and its Subsidiaries with respect to any such line of
credit.
(c) Buyer agrees that it shall not merge Seller into Buyer for a
period of one year from the date of Closing.
(d) Buyer agrees that it shall, at its sole cost and expense, defend
Seller, its Subsidiaries, and their directors, officers and employees, with
respect to any action filed by WMI alleging any breach of the WMI Agreement,
or from any action filed by any party attacking the validity of this
Agreement. Buyer shall waive and hold Seller, its Subsidiaries, and their
directors, officers and employees harmless from and against any claim Buyer
may have against such party in the event Buyer is made a party to an action by
WMI against Buyer as a result of the Original Agreement or this Agreement.
12. Further Assurances. From time to time after the Closing Date, upon
the reasonable request of any party hereto, each other party hereto shall
execute and deliver or cause to be executed and delivered such further
instruments of conveyance, assignment and transfer and take such further
actions as such party may reasonably request in order to further and more
effectively implement and effectuate the transactions contemplated hereby,
including, without limitation, the perfection of title to any of the
Securities and delivery of any stock certificates evidencing the Securities.
13. Indemnification by Seller. The Seller hereby agrees to indemnify,
defend and hold Buyer harmless from and against all demands, claims, actions
or causes of action, assessments, lawsuits, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees and expenses (the "Losses"), asserted against, resulting from,
imposed upon or incurred by Buyer by reason of or as a result of: (i) any
breach or falsity on the date hereof or on the Closing Date of any
representation or warranty contained herein; or (ii) any breach of any
covenant or agreement of Seller before the Closing Date.
14. Survival of Representations and Agreements. All representations,
warranties and agreements of the parties contained in this Agreement or made
pursuant hereto shall survive the Closing Date and the consummation of the
transactions contemplated by this Agreement.
15. Entire Agreement; Amendment. This Agreement and the documents
referred to herein and to be delivered pursuant hereto supersede and replace
the Original Agreement and constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of
the parties, whether oral or written. The words "hereof," "hereunder,"
"hereto," "herein" and any words of similar import shall refer to this
<PAGE>
Agreement in its entirety and any exhibits and schedules hereto. No amendment,
modification, waiver or termination of this Agreement shall be binding unless
it is in writing and is executed by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision of this Agreement, whether or not similar,
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
16. Governing Law; Successors and Assigns. Jurisdiction. This Agreement
shall be construed and interpreted according to the laws of the State of
Georgia. This Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of each party hereto. Seller hereby irrevocably
and unconditionally submits to the exclusive jurisdiction of the state and
federal courts located in the County of Fulton, State of Georgia, for any
actions, suits or proceedings arising out of or relating to this Agreement
and the transactions contemplated hereby, and Seller agrees not to commence
any action, suit or proceeding relating thereto except in such courts). Seller
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby, in such state or federal courts as aforesaid
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient form.
17. Notices. All notices which may or are required to be given pursuant
to this Agreement shall be (i) either delivered in person or sent via
certified or registered mail -- return receipt requested, and (ii) addressed
to the party to whom sent or given as at the following address or to such
other address as any party hereto may have given each other party hereto in
such manner:
(a) if to Buyer: Continental Investment Corporation
Attention: R. D. Sterritt
10254 Miller Road
Dallas, Texas 75238
with a copy to: Holland & Knight LLP
1201 West Peachtree Street, N.E.
One Atlantic Center, Suite 2000
Atlanta, Georgia 30309-3400
Attn: Kenneth F. Antley
(b) if to Seller: WasteMasters, Inc.
Attn: Mr. Peter Stefanou
c/o Stefanou and Company
1360 Beverly Road, Suite 305
McLean, Virginia 22101
with copies to: Patton Boggs LLP
250 West Pratt Street, Suite 1100
Baltimore, Maryland 21201
Attn: Mr. James Deveny
If delivered, such notice shall be deemed given when received; if mailed, such
notice shall be deemed made or given five (5) days after such notice has been
mailed as provided above.
<PAGE>
18. Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement. The Section headings in
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
19. Severability. If any term or provision of this Agreement shall be
determined to be illegal, invalid or unenforceable, such term or provision
shall be deemed ineffective and severed herefrom and shall not affect or
render illegal, invalid or unenforceable the remaining terms and provisions
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the day and year first above written.
BUYER:
CONTINENTAL INVESTMENT CORPORATION
By: /s/ R.D. Sterritt
-----------------------
R. D. Sterritt
Chairman, President and
Chief Executive Officer
SELLER:
WASTEMASTERS, INC.
By: /s/ A. Leon Blaser, Ph.D.
--------------------------
Title: Chairman and Vice President
<PAGE>
LIST OF EXHIBITS
Exhibit A - Terms and Preferences of Preferred Stock
Exhibit B - Buyer's Warrant
Exhibit C - Irrevocable Proxies and Right of First Refusal
Exhibit D - Seller's Director's Resolutions
Exhibit E - Irrevocable Proxies from Stefanou
Exhibit 10
EXHIBIT "B"
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, AN EXEMPTION FROM REGISTRATION UNDER ALL
SUCH LAWS IS AVAILABLE,
WasteMasters, Inc.
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
100,000,000 Shares
THIS CERTIFIES THAT, for value received, CONTINENTAL INVESTMENT
CORPORATION, a Georgia corporation ("Holder"), is entitled to subscribe for
and acquire from WasteMasters, Inc., a Maryland corporation (the "Company"),
at any time from the date hereof through and including the Expiration Date set
forth below (the "Exercise Period"), up to ONE HUNDRED MILLION (100,000,000)
fully paid and nonassessable shares (the "Shares") of the Company's common
stock, $.01 par value per share (the "WasteMasters Stock") in exchange for up
to ONE MILLION (1,000,000) fully paid and nonassessable shares of Holder's
common stock (the "Continental Stock") subject to the limitations, terms and
conditions set forth herein. (The number of Shares of WasteMasters Stock for
which one share of Continental Stock may be exchanged shall be referred to as
the "Exchange Ratio." The Exchange Ratio shall initially be 100 to 1.) This
Warrant is issued by the Company in connection with the Stock Issuance and
Purchase Agreement dated ______, 1997 entered into between Holder and the
Company simultaneously herewith. Transfer, assignment or hypothecation of this
Warrant by the Holder may be made only in accordance with and subject to the
terms, conditions and other provisions of this Warrant. The term "Holder", as
used herein, shall include the original Holder and only such persons to whom
this Warrant is transferred in strict conformity with the terms and conditions
set forth or incorporated by reference herein. As used herein, the term
"Warrant" shall mean and include this Warrant and any Warrant or Warrants
hereafter issued in consequence of the exercise or transfer of this Warrant,
in whole or in part.
1. This Warrant shall expire on ________, 1999, (the "Expiration Date").
2. Subject to the limitations set forth below, this Warrant may be
exercised during the Exercise Period as to the whole or any lesser number of
whole Shares by the surrender of this Warrant (with the form of Election at
the end hereof duly executed) to the Company at its offices located at c/o
Stefanou and Company, Attn: Peter Stefanou, 1360 Beverly Road, Suite 305,
McLean, Virginia 22101, or such other place as is designated in writing and
delivered to Holder by the Company, accompanied by a certificate representing
shares of Continental Stock issued to the Company in an amount (the "Exchange
Amount") equal to the number of Shares of WasteMasters Stock purchased by such
exercise divided by the Exchange Ratio.
<PAGE>
3. Exercise of this Warrant shall be deemed to have been effected as of
the close of the business day on which the Company has received this Warrant,
a duly executed form of election and the Exchange Amount. Upon each exercise
of this Warrant, the Holder shall be deemed to be the holder of record of the
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of the Company shall then be closed. As soon as practicable after each
such exercise of this Warrant, the Company shall issue and deliver to the
Holder a certificate or certificates for the Shares issuable upon such
exercise, registered in the name of the Holder or its designee. If this
Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the Shares
subject to purchase hereunder.
4. The Company shall maintain a register (the "Warrant Register") on
which the names and addresses of the persons to whom this Warrant is issued
and shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not
be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust
in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. Subject to
compliance with applicable securities laws and any other restrictions set
forth herein, this Warrant shall be transferable on the books of the Company
only upon delivery thereof with the form of Assignment at the end hereof duly
completed by the Holder or by his duly authorized attorney or representative,
or accompanied by proper evidence of succession, assignment or authority to
transfer. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants exchanged, at
the option of the Holder thereof, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate the
right to acquire a like number of shares of WasteMasters Stock upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing,
the Company shall have no obligation to cause Warrants to be transferred on
its books to any person, unless the Holder of such Warrants shall furnish to
the Company evidence of compliance with the Act and applicable state
securities law, in accordance with the provisions of Section 9 hereof.
5. Upon due authorization by the Company's stockholders to increase the
authorized shares of the Company's common stock, as set forth in Section 14
hereof, the Company shall at all times reserve and keep available out of its
authorized and unissued WasteMasters Stock, solely for the purpose of
providing for the exercise of this Warrant, such number of Shares as shall,
from time to time, be sufficient therefor.
<PAGE>
6. The Exchange Ratio shall be subject to adjustment from time to time
as follows:
(a)(i) In case the Company shall (A) declare a dividend or make a
distribution on outstanding shares of its WasteMasters Stock in shares of
WasteMasters Stock, (B) subdivide or reclassify the outstanding shares of
WasteMasters Stock into a greater number of shares or (C) combine or
reclassify the outstanding shares of WasteMasters Stock into a lesser number
of shares, the Exchange Ratio in effect on the record date for such dividend,
distribution, subdivision, combination or reclassification shall be adjusted
so that it shall equal the Exchange Ratio determined by multiplying the
Exchange Ratio then in effect by a fraction, the numerator of which shall be
the number of shares of WasteMasters Stock outstanding immediately after
giving effect to such action, and the denominator of which shall be the
number of shares of WasteMasters Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event
specified above shall occur.
(ii) In case Continental Investment Corporation shall (A) declare
a dividend or make a distribution on outstanding shares of its Continental
Stock in shares of Continental Stock, (B) subdivide or reclassify the
outstanding shares of Continental Stock into a greater number of shares or
(C) combine or reclassify the outstanding shares of Continental Stock into a
lesser number of shares, the Exchange Ratio in effect on the record date for
such dividend, distribution, subdivision, combination or reclassification
shall be adjusted so that it shall equal the Exchange Ratio determined by
multiplying the Exchange Ratio then in effect by a fraction, the numerator of
which shall be the number of shares of Continental Stock outstanding
immediately prior to giving effect to such action, and the denominator of
which shall be the number of shares of Continental Stock outstanding
immediately after such action. Such adjustment shall be made successively
whenever any event specified above shall occur.
(b) Whenever the Exchange Ratio is adjusted as herein provided, the
Company or the Holder, as is appropriate, shall (i) forthwith execute a
certificate signed by the President or a Vice President of the Company or
Holder and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company or Holder showing in detail the fact
requiring such adjustment and the Exchange Ratio and the number of shares of
WasteMasters Stock deliverable after such adjustment and (ii) cause a notice,
stating that such adjustment has been effected and stating the adjusted
Exchange Ratio and the number of shares of WasteMasters Stock deliverable, to
be sent to the Holder at its address appearing in the records of the Company
or Holder. Each such certificate shall be kept on file in the principal office
of the Company or the Holder.
(c)(i) Whenever the Exchange Ratio is adjusted pursuant to
subparagraph (a)(i) of this Section 6, the aggregate number of Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted
by multiplying the number of Shares then issuable upon exercise of this
Warrant in whole by the adjusted Exchange Ratio and dividing the product so
obtained by the Exchange Ratio in effect immediately before such adjustment.
<PAGE>
(ii) Whenever the Exchange Ratio is adjusted pursuant to
subparagraph (a)(ii) of this Section 6, the aggregate number of Shares of
Continental Stock which shall be paid upon exercise of this Warrant in whole
shall simultaneously be adjusted by multiplying the number of such Shares of
Continental Stock which would then be issued upon exercise of this Warrant in
whole by the Exchange Ratio in effect immediately before such adjustment, and
dividing the product so obtained by the adjusted Exchange Ratio.
(d) The Exchange Ratio shall be rounded to one-thousandths.
7. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the continuing or surviving corporation), or in case of any sale,
lease or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, the Holder shall have the right
thereafter to receive upon exercise of this Warrant the kind and amount of
shares of stock and other securities, property, cash or any combination
thereof receivable upon such consolidation, merger, sale, lease or conveyance
by a holder of the number of Shares of WasteMasters Stock subject to be
purchased by Holder pursuant to this Warrant immediately prior to such
consolidation, merger, sale, lease or conveyance. In any such case, effective
provision shall be made in any Articles of Incorporation of a surviving or
acquiring corporation or otherwise, if necessary, in order to preserve
Holder's rights hereunder. Such agreement shall provide for adjustments which
shall be as nearly equivalent or practicable to the adjustments in Section 6.
(b) In case of any reclassification or change in the Shares of
WasteMasters Stock issuable upon exercise of this Warrant (other than a change
in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in the Shares into two or
more classes or series of shares) or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) in the Shares of
WasteMasters Stock (other than a change in par value, or from par value to no
par value, or as a result of a subdivision or combination, but including any
change in the Shares into two or more classes or series of Shares), the Holder
shall have the right thereafter to receive upon exercise of this Warrant the
kind and amount of shares of stock and other securities, property, cash or any
combination thereof receivable by the holder of the number of Shares subject
to be purchased by Holder pursuant to this Warrant immediately prior to such
reclassification, change, consolidation or merger.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassification and changes in Shares of WasteMasters Stock and to
successive consolidations, mergers, sales or conveyances.
8. The issue of any stock or other certificate upon the exercise of this
Warrant shall be made without charge to the Holder for any tax in respect of
the issue of such certificate. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificates
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
<PAGE>
9. Unless registered under the Securities Act of 1933, as amended (the
"Act"), this Warrant, the Shares and other securities issued upon exercise of
this Warrant shall not be transferrable unless, in the opinion of counsel
reasonably satisfactory to the Company, an exemption from registration under
applicable securities laws is available. This Warrant, the Shares and other
securities issued upon the exercise of this Warrant shall be subject to a
stop-transfer order and the certificate or certificates evidencing any such
Shares or securities shall bear the following legend and any other legend
which counsel for the Company may deem necessary or advisable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS SO REGISTERED OR UNLESS IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant and upon surrender and
cancellation of any Warrant if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Warrant of like date, tenor and
denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a shareholder of the Company, either at law or in
equity, or to any notice of meetings of shareholders or of any other
proceedings of the Company.
12. This Warrant shall be governed by and construed in accordance with
the laws of the State of Maryland.
13. This Warrant may not be amended, restated or supplemented without the
prior written agreement of the Holder and the Company.
14. Notwithstanding anything to the contrary herein, the Holder shall not
have any right to exercise this Warrant at any time prior to an amendment of
the Company's Articles of Incorporation which increases the number of shares
which the Company is authorized to issue to include a number of shares of
WasteMasters Stock which is not less than one hundred 100% of the sum of (a)
the number of shares of WasteMasters Stock then outstanding, plus (b) that
number of shares WasteMasters Stock issuable upon the exercise in full of all
then outstanding options, warrants (including this Warrant), convertible
securities, contract rights and other rights to purchase WasteMasters Stock.
The Company, and the Board of Directors, shall exercise their best efforts to
take all action necessary to amend the Company's Articles of Incorporation as
described in Section 7 of the Stock Purchase Agreement as soon as practicable,
including, without limitation, filing all necessary proxy statements or
information statements with the Securities and Exchange Commission in
connection with the calling of a special shareholders meeting and with the
solicitation of shareholders' approval of the aforementioned amendment.
<PAGE>
15. The Company warrants the due authorization, execution and delivery of
this Warrant this ____ day of _________, 1997.
WasteMasters, Inc.
By: /s/ A. Leon Blaser, Ph.D.
------------------------------
Title: Chairman and Vice President
<PAGE>
ELECTION TO PURCHASE
--------------------
The undersigned Holder hereby irrevocably elects to exercise the within
Warrant to acquire ____________ Shares (*) of WasteMasters Stock issuable upon
the exercise thereof and requests that certificates for such Shares be issued
in his/her last name and delivered to him/her at the following address:
__________________________________________________________________
Date: __________________
__________________________________________________________________
Signatures(s)(**)
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the within Warrant to the extent of ______________ Shares (*) transferable
upon exercise thereof to ____________________, whose address is _____________
_____________________________________ and irrevocably constitute and appoint
__________________________ his/her/its Attorney to transfer said Warrant on
the books of the Company, with full power of substitution.
Date: __________________
_________________________________________________________________
Signature(s)(**)
* If the Warrant is to be exercised or transferred in its entirety, insert the
word "All" before shares; otherwise insert the number of shares then
transferable on the exercise thereof as to which transferred or exercised. If
such Warrants shall not be transferred or exercised to transfer all shares
transferable upon exercise thereof, that a new Warrant to transfer the balance
of such shares be issued in the name of, and delivered to, the Holder at the
address stated below.
** Signature(s) must conform exactly to the name(s) of the Holder as set
forth on the first page of this Warrant.
Exhibit 9
EXHIBIT "C"
WASTEMASTERS, INC.
PROXY COUPLED WITH AN INTEREST
------------------------------
A. LEON BLASER, Ph.D. ("Shareholder"), a shareholder of WASTEMASTERS, INC.
(the "Company"), a Maryland corporation, revoking all previous proxies and
intending to be legally bound, hereby constitutes and appoints the President
and any Vice President of CONTINENTAL INVESTMENT CORPORATION ("Continental"),
a Georgia corporation, as Shareholder's attorney and proxy, with full power of
substitution, for and in the name and stead of the Shareholder to attend any
and all special and annual meetings of the Company, to vote all shares of
capital stock of the Company registered in the name of the Shareholder which
the Shareholder would be entitled to vote if personally present at such
meeting and at any adjournment or postponement thereof.
This Proxy is given pursuant to a certain agreement between the Company and
Continental, is coupled with an interest within the meaning of Section
2-507(d) of the Maryland General Corporation Law, and shall not be revocable
by Shareholder.
Shareholder agrees not to sell, transfer, assign, pledge or otherwise convey
or encumber in any manner or by any means whatever any interest in, or any
part of, his shares of capital stock of the Company (the "Stock") except by
complying with the provisions hereinbelow.
In the event Shareholder receives a bona fide offer for the purchase of all or
any portion of his Stock or he desires to sell all or any portion of his
Stock, Shareholder agrees (i) to serve written notice to Continental by
registered mail, return receipt requested, indicating that he has a bona fide
offer and stating the terms of the offer, including a certified copy of the
executed original of said offer, and (ii) to wait a period of 10 days after
the mailing of such notice, during which period Continental shall have the
option to purchase all, but not less than all, of the Stock at the price and
upon the terms and conditions set forth in said offer by serving written
notice upon Shareholder of its intent to exercise its option on or before the
last day of the 10 day period, prior to Shareholder selling his Stock pursuant
to the offer. This Proxy shall be effective immediately, and shall expire one
year from the date hereof or on the date Continental acquires 67% of the
outstanding voting common stock of the Company, whichever occurs sooner.
Date: _____________, 1997
/s/ A. Leon Blaser, Ph.D.
-------------------------
A. LEON BLASER, Ph.D.
<PAGE>
WASTEMASTERS, INC.
PROXY COUPLED WITH AN INTEREST
------------------------------
JULIUS W. BASHAM, II ("Shareholder"), a shareholder of WASTEMASTERS, INC. (the
"Company"), a Maryland corporation, revoking all previous proxies and
intending to be legally bound, hereby constitutes and appoints the President
and any Vice President of CONTINENTAL INVESTMENT CORPORATION ("Continental"),
a Georgia corporation, as Shareholder's attorney and proxy, with full power of
substitution, for and in the name and stead of the Shareholder to attend any
and all special and annual meetings of the Company, to vote all shares of
capital stock of the Company registered in the name of the Shareholder which
the Shareholder would be entitled to vote if personally present at such
meeting and at any adjournment or postponement thereof.
This Proxy is given pursuant to a certain agreement between the Company and
Continental, is coupled with an interest within the meaning of Section
2-507(d) of the Maryland General Corporation Law, and shall not be revocable
by Shareholder.
Shareholder agrees not to sell, transfer, assign, pledge or otherwise convey
or encumber in any manner or by any means whatever any interest in, or any
part of, his shares of capital stock of the Company (the "Stock") except by
complying with the provisions hereinbelow.
In the event Shareholder receives a bona fide offer for the purchase of all or
any portion of his Stock or he desires to sell all or any portion of his
Stock, Shareholder agrees (i) to serve written notice to Continental by
registered mail, return receipt requested, indicating that he has a bona fide
offer and stating the terms of the offer, including a certified copy of the
executed original of said offer, and (ii) to wait a period of 10 days after
the mailing of such notice, during which period Continental shall have the
option to purchase all, but not less than all, of the Stock at the price and
upon the terms and conditions set forth in said offer by serving written
notice upon Shareholder of its intent to exercise its option on or before the
last day of the 10 day period, prior to Shareholder selling his Stock pursuant
to the offer.
This Proxy shall be effective immediately, and shall expire one year from the
date hereof or on the date Continental acquires 67% of the outstanding voting
common stock of the Company, whichever occurs sooner.
Date: ____________, 1997
/s/ Julius W. Basham, II
------------------------
JULIUS W. BASHAM, II
<PAGE>
WASTEMASTERS, INC.
PROXY COUPLED WITH AN INTEREST
------------------------------
RICHARD D. MASTERS ("Shareholder"), a shareholder of WASTEMASTERS, INC. (the
"Company"), a Maryland corporation, revoking all previous proxies and
intending to be legally bound, hereby constitutes and appoints the President
and any Vice President of CONTINENTAL INVESTMENT CORPORATION ("Continental"),
a Georgia corporation, as Shareholder's attorney and proxy, with full power of
substitution, for and in the name and stead of the Shareholder to attend any
and all special and annual meetings of the Company, to vote all shares of
capital stock of the Company registered in the name of the Shareholder which
the Shareholder would be entitled to vote if personally present at such
meeting and at any adjournment or postponement thereof.
This Proxy is given pursuant to a certain agreement between the Company and
Continental, is coupled with an interest within the meaning of Section
2-507(d) of the Maryland General Corporation Law, and shall not be revocable
by Shareholder.
Shareholder agrees not to sell, transfer, assign, pledge or otherwise convey
or encumber in any manner or by any means whatever any interest in, or any
part of, his shares of capital stock of the Company (the "Stock") except by
complying with the provisions hereinbelow.
In the event Shareholder receives a bona fide offer for the purchase of all or
any portion of his Stock or he desires to sell all or any portion of his
Stock, Shareholder agrees (i) to serve written notice to Continental by
registered mail, return receipt requested, indicating that he has a bona fide
offer and stating the terms of the offer, including a certified copy of the
executed original of said offer, and (ii) to wait a period of 10 days after
the mailing of such notice, during which period Continental shall have the
option to purchase all, but not less than all, of the Stock at the price and
upon the terms and conditions set forth in said offer by serving written
notice upon Shareholder of its intent to exercise its option on or before the
last day of the 10 day period, prior to Shareholder selling his Stock pursuant
to the offer.
This Proxy shall be effective immediately, and shall expire one year from the
date hereof or on the date Continental acquires 67% of the outstanding voting
common stock of the Company, whichever occurs sooner.
Date: ____________, 1997
/s/ Richard D. Masters
----------------------
RICHARD D. MASTERS
<PAGE>
WASTEMASTERS, INC.
PROXY COUPLED WITH AN INTEREST
------------------------------
PAUL WILLIAMSON ("Shareholder"), a shareholder of WASTEMASTERS, INC. (the
"Company"), a Maryland corporation, revoking all previous proxies and
intending to be legally bound, hereby constitutes and appoints the President
and any Vice President of CONTINENTAL INVESTMENT CORPORATION ("Continental"),
a Georgia corporation, as Shareholder's attorney and proxy, with full power of
substitution, for and in the name and stead of the Shareholder to attend any
and all special and annual meetings of the Company, to vote all shares of
capital stock of the Company registered in the name of the Shareholder which
the Shareholder would be entitled to vote if personally present at such
meeting and at any adjournment or postponement thereof.
This Proxy is given pursuant to a certain agreement between the Company and
Continental, is coupled with an interest within the meaning of Section
2-507(d) of the Maryland General Corporation Law, and shall not be revocable
by Shareholder.
Shareholder agrees not to sell, transfer, assign, pledge or otherwise convey
or encumber in any manner or by any means whatever any interest in, or any
part of, his shares of capital stock of the Company (the "Stock") except by
complying with the provisions hereinbelow.
In the event Shareholder receives a bona fide offer for the purchase of all or
any portion of his Stock or he desires to sell all or any portion of his
Stock, Shareholder agrees (i) to serve written notice to Continental by
registered mail, return receipt requested, indicating that he has a bona fide
offer and stating the terms of the offer, including a certified copy of the
executed original of said offer, and (ii) to wait a period of 10 days after
the mailing of such notice, during which period Continental shall have the
option to purchase all, but not less than all, of the Stock at the price and
upon the terms and conditions set forth in said offer by serving written
notice upon Shareholder of its intent to exercise its option on or before the
last day of the 10 day period, prior to Shareholder selling his Stock pursuant
to the offer.
This Proxy shall be effective immediately, and shall expire one year from the
date hereof or on the date Continental acquires 67% of the outstanding voting
common stock of the Company, whichever occurs sooner.
Date: ____________, 1997
/s/ Paul Williamson
-------------------
PAUL WILLIAMSON
<PAGE>
WASTEMASTERS, INC.
PROXY COUPLED WITH AN INTEREST
------------------------------
BRUCE BLASER ("Shareholder"), a shareholder of WASTEMASTERS, INC. (the
"Company"), a Maryland corporation, revoking all previous proxies and
intending to be legally bound, hereby constitutes and appoints the President
and any Vice President of CONTINENTAL INVESTMENT CORPORATION ("Continental"),
a Georgia corporation, as Shareholder's attorney and proxy, with full power of
substitution, for and in the name and stead of the Shareholder to attend any
and all special and annual meetings of the Company, to vote all shares of
capital stock of the Company registered in the name of the Shareholder which
the Shareholder would be entitled to vote if personally present at such
meeting and at any adjournment or postponement thereof.
This Proxy is given pursuant to a certain agreement between the Company and
Continental, is coupled with an interest within the meaning of Section
2-507(d) of the Maryland General Corporation Law, and shall not be revocable
by Shareholder.
Shareholder agrees not to sell, transfer, assign, pledge or otherwise convey
or encumber in any manner or by any means whatever any interest in, or any
part of, his shares of capital stock of the Company (the "Stock") except by
complying with the provisions hereinbelow.
In the event Shareholder receives a bona fide offer for the purchase of all or
any portion of his Stock or he desires to sell all or any portion of his
Stock, Shareholder agrees (i) to serve written notice to Continental by
registered mail, return receipt requested, indicating that he has a bona fide
offer and stating the terms of the offer, including a certified copy of the
executed original of said offer, and (ii) to wait a period of 10 days after
the mailing of such notice, during which period Continental shall have the
option to purchase all, but not less than all, of the Stock at the price and
upon the terms and conditions set forth in said offer by serving written
notice upon Shareholder of its intent to exercise its option on or before the
last day of the 10 day period, prior to Shareholder selling his Stock pursuant
to the offer.
This Proxy shall be effective immediately, and shall expire one year from the
date hereof or on the date Continental acquires 67% of the outstanding voting
common stock of the Company, whichever occurs sooner.
Date: ____________, 1997
/s/ Bruce Blaser
----------------
BRUCE BLASER
