UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB (Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-12914
WASTEMASTERS, INC.
(Name of small business issuer in its charter)
Maryland 52-1507818
(State or other jurisdication of (I.R.S. Employer
incorporation or organization) Identification No.)
205 South Bickford, El Reno, Oklahoma 73036
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (405) 262-0800
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
(Title of class)
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 ____ No X
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. ____
The issuer's revenues for its most recent fiscal year. $12,375,649.
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, as of August 9, 1999 was $17,497,722,
based upon the closing bid price of $0.12 per share as reported by the
trading and market services of the National Quotation Bureau.
As of August 9, 1999, the registrant had outstanding 153,194,250
shares of its Common Stock, $0.01 par value.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Background
WasteMasters, Inc. (formerly F & E Resource Systems Technology, Inc.
"FERST") is a waste management company in the business of owning,
operating, acquiring and developing nonhazardous waste disposal
facilities and complementary businesses. The Company was incorporated in
Maryland in July 1981, but its predecessor's operations date back to the
early 1900's and the Fly & Emrich Company and F&E Stokers, Inc., once
premier manufacturers of solid waste incinerator equipment. In December
1995, FERST, then primarily a solid waste composting and recycling
company, acquired WasteMasters, Inc., a Nevada company in the waste
brokerage and hauling business. WasteMasters, Inc. also acquired at the
same time (from the principals of WasteMasters and their affiliates) a
landfill in South Carolina and rights to acquire three additional
landfills in Georgia, Missouri and Michigan. WasteMasters acquired the
Missouri landfill in January 1996 and the Georgia landfill in March 1996.
WasteMasters and all the landfills were acquired for Common Stock and the
assumption of debt. The combination of FERST and WasteMasters resulted in
a company controlled by the previous management of WasteMasters with
business interests focused primarily on landfilling solid wastes.
Transaction with Continental Investment Corporation
On September 6, 1997, pursuant to the terms of a Stock Issuance and
Stock Purchase Agreement (the "Stock Purchase Agreement") between the
Company, Continental Investment Corporation, a Georgia corporation
("Continental"), and Continental Technologies Corporation of Georgia (a
wholly-owned subsidiary of Continental), a Georgia corporation
("Continental Technologies"), Continental acquired control of the
Company. Under the Stock Purchase Agreement, the Company acquired
400,000 shares of the common stock, par value $0.50 per share, of
Continental (the "Continental Common") and an option to purchase up to
100,000 additional shares of Continental Common for a period of five
years at an exercise price of $23.00 per share (the "Continental
Option"). In consideration for the Continental Common and the Continental
Option, the Company (i) issued to Continental 4,500,000 shares of its
authorized but previously unissued Common Stock and 5,000,000 shares of
its authorized but previously unissued Preferred Stock, being all of the
Company's authorized preferred stock, and (ii) conveyed to Continental
Technologies 100% of the issued and outstanding shares of the capital
stock of Rye Creek/Trantex and WasteMasters of Georgia, Inc., both of
which were subsidiaries of the Company. The Stock Purchase Agreement also
provided for the issuance to Continental of a Warrant, pursuant to which
Continental may acquire up to 100,000,000 shares of the Company's Common
Stock in exchange for up to 1,000,000 shares of Continental Common, for a
period of two years. The Preferred Stock is convertible into Common
Stock, at the option of Continental, at the rate of 5.1 shares of Common
for each share of Preferred.
Pursuant to the Stock Purchase Agreement, all but two members of the
board of directors of the Company resigned, and five members of the board
of directors were appointed by Continental. Furthermore, R. Dale
Sterritt, Jr. ("Sterritt"), the chairman and chief executive officer of
Continental, became the chairman and chief executive officer of the
Company.
Nikko Settlement and Derivative Litigation
On February 5, 1998, the Company entered into a Consent Judgment in
an action styled Nikko Trading of American Corporation, et al. v.
Wastemasters, Inc., pending in the United States District Court for the
Northern District of Texas, Dallas Division, Civil Action No. 3-98CV0048-
D. Under the Consent Judgment, approximately 63 million shares of common
stock, as well as warrants to purchase additional shares of common stock,
were issued to the plaintiffs to fully settle and compromise the
Company's liability under approximately $3.2 million of debentures held
by the plaintiffs. On December 16, 1998, Stewart Rahr, a shareholder of
the Company, filed a motion to intervene in the action, wherein Mr. Rahr
requested that the Consent Judgment be vacated, and that Mr. Rahr be
granted leave to defend the action derivatively on behalf of the Company.
Mr. Rahr alleges that the Consent Judgment was obtained as a result
of collusion between the plaintiffs in the action and the Company, and
specifically that Sterritt, the Chairman of the Company at the time,
failed to disclose to the Company's board that he beneficially owned an
interest in the plaintiffs and/or controlled the plaintiffs through
nominees. Mr. Rahr further contends that, because of that collusion, the
Company ignored certain legal defenses in the action and agreed to a
judgment which was not in the best interests of the Company. Mr. Rahr
also sought a preliminary injunction preventing any transfer of the
shares issued under the Consent Judgment until the Court has ruled on the
validity of the shares. The Court granted Mr. Rahr's motion to intervene
as well as his request for a preliminary injunction.
Based on the Company's understanding of the evidence elicited to
date in the discovery process by Mr. Rahr, the Company believes that
there may be valid grounds to vacate the Consent Judgment, and therefore
supports Mr. Rahr's position in the litigation. If the Consent Judgment
is vacated, the Company estimates that from 40-49 million of its
outstanding shares could be cancelled. The actual number of shares which
could be cancelled may vary depending on subsequent Court rulings as to
the rights of subsequent transferees of the shares, the actual number of
shares which are held by subsequent transferees, and the circumstances
under which subsequent transferees acquired their shares. If the Court
declines to vacate the Consent Judgment, then the litigation will have no
effect on the number of shares which are outstanding. Pending a final
resolution of the litigation, the Company has not consented to the
transfer of any shares issued pursuant to the Consent Judgment or to the
removal of any restrictive legend on those shares except pursuant to
court order.
Resignation of Sterritt and Subsequent Litigation
On December 11, 1998, Sterritt resigned all positions with the
Company and its subsidiaries, including as its Chairman and CEO. Under
an agreement executed on that date, Sterritt and the Company agreed to
release each other from any claims, and the Company agreed to pay
Sterritt a consulting fee in the amount $7,500 per month for 36 months
beginning on June 1, 1999, among other things. On May 28, 1999, the
Company filed a lawsuit against Sterritt for fraud, breach of fiduciary
duty and mismanagement. In addition, the lawsuit seeks rescission of
the agreement between the Company and Sterritt which was executed on
December 11, 1998. The Company filed the action because it believes that
Sterritt misrepresented certain matters to the board of directors, and
failed to satisfy his duty to disclose certain material facts, in
connection with his management of the company and the execution of that
agreement.
Significant Acquisitions in 1998
On February 18, 1998, the Company entered into an agreement with
20th Century Holdings, Inc. for the acquisition of all of the shares
owned by 20th Century of Holsted Enterprises, Inc. (and its subsidiary,
Sales Equipment Company, Inc.) in exchange for 7,600,000 shares of the
Company's restricted Common Stock and options to purchase an additional
3,000,000 restricted shares of its Common Stock until specified time
periods at an exercise price of $4.17 per share. The transaction was
closed effective March 31, 1998. Sales Equipment Company, Inc. ("SECO")
was a manufacturer and distributor of equipment in the pressurized gas
equipment industry. SECO generated revenues in 1998 of over $7.6 million.
SECO's main facility was located in Oklahoma City, with locations in
Tyler and El Paso, Texas. On March 5, 1999, SECO filed a voluntary
petition under Chapter 11 of the Bankruptcy Code in order to stay
collection efforts by the Bank of Oklahoma, which held a $2 million loan
secured by all of SECO's assets. On May 26, 1999, the bankruptcy court
denied SECO the right to continue operating, and ordered the appointment
of a trustee for SECO.
On February 10, 1998, the Company entered into an agreement for the
acquisition of all of the shares of C.A.T. Recycling, Inc. ("CAT") in
exchange for 3,250,000 shares of the Company's restricted Common Stock
and options to purchase an additional 3,000,000 shares of its restricted
Common Stock at specified amounts and time periods at an average price of
$1.56. The transaction was closed effective March 31, 1998. CAT owned and
operated recycling facilities in Pompano, St. Lucie, Dania, and West Palm
Beach Florida and a construction and demolition ("C&D") landfill in
Sebring, Florida. In January 1999, the Company terminated operations at
CAT due to cash flow problems at CAT. At this time, substantially all of
the assets of CAT have been repossessed by creditors or voluntarily
surrendered by the CAT to secured lenders.
On February 26, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Wood Management, Inc. in exchange for
1,500,000 shares of the Company's restricted common stock. The
transaction was closed effective March 31, 1998. Wood Management, founded
in 1993, holds a permit to process 1,200 tons per day of tree stumps,
mixed wood, pallets and yard waste. Processing of these recyclables
results in the production of end products ranging from wood chips to
mulch to high quality top soil. Wood Management was sold to Global Eco-
Logical Services, Inc. effective on March 30, 1999.
On February 26, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Mini-Max Enterprises, Inc. in
exchange for 464,286 shares of the restricted common stock of
WasteMasters, Inc. The transaction was closed effective March 31, 1998.
Mini-Max, founded in 1968, is an interstate trucking company licensed by
the Interstate Commerce Commission to conduct business in the lower 48
states. Mini-Max's fleet of tractors and trailers are used to haul waste
to a nationwide network of disposal sites and to transport other cargo.
Mini-Max was sold to Global Eco-Logical Services, Inc. effective on March
30, 1999.
On February 6, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Southeastern Research and Recovery,
Inc. ("SRR") in exchange for 2,400,000 restricted shares of WasteMasters,
Inc. common stock. The transaction was closed effective March 31, 1998.
SRR owns and operates a non-hazardous waste facility located in South
Carolina that processes industrial sludge prior to its disposal in
Subtitle D landfills. SRR was sold to Global Eco-Logical Services, Inc.
effective on March 30, 1999.
The Company acquired a controlling interest in Atlas Environmental,
Inc. ("Atlas") voting common stock from a group of Atlas shareholders in
exchange for 342,591 restricted shares of the Company's Common Stock.
Prior to the acquisition by the Company, on January 14, 1997, Atlas had
filed a voluntary petition for relief under Chapter 11 of the U. S.
Bankruptcy Code with the Bankruptcy Court for the Southern District of
Florida. In connection with the transaction, four (4) additional members
designated by the Company were added to the Atlas board of directors
giving the Company control of the board. Atlas was the largest
construction and demolition debris recycler and the largest remediator of
petroleum-contaminated soils in the State of Florida. In November 1998,
the bankruptcy court appointed a trustee for Atlas and its subsidiaries
after a plan of reorganization filed by Atlas was denied confirmation.
The trustee recently concluded a sale of all of Atlas' assets to a third
party. As a result of the sale, the company does not expect to realize
any proceeds from its interest in Atlas.
The Company acquired C & D Recycling Corp. ("C&D") in exchange for
304,000 restricted shares of the Company's Common Stock. Additional
consideration is payable to the seller upon the granting of a permit for
a vertical expansion. C&D owns a 64 acre construction and demolition
debris landfill in Homestead, Florida serving Miami and the Florida Keys.
This landfill had ceased operations in early 1998. On July 9, 1998, C&D
filed a voluntary petition for reorganization under Chapter 11 of the U.
S. Bankruptcy Code with the Bankruptcy Court for the Northern District of
Texas in order to stay a foreclosure of the landfill by a mortgage
holder. The bankruptcy court recently granted relief from the automatic
stay to allow the mortgage holders on the property to foreclose in the
landfill, and on July 30, 1999 a mortgage holder foreclosed on the
property.
The Company acquired American Recycling & Management Corporation
("American Recycling") in exchange for 837,000 shares of restricted
common stock. American Recycling owns a landfill in Perrine, Florida
(Homestead area), which includes a 40-acre tract of real property
formerly permitted for a construction and demolition debris landfill,
related equipment, and associated permits). The Company intended to open
this landfill which has a potential capacity of approximately 4 million
gate yards. The Company lost a permit to operate this property as a
landfill in January 1999. On April 23, 1999, American Recycling filed a
voluntary petition for reorganization under Chapter 11 of the U. S.
Bankruptcy Code with the Bankruptcy Court for the Southern District of
Florida in order to stay a foreclosure of the landfill by a mortgage
holder. In July 1999, the bankruptcy court granted the mortgage holder
relief from the automatic stay to foreclose on the landfill. It is
expected that the mortgage holder will foreclose on the landfill in the
near future and that the Company will not realize any proceeds from its
investment in American Recycling.
The Company (through CAT) acquired the assets of Palm Coast Carting
& Recycling, Inc. ("Palm Coast") of Pompano Beach, Florida, including
trucks, containers, and customer contracts in exchange for 110,000
restricted shares of the Company's Common Stock. Palm Coast was a
commercial hauler heavily engaged in the recycling sector of the waste
industry.
The Company (through WasteMasters of Palm Beach, Inc., a wholly-
owned subsidiary) acquired the assets of Palm Beach Transfer & Recycling
("Palm Beach") located in West Palm Beach, Florida, (including equipment,
a 10-acre tract of real property, and associated permits) in exchange for
943,334 restricted shares of the Company's Common Stock. Palm Beach is a
ten (10) acre transfer and recycling facility permitted for 560 yards per
day. The facility handles roofing material, construction and demolition
debris, vegetation, clean concrete, clean wood, and mulch and grass. The
facility lost its permit to operate in January 1999 due to violations of
environmental regulations. A mortgage holder recently commenced
foreclosure proceedings to foreclose on the facility.
The Company (through CAT) acquired the assets of United Waste
Associates, Inc. ("United") (including a fleet of collection vehicles and
approximately 450 containers) in exchange for 707,334 shares of
restricted Common Stock of the Company. United, based in Pompano Beach,
Florida, was a commercial hauler servicing Monroe, Dade, Broward, Palm
Beach, Martin and St. Lucie Counties, which offered commercial garbage
service, construction and demolition debris hauling and comprehensive
recycling services.
The Company acquired Tri-State Waste Disposal Co., Inc. ("Tri-
State") in exchange for 289,916 restricted shares of the Company's Common
Stock. Tri-State, founded in 1979, is licensed to engage in the waste
collection business throughout the State of New Jersey. Tri-State was
sold to Global Eco-Logical Services, Inc. effective on March 30, 1999.
The Company acquired Atlantic Coast Demolition & Recycling, Inc.
("Atlantic") in exchange for 941,433 restricted shares of the Company's
Common Stock and options to purchase an additional 1,200,000 restricted
shares of the Company's Common Stock at an exercise price of $1.25 per
share and another 1,000,000 restricted shares at a exercised price $1.75.
Also, 1,147,500 restricted shares were issued as a pledge on the payment
of indebtedness of the acquired company. Atlantic owns a 7-acre transfer
station in the heart of Philadelphia, Pennsylvania, which is permitted to
process 3,000 tons of waste per day. Atlantic was sold to Global Eco-
Logical Services, Inc. effective on March 30, 1999.
The Company purchased the operating assets of an operating landfill
in Lisbon, Ohio ("Lisbon") for cash. Lisbon is a 141.154 acres
construction and demolition debris landfill with a potential remaining
capacity of 10,300,000 cubic yards. Lisbon was sold to Global Eco-Logical
Services, Inc. effective on March 30, 1999.
1998 Disposition of Inactive Subsidiaries
On February 16, 1998, the Company filed petitions for protection
under Chapter 7 of the United States Bankruptcy laws with the Bankruptcy
Court for the Northern District of Georgia for five (5) wholly-owned
subsidiaries of the Company. The subsidiaries were: F&E Resource Systems
Technology for Baltimore, Inc., WasteMasters of Louisiana, Inc.,
WasteMasters of Michigan, Inc., WasteMasters of New York, Inc. and
WasteMasters of Pennsylvania, Inc. Active business for each of these
subsidiaries had ceased during 1996 and the assets had been liquidated as
the result of various voluntary dispositions, foreclosure proceedings, or
other creditor actions. No assets exist in the respective subsidiaries to
satisfy the creditors claims, and the Company is believed to have no
obligation in connection with the indebtedness of these subsidiaries.
On February 11, 1998, the Company filed a voluntary petition under
Chapter 11 of the Bankruptcy Code with the bankruptcy court for the
Northern District of Georgia for its wholly-owned subsidiary,
WasteMasters of South Carolina, Inc. WasteMasters of South Carolina,
Inc. claimed an interest in a landfill in Allendale, South Carolina at
which operations had been terminated in 1997.
In December 1998, the Company sold its interest in F&E Resource
Systems Technology for Baltimore, Inc., WasteMasters of Louisiana, Inc.,
WasteMasters of Michigan, Inc., WasteMasters of New York, Inc. and
WasteMasters of Pennsylvania, Inc., and WasteMasters of South Carolina,
Inc. for nominal consideration. As a result of the disposition of these
subsidiaries, the Company recorded a substantial gain resulting from
elimination of debt of the subsidiaries from the Company's consolidated
balance sheet.
Global Eco-Logical Services, Inc. Transaction
On March 30, 1999, the Company completed the sale to Global Eco-
Logical Services, Inc., f/k/a J. Marcus Enterprises, Inc. ("Global"), of
its interest in the following subsidiaries and assets pursuant to a
Lease/Purchase Agreement dated January 1, 1999: Wood Management, Inc., a
New Jersey corporation; Mini-Max Enterprises, Inc., a New Jersey
corporation; Tri-State Waste Disposal, Inc., a New Jersey corporation;
Southeastern Research & Recovery, Inc., a South Carolina corporation;
Atlantic Coast Demolition & Recycling, Inc., a Pennsylvania corporation
(hereinafter, the "Corporations"); and all of the real estate and
personal property used by the Company in the operation of that landfill
in Lisbon, Ohio (hereinafter, the "Landfill"). Under the Lease/Purchase
Agreement, the purchase price for the Corporations and the Landfill was
originally payable as follows: $1 million at closing; $2 million one year
from closing; $2 million two years from closing; and $2 million three
years from closing; provided, however, that Global had the option of
making the payment due on the first anniversary of closing by delivering
$50,000 and 400,000 shares of its restricted common stock; Global had the
option of making the payment due on the second anniversary of closing by
delivering $75,000 and 400,000 shares of its restricted common stock; and
Global had the option of making the payment due on the third anniversary
of closing by delivering $125,000 and 400,000 shares of its restricted
common stock.
As of the date of closing, the Company owed Global $1,119,213.59, of
which $1,000,000 was applied to the amount of the purchase price due at
the closing. Global prepaid the amount due on the first anniversary
after the closing by issuing the Company 400,000 shares of common stock
and cancelling $50,000 of the indebtedness to Global. With respect to
the balance due under for the purchase of the Corporations and the
Landfill, Global executed a note in the principal amount of $4,000,000,
of which $2,000,000 is payable on the second anniversary of closing and
the remaining $2,000,000 is payable on the third anniversary of closing;
provided, that Global can satisfy the payment due on the second
anniversary of closing by delivering 400,000 shares of its common stock
and cash in the amount $75,000, and can satisfy the amount due on the
third anniversary of closing by delivering 400,000 shares of its common
stock and cash in the amount of $125,000.
The Company satisfied the remaining obligation to Global in the
amount of $69,213.59 by agreeing to provide consulting services to Global
relating to the Corporations and the Landfill. The Company decided to
enter into the Agreement in order to allow the Company to concentrate on
its Florida operations, to raise capital to fund such operations, and
because liquidity problems associated with the operations sold to Global
jeopardized the Company's ability to operate them as a going concern.
Business of the Company
The Company's principal business objective is to provide convenient,
cost-effective and ecologically proper solid waste processing and
disposal for waste generators and waste transporters. The Company
contemplates achieving this objective by owning, operating, acquiring and
developing nonhazardous waste disposal businesses and businesses that
complement them, primarily nonhazardous waste processing and business.
Solid Waste Processing
Solid waste processing is the physical handling of waste to change
it in some way. The Company engages in or has plans to engage in the
following solid waste processing activities: (1) quality control (to
insure that only permittable wastes transfer through the Company's
system); (2) segregation of wastes (to remove valuable recyclables and
unwanted refuse); and (3) compression and loading (to provide safe and
economic transportation). These activities generally take place at
transfer stations. The Company's strategy is to develop transfer station
capability by allying with high volume processing centers.
Solid Waste Disposal
Solid waste disposal is the physical elimination of waste by burying
at landfills.
An inert waste landfill is a disposal facility that may accept only
wastes that will not or are not likely to generate contamination to
surrounding soils or groundwater. Such wastes are limited to earth and
earth-like products, concrete, cured asphalt, rock, bricks, yard
trimmings, stumps, limbs, and leaves. A landfill permitted for
construction and demolition debris may accept building materials and
rubble resulting from construction, remodeling, repair, and demolition
operations on pavements, houses, commercial buildings and other
structures. Such wastes include, but are not necessarily limited to,
asbestos containing wastes, wood, bricks, metal, concrete, wallboard,
paper, cardboard, all inert waste landfill material, and other "non-
putrescible" wastes, as these wastes have a low potential for groundwater
contamination upon decomposition.
A municipal solid waste landfill can accept any waste derived from
households, including garbage, trash and sanitary waste in septic tanks.
Household waste includes solid waste from single-family and multi-family
residences, hotels and motels, bunkhouses, campgrounds, picnic grounds,
and day-use recreation areas. The term also includes commercial solid
waste, but does not include solid waste from mining, agricultural or
silvicultural operations or industrial processes or operations.
A transfer station is a waste management facility where solid waste
is received from collection vehicles and then transferred to and
compacted in large, specially designed and constructed trailers for
transportation to distant disposal facilities. Transportation can be by
road or rail. A transfer station operation can effectively reduce costs
by positively impacting the utilization of personnel and equipment and by
reducing fuel costs. The greatest benefit of transfer stations is the
quick turnaround obtained for route collection vehicles.
Industry Background
According to the National Solid Waste Management Association, the
North American solid waste industry was estimated to have had revenues of
more than $32 billion in 1995. The industry is highly fragmented, with
the four largest companies accounting, in 1995, for approximately 30% of
revenues, seven mid-sized public companies, accounting for approximately
4% of revenues, and several thousand municipalities and independent
collection firms accounting for approximately 66% of revenues. The
industry has been consolidating in recent years as a result of increased
capital requirements arising primarily from stringent environmental and
other governmental regulations. The Company expects the trend toward
consolidation to continue as many independent landfill and collection
operators, including municipalities, lack the capital resources,
management skills and technical expertise necessary to operate in
compliance with such regulations.
The Company believes that approximately 80% of solid waste landfills
are owned by municipalities, 15% by private companies and 5% by the
federal and state governments. These landfills vary greatly in size and
capacity. The Company believes that the estimated 800 privately-owned
landfills represent approximately 50% of the remaining disposal capacity
in the United States. Subtitle D regulations ("Subtitle D") of the
Resource Conservation and Recovery Act ("RCRA") require landfill
operators to upgrade existing disposal facilities by imposing
requirements in the areas of facility design and operating criteria,
closure and post-closure requirements, financial assurance standards and
groundwater monitoring as well as corrective action standards. Trade
group data indicate that the number of municipal solid waste landfills
decreased by 62% from 1988 to 1995 and that the remaining number of such
landfills in 1995 was under 3,000.
As a result of these regulatory changes, a number of independent
landfill operators and municipalities are discontinuing or privatizing
landfill and collection operations. In some instances, industrial
companies that had previously operated landfills have decided to close
such landfills rather than bring them into compliance with the new, more
demanding regulations. The increasing requirements for capital, skilled
management and technical expertise are, for small operators who cannot
achieve economics of scale and integration, reducing margins and causing
them to sell or close existing landfills. As a result, the Company
expects continued availability of opportunities to acquire solid waste
collection and disposal businesses. However, there can be no assurance of
such continued availability or of the Company's ability to consummate any
such potential acquisitions.
Pricing in the waste management industry has become increasingly
complex as wastes have been sub-divided/categorized by regulation
changes, and charges or "tipping fees" are being calculated as to
specific transport and disposal requirements. Revenues are generated
through charges or tipping fees to the collection and hauling companies
and are calculated by volume or weight. Transfer stations consolidate and
compact the waste for transport to distant sites where tipping fees may
be lower, while collecting a fee per ton for consolidation, compaction,
transportation, and disposal. The prices that are charged for disposal or
transfer of waste are determined by the volume or weight, the type of
waste disposed of and prices charged for similar disposal services by
competitors. Long term disposal and collection contracts typically
contain a formula, generally based on published price indices, for
automatic adjustment of fees to cover increases in some, but not all,
operating costs.
In general, the Company intends to acquire landfill properties at a
discount to their intrinsic value by finding properties that are in need
of recapitalization and upgrade to Subtitle D. The Company avoids
landfills with questionable environmental liabilities. The Company
intends to increase the profit potential of its landfills by furnishing
out-of-region waste revenues, among other attainable measures.
Competition
The solid waste industry is highly competitive and requires
substantial amounts of capital. The waste industry is currently dominated
by several large, national waste management companies -- Waste
Management, Inc., Browning-Ferris Industries, Inc., U.S.A. Waste
Services, Inc., Allied Waste Industries, Inc. and Republic Industries,
Inc. Additionally, there are a number of regional companies and numerous
local companies. All of these companies have significantly larger
operations and greater financial resources than the Company. The Company
may also compete with those counties and municipalities that maintain
their own waste collection and/or disposal operations.
The Company would compete for landfill and transfer business on the
basis of tipping fees, geographical location and quality of operations.
The Company's ability to obtain landfill and transfer business may be
limited by the fact that some major collection companies also own or
operate landfills to which they send waste that they collect.
Government Regulation
The Company's disposal operations are subject to various federal,
state and local laws and substantial regulation under these laws by
governmental agencies, including the U.S. Environmental Protection Agency
(EPA), disposal various state agencies and county and local authorities.
These regulatory bodies impose restrictions to control air, soil and
water pollution and may in some cases require the Company to provide
financial assurances covering monitoring, potential corrective action and
final closure and post-closure for certain disposal facilities. The
penalties for violation of these laws and regulations are, in many
instances, substantial. The Company may in the future be required under
these regulatory requirements to increase capital and operating
expenditures in order to maintain current operations or initiate new
operations. Governmental authorities may seek to impose fines on the
Company or to revoke or deny renewal of an operating permit for failure
to comply with applicable requirements. Under certain circumstances, the
Company might be required to curtail operations until a particular
problem is remedied. Amendments to current laws and regulations governing
the Company's operations or more stringent implementation thereof could
have a material adverse effect on the Company's operations or require
substantial capital expenditures.
The Solid Waste Disposal Act ("SWDA"), as amended by the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA")
The SWDA and its implementing regulations establish a framework for
regulating the handling, transportation, treatment, and disposal of
hazardous and non-hazardous wastes. They also require states to develop
programs to ensure the safe disposal of solid wastes in landfills.
Subtitle D of RCRA establishes a framework for federal, state, and
local government cooperation in controlling the management of non-
hazardous solid wastes. While the role of the EPA is to provide overall
regulatory direction, the actual planning and implementation of solid
waste programs under Subtitle D are largely state and local functions. In
October 1993, the EPA adopted regulations under Subtitle D with respect
to solid waste disposal facility criteria, which include location
standards, hydrogeological investigations, facility design requirements
(including liners and leachate collection systems), enhanced operating
and control criteria, groundwater and methane gas monitoring, corrective
action standards, closure and extended post-closure requirements, and
financial assurance standards, many of which have not commonly been in
place or enforced at landfills. All Subtitle D regulations are in effect,
except for financial responsibility requirements, which were to take
effect in April 1997 although many states have already implemented
financial assurance programs. These federal regulations must be
implemented by the states, although states may impose requirements for
landfill sites that are more stringent than the federal Subtitle D
standards. Once a state has an approved program, it will review all
existing landfill permits to ensure that they comply with the new
regulations. Although the states were required to submit proposed
permitting programs designed to implement the Subtitle D regulations to
the EPA by April 1993, some states have not submitted their programs to
the EPA and others have not fully completed their implementation. Because
the new regulations did not take effect until late 1993 and have not been
fully implemented by the states, their full impact may not be apparent
for several years. The Company could incur significant costs in complying
with such regulations; however, the Company does not believe that such
enhanced standards will have a material adverse effect on its potential
operations because all of the Company's potential landfills would be
engineered to meet or exceed these requirements.
The Federal Water Pollution Control Act of 1972 ("The Clean Water Act")
This Act establishes rules regulating the discharge of pollutants
from a variety of sources, including solid waste disposal sites, into
streams, groundwater or other surface or subsurface waters. If runoff
from the Company's potential landfill or transfer station is discharged
into surface waters, the Act would require the Company to apply for and
obtain a discharge permit, conduct sampling and monitoring and, under
certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with the
new federal storm water regulations, which are designed to prevent
possibly contaminated storm water from flowing into surface waters. The
Company will work with the appropriate regulatory agencies to ensure that
its facilities are in compliance with Clean Water Act requirements,
particularly as they apply to treatment and discharge of leachate and
storm water. In addition, where development may alter or affect
"wetlands," a permit must be obtained before such development may be
commenced. This requirement is likely to affect the construction or
expansion of many solid waste disposal sites. The Act provides for civil,
criminal and administrative penalties for violations of specified
sections of the Act.
The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("Superfund" or "CERCLA")
CERCLA established a regulatory and remedial program intended to
provide for the investigation and cleanup of facilities from which there
has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such programs is to
impose strict joint and several liability for cleanup of facilities on
current owners and operators of the land, former owners and operators of
the land at the time of the disposal of the hazardous substances, as well
as the generators of the hazardous substances and the transporters who
arranged for disposal or transportation of the hazardous substances. The
costs of CERCLA investigation and cleanup can be very substantial.
Liability under CERCLA does not depend upon the existence or disposal of
"hazardous waste" but can also be founded upon the existence of even very
small amounts of the more than 700 "hazardous substances" listed by the
EPA, many of which can be found in household waste. If the Company were
found to be a responsible party for a CERCLA cleanup, the enforcing
agency could hold the Company completely responsible for all
investigative and remedial costs even if others may also be liable.
CERCLA also authorized the imposition of a lien in favor of the United
States upon all real property subject to or affected by a remedial action
for all costs for which a party is liable. The Company's ability to
obtain reimbursement from others for their allocable share of such costs
would be limited by the Company's ability to find other responsible
parties and prove the extent of their responsibility and by the financial
resources of such other parties. In the past, legislation has been
introduced in Congress to limit the liability of municipalities and
others under CERCLA as generators and transporters of municipal solid
waste. Although such legislation has not been enacted, if it were to pass
it would limit the Company's ability to seek full contribution from
municipalities for CERCLA cleanup costs even if hazardous substances that
were released and caused the need for cleanup at the Company's potential
landfill were generated by or transported to the landfill by a
municipality. Depending upon whether and how Congress acts, it is
possible that each of these laws may be changed in ways that may
significantly affect the Company's potential waste disposal business.
The Occupational Safety and Health Act of 1970 (the "OSHA Act")
The OSHA Act authorizes the Occupational Safety and Health
Administration to promulgate occupational safety and health standards.
Various of these standards, including standards for notices of hazards,
safety in excavation and demolition work, and the handling of asbestos,
may apply to the Company's operations.
The Clean Air Act
The Clean Air Act provides for regulation, through state
implementation of federal requirements, of the emission of air pollutants
from certain landfills based upon the date of the landfill construction
and volume per year of emissions of regulated pollutants. The EPA
proposed a New Source Performance Standard and Emission Guidelines for
municipal solid waste landfills. Current regulations impose limits on air
emissions from municipal solid waste landfills. The New Source
Performance Standard will apply to all municipal solid waste landfills
that commence construction after the date of the proposal. The Emission
Guidelines are a set of standards that must be adopted by the states and
will apply to all municipal solid waste landfills that received waste
after November 8, 1987. The EPA may also issue regulations controlling
the emissions of particular regulated air pollutants from municipal solid
waste landfills. Landfills located in areas with air pollution problems
may be subject to even more extensive air pollution controls and emission
limitations.
Proposed Federal Legislation
In the future, the Company's potential collection, transfer and
landfill operations may also be affected by legislation currently pending
before Congress that would authorize the states to enact discriminatory
legislation governing waste shipments. The Company believes that if any
such federal legislation is enacted, it may have a material adverse
effect on the Company's potential operations.
State and Local Regulation
Each state in which the Company may operate in the future has laws
and regulations governing the generation, storage, treatment,
handling, transportation and disposal of solid waste, water and air
pollution and, in most cases, siting, design, operation, maintenance,
closure and post-closure of landfills and transfer stations. There has
also been an increasing trend in various states seeking to regulate the
disposal of out-of-state waste in their landfills. Legislative and
regulatory measures to mandate or encourage waste reduction at the source
and waste recycling have been adopted by many states and are also under
consideration by Congress and the EPA.
The Company's potential collection and landfill operations may be
affected by the trend toward laws requiring the development of waste
reduction and recycling programs. For example, California, Georgia,
Florida, Illinois, Indiana, Kentucky, Pennsylvania, Ohio, South Carolina
and West Virginia have enacted laws that will require counties to adopt
comprehensive plans to reduce the volume of solid waste deposited in
landfills, through waste planning, composting and recycling or other
programs, within the next few years. A number of states have taken, or
are considering, steps to ban the landfilling of certain wastes, such as
yard wastes, beverage containers, newspapers, unshredded tires, lead-acid
batteries and "white goods", such as refrigerators. The enactment of
regulations reducing the volume and types of wastes available for
transport to and disposal in landfills could affect adversely the
Company's ability to operate its potential facilities at their full
capacity.
Many municipalities also have ordinances, local laws and regulations
affecting the waste disposal industry. These include zoning and health
measures that limit solid waste management activities to specified sites
or activities, flow control provisions that direct the delivery of solid
wastes to specified facilities, and bans or other restrictions on the
movement of solid wastes into a municipality.
The permits or other land use approvals with respect to a landfill,
as well as state or local regulations, may (i) limit a landfill to
accepting waste that originates from a specified geographic area and/or
(ii) specify the quantity of waste that may be accepted at a landfill
during a given time period and/or (iii) specify the types of waste that
may be accepted at the landfill.
Disclosure Regarding Forward Looking Statements
This Annual Report on Form 10-KSB includes forward looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended ("Forward Looking Statements"). All statements other than
statements of historical fact included in this report are Forward Looking
Statements. In the normal course of its business, the Company, in an
effort to help keep its shareholders and the public informed about the
Company's operations, may from time-to-time issue certain statements,
either in writing or orally, that contain or may contain Forward-Looking
Statements. Although the Company believes that the expectations reflected
in such Forward Looking Statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies, past and possible future, of acquisitions and projected or
anticipated benefits from acquisitions made by or to be made by the
Company, or projections involving anticipated revenues, earnings, levels
of capital expenditures or other aspects of operating results. All phases
of the Company operations are subject to a number of uncertainties, risks
and other influences, many of which are outside the control of the
Company and any one of which, or a combination of which, could materially
affect the results of the Company's proposed operations and whether
Forward Looking Statements made by the Company ultimately prove to be
accurate. Such important factors ("Important Factors") and other factors
could cause actual results to differ materially from the Company's
expectations are disclosed in this report. All prior and subsequent
written and oral Forward Looking Statements attributable to the Company
or persons acting on its behalf are expressly qualified in their entirety
by the Important Factors described below that could cause actual results
to differ materially from the Company's expectations as set forth in any
Forward Looking Statement made by or on behalf of the Company.
Competition: The waste collection/disposal business is both highly
competitive and requires substantial amounts of capital. If permitted and
operational, the Company's facilities would compete with numerous
enterprises, many of which have significantly larger operations and
greater resources than the Company. The Company would also compete with
those counties and municipalities that maintain their own waste
collection and disposal operations. Forward Looking Statements assume
that the Company will be able to effectively compete with these other
entities.
Availability of Acquisition Targets: The Company's planned
acquisition program is a key element of its expansion strategy. In
addition, obtaining landfill permits has become increasingly difficult,
time consuming and expensive. There can be no assurance, however, that
the Company will succeed in obtaining landfill permits or locating
appropriate acquisition candidates that can be acquired at price levels
that the Company considers appropriate.
Ongoing Capital Requirements: In order to satisfy the liquidity
needs of the Company for the following twelve months, the Company will be
primarily dependent upon proceeds from the sale of the Company's stock
and proceeds from the sale of the Company's remaining assets. At this
time, the Company does not have any revenue generating operations. If
the Company is unable to obtain adequate funds from the sale of its stock
in public offerings, private placements, alternative financing
arrangements, or the dispostion of certain assets, then substantially all
of the Company's assets may be lost to foreclosure in the near future.
Economic Conditions: The Company's potential waste
collection/disposal business would be affected by general economic
conditions. There can be no assurance that an economic downturn would not
result in a reduction in the potential volume of waste that might be
disposed of at the Company's potential facilities and/or the price that
the Company would charge for its services.
Weather Conditions: Protracted periods of inclement weather may
adversely affect the Company's potential operations by interfering with
collection and landfill operations, delaying the development of landfill
capacity and/or reducing the volume of waste generated by the Company's
potential customers. In addition, particularly harsh weather conditions
may result in the temporary suspension of certain of the Company's
potential operations. The Forward Looking Statements do not assume that
such weather conditions will occur.
Dependence on Senior Management: The Company is highly dependent
upon its senior management team. In addition, as the Company continues to
grow, its requirements for operations management with franchising and
waste industry experience will also increase. The future availability of
such experienced management cannot be predicted. The Forward Looking
Statements assume that experienced management will be available when
needed by the Company at compensation levels that are within industry
norms. The loss of the services of any member of senior management or the
inability to hire experienced operations management could have a material
adverse effect on the Company.
Influence of Government Regulation: The Company's potential
operations would be subject to and substantially affected by extensive
federal, state and local laws, regulations, orders and permits, which
govern environmental protection, health and safety, zoning and other
matters. These regulations may impose restrictions on operations that
could adversely affect the Company's results, such as limitations on the
expansion of disposal facilities, limitations on or the banning of
disposal of out-of-state waste or certain categories of waste or mandates
regarding the disposal of solid waste. Because of heightened public
concern, companies in the waste management business may become subject to
judicial and administrative proceedings involving federal, state or local
agencies. These governmental agencies may seek to impose fines or to
revoke or deny renewal of operating permits or licenses for violations of
environmental laws or regulations or to require remediation of
environmental problems at sites or nearby properties, or resulting from
transportation or predecessors' transportation and collection operations,
all of which could have a material adverse effect on the Company.
Liability may also arise from actions brought by individuals or community
groups in connection with the permitting or licensing of operations, any
alleged violations of such permits and licenses or other matters. The
Forward Looking Statements assume that there will be no materially
negative impact on its operations due to governmental regulation.
Litigation. Although the Company has made significant progress
identifying litigation claims and negotiating settlements, the Company is
still a party to a number of litigation matters which could have a
materially adverse impact on the Company's ability to operate. The
litigation matters include several unsatisfied judgments for material
amounts. In the event the Company is not able to negotiate settlements
of the material litigation claims and judgments, the Company's ability to
operate will be impaired and the Company may be forced to seek bankruptcy
court protection.
Potential Environmental Liability: The Company may incur liabilities
for the deterioration of the environment as a result of its potential
operations. Any substantial liability for environmental damage could
materially adversely affect the operating results and financial condition
of the Company. Due to the limited nature of insurance coverage of
environmental liability, if the Company were to incur liability for
environmental damage, its business and financial condition could be
materially adversely affected.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's
contracts will provide for a pass through of certain costs, including
increases in landfill tipping fees and, in some cases, fuel costs. The
Company therefore believes it should be able to implement price increases
sufficient to offset most cost increases resulting from inflation.
However, competitive factors may require the Company to absorb cost
increases, resulting from inflation. The Company is unable to determine
the future impact of a sustained economic slowdown.
Employees
At July 26, 1999, the Company had six employees, including two
employees employed directly by the Company, and four employees employed
by WasteMasters of Florida, Inc., a wholly-owned subsidiary of the
Company.
ITEM 2. DESCRIPTION OF PROPERTY..
As of August 9, 1999, the principal fixed assets of the Company
consisted of land, land improvements, machinery and equipment held for
use at its waste operations.
The Company, through its American Recycling subsidiary, owns a
landfill in Homestead, Florida consisting of approximately 40 acres. The
landfill was previously permitted for use as a construction and
demolition landfill, but lost the permit in January 1999, and is not
currently operational. The landfill is subject to two mortgage liens
totalling approximately $1,500,000. On April 23, 1999, American
Recycling filed a voluntary petition for reorganization under Chapter 11
of the U. S. Bankruptcy Code with the Bankruptcy Court for the Southern
District of Florida in order to stay a foreclosure of the landfill by a
mortgage holder. In July 1999, the bankruptcy court granted the mortgage
holder relief from the automatic stay to foreclose on the landfill. It
is expected that the mortgage holder will foreclose on the landfill in
the near future and that the Company will not realize any proceeds from
its investment in American Recycling.
The Company, through its WasteMasters of Palm Beach, Inc.
subsidiary, owns a ten (10) acre transfer and recycling facility
previously permitted for 560 yards per day. The facility handles roofing
material, construction and demolition debris, vegetation, clean concrete,
clean wood, and mulch and grass. The facility lost its permit to operate
in January 1999 due to violations of environmental regulations. The
facility is not currently operational. A mortgage holder recently
commenced foreclosure proceedings to foreclose on the facility.
The Company, through its SECO subsidiary, owns land and buildings in
Oklahoma City, Oklahoma and Tyler, Texas, both of which are used for
warehousing, parts distribution and manufacturing. Both properties are
subject to blanket first mortgage with an approximate balance of
$230,000, and a blanket second mortgage for $2,000,000, which also covers
all of the subsidiaries other assets. A trustee was appointed to operate
SECO on May 26, 1999. In July 1999, the trustee terminated operations at
SECO, and has been liquidating its assets.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to a significant number of litigation matters
which could have a materially adverse impact on the Company's ability to
operate.
Wastemasters, Inc. Litigation
Harold Solomon and Mary Ann Solomon v. Wastemasters, Inc.: The
plaintiffs obtained a judgment against the Company for $2.5 million for
services rendered as an employee and consultant in April 1999 which has
not been satisfied.
Waste Management of Cambridge, Inc., d/b/a Hunting Ridge Landfill v.
Wastemasters, Inc.: The plaintiff obtained a judgment against the Company
for $73,113.33 from the First Judicial District, County of Philadelphia,
Court of Common Pleas which has not been satisfied.
CSX Transportation, Inc. v. Wastemasters, Inc.: In November 1997, a
default judgment was entered against the Company in the amount of
$273,708.54. The Company entered into a settlement agreement under which
the Company agreed to pay $22,809.05 per month for 12 months. The
Company did not make any payments under the settlement agreement and the
judgment remains unsatisfied.
Raritan Properties, Inc. v. Wastemasters, Inc.: The plaintiff
obtained a judgment against the Company in the Superior Court of New
Jersey, Civil Part, Middlesex County, on April 7, 1998 for $27,732.13,
which remains unsatisfied.
Michael Paul Bahor and Engineering Contract Personnel, Inc. v. Renee
Colbert, Richard Masters, Bruce Blazer, Leon Blazer, George Cadle, Red
Earth Environmental, Inc., Appleton Landfill, Wastemasters, Inc.: The
plaintiff's claim is based on a settlement agreement whereby the
defendants agreed to convey stock in Wastemasters to Mr. Bahor in October
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. The parties reached an agreement to settle
this matter which requires the company to pay $15,000 in cash and issue
150,000 shares of restricted stock, with the requirement that additional
shares be issued in order to insure that the plaintiffs receive at stock
with a value of at least $95,000. The parties recently agreed to amend
the settlement agreement to provide for the issuance of 100,000 shares of
unrestricted common stock in lieu of the cash payment on the prior
settlement.
Coastal, Ltd. V. Wastemasters, Inc.: This case was filed in the
Court of Common Pleas, Franklin County, Ohio alleging that the Company
defaulted on a sublease in Baltimore Maryland. The plaintiff claims
damages of $3.2 million. The parties recently agreed in principal to
settle this matter.
Mayor and City Council of Baltimore v. F & E Resource Systems
Technology, Inc.: This suit was filed in the District Court of Maryland
for Baltimore City to recover amounts allegedly due for tangible personal
property taxes. A judgment was entered against the Company on February
26, 1999 for $14,453.87, which remains unsatisfied.
Young's Environmental Cleanup, Inc. v. F & E Resources, Inc. and
Wastemasters of Michigan, Inc.: The plaintiff filed this suit on
December 5, 1997 in the Circuit Court for the County of Osceola,
Michigan, seeking $41,210 for services rendered to the company's former
landfill in Reed City, Michigan. A default judgment was entered on March
30, 1998 for $41,161.92. On May 27, 1998, the plaintiff obtained a writ
of execution against property of WasteMasters of Michigan, Inc.
WMI Investors, Inc. v. Wastemasters, Inc, and Red Mountain Investors
v. Wastemasters, Inc.: The plaintiff seeks substantial damages arising
out of the company's alleged breach of certain agreements purportedly
entitling the plaintiff to obtain a controlling interest in the Company.
The company has been indemnified from liability by Continental, which is
handling the defense of this matter on behalf of the Company. Although
Continental is handling the defense costs of this action, the Company
does not believe that Continental has the resources to satisfy its
obligations under the indemnity in the event a large judgment is rendered
against the Company.
American Environmental Recycling, Inc. and Rene Guerra v. American
Recycling and Management Corp.: This action was filed to foreclose a
mortgage on a landfill owned by the American Recycling, a wholly owned
subsidiary of the Company. The plaintiff obtained a judgment of
foreclosure and scheduled a foreclosure sale which was stayed by the
Chapter 11 filing of American Recycling on April 23, 1999. In July 1999,
the bankruptcy court granted the mortgage holder relief from the
automatic stay to foreclose on the landfill. It is expected that the
mortgage holder will foreclose on the landfill in the near future and
that the Company will not realize any proceeds from its investment in
American Recycling.
The Farm, Inc. v. Rene Guerra, American Recycling & Management,
Inc., et al.: This action was filed by a neighboring property owner to
the landfill under development in Homestead, Florida by the company's
subsidiary, American Recycling. The complaint seeks to enforce an
alleged contract to purchase part of the land between the plaintiff and
Rene Guerra, a prior owner of the land. The complaint also seeks damages
for dimunition of the market value of the plaintiff's land in the event
the land is actually used as a landfill. This case has been stayed by
the Chapter 11 filing of American Recycling.
Steffen Robertson & Kirsten v. Wastemasters of Georgia, Inc. and
Wastemasters, Inc.: The plaintiff filed this action against the Company
and Wastemasters of Georgia, Inc., a company which was sold to
Continental in 1997, to recover for engineering services rendered on
behalf of a landfill in Walker County, Georgia and to perfect a
mechanic's lien filed against a landfill in Walker County, Georgia. The
suit is being defended by the Company.
147 Solomon Island Road Corp. v. Wastemasters, Inc.: In December
1998, the Plaintiff obtained judgments against the Company in the amounts
$176,700.06, $21,485.00, $20,000.00, and $17,633.34 from the Circuit
Court for Anne Arundel County, State of Maryland. The judgments remain
unsatisfied.
Atlas Environmental, Inc.: In 1998, the company purchased 51% of
the common stock of Atlas Environmental, Inc., which was operating in
Chapter 11 bankruptcy at the time. In November 1999, the bankruptcy
court appointed a trustee for Atlas and its subsidiaries. The trustee
for Atlas has recently notified the company that he believes he has
substantial claims against the Company, and the officers and directors of
Atlas allegedly appointed by the Company, for mismanagement and breach of
fiduciary duty arising out of the management of Atlas and its
subsidiaries during its Chapter 11 case. The company has responded to
the trustee denying any liability. No suit has been filed.
Mistafaglo v. Wastemasters, Inc.: The plaintiff sued the Company to
recover amounts allegedly due under a consulting agreement and for
damages resulting from the Company's failure to honor the plaintiff's
exercise of a warrant to purchase common stock of the plaintiff. The
Company has filed an answer. The Company is not able to predict the
outcome of this litigation.
American Waste Transport & Recycling, Inc. v. Wastemasters, Inc.:
The plaintiff holds a judgment against the company in the amount of
$80,298.42 from the Superior Court of New Jersey, Burlington County. This
claim arose out of the operation of the Atlantic Coast transfer station
which was sold to Global on March 30, 1999. Pursuant to the agreement
selling this transfer station to Global, Global assumed responsibility
for payment of this judgment; however, a formal dismissal or satisfaction
has not been filed with the court at this time.
Nikko Trading of America Corporation, et al. v. Wastemasters, Inc.:
On December 16, 1998, Stewart Rahr, a shareholder of the Company, filed a
motion to intervene in an action styled Nikko Trading of America
Corporation, et al. v. Wastemasters, Inc., pending in the United States
District Court for the Northern District of Texas, Dallas Division, Civil
Action No. 3-98CV0048-D. Mr. Rahr requested that a Consent Judgment
entered in that action on February 5, 1998 be vacated, and that Mr. Rahr
be granted leave to defend the action derivatively on behalf of the
Company. Under the Consent Judgment, approximately 63 million shares of
common stock were issued to the plaintiffs to fully settle and compromise
the Company's liability under approximately $3.2 million of debentures
held by the plaintiffs therein. Mr. Rahr alleges that the Consent
Judgment was obtained as a result of collusion between the plaintiffs in
the action and the Company, and that the Chairman of the Company at the
time, R. Dale Sterritt, Jr., failed to disclose to the Company's board
that he beneficially owned an interest in the plaintiffs and/or
controlled the plaintiffs through nominees. Mr. Rahr further contends
that, because of that collusion, the Company ignored certain legal
defenses in the action and agreed to a judgment which was not in the best
interests of the Company. Mr. Rahr also contends that Sterritt breached
his fiduciary duty and usurped a corporate opportunity of Continental by
causing Continental to transfer the debentures to the plaintiffs in this
action. Mr. Rahr also sought a preliminary injunction preventing any
transfer of the shares issued under the Consent Judgment until the Court
has ruled on the validity of the shares. The Court recently granted Mr.
Rahr's request for a preliminary injunction.
Based on the Company's understanding of the evidence elicited to
date in the discovery process by Mr. Rahr, the Company believes that
there may be valid grounds to vacate the Consent Judgment. Therefore,
the Company supports Mr. Rahr's position in the litigation. If the
Consent Judgment is vacated, the Company estimates that from 40-49
million of its outstanding shares could be cancelled. The actual number
of shares which could be cancelled may vary depending on subsequent Court
rulings as to the rights of subsequent transferees of the shares, the
actual number of shares which are held by subsequent transferees, and the
circumstances under which subsequent transferees acquired their shares.
If the Court declines to vacate the Consent Judgment, then the litigation
will have no effect on the number of shares which are outstanding.
Pending a final resolution of the litigation, the Company has not
consented to the transfer of any shares issued pursuant to the Consent
Judgment or to the removal of any restrictive legend on those shares
except pursuant to court order.
Nikko Litigation: Edward Roush, Jr. v. Wastemasters, Inc., et al.:
The court granted a motion to intervene in the Nikko Litigation filed by
Edward Roush, Jr., who claimed certain shares issued in the original
settlement as a holder in due course. Mr. Roush then filed a crossclaim
against the Company and a third party claim against its officers and
directors. The claims asserted that the Company had breached an
obligation to facilitate any transfer of the shares of the claimed by Mr.
Roush. The Company is undertaking the defense of the directors and
officers named in the suit, with the exception of one director, who the
Company contends was named in the suit for collusive purposes. That
director has made a demand that the Company pay for his defense. Motions
to dismiss the claims filed against the directors and officers were
recently filed on the grounds that Mr. Roush is not a shareholder of the
Company and that, even if he was, his complaint fails to state a claim as
a matter of law. In addition, the Company filed a motion to dismiss the
claims filed by Mr. Roush against the Company and Mr. Kelso. On July 19,
1999, the court granted all of the Company's motions to dismiss.
Edward Roush, Jr. v. A. Leon Blaser, et al.: Mr. Roush filed this
action in state court in Dallas, Texas against the officers and directors
of the Company and Robert J. Mottern, the company's counsel. Mr. Roush
asserted substantially the same theories and causes of action in this
action as he did in the third party complaint filed in the Nikko
Litigation. This case was recently transferred to federal court. The
Company is undertaking the defense of the directors and officers named in
the suit, with the exception of one director, who the Company contends
was named in the suit for collusive purposes. The Company recently filed
motions to dismiss the case. The court has not ruled on the motions.
Wastemasters, Inc. v. R. Dale Sterritt, Jr.: The Company recently
filed a lawsuit against its former Chairman and CEO, R. Dale Sterritt,
Jr., for fraud, breach of fiduciary duty and mismanagement. In
addition, the lawsuit seeks rescission of an agreement between the
Company and Sterritt which was executed on December 11, 1998. Under the
agreement, Sterritt resigned all of his positions with the Company, the
Company and Sterritt agreed to release each other from any claims, and
the Company agreed to pay Sterritt a consulting fee in the amount $7,500
per month for 36 months beginning on June 1, 1999, among other things.
The Company filed the action because it believes that Sterritt
misrepresented certain matters to the board of directors, and failed to
satisfy his duty to disclose certain material facts, in connection with
his management of the Company and the execution of that agreement. If
the action is unsuccessful, the Company would be liable to Sterritt for
substantial consulting payments under the agreement, as well as
contingently liable for substantial amounts based on indemnities granted
to Sterritt in the agreement against claims asserted against him arising
out of his actions as an officer and director of the Company. Sterritt
has filed an answer denying the allegations in the complaint, a
counterclaim to enforce the agreement, and third party claims against the
Company's board of directors and its counsel alleging that he was
fraudulently induced to enter into the agreement, and that the board of
directors breached its fiduciary duty. Sterritt's counsel has recently
indicated that he will dismiss all of his claims against the third party
defendants.
William Blount and Derek Parrish v. Wastemasters of Palm Beach,
Inc.: The plaintiffs filed this action to foreclose a mortgage in the
original principal amount of $1,000,000 on a transfer station in West
Palm Beach, Florida on May 28, 1999.
Sanitary Landfill, Inc. v. C.A.T. Recycling, Inc. and Frontier
Insurance Co., Inc.: The plaintiff claims approximately $143,000 for
landfill dumping charges which were not paid by CAT. Although
WasteMasters, Inc. is not party to the litigation, it has separately
indemnified Frontier Insurance Co., Inc. from any liability.
CAT Litigation
CAT is the subject of a considerable number of suits for collection
of debts incurred in the ordinary course of business, and for
deficiencies resulting from the repossession of personal property
previously used by CAT in its business. The Company terminated
operations at CAT in January 1999. Since all of CAT's assets have been
repossessed by creditors, and it has no prospects for the resumption of
operations, the Company has elected not to defend any of the lawsuits
filed against CAT.
SEC Investigation of Continental Investment Corporation
The Company received a subpoena from the Securities and Exchange
Commission requesting documents in connection with a formal investigation
of Continental. Even though the investigation is of Continental, many of
the documents requested by the SEC related to Sterritts' activities as an
officer and director of the Company. The Company is cooperating fully
with SEC in the investigation.
Unasserted Claims
In connection with the purchase of various companies in 1998, the
Company often indemnified the former owners against any liabilities
relating to the business or assets acquired. In many cases, the
purchased companies are in default on loans and equipment leases which
have been guaranteed by the former owners, and with respect to which the
former owners have been indemnified by the company. Certain former
owners have made demand on the Company for payment of such claims on
their behalf.
Pending Bankruptcy Proceedings
In re C&D Recycling, Inc.: In June 1998, this subsidiary of the
company filed a voluntary Chapter 11 proceeding in bankruptcy court in
Dallas, Texas. In May 1999, the court entered an order requiring the
debtor to deposit $750,000 in escrow or the automatic stay would be
lifted at the request of any creditor. The company failed to deposit the
required funds in escrow, and as a result the stay has been lifted. One
of the mortgageholders on the property had obtained a judgment of
foreclosure prior to the commencement of the bankruptcy case, and has
recently obtained relief from the automatic stay to complete the
foreclosure sale. The foreclosure sale took place on July 30, 1999.
In re American Recycling & Management, Inc.: In April 1999, this
subsidiary of the company filed a voluntary Chapter 11 proceeding in
bankruptcy court in Miami, Florida. The case was filed to stop a
scheduled foreclosure of its principal asset, a landfill under
development in Homestead, Florida. The court recently entered an order
granting the mortgageholder relief from the automatic stay to continue
its foreclosure action.
In re Sales Equipment Co., Inc.: In March 1999, this subsidiary of
the company filed a voluntary Chapter 11 proceeding in bankruptcy court
in Atlanta, Georgia. The case was recently transferred to Oklahoma City,
Oklahoma, where the subsidiary's operations are based. On May 26, 1999,
the bankruptcy court denied the company's motion to use the cash
collateral of its principle lender for operations, and appointed a
trustee. The trustee has terminated operations at the subsidiary, and
has been liquidating its assets. The Company does not expect to realize
any proceeds from the sale of the subsidiary.
The Company and its subsidiaries are party to numerous other claims
and pending legal proceedings. The Company is aggressively seeking to
identify, evaluate, and resolve many of the claims against the Company
created under prior management. 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, could have a material adverse effect on the consolidated
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon by the stockholders during the fourth
quarter of the fiscal year, as required to be reported upon by the
Company in response to this Item 4.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is registered with the United States
Securities and Exchange Commission under 12(g) of the Securities Exchange
Act of 1934 and since May 18, 1999 has been traded on the pink sheets
operated by the National Quotation Bureau. Prior to May 18, 1999, the
Company's common stock was traded on the NASDAQ SmallCaps Exchange, but
was delisted due to noncompliance with various continued listing
requirements of that exchange. The following table summarizes the low
and high prices for the Company's common stock for each of the calendar
quarters of 1997 and 1998.
1997 1998
High Low High Low
First Quarter 7/16 3/16 3 5/16 5/16
Second Quarter 5/16 1/16 2 1/2 1 7/16
Third Quarter 1 1/16 2 1/16 7/16
Fourth Quarter 13/16 1/4 1 1/16 5/16
There were 1,423 holders of record of the common stock as of June
18, 1999. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in "street name". The
Company has not declared any cash dividends on its Common Stock during
its fiscal years ended on December 31, 1998 or 1997. The Board of
Directors of the Company has made no determination to date to declare
cash dividends during the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
In September 1997, the Company began a significant effort to
restructure the Company and arrange for capital for operations and
expansion through acquisitions. The intention was 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. Therefore,
the Company underwent an aggressive acquisition period during the first
two quarters of 1998.
While the acquisitions strategy was a success, it was performed in a
manner that was too aggressive for the Company's existing cash flow and
its ability to raise capital from the sale of its common stock. In
addition, the Company lacked the necessary management structure to manage
the acquired companies properly, and utilized revenues from the acquired
companies to satisfy excessive general and administrative obligations,
thus rendering the acquired companies unable to satisfy their own bills
in the ordinary course of business. Also, management did not anticipate
the volume of litigation the Company experienced since September 1997,
and found overwhelming the expense and time demands necessary to deal
with and resolve those issues in addition to the time demands of
operating acquisitions. As a result, the Company disposed of a number of
its 1998 acquisitions to Global in order to allow the Company to focus
its time and resources on its remaining assets, being SECO and the 1998
acquisitions in Florida.
In January 1999, the Company voluntarily ceased its Florida
operations due to chronic cash flow difficulties, repossessions and
regulatory violations. Since terminating the Florida operations, the
Company's efforts in Florida have been focused on disposing of noncore
assets and attempting to refinance the secured indebtedness on its three
remaining assets in Florida. In all three case, the indebtedness has
been accelerated and foreclosure actions filed, and there can be no
assurance that the Company will be able to restructure or refinance such
indebtedness prior to a court ordered foreclosure sale of the assets.
In May 1999, a Chapter 11 trustee was appointed for SECO. The
trustee recently terminated operations at SECO and indicated that he
intended to liquidate SECO's assets. On July 30, 1999, a mortgageholder
foreclosed on the landfill owned by C&D Recycling.
Finally, the Company has continued its efforts to settle the
litigation claims against it, and other efforts to restructure its
balance sheet, including the disposition of its interest in C.A.T. and
SECO, which would eliminate significant liabilities from the balance
sheet of the Company. Furthermore, the Company has evaluated a number of
potential acquisitions, and has identified several in the waste disposal
industry which it believes are viable candidates. However, the
acquisitions are subject to a number of contingencies, including the
negotiation and execution of definitive agreements, the resolution by the
Company of certain of its litigation claims, and the resumption of
trading of the Company's common stock on the NASDAQ Bulletin Board.
Results of Operations
Revenues for 1998 increased to $12,375,649 as compared to $466,000
for 1997. The dramatic increase in revenue is the result of numerous
business acquisitions offset in part by the complete disposition of all
of the Company's operating assets that remained at December 31, 1997.
Cost of sales also increased to $3,828,044 from $333,351 as a result of
these acquisitions. During 1998, the Company experienced a dramatic
increase in selling, general and administrative expenses, which increased
to $28,814,986 in 1998 from $4,743,511 in 1997. In addition to increases
as a result of the acquisitions, much of the increase in this expense
category resulted from the settlement of issues that existed prior to
1998, often from the settlement of claims with common stock. Interest
expense decreased to $1,325,760 in 1998 from $10,615,332 in 1997. This
decrease is due almost exclusively to the accrual in 1997 of $10,441,636
in interest on the Company's convertible debentures resulting from a
penalty which was assessed against the Company when it could not comply
with a request to convert the debentures into common stock. Without
considering the interest accrued on the debenture in 1997, interest
increased by $1,152,064 in 1998 as compared to 1997 as a result of the
assumption and incurrence of debt by the Company in connection with its
1998 acquisitions.
Liquidity and Sources of Capital
The Company's balance sheet at December 31, 1998 reflects a working
capital deficit of $16,856,198, as compared to a deficit of $22,872,871
at December 31, 1997. A significant increase in working capital of
$6,016,673 resulted from the conversion of the Company's debentures into
common stock, which decreased current liabilities by $10,441,636. The
decrease in working capital was offset by increases in accounts payable
from the Company's unprofitable operations, and long-term obligations
that had matured or been accelerated at December 31, 1998, and which are
therefore reflected as a current maturity on the balance sheet.
Management believes that this debt will be fully restructured in 1999 as
a result of refinancing the indebtedness, satisfaction of the debt by
conversion to equity, settlement of the debt in bankruptcy or the
disposition of the subsidiary which is obligated on the debt.
At this time the Company is not engaged in active operations. The
Company's plan with regard to its remaining Florida assets is to raise
the capital necessary to restructure or refinance the debt on the assets,
to resolve the regulatory problems of the assets, and to provide
sufficient working capital to resume normal operations. Since there can
be no assurance that the necessary capital can be raised, the Company is
also in negotiations with various parties to sell or joint venture the
Florida assets. The Company does not expect to realize a material amount
from any sale or joint venture of the Florida assets, if that becomes
necessary. In addition, the Company plans to continue its efforts to
resolve the litigation claims against it, largely through the conversion
of such claims into equity.
Because the Company lacks active operations, the Company does not
have any cash to satisfy routine administrative obligations.
Consequently, the Company is currently dependent on the issuance of its
common stock for managerial and legal services, and depends on short term
loans from third parties, including its officers and directors, for the
funds to satisfy miscellaneous expenses. For the foreseeable future, the
Company expects that it will be required to acquire necessary
administrative services and satisfy its indebtedness by issuing shares of
its common stock. However, the Company has identified a number of
operating entities which it believes it can acquire in the event it is
able to reduce its litigation claims to an immaterial amount.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by Item 310 of Regulation S-B are
located at page F-1 through F-27 attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the two fiscal years ended December 31, 1998, the Company has
not filed any Current Report on Form 8-K reporting any change in
accountants in which there was a reported disagreement on any matter of
accounting principles or practices, financial statement disclosures or
auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS;COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Listed below are the directors and executive officers of the
Company.
Name Age Present Positions with Company
A. Leon Blaser 55 Chairman and Chief Executive Officer (1),
(3) and (4)
Douglas Holsted 38 President, Director (1), (2) and (3)
Dennis O'Neill 46 Acting Chief Financial Officer, Director
(2) and (4)
Frederick Beisser 57 Director (2) and (4)
(1) Executive Committee member.
(2) Audit Committee member.
(3) Finance Committee member.
(4) Compensation Committee member.
At the annual meeting of stockholders on February 6, 1998, the
stockholders approved an amendment to its charter to establish a
classified board of directors and to establish terms for directors in
each of three classes. Class A was designated for directors who are to
serve terms of 3 years; Class B was designated for directors who are to
serve terms of 2 years; and Class C was designated for directors who are
to serve terms of 1 year. Persons elected at this meeting of stockholders
to serve as Class A directors were Mr. Douglas C. Holsted and Mr. R. Dale
Sterritt, Jr.; elected to serve as Class B directors were Mr. S. Theis
Rice and Mr. A. Leon Blaser; and elected to serve as Class C directors
were Mr. William L. Hutchinson, Mr. Noel F. Khalil, and Mr. Brian
Galligan. Messrs. Sterritt, Rice, Hutchinson, Khalil and Galligan
resigned as directors in 1998. Messrs. Beisser and O'Neill were
appointed by the board of directors in 1999, and serve as Class C
directors.
During 1998, the board of directors had 8 meetings. All of the
directors attended five of the meetings. Brian Galligan missed two
meetings, and Theis Rice and J.B. Morris each missed one meeting.
The following information sets forth the backgrounds and business
experience of the directors and executive officers.
Douglas C. Holsted has served as a member of the Company's Board
since September 2, 1997. From November 7, 1997 to June 8, 1999, Mr.
Holsted served as Acting Chief Financial Officer. On June 8, 1999, Mr.
Holsted was appointed President of the Company. From January, 1996 to
May 26, 1999, Mr. Holsted was the Chief Executive Officer of Sales
Equipment Company in Oklahoma City, Oklahoma, which is in the business of
distributing equipment in the pressurized gas industry. From 1991 through
1995, he was the Chief Financial Officer of The Dwyer Group, Inc. of
Waco, Texas, a publicly owned company in the franchise industry. Mr.
Holsted is a certified public accountant licensed in the State of
Oklahoma.
A. Leon Blaser, Ph.D. has served as a member of the Company's Board
since January 4, 1996. He was a founder of WasteMasters, Inc., the
private predecessor company formed in 1995. From May 22, 1996 to
September 2, 1997, Mr. Blaser was Chairman of the Board of the Company.
Mr. Blaser was reappointed Chairman and Chief Executive Officer of the
Company on December 11, 1998 upon the resignation of Sterritt from those
positions. Mr. Blaser is involved in several private business
enterprises and, since 1990, has served principally as the President of
Interwest Development, Inc., an Idaho land development company.
Dennis O'Neill was appointed a director of the Company on March 25,
1999. Mr. O'Neill has a degree in Accounting from St. Peters College,
and is a CPA. Since 1986, Mr. O'Neill has worked as turnaround
consultant for various financially troubled and highly-levereged
companies. From 1989 to November 1995, Mr. O'Neill was an inhouse
consultant and roving financial and operating officer for the J.P.
Poindexter Company, Inc., where he assisted in the reorganization
National Steel Service Center, Inc., Leer Corporation, Morgan Truck Body
Corp., among others. Since November 1995, Mr. O'Neill has operated as an
independent financial and operating consultant to a number of public and
private companies, and has assisted financial institutions in refinancing
and reorganizing their holdings and debt structure, including Standard
Motor Parts, Durakon Industries and United Ceramic Tile. Currently, Mr.
O'Neill is the president of Swingin' Door, LLC, a middle market
architectural and engineering distributor and subcontractor in the niche
construction market.
Frederick Beisser was appointed a director of the Company on March
25, 1999. Mr. Beisser is employed, since January 1997, as Vice President-
- -Finance & Administration, Secretary and Treasurer, and from 1990 to
December 1996 he was Chief Financial Officer of Integrated Spatial
Information Solutions, Inc. (formerly DCX, Inc.), Jacksonville, Florida.
He has been a member of the board of directors of that company since
1991. Prior to that he held various positions in financial management and
controllership with the United States Air Force around the world,
retiring with the rank of major in 1989. He holds a PhD from American
International University, Canoga Park, CA; an MBA from Golden Gate
University, San Francisco, CA; and a BS Bus Admin from the University of
Southern Colorado, Pueblo, CO. In addition, he is a Colorado Certified
Public Accountant and received a diploma from the U. S. Air Force's Air
War College.
There are no family relationships among any of the officers or
directors of the Company.
The Company did not receive any Forms 3, 4 or 5 during 1998 from any
of its officers or directors. The Company does not believe that any of
its officers or directors were required to file a Form 4 during 1998 or a
Form 5 for 1998 except for R. Dale Sterritt, Jr., a former officer and
director of the whom the Company believes acquired, on an undisclosed
basis, a beneficial interest in a substantial number of shares of common
stock of the Company pursuant to a Consent Judgment entered on February
5, 1998 in the Nikko Litigation. Mr. Sterritt then sold a substantial
portion of such shares to third parties. Both the original acquisition
of the shares and subsequent disposition of some of the shares should
have been disclosed on Form 4 filings after each transaction or a Form 5
filing within 45 days after the end of the Company's fiscal year.
Finally, Michael J. Smith should have filed a Form 3 within ten days
after his appointment as a director on December 11, 1998 but did not.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation earned by the
Company's Chief Executive Officers during the last three fiscal years and
other officers who received compensation in excess of $100,000 during any
of the last three fiscal years. In accordance with Item 402(a)(5), the
Company has omitted certain columns from the table required by Item
402(b).
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Other Awards
Name and Year Salary Annual Securities Underlying
Principal Position Compensation Options/SARS(1)
Richard D. 1998 -- --
Masters (2) 1997 $125,544 --
CEO 1996 $509,931 1,000,000
Peter Stefanou (3) 1998 -- --
CFO and Interim 1997 $342,896 --
CEO 1996 -- 500,000
J. B. Morris (4) 1998
Interim President 1997
1996
R. Dale Sterritt, 1998
Jr. (5) 1997
CEO and 1996
Chairman
Robert P. Crabb 1998 -- -- --
(6) 1997 -- $122,475 --
Corporate 1996 $80,000 -- 500,000
Secretary
Douglas C. 1998 $140,482
Holsted (7) 1997 --
Acting CFO 1996 --
A. Leon Blaser (8) 1998
Chairman and 1997
CEO 1996
(1) The securities underlying these options are the shares of the
Company's Common Stock, $0.01 par value.
(2) Mr. Masters served as CEO from January 1996 until July 14,
1997. The amount for 1997 represents compensation and expenses paid with
shares of common stock of the Company. The compensation for 1996 includes
expense reimbursements. $383,008 of 1996 compensation was paid with
common stock of the Company. Compensation amounts for Mr. Masters exclude
amounts paid to his wife of $7,575 and $43,307 in 1997 and 1996,
respectively.
(3) Mr. Stefanou served as CFO from January 1997 until September 2,
1997. Additionally, he served as Interim CEO from July 14, 1997 to
September 2, 1997.All compensation reported in the table for Mr. Stefanou
was paid in shares of common stock of the Company, and includes expense
reimbursements and payments to Stefanou & Company, Certified Public
Accountants, for accounting services provided to the Company. Stefanou &
Company was also paid for accounting services provided to the Company
during 1996.
(4) Mr. Morris was appointed as Interim President on September 2,
1997. He was not compensated by the Company during this period.
(5) Mr. Sterritt was appointed as the Company's CEO from November
7, 1997 to December 11, 1998, and received no compensation from the
Company during that time. During most of that time, he was employed as
CEO of Continental, which was paid $50,000 per month for management and
administrative services, which included the services of Mr. Sterritt and
Mr. Morris.
(6) Mr. Crabb served as Vice President and Secretary from mid-1993
until January, 1996, and as Secretary from January 1996 until August 28,
1997. All compensation for 1997 to Mr. Crabb was paid in shares of
Common Stock of the Company pursuant to a consulting agreement.
(7) Mr. Holsted served as Acting CFO from November 7, 1997 to June
8, 1999.
(8) Mr. Blaser served as Chairman from July 1997 to September 1997.
Additionally, Mr. Blaser was appointed Chairman and CEO on December 11,
1998.
The Company does not have any employment agreements with any of its
executive officers.
During the year 1998, the Company made no grants of options or stock
appreciation rights (SARs) to any officer or director. Therefore, the
required table on options and SARs granted is omitted.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Value of
Securities Unexercised In-
Underlying The-Money
Unexercised Options/SARs at
Options/SARs at FY End ($)
FY End (#)
Name Shares Value Exercised/ Exercised/
Acquired on Realized Unexercised Unexercised
Exercise (#)
Richard D. Masters 1,000,000 $0
Peter Stefano 500,000 $0
Robert P. Crabb 500,000 $0
*Based on a closing price of $0.313 on December 31, 1998.
Compensation of Directors
Directors are entitled to reimbursement for expenses in attending
meetings but receive no other compensation for services as directors.
Directors who are employees may receive compensation for services other
than as director. No compensation was paid during 1997 or 1998 to
directors for services in their capacity as director.
Management Agreement with Continental Investment Corporation
From September 1997 to September 1998, the Company was party to a
management services contract with Continental, under which Continental
provided certain management and administrative services to the Company,
including management personnel and corporate office facilities, for
$50,000 per month. The Company's executive officers were supplied to the
Company by Continental pursuant to the contract, and therefore the
Company did not separately compensate its executive officers during 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of August 9,
1999, with respect to the beneficial ownership of the Company's voting
securities by each person known to the Company to be the beneficial owner
of more than five percent (5%) of any class of the Company's voting
securities.
Title of Class Name and Address of Amount and Nature Percent
Beneficial Owner of Beneficial Owner Of Class
Common Stock Continental Investment 130,000,000 (a) 46.6%
Corporation
10254 Miller Road
Dallas, Texas 75238
Preferred Stock Continental Investment 5,000,000 100%
Corporation
10254 Miller Road
Dallas, Texas 75238
(a) Beneficial ownership for Continental includes 4,500,000 shares
held by Continental, 100,000,000 shares which Continental has the right
to purchase pursuant to a warrant issued to Continental and 25,500,000
shares issuable upon the conversion of 5,000,000 shares of the Company's
Preferred Stock owned by Continental. Beneficial ownership does not
include any shares which Continental might acquire pursuant to the Nikko
Litigation (See Item 3: Legal Proceedings). Continental's percentage
ownership is based upon 153,194,250 shares of common stock issued and
outstanding as of August 9, 1999.
(b) Pursuant to a Consent Judgment entered in the Nikko Litigation,
the Company issued 63,165,066 shares to satisfy claims against the
Company based upon approximately $3.2 million in convertible debentures.
The plaintiffs in the Nikko Litigation were four corporations which
allegedly had acquired the debentures from Continental shortly before the
Nikko Litigation was filed. One of the allegations in the Nikko
Litigation is that the Company's former chairman, R. Dale Sterritt, Jr.,
had an undisclosed interest in the four corporate plaintiffs. If that
allegation is true, then Mr. Sterritt would be considered a holder of
more than 5% of the Company's common stock and should have disclosed his
indirect ownership of the shares in a Form 13D filing. (See Item 3: Legal
Proceedings).
(c) In addition, during discovery in the Nikko Litigation, it was
revealed that Edward Roush, Jr., who was the attorney for the plaintiffs
therein, handled the case on a 25% contingency, and therefore may be
considered the beneficial owner of approximately 16 million shares issued
in the settlement. If that allegation is true, then Mr. Roush should
have filed a Form 13D with the SEC disclosing his interest, since as of
the time of the settlement he would have owned or controlled more than 5%
of the Company's common stock. The Company does not know how many shares
Mr. Roush still owns or controls, as the Company understands that Mr.
Roush has disposed of certain of his shares by sale or gift. (See Item 3:
Legal Proceedings).
(d) Some time in 1999, Malcolm Kelso allegedly acquired from Nikko
a beneficial interest in 7,500,000 shares of common stock which had
originally been issued pursuant to the Consent Judgment entered in the
Nikko Litigation. Mr. Kelso is a confidant of Messrs. Roush and Sterritt
and is believed to be working closely with each person. Mr. Kelso should
have filed a Form 13D with the SEC disclosing his interest in the
Company's common stock. (See Item 3: Legal Proceedings).
The following table sets forth certain information, as of June 21,
1999, with respect to the beneficial ownership of the Company's Common
Stock by (i) all directors of the Company (ii) each executive officer of
the Company named in the Summary Compensation Table and (iii) all
directors and executive officers of the Company as a group.
Name and Address Amount and Nature of Percent of Class (2)
of Beneficial Owner Beneficial Ownership (1)
A. Leon Blaser, Ph.D. 6,275,903 4%
3350 Americana Terrace
Suite 200
Boise, Idaho 83706-2506
Douglas C. Holsted, CPA 4,600,000 2.9%
205 South Bickford
El Reno, Oklahoma 73036
Frederick Beisser 3,004,000 1.9%
796 Tioga Trail
Parker, Colorado 80138
Dennis O'Neill 4,000,000 2.5%
138 East 3rd Street
Brooklyn, New York 11218
All Officers and Directors 17,879,903 10.6%
as a Group
(1) The number of shares owned by each director includes shares
owned by the director, plus shares which the directors have the right to
acquire pursuant to warrants to purchase shares of common stock of the
Company at $.10 per share. Messrs. Blaser, Holsted and O'Neill each hold
warrants to purchase 4,000,000 shares of common stock. Mr. Beisser holds
a warrant to purchase 3,000,000 shares of common stock.
(2) Based upon 153,194,250 shares issued and outstanding as of
August 9, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 5, 1998, the Company entered into a Consent Judgment in
an action styled Nikko Trading of American Corporation, et al. v.
Wastemasters, Inc., pending in the United States District Court for the
Northern District of Texas, Dallas Division, Civil Action No. 3-98CV0048-
D. Under the Consent Judgment, approximately 63 million shares of common
stock, as well as warrants to purchase additional shares of common stock,
were issued to the plaintiffs to fully settle and compromise the
Company's liability under approximately $3.2 million of debentures held
by the plaintiffs. On December 16, 1998, Stewart Rahr, a shareholder of
the Company, filed a motion to intervene in the action, wherein Mr. Rahr
requested that the Consent Judgment be vacated, and that Mr. Rahr be
granted leave to defend the action derivatively on behalf of the Company.
Mr. Rahr alleges that the Consent Judgment was obtained as a result
of collusion between the plaintiffs in the action and the Company, and
specifically that Sterritt, the Chairman of the Company at the time,
failed to disclose to the Company's board that he beneficially owned an
interest in the plaintiffs and/or controlled the plaintiffs through
nominees. Mr. Rahr further contends that, because of that collusion, the
Company ignored certain legal defenses in the action and agreed to a
judgment which was not in the best interests of the Company. Mr. Rahr
also sought a preliminary injunction preventing any transfer of the
shares issued under the Consent Judgment until the Court has ruled on the
validity of the shares. The Court granted Mr. Rahr's motion to intervene
as well as his request for a preliminary injunction.
Based on the Company's understanding of the evidence elicited to
date in the discovery process by Mr. Rahr, the Company believes that
there may be valid grounds to vacate the Consent Judgment, and therefore
supports Mr. Rahr's position in the litigation. If the Consent Judgment
is vacated, the Company estimates that from 40-49 million of its
outstanding shares could be cancelled. The actual number of shares which
could be cancelled may vary depending on subsequent Court rulings as to
the rights of subsequent transferees of the shares, the actual number of
shares which are held by subsequent transferees, and the circumstances
under which subsequent transferees acquired their shares. If the Court
declines to vacate the Consent Judgment, then the litigation will have no
effect on the number of shares which are outstanding. Pending a final
resolution of the litigation, the Company has not consented to the
transfer of any shares issued pursuant to the Consent Judgment or to the
removal of any restrictive legend on those shares except pursuant to an
order of the Court.
On February 18, 1998 the Company entered into an agreement with 20th
Century Holdings, Inc. for the acquisition of all its shares of Holsted
Enterprises, Inc. (and its subsidary, Sales Equipment Company, Inc.) in
exchange for 7,600,000 shares of the Company's restricted Common Stock
and Options to purchase an additional 3,000,000 shares of its Common
Stock at specified amounts and time periods at an exercise price of $4.17
per share. The transaction was closed effective March 31, 1998. 20th
Century Holdings is owned by Sterritt Properties, Inc., Sterritt
Properties, Inc. is a beneficial owner of Continental Investment
Corporation. Sterritt Properties, Inc. is owned 100% by a Family Limited
Partnership. Richard D. Sterritt, Sr., the President of Sterritt
Properties, Inc., is the father of the former Chairman and CEO, R. Dale
Sterritt, Jr..
20th Century Holdings, Inc. obtained minority ownership of Holsted
Enterprises, Inc. in December 1995. Mr. Douglas Holsted, Director and
President of the Company, also obtained minority ownership in Holsted
Enterprises, in December 1995. On August 18, 1997, 20th Century Holdings,
Inc. acquired 65% control of all outstanding stock of Holsted Enterprises
with Mr. Holsted holding the remaining 35% of the stock. On February 16,
1998, 20th Century acquired the remaining 35% of the outstanding stock
from Mr. Holsted and March 31, 1998 sold 100% of its holdings to the
Company.
On August 5, 1996, the Company adopted a stock compensation plan
entitled 1996 Employee, Consultant and Advisor Stock Compensation Plan
(the "Plan") to compensate eligible persons, including officers and
members of management, for certain services provided to the Company and
its subsidiaries. Participants in the Plan are required to execute a
stock payment agreement whereby the participant agrees to accept shares
of Common Stock in full satisfaction of entitled compensation. Beginning
in the fourth quarter of 1996 and continuing throughout 1997, the Company
did not have adequate funds to pay its officers, and issued shares of its
Common Stock in lieu of salary and expense payments. During 1997, certain
present and former directors and officers of the Company received shares
of the Company's Common Stock as compensation and for reimbursement of
expenses pursuant to the Plan, as indicated in the table below. The
compensation amount was based upon the value of the shares issued at the
date of such issuance.
Name Number of Shares Compensation Amount
A. Leon Blaser, Ph.D 206,667 $45,219
Robert P. Crabb 661,600 $122,475
Richard C. Masters 891,740 $125,544
Peter Stefanou 1,194,000 $342,896
Paul Williamson 50,000 5,470
The amounts for Mr. Masters above do not include stock issued in
1997 to Mr. Masters' wife as compensation that was valued at $7,575.
On January 16, 1997, the Company sold 1,033,333 shares of its
restricted Common Stock to Julius W. Basham, II, who was a director of
the Company at the time (who has since resigned). The purchase price for
the stock was $.145 per share, as compared to the closing market price of
$.28125 per share on the date of issuance. The Company's historical
accounting records reflect indebtedness totaling $190,000 to Mr. Basham
for loans to the Company. These loans were made during the time he was
serving as a director, and consisted of advances of $150,000 in September
1996 and $40,000 in May 1997. Both notes bear interest at 12%, and
matured in 45 days. Mr. Basham was also issued a Warrant for the purchase
of 200,000 shares of Common Stock in connection with the loan on
September 16, 1996, which is exercisable at $.75 per share until
September 16, 1998.
On December 16, 1996, Richard D. Masters pledged 840,000 shares of
Common Stock of the Company owned by him personally as security for the
payment of financial advisory services provided to the Company by an
outside firm pursuant to an agreement. The outside firm sought to seize
the shares on August 29, 1997 as collateral for the loan, although the
amount due under the agreement is presently in dispute.
In August 1996, the Company began operating a waste transfer station
for construction and demolition materials at a site located in
Philadelphia, Pennsylvania under a one-year renewable contract. The
facility is owned by Construction Transfer Station of Philadelphia, Ltd.
("Construction Transfer"), a limited liability company of which Messrs.
Basham, Blaser and Masters are the principal owners. The contract to
operate the facility was terminated by both parties in February 1997. The
Company no longer operates the facility. During 1996, Construction
Transfer made cash advances to the Company aggregating $480,000, which
advances carried no interest and were unsecured. As of September 30,
1997, the historical accounting records reflect outstanding indebtedness
to Construction Transfer of $271,090.
On January 1, 1999, the Company entered into a Lease/Purchase
Agreement with Global Eco-Logical Services, Inc., f/k/a J. Marcus
Enterprises, Inc. ("Global") of its interest in the following
subsidiaries and assets pursuant to a Lease/Purchase Agreement dated
January 1, 1999: Wood Management, Inc., a New Jersey corporation; Mini-
Max Enterprises, Inc., a New Jersey corporation; Tri-State Waste
Disposal, Inc., a New Jersey corporation; Southeastern Research &
Recovery, Inc., a South Carolina corporation; Atlantic Coast Demolition &
Recycling, Inc., a Pennsylvania corporation (hereinafter, the
"Corporations"); and all of the real estate and personal property used by
the Company in the operation of that landfill in Lisbon, Ohio
(hereinafter, the "Landfill"). On March 30, 1999, the Company completed
the sale of the Subsidiaries and the Landfill to Global. On February 15,
1999, the Bank of Toledo accelerated a loan secured by a transfer station
owned by Atlantic Coast Demolition & Recycling, Inc. The loan had been
collateralized by a certificate of deposit in the amount of approximately
$300,000 in the name of Leon Blaser, an officer and director of the
Company. The Bank of Toledo applied the proceeds of the certificate of
deposit to its loan. Mr. Blaser subsequently agreed to settle his claim
for subrogation against Atlantic Coast Demolition & Recycling, Inc. for
600,000 shares of common stock in Global.
On or about October 15, 1998, Bruce Blaser loaned the Company
$135,000 pursuant to a promissory note due on January 1, 1999. The loan
is secured by 500,000 shares of restricted common stock of the Company.
The loan is in default and Mr. Blaser has indicated that he intends to
exercise his rights under the note and security agreement. On November
17, 1998, Mr. Blaser loaned the Company an additional $65,000 pursuant to
a promissory note due on January 1, 1999. This loan is secured by
400,000 shares of restricted common stock of the Company. This loan is
also in default and Mr. Blaser has indicated that he intends to exercise
his rights under the note and security agreement. Mr. Blaser is the
brother of A. Leon Blaser, the Company's current Chairman and CEO.
On October 6, 1998, Mallard Landing, LLC wired $100,000 to the
escrow account for bankruptcy counsel for Atlas Environmental, Inc. to
fund a deposit which the Company was required to make in connection with
a plan of reorganization filed in Atlas' bankruptcy case. Mallard
Landing, LLC is controlled by A. Leon Blaser. There is not a written
promissory note evidencing this transaction and the funds are returnable
on a demand basis. The trustee in bankruptcy for Atlas has refused to
return the funds pending the completion of the trustee's investigation of
potential claims against the Company and its subsidiaries. See Item 13 -
Legal Proceedings.
Certain former directors claim amounts due for advances to the
Company and for reimbursable expenses in 1997 aggregating $201,000.00.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Description and Incorporation by Reference
Nubmber
*3.1 Amended Articles of Incorporation of Energy Financial
Services Corporation dated May 10, 1982
*3.2 Articles of Amendment to Articles of Incorporation of
F&E Resource Systems Technology, Inc. dated April 1, 1991
*3.3 Articles of Amendment to the Articles of Incorporation of
F&E Resource Systems Technology, Inc. dated May 30, 1996
*3.4 Articles of Amendment to the Articles of Incorporation
dated February 25, 1998 (incorporated by reference to
Exhibit 3.3 to Form 10-KSB of the Company for the fiscal
year ended December 31, 1997)
*3.5 By-Laws of the Company
4.1 Form of Common Stock Certificate of the Company
(incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form SB-2 of the Company filed on
June 22, 1995, Registration No. 33-93810)
10.1 Stock Issuance and Stock Purchase Agreement dated September
6, 1997, by and between Continental Investment Corporation
and WasteMasters, Inc. (incorporated by reference to the
Company's report on Form 10-KSB for the quarter ended
September 30, 1997, filed on November 19, 1997)
10.2 WasteMasters, Inc. 1999 Employee, Consultant and Advisor
Stock Compensation Plan (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of the
Company filed on February 23, 1999, Registration No. 33-
72795)
10.3 Form of Stock Payment Agreement under 1999 Employee,
Consultant and Advisor Stock Compensation Plan (incorporated
by reference to Exhibit 3.2 to the Registration Statement on
Form S-8 of the Company filed on February 23, 1999,
Registration No. 33-72795)
*10.4 Loan Agreement between William B. Blount and C. Derek
Parrish and WasteMasters of Palm Beach, Inc. dated July 31,
1998
*10.5 Mortgage and Security Agreement between WasteMasters of Palm
Beach, Inc. and William B. Blount and C. Derek Parrish
*21 Subsidiaries of the Registrant
*27 Financial Data Schedule
* Asterisk denotes an exhibit that is attached to this form 10-KSB
for the year ended December 31, 1998.
(b) Reports on Form 8-K. During the fourth quarter of 1998, the
Company did not file any Current Reports on Form 8-K.
Exhibit 21
As of August 9, 1999, the Company had the following subsidiaries:
(a) WasteMasters of Palm Beach, Inc. (b) C.A.T. Recycling, Inc.
(c) Sales Equipment Company, Inc. (d) American Recycling & Management,
Inc. (e) C&D Recycling, Inc. (f) WasteMasters of Florida, Inc.
<PAGE>
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
WASTEMASTERS, INC.
Dated: August 16, 1999 /s/ A. Leon Blaser
---------------------------------
By: A. Leon Blaser,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Dated: August 16, 1999 /s/ A. Leon Blaser
--------------------------------
By: A. Leon Blaser,Chairman
and Chief Executive Officer
Dated: August 16, 1999 /s/ Doulgas Holsted
--------------------------------
By: Douglas Holsted, President
and Director
Dated: August __, 1999 --------------------------------
By: Dennis O'Neill, Acting Chief
Financial Officer and Director
Dated: August 16, 1999 /s/ Frederick Beisser
--------------------------------
By: Frederick Beisser, Director
<PAGE>
WASTEMASTERS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
WITH REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet as of December 31, 1998 F-4
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-6
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-9
Notes to Consolidated Financial Statements for the years ended
December 31, 1998 and 1997 F-10
F-1
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Wastemasters, Inc.
We have audited the accompanying consolidated balance sheet of
Wastemasters, Inc. and subsidiaries as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Wastemasters, Inc. as of December 31, 1998 and the consolidated results
of its operations and changes in stockholders' equity and its cash flows
for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements, the Company incurred
net losses of $46,491,487 and $20,369,295 in 1998 and 1997, respectively.
As discussed in Notes F and K, the Company was in default of terms and
conditions on all long term debt agreements, a majority of its assets
were foreclosed on, and all revenue producing activities have ceased.
Without substantial input of equity capital and consideration from
creditors, the Company will not be able to resume revenue producing
activities and will cease as a going concern.
F-2
<PAGE>
It is not possible at this time, however, to predict the success of
management's efforts. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability and
classification of assets and liabilities that might result should the
Company be unable to continue as a going concern.
Turner, Jones & Associates, p.c.
Certified Public Accountants
Vienna, Virginia
April 30, 1999
F-3
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
Assets
------
Current assets:
Cash (Note A) $ 175,793
Accounts receivable -
net of allowance of $303,677 1,397,966
Inventories 1,252,791
Marketable securities -
Continental (Note C) 67,352
--------
Total current assets 2,893,902
----------
Property, plant and equipment, at cost (Note A):
Machinery and equipment 3,723,313
Land 116,235
Landfill facilities 6,455,522
Less accumulated depreciation (1,087,041)
-----------
Total property, plant and equipment 9,208,029
Other assets:
Notes receivable 150,318
Excess of cost over net assets of businesses
acquired, net of amortization 4,517,309
Deposits and other assets 38,774
----------
Total other assets 4,706,401
-----------
$16,808,332
-----------
See accompanying notes to consolidated financial statements
F-4
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued interest, and other
liabilities (Note E) $11,322,695
Due to related parties (Note K) 472,366
Current maturities of long-term debt and
convertible debentures (Note F) 9,560,850
----------
Total current liabilities
21,355,911
------------
Long-term debt and deferred items:
Accrued environmental and landfill costs 668,513
Long-term debt, less current maturities (Note F) 0
Commitments and contingencies (Note J) 0
----------
Total long-term and deferred items 668,513
----------
Total liabilities 22,024,424
------------
Stockholders' equity (Note H):
Preferred stock, $.01 par value; 5,000,000
shares authorized and outstanding 50,000
Common stock, $.01 par value; 530,000,000
shares authorized; 134,710,110 shares issued
and outstanding 1,347,101
Additional paid-in capital 86,371,714
Shares pending cancellation (Note 2) (1,117,458)
Accumulated deficit (91,867,449)
Total stockholders' equity (5,216,092)
------------
Total liabilities and stockholders' equity $16,808,332
------------
See accompanying notes to consolidated financial statements
F-5
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
Revenues:
- --------
Sales $ 12,375,649 $ 466,000
---------------------------------
Expenses:
- --------
Cost of sales 6,422,074 333,351
Selling, general and administrative 27,192,144 4,743,511
-----------------------------
33,614,218 5,076,862
-----------------------------
Earnings (losses) from operations,
Before other income, other expenses,
and income taxes (21,238,569) (4,610,862)
------------ ------------
Other income (loss):
Interest expense, net of interest income
(Note E, F) (1,325,760) (10,615,332)
Other income 53,241 0
Rental income 14,039 0
Loss on lease commitments (741,627) 0
Income from debt forgiveness 0 551,923
Gain (loss) on disposal of
subsidiaries (Note D) 12,720,281 (1,209,379)
Gain (loss) on disposal of assets (235,434) 0
Loss on valuation of long
lived assets (Note A) (25,751,598) (4,485,645)
Unrealized gain (loss) on investment
-Continental (7,790,000) 0
Extraordinary loss (241,356) 0
Bad debt - related party (Note K) (2,384,704) 0
----------- ------------
Total other income (loss) (25,702,918) (15,758,433)
----------- -----------
Income tax benefit (expense) (Note G) 0 0
-----------------------------
Net Loss $(46,941,487) $(20,369,295)
============= =============
Loss per common share
(basic and assuming dilution) $ (0.59) $ (0.67)
------------ ---------------
Weighted average common shares
outstanding (Note A) 79,583,810 30,220,320
============= =============
See accompanying notes to consolidated financial statements
F-6
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Preferred Additional Total
Common Preferred Stock, Stock, Paid In Accumulated Stockholders
Shares Shares At Par At Par Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 21,337,335 0 $213,374 $0 $27,658,640 $(24,556,667) $ 3,315,347
Net loss 0 0 0 0 0 (20,369,295) (20,369,295)
Shares sold 1,033,333 0 10,333 0 139,707 0 150,000
Shares issued in payment
of services/advances 6,421,602 0 64,215 0 1,289,190 0 1,353,405
Shares issued in connec-
tion with investment
acquisition 4,500,000 5,000,000 45,000 50,000 5,785,000 0 5,880,000
Shares issued in connec-
tion with Debenture
conversion and accrued
interest 2,674,856 0 26,749 0 772,924 0 799,713
Cancel shares issued in
1996 for acquisition
escrow (1,000,000) 0 (10,000) 0 0 0 (10,000)
Balance at
December 31, 1997 34,967,126 5,000,000 $349,671 $ 50,000 $ 35,645,461 $44,925,962) $ (8,880,830)
Net loss 0 0 0 0 0 (46,941,487) (46,491,487)
Shares issued on
exercise of warrants 3,800,000 0 38,000 0 1,596,000 0 1,634,000
Shares issued in payment
of services/advances 6,360,817 0 63,608 0 8,347,436 0 8,411,044
Shares issued in connec-
tion with investment
acquisition 24,967,101 0 249,671 0 26,587,634 0 26,837,305
Shares issued in connec-
tion with Debenture
conversion and accrued
interest 63,165,066 0 631,651 0 13,652,183 0 14,283,834
Shares issued in
cancellation
of debt 1,450,000 0 14,500 0 543,000 0 557,500
Balance at
December 31, 1998 134,710,110 5,000,000 $1,347,101 $50,000 $86,371,714 $(91,867,449) $(3,648,634)
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
-------------- -------------
Cash flows from operating activities:
Net earnings (loss) $(46,491,487) $(20,369,295)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,298,411 1,603,647
Stock issued and options exercised in
lieu of cash payment 50,089,683 1,353,405
Unrealized loss on marketable
securities 7,790,000 0
Changes in assets and liabilities:
Accounts receivable & prepaid expenses (3,732,800) 73,378
Accounts payable, accrued interest and
other liabilities (2,709,988) 10,801,947
Other assets (193,514) 0
------------- -----------
Net cash provided by (used in)
operating activities 6,050,305 (6,536,918)
------------- -----------
Cash flow provided by (used in) from
investing activities:
Marketable securities (17,352) 0
Disposals of property, plant and
equipment 2,146,084 6,542,624
Business acquisitions (10,769,869) 0
------------- -----------
Net cash provided by (used in)
investing activities (8,641,137) 6,542,624
------------- -----------
Cash flows provided by (used in)
financing activities:
Proceeds from borrowing, net
of repayment 1,131,717 (130,469)
Proceeds from issuance of common stock 0 150,000
Proceeds from exercise of warrants 1,634,000 0
------------- -----------
Net cash provided by (used in)
financing activities 2,765,717 19,531
------------ -----------
Net increase (decrease) in cash 174,885 25,237
Cash at beginning of period 908 (24,329)
------------ -----------
Cash at end of period $ 175,793 $ 908
------------ -----------
Cash paid for interest $ 89,418 $178,826
------------ -----------
See accompanying notes to consolidated financial statements
F-8
<PAGE>
WASTEMASTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS
- ------------------------------------------------
1998 1997
---------- ----------
Common stock issued for investment $ 26,837,305 $ 1,170,000
Preferred stock issued for investment $ 0 $ 4,710,000
Common stock and options issued
and options exercised in exchange
for services $ 8,411,044 $ 1,353,405
Issuance of common stock as
payment of debt $ 557,500 $ 0
Conversion of debentures to common
stock $ 14,283,834 $ 489,673
F-9
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations
The Company engages in solid waste processing, transportation and
disposal.
2. General
In May of 1996, the stockholders approved a change in the name of
the Corporation from "F&E Resources Technology, Inc." to its present name
"WasteMasters, Inc."
3. Consolidated Statements
The consolidated financial statements include the accounts of
WasteMasters, Inc. and its wholly owned subsidiaries; American Recycling
& Management, Inc.; Southeastern Research & Recovery, Inc.; C&D Recycling
Corp.; Wood Management, Inc.; Atlantic Coast Demolition & Recycling,
Inc.; Tristate Waste Disposal Co., Inc., Mini Max Enterprises, Inc.;
WasteMasters of Palm Beach, Inc.; Sales and Equipment Company, Inc.; and
WasteMasters of Florida, Inc. Significant intercompany transactions have
been eliminated in consolidation.
4. Cash and Cash Equivalents
Cash and cash equivalents include only highly liquid, short-term
investments with a maturity of three months or less, when acquired by the
Company.
5. Revenue Recognition
Revenues are recognized when waste is received and when services are
rendered.
6. Property and Equipment
Depreciation is provided on the straight-line method as follows:
Machinery - 7 to 10 years
Vehicles - 5 years
Furniture and Fixtures - 5 years
F-10
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. Income Taxes
The Company files a consolidated federal income tax return with its
wholly-owned subsidiaries and separate state income tax returns. Due to
significant changes in ownership, the Company's use of its existing net
operating losses may be limited.
8. Long Lived Assets
In March, 1995, Statement of Financial Accounting Standards SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of was issued. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and
used or disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. During 1996, the Company adopted this
statement and determined impairment losses needed to be recognized for
applicable assets of continuing operations.
During 1997, the Company recognized losses on valuation on its
acquisition of its Allendale, South Carolina landfill of $4,485,645. In
1998, the Company was unable to obtain permits for the landfill,
resulting in an addition to the allowance for impairment of $4,900,000.
In addition, the Company recognized a loss of $25,751,598 on
impairment valuation allowance of all subsidiaries acquired during 1998.
Amortization expense for the years ended December 31, 1998 and 1997
are $737,251 and $559,920, respectively.
9. Concentration of Credit Risk
Concentrations of credit risks with respect to accounts receivable
are limited to certain customers preapproved for credit by Company
management. The Company's customers are located primarily in the
southeastern United States.
10. 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.
F-11
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
11. Accrued Environmental and Landfill Costs
Accrued environmental and landfill costs include the non-current
portion of accrual for closure and post-closure of the Company's
landfills. The Company estimates its future cost requirements for
closure and post-closure for solid waste operating landfills based on
its interpretation of the technical standards of the U.S. Environmental
Protection Agency's Subtitle D regulations and the air emissions
standards of the Clean Air Act applied on a state by state basis.
Closure and post-closure costs represent costs related to expenditures
yet to be incurred when the facility ceases to accept waste and closes.
The Company provides accruals for these estimated costs as the remaining
permitted airspace is consumed.
12. Deferred Loan Costs
The Company issued two (2) convertible debentures in 1996 in face
amounts of $2,000,000 and $3,000,000. The discounts on the debentures
and costs incurred in connection with their issuance were recorded as
deferred loan costs. These costs are being amortized over the life of
the debentures.
During 1998, the Company issued 63,165,066 shares of common stock to
satisfy the debenture obligation and related lawsuit.
13. Landfill Facilities
Landfill facilities includes land, landfill development costs, and
air space as follows:
Land and improvements, C&D $2,694,573
Land, American Recycling & Management 2,610,949
Land, West Palm Beach 1,150,000
---------
Total landfill facilities $6,455,522
----------
14. Liquidity
As shown in the accompanying financial statements, the Company
incurred losses of $46,941,487 and $20,369,295 during the years ended
December 31, 1998 and 1997, respectively. As of December 31, 1998, the
Company's current liabilities exceeded its current assets by $18,462,009.
The Company's liabilities exceed its assets by $5,216,092 at December 31,
1998, and substantially all of the net assets are in the form of illiquid
land and related improvements.
15. Inventory
Inventory consists of parts utilized by SECO in the assembly or
modification to trucks. All inventory is stated at the lower of cost (or
first in first out) or market value. The Company recognized a loss due
to the decline in inventory value of $438,198 during 1998.
F-12
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
16. Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These
date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements. The Company is currently in
the process of evaluating its information technology infrastructure for
Year 2000 compliance. The Company does not expect that the cost to
modify its information technology infrastructure to be Year 2000
compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in
its operations as a result of any failure by the Company to be in
compliance. The Company's Year 2000 issues relate not only to its own
systems, but also to those of its customers and suppliers. The Company
does not currently have any information concerning Year 2000 compliance
status of its customers and suppliers. In the event that any of the
Company's significant customers or suppliers does not successfully and
timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected.
17. Excess of Cost Over Net Assets of Businesses
Acquired
The excess of cost over fair value of net assets of businesses
acquired is amortized on a straight-line basis over periods not exceeding
forty years. The Company assesses recoverability of its goodwill
whenever adverse events or change in circumstances or business climate
indicate the expected future cash flows (undiscounted and without
interest charges) for individual business units may not be sufficient to
support recorded goodwill. If undiscounted cash flows are not sufficient
to support the recorded asset an impairment is recognized to reduce the
carrying value of the goodwill based on the expected discounted cash
flows of the business unit. Expected cash flows are discounted at a rate
commensurate with the risk involved. Based upon its most recent
analysis, the Company believes there has been some impairment of tangible
and intangible assets at December 31, 1998. Pursuant to FASB 121, the
Company has recognized evaluation losses of 25,751,598 (see Note A-8).
18. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," specifying the computation, presentation
and disclosure requirements of earnings per share information. Basic
earnings per share has been calculated based upon the weighted average
number of common shares outstanding. Stock options and warrants have
been excluded as common stock equivalents in the diluted earnings per
share because they are either antidilutive or their effect is not
material. There is no effect on earnings per share information for the
year ending December 31, 1998 relating to the adoption of this standard.
F-13
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
19. New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131") in the year ended December 31, 1998. SFAS establishes
standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those
segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by
the chief operating decision maker, or decision making group, in making
decisions how to allocate resources and assess performance.
Sales & Equipment Company, Inc. was a manufacturer and distributor
of equipment in the pressurized gas equipment industry that differs
substantially from the Company's core business of waste management.
Reconciliation of reportable segment assets, revenues, profit and
loss and other items of significant to the consolidated amounts are
presented as follows:
Assets:
Reportable segment $ 2,597,352
Nonreportable segment 14,210,980
-----------
Consolidated assets $16,808,332
-----------
Revenues:
Reportable segment $ 5,118,705
Nonreportable segment 7,256,944
----------
Consolidated revenue $12,375,649
-----------
Profit or loss:
Loss from reportable
segment $3,362,688
Loss from nonreportable
segment 43,578,799
-----------
$46,941,487
-----------
Other items of significance:
Nonreportable
Segment Segment Consolidated
--------- --------- ------------
Interest expense $ 17,993 $ 1,307,767 $ 1,325,760
Bad debt - related party 2,230,357 154,347 2,384,704
F-14
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
20. Significant Adjustments
During the fourth quarter of 1998, the Company made significant
adjustments to reflect foreclosure on a majority of its assets, valuation
of business acquired (SFAS 121), inventory, write down and valuation of
investments to lower of cost or market (SFAS 115). The adjustments had a
material effect on the following components of the balance sheet:
Property and equipment, net $(36,727,962)
Investments (7,786,000)
Goodwill and other assets,
net of amortization (21,425,242)
Decrease in liabilities - Atlas 43,282,611
21. Influence of Government Regulation
The Company's existing and potential operations are and would be
subject to and substantially affected by extensive federal, state and
local laws, regulations, orders and permits, which govern environmental
protection, health and safety, zoning and other matters. These
regulations may impose restrictions on operations that could adversely
affect the Company's results, such as limitations on the expansion of
disposal facilities, limitations on or the banning of disposal of out-of-
state waste or certain categories of waste or mandates regarding the
disposal of solid waste. Because of heightened public concern, companies
in the waste management business may become subject to judicial and
administrative proceedings involving federal, state or local agencies.
These governmental agencies may seek to impose fines or to revoke or deny
renewal of operating permits or licenses for violations of environmental
laws or regulations or to require remediation of environmental problems
at sites or nearby properties, or resulting from transportation or
predecessors' transportation and collection operations, all of which
could have a material adverse effect on the Company. Liability may also
arise from actions brought by individuals or community groups in
connection with the permitting or licensing of operations, any alleged
violations of such permits and licenses or other matters. The Forward
Looking Statements assume that there will be no materially negative
impact on its operations due to governmental regulation.
22. Potential Environmental Liability
The Company may incur liabilities for the deterioration of the
environment as a result of its existing and potential operations. Any
substantial liability for environmental damage could materially adversely
affect the operating results and financial condition of the Company. Due
to the limited nature of insurance coverage of environmental liability,
if the Company were to incur liability for environmental damage, its
business and financial condition could be materially adversely affected.
F-15
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE B - ACQUISITIONS
During 1998, the Company acquired several companies in the waste and
environmental industries. These acquisitions were completed primarily in
exchange for restricted common stock of the Company, and are summarized
in the paragraphs that follow. The recipients of the WasteMasters stock
have various restrictions upon the transfer of shares.
On February 18, 1998, the Company entered into an agreement with
20th Century Holdings, Inc. for the acquisition of all of the shares
owned by 20th Century of Holsted Enterprises, Inc. in its subsidiary,
Sales Equipment Company, Inc., in exchange for 7,600,000 shares of the
Company's restricted common stock and options to purchase an additional
3,000,000 restricted shares of its common stock until specified time
periods at an exercise price of $4.17 per share. The transaction was
closed effective March 31, 1998. Sales Equipment Company, Inc. ("SECO")
was a manufacturer and distributor of equipment in the pressurized gas
equipment industry. SECO generated revenues in 1998 of over $7.6
million. SECO's main facility was located in Oklahoma City, with
locations in Tyler and El Paso, Texas. On March 5, 1999, SECO filed a
voluntary petition under Chapter 11 of the Bankruptcy Code in order to
stay collection efforts by the Bank of Oklahoma, which held a $2 million
loan secured by all of SECO's assets. On May 26, 1999, the bankruptcy
court denied SECO the right to continue operating, and ordered the
appointment of a trustee for SECO.
On February 10, 1998, the Company entered into an agreement for the
acquisition of all of the shares of C.A.T. Recycling, Inc. ("CAT") in
exchange for 3,250,000 shares of the Company's restricted common stock
and options to purchase an additional 3,000,000 shares of its restricted
common stock at specified amounts and time periods at an average price of
$1.56. The transaction was closed effective March 31, 1998. CAT owned
and operated recycling facilities in Pompano, St. Lucie, Dania, and West
Palm Beach, Florida and a construction and demolition ("C&D") landfill in
Sebring, Florida. In January, 1999, the Company terminated operations at
CAT due to cash flow problems at CAT. At this time, substantially all of
the assets of CAT have been repossessed by creditors or voluntarily
surrendered by CAT to secured lenders.
On February 26, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Wood Management, Inc. in exchange for
1,500,000 shares of the Company's restricted common stock. The
transaction was closed effective March 31, 1998. Wood Management,
founded in 1993, holds a permit to process 1,200 tons per day of tree
stumps, mixed wood, pallets and yard waste. Processing of these
recyclables resulted in the production of end products ranging from wood
chips to mulch to high quality top soil. Wood Management was sold to
Global Eco-Logical Services, Inc. effective on March 30, 1999.
On February 26, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Mini-Max Enterprises, Inc. in
exchange for 464,286 shares of the restricted common stock of
WasteMasters, Inc. The transaction was closed effective March 31, 1998.
Mini-Max, founded in 1968, is an interstate trucking company licensed by
the Interstate Commerce Commission to conduct business in the lower 48
states. Mini-Max's fleet of tractors and trailers are used to haul waste
to a nationwide network of disposal sites and to transport other cargo.
Mini-Max was sold to Global Eco-Logical Services, Inc. effective on March
30, 1999.
F-16
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE B - ACQUISITIONS (continued)
On February 6, 1998, the Company entered into an agreement for the
acquisition of all of the shares of Southeastern Research and Recovery,
Inc. ("SRR") in exchange for 2,400,000 restricted shares of WasteMasters,
Inc. common stock. The transaction was closed effective March 31, 1998.
SRR owns an operates a non-hazardous waste facility located in South
Carolina that processes industrial sludge prior to its disposal in
Subtitle D landfills. SRR was sold to Global Eco-Logical Services, Inc.
effective on March 30, 1999.
The Company acquired Tri-State Waste Disposal Co., Inc. ("Tri-
State") in exchange for 289,916 restricted shares of the Company's common
stock. Tri-State, founded in 1979, is licensed to engage in the waste
collection business throughout the State of New Jersey. Tri-State was
sold to Global Eco-Logical Services, Inc. effective on March 30, 1999.
The Company acquired Atlantic Coast Demolition & Recycling, Inc.
("Atlantic") in exchange for 941,433 restricted shares of the company's
common stock and options to purchase an additional 1,200,000 restricted
shares of the Company's common stock at an exercise price of $1.25 per
share and another 1,000,000 restricted shares at an exercised price of
$1.75. Also, 1,147,500 restricted shares were issued and pledged on the
payment on indebtedness of the acquired company. Atlantic owns a 7-acre
transfer station in the heart of Philadelphia, Pennsylvania, which is
permitted to process 3,000 tons of waste per day. Atlantic was sold to
Global Eco-Logical Services, Inc. effective on March 30, 1999.
The Company purchased the operating assets of an operating landfill
in Lisbon, Ohio ("Lisbon") for cash. Lisbon is a 141.154 acre
construction and demolition debris landfill with a potential remaining
capacity of 10,300,000 cubic yards. Lisbon was sold to Global Eco-
Logical Services, Inc. effective on March 30, 1999.
During 1998, the Company attempted to acquired Sebring Landfill in
exchange for 1,616,667 shares of restricted common stock. Due to ongoing
legal issues, the sale was terminated in federal court. As of December
31, 1998, the Company was attempting to recover the above shares from the
original seller. The cost of the original shares is $1,117,458. This
amount has been reflected in additional paid in capital and has been
further reflected as a reduction in paid in capital.
The Company (through WasteMasters of Palm Beach, Inc., a wholly-
owned subsidiary) acquired the assets of Palm Beach Transfer & Recycling
("Palm Beach") located in West Palm Beach, Florida, (including equipment,
a 10-acre tract of real property, and associated permits) in exchange for
943,334 restricted shares of the Company's common stock. Palm Beach is a
five (5) acre transfer and recycling facility permitted for 560 yards per
day. The facility handles roofing materials, construction and demolition
debris, vegetation, clean concrete, clean wood, and mulch and grass. The
facility lost its permit to operate in January, 1999 due to violations of
environmental regulations. A mortgage holder recently commenced
foreclosure proceedings to foreclose on the facility.
F-17
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE B - ACQUISITIONS (continued)
The Company (through CAT) acquired the assets of Palm Coast Carting
& Recycling, Inc. ("Palm Coast") of Pompano Beach, Florida, including
trucks, containers, and customer contracts in exchange for 110,000
restricted shares of the Company's common stock. Palm Coast was a
commercial hauler heavily engaged in the recycling sector of the waste
industry.
The Company (through CAT) acquired the assets of United Waste
Associates, Inc. ("United") (including a fleet of collection vehicles
and approximately 450 "containers") in exchange for 707,334 shares of
restricted common stock of the Company. United, based in Pompano Beach,
Florida, was a commercial hauler servicing Monroe, Dade, Broward, Palm
Beach, Martin and St. Lucie Counties, which offered commercial garbage
service, construction and demolition debris hauling and comprehensive
recycling services.
The Company acquired American Recycling & Management Corporation
("American Recycling") in exchange for 837,000 shares of restricted
common stock. American Recycling owns a landfill in Perrine, Florida
(Homestead area), which includes a 40-acre tract of real property
formerly permitted for a construction and demolition debris landfill,
related equipment, and associated permits. The Company intended to open
this landfill which has a potential capacity of approximately four
million gate yards. The Company lost a permit to operate this property
as a landfill in January, 1999. On April 24, 1999, American Recycling
filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code with the Bankruptcy Court for the Southern
District of Florida in order to stay a foreclosure of the landfill by a
mortgage holder.
The Company acquired C&D Recycling Corporation (C&D) in exchange for
304,000 restricted shares of the Company's common stock. Additional
consideration is payable to the seller upon the granting of a permit for
a vertical expansion. C&D owns a 64-acre construction and demolition
debris landfill in Homestead, Florida serving Miami and the Florida Keys.
This landfill has ceased operations in early 1998. On July 9, 1998, C&D
filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code with the Bankruptcy Court for the Northern
District of Texas in order to stay a foreclosure of the landfill by a
mortgage holder. The bankruptcy court recently granted relief from the
automatic stay to allow the mortgage holders on the property and to
foreclose in the landfill. In the event the Company is not able to raise
sufficient capital to repay some or all of the mortgage holders on the
landfill, the Company will not realize anything from its interest in C&D.
F-18
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE B - ACQUISITIONS (continued)
The Company acquired a controlling interest in Atlas Environmental,
Inc. ("Atlas") voting common stock from a group of Atlas shareholders in
exchange for 342,591 restricted shares of the Company's common stock.
Prior to the acquisition by the Company, on January 14, 1997, Atlas had
filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Court with the Bankruptcy Court for the Southern
District of Florida. In connection with the transaction four (4)
additional members designated by the Company were added to the Atlas
board of directors giving the Company control of the board. Atlas was
the largest construction and demolition debris recycler and the largest
remediator of petroleum contaminated soils in the State of Florida. In
November, 1998, the Bankruptcy Court appointed a trustee for Atlas and
its subsidiaries after a plan or reorganization filed by Atlas was denied
confirmation. The trustee recently concluded a sale of all of Atlas'
assets to a third party. As a result if the sale, the Company does not
expect to realize any proceeds from its interest in Atlas.
Pursuant to APB #16, the acquisitions were accounted for using the
purchase method. Accordingly, the purchase price was allocated to assets
acquired based on their fair values. The total cost in excess of
identifiable net assets acquired of $4,517,309 is being amortized on a
straight-line basis over twenty (20) years. No separate independent
values were assigned to permits, goodwill and other intangibles due to
the lack of objective sources of valuation.
In February, 1998, the Company filed petitions for protection Under
Chapter 7 of the United States Bankruptcy laws with the Bankruptcy Court
for the Northern District of Georgia for five (5) subsidiaries of the
Company. The subsidiaries are:
F&E Resource Systems Technology for Baltimore, Inc.
WasteMasters of Louisiana, Inc.
WasteMasters of Michigan, Inc.
WasteMasters of New York, Inc.
WasteMasters of Pennsylvania, Inc.
Active business for each of these subsidiaries had ceased during
1996 and the assets had been liquidated as the result of various
voluntary dispositions, foreclosure proceedings, or creditor actions. No
assets exist in the respective subsidiaries to satisfy the creditors
claims, and the parent company, WasteMasters, Inc. is believed to have no
obligation in connection with the indebtedness of these subsidiaries. On
December 2, 1998, the Company sold all of its interest in these
companies.
F-19
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE C - TRANSACTIONS WITH CONTINENTAL
In September, 1997, Continental Investment Corporation
("Continental"), a publicly-traded corporation engaged in the waste
disposal business, purchased 4,500,000 shares of newly-issued Common
Stock and 5,000,000 shares of newly-issued Series A Preferred Stock, par
value $.01 per share, of WasteMasters, Inc. ("Preferred Stock") directly
from WasteMasters, Inc. 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 5.1 for 1 into 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 outstanding of WasteMaster's common stock.
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, which was the
trading value of the stock, less a twenty percent (20%) discount due to
various trading restrictions.
Continental also purchased from WasteMasters, Inc. 100% of the
issued and outstanding shares of two corporations which had been wholly-
owned 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 wholly-owned subsidiaries of Continental
Technologies Corporation of Georgia, which is itself a wholly-owned
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 Company valued the
Common Stock received at $7,840,000. No value was assigned to the
options as they were issued at market and are subject to various
restrictions.
The Company entered into a management agreement beginning on
September 9, 1997, whereby Continental would provide management services,
as well as an infusion of operating capital, over the next one (1) year.
In exchange, WasteMasters, Inc. would pay Continental a management fee of
$50,000 per month, to be paid on a quarterly basis, plus any out-of-
pocket incurred by Continental.
F-20
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE C - TRANSACTIONS WITH CONTINENTAL (continued)
The Company's investment in the common stock of Continental is
carried as a long-term investment due to various trading restrictions.
Although the stock is regularly traded and has a readily determinable
market value, due to the trading restrictions on the stock, 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. The
trading restrictions are for a two (2) year period beginning September 9,
1997. During 1998, the Company recognized an unrealized loss of
$7,790,000 on its investment in Continental.
NOTE D - DISPOSITIONS
On December 2, 1998, the Company sold all of its stock in
WasteMasters of South Carolina, Inc., F&E Resources Systems Technology
for Baltimore, Inc., WasteMasters of Louisiana, Inc., WasteMasters of
Michigan, Inc., WasteMasters of New York, Inc. and WasteMasters of
Pennsylvania, Inc. The transaction resulted in a gain from release of
debts of $10,173,037.
NOTE E - ACCOUNTS PAYABLE, ACCRUED INTEREST AND OTHER LIABILITIES
Accounts payable, accrued interest and other liabilities at December
31, 1998, consist of the following:
Trade payables $10,627,067
Interest 367,776
Payroll taxes 327,852
-----------
$11,322,695
-----------
NOTE F - LONG-TERM DEBT AND CONVERTIBLE DEBENTURES
Long-term debt at December 31, 1998 consists of the following:
Promissory note payable to Global Ecological Services,
Inc.; payable in one installment on September 21, 1999
with interest at 10% per annum $500,000
Revolving note payable to Bank of Oklahoma; due
May 31, 1998, with interest payable monthly at
prime rate plus .75% 2,000,000
Note payable to J.W. Hunter, due monthly in the amount
of $10,623.52,principal and interest, for a term of
60 months beginning on 02/02/96and ending on
01/02/01 at 10% 238,854
F-21
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE F - LONG-TERM DEBT AND CONVERTIBLE DEBENTURES (continued)
Other installment note and lease payable
collateralized by equipmentand automobiles, all
of which are in default or in bankruptcy 6,411,255
Uncollateralized, non-interest bearing note payable
to affiliate of former SECO Board of Directors,
due 08/18/00 42,000
Promissory note payable to Kelly Tractor, secured
by various equipment 350,000
Unsecured loan in the original amount of $49,000 on
June 30, 1997, plus interest at 9% per annum. 18,741
----------
9,560,850
Less: Current maturities 9,560,850
----------
Net long-term debt $ 0
==========
The outstanding principal amount of the Series A and Series B
Convertible Debentures (the "Debentures") was $2,986,000 at December 31,
1997, plus accrued interest of approximately $323,116. Prior to
September, 1997, the Company had defaulted upon several key provisions of
the Debentures, thereby triggering substantial penalties. The principal,
interest and penalties were subject to conversion into shares of the
Company's Common Stock. Following a declaration of default and demand
for payment of the unpaid principal, accrued interest and penalties, the
Debenture holders filed a civil action for collection of amounts due.
Following negotiations, the Company and the debenture holders entered
into a Compromise Settlement Agreement (the "Settlement Agreement"),
which was entered as a Consent Judgment and filed February 5, 1998 in the
U.S. District Court for the Northern District of Texas. Pursuant to the
Settlement Agreement, the Company was to issue 63,000,000 shares of
restricted Common Stock in exchange for cancellation of the Debentures,
accrued interest and penalties. The Debenture holders would also receive
warrants for the purchase of up to 100,000,000 restricted shares of the
Company's Common Stock exercisable in specified quantities and time
periods over the next two (2) to five (5) years at an average price in
excess of $1.50 per share. The Settlement Agreement also stipulated the
outstanding principal amount of the Debentures would be modified
effective December 31, 1997, to reflect the total amount due under the
Settlement Agreement of $13,751,102. Accordingly, an additional
obligation of $10,441,636 was recorded at December 31, 1997, with a
corresponding charge to earnings. The entire amount of $13,751,102 was
converted to equity in the first quarter, 1998.
F-22
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE F - LONG-TERM DEBT AND CONVERTIBLE DEBENTURES (continued)
Conversion of Debentures and Related Indebtedness to Equity
Pursuant to a Compromise Settlement Agreement between the holders of
the Convertible Debentures and the Company, obligations due to the
debenture holders in the aggregate amount of $13,751,102 has been
canceled in exchange for 63,000,000 shares of the Company's restricted
Common Stock. The Compromise Settlement Agreement was filed as a Consent
Judgment on February 5, 1998 in the U.S. District Court for the Northern
District of Texas, Dallas Division. As part of the settlement agreement,
the Company was to issue stock purchase warrants to the former debenture
holders for the purchase of up to one hundred million (100,000,000)
restricted shares of the Company's Common Stock exercisable in specified
quantities and time periods over the next two (2) to five (5) years at an
average price in excess of $1.50 per share. As a result of the
settlement agreement, the Company reflected a reduction of liabilities in
the first quarter of 1998 of $13,751,102, with a corresponding increase
in stockholders equity (See Note F).
NOTE G - INCOME TAXES
The Company adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes", effective with the year ended December 31, 1991. Temporary
differences between taxable income reported for financial reporting
purposes and income tax purposes are insignificant. At December 31,
1998, the Company had an aggregate net operating loss carry forward of
approximately $86,422,883, which expires as follows:
Year Amount
2007 $ 1,700,000
2008 1,360,000
2009 400,000
2010 5,257,000
2011 13,635,000
2012 20,369,295
2013 46,491,487
----------
$89,212,782
-----------
As a result of the changes in ownership occurring in 1996, 1997 and
1998, utilization of the net operating loss carry forward will be
significantly limited pursuant to Section 382 of the Internal Revenue
Code.
F-23
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE H - CAPITAL STOCK
At December 31, 1998, The Company's authorized capital stock was
530,000,000 shares of Common Stock, par value $0.01 per share, and
5,000,000 shares of Preferred Stock, par value $0.01 per share. On that
date, the Company had outstanding 134,710,110 shares of Common Stock and
5,000,000 shares of Preferred Stock.
The Preferred Stock was issued in September, 1997, pursuant to an
agreement with Continental (see Note C - Transactions with Continental).
The Board of Directors is authorized to designate series of Preferred
Stock and fix the powers, preferences and rights of the shares of such
series and the qualifications, limitations or restrictions thereon. The
Preferred Stock issued to Continental was designated as Series A, and is
convertible into twenty-five million five hundred thousand (25,500,000)
shares of the Company's Common Stock, is entitled to receive the same
dividends per share as the Common Stock, has a preference as to
distributions in liquidation over holders of Common Stock or any other
class or series of capital stock of $1.25 per share, and is entitled to
one vote for each share of Preferred on any matters as to which holders
of Common Stock are entitled to vote.
The Company issued a Warrant to Continental in September, 1997,
giving Continental the right to purchase up to 100,000,000 shares of the
Company's Common Stock until September 5, 2005, in exchange for up to
1,000,000 shares of Continental's $0.50 par value Common Stock. At
December 31, 1997, the Company had other warrants outstanding for the
purchase of an aggregate of 6,090,000 shares of its Common Stock, which
are summarized in the table below. The Company had outstanding eight
percent (8%) Convertible Debentures in the principal amount of $2,986,000
(the "Debentures") which, together with accrued interest and penalties,
were convertible into shares of the Company's Common Stock. However,
prior to September, 1997, the Company had defaulted upon several key
provisions of the Debentures thereby triggering substantial penalties.
Pursuant to a Compromise Settlement Agreement between the Debenture
Holders and the Company entered into on February 5, 1998, the Company
was to issue the debenture holders 63,000,000 shares of restricted
Common Stock of the Company in exchange for cancellation of the
Debentures, accrued interest and penalties. The debenture holders would
also receive warrants for the purchase of up to one hundred million
restricted shares of the Company's Common Stock exercisable in specified
quantities and time periods over the next two (2) to five (5) years at an
average price in excess of $1.50 per share. (See Notes F & L for
discussion related to conversion of debentures and related indebtedness
to equity). At December 31, 1997, the Company did not have sufficient
authorized shares to provide for the issuance of any of these additional
shares. In February, 1998, the stockholders approved an increase in its
capital stock to 500,000,000 shares, divided into five million
(5,000,000) shares of Preferred Stock and 495,000,000 shares of Common
Stock.
F-24
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE H - CAPITAL STOCK (continued)
Information relating to warrant activity during 1998 and 1997 is as
follows:
Warrants outstanding to purchase stock at
December 31, 1997 6,090,000
Warrants exercised (3,800,000)
Warrants Issued 1,025,000
Warrants outstanding and exercisable to
purchase at December 31, 1998 3,315,000
Information about stock warrants at December 31, 1998 is summarized
as follows:
Exercise Price Warrants Outstanding Expiration Date
$2.00 228,000 5/01/99
3.00 622,000 5/01/99
5.00 175,000 5/01/00
0.30 2,120,000 11/25/99
0.20 150,000 11/26/99
0.80 20,000 6/22/00
--------
Total 3,315,000
---------
NOTE I - EMPLOYEE AND CONSULTANT STOCK PLAN
The Company adopted a stock compensation plan entitled 1998
Employee, Consultant and Advisor Stock Compensation Plan (the Plan) to
compensate eligible persons for certain services provided to the Company
and its subsidiaries. Participants in the Plan are required to execute a
stock payment agreement whereby the participant agrees to accept shares
of Common Stock in full satisfaction of entitled compensation.
NOTE J - COMMITMENTS AND CONTINGENCIES
In connection with its acquisition of various companies, the parent
company, WasteMasters, Inc. indemnified certain former owners of any
liability. The acquired companies are in default of loans and equipment
leases guaranteed by the former owners. The former owners have made
demand on the Company for payment of these claims on their behalf.
F-25
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
Under an agreement dated December 11, 1998, Mr. R. Dale Sterritt,
Jr., former chairman and chief executive officer, resigned all of his
positions with the Company. The Company and Mr. Sterritt released each
other from all claims and the Company agreed to pay Mr. Sterritt a
consulting fee in the amount of $7,500 per month for thirty six (36)
months beginning June 1, 1999. Subsequent to year end, the Company filed
a lawsuit against Mr. Sterritt seeking recession of the agreement.
The Company will accrue the estimated closure and post-closure costs
for its landfill facilities. The final estimated closure costs will be
adjusted annually and amortized over the facilities remaining useful
life.
NOTE K - RELATED PARTY TRANSACTIONS
The following related party amounts were owed as of December 31,
1998:
Due To Former Shareholders of American
Recycling & Management Corporation $472,366
--------
Total due related parties $472,366
--------
SECO is co-borrowers on a $2,284,704 note payable to Bank of
Oklahoma with Holsted Enterprises, Inc., a company wholly owned by an
officer and director of the Company. Holsted Enterprises, Inc. defaulted
on the debt resulting in SECO filing under Chapter 11 of the United
States Bankruptcy Code. Holsted Enterprises, Inc. has no assets and
management believes the funds are not collectible.
The Company has a one (1) year management agreement with Continental
for $50,000 per month. In return for the $50,000 management fee,
Continental provided various management and professional services for
WasteMasters, Inc. and its subsidiaries. This agreement was terminated
on November 1, 1998.
The Company loaned $100,000 to Waste Ventures, Inc., a Company in
which the former CEO and director owned an undisclosed interest. It is
management's opinion these funds will never be recovered.
During 1998 and 1997, the Company issued a total of 3,900,000 and
4,280,160 shares of Common Stock, valued at $5,226,000 and $713,850,
respectively, to former officers, directors and employees of the Company.
The shares were issued as compensation for services rendered and
unreimbursed business expenses.
F-26
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE L - SUBSEQUENT EVENTS
On January 1, 1999, the Company entered into a one year lease
agreement (the Agreement) with Global Ecological Services, Inc. (formerly
J. Marcus Enterprises, Inc.). The Agreement leases the following
described property (Property) for ten dollars ($10.00) per month, Wood
Management, Inc., Mini-Max Enterprises, Inc., Tri-State Waste Disposal,
Inc., Southeastern Research and Recovery, Inc., Atlantic Coast Demolition
& Recycling, Inc., and all of the real estate and personal property used
in the operation of the Lisbon, Ohio landfill. The Agreement contains a
purchase option of seven million dollars ($7,000,000) payable as follows:
one million dollars ($1,000,000) at closing and three (3) annual
instalments of two million dollars ($2,000,000), interest inclusive.
However, the lessee has the option to provide consideration in the form
of annual installments of 400,000 shares of its restricted common stock
plus cash of $50,000, $75,000 and $125,000 in years one, two and three,
respectively.
On March 31, 1999, the lessee exercised its option to purchase and
making its closing payment by canceling $500,000 of a promissory note and
advances to the Company. In addition, lessee made its first annual
installment paying $50,000 in forgiveness of advances and issuing 400,000
shares of its restricted common stock.
In May, 1999, a mortgage holder on the real property owned by C&D
Recycling Corporation was granted a relief from automatic stay.
Management believes the foreclosure sale will be scheduled for some time
in July, 1999.
In March, 1999, Sales Equipment Company, Inc., filed under Chapter
11 of the United States Bankruptcy Code. On May 26, 1999, the court
appointed a trustee to liquidate the subsidiary.
In order to stop a scheduled foreclosure, American Recycling &
Management, Inc. filed a voluntary Chapter 11, proceeding in bankruptcy
court in April, 1999 in Miami, Florida. The mortgage holder filed a
motion for relief from automatic stay to foreclose on the property.
F-27
Energy Financial Services Corporation
Amended Articles of Incorporation
-------------------------------------------
Bernard Alexander Bain, being the sole incorporator of Energy
Financial Services Corporation which has not yet held its organizational
meeting of directors, hereby adopts the following as its Amended Articles
of Incorporation.
FIRST: The undersigned Bernard Alexander Bain, whose post office address
is 9211 Cedarcrest Drive, Bethesda, Maryland 20814, being at least
eighteen years of age, does hereby form a corporation under the general
laws of the State of Maryland.
SECOND: The name of the Corporation (which is hereinafter called the
"Corporation") is F&E Stokers, Inc.
THIRD: The purposes for which the Corporation is formed are as follows:
(1) To carry on business and to act as manufacturers,
marketeers, sellers, promoters of incinerators, burners, stokers,
boilers, energy recovery units or other plant, implements or equipment
used for burning and heating materials or waste and the conversion of
heat to production power and any spare or other parts relating thereto,
capitalists, entrepreneurs, financiers, consultants and promoters in
relation to lawful activity which in the opinion of the Corporation can
be conveniently carried on by the Corporation whether or not connected
with the foregoing activities.
(2) To act as a holding company and to own shares, debentures,
stock or securities of any description whatsoever in the capital of any
business entity.
(3) To apply for, purchase or otherwise acquire patents, trade
marks, licenses, concessions and the like and to use, exercise, develop
or grant license in respect of or otherwise turn to account the property
and rights so acquired.
(4) To purchase, take on lease, or in exchange, hire or
otherwise acquire any real and personal property and any right or
privilege.
(5) To borrow or raise or secure the payment of money in such
manner as the Corporation shall think fit, and in particular by the issue
of debentures or debenture stock (perpetual or otherwise), charge upon
all or any part of the Corporation's property, including its uncalled
capital, and to purchase, redeem or pay off any such securities.
(6) To lend or procure the lending of money to any person or
body in such manner and on such terms as the Corporation shall think fit.
(7) To draw, make, accept, endorse, discount, execute and issue
promissory notes, bills of exchange, bills of lading, warrants,
debentures and other negotiable or transferable instruments.
(8) To do all or any of the above things in the State of
Maryland and elsewhere as principals, agents, contractors, trustee or
otherwise and by and through trustees, agents or otherwise and either
alone or in conjunction with others.
(9) To do all such other things as are incidental or conductive
to the attainment of the above objects and to do any other acts which are
consistent with the laws of the State of Maryland.
FOURTH: The postal address of the principal office of the Corporation in
Maryland is 9211 Cedarcrest Drive, Bethesda, Maryland 20814. The name
and postal address of the resident agent of the Corporation in Maryland
are: Mary F. Bain, 9211 Cedarcrest Drive, Bethesda, Maryland 20814. Said
resident agent is a citizen of Maryland and actually resides therein.
FIFTH: (A) The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 10,000,000
shares of par value of $.01 per share, and an aggregate par value of
$100,000, of which 1,000,000 shares shall be shares of Preferred Stock of
$.01 par value each (hereinafter called "Preferred Stock") and 9,000,000
shares shall be shares of Common Stock of $.01 par value each
(hereinafter called "Common Stock").
(B) The designations and the powers, preferences and rights and the
qualifications, limitations or restrictions thereof, of the Preferred
Stock shall be as follows:
(1) The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited but
not to exceed one vote per share, or without voting powers, and with such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors, and as
are not stated and expressed in this Certificate of Incorporation, or any
amendment thereto, including (but without limiting the generality of the
foregoing) the following:
(a) the designation of and number of shares constituting such
series;
(b) the dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other
call or classes of any other series of capital stock, and whether such
dividends shall be cumulative or non-cumulative;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such redemption,
the times, prices and other terms and conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes
or of any other series of any class or classes of capital stock of the
Corporation, and, if provision be made for conversion or exchange, the
times, prices, rates, adjustments, and other terms and conditions of such
conversion or exchange;
(f) the extent, if any, to which the holders of the shares
shall be entitled to vote as a class or otherwise with respect to the
selection of the directors or otherwise;
(g) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(h) the rights of the holders of the shares of such series
upon the dissolution of, or upon the distribution of assets of, the
Corporation.
(2) Except as otherwise required by law and except for
such voting powers with respect to the election of directors or other
matters as may be stated in the resolutions of the Board of Directors
creating any series of Preferred Stock, the holders of any such series
shall have no voting power whatsoever.
SIXTH: The number of directors of the Corporation shall be not less than
one (1), which number may be increased or decreased according to the by-
laws of the Corporation, and so long as there are less than three
stockholders, the number of directors may be less than three but not less
than the number of stockholders, and the names of the directors who shall
act until the first meeting or until their successors are duly chosen and
qualified are:
J. Paul Provance Mary Jo Bain Bernard A. Bain
SEVENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF I have signed these Articles of Incorporation and
acknowledged the same to be my act on the
/s/ Bernard A. Bain May 10, 1982
- ------------------- -------------------
Bernard A. Bain Date
Incorporator
F & E Resource Systems Technology, Inc.
Articles of Amendment
F & E Resource Systems Technology, Inc., a Maryland Corporation having
its principal office in Laurel, Maryland, (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by
striking out Article Fifth in its entirety and inserting in lieu thereof
the following new Article Fifth:
FIFTH: (A) The total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is
20,000,000 shares of par value of $.01 per share, and an aggregate par
value of $200,000, of which 1,000,000 shares shall be shares of Preferred
Stock of $.01 par value, or such other par value set by the Board of
Directors, each (hereinafter called "Preferred Stock") and 19,000,000
shares shall be shares of Common Stock of $.01 par value each
(hereinafter called "Common Stock").
(B) The designations and the powers, preferences and rights and
qualifications, limitations or restrictions thereof, of the Preferred
Stock shall be as follows:
(1)The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited but
not to exceed one vote per share, or without voting powers, and with
such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of
Directors, and as are not stated in and expressed in this Certificate of
Incorporation, or any amendment thereto, including (but without limiting
the generality of the foregoing) the following :
(a) the designation of and the number of shares constituting
such series, and the par value thereof;
(b) the dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other
call or classes of any other series of capital stock, and whether such
dividends shall be cumulative or non-cumulative;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such redemption,
the times, prices and other terms and conditions of such redemption;
(d) the terms and the amount of any sinking fund provided for
the purchase or redemption of the shares of such series;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes
or of any other series of any class or classes of capital stock of the
Corporation, and, if provisions be made for conversion or exchange, the
times, prices, rates, adjustments, and other terms and conditions of such
conversion or exchange;
(f) the extent, if any, to which the holders of the shares shall
be entitled to vote as a class or otherwise with respect to the
selection of the directors or otherwise;
(g) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(h) the rights of the holders of such shares of such series upon
the dissolution of, or upon the distribution of the assets of, the
Corporation.
(2) Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may
be stated in the resolution of the Board of Directors creating any series
of Preferred Stock, the holders of any such series shall have no voting
power whatsoever.
SECOND: The amendment of the Charter of the Corporation as hereinabove
set forth has been duly advised by the Board of Directors and approved by
the Stockholders of the Corporation at the Special Meeting of
Stockholders held March 30, 1990.
In witness whereof F&E Resource Technology, Inc. has caused these
present to be signed in its name and on its behalf by its President and
attested by its Secretary under the penalties of perjury.
ATTEST: F&E Resource Systems Technology, Inc.
/s/ Ronald W. Pickett Frank G. Ugiansky
- --------------------- ------------------
Ronald W. Pickett, President Frank G. Ugiansky, Secretary
F&E RESOURCE SYSTEMS TECHNOLOGY, INC.
ARTICLES OF AMENDMENT
F&E RESOURCE SYSTEMS TECHNOLOGY, INC., a Maryland corporation having
its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking
out in its entirety Article SECOND of the Charter and inserting in lieu
thereof the following:
SECOND: The name of the Corporation, which is hereinafter
called the "Corporation", is
WasteMasters, Inc.
SECOND: The Charter of the Corporation is hereby amended by striking out
in its entirety Paragraph (A) only of Article FIFTH of the Charter and
inserting in lieu thereof the following:
FIFTH: (A) The total number of shares of all classes of
capital stock which the Corporation shall have the authority to issue is
40,000,000 shares of par value of $.01 per share, and an aggregate par
value of $400,000, of which 5,000,000 shares shall be shares of Preferred
Stock of $.01 par value each, or such other par value set by the Board of
Directors (hereinafter called "Preferred Stock") and 35,000,000 shares
shall be shares of Common Stock of $.01 par value each (hereinafter
called "Common Stock").
THIRD: The Charter of the Corporation is hereby amended by inserting the
following immediately after Article SEVENTH:
EIGHTH: No holder of stock or any other security of the
Corporation shall have any preemptive right to subscribe to or purchase
any additional shares of stock of any class, or other securities of any
nature; provided, however, that the Board of Directors may, in
authorizing the issuance of stock of any class, confer any preemptive
right that the Board of Directors may deem advisable in connection with
such issuance, and set the price and any other terms the Board of
Directors, in its sole discretion, may fix.
FOURTH: (a) The total number of shares of all classes of capital stock
of the Corporation heretofore authorized, and the number and par value of
the shares of each class of capital stock, are as follows:
Twenty Million (20,000,000) shares of capital stock
of the Corporation divided into:
One Million (1,000,000) shares of Preferred Stock of
One Cent ($.01) par value per share, aggregate par
value of Ten Thousand Dollars ($10,000).
Nineteen Million (19,000,000) shares of Common Stock
of One Cent ($.01) par value per share, aggregate par
value of One Hundred Ninety Thousand Dollars
($190,000)
The aggregate par value of all classes of capital
stock is Two Hundred Thousand Dollars ($200,000).
(b) The total number of shares of all classes of capital
stock of the Corporation, as increased by this Amendment, and the number
and par value of the shares of each class of capital stock, are as
follows:
Forty Million (40,000,000) shares of capital stock of
the Corporation divided into:
Five Million (5,000,000) shares of Preferred Stock of
One Cent ($.01) par value per share, aggregate par
value of Fifty Thousand Dollars ($50,000).
Thirty Five Million (35,000,000) shares of Common
Stock of One Cent ($.01) par value per share,
aggregate par value of Three Hundred Fifty Thousand
Dollars ($350,000).
The aggregate par value of all classes of capital
stock is Four Hundred Thousand Dollars ($400,000).
( c) The description of each class of capital stock,
as provided in Paragraph (B) of Article FIFTH of the Charter, including
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption was not amended by these Amendments.
FIFTH: This foregoing amendments of the Corporation's Charter were duly
advised by the Board of Directors and approved by the Stockholders of the
Corporation at the Annual Meeting of Stockholders held on May 22, 1996.
IN WITNESS WHEREOF, F&E Resource Systems Technology, Inc. has caused
these Articles of Amendment to be signed in its name and on its behalf by
its President and attested to by its Secretary , this 30th day of May,
1996. Each of the undersigned officers of F&E Resource Systems
Technology, Inc. acknowledges, under the penalties for perjury, that
these Articles of Amendment are the corporate act of the Corporation and
that the matters and facts set forth herein are true in all material
respects, to the best of his or her knowledge, information and belief.
ATTEST: F&E RESOURCE SYSTEMS
TECHNOLOGY, INC.
/s/ Robert P. Crabb By: /s/ Paul Williamson
- ------------------- --------------------
Robert P. Crabb, Secretary Paul Williamson, President
Amended By-Laws Of
Toxicon Technologies, Inc.
(herein Called the "Corporation")
( As amended November 1, 1982, May 2, 1983 and May 17, 1984)
Article 1. Offices
Section 1. Principal Office. The principal office of the Corporation
shall be at:
1013 Wileo Drive
Baltimore, Maryland 21223
Section 2. Other Offices. In addition to its principal office, the
Corporation may have offices at such other places as the Board of
Directors may from time to time appoint or as the business of the
Corporation may require and such offices may be outside the State of
Maryland.
Article II. Stockholders
Section 1. Annual Meetings. The annual meeting of the stockholders of
the Corporation, for the purpose of electing directors for the ensuing
year and for the transaction of such other business as may properly come
before the meeting, shall be held during June of each year, or as soon
thereafter as the Board of Directors shall designate.
Section 2. Special Meetings. A special meeting of the stockholders may
be called at any time by the Board of Directors or, by the Executive
Chairman of the Board of Directors, or if there is none by the President,
or by the holders of not less than one-third of all the shares entitled
to vote at such meeting.
Section 3. Place of Meetings. Each annual meeting of the stockholders
shall be held at the principal office of the Corporation, or at such
other places, within or without the State of Maryland, as the Board of
Directors may designate in calling such meeting.
Section 4. Notice of Meetings. Written notice of each annual and each
special meeting of the stockholders shall be given, by or at the
direction of the officer or other persons calling the meeting. Such
notice shall state the purpose or purposes for which the meeting is
called, the time when and the place where it is to be held, and such
other information as may be required by law. Except as otherwise
required by law, a copy thereof shall be delivered personally, mailed in
a postage prepaid envelope or transmitted by telegraph, cable or
wireless, not less than ten (10) days, except if the purpose of the
meeting is to act on an amendment of the Articles of Incorporation or on
a reduction of stated capital or on a plan of merger or consolidation in
which event such notice shall be mailed not less than fifteen (15) days,
or more than fifty (50) days, before such meeting, to each stockholder of
record entitled to vote at such meeting, and, if mailed, it shall be
directed to such stockholder at his address as it appears on the stock
transfer books of the Corporation, unless he shall have filed with the
Secretary of the Corporation a written request that notices intended for
him be mailed to the address designated in such request. Notwithstanding
the foregoing, a waiver of any notice herein or by law required, if in
writing and signed by the person entitled to such notice, whether before
or after the time of the event for which notice was required to be given,
shall be equivalent of the giving of such notice. A stockholder who
attends shall be deemed to have had the timely and proper notice of the
meeting, unless he attends for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned or recessed meeting need not be given.
Section 5. Quorum. Except as otherwise provided by law, at any meeting
of the stockholders of the Corporation, the presence in person or by the
proxy of the holders of a majority in number of the outstanding shares of
stock entitled to vote at such meeting shall continue a quorum for the
transaction of business. In the absence of a quorum, a majority in
voting power of the stockholders present in person or represented by
proxy and entitled to vote may adjourn the meeting from time to time and
from place to place until a quorum is obtained. At any such adjourned
meeting at which a quorum is obtained. At any such adjourned meeting at
which a quorum is present any business may be transacted at the meeting
as originally called.
Section 6. Organization. At every meeting of the stockholders, the
Chairman of the Board or _____________ the President, or in the absence
of the Chairman of the Board and the President, a person chosen by a
majority vote of the stockholders present in person or by proxy and
entitled to vote, shall act as Chairman of the meeting. The Secretary,
or an Assistant Secretary, or, in the discretion of the Chairman, any
person designated by him, shall act as secretary of the meeting.
Section 7. Inspectors. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the
meeting or any adjournment thereof. If an inspector or inspectors are
not appointed, the person presiding at the meeting may, but need not,
appoint one or more inspectors.. In case any person who may be appointed
as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, if any, before
entering upon discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and affect of
proxies, and shall receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the Chairman of the
meeting, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them
and execute a certificate of any fact found by him or them.
Section 8. Business and order of Business. At each meeting of the
stockholders such business may be transacted as may properly be brought
before such meeting, whether or not such business is stated in the notice
of meeting or in a waiver of notice thereof, except as expressly provided
otherwise by law or in these By-laws. The order of business at all
meetings of stockholders shall be as follows:
1. Call to order.
2. Selection of secretary of the meeting.
3. Determination of quorum.
4. Appointment of voting inspectors.
5. Nomination and election of directors
6. Other business.
Section 9. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, holders of common stock of the Corporation
shall be entitled to vote upon matters to be voted upon by the
stockholders. At each meeting of stockholders, held for any purpose,
each stockholder of record of stock entitled to vote thereat shall be
entitled to vote the shares of such stock standing in his name on the
books of the Corporation on the date determined in accordance with
Section II of the Article II, each such share entitling him to one vote.
Any stockholder entitled to vote may vote either in person or by
proxy duly appointed by an instrument in writing subscribed by each
stockholder (or by his attorney thereunto duly authorized) and delivered
to the secretary of the meeting; provided, however, that no proxy shall
be voted or acted upon after eleven months from its date, unless said
proxy provides for a longer period.
If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject
matter shall be the act of the stockholders, unless the vote of a greater
number is required by law or the Certificate of Incorporation.
The voting shall be by voice or by ballet as the Chairman may
decide, except that upon demand for a vote by ballot on any question or
election, made by any stockholder or his proxy present and entitled to
vote on such question or election, such vote by ballot shall immediately
be taken.
Section 10. Voting List. The Secretary of the Corporation shall make ,
at least ten (10) days before such meeting of stockholders, a complete
list of the stockholders entitled to vote at any such meeting or any
adjournment thereof , with the address of and the number of shares held
by each stockholder. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by
any stockholder during the time of the meeting. The original stock
transfer books shall be prime facts evidence as to who are the
stockholders entitled to examine such lists or transfer books or to vote
at any meeting of the stockholders.
If the requirements of this Section 10 have not been substantially
complied with, the meeting shall, on the demand of any stockholder in
person or by proxy, be adjourned until the requirements are complied
with.
Section 11. Record Dates. The Board of Directors may fix in advance a
date which shall not be more than fifty (50) nor less than ten (10) days
prior to the date of the meeting of stockholders, or the date for payment
of any dividend, or the date when any change or conversion or exchange of
capital stock shall go into effect, or in connection with obtaining the
consent of stockholders for any purpose, as a record date for the
determination of the stockholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to receive
payment or any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange
of capital stock, or to give such consent, and in some case such
stockholders and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such notice of, and to
vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend or to receive such allotment of rights, or to exercise
such rights, or give such consent, as the case may be, notwithstanding
any transfer of any stock on the books of the Corporation after such
record date fixed as aforesaid.
If no record date is fixed for the determination of stockholders
entitled to notice of are to vote at a meeting of stockholders, or
stockholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as herein provided, such determination shall
apply to any adjournment thereof.
Section 12. Certification of Stock. Every stockholder of the
Corporation shall be entitled to a certificate or certificates,
certifying the number and class of shares of the stock of the Corporation
owned by him. Either (i) The Executive Chairman, President or any Vice
President and either the Treasurer or an Assistant Treasurer or Secretary
or an Assistant Secretary, or (ii) any two officers of the Corporation
designated by the Board of Directors, shall sign such certificates.
Section 13. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed , upon the making of an affidavit of that fact
by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issue thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal
representatives, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be alleged to have been lost, stolen
or destroyed.
Section 14. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old
certificate and the transaction upon its books.
Section 15. Action by Stockholders Without a Meeting. Any action
required to be taken at a meeting of the stockholders of the Corporation,
or which may be taken at such a meeting, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing setting
with the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
Section 16. Acquisition of Company. The company may not be acquired
for a price below 0.20 per share and the Company may not offer a
secondary offering of its securities below $0.20 per share, for a period
of 18 months following the closing of the proposed 1984 S-18 offering of
the Company's securities without the consent of 80 percent or more of the
shareholders of the Company.
Article III. Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors, and all corporate powers
shall be exercised by the Board of Directors, except as otherwise
expressly required by these By-laws, by the Certificate of Incorporation,
or by law.
Section 2. Qualification, Number and Term of Office. A director need
not be a stockholder, a citizen of the United States, or a resident of
the State of Maryland. The initial Board of Directors shall consist of
two (2) person. Thereafter the number of directors constituting the
whole board shall be at least one. Subject to the foreign limitation and
except for the first Board of Directors, such number may be fixed from
time to time by action of the Board of Directors. The number of
directors may be increased or decreased by action of the Board of
Directors, but in no event shall the number of directors be greater than
nine. A Board of Directors shall be elected annually in the manner
provided in these By-laws, and each director shall hold office until the
annual meeting next following his selection and until his successor shall
have been elected and qualified, or until his death, resignation or
removal.
Section 3. Election of Directors. At such meeting of the stockholders
for the election of directors, a quorum being present, the election shall
be as provided in the Certificate of Incorporation.
If the selection of directors shall not be held on the day
designated for any annual meeting or at any adjustment of such meeting,
the Board of Directors shall cause the election to be held at a special
meeting of the stockholders as soon thereafter as may be convenient
without cause, by the affirmative vote of a majority in voting power of
the stockholders of record of the Corporation entitled to elect a
successor, and present in person or by proxy at a special meeting of such
stockholders of which express notice of the intention to transact such
business was given and at which a quorum shall be present.
Section 5. Organization. The Board of Directors, by majority vote from
time to time appoint a Chairman or Executive Chairman of the Board who
shall preside over its meetings. The period and term of the appointment
shall be determined by the Board of Directors. The Secretary of the
Corporation, or an Assistant Secretary, or, in the direction of the
Chairman, any person appointed by him, shall act as secretary of the
meeting.
Section 6. Place of Meeting, etc. The Board of Directors may hold its
meeting at such place or places within or without the State of Maryland
as the Board of Directors from time to time by resolution determine, or
(unless contrary to resolution of the Board of Directors), at such place
as shall be specified in the respective notices or waivers of notice
thereof. Unless otherwise restricted by law or by the Certificate of
Incorporation, members of the Board of Directors or any committee thereof
may participate in a meeting of the Board or such committee by means of a
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 6 shall constitute
presence at such meeting. The Chairman or any person appointed by him
shall act as secretary of the meeting.
Section 7. Annual Meeting The Board of Directors may meet, without
notice of such meeting, for the purpose of organization, the election of
officers and the transaction of other business, on the same day as, at
the place at which, and as soon as practicable after each annual meeting
of stockholders is held. Such annual meeting of directors may be held at
any other time or place specified in a notice given as hereinafter
provided for special; meetings of the Board of Directors, or in a waiver
of notice thereof.
Section 8. Regular Meeting. Regular meetings of the Board of Directors
may be held at such time and place as may be fixed from time to time by
action of the Board of Directors. Unless required by resolution of the
Board of Directors, notice of any such meeting need not be given.
Section 9. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by an Executive Chairman of the Board of
Directors or where there is none by the President, or by three or more
directors, or, at the direction of any of the foregoing, by the
Secretary. Notice of each such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, not less
than three (3) days before the date on which the meeting is to be held;
or such notice shall be sent to each director at such place by telegraph,
cable, or wireless, not less than twenty-four (24) hours before the time
at which the meeting is to be held. Every such notice shall state the
time and place of the meeting. Notice of any adjourned or recessed
meeting of the directors need not be given.
Section 10. Waivers of Notice of Meetings. Anything in these By-laws or
in any resolution adopted by the Board of Directors to the contrary
notwithstanding, proper notice of any meeting of the Board of Directors
shall be deemed to have been given to any director if such notice shall
be waived by him in writing (including telegraph, cable or wireless)
before or after the meeting. A director who attends a meeting shall be
deemed to have had timely and proper notice thereof, unless he attends
for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called.
Section 11. Quorum and Manner of Acting. Either ( i ) a majority of the
number of directors or the time being or (ii) the Executive Chairman and
one director shall constitute a quorum for the transaction of business.
The act of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the directors present may adjourn the
meeting from time to time until a quorum be had. The directors shall act
only as a Board and the individual directors shall have no power as such.
Section 12. Resignations. Any director of the Corporation may resign at
any time, in writing by notifying the Executive Chairman of the Board or
where there is none the President or Secretary of the Corporation. Such
resignation shall take effect at the time therein specified: unless
otherwise specified, the acceptance of such resignation shall not be
necessary to make effective.
Section 13. Vacancies. Any vacancy in the Board of Directors, caused by
death, resignation, removal, disqualification, or any other cause (other
than an increase by more than two (2) in the number of directors), may be
filled by the majority vote of the remaining directors then in office ,
or if less than a quorum, at any regular meeting of the Board of
Directors.
Section 14. Committees. The Board of Directors may, by resolution
adopted by a vote of the majority in number of directors at the time
fixed by these By-laws, designate a number of directors as is appropriate
in the aforesaid resolution to be a committee of limited authority.
Regular meetings of any such committee meetings, of which no notice shall
be necessary, may be held at times and in such places as shall be fixed
by a majority of the committee. Special meetings of such committee may
be called at the request of the Chairman of the committee or any two (2)
members of the committee. Notice of each special meeting of such a
committee shall be given by the person calling the same as provided by
these By-laws for special meetings of the full board. A majority of any
such committee shall constitute a quorum for the transaction of business,
and the act of a majority of those present at any meeting at which a
quorum is present shall the committee. Members of any such committee
shall act only as a committee and the individuals shall have no power as
such. The Board of Directors shall have the power at any time to change
the members of, fill vacancies, and discharge any such committee, either
with or without cause. The appointment of any member to any such
committee, if not sooner terminated, shall automatically terminate upon
the expiration of his term as a director or upon the earlier cessation of
his membership on the Board of Directors.
Section 15. Directors' Action Without a Meeting. Unless otherwise
provided by the Certificate of Incorporation, any action required to be
taken at a meeting of the directors, or any action which may be taken at
a meeting of the directors or of a committee, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall
be signed before such action by a majority of directors or a majority of
the members of the Committee as the case may be. Such consent shall have
the same force and effect as a unanimous vote.
Articles IV. Officers
Section 1. Officers . The officers of the Corporation shall be an
Executive Chairman of the Board of Directors, a President, a Treasurer
and a Secretary, and where elected, one or more Vice-Presidents, and the
holders of such other offices as may be established in accordance with
the provisions of Section 3 of this Article. Any two or more offices may
be held by the same person, provided only, that the same person shall not
hold the offices of President and Secretary.
Section 2. Election, Term of Office and Qualifications. The officers
shall be elected annually by the Board of Directors, as soon as
practicable after the annual election of directors in each year. Each
officer shall hold office until his successor shall have been duly chosen
and shall qualify, or until his death, resignation or removal in the
manner hereinafter provided.
Section 3. Subordinate Officers. The Board of Directors may from time
to time establish offices in addition to those designated in Section 1 of
this Article IV with such duties as are provided in these By-laws, or as
they may from time to time determine.
Section 4. Removal. Any officer may be removed, either with or without
cause, by resolution declaring such removal to be in the best interest of
the Corporation and adopted at any regular or special meeting of the
Board of Directors by a majority of the directors then in office. Any
such removal shall be without prejudice to the recovery of damages for
breach of contract rights, if any, of the person removed. Election or
appointment of an officer or agent shall not of itself, however, create
contract rights.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or the Executive Chairman, or
where there is none the President or the Secretary of the Corporation.
Any such resignation shall take effect at the date of receipt of such
notice or at any later time therein specified; and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to
make it effective. However, no resignation hereunder, or the acceptance
thereof by the Board of Directors, shall prejudice the contract or other
rights, if any, of the Corporation with respect to the person resigning.
Section 6. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term by the Board of Directors.
Section 7. Compensation. Salaries or other compensation of the officers
may be fixed from time to time by the Board of Directors or in such
manner as it shall determine. No officer shall be prevented from
receiving his salary by reason of the fact that he is also a director of
the Corporation.
Section 8. Chairman and Executive Chairman of the Board of Directors.
When there is an Executive Chairman of the Board of Directors he shall be
an officer and a director and shall be the chief executive officer of the
Corporation and have general supervision of the business of the
Corporation, subject, however, to the control of the Board of Directors
and of any duly authorized committee of directors. An Executive Chairman
shall have full power and authority to cast any votes which the company
is entitled to cast as a shareholder of another corporation. Where the
Chairman of the Board is not an Executive Chairman the powers of the
Executive Chairman shall be vested in the President. An Executive
Chairman shall exercise all the power of a Chairman. A Chairman of the
Board shall be a Director of the Corporation. The Chairman or Executive
Chairman of the Board, shall provide at all meetings of stockholders and
of the Board of Directors at which he is present and on an equality of
votes shall have a second or casting vote.
Section 9. President. The President shall be a director and shall be
the chief administrative officer of the Corporation. In general, he
shall perform all duties incident to the office of resident and such
other duties as may from time to time be designated to him by the Board
of Directors or by any duly authorized committee of directors, and shall
have such other powers and authorities as are conferred upon him
elsewhere in these By-laws.
Section 10. The Vice-Presidents. The Vice-Presidents shall perform such
duties as from time to time may be assigned to them by the Board of
Directors, or by any duly authorized committee of directors or by the
President, and shall have such other powers and authorities as are
conferred on them elsewhere in these By-laws.
Section 11. Treasurer. Except as may otherwise be specifically provided
by the Board of Directors or any duly authorized committee thereof, the
Treasurer shall have the custody of, and responsible for, all funds and
securities of the Corporation, receive and receipt for money paid to the
Corporation from any source whatsoever; deposit all such monies in the
name of the Corporation such banks, trust companies, or other
depositories as shall be selected in accordance with the visions of these
By-laws; against proper vouchers, cause such funds to be disbursed by
check or draft on the authorized depositories of the Corporation signed
in such manner as shall be determined in accordance with the provisions
of these By-laws; regularly enter or cause to be entered in books and to
be kept by him or under his direction, full and adequate accounts of all
money received and paid for account of the Corporation; in general,
perform all the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him by the Board of
Directors, or by any duly authorized committee of directors, or by an
Executive Chairman or where there is none by the President, and have such
other powers and authorities as are conferred upon him where in these By-
laws.
Section 12. Secretary. The Secretary shall act as Secretary of all
meetings of the stockholders and of the Board of Directors of the
Corporation; shall keep the minutes thereof in the proper books to be
provided for that purpose; shall see that all notices required to be
given by the Corporation are duly given and served, shall be the
custodian of the seal of the Corporation and shall affix the seal or
cause it to be affixed to all documents the execution of which on behalf
of the Corporation under its corporate seal is duly authorized in
accordance with the provisions of these By-laws, shall have charge of the
books, records and papers of the Corporation relating to its
organizations and management as a corporation, and shall see that any
reports or statements relating thereto, required by law or otherwise, are
properly kept and filed; shall, in general, perform all the duties
incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Board of Directors, or by any duly
authorized committee of directors or by an Executive Chairman or if there
is none by the President, and shall have such other powers and
authorities as are conferred upon him elsewhere in these By-laws.
Section 13. Assistant Treasurers and Assistant Secretaries. The
Assistant Treasurers and Assistant Secretaries shall perform such duties
as shall be assigned to them by the Treasurer and by the Secretary,
respectively, or by the Board of Directors, or by any duly authorized
committee of directors, or by an Executive Chairman or where there is
none, by the President; and shall have such other powers and authorities
as are conferred upon them elsewhere in these By-laws.
Section 14. Certain Officers to Give Bonds. Every officer, agent or
employee of the Corporation, who may receive, handle or disburse money
for its account or who may have any of the Corporation's property in his
custody or be responsible for its safety or preservation, may be
required, in the discretion of the Board of Directors, to give a bond, in
each sum and with such sureties and in such form as shall be satisfactory
to the Board of Directors , for the faithful performance of the duties of
his office and for the restoration to the Corporation, in the event of
his death, resignation, or removal from office, of all books, papers,
vouchers, moneys and other property of whatsoever kind in his custody
belonging to the Corporation.
Article V. Indemnification of Directors and Officers
The Corporation shall indemnify each of its officers or directors,
whether or not then in office, and his executor, administrator and heirs,
against all reasonable expenses actually and necessarily incurred by him
including, but not limited to, counsel fees, judgments and costs in
connection with the defense of any litigation to which he may have been
made a party because he is or was a director or officer of the
Corporation. He shall have no right to reimbursement, however, in
relation to matters as to which he has been adjudged liable to the
Corporation for negligence or misconduct in the performance of his
duties. The right to indemnity for expenses shall also apply to expenses
of suits which are comprised or settled if the Court having jurisdiction
of the action shall approve such settlement.
The foregoing right of indemnification shall be in addition to and
not exclusive of all other rights to which such directors or officer may
be entitled.
Any amount payable by way of indemnity under these Articles may be
determined and paid pursuant to a decree of, or allowance by, a court of
equity under Article 11, Section 64, of the Annotated Code of the Public
General Laws of Maryland; or may be determined and paid pursuant to a
resolution of a majority of the members of the Board of Directors of the
Corporation, other than those who have incurred expenses in connection
with the litigation for which indemnification is sought.
Article VI. Miscellaneous
Section 1. Seal. The corporate seal of the Corporation shall contain
the name of the Corporation, the year of its creation, and the words
"Corporate Seal, Maryland," and shall be in such form as may be approved
by the Board of Directors.
Section 2. Fiscal Year. The fiscal year of the Corporation shall begin
on January 1 and end on December 31.
Section 3. Voting of Stock or Other Securities Held.
Unless otherwise provided by resolution of the Board of Directors, the
Chairman of the Board of Directors or, in the event of his incapacity to
do so, the President, in the name and on behalf of this Corporation,
shall be empowered to cast the votes which this Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation,
and to execute on behalf of this Corporation and under its corporate
seal, or otherwise, such written proxies, consents, waivers or other
instruments that he may deem necessary or proper in the premises.
Article VII. Amendments
Section 1. By the Directors. The Board of Directors by a majority vote
thereof shall have the power to make, alter, amend or repeal the By-laws
of the Corporation at any regular or special meeting of the Board. This
power shall not be exercised by any committee of the Board of Directors.
Section 2. By the Stockholders. All By-laws shall be subject to
amendment, alteration or repeal by a majority vote of the stockholders
entitled to vote at any annual or special meeting. The stockholders, at
any annual or special meeting, may provide that certain By-laws by them
adopted, approved or designated may not be amended, altered or repealed
except by a certain specified percentage in interest of the stockholders
or by a certain specified percentage in interest of a particular class of
stockholders.
LOAN AGREEMENT
Between
WILLIAM B. BLOUNT and C. DEREK PARRISH
("Lender")
and
WASTEMASTERS OF PALM BEACH, INC.
("Borrower")
DATED AS OF July 31, 1998
(This Table of Contents is not a part of this Loan Agreement and is only
for convenience of reference.)
PAGE
PARTIES 1
RECITALS 1
ARTICLE I
DEFINITIONS AND USE OF PHRASES
Section 1.01 Definitions 2
Section 1.02 Use of Phrases 3
ARTICLE II
THE LOAN
Section 2.01 Amount of Maturity 3
Section 2.02 Interest Rate and Place of Payment 4
Section 2.03 Prepayment Provision 4
Section 2.04 Form of Note; Security 4
Section 2.05 Application of Proceeds of Note 5
ARTICLE III
PARTICULAR COVENANTS OF THE BORROWER
Page
Section 3.01 Payment of the Note 5
Section 3.02 [Reserved] 5
Section 3.03 [Reserved] 5
Section 3.04 Maintenance, Repairs and Changes, Alterations,
Taxes other charges 5
Section 3.05 Warranty of Title 6
Section 3.06 Sale of Project Prohibited Except Under
Certain Conditions 6
Section 3.07 [Reserved] 6
Section 3.08 Inspections by Lender 6
ARTICLE IV
PROVISIONS RESPECTING INSURANCE AND CONDEMNATION
Section 4.01 Insurance Required 6
Section 4.02 Disposition of Net Insurance Proceeds 7
Section 4.03 Disposition of Net Condemnation Award 7
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
Section 5.01 Events of Default Defined 7
Section 5.02 Remedies of Default 8
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.01 Investment Banking Agreement 9
Section 6.02 Limitation of Rights 9
Section 6.03 Financing Agreement Governed by Alabama Law 9
Section 6.04 Notices of Borrower 9
Section 6.05 Severability 10
Section 6.06 Article and Section Captions 10
Section 6.07 Costs and Expenses 10
<PAGE>
LOAN AGREEMENT between WILLIAM B. BLOUNT ("Blount"), an individual,
his heirs, survivors and assigns, C. DEREK PARRISH ("Parrish"), an
individual, his heirs, survivors and assigns, (collectively, the
"Lender"), and WASTEMASTERS OF PALM BEACH, INC., a Florida corporation
(the "Borrower"),
RECITALS
WHEREAS, the Borrower is a Florida corporation organized and
existing under the laws of the State of Florida, and has all requisite
corporate power and authority to make loans and borrow money and take all
such other actions necessary or convenient in furtherance of the
transactions contemplated by this agreement; and
WHEREAS, the Borrower proposes to borrow the funds necessary to
acquire by purchase that certain solid waste transfer station facility
located in Palm Beach County, Florida, and more particularly described in
Exhibit "B" attached hereto (the "Project"); and
WHEREAS, the Borrower has been created for the purpose of acquiring
the Project, and has, at the time of this Loan Agreement, no other assets
other than the Project, and has no other liabilities other than those
disclosed to the Lender; and
WHEREAS, the Lender has indicated its willingness to loan the
Borrower the funds necessary for the Borrower to acquire the Project,
upon the terms and conditions contained herein ; and
WHEREAS, this Loan Agreement and the execution and delivery thereof
and the execution of the Note(as hereinafter defined) by the Borrower
have been in all respects duly and validly authorized by proper corporate
action of the Borrower.
NOW, THEREFORE, THIS LOAN AGREEMENT
WITNESSETH:
For the aforesaid purpose and in consideration of the respective
agreements herein contained, it is hereby agreed between the parties
signatory hereto, each with each of the others, as follows:
ARTICLE I
Definitions and Use of Phrases
Section 1.01. Definitions. The following words and phrases and
others evidently intended as the equivalent thereof shall, in the absence
of clear implication herein otherwise, be given the following respective
interpretations herein:
"Equipment" means those items of furnishings and equipment that are
to be acquired and installed in or about the Facility and purchased with
the proceeds of the Loan and any other items of furnishings and equipment
that, under the provisions hereof, are to constitute part of the
"Equipment".
"Facility" means that certain building or buildings or any other
improvements to the real property constituting the Project hereunder,
whether currently constructed or constructed in the future, as said
Facility may at any time exist.
"Loan" means the loan made by the Lender to the Borrower hereunder.
"Mortgage" means that certain Mortgage and Security Agreement dated
July 31, 1998, executed by the Borrower in favor of the Lender.
"Net Condemnation Award" means the total amount awarded as
compensation for any part of the Project taken under the exercise of the
power of eminent domain plus damages to any part not taken, less and
except (a) any portion thereof to which the Borrower is entitled under
the provisions hereunder, and (b) all attorneys' fees and other costs and
expenses incurred in the condemnation proceedings with respect to which
such award was made (other than those directly by the Borrower or
deducted from that portion of the award to which it is entitled under the
provisions hereof).
"Net Insurance Proceeds" means the total insurance proceeds
recovered by the Borrower, or the Lender on account of any damage to or
destruction of the Project less all costs of collection thereof.
"Note" means the promissory note dated July 31, 1998, in the form
attached hereto as Exhibit "A" evidencing the Loan by the Lender to the
Borrower, and the agreement by the Borrower to repay the loan to the
Lender.
"Permitted Encumbrances" means, as of any particular time, (a) liens
for ad valorem taxes not then delinquent, (b) utility, access and other
easements and rights-of-way, restrictions and exceptions (including
inchoate mechanics' and materialmen's liens) that will not interfere with
or impair the operations for which the Facility was designed or last
modified, (c) such minor defects, irregularities, encumbrances,
easements, rights-of-way and clouds on title as normally exist with
respect to properties similar in character to those forming a part of the
Project and as do not materially impair the use of the property affected
thereby for the purpose for which it was acquired or is held by the
Borrower, and (e) any personal property or fixtures acquired by the
Borrower under lease, lease-purchase or a purchase money security
interest when no Loan proceeds were used to acquire such personal
property or fixtures.
"Proceeds" means all revenues and receipts from the Project
including receipts from condemnations or insurance, and amounts received
from the Loan.
"Project" means the Facility, the Equipment and the Project Site, as
they may at any time exist, and all other property and rights of every
kind described or referred to or intended so to be in the granting
clauses hereof or in any way subject to the lien hereof.
"Project Site" means the real property upon which the Project is
being constructed
"Supplemental Agreement" means an agreement supplemental hereto.
Section 1.02. Use of Phrases. "Herein", "hereby" "hereunder",
"hereof", "hereinbefore", "hereinafter", and other equivalent words refer
to the Loan Agreement and not solely to the particular portion thereof in
which any such word is used. The definitions set forth in Section 1.01
hereof include both singular and plural. Whenever used herein, any
pronoun shall be deemed to include both singular and plural and to cover
all genders.
ARTICLE II
The Loan
Section 2.01. Amount and Maturity. There is hereby authorized to
be made under this Loan Agreement the Loan by the Lender to the Borrower
in the principal amount of ONE MILLION AND 00/100 ($1,000,000) DOLLARS,
such Loan to be evidenced by the Note. The Note shall be dated the date
hereof, with one, single payment due on the 31st day of July, 1999. As
part of the consideration of the Lender's willingness to make the Loan,
the Borrower shall, upon the receipt of the proceeds of the Loan,
transfer or cause to be transferred to the Lender an aggregate of 100,000
shares of unrestricted common stock of Wastemasters, Inc.
("Wastemasters")(NASDAQ symbol WAST) as follows: 50,000 shares shall be
transferred to Blount to an account as directed by Blount, and 50,000
shares shall be transferred to Parrish to an account as directed by
Parrish. Such shares shall be fully unrestricted when transferred and
shall be of a form and tenor as shall be free to trade, sell,
hypothecate, mortgage or convey by the Lender upon their receipt of the
same (such shares in such form herein referred to as "Unrestricted
Shares").
Section 2.02. Interest Rate and Place of Payment. The Note shall
bear interest on the unpaid principal balance through and including July
31, 1999 with no stated interest rate, but shall be repaid at any time
between February 2, 1999 and July 31, 1999, but in no event later than
July 31, 1999, in one, single payment of $1,500,000 plus the transfer by
or on behalf of the Borrower to or for the account of the Lender of
300,000 Unrestricted Shares of Wastemasters as follows: 150,000 shares to
or for the account of Blount and 150,000 shares to or for the account of
Parrish; provided, however, that, in the event that the Borrower repays
the Loan in full at any time between the date hereof and February 1,
1999, then the Note shall be paid in one, single payment of $1,250,000
plus the transfer by or on behalf of the Borrower to or for the account
of the Lender of 150,000 Unrestricted Shares of Wastemasters as follows:
75,000 shares to or for the account of Blount and 75,000 shares to or for
the account of Parrish. Payments on the Note shall be made at such
place as the Lender may, from time to time, designate in writing to the
Borrower.
Section 2.03. Prepayment Provision. The Note may be retired and
repaid in part or in full prior to its normal maturity at any time
without premium or penalty, provided, however, that such prepayment shall
not serve to decrease or diminish the payments set forth in Section 2.02
above.
Section 2.04. Form of the Note; Security. The Note shall be in the
form as set forth in Exhibit "A" attached hereto. As additional security
for the obligations of the Borrower hereunder, the Borrower shall, as a
condition precedent of the Loan, execute and deliver to the Lender, the
Mortgage in the form attached hereto as Exhibit "C," together with a
mortgagee's policy of title insurance, naming the Lender as insureds, in
the amount of the Loan. The mortgage shall be recorded in such offices as
necessary to give adequate notice of the Lender's first mortgage interest
in the Project under the laws of the State of Florida then in effect, and
the Borrower shall cause such UCC financing statements to be filed in
such offices as may be necessary to perfect the security interests in the
Project granted to the Borrower in the Mortgage. In order to further
secure the obligations of the Borrower hereunder, the Borrower shall
transfer or cause to be transferred, 500,000 Unrestricted Shares of
Wastemasters to such account as mutually agreed upon by the Borrower and
the Lender, such shares to be held in such account until the Note shall
have been paid in full. The transfer of such shares shall be accompanied
by such stock powers as shall be necessary to enable such shares to be
transferred to the Lender in Event of Default as described herein.
Section 2.05. Application of Proceeds of Note. The proceeds of the
Note shall be applied by the Borrower for the acquisition of the Project,
and for no other purpose.
ARTICLE III
Particular Covenants of the Borrower
Section 3.01. Payment of the Note. The Borrower will pay or will
cause to be paid, from all sources legally available to it, the principal
of and the interest on the Note as specified therein, and it will
otherwise perform all obligations that, either expressly or by reasonable
implication, are imposed on it in this Loan Agreement, and it will not
default hereunder.
Section 3.02. [Reserved]
Section 3.03. [Reserved]
Section 3.04. Maintenance, Repairs, Changes, Alterations, Taxes and
Other Charges. The Borrower will continuously maintain the Facility, the
Equipment and the other improvements located on the Project Site in good
repair and in good operating condition (reasonable wear and tear
excepted), making from time to time all necessary and proper renewals
thereof and repairs and replacements to be so made, provided, however,
that the Borrower shall not be obligated to renew, repair or replace any
of the Equipment that may become inadequate, obsolete, worn out,
unsuitable, undesirable or unnecessary in the operation of the Facility
or to cause any such Equipment to be renewed, repaired or replaced.
The Borrower will pay, or will cause to be paid, (a) all taxes and
governmental charges of any kind whatsoever that may be lawfully assessed
or levied against or with respect to the Project or any part thereof
(including, without limiting the generality of the foregoing, any taxes
levied upon or with respect to the Project, (b) all utility and other
charges incurred in the operation, maintenance, use, occupancy and upkeep
of the Project, and (d) all assessments and charges lawfully made by any
governmental body for public improvements that may be secured by a lien
on the Project, provided that with respect to special assessments or
other governmental charges that may lawfully be paid in installments over
a period of years, the Borrower shall be obligated to pay, or cause to be
paid, only such installments as come due while any part of the principal
of and the interest on the Note remains outstanding and unpaid. The
Borrower may, however, defer or cause to be deferred payment of any such
taxes, charges or assessments pending the bona fide contest thereof
unless it shall appear that by such action the lien of the Lender as to
any part of the Project shall be materially endangered or the Project or
any part thereof shall be subject to loss or forfeiture, in which event
any such payment then due shall not be deferred.
Section 3.05. Warranty of Title. The Borrower warrants its title to
the property described in Section 2.01 hereof as being free and clear of
every lien, encumbrance, trust or charge prior hereto, other than
Permitted Encumbrances; and warrants that it will forever warrant and
defend the title to the said property unto the Lender against the lawful
claims of all persons whomsoever, except those claiming under Permitted
Encumbrances.
Section 3.06. Sale of Project Prohibited Except Under Certain
Conditions. The Borrower will not hereafter sell or otherwise dispose
of the whole or any integral part of the Project until the principal of
and the interest on the Note have been paid in full, or unless and until
provision for such payment has been made. Nothing contained in this
section shall prevent the consolidation of the Borrower with, or the
merger of the Borrower into, any corporation having corporate authority
to carry on the business of owning and operating the Project; provided
that upon any such consolidation, merger or transfer the due and punctual
payment of the principal of and the interest on the Note according to its
terms and the due and punctual performance and observance of all the
agreements and conditions of this Loan Agreement to be kept and performed
by the Borrower shall be expressly assumed in writing by the corporation
resulting from such consolidation or surviving such merger or to which
the Project shall be transferred as an entirety; and provided further,
that such consolidation, merger or transfer shall not cause or result in
any mortgage or other lien being affixed to or imposed on or becoming a
lien on the Project or the revenues therefrom.
Section 3.07. [Reserved]
Section 3.08. Inspections by Lender. The Borrower will permit the
Lender and its duly authorized agent to inspect, at any reasonable time,
any and every part of the Project and will permit the Lender to inspect,
at any reasonable time, the books and records of the Borrower pertaining
to the Project. The Borrower will assist in furnishing facilities for
any such inspection.
ARTICLE IV
Provisions Respecting Insurance and Condemnation
Section 4.01. Insurance Covering the Project. The Borrower shall
at its expense keep the Project insured. The Borrower shall also cause,
if requested by the Lender, all policies of insurance respecting the
Project, or a certificate or certificates of the respective insurers
providing such insurance which attest the fact that the same is in full
force and effect, to be deposited with the Lender. Prior to the
expiration or cancellation of any such policy, the Borrower shall
furnish to the Lender evidence reasonably satisfactory to the Lender that
such policy has been renewed or replaced by another policy or that there
is no necessity therefor .
Section 4.02. Disposition of Net Insurance Proceeds. The entire
Net Insurance Proceeds received by the Borrower shall be applied by the
Borrower to payment of the costs of repairing, renewing or rebuilding the
property damaged or destroyed (either on completion of the work of such
repair, renewal or rebuilding or as such work progresses, as the Lender
may determine), provided that any portion of such proceeds remaining
after payment in full of such costs shall be applied to the Note.
Section 4.03. Disposition of Net Condemnation Award. The entire
amount of any Net Condemnation Award, if any, shall be paid to the Lender
and applied to the Note.
ARTICLE V
Events of Default and Remedies of Lender
Section 5.01. Events of Default Defined. Any of the following
shall constitute default hereunder by the Borrower:
(a) Failure by the Borrower to pay the principal of or the interest
on the Note as and when the same becomes due therein and herein provided
(whether such shall become due by maturity or otherwise);
(b) Failure by the Borrower to perform and observe any of the
agreements and covenants on its part contained herein (other than its
agreement to pay the principal of and interest on the Note after sixty
(60) days' written notice to it of such failure made by the Lender,
unless during such period or any extension thereof the Borrower has
commenced and is diligently pursuing appropriate corrective action; or
(c) Appointment by a court having jurisdiction of a receiver for the
Project or for a substantial part thereof or approval by a court of
competent jurisdiction of any petition for reorganization of the Project
or rearrangement or readjustment of the obligations of the Borrower under
any provision of the bankruptcy laws of the United States.
(d) Any material warranty, representation or other statement by or
on behalf of the Borrower or to the Lender, being false or misleading
in any material respect at the same time made.
Section 5.02. Remedies on Default. Upon any default in any one of
the ways defined in the preceding Section 5.01 hereof, the Lender shall
have the following rights and remedies:
(a) Acceleration. The Lender may, by written notice to the
Borrower, declare the principal of the Note forthwith due and payable,
and thereupon it shall so be, anything herein or therein to the contrary
notwithstanding.
(b) Other Remedies. The Lender shall have the power to proceed with
any other right or remedy independent of or in aid of the foregoing
powers, as it may deem best, including, without limitation, the rights
and remedies granted to the Lender pursuant to the Mortgage, to secure
specific performance by the Borrower of any agreement on its part herein
contained, and the right to the appointment, as a matter of right and
without regard to the sufficiency of the security afforded by the
Project, of a receiver for all or any part of the Project and the
earnings, rents and incomes there from; the rights here specified are to
be cumulative to all other, and shall not exclude any such available
rights, remedies or powers. If, upon the occurrence of an event of
default, the Borrower makes good the default which is the reason for such
event of default and every other default hereunder (except any principal
and interest declared payable that would, absent such declaration, not
then be payable), with interest on all overdue payment so principal,
interest and premium (if any), and makes reimbursement of all the
reasonable expenses of the Lender, then the Lender may in its discretion
waive such default and its consequences, but no such waiver shall affect
any subsequent default or right relative thereto. Further, upon the
occurrence of any event of default, except a default in the payment of
the principal of or the interest or premium (if any) of the Note, the
Lender may in its discretion, waive such default and its consequences
without the Borrower having theretofore made good such default, but no
such waiver shall affect any subsequent default or right relative
thereto. In case any proceeding taken by the Lender on account of any
event of default shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to the Lender, then and
in every case the Borrower and the Lender shall be restored to their
former positions and rights hereunder, respectively, and all rights,
remedies and powers of the Lender shall continue as though no such
proceeding had been taken.
If, upon the occurrence of an event of default, the Borrower makes
good the default which is the reason for such event of default and every
other default hereunder (except any principal and interest declared
payable that would, absent such declaration, not then be payable), with
interest on all overdue payments of principal, interest and premium (if
any), and makes reimbursement of all the reasonable expenses of the
Lender, then the Lender may in its discretion waive such default and its
consequences, but no such waiver shall affect any subsequent default or
right relative thereto. further, upon the occurrence of any event of
default, except a default in the payment of the principal of or the
interest or premium (if any) on the Bond, the Lender may in its
discretion waive such default and its consequences without the Borrower
having theretofore made good such default, but no such waiver shall
affect any subsequent default or right relative thereto. In case any
proceeding taken by the Lender on account of any event of default shall
have been discontinued or abandoned for any reason, or shall have been
determined adversely to the Lender, then and in every case the Borrower
and the Lender shall be restored to their former positions and rights
hereunder, respectively, and all rights, remedies and powers of the
Lender shall continue as though no such proceeding had been taken.
(c) Additional Remedies. If an Event of Default shall have occurred
and be continuing, an such Event of Default does not provide for a cure
period as described above, or such cure period shall have expired and the
Event of Default be continuing, then the Borrower hereby agrees to
transfer or cause to be transferred to or for the account of the Lender
an amount of Unrestricted Shares of Wastemasters, valued on the date of
such transfer, in the amount of $2,000,000, such transfer taking into
account, however, the 500,000 Unrestricted Shares of Wastemasters held as
security for the Loan pursuant to Section 2.04 hereof.
ARTICLE VI
Miscellaneous Provisions
Section 6.01. Investment Banking Agreement. As additional
consideration for the making of the Loan by the Lender, the Borrower
agrees to execute, as a condition precedent to the making of the loan,
the Professional Services Agreement with Blount Parrish & Company,
Incorporated, the form of which is attached hereto as Exhibit "D."
Section 6.02. Limitation of Rights. Nothing herein shall confer any
right on anyone other than the Borrower and the Lender.
Section 6.03. Financing Agreement Governed by Alabama Law. It is
the intention of the parties hereto that this Financing Agreement shall
in all respects be governed by the laws of the State of Alabama, and that
the Loan made pursuant hereto be considered, for all purposes, to have
been made in the State of Alabama..
Section 6.04. Notice. All notices, demands, requests and other
communications hereunder shall be deemed sufficient and properly given if
in writing and delivered, or sent by registered or certified mail,
postage prepaid, to the following addresses:
(a) If to the Borrower:
WasteMasters of Palm Beach, Inc.
10254 Miller Road
Dallas, Texas 75238
(b) If to the Lender:
William B. Blount
10 Court Square
Montgomery, Alabama 36104
Any of the above mentioned parties may, by like notice,
designate and further or different addresses to which subsequent notices
shall be sent.
Section 6.05 Severability. In the event that any provision hereof
shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable
any other provision hereof.
Section 6.06 Article and Section Captions. The article and section
headings and captions contained herein are included for convenience only
and shall not be considered a part hereof or affect in any manner the
construction or interpretation hereof.
Section 6.07 Costs and Expenses. All costs and expenses relating to
the execution and delivery of this Loan Agreement, the making of the Loan
by the Lender, and the delivery of the Mortgage, the title insurance
policy, the recording of documents required hereunder, costs and expenses
of respective counsel engaged by the parties hereto, and any and all
other costs and expenses related to the transactions contemplated
hereunder, shall be the sole responsibility and shall be paid by the
Borrower.
IN WITNESS WHEREOF, the Borrower has caused this Loan Agreement to
be executed in its corporate name and behalf by the Chairman of the Board
of Directors, has caused its corporate seal to be hereunto affixed and
has caused this Loan Agreement to be attested by its Secretary, the
Lender, to evidence its acceptance of the provisions hereby created, has
caused this Loan Agreement to be executed in their respective names , and
the Borrower and the Lender have caused this Loan Agreement to be
executed on this 31st day of July, 1998.
WASTEMASTERS OF PALM BEACH, INC.
By: /s/ R.D. Sterritt, Jr. its Chairman
-----------------------------------
Its Chairman
ATTEST:
By: /s/ R.D. Sterritt, Jr.
Its Secretary
/s/ William B. Blount
---------------------
WILLIAM B. BLOUNT
/s/ C. Derek Parrish
--------------------
C. DEREK PARRISH
STATE OF FLORIDA
COUNTY OF PALM BEACH
I, the undersigned authority, a Notary Public in and for said State
at Large, hereby certify that R. D. Sterritt, Jr. whose name as Chairman
of the Board of Directors and President of WASTEMASTERS OF PALM BEACH,
INC., a Florida corporation, is signed to the foregoing Loan Agreement
and who is known to me, acknowledged before me on this day that, being
informed of the contents of the within instrument, he, as such officer
and with full authority, executed the same voluntarily for and as the act
of said public corporation on the date the same bears date.
GIVEN under my hand and official seal of office, this the 31st day
of July 1998.
/s/ Julie N. Krauss
--------------------
NOTARY PUBLIC
NOTARY SEAL
MORTGAGE AND SECURITY AGREEMENT
BETWEEN
WASTEMASTERS OF PALM BEACH, INC.
AND
WILLIAM B. BLOUNT AND C. DEREK PARRISH
Lender
SECURING:
$1,000,000 Promissory Note of even date herewith
Prepared by and return to:
M. Fredrick Simpler, Jr.
P.O. Box 1711
Montgomery, Alabama 36102-1711
TABLE OF CONTENTS
(This Table of Contents is not a part of the Mortgage
but is only for convenience of reference.)
Page
Recitals 1
Granting Clause First and Second 2
Granting Clause Third and Fourth 3
ARTICLE I
DEFINITIONS 4
Section 1.1 General 4
Section 1.2 Definitions 4
ARTICLE II
PAYMENTS, TAXES, INSURANCE, MAINTENANCE, SUBSTITUTIONS,
REMOVALS, LIENS, DAMAGE AND DESTRUCTION,
CONDEMNATION, EXPENSES OF GRANTEE 6
Section 2.1 Loan Agreement and Notes 6
Section 2.2 Taxes and Other Charges 6
Section 2.3 Insurance 6
Section 2.4 Tax and Insurance Deposits 7
Section 2.5 Maintenance and Modification of Mortgaged Property 8
Section 2.6 Substitutions for Portions of the Project 8
Section 2.7 Mechanics' and Other Liens 9
Section 2.8 Damage and Destruction 9
Section 2.9 Condemnation 10
Section 2.10 Protection of Grantee 11
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES 13
Section 3.1 Events of Default 13
Section 3.2 Remedies 14
Section 3.3 Acceleration 14
Section 3.4 Surrender of Possession; Rights and Duties of
Grantees in Possession 14
Section 3.5 Actions to Recover Amounts Due 15
Section 3.6 Foreclosure 15
Section 3.7 Appointment of Receiver 15
Section 3.8 Application of Moneys 15
Section 3.9 Rights and Remedies Cumulative; No Waiver or
Release of Obligation 16
Section 3.10 Termination of Proceedings 17
Section 3.11 Right to Remedy Default 17
Section 3.12 Relationship to Loan Agreement and Indenture 17
ARTICLE IV
COVENANTS, REPRESENTATIONS AND WARRANTIES 18
Section 4.1 Representations and Warranties 18
Section 4.2 Notices to Grantee 18
Section 4.3 Leases and Restrictions 18
Section 4.4 No Other Financing or Liens 19
Section 4.5 No Further Encumbrance; No Disposition 20
Section 4.6 Compliance with Laws and Regulations 20
Section 4.7 Covenant Running with the Land 20
Section 4.8 Recordation 20
Section 4.9 After-Acquired Property 20
Section 4.10 Financial Statements 21
Section 4.11 Hazardous Substances 21
ARTICLE V
MISCELLANEOUS 24
Section 5.1 Notices 24
Section 5.2 Amendments, Changes and Modifications 24
Section 5.3 Execution Counterparts 24
Section 5.4 Severability 24
Section 5.5 General Waivers By Grantor 24
Section 5.6 Effect of Mortgage 25
Section 5.7 Maximum Indebtedness 25
Section 5.8 No Merger 25
Section 5.9 Captions 26
Section 5.10 Governing Law 26
ACKNOWLEDGMENTS 28
EXHIBIT A - PROJECT SITE 29
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT (the "Mortgage") is
made as of July 31, 1998, between WASTEMASTERS OF PALM BEACH, INC., a
Florida corporation (the "Grantor"), and WILLIAM B. BLOUNT, an
individual, his heirs, survivors and assigns, and C. DEREK PARRISH, an
individual, his heirs, survivors and assigns (Collectively, the
"Lender") (the Lender sometimes being referred to herein as the
"Grantee") under the following circumstances:
The Grantor has entered into a Loan Agreement of even date
herewith (the "Loan Agreement") with the Grantee, pursuant to the terms
of which the Grantee has agreed to loan to Grantor the principal amount
of $1,000,000 and Grantor has agreed to deliver the Note (as hereinafter
defined) to evidence said loan and to grant this Mortgage on and security
interest in the Project Site (as hereinafter defined) as security for the
payment of the Note, such Note and this Mortgage having a final maturity
date of July 31, 1999.
NOW, THEREFORE, for good and valuable considerations, the
receipt of which are hereby acknowledged by Grantor, and in consideration
of the foregoing recitals, which shall be construed as parts hereof for
all purposes, and as security for the payment of the principal of,
premiums (if any) and interest on, and all other sums provided for in the
Note, and any extensions or renewals thereof, and for payment and
performance of the agreements, conditions, covenants, provisions and
stipulations contained herein and in the Note, the Loan Agreement and in
any other agreements and instruments made and given by Grantor to the
Grantee in connection therewith, Grantor does hereby grant, bargain,
sell, convey, mortgage and warrant, assign, transfer and grant a security
interest in and pledge unto Grantee, and unto its respective successors
and assigns forever, all of Grantor's estate, right, title and interest
in, to and under any and all of the following described property, rights
and interests, whether now owned or hereafter acquired (herein called the
"Mortgaged Property"):
GRANTING CLAUSE FIRST
All right, title and interest of Grantor in and to the Project Site, as
hereinafter defined, together with the entire interest of Grantor in and
to all buildings, structures, improvements and appurtenances of any
nature whatsoever now standing, or at any time hereafter constructed or
placed, upon the Project Site, including all right, title and interest of
Grantor, if any, in and to all building material (whether on or off the
Project Site), building equipment and fixtures of every kind and nature
whatsoever in any building, structure or improvement now or hereafter
standing on the Project Site, and the proceeds of any insurance on such
property, and together with the entire interest of Grantor in and to all
and singular the tenements, hereditaments, easements, rights-of-way,
rights, privileges and appurtenances to the Project Site, belonging or in
any wise appertaining thereto (including without limitation the entire
right, title and interest of Grantor in, to and under any streets, ways,
alleys, gores or strips of land adjoining the Project Site, and all
claims or demands whatsoever of Grantor either at law or in equity, in
possession or expectancy of, or in and to the Project Site), it being the
intention of the parties hereto that, so far as may be permitted by law,
all property of the character hereinabove described, which is now owned
or is hereafter acquired by Grantor and is affixed or attached or annexed
to the Project Site, shall be and remain or become and constitute a
portion of the Project Site, and the security covered by and subject to
the lien of this Mortgage, together with all rents, income, revenues,
issues and profits thereof, and the right to make claim for, collect,
receive and receipt for any and all of such rents, income, revenues,
issues and profits arising therefrom or in connection therewith; subject,
however, to Permitted Encumbrances (as hereinafter defined).
GRANTING CLAUSE SECOND
All fixtures, machinery, equipment and other articles of
personal property now or at any time hereafter owned or leased by Grantor
and placed upon or installed on the Project Site and any property
acquired in substitution, replacement, renewal or repair thereof pursuant
to this Mortgage, and all accessions to and proceeds of any of the
foregoing, less any of the foregoing removed by Grantor in accordance
with this Mortgage, and the proceeds of any insurance on or condemnation
award for any of the foregoing; subject, however, to Permitted
Encumbrances.
GRANTING CLAUSE THIRD
All the Pledged Revenues, together with all rentals and
other payments due or to become due under any lease or leases or rights
or licenses to use or occupancy of any part of the Mortgaged Property now
or hereafter created, as well as all rights or licenses and remedies
provided in such leases, rights or licenses.
GRANTING CLAUSE FOURTH
Any and all other rights and interests in property,
whether tangible or intangible, required to be subject to the lien
hereof, or from time to time by delivery or by writing of any kind
conveyed, mortgaged, pledged, assigned or transferred as and for
additional security hereunder by Grantor or by anyone in its behalf or
with its written consent to Grantee, which are hereby authorized to
receive any and all such property at any and all times and to hold and
apply the same subject to the terms hereof.
TO HAVE AND TO HOLD all and singular the Mortgaged
Property hereby conveyed, granted and assigned, as agreed or intended so
to be, unto Grantee, its respective successors and assigns forever.
PROVIDED, HOWEVER, and this instrument is upon the express
condition that, if Grantor pays, or causes to be paid (i) the entire
principal sum of the Note, and the premiums (if any) and interest thereon
to the Grantee, and (ii) all other sums payable by Grantor to Grantee as
are secured hereby in accordance with the provisions of the Note, the
Loan Agreement and this Mortgage, at the times and in the manner
specified, without deduction, fraud or delay, and Grantor performs and
complies with, or causes to be performed and complied with, all the
agreements, conditions, covenants, provisions and stipulations contained
herein and in the Note and the Loan Agreement, then this Mortgage and
the estate and security interest hereby granted shall terminate, cease,
determine and be void; otherwise this Mortgage and the estate and
security interest hereby granted shall be and remain in full force and
effect.
Grantor does hereby further agree and covenant with
Grantee as follows:
ARTICLE I
DEFINITIONS
Section 1.1 General. In addition to the words and
terms defined in the recitals and elsewhere in this Mortgage, certain
words and terms as used in this Mortgage shall have the meaning given to
them by the definitions and descriptions in this Article I unless the
context or use indicates another or different meaning or intent and such
definitions shall be equally applicable to both the singular and plural
forms of any of the words and terms herein defined. Those words and
terms not specifically defined herein and used in this Mortgage with
initial capitalization where rules of grammar do not otherwise require
capitalization shall have the meanings set forth in the Loan Agreement
referenced in the recitals to this Mortgage.
Section 1.2 Definitions. The following words and
terms are defined terms under this Mortgage:
"Net Proceeds" means, as to any insurance proceeds or any
condemnation award, the amount remaining after deducting therefrom all
expenses (including attorneys' fees and expenses of Grantee) incurred in
the collection of such proceeds or award, plus any interest earned on the
investment thereof.
"Note" means the promissory note of even date herewith
from the Grantor to the Grantee, in the principal amount of $1,000,000.
"Notice Address" means for the Grantor and Grantee, the
respective notice addresses provided for in the Loan Agreement.
"Permitted Encumbrances" means as of any particular time,
the rights of the Grantor and Grantee under this Mortgage, the Loan
Agreement, and the following:
(a) Liens for taxes, levies, assessments, utility
rents, rates and charges, license, permit or other authorization fees and
other impositions, provided that in each case the same shall either (i)
not be due and payable, (ii) not be delinquent to the extent that
penalties for nonpayment may then be assessed on the Project, or any
material portion thereof then be subject to forfeiture, or (iii) be a
lien the amount or validity of which is being contested in good faith by
the Grantor;
(b) Defects, irregularities, encumbrances, mortgages,
liens, licenses, rights of way, servitudes, restrictions, mineral rights
and clouds on title which do not materially impair the operation of the
Project;
(c) Easements, servitudes, encumbrances, exceptions or
reservations for the purpose of pipelines, for telephones and other means
of communication, for power lines and substations, for roads, streets,
alleys, driveways, walkways, highways, railroads, and other means of
transportation, for drainage and sewerage, conduits, dikes, canals,
laterals, ditches, for the removal of oil, gas, coal or other minerals,
and other like purposes, or for the joint or common use of real property,
facilities and equipment, which do not materially impair the operation of
the Project;
(d) Mechanics', workmen's, repairmens, materialmen's,
suppliers', vendors' or carriers' liens or other similar liens, provided
that the lien shall be discharged by the Grantor, in the ordinary course
of business or the amount or validity of the lien shall be contested in
good faith with any pending execution thereof appropriately stayed;
(e) Rights of the United States or any state or
political subdivision thereof (which for purposes of this definition
shall include any taxing or improvement district), or other public or
governmental authority or agency, to take, use or control property or to
terminate or modify any lease, right, power, franchise, grant, license or
permit previously in force;
(f) The pendency or filing of any application or
proceedings seeking to annex or rezone the Project or any portion
thereof, or to include it in any political subdivision;
(g) Purchase money security interests in favor of a
lessor, vendor, or lender extending credit for the acquisition of
property which is the subject of the lien, the acquisition of which has
not been financed, directly or indirectly, with moneys representing the
proceeds of the Note;
(h) Pledged Receivables, to the extent allowed herein
in favor of the provider of any receivables line of credit.
"Pledged Revenues" or "Revenues" means all Pledged
Receivables, together with all rents, receipts, issues and profits
derived by the Grantor from the operation or ownership of the Project.
" Pledged Receivables " means (a) a senior lien against
(i) all receivables of the Grantor which are currently due and payable
and which do not secure any receivables line of credit, or (ii) all
proceeds of draws by the Grantor against any receivables line of credit;
and (b) a subordinated lien against all receivables of the Grantor which
are currently due and payable and which secure any receivables line of
credit.
"Project" means the solid waste transfer station and
related business acquired by the Grantor with the proceeds of the Note,
as the same may exist from time to time, or extended, enlarged or
improved on the project Site.
"Project Site" means the real estate and interests in real
estate constituting the site of the Mortgaged Property, as described in
Exhibit A attached hereto as a part hereof.
"Related Documents" means the Loan Agreement and the Note.
(End of Article I)
ARTICLE II
PAYMENTS, TAXES, INSURANCE, MAINTENANCE, SUBSTITUTIONS,
REMOVALS, LIENS, DAMAGE AND DESTRUCTION,
CONDEMNATION, EXPENSES OF GRANTEE
Section 2.1 Loan Agreement and Note. Grantor shall
make all payments when due under the Note and the Loan Agreement, and
shall perform and comply with all covenants, agreements, conditions,
provisions, stipulations and obligations set forth therein on its part to
be performed, at the times and in the manner required thereby.
Section 2.2 Taxes and Other Charges. Grantor shall
pay or cause to be paid when due and payable and before interest or
penalties are due thereon, without any deduction, defalcation or
abatement, all taxes, assessments, water and sewer rents, charges and
claims which may be assessed, levied, or filed at any time against
Grantor, the Mortgaged Property or any part thereof (including without
limitation any taxes levied upon or with respect to the revenues, income
or profit of Grantor from the Mortgaged Property) or against the interest
of Grantee therein, or which by any present or future law may become or
be made a lien on the Mortgaged Property, or any part thereof, or a
charge on such revenues, income or profits; and Grantor shall produce to
Grantee, upon request, receipts for the payment thereof; provided,
however, that if, pursuant to this Mortgage or otherwise, Grantor shall
have deposited with Grantee before the due date thereof sums sufficient
to pay any such taxes, assessments, water and sewer rents, charges and
claims, and Grantor is not otherwise in default, they shall be paid by
the Grantee; and provided further, that if Grantor in good faith and by
appropriate legal action shall contest the validity of any such item, or
the amount thereof, and shall have established on its books or by deposit
of a letter of credit or bond with Grantee, as Grantee may elect, the
amount required for the payment thereof, then Grantor shall not be
required to pay the item or to produce the required receipts while the
amount is maintained and so long as the contest operates to prevent
collection, is maintained and prosecuted with diligence, and shall not
have been terminated or discontinued adversely to Grantor.
Notwithstanding the foregoing, if Grantee notifies Grantor that, in the
opinion of counsel selected by Grantee, by nonpayment of any such item
the lien of this Mortgage as to any part of the Mortgaged Property will
be materially affected or the Mortgaged Property or any part thereof will
be subject to imminent loss or forfeiture, Grantor shall promptly pay
such item. It is expressly agreed that no credit shall be claimed or
allowed on the interest payable on the Note because of any taxes or other
charges paid.
Section 2.3 Insurance. Grantor shall obtain or cause
to be obtained, and continuously maintain or cause to be maintained,
insurance with respect to the Mortgaged Property, in such amounts as are
customary for a prudent owner of properties comparable to those
comprising the Mortgaged Property, but in any event in amounts not less
than the outstanding principal balance of the Note, against loss or
damage from theft, fire, vandalism, and other events covered by uniform
standard extended coverage endorsements approved by the insurance
regulatory authority in the State of Florida. In addition to the
property insurance described above, Grantor shall, during any
construction on the Project Site, carry or cause to be carried a policy
or policies of builders risk-completed value fire and extended coverage
insurance, without co-insurance, in such amounts as are customary for a
prudent owner of properties comparable to those comprising the Mortgaged
Property. Grantor may provide any such insurance under a blanket
insurance policy or policies which cover not only such property but other
properties. Any insurance policy required pursuant to this paragraph
which is written on a co-insurance basis must contain an "agreed amount"
endorsement as evidence that the coverage is in an amount sufficient to
insure the full amount secured by this Mortgage.
Grantor shall also obtain or cause to be obtained, and
continuously maintain or cause to be maintained, public liability
insurance with reference to the Mortgaged Property and the Project Site
in a minimum single limit amount of at least $1,000,000 per occurrence
and $2,000,000 in aggregate for death or bodily injury or property
damage. Grantee shall be made additional insureds under such policies.
Such public liability insurance may be by blanket insurance policy or
policies.
Each insurer is hereby authorized and directed to make
payment of any amount under the insurance described in this Section
(except liability insurance), including return of unearned premiums,
directly to Grantee instead of to Grantor and Grantee jointly, and
Grantor hereby appoints Grantee, irrevocably, as Grantor's attorney-in-
fact to endorse any draft therefor for application as herein provided;
provided that the foregoing provisions of this paragraph shall not limit
Grantor's right, in conjunction with Grantee, to negotiate or agree to
settlement of any claim under the insurance described in this Section.
Grantor shall comply with all applicable workers'
compensation laws.
Section 2.4 Tax and Insurance Deposits. Without
limiting the effect of Sections 2.2 and 2.3 hereof, Grantor shall pay to
the Lender monthly on or before the first day of each month, commencing
with the month following the recording of this Mortgage, an amount equal
to one-twelfth (1/12) of the annual premiums for the insurance policies
referred to hereinabove and the annual real estate taxes, any special
assessments, charges or claims and any other items which at any time may
be or become a lien upon the Mortgaged Property prior to the lien of this
Mortgage; and on demand from time to time Grantor shall pay to the Lender
any additional sums necessary to pay, at least thirty (30) days prior to,
the due date thereof, the premiums and other items, all as estimated by
the Lender. The amounts so paid shall be security for the premiums and
other items and shall be used in payment thereof if Grantor is not
otherwise in default hereunder. No amount so paid shall be deemed to be
trust funds but may be commingled with general funds of the Lender, and
no interest shall be payable thereon. If, pursuant to any provision of
this Mortgage, the whole amount of the unpaid principal debt becomes due
and payable, Grantee shall have the right, at their election, to apply
any amount so held against the entire indebtedness secured hereby. So
long as Grantor is not in default under Sections 2.2 or 2.3 hereof and
has provided to Grantee evidence of timely payment of its obligations
thereunder, the provisions of this Section 2.4 shall be waived by
Grantee.
Section 2.5 Maintenance and Modification of Mortgaged
Property. Subject to the provisions of Section 5.12 of the Loan
Agreement, Grantor shall keep and maintain or cause to be kept and
maintained the Mortgaged Property and the sidewalks and curbs abutting
same, in good order and condition (including operating condition) and in
rentable and tenantable state of repair, and will make or cause to be
made, as and when necessary, all repairs, renewals and replacements,
structural and nonstructural, exterior and interior, ordinary and
extraordinary, foreseen and unforeseen. Grantor shall abstain from and
shall not permit the commission of waste in, of or about the Mortgaged
Property; shall not remove or demolish any building erected at any time
on the Project Site without the prior written consent of Grantee; and
shall not permit the Mortgaged Property to become vacant, deserted or
unguarded.
The Grantee shall have the right to enter upon the
Mortgaged Property at any reasonable business hour for the purpose of
inspecting the order, condition and repair of the Mortgaged Property.
Grantor shall have the right to remodel the Mortgaged
Property or make additions, modifications and improvements thereto, from
time to time as it, in its discretion, may deem to be desirable for its
uses and purposes, the cost of which remodeling, additions, modifications
and improvements shall be paid by Grantor, and the same shall, when made,
become a part of the Mortgaged Property. No such remodeling, addition,
modification or improvement of the Mortgaged Property shall materially
adversely affect the value of the Mortgaged Property and Grantor shall
comply promptly and conform to all requirements of insurance underwriters
providing coverage for the Mortgaged Property regarding use, occupancy,
operation, maintenance, alteration or repair of any of the Mortgaged
Property.
Section 2.6 Substitutions for Portions of the Project.
Grantor shall have the right from time to time to substitute personal
property or fixtures for any portions of the Mortgaged Property, provided
that the personal property or fixtures so substituted shall not
materially impair the value of the Mortgaged Property. Any such
substituted property or fixtures shall become part of the Mortgaged
Property.
Grantor shall also have the right to remove any personal
property portions of the Mortgaged Property, without substitution
therefor, from the Mortgaged Property and from service in Grantor's
business, in any instance where Grantor determines, in its reasonable
discretion, that such property has become inadequate, obsolete, worn-out,
unsuitable, undesirable or unnecessary, whereupon, subject to the
provisions hereinafter set forth, such removed property shall no longer
be subject to this Mortgage. Prior to any removal Grantor shall deliver
to Grantee certificates executed by Grantor so certifying and
particularly describing the property to be removed.
Section 2.7 Mechanics' and Other Liens. Subject to
the provisions of the Loan Agreement, Grantor shall not suffer or permit
any mechanics' liens to be filed or exist against the Mortgaged Property,
or against any payment to be made under the Loan Agreement or the Note,
by reason of work, labor, services or materials supplied or claimed to
have been supplied to Grantor or anyone holding the Mortgaged Property or
the Project Site or any part thereof through or under Grantor.
Section 2.8 Damage and Destruction. Subject to the
provisions of the Loan Agreement, if the Mortgaged Property is damaged or
destroyed by fire or other casualty and if Grantor does not so elect
within 90 days to prepay the Note in full in accordance with the
provisions of the Loan Agreement, the property damaged shall be promptly
repaired, rebuilt or restored. If the Grantor elects to rebuild the
property damaged or destroyed, (i) Grantor will promptly repair, replace,
rebuild or restore the property damaged or destroyed as nearly as
practicable to the value, condition and character thereof existing
immediately prior to such damage or destruction, with such changes or
alterations, however, as Grantor may deem necessary, with the prior
approval of the Grantee, for proper operation of the Mortgaged Property,
and (ii) Grantor and Grantee will apply for such purpose so much as may
be necessary of any Net Proceeds of insurance resulting from claims for
losses, under the insurance policies required to be carried herein,
resulting from such damage.
If the Grantor has been entitled to use the Net Proceeds
for rebuilding and restoration under the first paragraph of this Section,
any balance of such Net Proceeds remaining after payment of all the costs
of repair, replacement, rebuilding or restoration under this Section and
approval thereof by the Grantee shall be applied to the payment of the
Note.
Section 2.9 Condemnation. All proceeds from a Net
Condemnation Award (as defined in the Loan Agreement) shall be applied
to the payment of the Note.
Section 2.10 Protection of Grantee. Grantor does
hereby indemnify and hold harmless Grantee from and against all
liabilities, obligations, claims, damages, penalties, causes of action,
cost and expenses (including, without limitation, reasonable attorneys'
fees and expenses) imposed upon or incurred by or asserted against the
Grantee by reason of (a) ownership of any interest in the Mortgaged
Property or any part thereof, (b) any accident, injury to or death of any
person or persons, or loss of or damage to property, occurring on or
about the Mortgaged Property or any part thereof or any adjoining
sidewalks, curbs, vaults and vault spaces, streets or highways, (c) any
use, nonuse or condition of the Mortgaged Property or any part thereof,
or any adjoining sidewalks, curbs, vaults and vault spaces, street or
highways, (d) any failure on the part of Grantor to perform or comply
with any of the terms, covenants or conditions of this Mortgage, (e) any
necessity to defend any of the rights, title or interest conveyed by this
Mortgage, or (f) the performance of any labor or services or the
furnishing of any materials or other property in respect of the Mortgaged
Property or any part thereof. In the event that any action, suit or
proceeding is brought against Grantee by reason of any of the matters
described in the immediately preceding sentence, Grantor, upon the
request of Grantee, will, at Grantor's expense, cause such action, suit
or proceeding to be resisted and defended by counsel designated by
Grantor and approved by Grantee. Any amounts payable to Grantee pursuant
to the provisions of this paragraph shall be secured by this Mortgage.
The obligations of Grantor under this paragraph shall survive any
defeasance of this Mortgage.
For purposes of clause (d) in the first sentence of the
preceding paragraph (and without limiting the generality thereof), it is
expressly understood and agreed that Grantee shall have no duty to
examine or make any investigation with respect to any work done, action
taken or payment made by Grantor under Sections 2.5, 2.6, 2.8 or 2.9 of
this Mortgage, and any determination of value under any such Section
(except as therein provided) shall be the sole responsibility of Grantor.
Nothing contained in this Section, however, shall require
the Grantor to indemnify the Grantee or any of its officials, officers,
employees or agents from any cost, liability, expense, loss or claim
arising out of or resulting from the willful misconduct or gross
negligence of the Grantee or any of its officials, officers, employees,
or agents. The indemnification provided by this Section to the Grantee
shall include its officials, officers, employees and agents.
(End of Article II]
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES
Section 3.1 Events of Default. The following shall be
"events of default" under this Mortgage:
(a) failure by the Grantor to pay any amount required
to be paid under the Note at the time specified therein; or
(b) failure by the Grantor to observe and perform any
covenant, condition or agreement on its part to be observed or performed
in the Related Documents, other than as referred in (a) above, for a
period of 30 days after receipt by the Grantor of written notice,
specifying such failure and requesting that it be remedied, given to the
Grantor by the Grantee, unless the Grantee shall agree in writing to an
extension of such time prior to its expiration; provided, however, if the
failure stated in the notice cannot be corrected within the applicable
period but can be corrected, the Grantee will not unreasonably withhold
their consent to an extension of such time if corrective action is
instituted within the applicable period and diligently pursued until the
default is corrected; and
(c) the dissolution or liquidation of the Grantor or
the filing by the Grantor of a voluntary petition in bankruptcy, or
failure by the Grantor promptly to lift any execution, garnishment or
attachment or such consequence as will impair its ability to carry on its
obligations hereunder, or the commission by the Grantor of any act of
bankruptcy, or adjudication of the Grantor as a bankruptcy or its
reorganization, arrangement or debt readjustment under any present or
future federal bankruptcy act or any similar federal or state law shall
be filed in any court and such petition or answer shall not be discharge
or denied within 90 days after the filing thereof, or if the Grantor
shall admit in writing its inability to pay its debts generally as they
become due, or a receiver, trustee or liquidator of the Grantor shall be
appointed in any proceeding brought against the Grantor and shall not be
discharged within 90 days after such appointment by the Grantor for the
benefit of its creditors, or the entry by the Grantor into an agreement
of composition with its creditors, or a bankruptcy, insolvency or similar
proceedings shall be otherwise initiated by or against the Grantor under
any applicable bankruptcy, reorganization or analogous law as now or
hereafter in effect and if initiated against the Grantor shall remain
undismissed (subject to no further appeal) for a period of 90 days;
provided the term "dissolution or liquidation of the Grantor", as used in
this subsection, shall not be construed to include the cessation of the
corporate existence of the Grantor resulting either from a merger or
consolidation of the Grantor into or with another corporation or a
dissolution or liquidation of the Grantor following a transfer of all or
substantially all of its assets as an entirety under the conditions
permitting such actions contained in the Loan Agreement.
The provisions of paragraph (b) of this Section (other than obligations
of the Grantor contained in the Loan Agreement) are subject to the
following limitations: If by reason of acts of God; winds; fires;
epidemics; landslides; floods; droughts; famines; strikes; lockouts or
other industrial disturbances; acts of public enemies; acts or orders of
any kind of any governmental authority; insurrection; military action;
war, whether or not declared; sabotage; riots; civil disturbances;
explosions; breakage or accident to transmission pipes or canals; partial
or entire failure of utilities; or any cause or event not reasonably
within the control of Grantor, Grantor is unable in whole or in part to
carry out the agreements on its part herein contained, other than
obligations on the part of Grantor to make the payments required under
the Note and the Loan Agreement, to carry insurance, to pay any ad
valorem property taxes, and to make other payments or deposits pursuant
to the terms hereof, Grantor shall not be deemed in default during the
continuance of such inability. Grantor shall, however, use its best
efforts to remedy with all reasonable dispatch the cause or causes
preventing Grantor from carrying out its agreements; provided, that
Grantor shall not in any event be required to settle strikes, lockouts or
other industrial disturbances by acceding to the demands of the opposing
party or parties when such course is, in the judgment of Grantor, not in
the interest of Grantor.
Section 3.2 Remedies. In addition to any other remedy
available to Grantee, as provided herein or otherwise, Grantee may
exercise any remedy available to it under the Loan Agreement or any
applicable law, including the rights and remedies of a secured party
under the provisions of the Constitution and laws of the State of
Florida.
Section 3.3 Acceleration. Upon the occurrence of an
event of default, the Grantee may declare the principal, interest and all
other sums secured by this Mortgage to be due and payable immediately
and, upon said declaration, such principal, interest and other sums shall
become and be immediately due and payable.
Section 3.4 Surrender of Possession; Rights and Duties
of Grantees in Possession. Upon the occurrence of an event of default,
Grantor, upon demand of Grantee, shall forthwith, to the extent possible,
assemble the Mortgaged Property and proceeds and make them available to
the Grantee at the Project Site or some other place to be designated by
the Grantee which is convenient to all parties, and Grantor shall
forthwith surrender the possession of, and it shall be lawful for the
Grantee to take possession of, all or any part of the Mortgaged Property
together with the books, papers and accounts of Grantor pertaining
thereto, and to hold, operate and manage the same, and from time to time
to make all needful repairs, replacements and improvements; and, to the
extent permitted by applicable law, Grantee may use the Mortgaged
Property or any part thereof in the name and for the account of Grantor
and collect, receive and sequester the rents, license fees, revenues and
other income, charges and moneys therefrom, and out of the same and any
moneys received from any receiver of any part thereof, after deducting
all proper costs and expenses of so taking, holding and managing the
same, including reasonable compensation to Grantee, its respective agents
and counsel, pay and/or set up proper reserves for the payment of any or
all of the following in such order and amounts as Grantee, in Grantee's
sole discretion, may elect: the payment of any sums due under any prior
or subordinate lien, taxes, water and sewer rents, charges and claims,
insurance premiums and all other carrying charges, costs of maintenance,
repair, replacement or restoration of the Mortgaged Property, and on
account and in reduction of the principal or interest, or both, on the
indebtedness hereby secured. For the aforesaid purpose, Grantor hereby
assigns to Grantee all rentals and license fees due and to become due
under any leases or rights or licenses to use and occupation of all or
any part of the Mortgaged Property now or hereafter created, as well as
all rights and remedies provided in such leases, rights or licenses. In
the event that all events of default have been made good and Grantee
shall have surrendered possession to Grantor, the right of entry provided
in this Section shall again exist upon any subsequent event of default.
Section 3.5 Actions to Recover Amounts Due. Grantee
shall have the right, from time to time, to bring an appropriate action
to recover any sums required to be paid by Grantor under the terms of
this Mortgage, the Note or the Loan Agreement as they become due, without
regard to whether or not the principal indebtedness or any other sums
secured by the Note, the Loan Agreement or this Mortgage shall be due,
and without prejudice to the right of Grantee thereafter to institute
foreclosure or otherwise dispose of the Mortgaged Property or any part
thereof, or any other action, for any default by Grantor existing at the
time the earlier action was commenced.
Section 3.6 Foreclosure. Upon the occurrence of an
event of default, the lien on the Mortgaged Property created and vested
by this Mortgage may be foreclosed and the Grantee may sell or otherwise
dispose of the Mortgaged Property in the manner provided by law, and
Grantee, if the highest bidder, may become the purchaser of the Mortgaged
Property at any such sale. Grantee will give Grantor reasonable notice
of the time and place of any public sale thereof.
Section 3.7 Appointment of Receiver. Upon the
occurrence of an event of default, and upon the filing of a suit or other
commencement of judicial proceedings to enforce the rights of Grantee
under this Mortgage, Grantee shall be entitled, as a matter of right, to
seek the appointment of a receiver or receivers of the Mortgaged Property
and all receipts therefrom, pending such proceedings, with such power as
the court making such appointment shall confer; provided, however, that
Grantee may, with or without action under this Section, pursue any
available remedy to enforce the payment of principal and interest and
premium, if any, or to remedy any event of default.
Section 3.8 Application of Moneys. All moneys
received by either Grantee or a receiver pursuant to any right given or
action taken under the provisions of this Article shall, after the
payment of the costs, expenses, liabilities and advances incurred by such
Grantee or receiver, be applied in the manner provided in Section 3.4
hereof if such moneys are received other than as a result of foreclosure
or any other disposition of the Mortgaged Property, and if received as a
result of foreclosure or any other disposition of the Mortgaged Property
shall be applied (subject to the approval of any court having
jurisdiction over any such foreclosure proceeding) first to the payment
of the costs, expenses, liabilities and advances incurred by Grantee or
receiver, and then on account and in reduction of the principal, premium
(if any) and interest on the indebtedness hereby secured.
Section 3.9 Rights and Remedies Cumulative; No Waiver
or Release of Obligation. The rights and remedies of Grantee as provided
in this Mortgage, the Note or the Loan Agreement, and in the warranties
contained herein and therein shall be cumulative and concurrent, may be
pursued separately, successively or together against Grantor or against
the Mortgaged Property, or any combination thereof, at the sole
discretion of Grantee, and may be exercised as often as occasion therefor
shall arise. The failure to exercise any such right or remedy shall in
no event be construed as a waiver or release thereof.
Any failure by Grantee to insist upon strict performance
by Grantor of any of the terms and provisions of this Mortgage, the Note
or the Loan Agreement shall not be deemed to be a waiver of any of the
terms or provisions thereof, and Grantee shall have the right thereafter
to insist upon strict performance by Grantor of any and all of them.
No delay or omission to exercise any right or power
accruing upon any failure or event of default shall impair any right or
power or shall be construed to be a waiver of any such failure or event
of default or acquiescence therein; and every such right and power may be
exercised from time to time and as often as may be deemed expedient.
No waiver of any failure or event of default hereunder by
Grantee shall extend to or shall affect any subsequent failure or event
of default or shall impair any rights or remedies consequent thereon.
Neither Grantor nor any other person now or hereafter
obligated for payment of all or any part of the sums now or hereafter
secured by this Mortgage shall be relieved of such obligation by reason
of the failure of Grantee to comply with any request of Grantor or of any
other person so obligated to take action to foreclose on this Mortgage or
otherwise enforce any provisions of this Mortgage, the Note or the Loan
Agreement, or by reason of the release, regardless of consideration, of
all or any part of the security held for the indebtedness secured by this
Mortgage, or by reason of any agreement or stipulation between any
subsequent owner of the Mortgaged Property and Grantee extending the time
of payment or modifying the terms of the Mortgage, without first having
obtained the consent of Grantor or such other person; and in the latter
event Grantor and all such other persons shall continue to be liable to
make payments according to the terms of any such extension or
modification agreement, unless expressly released and discharged in
writing by Grantee.
The Grantee may release, regardless of consideration, any
part of the security held for the indebtedness secured by this Mortgage
without, as to the remainder of the security, in any way impairing or
affecting the lien of this Mortgage or its priority over any subordinate
lien.
Section 3.10 Termination of Proceedings. If Grantee
shall have proceeded to enforce any right under this Mortgage by the
appointment of a receiver, by entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason, or shall have
been determined adversely, then and in every such case Grantor and
Grantee shall be restored to their former positions and rights hereunder,
respectively, and all rights, remedies and powers of Grantee shall
continue unimpaired as before.
Section 3.11 Right to Remedy Default. In the event
that Grantor should fail to carry the insurance required herein or
pursuant hereto, or to pay or cause to be paid real estate or other
taxes, assessments, water and sewer rents, charges and claims (unless and
only for so long as, in strict compliance with the provisions of Section
2.2 hereof, Grantor is contesting the validity of any such item or the
amount thereof), corporate taxes, sums due under any prior lien or
approved prior lien, or insurance premiums, or fail to make necessary
repairs or replacements, or permit waste, or fail to cure any default
under any prior lien or approved prior lien, or fail to comply with any
other obligation on the part of Grantor contained herein or in the Loan
Agreement, Grantee, at its election and without notice to Grantor, shall
have the right to make any payment or expenditure and to take any action
which Grantor should have made or taken, or which Grantee deems advisable
to protect the security of this Mortgage or the Mortgaged Property,
without prejudice to any of Grantee's rights or remedies available
hereunder or otherwise, at law or in equity. All such sums, as well as
costs, advanced by Grantee or due Grantee pursuant to this Mortgage or
the Loan Agreement shall be due immediately from Grantor to Grantee and
shall be secured hereby.
Section 3.12 Relationship to Loan Agreement. This
Mortgage is made subject to all of the terms, covenants and conditions of
the Loan Agreement.
(End of Article III)
ARTICLE IV
COVENANTS, REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties. Grantor
warrants that, subject to Permitted Encumbrances, (a) it is lawfully
seized with a good and marketable title to a fee simple estate in the
Project Site, subject to no lien, charge or encumbrance; (b) it will own
the Mortgaged Property free and clear of liens and claims; (c) this
Mortgage is and will remain a valid and enforceable first lien on the
Mortgaged Property; (d) it has full power and lawful authority to
mortgage the Mortgaged Property in the manner and form herein done or
intended hereafter to be done; and (e) it will preserve such title, and
will forever warrant and defend the validity and priority of the lien
hereof against the claims of all persons and parties whomsoever.
Section 4.2 Notices to Grantee. Grantor shall notify
Grantee promptly of the occurrence of any of the following:
(a) a fire or other casualty causing any damage
to the Mortgaged Property;
(b) receipt of notice of condemnation of the
Mortgaged Property or any part thereof;
(c) receipt of notice from any governmental
authority concerning any action or
condition that may materially adversely
affect the structure, use or occupancy of
the Mortgaged Property;
(d) receipt of any notice of alleged default
from the holder of any lien or security
interest, or any other interest, in the
Mortgaged Property;
(e) commencement of any litigation which may
materially adversely affect the Mortgaged
Property or Grantor's ability to repay the
obligations secured hereby;
(f) receipt of any notice of alleged default
from any tenant of any portion of the
Mortgaged Property; or
(g) any change in the occupancy of the
Mortgaged Property.
Section 4.3 Leases and Restrictions. Grantor hereby
represents that there are no leases, subleases, or agreements to lease or
sublease all or any part of the Mortgaged Property now in effect. Except
with respect to leases entered into at market rates, Grantor hereby
agrees not to lease or allow or suffer to be leased or subleased any part
of or space in the Mortgaged Property from and after the date hereof
without the prior written consent of Grantee, which consent shall not be
unreasonably withheld.
Any grant or lease of use of the Mortgaged Property shall
be subject and subordinate to this Mortgage. Grantor shall, with respect
to any such permitted lease or grant, execute and deliver to Grantee a
collateral assignment of its interest as lessor, in form and substance
satisfactory to Grantee, as additional collateral for the indebtedness
hereby secured, and Grantee will thereupon execute and deliver a
nondisturbance agreement to the lessee.
Grantor will perform, fulfill, comply with and observe
each and every covenant, agreement and condition to be performed,
fulfilled, complied with and observed by Grantor as lessor under any such
lease, and will not suffer or permit any default of Grantor as lessor
thereunder to occur (except defaults which are duly cured within the time
provided therein for the curing thereof).
Except as may be permitted by the Loan Agreement, Grantor
will not convey all or any part of the Mortgaged Property to any lessee
thereof without the prior written consent of Grantee and except upon
express stipulation duly set forth in the deed that any such conveyance
shall not effect a merger of the leasehold estate in the fee except with
the written consent of Grantee.
Grantor shall not, and shall not have the right or power
as against Grantee without its consent, to cancel, terminate, abridge or
materially modify any such lease or to accept prepayments of installments
of rent or other sums due or to become due thereunder.
Grantor covenants and agrees that it will comply with the
terms of, and will promptly perform all of its obligations under, deed or
use restrictions affecting the Mortgaged Property; and in default thereof
(a) Grantee may, at its option, perform the same and the cost thereof,
shall immediately be due from Grantor to Grantee and be secured by this
Mortgage, and (b) subject to the provisions of Section 3.1(c) hereof,
Grantee may, at its option, treat any such default as an event of default
hereunder.
Section 4.4 No Other Financing or Liens. Without the
prior written consent of the Grantee (which consent shall not be
unreasonably withheld) and except for Permitted Encumbrances, Grantor
shall not create or cause or permit to exist any lien or security
interest in the Mortgaged Property, including any fixtures, machinery,
equipment or other items of personal property which are intended to be or
become part of the Mortgaged Property, and shall not incur any
indebtedness for money borrowed to purchase the Mortgaged Property or any
part thereof, other than the indebtedness secured hereby or by any
Permitted Encumbrance.
Section 4.5 No Further Encumbrance; No Disposition.
Without the prior written consent of the Grantee and except as may be
permitted herein or in the Loan Agreement, Grantor shall not grant a
security interest in, mortgage, encumber, hypothecate, sell, transfer,
assign or otherwise dispose of all or any part of the Mortgaged Property,
or any legal or equitable interest therein, or the revenues and receipts
thereof (other than to Grantee hereunder) or assign, transfer or
hypothecate (other than to Grantee hereunder) any rentals or license fees
(or analogous payment) then due or to accrue in the future under any
lease of or license to use the Mortgaged Property or Project Site or any
part thereof, or permit assumption by any third party of Grantor's
obligations under the Loan Agreement or the Note.
Section 4.6 Compliance with Laws and Regulations.
Grantor covenants and agrees that in the maintenance, repair, renewal,
replacement, remodeling, modification, operation and management of the
Mortgaged Property it will observe and comply with all insurance
underwriters' requirements and with all applicable, Federal, state and
local statutes, ordinances, regulations, orders and restrictions,
reserving hereby its right to contest the same, or the application of the
same, so long as such contest shall not prejudice the lien of this
Mortgage nor affect the amounts secured hereby.
Section 4.7 Covenant Running with the Land. Any act
or agreement to be done or performed by Grantor shall be construed as a
covenant running with the land and shall be binding upon Grantor and its
successors and assigns as if they had personally made such agreement.
Section 4.8 Recordation. Grantor, at its expense,
shall cause this Mortgage, any instruments supplemental hereto, financing
statements, including all necessary amendments, supplements and
appropriate continuation statements to be recorded, registered and filed,
and to be kept recorded, registered and filed, in such manner and in such
places as may be required in order to establish, preserve and protect the
lien of this Mortgage as a valid, first mortgage lien on all real
property, fixtures and interests therein included in the Mortgaged
Property and a valid, perfected first priority security interest in all
personal property, fixtures, and interests therein included in the
Mortgaged Property (including in each such case, without limitation, any
such properties acquired after the execution hereof). If requested by
Grantee, but in each case not more than once in each calendar year,
Grantor, at its expense, will furnish to Grantee an opinion of counsel
acceptable to Grantee, specifying the action required and to be taken by
Grantor to comply with this Section 4.8 since the date of this Mortgage
or the date of the most recent such opinion or stating that no such
action is necessary.
Section 4.9 After-Acquired Property. All property of
every kind acquired by Grantor after the date hereof, which by the terms
hereof is intended to be subject to the lien of this Mortgage, shall
immediately upon the acquisition thereof by Grantor, and without further
mortgage, conveyance or assignment, become subject to the lien of this
Mortgage as fully as though now owned by Grantor and specifically
described herein, subject only to Permitted Encumbrances. Nevertheless,
Grantor shall take such actions and execute and deliver such additional
instruments as Grantee shall reasonably require to further evidence or
confirm the subjection to the lien of this Mortgage of any such property.
Section 4.10 Financial Statements. Grantor will keep
proper records and books of account pertaining to the Mortgaged Property
in accordance with generally accepted accounting principles, consistently
applied. All such records and books shall be open at all reasonable
times to inspection by Grantee. As required by the Loan Agreement,
Grantor shall furnish to Grantee such information respecting the business
affairs, operations and financial condition of Grantor as may be
reasonably requested. In case of default hereunder, Grantor will
thereafter furnish to Grantee, on demand, complete monthly statements of
income and expenses showing the operations of the Mortgaged Property.
Grantee shall have the right to audit such statements, as well as
Grantor's books of account and all papers in connection therewith.
Section 4.11 Hazardous Substances.
A Grantor hereby covenants and agrees with Issuer and
the Grantee that the following terms shall have the following meanings
for purpose of this Section 4.11:
(i) "Environmental Laws" mean all federal, state
and local laws, statutes, ordinances and codes relating to the use,
storage, treatment, generation, transportation, processing, handling,
production or disposal of any Hazardous Substance and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives with respect thereto.
(ii) "Hazardous Substance" shall have the same
meaning as given to that term in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. Sections 2601, et seq.), or
any other applicable Environmental Law.
(iii) "Indemnitee" means the Grantee and all
subsequent holders of this Mortgage, their respective successors and
assigns, their respective officers, directors, employees, agents,
representative, contractors and subcontractors and any subsequent owner
of the Mortgaged Property who acquires title thereto from or through
Grantee.
(iv) "Release" has the same meaning as given to
that term in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et sea.) and
the regulations promulgated thereunder.
B Grantor represents and warrants to the Grantee that,
to its knowledge after due investigation: (i) the Mortgaged Property is
not being or has not been used for the storage, treatment, generation,
transportation, processing, handling, production or disposal of any
Hazardous Substance in violation of any Environmental Laws; (ii) the
Mortgaged Property does not contain any Hazardous Substances in violation
of any Environmental Laws; (iii) there has been no Release of any
Hazardous Substance on, at or from the Mortgaged Property or any property
adjacent to or within the immediate vicinity of the Mortgaged Property
and Grantor has not received any form of notice or inquiry with regard to
such a Release or the threat of such a Release; (iv) no event has
occurred with respect to the Mortgage Property which, with the passage of
time or the giving of notice, or both, would constitute a violation of
any applicable Environmental Law; (v) there are no agreements or orders
or directives of any federal, state or local governmental agency or
authority relating to the Mortgaged Property which require any
containment, clean up, investigations, studies, removal or other remedial
action with respect to the Mortgaged Property; and (vi) there are no
actions, suits, claims or proceedings, pending or threatened, which seek
any remedy that arise out of the condition, ownership, use, operation,
sale, transfer or conveyance of the Mortgaged Property and (a) a
violation or alleged violation of any applicable Environmental Law, (b)
the presence of any Hazardous Substance or a Release of any Hazardous
Substance or the threat of such a Release, or (c) human exposure to any
Hazardous Substance.
C Grantor covenants and agrees with the Grantee as
follows:
(i) Grantor shall keep, and shall cause all
operators, tenants, subtenants, licensee and occupants of the Mortgaged
Property to keep the Mortgaged Property free of all Hazardous Substances,
except for hazardous Substances stored, treated, generated, transported,
processed, handled, produced or disposed of in the normal operation of
the Mortgaged Property as a tire recycling facility, and in accordance
with all Environmental Laws.
(ii) Grantor shall comply with, and shall cause
all operations, tenants, subtenants, licensees and occupants of the
Mortgaged Property to comply with, all Environmental Laws.
(iii) Grantor shall promptly provide Grantee with
a copy of all notifications which it gives or receives with respect to
any past or present Release of any Hazardous Substance or the threat of
such a Release on, at, from or affecting the Mortgaged Property or any
property adjacent to or within the immediate vicinity of the Mortgaged
Property.
(iv) Grantor shall undertake and complete all
investigations, studies, sampling and testing for Hazardous Substances
required in accordance with all Environmental Laws and all removal and
other remedial actions necessary to contain, remove and clean up all
Hazardous Substances that are determined to be present on the Mortgaged
Property in violation of any Environmental Laws.
(v) Grantee shall have the right, but not the
obligation, to cure any violation by the Grantor of the Environmental
Laws and Grantee's cost and expense to so cure shall be secured by this
Mortgage.
D Grantor covenants and agrees, at its sole cost and
expense, to indemnify, defend and save harmless Indemnitee from and
against any and all damages, losses, liabilities, obligations, penalties,
claims, litigation, demands, defenses, judgments, suits, actions,
proceedings, costs, disbursements and/or expenses (including, without
limitation, reasonable attorneys' and experts' fees and expenses) of any
kind or nature whatsoever which June at any time be imposed upon,
incurred by or asserted or awarded against Indemnitee arising out of the
condition, ownership, use, operation, sale, transfer or conveyance of the
Mortgaged Property and, during the period of Grantor's ownership, use or
possession of the Mortgaged Property, (i) the storage, treatment,
generation, transportation, processing, handling, production or disposal
of any Hazardous Substance, (ii) the presence of any Hazardous Substance
or a Release of any Hazardous Substance or the threat of such a Release,
(iii) human exposure to any Hazardous Substance, (iv) a violation of any
Environmental Law, or (v) a material misrepresentation or inaccuracy in
any representation or warranty or material breach of or failure to
perform any covenant made by the Grantee herein (collectively, the
"Indemnified Matters").
The liability of the Grantor to Indemnitee hereunder shall
in no way be limited, abridged, impaired or otherwise affected by (a) the
repayment of all sums and the satisfaction of all obligations of the
Grantee under the Note or this Mortgage, (b) the foreclosure of this
Mortgage or the acceptance of a deed in lieu thereof, (c) any amendment
or modification of the Related Documents by or for the benefit of Grantor
or any subsequent owner of the Mortgaged Property, (d) any extensions of
time for payment or performance required by any of the Related Documents,
(e) the release or discharge of this Mortgage or of the Grantor, any
guarantor of the amounts secured by the Mortgage or any other person from
the performance of observance of any of the agreements, covenants, terms
or conditions contained in any of the Related Documents whether by
Grantee, by operation of law or otherwise, (f) the invalidity or
unenforceability of any of the terms or provisions of the Related
Documents, (g) any exculpatory provision contained in any of the Related
Documents limiting Grantee's recourse to property encumbered by this
Mortgage or to any other security or limiting Grantee's rights to a
deficiency judgment against the Grantor, (h) any applicable statute of
limitations, (i) the sale or assignment of the Note or this Mortgage, (j)
the sale, transfer or conveyance of all or part of the Mortgaged
Property, (k) the dissolution or liquidation of Grantor, or (l) any other
circumstances which might otherwise constitute a legal or equitable
release or discharge, in whole or in part, of Grantor under the Note or
this Mortgage.
The foregoing indemnity shall be in addition to any and
all other obligations and liabilities Grantor may have to Grantee at
common law.
(End of Article IV)
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. All notices, certificates,
requests or other communications hereunder shall be sufficiently given
and shall be deemed given when mailed by registered or certified mail,
postage prepaid, addressed to the appropriate Notice Addresses.
Section 5.2 Amendments, Changes and Modifications.
Except as may otherwise be provided in the Loan Agreement, this Mortgage
may not be effectively amended, changed, modified or altered without the
prior written consent of the party against whom enforcement of such
amendment, change, modification or alteration is sought.
Section 5.3 Execution Counterparts. This Mortgage may
be executed in several counterparts, each of which shall be regarded as
an original and all of which shall constitute but one and the same
instrument.
Section 5.4 Severability. In case any clause,
provision or section of this Mortgage, or any covenant, stipulation,
obligation, agreement, act, or action, or part thereof, made, assumed,
entered into, or taken under this Mortgage, or any application thereof,
is for any reason held to be illegal, invalid or inoperable, such
illegality, invalidity, or inoperability shall not affect the remainder
thereof or any other clause, provision or section or any other covenant,
stipulation, obligation, agreement, act or action or part thereof, made,
assumed, entered into, or taken thereunder, which shall at the time be
construed and enforced as if such illegal or invalid or inoperable
portion were not contained therein, nor shall such illegality or
invalidity or inoperability of any application thereof affect any legal
and valid and operable application thereof, from time to time, and each
such clause, provision or section, covenant, stipulation, obligation,
agreement, act, or action, or part thereof shall be deemed to be
effective, operative, made, entered into or taken in the manner and to
the full extent from time to time permitted by law.
Section 5.5 General Waivers By Grantor. Grantor
hereby waives and releases, to the extent permitted by law:
(a) all errors, defects and imperfections in
any proceeding instituted by Grantee
hereunder or under the Note or the Loan
Agreement;
(b) all benefit that might accrue to Grantor by
virtue of any present or future law
exempting the Mortgaged Property, or any
part of the proceeds arising from any sale
thereof, from attachment, levy or sale on
execution, or providing for any stay of
execution, exemption from civil process or
extension of time for payment;
(c) any appraisement, valuation, stay,
extension or redemption or usury law now or
hereafter in force and all rights of
marshalling of assets in the event of any
sale of the Mortgaged Property or any part
thereof or interest therein, it being
understood and agreed that any court having
jurisdiction to foreclose the lien hereof
may sell the Mortgaged Property in part or
as an entirety; and
(d) unless specifically required herein, all
notices of or Grantor's default or of
Grantee's election to exercise, or
Grantee's actual exercise, of any option or
remedy hereunder or under the Note or the
Loan Agreement.
Section 5.6 Effect of Mortgage. This Mortgage
constitutes a security agreement under the Uniform Commercial Code as
adopted in the State of Florida and creates a security interest in favor
of Grantee in and to all that property (and the proceeds, accessions and
replacements thereof, and the proceeds of any insurance on such property)
included in the Mortgaged Property which constitutes fixtures or personal
property. Grantor shall execute, deliver, file and refile any financing
statements, continuation statements, or other security agreements Grantee
may require from time to time to confirm the lien of this Mortgage with
respect to such property. If certificates of title are issued with
respect to any such property, Grantor will cause the interest of the
Grantee to be properly noted thereon. Without limiting the foregoing
Grantor hereby irrevocably appoints each Grantee attorney-in-fact for
Grantor to execute, deliver and file such instruments for and on behalf
of Grantor. Notwithstanding any release of any or all of that property
included in the Mortgaged Property which is deemed "real property," any
proceedings to foreclose this Mortgage, or its satisfaction of record,
the terms hereof shall survive as a security agreement with respect to
the security interest created hereby and referred to above until the
repayment or satisfaction in full of the obligations of Grantor as are
now or hereafter evidenced by the Notes or otherwise secured hereby.
Nothing herein shall preclude Grantee from proceeding as to both real and
personal property in accordance with Grantee's rights and remedies in
respect of real property, as provided in the Uniform Commercial Code as
adopted in Florida.
Section 5.7 Maximum Indebtedness. Grantor and Grantee
intend and agree that this Mortgage shall secure unpaid balances of any
loan advances, whether obligatory or not, made by the Grantee after this
Mortgage is delivered to the Clerk for record to the extent that the
total unpaid loan indebtedness, exclusive of interest thereon, does not
exceed the maximum amount of unpaid loan indebtedness which may be
outstanding at any time, which is $1,000,000.
Section 5.8 No Merger. It being the desire and
intention of the parties hereto that this Mortgage and the lien thereof
do not merge in fee simple title to the Mortgaged Property, it is hereby
understood and agreed that should the Grantee acquire any additional or
other interest in or to the Mortgaged Property or the ownership thereof,
then, unless a contrary intent is manifested by the Grantee as evidenced
by an appropriate document duly recorded, this Mortgage and the lien
thereof shall not merge, and that this Mortgage may be foreclosed as if
owned by a stranger to the leasehold title. It is further the intention
and desire of the parties that the leasehold title to the Mortgaged
Property cannot merge with the fee simple title interest to the Mortgaged
Property without the prior written consent of Grantee.
Section 5.9 Captions. The captions or headings in
this Mortgage are for convenience only and in no way define, limit or
describe the scope or intent of any provisions of this Mortgage.
Section 5.10 Governing Law. This Mortgage shall be
deemed to be a contract made under the laws of the State of Alabama and
for all purposes shall be governed by and construed in accordance with
the laws of the State of Alabama, and the Loan secured by this Mortgage
shall be deemed, for all purposes, to have been made in the State of
Alabama, regardless of the location of any property securing the same..
(End of Article V)
IN WITNESS WHEREOF, the parties have executed this
Mortgage as of the day and year first above written.
GRANTOR:
WASTEMASTERS OF PALM BEACH, INC.
By: /s/ R.D. Sterritt, Jr. its Pres.
------------------------------------
President
GRANTEE:
/s/ William B. Blount
------------------------------------
WILLIAM B. BLOUNT
/s/ C. Derek Parrish
-------------------------------------
C. DEREK PARRISH
ACKNOWLEDGMENTS
STATE OF FLORIDA )
COUNTY OF PALM )
On this 31st day of July, 1998, before me, a Notary Public
duly commissioned, qualified and acting within and for the County and
State aforesaid, appeared in person the within named R. Dale Sterritt,
Jr., President of WASTEMASTERS OF PALM BEACH, INC., a Florida
corporation, to me personally known, who stated that he was duly
authorized to execute the foregoing instrument and further stated and
acknowledged that he had so signed, executed and delivered the foregoing
instrument for the consideration, uses and purposes therein mentioned and
set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and
official seal this 31st day of July, 1998.
/s/ Julie N. Krauss
------------------------------------
[SEAL] Notary Public
My commission expires:
_______________________
NOTARY SEAL
STATE OF ALABAMA )
COUNTY OF MONTGOMERY)
On this 30th day of July, 1998, before me, a Notary Public
duly commissioned, qualified and acting within and for the County and
State aforesaid, appeared in person the within named William B. Blount,
to me personally known, who stated that he was duly authorized to execute
the foregoing instrument and further stated and acknowledged that he had
so signed, executed and delivered the foregoing instrument for the
consideration, uses and purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and
official seal this 30th day of July, 1998.
/s/ Jane Blount Cash
------------------------------------
[SEAL] Notary Public
My commission expires: May 30, 1999
STATE OF ALABAMA )
COUNTY OF MONTGOMERY )
On this 30th day of July, 1998, before me, a Notary Public
duly commissioned, qualified and acting within and for the County and
State aforesaid, appeared in person the within named C. Derek Parrish, to
me personally known, who stated that he was duly authorized to execute
the foregoing instrument and further stated and acknowledged that he had
so signed, executed and delivered the foregoing instrument for the
consideration, uses and purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and
official seal this 30th day of July, 1998.
/s/ Jane Blount Cash
[SEAL] Notary Public
My commission expires: May 30, 1999
<PAGE>
EXHIBIT "A"
PARCEL 1:
The West One-Half (W1/2) of Tract 51, Block 5, THE PALM BEACH FARMS CO.
PLAT NO. 3, according to the Plat thereof on file in the Office of the
Clerk of the Circuit Court in and for Palm Beach County, Florida,
recorded in Plat Book 2, Page 45, said lands situate, lying and being in
Palm Beach County, Florida. LESS the North 134 feet thereof.
PARCEL 2:
The East One-Half (E1/2) of Tract 51, Block 5, THE PALM BEACH FARMS CO.
PLAT NO. 3, according to the Plat thereof of file in the Office of the
Clerk of the Circuit Court in and for Palm Beach County, Florida,
recorded in Plat Book 2, Page 45, said lands situate, lying and being in
Palm Beach County, Florida. LESS the South 15 feet thereof for road
right-of-way purposes.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 175,793
<SECURITIES> 67,352
<RECEIVABLES> 1,701,643
<ALLOWANCES> 303,677
<INVENTORY> 1,252,791
<CURRENT-ASSETS> 2,893,902
<PP&E> 10,295,070
<DEPRECIATION> 1,087,041
<TOTAL-ASSETS> 16,808,332
<CURRENT-LIABILITIES> 21,355,911
<BONDS> 0
0
50,000
<COMMON> 1,347,101
<OTHER-SE> 6,613,193
<TOTAL-LIABILITY-AND-EQUITY> 16,808,332
<SALES> 12,375,649
<TOTAL-REVENUES> 12,375,649
<CGS> 6,422,074
<TOTAL-COSTS> 33,614,218
<OTHER-EXPENSES> (9,174,440)
<LOSS-PROVISION> 33,541,598
<INTEREST-EXPENSE> 1,325,760
<INCOME-PRETAX> (46,941,487)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,941,487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,941,487)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
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