Here's the latest off the MSNBC news website......
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ATLANTA, Feb. 25 — WasteMasters, Inc. (Nasdaq:WAST) today announced developments in several material litigation matters involving the Company.
On December 16, 1998, Stewart Rahr, a shareholder of the Company, filed a motion to intervene 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. 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 seeks 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 has not ruled on 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 intends to support 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. Pending a final resolution of the litigation, the Company will not consent 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. In the event the Court vacates the Consent Judgment, the Company plans to request that the Court approve procedures to notify existing holders of the shares of the litigation and provide them with an opportunity to intervene in the litigation to protect their rights. If the Court declines to vacate the Consent Judgment, then the litigation will have no effect on the number of shares which are outstanding.
Separately, on February 18, 1999, an involuntary bankruptcy petition was filed against the Company in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division by three alleged creditors of the Company. One of the creditors is Edward Roush, Jr., who was the attorney for the plaintiffs in the original Nikko Trading litigation, acted as advisor and attorney to the Company subsequent to the entry of the Consent Judgment, and is an intervenor in the Nikko Trading litigation in his individual capacity. Mr. Roush intervened in the Nikko Trading litigation to protect his claim to certain shares issued pursuant to the Consent Judgment which he alleges he earned as a fee for handling the litigation on behalf of the plaintiffs. Mr. Roush has also asserted claims in the Nikko Trading litigation against the Company and its directors based on their failure to take actions to comply with the Consent Judgment. The other two petitioning creditors were corporations for which Mr. Roush purports to act. One of the corporations is Kelso & Roush, Inc., although the Company has no record of ever having done business with Kelso & Roush, Inc. and does not believe it is creditor of the Company. The other corporation is American Recycling & Management, Inc., which is a wholly-owned subsidiary of the Company. The Company does not believe that Mr. Roush has any authority to act on behalf of American Recycling since he is no longer an officer or director of that subsidiary, and in any event the Company is not aware of any liability which it has to the subsidiary.
Mr. Roush and the two corporate creditors have filed a motion to appoint a trustee for the Company and, in support thereof, have alleged unspecified acts of fraud and mismanagement. The Company intends to vigorously oppose the involuntary petition and the appointment of a trustee. The Company has also filed a motion to transfer the bankruptcy proceedings to the district court hearing the Nikko Trading litigation.
In a separate legal matter, the Company entered into a transaction with Continental Investment Corporation ("CIC") in September 1997 in which, among other things, the Company received 300,000 shares of common stock of CIC in consideration for the issuance to CIC by the Company of 4.5 million shares of common stock, 5 million shares of preferred stock which are convertible into 25 million shares of common stock and a warrant under which CIC has the right to acquire 100 million shares of common stock of the Company in return for 1 million shares of common stock of CIC. At the time of the transaction, CIC's common stock was selling for $23.50 per share. Since the transaction, the market price of CIC's common stock has dropped to under $2 per share. In addition, at least two lawsuits have been filed against CIC which allege that CIC violated Section 10(b) of the Securities Exchange Act of 1933 by illegally inflating the market price of its common stock at the time of the transaction with the Company through the dissemination of false and misleading information to the public through its SEC filings, press releases and statements to investors. The Company is currently investigating the allegations made against CIC. The Company believes that those allegations, if true, would enable the Company to rescind the transaction with CIC and cancel the shares and warrant. The securities acquired by CIC in the transaction have features which make them very dilutive for other shareholders and new investors, which has proven to be an impediment to raising capital on attractive terms. Furthermore, the consideration received by the Company from CIC, being 300,000 shares of its common stock, has depreciated in value substantially. Therefore, the Company believes that rescission of the transaction with CIC will result in substantial benefits to existing shareholders of the Company. Pending the Company's investigation and any legal action which the Company may decide to take, the Company intends to oppose any transfer of the common or preferred stock issued to CIC or the exercise of the warrant issued to CIC.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this news release which are not historical facts may be "forward-looking statements" that involve risks and uncertainties which could cause actual results to differ materially from those currently anticipated. For example, statements that describe WasteMasters' hopes, plans, objectives, goals, intentions, or expectations are forward- looking statements made herein and only made as of the date of this news release. Numerous factors, many of which are beyond WasteMasters' control, will affect actual results. WasteMasters undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. This news release should be read in conjunction with WasteMasters' annual report on Form 10KSB and other filings with the U.S. Securities and Exchange Commission.
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