HAWKS INDUSTRIES, INC.
913 Foster Road
Casper, Wyoming 82601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [APRIL 1, 2000]
To the Shareholders of
HAWKS INDUSTRIES, INC.
On June 10, 1999, Hawks Industries, Inc., a Wyoming Corporation (the
"Company"), entered into an Agreement (the "Agreement") which, as amended, is
with Universal Equities Consolidated, LLC, David H. Peipers, The Cornerhouse
Limited Partnership and The Winsome Limited Partnership (collectively referred
to as "Buyers"), which will allow Buyers to secure a controlling interest in the
Company's common stock through a Private Placement. The value placed on the
Company's shares in the Agreement was $1.60 per share for at least 6,250,000
shares of common stock yielding the Company a consideration of $10,000,000. The
Agreement also included the right to buy up to an additional 14,375,000 shares
at the same price. The maximum consideration to be received by the company is
$33,000,000 if all the additional shares are purchased.
The terms of the Agreement require a payment of at least $5,000,000 in
cash, with the remainder of the consideration being paid in cash and/or transfer
of Buyer's rights to receive payment from a debt obligation from North Star
Exploration, Inc. ("North Star"), and/or North Star common stock, and/or Zeus
Consolidated Holdings, Inc. ("Zeus") common stock. North Star and Zeus are
private Nevada Corporations which own or hold options on mineral rights in
Alaska. The options held by North Star cover approximately 7,000,000 acres in
Alaska.
The Agreement also requires the redemption of shares in the Company owned
by three principal shareholders in exchange for certain assets of the Company.
Therefore, on June 9, 1999, the Company entered into a Redemption of Shares
Agreement with officers and directors, Bruce A. Hinchey and James E. Meador, Jr.
and principal shareholder Anne D. Zimmerman Revocable Trust dated November 14,
1991 (collectively referred to as "Principal Shareholders"), to acquire all of
Principal Shareholders' common stock in the Company, excluding their ESOP
shares, in exchange for assets of the Company.
The June 9, 1999 Redemption of Shares Agreement was determined as a result
of negotiations between the Directors and the three principal shareholders using
as part of the consideration, book values for the shares and exchanged assets as
reported by the Company in the most recent 10-K Report. The Agreement was
unanimously approved by the Company's Board of Directors with Bruce A. Hinchey
and James E. Meador, Jr. abstaining from said approval.
The Company entered into the Agreement to provide a substantial injection
of capital and to allow the Company to participate in future exploration and
development of the North Star mineral rights in Alaska. As a result of this
Agreement, the principal business of the Company will change from an
environmental testing business to a natural resource exploration and development
business.
The Company expects to use the proceeds of the transaction for general
corporate purposes and future operations, which may include, in addition to
mineral exploration on the option lands held by North Star, projects related to
sustainable (i.e. environmentally friendly) development of energy natural
resources. The ownership of the company's common stock by shareholders will not
be affected by the proposed transaction, the Company will continue to be subject
to the reporting requirements of the Securities Exchange Act of 1934 following
completion of the transaction, and the company's common stock may continue to
trade on the NASDAQ Stock Exchange to the extent a market continues to exist.
The Company has no control whether a market will continue to exist.
<PAGE>
If the transaction is not approved by the Shareholders, the Company
anticipates that it will continue with its current operations which consist
mainly of environmental testing. The private placement and redemption of shares
described above will be subject to the Company's shareholders' approval at its
Annual Meeting.
The discussion of the information set forth above is intended only as a
summary, and is qualified in its entirety by the information contained in the
accompanying Proxy Statement.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of HAWKS
INDUSTRIES, INC., a Wyoming Corporation (the "Company"), will be held at the
office of the Company at 913 Foster Road, Casper, Wyoming 82601 on [April 1,
2000] at 2:00 P.M. or at any postponement or adjournment thereof for the
following purposes:
1. To elect one director to serve until the Annual Meeting of the Shareholders
to be held in 2002 or until his successor has been elected and qualified.
This matter is covered in the Election of Directors section of the Proxy
Statement.
2. To increase the authorized number of shares of common stock from 5 million
to 50 million shares for the purpose of raising additional capital through
a private placement of common stock. Referred to in the Proxy Statement as
Proposal 1.
3. To approve the private placement of up to 20,625,000 shares of common stock
with Universal Equities Consolidated, LLC., David H. Peipers, The
Cornerhouse Limited Partnership and The Winsome Limited Partnership.
Referred to in the Proxy Statement as Proposal 2.
4. To approve the redemption of common stock through a disposition of Company
assets to principal shareholders, Bruce A. Hinchey, James E. Meador, Jr.
and the Anne D. Zimmerman Revocable Trust dated November 14, 1991.
Referred to in the Proxy Statement at Proposal 3.
5. To approve a change of domicile for the Company from Wyoming to Nevada.
Referred to in the Proxy Statement as Proposal 4.
6. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Only shareholders of record at the close of business on [March 10, 2000],
will be entitled to notice of and to vote at the meeting. All shareholders are
cordially invited to attend and to meet the management and Board of Directors of
the Company.
By Order of the Board of Directors
Bob Despain
Secretary
Casper, Wyoming
_______________, 1999
IMPORTANT
IF YOU DO NOT PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Soliciting Material Pursuant to S240.14a-11(c) or S240.14a-12
HAWKS INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6()(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
SEC 1913 (3-99)
Potential persons who are to respond to the collection of
information contained in this form are not required to respond
unless the form displays a currently valid OMC control number.
<PAGE>
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed
Reg S240.14a-101. Notes:
...
2. If a document is incorporated by reference but not delivered to security
holders, include an undertaking to provide, without charge, to each
person to whom a proxy statement is delivered, upon written or oral
request of such person and by first class mail or other equally prompt
means within one business day of receipt of such request, a copy of any
and all of the information that has been Incorporated by reference
In the proxy statement (not including exhibits to the information that
is incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the proxy statement
incorporates), and the address (including title or department) and
telephone numbers to which such a request is to be directed. This
includes information contained in documents filed subsequent to the date
on which definitive copies of the proxy statement are sent or given
to security holders, up to the date of responding to the request.
<PAGE>
PROXY STATEMENT
HAWKS INDUSTRIES, INC.
913 FOSTER ROAD
CASPER, WYOMING 82601
SHAREHOLDERS ENTITLED TO VOTE
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HAWKS
INDUSTRIES, INC. (the "Company") for use at the Annual Meeting of the
Shareholders of the Company. It is anticipated that these proxy materials will
be mailed to Shareholders on or about [March 15, 2000].
Holders of shares of the Common Stock of the Company of record at the
close of business [March 10, 2000], will be entitled to vote at the Annual
Meeting of Shareholders to be held on [April 20, 2000] at 2:00 P.M. at the
offices of the Company at 913 Foster Road, Casper, Wyoming 82601 or at any
postponement or adjournment thereof.
This Proxy Statement relates to the approval of a number of matters as
summarized in the notice which is attached to this Proxy Statement and described
in more detail herein. The Company is also delivering with this proxy statement
the following documents which are hereby incorporated herein: North Star
Exploration, Inc. Financial Statements for the Periods Ended September 30, 1999
(Unaudited), December 31, 1998 and 1997 and for the Periods from Inception
(January 31, 1997) to September 30, 1999 (Unaudited) and December 31, 1998
together with the Report of Independent Public Accountants. The Company further
incorporates by reference into this Proxy Statement the Company's annual report
on Form 10-K for the year ended December 31, 1998 as amended, the Company's
quarterly reports on Form 10-Q for the quarters ended March 31, 1999, June 30,
1999, and September 30, 1999, as amended its current reports on Form 8-K
reporting events of June 10, 1999 and amendments thereto, and all other reports
filed since December 31, 1998, in accordance with Sections 13(a) or 15(d) of the
Securities and Exchange Act of 1934, as amended.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted by filing with the Secretary of the Company either an
instrument revoking the proxy or a duly executed proxy bearing a later date.
Proxies may be revoked by any Shareholder present at the meeting who expresses a
desire to vote his or her shares in person. A proxy, when executed and not so
revoked, will be voted in accordance therewith.
Abstentions will be treated as shares present or represented and entitled
to vote for purposes of determining the presence of a quorum, but will not be
considered as votes cast in determining whether a matter has been approved by
the shareholders. Any shares a broker indicates on its proxy that it does not
have the authority to vote on any particular matter because it has not received
direction from the beneficial owner thereof, will not be counted as voting on a
particular matter. The officers, directors, and/or principal Shareholders,
Bruce A. Hinchey, James E. Meador, Jr., and Anne D. Zimmerman Revocable Trust
dated November 14, 1991 of the Company (holders of approximately 389,640 shares,
29.3% of the outstanding shares) have indicated their intention to abstain from
voting on the Redemption of Shares Proposal 3 as they have a conflict of
interest in said proposals. No other shareholder has indicated his or her
intentions with respect to voting on any of the proposals. All properly
executed and unrevoked proxies, if received in time, will be voted in accordance
with the instructions of the beneficial owners contained thereon. All properly
executed and unrevoked proxies that do not contain voting instructions will be
voted in favor of Proposals 1, 2 and 3.
The Company will bear the cost of the proxy solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy materials to the beneficial
owners of the Company's Common Stock for whom they hold shares and will
reimburse them for their reasonable expenses in so doing.
<PAGE>
DISSENTERS' RIGHTS
The Wyoming Business Corporation Act provides shareholders a right to
dissent and obtain payment of the fair value of their shares from the Company
under certain circumstances; provided, that, if the shareholder has a right to
dissent, the shareholder strictly follows the statutory procedures for doing so
to perfect his or her dissenters' rights. In connection with the Redemption of
Shares Proposal 3 contained in this Proxy Statement shareholders may have the
right to dissent if the Company completes the proposed transaction. For a
detailed description of these dissenters' rights and the statutory provisions
governing them, see the section entitled "DISSENTERS' RIGHTS" appearing
immediately after the description of the Redemption of Shares in Proposal 3.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The voting securities entitled to vote at the meeting consist of shares of
Common Stock of the Company with each share entitling its owner to one vote upon
each matter submitted to a vote.
The close of business on [March 10, 2000], has been fixed by the Board of
Directors as the record date for determination of Shareholders entitled to vote
at the meeting, and the number of outstanding shares on February 1, 2000 was
1,326,705.
The following table shows the beneficial ownership of the shares of the
Company as of the close of business on February 1, 2000, of each person known to
the Company to be the beneficial owner of more than 5% of the Company's issued
and outstanding Common Stock and of all officers and directors as a group.
Unless noted to the contrary, each person or entity has direct ownership and
sole voting dispositive power.
<TABLE>
<CAPTION>
Percent of
Name and Address Shares Owned Class Outstanding
- ---------------- ------------ -----------------
<S> <C> <C>
Bruce A. Hinchey 115,928 (a) (c) 8.7
913 Foster Road
Casper, Wyoming 82601
James E. Meador, Jr. 120,545 (b) (c) 9.1
913 Foster Road
Casper, Wyoming 82601
Anne D. Zimmerman 153,167 11.5
Revocable Trust
400 E. 1st St.
Casper, Wyoming 82601
All Officers and Directors and 5% 389,640 29.3
Shareholders as Group (three in
number)
______
<FN>
(a) Included are 11,553 shares allocated in the Company's Employee Stock
Ownership Plan-Trust.
(b) Included are 11,629 and 2,491 shares allocated to Mr. Meador and his spouse
respectively in the Company's Employee Stock Ownership Plan-Trust.
(c) Included are 1,675 shares Mr. Meador and Mr. Hinchey own through H & M
Properties.
</TABLE>
INTEREST OF PARTIES IN MATTERS TO BE ACTED ON
Bruce A. Hinchey, President of Hawks Industries, Inc.; James E. Meador,
Jr., Vice President of Hawks Industries, Inc.; and Anne D. Zimmerman, a
Physician, through her Revocable Trust (collectively referred to as
"Shareholders"), will receive certain assets of the Company in exchange for
their common stock in the Company if the proposed Redemption of Shares is
<PAGE>
approved by the shareholders of the Company at the Annual Meeting. For this
reason, Bruce A. Hinchey, James E. Meador, Jr. and Anne D. Zimmerman Revocable
Trust dated November 13, 1991 will abstain from voting on the Proposal 3
transaction at the Annual Meeting.
None of the Shareholders has been convicted in a criminal proceeding during
the past ten years. Shareholders have purchased the following shares of common
stock of the Company in the past two years:
<TABLE>
<CAPTION>
Name Date of Purchase Shares
- ---- ---------------- ------
<S> <C> <C>
Bruce A. Hinchey January, 1998 200
James E. Meador, Jr. October, 1998 1,000
March, 1999 2,000
Anne D. Zimmerman February 1998 153,167
Revocable Trust dated
November 13, 1991
</TABLE>
Shareholders have not sold any shares during the past two years. The
shares purchased were through cash transactions. Shareholders are not party to
any contract, arrangements, or understandings with any person with respect to
any securities of the Company. Shareholders have no arrangement or
understanding with any person with respect to any future employment by the
Company or its affiliates' or with respect to any future transactions to which
the Company or any of its affiliates will or may be a party.
ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation and By-laws,
Directors are divided into three classes that contain one or more Directors and
hold a term of office of three years.
As of the date of this Proxy Statement, one Class II Director will be
elected to serve until 2002 or until a successor is duly elected and qualified.
At the meeting it is proposed that Gerald M. Moyle, who is presently the
Class II Director of the Company and whose term expired in 1999, be elected for
a three year term. Upon election he shall serve in such capacity until the 2002
Annual Meeting of the Shareholders or until a successor is duly elected and
qualified.
If the enclosed Proxy is duly executed and received in time for the
meeting, and if no contrary specification is made as provided therein, it is the
intention of the persons named therein to vote the shares represented thereby
for the person nominated for election as Director of the Company. If the
nominee should refuse or be unable to serve, the proxy will be voted for such
person as shall be designated by the Board of Directors to replace such nominee.
The management presently has no knowledge that any nominee will refuse or be
made unable to serve.
The following information is furnished as of February 1, 2000, with
respect to the nominee and the other Directors whose terms in office will
continue after the meeting.
<PAGE>
<TABLE>
<CAPTION>
Share of
Principal Occupation Year Since Common
During the Last Five Years which Stock Percent
and Position with Company Continuously Beneficially of
Name/Age (In Addition to Director) A Director Owned Class
- -------- ------------------------- ---------- ----- -----
<S> <C> <C> <C> <C>
Dwight B. Despain/ 45 Appointed as a Class III 1992 2,050 .2
Director August 24, 1992.
Attorney with Dixon &
Despain, Casper, WY since
1990; Warnick & Blood Law
Offices from 1985-1990.
Bruce A. Hinchey/ 50 Appointed as a Class III 1993 115,928(a)(c) 8.7
Director May 12, 1993;
President of Western
Environmental Services and
Testing, Inc., a wholly owned
subsidiary of Hawks
Industries whose principal
business is providing
environmental testing
services from 1981 through
1997. President of Hawks
Industries, Inc. and Vice-
President of Western
Environmental Services &
Testing, Inc. since Mr.
Meador became the President
in 1998.
James E. Meador, Jr./ 46 Appointed as a Class I 1993 120,545(b)(c) 9.1
Director May 12, 1993; Vice
President of Western
Environmental Services and
Testing, Inc. 1981 through
1997. President of Western
Environmental Services &
Testing, Inc. and Vice-
President of Hawks
Industries, Inc. beginning in
1998. Mr. Meador had no gap
in his employment between
being Vice President and
President of Western
Environmental Services &
Testing, Inc.
Gerald M. Moyle/ 44 Appointed as Class II 1994 8 .0
Director June 30, 1994; Land
Manager of Brown Operating,
Inc. since 1984.
</TABLE>
<PAGE>
(a)Included are 11,553 shares allocated in the Company's Employee Stock
Ownership Plan-Trust.
(b)Included are 14,120 shares allocated to Mr. Meador and his spouse in the
Company's Employee Stock Ownership Plan-Trust.
(c)Included are 1,675 shares Mr. Meador and Mr. Hinchey own through H & M
Properties.
(E) RESUME OF NOMINEE GERALD E. MOYLE
Gerald E. Moyle, Director
Mr. Moyle graduated from the University of Wyoming in 1977 with a Bachelor of
Science degree. He was a staff accountant for Fox & Company from 1977 to 1979
when he became controller of LR Company to 1980; was vice president of Cowboy
Resources, Inc. from 1980 to 1984. From 1984 to the present, Mr. Moyle has been
the land manager for Maurice W. Brown and Brown Operating, Inc., an oil and gas
exploration and development company. He was elected to the Board of Directors
for Hawks Industries, Inc. June 30, 1994.
The Board of Directors met formally twice during the fiscal year. Mr. Moyle
was present for both meetings. All other directors were present for the meetings
of the Board of Directors in fiscal 1998. In addition, discussions were held
frequently on an informal basis, and all action specifically required to be
approved by the Board of Directors, pursuant to the Wyoming Corporation Law, was
taken by written consent setting forth the action so taken signed by all the
directors provided by Section 141 (t) of the Law.
The Board of Directors audit committee consists of Gerald E. Moyle, James
E. Meador, Jr., and Dwight B.Despain.
The Board of Directors has no nominating or compensation committee.
<PAGE>
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT
The following table sets forth all cash compensation paid by the Company
during the fiscal year to executive officers whose cash compensation exceeded
$60,000 and to all executive officers as a group.
<TABLE>
<CAPTION>
Annual compensation Long term compensation
Awards Payouts
Name and principal Year Salary Bonus Other annual Restricted Securities LTIP All
position ($) ($) Compensation Stock Under-Lying payouts other
($) Award(s) Option ($) Compen-
SARS (#) sation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO-Bruce A. Hinchey 1998 80,000 -0- (a,b,c) -0- -0- -0- -0-
President and 1997 87,800 -0- (a,b,c) -0- -0- -0- -0-
Director of Hawks 1996 105,000 -0- (a,b,c) -0- -0- -0- -0-
Industries, Inc. Vice
President of Western
Environmental
Services & Testing,
Inc.
James E. Meador, Jr. 1998 80,000 -0- (a,b,c) -0- -0- -0- -0-
Vice President and 1997 87,800 -0- (a,b,c) -0- -0- -0- -0-
Director of Hawks 1996 105,000 -0- (a,b,c) -0- -0- -0- -0-
Industries, Inc.,
President of Western
Environmental
Services & Testing,
Inc.
Joseph J. McQuade 1997 98,280 -0- (a,b) -0- -0- -0-
President, CEO and 1996 105,000 -0- (a,b) -0- -0- -0- -0-
Director of Hawks
Industries.
All Executive 1998 160,000 -0- -0- -0- -0- -0-
Officers as a Group 1997 273,880 -0- -0- -0- -0- -0-
(Two in number) 1996 315,000 -0- -0- -0- -0- -0-
(a)
<FN>
(a) Messers. Hinchey, Meador and McQuade received other compensation valued at
less than 10% of the compensation reported in this table.
(b) Not included is the amount which was accrued under the Company's Employee
Stock Ownership Plan-Trust discussed below.
(c) Pursuant to employment agreements expiring 2004, Messers. Hinchey and Meador
would receive a lump sum payment of approximately four years' salary and each
would receive approximately $100,000 in consideration of receiving a reduced
salary in past years if employment should be terminated by the Company
without cause.
</TABLE>
Directors who are not employees are paid $300 per meeting for their
attendance at Board meetings. All directors are reimbursed for reasonable
out-of-pocket expenses incurred in connection with attending Board and
Shareholder's meetings.
<PAGE>
Employee Stock Ownership Plan-Trust
The Plan was Adopted in December 1975. Annual contributions by the
Company are not mandatory, but the Plan provides for annual contributions by the
company to the profit-sharing trust for the account of eligible employees in an
amount up to 25% of their salaries subject to the limitation imposed by ERISA.
The Plan provides that the Trustee shall invest the funds in shares of Common
Stock of the Company purchased either in the open market, directly from the
Company, or from existing shareholders. All of the shares will remain with the
Trustee until paid to employees upon leaving the Company's service. In the
event of retirement, disability or death, the entire amount of the employee's
credit will be directly distributed to the employee or his named beneficiary.
Upon termination, other than by reason of death, disability or retirement, the
amount at termination will be a percentage of the amount of his account as
follows:
Years Percentage
--------------------------------
2 20%
3 40%
4 60%
5 80%
6 100%
The Company has the right to amend or terminate the Plan at any time. The
purpose of the Plan is to provide employees with additional incentive and
opportunity, through the Company contribution, to acquire an Ownership in the
Company by becoming shareholders.
During the Fiscal year, the amounts accrued by Mr. Hinchey and Mr. Meador
and his spouse were, respectively, $1,898 and $2,417.
Incentive Stock Option Plan
The Plan approved by the Shareholders of the Company on June 15, 1982,
authorized the stock incentives for key executives to further the identity of
their interest with the interests of the shareholders and to increase their
stake in the future growth and prosperity of the Company. This Plan expired
June 15, 1992. The Plan was intended to induce continued employment of key
executives and, by offering comparable incentives, to enable the Company to
compete for, attract, and retain competent executives.
As of the date of this Proxy Statement there are options outstanding for
2,500 shares under the Plan. They were issued in September 1990 and will, if
not exercised previously, expire in September of 2000.
Section 16 Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC") and the
National Association of Securities Dealers, Inc. Officers, Directors, and
greater than 10% stockholders are also required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it and
written representations from certain reporting persons, the Company believes
that, during the period January 1, 1998 to December 31, 1999, all filing
requirements applicable to its Officers, Directors, and greater than 10%
beneficial owners were completed and timely filed.
<PAGE>
Background
Proposals 1, 2, and 3
In the spring of 1999, the Buyers contacted the President of the Company,
Bruce A. Hinchey, with a proposal to secure a controlling interest in the
Company's common stock through a private placement.
The Buyers represented that they were interested in returning the Company's
primary business focus to natural resources exploration and development and were
not interested in continuing the environmental testing business conducted by the
Company's subsidiary, Western Environmental Service & Testing, Inc.
The Company was originally founded and has operated as a natural resource
exploration and development company. However, due to a constricted cash
position as a result of low crude oil prices for the past several years, the
Company has been unable to pursue natural resources projects.
Management and the Company's Directors recognized that the private
placement with the Buyers would allow the Company to refocus its efforts into
the natural resources business allowing Management and the Company's employees
to return to the type of business the Company was originally formed to conduct
and therefore negotiated the private placement of common stock at the Company's
book value per share. The private placement of common stock requires an
increase in the number of authorized shares of the Company's common stock by its
shareholders.
As part of the private placement transaction, the Buyers required a
liquidation of the Company's environmental testing subsidiary and related assets
and a redemption of the principal shareholders' common stock in the Company. In
1992, Bruce A. Hinchey and James E. Meador, Jr., two of the three principal
shareholders, transferred 100% interest in Western Environmental Services and
Testing, Inc. to the Company in exchange for their current holdings of the
Company's common stock. The environmental testing subsidiary has remained
substantially the same size since its acquisition by the Company. Results from
the environmental testing business have yielded a lack of stability in income to
the Company. In fact, the Company has experienced losses in some years since
the business was acquired. Therefore it was determined by the Directors, other
than Mr. Hinchey and Mr. Meador, that the environmental testing business did not
produce the desired results to the Company and a return of the environmental
testing business in exchange for the common stock originally conveyed for the
business would satisfy both the Buyers' requirements in the private placement
transaction and should be submitted to the shareholders of the Company for their
approval. Other assets of the Company are being used in Proposal 3 to satisfy
obligations and liabilities of the Company to the Principal Shareholders.
Results of the above described negotiations and proposed transactions were
all conditioned on the approval of a majority of the Company's Shareholders at
its next annual meeting. If any one of the three proposed transactions is not
approved by a majority of the shareholders, all of the proposed transactions
will be terminated. The proposed transactions are set forth in Proposals 1, 2,
and 3 which follow.
PROPOSAL 1
AUTHORIZE INCREASE IN COMMON STOCK
$0.01 PAR VALUE FROM 5,000,000 SHARES
TO 50,000,000 SHARES
The Company requests the authorization from a majority of its voting Common
Stock, $0.01 par value shareholders to increase the number of authorized Common
Stock, $0.01 par value shares from 5,000,000 to 50,000,000.
The increase in the number of authorized shares is necessary to complete
the June 10, 1999 private placement transaction which is described in detail in
Proposal 2 below. The increase in authorized shares will result in 10 times
more shares being available for issue by the Company and, if issued, could
result in a dilution of interest ownership by existing shareholders. The rights
<PAGE>
of the existing shareholders will not be altered by this increase and the newly
authorized shares will carry the same rights, privileges and powers which
currently exist with the Common Stock, $0.01 par value shares. The increase in
the authorized shares of common stock will in some cases allow the Company to
issue additional shares without shareholder approval. The proposed Resolution to
increase the authorized number of shares in the Company is attached hereto as
Exhibit "A".
Intended Use of
45,000,000 Additional Authorized Shares
<TABLE>
<CAPTION>
Use Number of Shares
--- ----------------
<S> <C>
Shares to be Issued In Private Placement described in 6,250,000
Proposal 2
Shares to be issued if all options are exercised in 14,375,000
Private Placement described in Proposal 2
Shares authorized but not issued 24,375,000*
-----------
Total Additional Shares 45,000,000
<FN>
*The Company has no present plans, commitments or understandings with
regard to the issuance of any of the presently authorized but unissued shares.
</TABLE>
Proposal 2
Private Placement of Common Stock
On June 10, 1999, the Company entered into an Agreement, which as amended ,
is with Universal Equities, Consolidated, LLC, David H. Peipers, The
Cornerhouse Limited Partnership and The Winsome Limited Partnership
(collectively referred to as "Buyers") which will allow Buyers to secure a
controlling interest in the Company's common stock through a private placement.
The value placed on the Company's shares in the offer was $1.60 per share for at
least 6,250,000 shares of common stock yielding the Company a consideration of
$10,000,000. The Agreement was amended on September 23, 1999, October 15, 1999
and January 31, 2000 and references to the Agreement herein are to the Agreement
as amended. The Agreement also includes the right for a period of up to eight
months after the initial closing to buy up to an additional 14,375,000 shares at
the same price. The maximum consideration to be received by the Company will be
$33,000,000 if all 20,625,000 shares are purchased for $1.60 per share.
The amount paid will include at least $5,000,000 in cash, with the
remainder of the consideration being paid in cash and/or at Buyer's option,
transfer of Buyer's rights in and to a debt obligation from North Star
Exploration, Inc. ("North Star") up to a maximum of $10,100,000, and/or North
Star common stock up to a maximum of $16,950,000 and/or Zeus Consolidated
Holdings, Inc. ("Zeus") common stock, up to a maximum of $950,000. At Buyers'
election, up to an additional $400,000 of North Star indebtedness may be
transferred in which event the total North Star and Zeus stock transferred will
be reduced by an equivalent amount. Acquisition of half of the North Star
shares being acquired will be accomplished by transfer of all of the shares of a
holding company which presently holds such shares and has no other assets and no
liabilities. The principal offices of North Star and Zeus are located at 12600
West Colfax Avenue, Suite C-500, Lakewood, Colorado 80215 and their telephone
number is (303) 986-0100.
Description of Business and Properties
North Star is a privately held Nevada corporation that is engaged in the
business of acquiring, exploring and developing mineral properties in the State
of Alaska.
On May 27, 1997, North Star entered into an Option Agreement (the "Option
Agreement") with Doyon, Limited ("Doyon"), a corporation owned by Native
<PAGE>
Americans, with respect to certain lands as to which Doyon received rights under
the Alaska Native Claims Settlement Act. The Option Agreement provides North
Star with the exclusive right to explore for minerals until January 1, 2002, to
lease prospects identified in the course of such exploration, and to develop and
produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within a defined area of interest.
The Option Agreement requires North Star to spend $9 million over the life
of the Option Agreement, with minimum commitments per year and with specific
minimum expenditures per block. Exploration expenditures in excess of the
minimum amount may be carried forward and credited to expenditure requirements
for future years with certain limitations.
At any time during the term of the Option Agreement, North Star may, if it
has conducted a specified minimum amount of drilling, made a specified minimum
amount of exploration expenditures and received a positive pre-feasibility
study with respect to a particular mineral area, exercise its option to lease
that area for mineral development for a specific term. If North Star achieves
commercial production during the initial term, the lease will continue so long
as there is commercial production. North Star may obtain leases both on areas
currently owned by Doyon, and on areas from lands selected by Doyon pursuant to
the Alaska Native Claims Settlement Act but not yet conveyed to Doyon. North
Star has the right to add additional surrounding lease lands to the base lease
in the event that further drilling delineates additional mineable reserves.
Each mining lease is required to provide for an annual payment to Doyon
commencing upon the execution of the lease of a specified amount per acre
leased, but not less than a specified annual minimum total until a feasibility
study is delivered to Doyon. If a feasibility study is not delivered to Doyon
before the fifth anniversary of the lease, the annual per acre and total amounts
increase. North Star must also incur minimum expenditures until the feasibility
study is delivered to Doyon. Starting on the date of submittal of a feasibility
study, North Star must pay Doyon a yearly advance royalty which is larger than
the annual minimum total that was payable prior to feasibility and which is
recoup able out of 50% of future royalties. From commencement of commercial
production until payback North Star is required to pay Doyon a specified
percentage royalty of net smelter returns or a larger specified percentage share
of net profits, whichever is greater, and after payback a larger specified
percentage royalty of net smelter returns or a share of net profits, whichever
is greater. Doyon reserves the right, after delivery of a positive feasibility
study, to buy a fractional portion of North Star's equity in a project for a
price slightly less than a proportionate amount of North Star's cost.
As of September 30, 1999, North Star had spent $4,885,000 of the $9 million
required to be spent over the term of the Option Agreement. The fieldwork in
which these sums have been spent has resulted not only in extension of some of
the existing prospects but also in the discovery of a number of new prospects.
These include a gold-silver prospect in the Kaiyah area southwest of Galena,
Alaska; a gold-polymetallic prospect in the East Divide area of the Healy
Village block, another gold-polymetallic prospect in the Cross Gulch area in
western Alaska; and a third gold-polymetallic prospect near the Northway Road-
Alaska Highway intersection in the Northway Village Block. Sufficient work has
not yet been done in any of these areas, however, to establish the existence of
any proven or probable reserves.
North Star has not yet exercised its option to lease any mineral area for
development. It is North Star's intention to exercise such options at such time
that it can do so on behalf of a joint venture or partnership in which it and
another acceptable party will each have an interest.
The first such option that North Star contemplates exercising is the
subject of a letter of intent that has been signed by North Star with
International Bravo Resource Corporation, a publicly owned Alaska corporation
the shares of which are traded on the Canadian Venture Exchange ("Bravo"). The
letter of intent recites that the parties intend to enter into an agreement (the
"Final Contract") giving Bravo the right to acquire a 51% interest in three
properties known as the Healy Lake block, Dot Lake Block and Tanacross Block
properties, by issuing 200,000 shares of Bravo to North Star and by spending at
least $5 million on the properties over a period of six years. The letter of
intent further states that, upon the completion of the acquisition of a 51%
<PAGE>
interest in the properties by Bravo, it and North Star intent to enter into a
joint venture agreement which will include provision for Bravo to increase its
interest to 70% in designated specific prospects within the area of the
properties. Consummation of the transaction is conditioned upon execution of
the Final Contract and approval of the transaction by Doyon and the regulatory
authorities.
North Star has a staff of thirteen persons, consisting of six full time
employees, who render executive and administrative services, and seven
consultants, who render primarily geological services and devote an average of
thirty hours per week to North Star.
Zeus is a private Nevada corporation the business of which is to explore
and develop in the State of Alaska three mineral properties which are not
included in the Doyon properties and which are outside the area of interest
pertaining thereto. The properties being developed by Zeus are known as the
Divide, Central and West Pogo properties. Exploration and development of those
properties is provided for in a letter agreement that Zeus has entered into with
Bravo granting Bravo the right to elect to acquire a 51% interest in each of the
three properties. With respect to each property the consideration required to
be provided by Bravo is (1) the issuance to Zeus of 200,000 shares of Bravo and
(2) the incurring by Bravo of expenditures for maintenance, exploration and
development amounting to $1 million by December 31, 2002 in the case of each of
two of the properties and $3 million by December 31, 2003 in the case of the
third (i.e. a total of 600,000 shares and $5 million of expenditures in order
for Bravo to be entitled to exercise its rights to acquire a 51% interest in all
three properties). The initial installment of 150,000 shares was issued to Zeus
by Bravo on September 29, 1999. It is contemplated that each of the properties
as to which Bravo completes the required transfer of shares and expenditures
will be transferred to a new limited liability company in which the initial
interests of the parties will be 51% for Bravo and 49% for North Star, both
subject to a dilution in the event of an election by a party not to contribute
its proportionate share of proposed programs or budgets for future development
of the property. Formal, definitive agreements to effectuate the foregoing
terms are in the process of being prepared.
Zeus does not have any employees. Its Officers are Officers of North Star
who hold the same titles in Zeus that they hold in North Star.
North Star Exploration, Inc.
Selected Financial Information
<TABLE>
<CAPTION>
As of and for periods ended: 12/31/97 12/31/98 9/30/99
-------- -------- -------
(Unaudited)
<S> <C> <C> <C>
Operating revenues -0- -0- -0-
Income (Loss) (795,878 ) (2,975,786 ) (3,951,647 )
Total Assets 273,765 529,390 929,093
Debt to Affiliate 1,015,367 3,879,155 7,904,242
Affiliate Cash Dividend -0- -0- -0-
</TABLE>
Comparative Table
(as of 09/30/99)
<TABLE>
<CAPTION>
Hawks Industries, Inc. North Star Exploration, Inc.
---------------------- ----------------------------
12/31/98 9/30/99 12/31/98 09/30/99
-------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
(i) Book value per share 1.60 1.73 -0- -0-
(ii) Cash dividends -0- -0- -0- -0-
(iii) Income (loss) per share (0.11) 0.10 (0.15) (0.20)
</TABLE>
<PAGE>
North Star Management's Discussion and
Analysis of Financial Condition and
Results of Operations
North Star is still in the developmental stage, that is, it is still
exploring for minerals and developing additional information about sites that
are discovered. North Star has not yet exercised any options to lease prospects
and therefore has not yet produced any revenues since inception.
Expenditures for exploration increased from $701,734 for 1997 to $2,323,692
for 1998, and from $1,239,815 for the nine months ended September 30, 1998 to
$2,561,522 for the nine months ended September 30, 1999. In both cases, the
increase was due to intensification of North Star's exploration and development
activities in an effort to accelerate the time when achievement of revenues can
be accomplished.
General and administrative expenses increased from $70,165 for 1997 to
$489,849 for 1998, and from $252,042 for the nine months ended September 30,
1998 to $1,063,351 for the nine months ended September 30, 1999. The increase
in 1999 was caused partly by approximately $100,000 of professional fees
incurred in the third quarter and the transfer during that quarter from
exploration expense to general administrative expense on North Star's records of
approximately $300,000 of interest expense for the current and past periods.
Because of the absence of revenue, it has been necessary for North Star to
borrow the funds needed for operations. Interest expense increased from
$22,824 for 1997 to $152,463 for 1998, and from $93,930 for the nine months
ended September 30, 1998 to $301,612 for the nine months ended September 30,
1999.
Primarily as a result of the above increases in expense, net losses
increased from $795,878 for 1997 to $2,975,786 for 1998, and from $1,641,251 for
the nine months ended September 30, 1998 to $3,951,647 for the nine months ended
September 30, 1999.
It may be noted that these net losses reflect the fact that all exploration
costs have been treated as expenses as they have been incurred.
As a result of this transaction, the controlling interest in the Company
will be owned by the Buyers or their designees in the following amounts.
Required Minimum Amount
of Shares Purchased
Under the Agreement
<TABLE>
<CAPTION>
Percentage
Number of Ownership of Consideration
Purchaser Shares the Company $1.60 Per Share
- --------- ------ ----------- ---------------
<S> <C> <C> <C>
Universal Equities
Consolidated, LLC 3,125,000 43.20531% $ 5,000,000
David H. Peipers 1,562,500 21.60265% 2,500,000
The Cornerhouse Limited
Partnership 937,500 12.96159% 1,500,000
The Winsome Limited
Partnership 625,000 8.64106% 1,000,000
Total 6,250,000 86.41061% $ 10,000,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maximum Amount of Shares
Allowed to be Purchased
Under the Agreement
Percentage
Number of Ownership of Consideration
Purchaser Shares the Company $1.60 Per Share
- --------- ------ ----------- ---------------
<S> <C> <C> <C>
Universal Equities
Consolidated, LLC 10,312,500 47.72558% $ 16,500,000
David H. Peipers 5,156,250 23.86279% 8,250,000
The Cornerhouse Limited
Partnership 3,093,750 14.31767% 4,950,000
The Winsome Limited
Partnership 2,062,500 9.54512% 3,300,000
Total 20,625,000 95.45116% $ 33,000,000
</TABLE>
The Company's Board of Directors have carefully reviewed the proposed
transaction and believe it to be in the best interest of the Company and its
shareholders. The transaction will inject at least $5,000,000 in cash to be
used to the extent required for exploration and development of North Star's
interests in the Doyon lands over the next twelve months.
Any portion of the cash not so used and the rest of the consideration in
the private placement will be used by the Company for general corporate purposes
and future operations, which may include, in addition to exploration of North
Star's mineral rights, projects related to sustainable (i.e. environmentally
friendly) development of energy natural resources and the furnishing of funds
which the Company may be called upon to contribute in connection with its
existing oil and gas interests. The rights of the Company's Shareholders after
the transaction will not differ materially from their rights before said
transaction.
The transaction will be accounted for as a reverse acquisition and should
not result in a taxable event. If a gain were recognized by the Company, it may
be offset by the Company's operating loss carry-forwards. No federal or state
regulatory requirements must be met or approval obtained in connection with this
Transaction.
The Company in December 31, 1998 had a net operating loss ("NOL")
carryforward of $8,520,000. The Tax Reform Act of 1986 made substantial changes
with regard to NOL carryforwards. After an "ownership change" the taxable
income of a loss corporation available for offset by pre-change NOL
carryforwards is limited annually to a prescribed rate times the value of the
loss corporation's stock immediately before the ownership change. In general,
an ownership change occurs if ownership of more than 50% in value of the stock
of the loss corporation changes during the three year period preceding the test
date. Under federal tax law, the amount and availability of loss carryforwards
are subject to a variety of interpretations and restrictive tests applicable to
the Company. Under the Code, the utilization of such loss carryforward could be
limited or effectively lost upon completion of the transaction in Proposal 2.
The net operating loss carryforwards expire between 1999 and 2012.
Prior to the proposed transaction, none of the Company, its directors,
officers or affiliates has had any material contracts, arrangements,
understandings, relationships, negotiations, or transactions with the Buyers,
North Star or Zeus. Buyers have no plans to designate or otherwise transfer
ownership of their Company shares acquired in the proposed transaction. The
Buyers, directly and through affiliates, own more than eighty percent (80%) of
the outstanding shares of North Star and Zeus.
<PAGE>
The Agreement also requires the redemption of shares in the Company owned
by Bruce A. Hinchey, James E. Meador, Jr. and the Anne D. Zimmerman Revocable
Trust, dated November 14, 1991, in exchange for certain assets of the Company.
Details of this transaction are discussed in Proposal 3 below.
The private placement described above is subject to the Company's
Shareholder approval at its Annual Meeting. A majority of the shareholders in
attendance or voting by proxy in favor of the Proposal will be required for its
approval. A copy of the June 10, 1999 Agreement has been filed with the SEC in
the form of an 8-K Report and is incorporated herein by reference.
Proposal 3
Redemption of Principal Shareholders'
Stock with Corporate Assets
On June 9, 1999, the Company entered into an Agreement with officers and
directors, Bruce A. Hinchey and James E. Meador, Jr. and principal shareholder
Anne D. Zimmerman Revocable Trust dated, November 14, 1991 (collectively
referred to as "Principal Shareholders"), to acquire all of the Principal
Shareholders' common stock in the Company excluding their ESOP shares, and their
release of the company from certain liabilities, in exchange for assets of the
Company. A copy of the Agreement has been filed with the SEC in the form of an
8-K Report and is incorporated by reference. Said Agreement sets forth the
terms and conditions of the redemption of shares. The redemption of shares is
required by the Buyers to insure they receive a minimum of 86% of the
outstanding shares of common stock in the Company and because the Buyers do not
want to continue to operate the environmental testing subsidiary. The
redemption of shares proposal is made pursuant to the Agreement dated June 10,
1999, which has also been filed with the SEC in the form of an 8-K Report and is
incorporated by reference.
The June 9, 1999 Redemption of Shares Agreement was determined as a result
of negotiations between the non-interested Directors and three Principal
Shareholders. Two of the three Principal Shareholders, Bruce A. Hinchey and
James E. Meador, Jr., are Officers and Directors of the Company and have
conflicting interests as a result of their service as Officers and Directors.
It is the intent of Mr. Meador and Mr. Hinchey to continue operation of the
environmental testing business upon completion of this transaction.
The Agreement requires in part, an exchange of the assets used by the
Company in its environmental testing business. Those assets were originally
transferred to the Company in 1992 by Mr. Hinchey and Mr. Meador in exchange for
their stock in the Company. The current exchange basically returns the stock to
the Company and the assets to Mr. Hinchey and Mr. Meador which is the way they
were held prior to the 1992 exchange. The Agreement also eliminates all
liability the Company has to Mr. Hinchey and Mr. Meador as a result of
termination under their Employment Agreements. Considering the original 1992
exchange of assets for stock and the release of all Company liabilities to the
Principal Shareholders, the Company believes the Redemption of Shares Agreement
provides a fair consideration for the shares redeemed.
The assets used in the exchange of common stock of the Principal
Shareholders are provided in Note 2 of the Hawks Industries, Inc. and
Subsidiaries Notes to Pro Forma condensed Consolidated Financial Statements. A
portion of the assets being transferred include the building in Natrona County,
which houses both the environmental testing business and the oil and gas
operations. The buildings, and the debt associated with the building, is
proposed to be transferred to the Principal Shareholders as part of Proposal 3.
There are no special attributes of the building which are required for the oil
and gas business and the transfer of the building will not be a problem in
continuing the oil and gas operations of the Company at a new location.
The Agreement was unanimously approved by the Company's Board of Directors
with Bruce A. Hinchey and James E. Meador, Jr. abstaining from said approval.
The redemption of shares described above is subject to the Company's shareholder
approval at its Annual Meeting. A majority of the voting shareholders casting
votes in favor of the Proposal will be required for its approval.
<PAGE>
Pro Forma Condensed Consolidated Financial Statements for the Redemption of
Principal Shareholders' Stock with Corporate Assets and Minimum Private
Placement of Common Stock are presented as Exhibit C.
Pro Forma Condensed Consolidated Financial Statements for the Redemption of
Principal Shareholders' Stock with Corporate Assets and Maximum Private
Placement of Common Stock are presented as Exhibit D.
Unaudited financial statements for Western Environmental Services &
Testing, Inc. as of and for the periods ending September 30, 1999 and December
31, 1998 are presented as Exhibit E.
Audited financial statements as of December 31, 1998 and for the period
from inception (January 31, 1997) to December 31, 1998 and unaudited financial
statements as of September 30, 1999 and for the period from inception (January
31, 1997) to September 30, 1999 are presented as Exhibit F.
Dissenters' Rights
To the extent shareholders may be entitled under Wyoming law to dissent
from the transaction described in Proposal 3 and obtain payment of the fair
value of their shares from the Company, they must strictly comply with the
provisions of Article 13 of the Wyoming Business Corporation Act (the
"Dissenters' Rights Statute"). In order to assert dissenters' rights under
Wyoming Statutes, the dissenting shareholder must deliver to the Company written
notice of their intent to demand payment for their shares if the proposed action
is effectuated prior to the corporate vote on the action. The dissenting
shareholder must also not vote in favor of the proposed action. A copy of the
Dissenters' Rights Statute is included in this Proxy Statement as Exhibit "B".
The statute gives the details of the rights for dissenting shareholders and
should be carefully reviewed by all Shareholders of the Company.
PROPOSAL 4
CHANGE OF DOMICILE
If the transactions set forth in Proposal 1, 2 and 3 are approved by a
majority of the Company's shareholders, the Company proposes that its Articles
of Incorporation be amended to allow the Company to change its domicile from
Wyoming to Nevada.
The change of domicile will allow the Company to have the same domicile as
North Star and Zeus, which will translate in smoother operations between the
Company and those entities. The change of domicile will not result in any some
changes in the existing shareholders' rights, powers and privileges as set forth
below.
Some Difference Between the
Corporation Laws of Wyoming and Nevada
Action by stockholders without a meeting can be taken under Nevada law by
written consent of the holders of a majority or such larger proportion of the
shares whose votes would be required for approval of the matter at a meeting,
Nev.Rev.Stat.78.320(2), but under Wyoming law only by unanimous written consent
of all of the holders of shares entitled to vote upon the matter. Wyo.Stat.Ann.
17-16-704(A).
Except for directors elected by cumulative voting or by the holders of a
particular class of stock, directors can be removed under Wyoming law by vote of
the holders of a majority of the shares entitled to vote in the election of
directors, Wyo. Stat. Ann. 17-16-808, but under Nevada law only by vote of the
holders of at least two-thirds of the shares entitled to vote in the election of
directors, Nev.Rev.Stat. 78.335.
To authorize an exchange of some of the shares of one corporation for all
of the shares of another corporation, the approval by the holders of a majority
of the outstanding shares of the company all of whose shares are being
surrendered is required under the laws of both states, Nev. Rev. Stat. 92A.110;
<PAGE>
Wyo. Stat. Ann. 17-16-1103, but Wyoming law requires in addition that the
approval by the holders of a majority of the shares of the other company be
obtained if its shares are being changed or increased by more than twenty
percent. Wyo. Stat. Ann. 17-16-1103.
The percentage of the outstanding shares of a corporation that another
corporation is required to hold in order for a merger to be permitted to be
authorized by action of its board of directors without action by the
shareholders of either corporation is 80 percent under Wyoming law, Wyo. Stat.
Ann. 1103, but 90 percent under Nevada law, Nev. Rev. Stat. 92A.130.
Nevada law permits a corporation to be merged with another kind of business
entity, as for example a partnership or a limited liability company. Wyoming
law does not have such a provision.
Wyoming law permits a corporation organized under the laws of another
jurisdiction to be "domesticated", that is to be thereafter treated in all
respects as though it had been organized under the laws of Wyoming. Nevada law
does not have such a provision.
The proposed change of domicile will be made in accordance with the
requirements of Wyoming Statutes S 17-16-1720. This proposal will be voted upon
at the Company's Annual Meeting if Proposal 2 and Proposal 3 are approved. A
majority of the Company's Shareholders must vote for the proposal in order for
it to be approved.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Representatives of the principal accountants for the Company are expected
to be present at the Annual Meeting of Shareholders will have the opportunity to
make a statement if they desire to do so; and are expected to be available to
respond to appropriate questions.
EXPENSES OF SOLICITATION
The entire expense of preparing, assembling, printing and mailing the proxy
form and the form of materials used in the solicitation of proxies will be paid
by the Company. The Company will request banks and brokers to solicit their
customers who beneficially own common stock of the Company listed in the names
of the nominees and will reimburse said banks and brokers for the reasonable
out-of-pocket expenses of such solicitation. In addition to the use of the
mails, solicitation may be made by employees of the Company by telephone,
telegraph, cable and personal interview. The Company does not expect to pay any
compensation for the solicitation of proxies. The Company will file with the
United States Securities and Exchange Commission all materials used to aid in
the solicitation of proxies.
DATE OF RECEIPT OF SHAREHOLDER'S PROPOSALS
Shareholder proposals must be received by the Company by [March 1, 2000] to
be included in the proxy materials for the next Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before this
Annual Meeting. However, if other matters should come before the meeting, it is
the intention of each person named in the proxy to vote in accordance with his
judgment on such matters.
<PAGE>
DOCUMENTS
INCORPORATED BY REFERENCE
The Company incorporates by reference into this Proxy Statement the
following documents
1. Company's Annual Report on Form 10-K for the year ending December
31, 1998, as amended which has been filed with the United States
Securities and Exchange Commission;
2. Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999, June 30, 1999, and September 30, 1999, as amended
which have been filed with the United States Securities and
Exchange.
3. Company's Form 8-K Reporting Events filed with the United States
Securities and Exchange Commission on June 23, 1999 and October 14,
1999 which contain:
a) Copy of the June 9, 1999 Redemption of Share Agreement
referred to in Proposal 3.
b) Copy of the June 10, 1999 Agreement between the Company
and Buyers which is referred to throughout the Proxy
Statement.
4. All other reports filed since December 31, 1998 in accordance with
Sections 13(a) or 15(d) of the Securities and Exchange Act of 1934,
as amended.
EXHIBITS
EXHIBIT INDEX
A. Resolution for Authorized Share Amendment Articles of Incorporation.
B. Article 13 Dissenters' Rights.
C. Pro forma Condensed Consolidated Financial Statements for the Redemption
of Principal Shareholders' Stock with Corporate Assets and Minimum Private
Placement of Common Stock
D. Pro forma Condensed Consolidated Financial Statements for the Redemption
of Principal Shareholders' Stock with Corporate Assets and Maximum Private
Placement of Common Stock
E. Unaudited financial statements for Western Environmental Services &
Testing, Inc. as of and for the periods ending September 30, 1999 and
December 31, 1998
F. Audited financial statements as of December 31, 1998 and for the period
from inception (January 31, 1997) to December 31, 1998 and unaudited
financial statements as of September 30, 1999 and for the period from
inception (January 31, 1997) to September 30, 1999
<PAGE>
AVAILABILITY OF ANNUAL REPORT
ON FORM 10-K AND OTHER DOCUMENTS
INCORPORATED BY REFERENCE
UPON WRITTEN OR ORAL REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 (INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO)
FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY OTHER
DOCUMENT INCORPORATED BY REFERENCE HEREIN, AND A COPY OF THE AGREEMENT FOR THE
PRIVATE PLACEMENT REFERRED TO HEREIN TO EACH SHAREHOLDER OF RECORD OR EACH
SHAREHOLDER WHO OWNED COMMON STOCK LISTED IN THE NAME OF A BANK OR BROKER AS
NOMINEE, AT THE CLOSE OF BUSINESS ON [MARCH 10, 2000]. REQUESTS SHOULD BE
ADDRESSED TO THE COMPANY, TO THE ATTENTION OF BOB DESPAIN, SECRETARY, 913
FOSTER ROAD, CASPER, WYOMING 82601 OR REQUESTED BY TELEPHONE AT (307) 234-1593.
By Order of the Board of Directors
/s/ Bob Despain
Dwight B. "Bob" Despain
Secretary
<PAGE>
EXHIBIT "A"
RESOLUTION
AUTHORIZED SHARE AMENDMENT
ARTICLES OF INCORPORATION
HAWKS INDUSTRIES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Wyoming.
DOES HEREBY PROPOSE:
That at a meeting of the Board of Directors of Hawks Industries, Inc.
resolutions were duly adopted setting forth a proposed amendment of the Articles
of Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Articles of Incorporation of this corporation be amended by
changing the Article thereof numbered "Article 4 - Authorized Capital" so that,
as amended, said Article shall be and read as follows:
ARTICLE 4 - AUTHORIZED CAPITAL
4.1 The total number of shares of capital stock which the Corporation has the
authority to issue is 50,997,000, consisting of 50,000,000 shares of Common
Stock $0.01 par value per share (the "Common Stock"), and 997,000 shares of
Preferred Stock, $0.01 par value per share (the "Preferred Stock").
4.2 The Board of Directors is expressly authorized by resolution or resolutions
from time to time adopted, subject to any limitations and requirements
prescribed by the General Corporation Law of the State of Wyoming and the
provisions hereof, to provide for the issuance of the shares of Preferred
Stock in one or more series and, by filing a Certificate of Designations
pursuant to the applicable law of the State of Wyoming, to establish from
time to time the number of shares to be included in each series, and to fix
the designations, powers, preferences and relative, participating, optional
or other special rights, if any, of the shares of each such series and the
qualifications, limitations and restrictions thereof, if any, with respect
to such series of Preferred Stock.
<PAGE>
EXHIBIT "B"
ARTICLE 13
DISSENTERS' RIGHTS
17-16-1301. Definitions.
(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record
shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving, new, or acquiring
corporation by merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when
and in the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans, or, if none, at a rate that
is fair and equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
17-16-1302. Right to dissent.
(a) A shareholder is entitled to dissent from, and to obtain payment of
the fair value of his shares in the event of, any of the following corporate
actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the
consolidation by W.S. 17-16-1103 or 17-16-1111 or the articles of
incorporation and the shareholder is entitled to vote on the merger
or consolidation; or
(B) The corporation is a subsidiary that is merged with its parent
under W.S. 17-16-1104.
<PAGE>
(ii) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one (1) year after the date of
sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption
or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
17-16-1303. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one (1) person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
<PAGE>
(ii) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
17-16-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in W.S. 17-16-1322.
17-16-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and shall not vote his shares in favor of the
proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under this article.
17-16-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days after
the corporate action was taken, and shall:
(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the notice required by subsection (a) of this
section is delivered; and
(v) Be accompanied by a copy of this article.
17-16-1323. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in W.S. 17-16-1322
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to W.S. 17-16-1322(b)(iii), and deposit his certificates in accordance
with the terms of the notice.
<PAGE>
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
17-16-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
17-16-1325. Payment.
(a) Except as provided in W.S. 17-16-1327, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with W.S. 17-16-1323 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(ii) A statement of the corporation's estimate of the fair value of the
shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
17-16-1326. Failure to take action.
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
17-16-1327. After-acquired shares.
(a) A corporation may elect to withhold payment required by W.S.
17-16-1325 from a dissenter unless he was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
<PAGE>
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
W.S. 17-16-1328.
17-16-1328. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under W.S. 17-16-1325, or reject the
corporation's offer under W.S. 17-16-1327 and demand payment of the fair value
of his shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325
or offered under W.S. 17-16-1327 is less than the fair value of his
shares or that the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325 within
sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days
after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty (30) days after the corporation made or offered
payment for his shares.
17-16-1330. Court action.
(a) If a demand for payment under W.S. 17-16-1328 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty (60) day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or if none in this state, its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in the amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
<PAGE>
(e) Each dissenter made a party to the proceeding is entitled to judgment
for:
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under W.S.
17-16-1327.
17-16-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under W.S. 17-16-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
<PAGE>
EXHIBIT "C"
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REDEMPTION OF PRINCIPAL SHAREHOLDERS' STOCK WITH CORPORATE ASSETS AND THE
MINIMUM PRO FORMA PRIVATE PLACEMENT OF COMMON STOCK
The accompanying condensed consolidated financial statements illustrate the
effect of the Redemption of Principal Shareholders' Stock with Corporate Assets
and the Minimum Pro forma Private Placement of Common Stock. The condensed
consolidated balance sheet as of September 30, 1999 is based on the historical
balance sheet of the Company as of that date and assumes the transactions took
place on that date. The condensed consolidated statements of operations for the
year ended December 31, 1998 and nine months ended September 30, 1999 are based
on the historical statements of the Company for those periods assuming the
transactions took place on January 1, 1998.
The pro forma condensed consolidated balance sheet reflects the Minimum purchase
of 6,250,000 shares of common stock for $5,000,000 cash and the transfer of a
$5,000,000 advance made to North Star by the North Star shareholder group.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the transactions. The operations of the Environmental
Testing segment are cyclical in nature and can change significantly each
quarter. The net assets to be used in the redemption could decrease by as much
as 25% before the time of closing. The accompanying condensed pro forma
financial statements should be read in connection with the historical financial
statements of the Company incorporated herein by reference, and the financial
statements of Western Environmental Services & Testing, Inc., and North Star
Exploration, Inc included in this filing.
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1999
As Redemption Redemption
ASSETS reported Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 56,000 $ (6,000 ) (1a) $ 50,000
Accounts receivable 582,000 (557,000 ) (1a) 25,000
Short-term investments 200,000 (200,000 ) (1b) -
Costs on uncompleted contracts in excess of
related billings 50,000 (50,000 ) (1a) -
Other current assets 70,000 (61,000 ) (1a) 9,000
Total current assets 958,000 84,000
PROPERTY AND EQUIPMENT, net 1,620,000 (688,000 ) (1a) 536,000
(291,000 ) (1c)
(105,000 ) (1f)
INVESTMENTS AND OTHER ASSETS
Lease acquisition costs - -
Note receivable 30,000 30,000
Land investment 196,000 (196,000 ) (1d) -
Available for sale investments 100,000 (100,000 ) (1e) -
Investments in Zeus - - -
Value of mineral lease rights - - -
Other assets 237,000 (200,000 ) (1a) 37,000
563,000 67,000
$ 3,141,000 $ 687,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 225,000 (160,000 ) (1a) $ 65,000
Current maturities on long-term debt 89,000 (79,000 ) (1a) -
(10,000 ) (1c)
Advances from affiliate - -
Accounts payable 183,000 (138,000 ) (1a) 45,000
Accrued interest - -
Accrued liabilities 66,000 (15,000 ) (1a) 51,000
Total current liabilities 563,000 161,000
LONG-TERM DEBT 310,000 (136,000 ) (1a) -
(174,000 ) (1c)
CONTINGENT LIABILITY - -
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock - -
Common stock 13,000 13,000
Capital in excess of par value on common stock 3,045,000 3,045,000
Retained deficit (766,000 ) (1,170,000 ) (1g) (1,936,000 )
Debt obligation receivable - -
Treasury stock (24,000 ) (572,000 ) (1g) (596,000 )
2,268,000 526,000
$ 3,141,000 $ 687,000
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(Unaudited)
September 30, 1999
Redemption
Minimum and Minimum
Capital Capital
Infusion Infusion Pro
ASSETS Adjustments Forma
----------- -----
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 5,000,000 (3) $ 5,050,000
Accounts receivable 25,000
Short-term investments -
Costs on uncompleted contracts in excess of
related billings -
Other current assets 9,000
Total current assets 5,084,000
PROPERTY AND EQUIPMENT, net 536,000
INVESTMENTS AND OTHER ASSETS
Lease acquisition costs -
Note receivable 30,000
Land investment -
Available for sale investments -
Investments in Zeus -
Value of mineral lease rights -
Other assets 37,000
67,000
$ 5,687,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 65,000
Current maturities on long-term debt -
Advances from affiliate -
Accounts payable 45,000
Accrued interest -
Accrued liabilities 51,000
Total current liabilities 161,000
LONG TERM DEBT -
CONTINGENT LIABILITY -
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock -
Common stock 63,000 (3) 76,000
Capital in excess of par value on common stock 9,937,000 (3) 12,982,000
Retained deficit (1,936,000 )
Debt obligation receivable (5,000,000 ) (3) (5,000,000 )
Treasury stock (596,000 )
5,526,000
$ 5,687,000
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Year ended December 31, 1998
Redemp-
Minimum tion and
Redemp- Capital Minimum
tion Redemp- Infusion Capital
As Adjust- tion Pro Adjust- Infusion
reported ments Forma ments Pro Forma
-------- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue 2,445,000 (2,316,000) (2) $ 129,000 129,000
Operating
expenses 2,317,000 (1,999,000) (2) 318,000 318,000
Operating income
(loss) 128,000 (189,000) (189,000 )
Other income
(expense) 22,000 51,000 (2) 73,000 73,000
Income (loss)
before income
taxes 150,000 (116,000) (116,000 )
Provision for taxes - - -
Net income (loss) 150,000 $ (116,000) (116,000 )
Weighted average
number of
common shares
outstanding 1,351,451 (357,617) (1) 993,834 6,250,000 (4) 7,243,834
Earnings (loss) per
common share 0.11 $ (0.12) (0.02 )
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine months ended September 30, 1999
Redemp-
Minimum tion and
Redemp- Capital Minimum
tion Redemp- Infusion Capital
As Adjust- tion Pro Adjust- Infusion
reported ments Forma ments Pro Forma
-------- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue 2,179,000 (2,106,000) (2) $ 73,000 73,000
Operating
expenses 2,018,000 (1,840,000) (2) 178,000 178,000
Operating income
(loss) 161,000 (105,000 ) (105,000 )
Other income
(expense) (30,000 ) 41,000 (2) 11,000 11,000
Income (loss)
before income
taxes 131,000 (94,000 ) (94,000 )
Provision for taxes - - -
Net income (loss) 131,000 $ (94,000 ) (94,000 )
Weighted average
number of
common shares
outstanding 1,310,512 (357,617) (1) 952,895 6,250,000 (4) 7,202,895
Earnings (loss) per
common share 0.10 $ (0.10 ) (0.01 )
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The pro forma adjustments to the condensed consolidated balance sheet and
statements of operations are as follows:
(1)To reflect the Redemption of Principal Shareholders' Stock with Corporate
Assets per Proposal 3 and settlement of goodwill, employment agreements, and
release of liabilities. The components of the corporate assets and
liabilities to be exchanged in the redemption of 357,617 shares of Hawks
Industries, Inc. $.01 par value, common stock from Bruce A. Hinchey, James
A. Meador, Jr., and Anne D. Zimmerman Revocable Trust dated November 14,
1991 and payment of goodwill and release of liability on employment
agreements as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Redemption of 357,617 shares for:
<S> <C> <C> <C>
(a) All assets of W.E.S.T., Inc.
Cash $ 6,000
Accounts receivable 557,000
Costs on uncompleted contracts in excess
of related billings 50,000
Other current assets 61,000
Property and equipment, net 688,000
Other assets _ primarily fair value of
investment in excess of book value 200,000
Assume all liabilities of W.E.S.T., Inc.
Notes payable (160,000)
Current maturities of long-term debt (79,000)
Accounts payable (138,000)
Accrued liabilities (15,000)
Long-term debt (136,000)
(b) Certificate of deposit security on W.E.S.T.,
Inc. loans 200,000
(c) Buildings
Property and equipment, net 291,000
Less associated debt - current (10,000)
Less associated debt - long-term (174,000)
(d) All shares of Central Wyoming
Properties, Inc.
Land investment 196,000
(e) All shares of W.E.R.C. preferred stock
Available for sale investments 100,000
(f) To reflect the settlement of goodwill,
employment agreements, and release of
liabilities by transfer of all overriding
royalties 105,000
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Net assets and liabilities transferred in redemption of
common stock and settlement of goodwill, employment
agreements, and release of liabilities
$ 1,742,000
(g) The fair value of the 357,617 shares of Hawks redeemed was $1.60 per
share resulting in a loss on the exchange of approximately $1,129,000,
calculated as follows:
Shares received (Treasury shares)
(357,617 * $1.60) $ 572,000
Net assets exchanged per above (1,742,000 )
Loss on exchange $ (1,170,000 )
</TABLE>
(2)To remove the operations for the Environmental Testing segment as all assets
will be used for redemption of Shareholders' common stock per and remove all
operations from the oil and gas overriding royalties as the assets will be
used in settlement of goodwill, employment agreements, and release of
liabilities per (1) above.
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December September
31, 1998 30, 1999
-------- --------
<S> <C> <C> <C>
Operating revenue
Environmental Testing $ (2,211,000) $ (2,054,000 )
Oil and gas (107,000) (43,000 )
Gain (loss) on sale of assets 2,000 (9,000 )
Operating expenses
Environmental Testing 1,856,000 1,647,000
Depreciation and depletion
Environmental Testing 106,000 89,000
Oil and gas 19,000 92,000
Buildings and equipment 18,000 12,000
Other income (expense)
Interest expense
Environmental Testing 36,000 29,000
Buildings 19,000 13,000
Other income (4,000) (1,000 )
Net change $ (266,000) $ (225,000 )
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(3)To reflect the injection of capital per the Minimum Private Placement of
Capital Stock by Universal Equities Consolidated, LLC, David H. Peipers, The
Cornerstone Limited Partnership and the Winsome Limited Partnership
(collectively "the North Star shareholder group"). The components of the
purchase price for 6,250,000 shares of Hawks Industries, Inc. $.01 par
value, common stock are as follows:
<TABLE>
<S> <C>
Cash $ 5,000,000
Buyers' right to debt obligation from North Star
Exploration 5,000,000
Total guaranteed purchase price $ 10,000,000
</TABLE>
Based on $.01 par value and the $1.60 fair value, the components of
Shareholders' Equity are as follows:
<TABLE>
<S> <C> <C>
Common stock $ 63,000
Capital in excess of par value on common stock 9,937,000
10,000,000
Less: debt obligation from North Star
Exploration (5,000,000)
Net equity increase $ 5,000,000
</TABLE>
(4)The weighted average number of common shares outstanding would increase to
reflect the 6,250,000 shares to issued upon acceptance of the Minimum
Private Placement of Capital Stock.
<PAGE>
EXHIBIT "D"
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REDEMPTION OF PRINCIPAL SHAREHOLDER'S STOCK WITH CORPORATE ASSETS AND
MAXIMUM PRIVATE PLACEMENT OF COMMON STOCK
The accompanying pro forma as adjusted condensed consolidated financial
statements illustrate the effect of the Maximum Private Placement of Common
Stock. The condensed consolidated balance sheet as of September 30, 1999 is
based on the historical balance sheet of North Star Exploration as of that date.
The combination of the contemplated transactions of Hawks presented in the
previous pro forma condensed consolidated financial statement, taken together
with the additional capital being issued in the Maximum Private Placement of
Capital Stock through the transfer of ownership in North Star by the North Star
shareholder group to the Company, results in the consolidation of North Star
with the Company and reverse acquisition accounting.
Consequently, the following pro forma begin with North Star historical financial
statements adjusted for the acquisition of the previously described Redemption
and Minimum Capital Infusion Pro Formas of Hawks, adjusted to fair value. The
following pro formas also reflect the additional $5,100,000 which is anticipated
to be loaned to North Star by the North Star shareholder group prior to the
completion of these transactions, which debt will also be transferred to Hawks.
The condensed consolidated balance sheet as of September 30, 1999 assumes the
transaction occurred on September 30, 1999. The condensed consolidated
statements of operations assume the transactions took place on January 1, 1998.
The pro forma as adjusted condensed consolidated balance sheet reflects the
Maximum purchase of an additional 14,375,000 shares of common stock by the North
Star shareholder group.
The Zeus historical financial statements are insignificant to this transaction.
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1999
Hawks Redemption
Redemption and Maximum
and Minimum Maximum Capital
Capital Capital Infusion
North Star Infusion Infusion Pro Forma
Historical Pro Forma Adjustments As Adjusted
---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 49,000 $ 5,050,000 $ - $ 5,099,000
Accounts receivable - 25,000 - 25,000
Other current assets 2,000 9,000 - 11,000
51,000 5,084,000 - 5,135,000
Property & equipment, net 228,000 536,000 - 764,000
Lease acquisition 650,000 - - 650,000
Note receivable - 30,000 - 30,000
Goodwill - - 1,000,000 (5) 1,000,000
Other - 37,000 - 37,000
Total assets $ 929,000 $ 5,687,000 $ 1,000,000 $ 7,616,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ - $ 65,000 $ - $ 65,000
Advances 7,904,000 - - 7,904,000
Accounts payable 268,000 45,000 - 313,000
Accrued liabilities 479,000 51,000 - 530,000
8,651,000 161,000 - 8,812,000
Minority interest - - 24,000 (8) 24,000
Common shares 1,000 76,000 (1,000 ) (6) 220,000
144,000 (5)
Capital in excess of par value on common stock - 12,982,000 (1,936,000 ) (7) 16,979,000
5,100,000 (5)
1,000,000 (5)
(144,000 ) (5)
1,000 (6)
(24,000 ) (8)
Retained deficit (7,723,000 ) (1,936,000 ) 1,936,000 (7) (7,723,000 )
Debt obligation receivable - (5,000,000 ) (5,100,000 ) (5) (10,100,000 )
Treasury stock - (596,000 ) - (596,000 )
(7,722,000 ) 5,526,000 976,000 (1,220,000 )
Total liabilities and shareholders' equity $ 929,000 $ 5,687,000 $ 1,000,000 $ 7,616,000
<FN>
See notes to Pro Forma As Adjusted Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Year ended December 31, 1998
Hawks Redemption
Redemption and Maximum
and Minimum Maximum Capital
Capital Capital Infusion
North Star Infusion Infusion Pro Forma
Historical Pro Forma Adjustments As Adjusted
---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue - 129,000 - $ 129,000
Operating expenses 2,976,000 318,000 100,000 (9) 3,394,000
Operating income (loss) (2,976,000) (189,000) (100,000) (3,265,000)
Other income (expense) - 73,000 - 73,000
Income (loss) before income taxes (2,976,000) (116,000) (100,000) (3,192,000)
Provision for taxes - - - -
Net income (loss) (2,976,000) (116,000) (100,000) $ (3,192,000)
Weighted average number of
common shares outstanding 7,243,834 14,375,000 (10) 21,618,834
Loss per common share (0.15)
<FN>
See notes to Pro Forma As Adjusted Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months ended September 30, 1999
Hawks Redemption
Redemption and Maximum
and Minimum Maximum Capital
Capital Capital Infusion
North Star Infusion Infusion Pro Forma
Historical Pro Forma Adjustments As Adjusted
---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue - 73,000 - $ 73,000
Operating expenses 3,952,000 178,000 75,000 (9) 4,205,000
Operating income (loss) (3,952,000) (105,000) (75,000) (4,132,000)
Other income (expense) - 11,000 - 11,000
Income (loss) before income taxes (3,952,000) (94,000) (75,000) (4,121,000)
Provision for taxes - - - -
Net income (loss) (3,952,000) (94,000) (75,000) $ (4,121,000)
Weighted average number of
common shares outstanding 7,202,895 14,375,000 (10) 21,577,895
Loss per common share (0.19)
<FN>
See notes to Pro Forma As Adjusted Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The pro forma adjustments from the Maximum Placement of Common Stock to the
condensed consolidated balance sheet and statements of operations are as
follows:
(5)To reflect the additional debt obligation from North Star of $5,100,000
which is expected to be incurred prior to this transaction and which will be
contributed to Hawks, to record the increase in fair value from the
transaction and to adjust the equity of the combined entity to reflect the
additional 14,375,000 shares of Hawks $.01 par value, common stock that will
be issued to the North Star shareholder group. Hawks is being valued based
on the $10,000,000 cash investment by the North Star shareholder group of
$1.60 per share for 86.41% of Hawks. The resulting valuation for Hawks is
$11,574,000. The North Star shareholder group's ownership of Hawks will
increase to 95.45% as a result of this transfer of ownership, resulting in
their fair value basis in Hawks of $11,047,000 exceeding their basis in the
net book value of $10,047,000 by $1,000,000. This difference is considered
goodwill.
(6)To eliminate the outstanding shares of common stock of North Star.
(7)To eliminate Hawks retained deficit.
(8)To record minority interest related to Hawks 4.55% minority shareholders.
(9)To record amortization of goodwill related to the fair value adjustment
using a 10 year life.
(10) To adjust the weighted average number of common shares outstanding to
reflect the issuance of the additional 14,375,000 shares of Hawks.
<PAGE>
EXHIBIT "E"
WESTERN ENVIRONMENTAL
SERVICES & TESTING, INC.
FINANCIAL STATEMENTS
(Unaudited)
AS OF AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998
<PAGE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
BALANCE SHEETS
(Unaudited)
SEPTEMBER DECEMBER
30, 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 6,000 $ 45,000
Accounts receivable 557,000 394,000
Prepaid expenses 41,000 34,000
Costs on uncompleted contracts in excess of billings 50,000 15,000
Other currents assets 20,000 17,000
Total current assets 674,000 505,000
PROPERTY AND EQUIPMENT, net (at cost) 688,000 617,000
OTHER ASSETS 5,000 5,000
$ 1,367,000 $ 1,127,000
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABIITIES
Notes payable $ 160,000 $ 138,000
Current maturities of Long-Term debt 79,000 113,000
Accounts payable 138,000 143,000
Accrued liabilities 15,000 12,000
Total current liabilities 392,000 406,000
LONG-TERM DEBT 136,000 158,000
PAYABLE TO AFFILIATE 226,000 249,000
SHAREHOLDER'S EQUITY
Common stock, no par value, 50,000 shares authorized; 10,000 shares
issued in 1999 and 1998 1,000 1,000
Retained earnings 612,000 313,000
613,000 314,000
$ 1,367,000 $ 1,127,000
<FN>
See Notes to Financial Statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Nine Months ended September 30, 1999 and Year ended December 31, 1998
(Unaudited)
SEPTEMBER DECEMBER
30, 31,
1999 1998
---- ----
<S> <C> <C> <C>
Operating revenue:
Environmental testing and management $ 2,054,000 $ 2,211,000
Gain (Loss) on sale of assets 9,000 (2,000 )
2,063,000 2,209,000
Operating expenses:
Cost of sales 1,281,000 1,367,000
General and administrative 366,000 490,000
Depreciation and amortization 89,000 106,000
1,736,000 1,963,000
Operating income 327,000 246,000
Other income (expense):
Interest expense (29,000) (36,000 )
Other income 1,000 4,000
Net income before taxes 299,000 214,000
Provision for taxes
Current - -
Deferred - -
Net income 299,000 214,000
Retained Earnings at beginning of period 313,000 99,000
Retained Earnings at end of period $ 612,000 $ 313,000
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
STATEMENT OF CASH FLOWS
Nine months ended September 30, 1999 and Year Ended December 31, 1998
(Unaudited)
September December
30, 31,
1999 1998
---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Income from operations $ 299,000 $ 214,000
Adjustment to reconciles net loss to net
cash provided:
Depreciation and amortization 89,000 106,000
Gain (Loss) on sale of assets (9,000 ) 2,000
Changes in operating assets and
liabilities:
Increase in accounts receivable (163,000 ) (117,000)
Increase (decrease) in costs in
excess of billings, prepaid
expenses and other current assets (45,000 ) 3,000
Decrease (increase) in Accounts Payable
and accrued expenses (2,000 ) 30,000
Net cash flow provided by operating activities 169,000 238,000
Cash flows from investing activities:
Purchase of property and equipment (162,000 ) (212,000)
Proceeds from sale of properties 11,000 8,000
Loans from affiliate (23,000 ) (12,000)
Net cash flow used in operating activities (174,000 ) (216,000)
Cash flows from financing activities:
Proceeds from debt obligations incurred 94,000 137,000
Reduction of debt obligations (128,000 ) (136,000)
Net cash flow (used in) provided by financing
activities (34,000 ) 1,000
(Decease) Increase in cash and cash equivalents (39,000 ) 23,000
Cash and cash equivalents at beginning of year 45,000 22,000
Cash and cash equivalents at end of period $ 6,000 $ 45,000
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Western Environmental Services & Testing, Inc is an environmental quality
testing company with laboratory and offices located in Casper, Wyoming,
Evanston, Wyoming and San Marcos, Texas. The Company's emphasis is on air
quality testing but soil, water and asbestos testing is also performed. The
Company provides services to the general public although most clients are
industrial entities. Fees for services are generally collected within 30-60
days.
On November 30, 1992, the Company merged with Hawks Industries, Inc., a publicly
held Company and has been a wholly owned subsidiary since that date.
1. Summary of Significant account policies follow:
a. Cash and Cash Equivalents- For purposes of the Statement of Cash
Flows, the company considers all highly liquid debt instruments purchased
with maturity of three months or less to be a cash equivalents.
b. Depreciation- Property and equipment are depreciated over the assets
estimated useful Lives of 5 to 10 years using the straight-line method.
c. Revenue and Cost Recognition-Income from environmental quality testing
is reflected in the financial statements by the completed contract method
whereby income and costs are recognized when the testing has been completed
and a report is issued. On large jobs the contract is broken into segments
and billed when each segment is completed.
d. Bad debts-Uncollectible accounts are charged directly against earnings
when they are determined to be uncollectible. Use of this method does not
result in a material difference from the valuation method required by
generally accepted accounting principles.
2. Property and equipment
Property and equipment at September 30, 1999 and December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Engineering Equipment $ 837,000 $ 737,000
Lab Equipment 459,000 457,000
Automotive Equipment 207,000 200,000
Furniture and fixtures 206,000 199,000
Leasehold Improvements 64,000 59,000
Other Equipment 63,000 63,000
1,836,000 1,715,000
Less Accumulated Depreciation 1,148,000 1,098,000
$ 688,000 $ 617,000
</TABLE>
<PAGE>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
NOTES TO FINANICAL STATEMENTS
(Unaudited)
3. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at September 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving line of credit $200,000, interest at 6.25%
maturing October 22, 1999 collateralized by
certificate of deposit held by parent Company $ 160,000 $ 138,000
</TABLE>
Long-Term debt at September 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Installment loans payable, due at various times May 2001
to August 2002, interest rates from 9.0% to 10%
secured by equipment $ 86,000 $ 37,000
Note payable Wyoming Industrial Development
Corporation, interest at 7.33%, payable $3,991 per
month including interest until October 5, 2002,
collateralized by equipment 129,000 157,000
Note payable Wyoming Industrial Development
Corporation, interest at 6.96%, payable $4,475 per
month including interest. - 77,000
215,000 271,000
Less Current Maturities 79,000 113,000
$ 136,000 $ 158,000
</TABLE>
Aggregate maturities of Long-Term debt consisted of the following:
<TABLE>
<S> <C>
2000 79,000
2001 77,000
2002 59,000
$ 215,000
</TABLE>
<PAGE>
EXHIBIT "F"
NORTH STAR EXPLORATION, INC.
(An Exploration Stage Corporation)
Financial Statements
As Of December 31, 1998 And 1997 And For
The Period From Inception (January 31, 1997)
To December 31, 1998
Together With Report Of Independent Public Accountants
As Of September 30, 1999 (Unaudited) And For
The Period From Inception (January 31, 1997)
To September 30, 1999 (Unaudited)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of North Star Exploration, Inc.:
We have audited the accompanying balance sheets of NORTH STAR EXPLORATION, INC.
(a Nevada corporation in the exploration stage) as of December 31, 1998 and
1997, and the related statements of operations, shareholders' deficit, and cash
flows for the periods ended December 31, 1998 and 1997 and for the period from
inception (January 31, 1997) to December 31, 1998. 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 audits.
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
misstatement. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Star Exploration, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the periods ended December 31, 1998 and 1997, and for the period from
inception (January 31, 1997) to December 31, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
June 11, 1999.
<PAGE>
<TABLE>
<CAPTION>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
BALANCE SHEETS
--------------
December 31, September 30,
------------ -------------
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 13,489 $ 10,936 $ 48,850
Accounts receivable _ affiliates 37,608 45,188 -
Other receivables - 3,728 2,453
Total current assets 51,097 59,852 51,303
Lease acquisition costs 200,000 400,000 650,000
Equipment, net of accumulated depreciation
of $1,155, $10,937 and $36,099, respectively 22,668 69,538 227,790
Total assets $ 273,765 $ 529,390 $ 929,093
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Advances from affiliate $ 988,602 $ 3,689,807 $ 7,904,242
Accounts payable 53,276 420,899 268,045
Accrued interest 22,824 175,287 476,899
Accrued liabilities 3,941 14,061 2,218
Total current liabilities 1,068,643 4,300,054 8,651,404
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' DEFICIT:
Common stock; no par value; 20,000,000 shares
authorized, issued and outstanding 1,000 1,000 1,000
Accumulated deficit (795,878 ) (3,771,664 ) (7,723,311 )
Total shareholders' deficit (794,878 ) (3,770,664 ) (7,722,311 )
Total liabilities and shareholders' deficit $ 273,765 $ 529,390 $ 929,093
<FN>
The accompanying notes to financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
STATEMENTS OF OPERATIONS
------------------------
Period From Period From
Inception Inception
(January 31, (January 31,
Year Ended Nine Months Ended 1997) to 1997) to
December 31, September 30, December 31, September 30,
------------ ------------- ------------ -------------
1997 1998 1998 1999 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
COSTS AND EXPENSES:
Exploration $ 701,734 $ 2,323,692 $ 1,289,815 $ 2,561,522 $ 3,025,426 $ 5,586,948
General and administrative 70,165 489,849 252,043 1,063,351 560,014 1,623,365
Depreciation 1,155 9,782 5,463 25,162 10,937 36,099
Interest expense 22,824 152,463 93,930 301,612 175,287 476,899
$ 795,878 $ 2,975,786 $ 1,641,251 $ 3,951,647 $ 3,771,664 $ 7,723,311
NET LOSS
<FN>
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Period From Period From
Inception Inception
(January 31, (January 31,
Year Ended Nine Months Ended 1997) to 1997) to
December 31, September 30, December 31, September 30,
------------ ------------- ------------ -----------
1997 1998 1998 1999 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (795,878) $ (2,975,786) $ (1,641,251) $ (3,951,647) $ (3,771,664) $ (7,723,311 )
Adjustments to
reconcile net
loss to net
cash used in
operating
activities-
Depreciation 1,155 9,782 5,463 25,162 10,937 36,099
Increase (decrease)
in accounts
payable - 53,276 367,623 11,838 (152,854) 420,899 268,045
Increase in accrued
interest 22,824 152,463 93,929 301,612 175,287 476,899
Increase (decrease)
in accrued
liabilities 3,941 10,120 7,158 (11,843) 14,061 2,218
(Increase) decrease
in accounts
receivable -
affiliates (37,608) (7,580) (351,740) 45,188 (45,188) -
(Increase) decrease
in other
receivables - (3,728) (3,968) 1,275 (3,728) (2,453 )
Net cash used in
operating
activities (752,290) (2,447,106) (1,878,571) (3,743,107) (3,199,396) (6,942,503 )
CASH FLOWS FROM INVESTING
ACTIVITIES:
Lease acquisition
costs (200,000) (200,000) (200,000) (250,000) (400,000) (650,000 )
Purchase of equipment (22,823) (56,652) (47,027) (183,414) (79,475) (262,889 )
Net cash
used in
investing
activities (222,823) (256,652) (247,027) (433,414) (479,475) (912,889 )
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from affiliate 988,602 2,701,205 2,129,705 4,214,435 3,689,807 7,904,242
Net cash provided
by financing
activities 988,602 2,701,205 2,129,705 4,214,435 3,689,807 7,904,242
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 13,489 (2,553) 4,107 37,914 10,936 48,850
CASH AND CASH EQUIVALENTS,
at beginning of period - 13,489 13,489 10,936 - -
CASH AND CASH EQUIVALENTS,
at end of period $ 13,489 $ 10,936 $ 17,596 $ 48,850 $ 10,936 $ 48,850
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES:
Issuance of common
stock for
promissory notes $ 900 $ - $ - $ - $ 900 $ 900
Issuance of common stock
to Doyon in
connection
with lease
acquisition
agreement $ 100 $ - $ - $ - $ 100 $ 100
<FN>
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
STATEMENT OF SHAREHOLDERS' DEFICIT
----------------------------------
FOR THE PERIOD FROM INCEPTION (JANUARY 31, 1997)
------------------------------------------------
THROUGH DECEMBER 31, 1998 (AUDITED)
-----------------------------------
AND SEPTEMBER 30, 1999 (UNAUDITED)
----------------------------------
Common Stock Accumulated
------------
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C> <C>
INCEPTION, January 31, 1997 - $ - $ - -
Issuance of common stock for
promissory notes 18,000,000 900 - 900
Issuance of common stock to Doyon
in connection with lease acquisition
agreement 2,000,000 100 - 100
Net loss - - (795,878) (795,878)
BALANCE, December 31, 1997 20,000,000 1,000 (795,878) (794,878)
Net loss - - (2,975,786) (2,975,786)
BALANCE, December 31, 1998 20,000,000 1,000 (3,771,664) (3,770,664)
Net loss - - (3,951,647) (3,951,647)
BALANCE, September 30, 1999 20,000,000 $ 1,000 $ (7,723,311) $ (7,722,311)
(unaudited)
<FN>
The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998,1997 (AUDITED)
--------------------------------
AND SEPTEMBER 30, 1999 (UNAUDITED)
----------------------------------
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
--------------------------------------------
AND BASIS OF PRESENTATION:
--------------------------
Organization and Description of the Business
- --------------------------------------------
North Star Exploration, Inc., a Nevada corporation (the "Company" or "North
Star"), is a privately held exploration company formed on January 31, 1997 for
the purpose of acquiring, exploring and developing certain mineral properties in
the State of Alaska.
On May 27, 1997, the Company entered into an Option Agreement (the "Agreement")
with Doyon, Limited ("Doyon") with respect to certain lands in Alaska. The
Agreement provides North Star with the exclusive right to explore for minerals
until January 1, 2002, to lease prospects identified thereon, and to develop and
produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within areas of interest.
The Agreement requires North Star to spend $9 million over the life of the
Agreement, with minimum commitments per year and with specific minimum
expenditures per block. Exploration expenditures in excess of the minimum
amount may be carried forward and credited to expenditure requirements for
future years with certain limitations.
At any time during the agreement term, North Star may, if it has conducted a
specified minimum amount of drilling, made a specified minimum amount of
exploration expenditures and received a positive pre-feasibility study with
respect to a particular mineral area, exercise its option to lease that area for
mineral development for a specified initial term. If North Star achieves
commercial production during the initial term, the lease will continue so long
as there is commercial production. North Star may obtain leases on an unlimited
number of areas currently owned by Doyon, and on areas from lands selected by
Doyon pursuant to the Alaska Native Claims Settlement Act, but not yet conveyed
to Doyon.
Each mining lease will provide for an annual payment to Doyon commencing upon
the execution of the lease of a specified amount per acre leased, but not less
than a specified annual minimum total, until a feasibility study is delivered to
Doyon. If a feasibility study is not delivered to Doyon before the fifth
anniversary of the execution of the lease, the annual per acre and minimum total
amounts increase. North Star must also incur minimum expenditures until the
feasibility study is delivered to Doyon. Starting on the date of submittal of a
feasibility study, North Star is required to pay Doyon a yearly advance royalty,
which is larger than the annual minimum total that was payable prior to
feasibility, and which is recoupable out of 50% of future royalties. From
commencement of commercial production until payback, North Star is required to
pay Doyon the larger of a specified percentage royalty of net Smetter returns or
a specified percentage of net profits, until payback, and the larger of an
increased percentage royalty of net Smetter returns or an increased percentage
of net profits, after payback. Doyon reserves the right to buy a fractional
portion of the equity in a project after deliverance of a positive feasibility
study.
North Star was not in technical compliance with several provisions of the
Agreement as of September 30, 1999. However, the Company has since received a
waiver from Doyon regarding these variances through June 2000.
<PAGE>
Business Risks
- --------------
The Company is currently exploring for minerals and has yet to exercise any
options to lease prospects. The Company has therefore not produced any revenues
since inception and there can be no assurance that revenues will be generated
during fiscal 1999.
The Company's operations will be significantly affected by the market price of
gold. Gold prices can fluctuate widely and are affected by numerous factors
that are beyond the Company's control. In July 1999, the market price for gold
declined to its lowest level in 20 years. A further sustained period of low
gold prices could have a material adverse effect on the Company's financial
position, results of operations and its ability to raise adequate financing.
The Company has a funding agreement with Equistar Consolidated Holdings LLC
("Equistar"). Equistar is owned 50% by certain shareholders who have a 45%
ownership interest in North Star. The remaining 50% interest in Equistar is
owned by a Partnership which solely owns a Company that has a 45% interest in
North Star.
Equistar has funded the operations of the Company since inception and North
Star's ability to continue as a going concern is dependent upon the continued
support of Equistar or obtaining an alternate source of financing. Equistar has
committed to fund the operations of the Company through March 31, 2001, unless
other financing is secured prior to that time.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
The accompanying financial statements are presented on the accrual basis of
accounting, in accordance with generally accepted accounting principles.
Unaudited Periods Presented
- ---------------------------
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring items) necessary to
present fairly the financial position of North Star as of September 30, 1999 and
the results of operations and cash flows for the periods presented. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. Management believes the disclosures
made are adequate to ensure that the information is not misleading, and
recommends that these financial statements be read in conjunction with the
Company's December 31, 1998 audited financial statements.
Exploration Stage Enterprise
- ----------------------------
The Company is in the exploration stage and is accounted for in accordance with
Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises."
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less.
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 expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
Equipment and Mineral Rights
- ----------------------------
Expenditures for equipment are stated at cost. Depreciation is provided using
the straight-line method over useful lives ranging from 3 to 7 years.
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed, the costs incurred to
develop the property will be capitalized. Significant payments related to the
acquisition of exploration interests are also capitalized. If a mineable ore
body is discovered, acquisition costs will be amortized using a units-of-
production method. If no mineable ore body is discovered, acquisition costs
will be expensed in the period in which it is determined the property has no
future economic value.
The Company adopted American Institute of Certified Public Accountants Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
effective January 1, 1998. Under this accounting method, certain costs such as
organization, training and pre-feasibility expenses incurred during the start-up
phase of a project are expensed as incurred. Adoption of SOP 98-5 did not have
a material impact to the financial statements.
Long-Lived Assets
- -----------------
The Company evaluates potential impairment of long-lived assets and long-lived
assets to be disposed of in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 established
procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets held and used by the Company. SFAS No. 121
requires that those assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
fully recoverable. SFAS No. 121 also requires any long-lived assets to be
disposed of to be reported at the lower of carrying amount or fair value less
estimated selling costs. Fair value is determined using an estimated future
cash flow analysis. An impairment is considered to exist if total estimated
future cash flows on an undiscounted basis is less than the carrying amount of
the asset. An impairment loss is then measured and recorded based on discounted
estimated future cash flows. Future cash flows include estimates of recoverable
ounces, gold prices (considering current and historical prices, price trends and
related factors), production, capital and reclamation costs.
Segment Reporting
- -----------------
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS No. 131") which established standards for reporting information about
operating segments. SFAS No. 131 also established standards for related
disclosures about products and services, geographic areas and major customers.
As the Company currently operates in a single industry and has operations
concentrated in one location, the Company does not have identifiable segments.
Income Taxes
- ------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" which requires the use of the
asset and liability method of computing deferred income taxes. The objective of
the asset and liability method is to establish deferred tax assets and
liabilities for the temporary differences between the book basis and tax basis
of the Company's assets and liabilities at enacted tax rates expected to be in
effect when those amounts are realized or settled.
Fair Value of Financial Instruments
- -----------------------------------
The carrying values of the Company's cash and cash equivalents, accounts
payable, accrued liabilities and advances from affiliate approximate their
estimated fair values.
<PAGE>
3. INCOME TAXES:
-------------
The components of deferred taxes follow:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 286,151 $ 1,362,005 $ 3,845,878
Deferred tax liability:
Book basis over tax (867) (3,332) (10,066)
Net deferred tax asset 285,284 1,358,673 3,835,812
Valuation allowance (285,284) (1,358,673) (3,835,812)
$ - $ - $ -
</TABLE>
At September 30, 1999, the Company had net operating loss carryforwards ("NOL")
to offset future income for federal income tax purposes of approximately
$7,477,890.
The Company established a valuation allowance against its deferred tax asset due
to the losses incurred by the Company since inception. The Company's ability to
generate future taxable income to utilize the NOL is uncertain.
4. COMMITMENTS AND CONTINGENCIES:
------------------------------
Doyon Agreement
- ---------------
In accordance with the Agreement, as of September 30, 1999, the Company is
required to make annual lease acquisition payments of $300,000 for both 2000 and
2001.
The Company's required exploration expenditures under the Agreement, as of
September 30, 1999, represent $2,300,000 for both 2000 and 2001.
Future Lease Commitments
- ------------------------
The Company has certain operating leases for office space and equipment with
terms ranging from three to seven years.
The required remaining expenditures are as follows:
Three months ending December 31,
1999 $ 61,185
Years ending December 31,
2000 258,751
2001 258,751
2002 233,794
2003 233,794
Thereafter 463,983
------------
$1,510,258
=========
Environmental Laws and Regulations
- ----------------------------------
The Company's management believes that it is in compliance with environmental
laws and regulations as currently enacted. The Company's management has filed
all necessary permits to fulfill current environmental compliance requirements.
<PAGE>
However, the exact nature of environmental compliance, which the Company may be
exposed to in the future, cannot be predicted. This is primarily due to the
increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities. Provisions
for reclamation will be made when mining begins.
5. RELATED PARTY TRANSACTIONS:
---------------------------
Advance From Affiliate
- ----------------------
Advances from Equistar accrue interest at 7% per annum with all amounts
outstanding maturing on October 31, 2000. The Company owed $7,904,242,
$3,689,807 and $988,602 in principal and $476,899, $175,287 and $22,824 in
accrued interest to Equistar as of September 30, 1999, December 31, 1998 and
1997, respectively.
Management Fee
- --------------
Beginning January 1999, Equistar began charging the Company a management fee of
$35,000 per month for administrative services performed on behalf of the
Company. The Company incurred total expense of $315,000 which is included in
the accompanying statements of operations as of September 30, 1999.
6. SHAREHOLDERS' DEFICIT:
----------------------
On June 13, 1997 the Company's shareholders approved a 25 to 1 stock split. The
Company's financial statements have been retroactively adjusted for all periods
to reflect this transaction.
7. SUBSEQUENT EVENT:
-----------------
On June 10, 1999, Company shareholders representing 90% of the outstanding
shares of the Company (the "Buyers") entered into an agreement to purchase a
controlling interest in a publicly traded company. As part of the
consideration, the Buyers, at their election, may transfer their right to the
obligations of North Star resulting from the advances made by Equistar, to the
shareholders of the publicly traded company as partial payment for the
acquisition.
8. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT:
----------------------------------------------
On January 17, 2000, the Company's shareholders approved a resolution to
increase the number of authorized shares to 20,000,000, to split presently
outstanding shares 800 to 1 and to withhold 1,050,000 shares proportionately
from each existing shareholder, with the exception of Doyon, from the shares
issuable to each of them in the stock split, to be retained in the Company's
treasury and reserved for issuance pursuant to stock options that may be granted
in the future to employees. The financial statements have been retroactively
adjusted for all periods presented to reflect this transaction and the
ownership of the 90% shareholders group discussed above has been reduced to 84
3/4%.
North Star has recently entered into a letter of intent with International Bravo
Resource Corporation (Bravo) giving Bravo the right to acquire a 51% interest in
certain properties by issuing 200,000 shares of Bravo to North Star and by
spending at least $5 million on the properties over a period of six years. The
letter of intent further states that, upon the completion of the acquisition of
a 51% interest in the properties by Bravo, it and North Star intend to enter
into a joint venture agreement which will include provision for Bravo to
increase its interest to 70% in designated specific prospects within the area of
the properties. Consummation of the transaction is conditioned upon execution
of a final contract and approval of the transaction by Doyon and the regulatory
authorities.
